<PAGE>
As filed with Securities and Exchange Commission on
April 27, 1999
Registration No. 33-66864
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 11
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 April 30, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Units of Interest in 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>
ZENITH SURVIVORSHIP LIFE
Flexible Premium Adjustable
Variable Survivorship Life Insurance Policies
Issued by
New England Variable Life Separate Account of
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus offers individual flexible premium adjustable variable
survivorship life insurance policies (the "Policies") issued by New England
Life Insurance Company ("NELICO").
The Policy provides premium flexibility and two types of death benefit
guarantees as long as your total premiums paid meet certain minimum
requirements and no policy loan is outstanding. Insurance coverage is provided
on the lives of two insureds. The death benefit is payable at the death of the
second to die.
You may choose among four death benefit options. Two provide a fixed death
benefit equal to the Policy's face amount. Two provide a death benefit that may
vary daily with the investment experience of the Eligible Funds. Under any of
the death benefit options, the minimum death benefit guarantee(s) are
available. Cash value allocated to the Eligible Funds is not guaranteed, and
fluctuates daily with the investment results of the Eligible Funds.
You allocate net premiums among the investment sub-accounts of NELICO's
Variable Life Separate Account (the "Variable Account"). Each sub-account of
the Variable Account invests in shares of an Eligible Fund. The Eligible Funds
are:
NEW ENGLAND ZENITH FUND
Back Bay Advisors Bond Income Series Goldman Sachs Midcap Value Series
Morgan Stanley International Magnum
Equity Series
Back Bay Advisors Managed Series
Back Bay Advisors Money Market VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Series
Capital Growth Series
Westpeak Growth and Income Series Overseas Portfolio
Equity-Income Portfolio
Westpeak Stock Index Series High Income Portfolio
Loomis Sayles Balanced Series
Loomis Sayles Small Cap Series VARIABLE INSURANCE PRODUCTS FUND II
("VIP II")
Alger Equity Growth Series
Davis Venture Value Series
Asset Manager Portfolio.
You may also allocate net premiums to a Fixed Account in most states. Limits
apply to transfers to and from the Fixed Account.
You may cancel the Policy during the "Right to Return the Policy" period. In
addition, replacing existing insurance with the Policy might not be to your
advantage.
- --------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE POLICIES
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ELIGIBLE FUND PROSPECTUSES ARE ATTACHED. PLEASE READ THEM AND KEEP THEM FOR
REFERENCE.
WE DO NOT GUARANTEE HOW ANY OF THE SUB-ACCOUNTS OR ELIGIBLE FUNDS WILL PERFORM.
THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
APRIL 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY................................................................. A-4
INTRODUCTION TO THE POLICIES............................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-7
Policy Charges.......................................................... A-8
How the Policy Works.................................................... A-10
Receipt of Communications and Payments at NELICO's Home Office.......... A-11
NELICO.................................................................. A-11
POLICY VALUES AND BENEFITS............................................... A-12
Death Benefit........................................................... A-12
Minimum Guaranteed Death Benefit........................................ A-12
Death Proceeds Payable.................................................. A-14
Change in Death Benefit Option.......................................... A-14
Extending the Maturity Date............................................. A-14
Cash Value.............................................................. A-15
Net Investment Experience............................................... A-15
Allocation of Net Premiums.............................................. A-15
Amount Provided for Investment under the Policy......................... A-15
Right to Return the Policy.............................................. A-16
CHARGES AND EXPENSES..................................................... A-16
Deductions from Premiums................................................ A-17
Surrender Charge........................................................ A-18
Monthly Deduction from Cash Value....................................... A-20
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-21
Group or Sponsored Arrangements......................................... A-23
PREMIUMS................................................................. A-23
Flexible Premiums....................................................... A-23
Lapse and Reinstatement................................................. A-25
OTHER POLICY FEATURES.................................................... A-26
Loan Provision.......................................................... A-26
Surrender............................................................... A-27
Partial Surrender....................................................... A-27
Reduction in Face Amount................................................ A-28
Investment Options...................................................... A-28
Transfer Option......................................................... A-29
Payment of Proceeds..................................................... A-29
Exchange of Policy During First 24 Months............................... A-30
Policy Split Rider...................................................... A-30
Payment Options......................................................... A-30
Additional Benefits by Rider............................................ A-31
Policy Owner and Beneficiary............................................ A-32
THE VARIABLE ACCOUNT..................................................... A-32
Investments of the Variable Account..................................... A-32
Investment Objectives................................................... A-34
Investment Management................................................... A-35
THE FIXED ACCOUNT........................................................ A-36
General Description..................................................... A-36
Values and Benefits..................................................... A-36
Policy Transactions..................................................... A-37
NELICO'S DISTRIBUTION AGREEMENT.......................................... A-37
</TABLE>
A-2
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<TABLE>
<S> <C>
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY........................ A-38
Notification of First Death............................................ A-38
Misstatement of Age or Sex............................................. A-38
Suicide................................................................ A-38
TAX CONSIDERATIONS...................................................... A-39
Introduction........................................................... A-39
Tax Status of the Policy............................................... A-39
Tax Treatment of Policy Benefits....................................... A-39
NELICO's Income Taxes.................................................. A-41
MANAGEMENT.............................................................. A-42
VOTING RIGHTS........................................................... A-45
RIGHTS RESERVED BY NELICO............................................... A-45
TOLL-FREE NUMBERS....................................................... A-45
REPORTS................................................................. A-46
ADVERTISING PRACTICES................................................... A-46
LEGAL MATTERS........................................................... A-46
REGISTRATION STATEMENT.................................................. A-47
EXPERTS................................................................. A-47
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH
VALUES AND ACCUMULATED SCHEDULED PREMIUMS ............................. A-48
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION........................... A-56
APPENDIX C: LONG TERM MARKET TRENDS..................................... A-77
APPENDIX D: USES OF SURVIVORSHIP LIFE INSURANCE......................... A-79
APPENDIX E: TAX INFORMATION............................................. A-80
APPENDIX F: TAX LAW AND THE DEATH BENEFIT............................... A-81
APPENDIX G: ENHANCED DEATH BENEFIT LIMITATIONS.......................... A-82
FINANCIAL STATEMENTS.................................................... F-1
</TABLE>
A-3
<PAGE>
GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AGE. The age of an insured refers to the insured's age at his or her nearest
birthday.
BENCHMARK PREMIUM. We use the Benchmark Premium to determine the amount of
Deferred Sales Charge that may apply on 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), assuming charges are imposed at the guaranteed levels and a 4% rate of
interest.
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 our general
account as a result of the loan.
EXCESS POLICY LOAN. When Policy loans plus accrued interest exceed the Policy's
cash value less the applicable Surrender Charge.
FIXED ACCOUNT. The Fixed Account is a part of our general account to which you
may allocate net premiums. It provides guarantees of principal and interest.
INVESTMENT START DATE. This is the latest of the date we receive 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.
MATURITY DATE. The Policy anniversary on which the younger insured is (or would
have been) age 100. The Policy will not mature on this date if the extended
maturity option has been added to the Policy.
NET CASH VALUE. The amount you receive if you surrender the Policy. It is equal
to the Policy's cash value reduced by any applicable Surrender Charge and by
any outstanding Policy loan and accrued interest.
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.
PLANNED PREMIUM. The Planned Premium is the premium payment schedule you choose
to help 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 called unscheduled
payments in the Policy and can be paid at any time, subject to certain limits.
PREMIUMS. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment.
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, we issue the Policy with a
Policy Date which is generally five days after issue.
TARGET PREMIUM. We use the Target Premium to measure the portion of the total
premiums paid in a Policy year that is currently subject to the 9% sales
charge, as well as sales commissions. It is the level premium necessary to keep
a level death benefit base Policy in-force until age 80 of the younger insured,
assuming we impose charges at the guaranteed levels and a 4% rate of interest,
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
A-4
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period of less than 20, but no less than five, years. If we assign an insured
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 these amounts.
YOU. "You" refers to the Policy Owner.
A-5
<PAGE>
INTRODUCTION TO THE POLICIES
THE POLICIES
The Policies are designed to provide lifetime insurance coverage for two
insureds payable at the death of the second to die. They are not offered
primarily as an investment.
Here is a summary of the Policy's basic features. You should read the
prospectus for more complete information.
--You can make premium payments under the Policy based on a schedule you
determine, subject to some limits. We can limit or prohibit unscheduled
payments in some situations, including cases where an insured is in a
substandard risk class. (See "Premiums".)
--You can allocate net premiums, after an initial period in the Zenith
Money Market Sub-Account, to 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 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. We provide guarantees of Fixed Account principal
and Interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE FROM THE
FIXED ACCOUNT. We have 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 the net investment
experience of your Policy's sub-accounts and the amount of interest
credited to your 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 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 your Policy's sub-accounts and the rate of
interest credited on your cash value in the Fixed Account. The death
benefit under each option could increase 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, the 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".)
--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 allows you to
transfer cash value among the sub-accounts and, generally, to the Fixed
Account up to four times in a policy year (twelve times in a policy year
for Policies issued in New York) without our consent. We currently allow
12 transfers per policy year in all states. Transfers and allocations
involving the Fixed Account are subject to some limits. (See "Transfer
Option" and "The Fixed Account--Policy Transactions".)
--A loan privilege and a partial surrender feature are available. (See
"Loan Provision" and "Partial Surrender".)
A-6
<PAGE>
--Death benefits paid to the beneficiary generally are not subject to
Federal income tax. Under current law, undistributed increases in cash
value generally are not taxable to you. (See "Tax Considerations".)
--Loans, assignments and other pre-death distributions 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 cause the Policy 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, we believe that loans
under the Policy will not be taxable to you as long as the Policy has not
lapsed, been surrendered or terminated. With some 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 your
investment in the Policy. (See "Tax Considerations".)
--During the "Right to Return the Policy" period you can return the Policy
for a refund. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue, you may exchange the
Policy, without evidence of insurability, for a fixed-benefit
survivorship life insurance policy issued by us 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.
The Policies 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 our 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 you pay additional premiums. If the
Policy lapses when Policy loans are outstanding, adverse tax consequences
may result.
--In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is deferred until you
receive a distribution from the Policy. Transfers from one underlying
fund portfolio to another do not incur 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
The Policies are available for insureds from the age of 20 to 85, and, if we
consent, to older or younger insureds. All persons must meet our underwriting
and other requirements. The minimum face amount available is $100,000
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<PAGE>
unless we consent to a lower amount. The Policies are not available to employee
benefit plans qualified under Section 401 of the Internal Revenue Code, except
with our consent. Policies for which insurance charges do not vary based on the
sex of the insured may not be available; and use of sex-based insurance charges
may not meet requirements that apply to some employee benefit plans.
POLICY CHARGES
PREMIUM-BASED CHARGES. We deduct the following charges from premiums:
--A sales charge of 9%. We currently intend to waive this charge on all
premiums paid after the first 15 policy years (17 policy years, for
Policies issued in Pennsylvania). In addition, we currently intend to
deduct this charge in any Policy year (through the first 15 or 17 Policy
years, as applicable) only until you have paid an amount equal to a
Target Premium in that Policy year. Premium payments during a Policy year
above a Target Premium will not incur 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, face amount reduction or partial surrender that reduces the
face amount during the first 14 Policy years. 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, face
amount reduction or partial surrender that reduces the face amount during
the first 14 Policy years. For Policies covering insureds whose average
issue age is 60 or less at issue, the maximum Deferred Sales Charge
applies 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. The
Deferred Sales Charge will never 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 charge may be less if the average of the
issue ages is above 60.
We deduct the Surrender Charge from the Policy's available cash value,
regardless of whether that cash value comes from premiums or investment
experience.
MONTHLY DEDUCTION FROM CASH VALUE. We deduct certain charges from the cash
value:
--Monthly charge for the cost of insurance and for any benefits provided by
rider;
--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, we intend 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).
A-8
<PAGE>
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 our 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-9
<PAGE>
HOW THE POLICY WORKS
[CHART APPEARS HERE]
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. We intend
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%. We transfer loaned funds out of the Eligible
Funds into the General Account where we credit them with not less than 4.0%
interest. (Currently we intend 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
. We do not guarantee the cash value invested in the Eligible Funds
. Any earnings you accumulate are generally 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.
We limit the timing, frequency and amount of transfers from (and in some
cases to) the Fixed Account
. You may allocate your cash value among a maximum of nine accounts at any one
time
Death Benefit
. Paid upon the 2nd death
. Level or Variable Death Benefit Options
. Guaranteed not to be less than initial face amount (less any loan balance) 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
. Investment advisory fees and other expenses are deducted from the Eligible
Fund values
Beginning of Month Charges
. We deduct the cost of insurance protection (reflecting any substandard risk
rating) 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 $1,000 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 Uninsurable)] 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
. Deferred Sales Charge and Deferred Administrative Charge (see page A-18)
Living Benefits
. If policyholder has elected and qualified for benefits for disability of
covered insured who becomes totally disabled, we will provide specified
premium amounts or waive monthly charges, depending on the option selected,
during the period of disability up to certain limits.
. You may surrender the Policy 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 our rules, you may reinstate a lapsed Policy within seven years
of date of lapse if it has not been surrendered
A-10
<PAGE>
Receipt of Communications and Payments at NELICO's Home Office
We will treat your request for a Policy transaction, or your submission of a
payment, as received by us if we receive a request conforming to our
administrative procedures or a payment before the close of regular trading on
the New York Stock Exchange on that day. If we receive it after that time, or
if the New York Stock Exchange is not open that day, then we will treat it 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. Originally, NELICO was a wholly-owned subsidiary of New England
Mutual Life Insurance Company ("New England Mutual"). On 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. MetLife then 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.
[CHART APPEARS HERE]
NELICO
(Insurance company subsidiary of MetLife)
We deduct charges.
We allocate net premiums and net unscheduled payments to your choice of
sub-accounts in the Variable Account or to the Fixed Account.
Premiums and Unscheduled Payments
Fixed Account
VARIABLE ACCOUNT
Zenith Capital Growth Sub-Account
Zenith Bond Income Sub-Account
Zenith Money Market Sub-Account
Zenith Managed Sub-Account
Zenith Stock Index Sub-Account
Zenith Growth and Income Sub-Account
Zenith Small Cap Sub-Account
Zenith Balanced Sub-Account
Zenith Equity Growth Sub-Account
Zenith Venture Value Sub-Account
Zenith Midcap Value Sub-Account
Zenith International Magnum Equity Sub-Account
Equity-Income Sub-Account
Overseas Sub-Account
High Income Sub-Account
Asset Manager Sub-Account
Sub-accounts buy shares of the Eligible Funds.
NEW ENGLAND ZENITH FUND
Capital Growth Series
Back Bay Advisors Bond Income Series
Back Bay Advisors Money Market Series
Back Bay Advisors Managed Series
Westpeak Stock Index Series
Westpeak Growth and Income Series
Loomis Sayles Small Cap Series
Loomis Sayles Balanced Series
Alger Equity Growth Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Morgan Stanley International Magnum Equity Series
VIP
Equity-Income Portfolio
Overseas Portfolio
High Income Portfolio
VIP II
Asset Manager Portfolio
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
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<PAGE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. When you apply for a Policy, you choose among four death
benefit options. The death benefit is payable to the beneficiary at the death
of the second insured to die.
The Option A (Enhanced with Face Amount) death benefit is 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 is equal
to the face amount of the Policy, plus the Policy's cash value, if any. 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 is 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. For Option C, these
increases are NOT enhanced.
The Option D (Face Amount Plus Cash Value) death benefit is equal to the face
amount of the Policy, plus the Policy's cash value, if any. The Option D death
benefit is also subject to increases required by the Internal Revenue Code. For
Option D, these increases are NOT enhanced.
To meet the Internal Revenue Code's definition of life insurance, the death
benefit will not be less than a certain multiple of the Policy's cash value.
(See Appendix F.) This means that, if the cash value grows to certain levels,
the death benefit increases 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".)
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. This results 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, until the factor is 1.00. The
enhanced death benefit is subject to some limits that depend in part on your
Policy's tabular cash value. (Tabular cash value is a hypothetical value that
uses the Guaranteed Death Benefit 1 Premium, maximum guaranteed charges and a
4% interest rate. See Appendix G).
MINIMUM GUARANTEED DEATH BENEFIT
The Policy provides two Minimum Guaranteed Death Benefits. We determine whether
a Minimum Guaranteed Death Benefit is in effect on the first day of each Policy
month. If a Minimum Guaranteed Death Benefit is in effect, the Policy will not
lapse even if the net cash value is less than the Monthly Deduction for that
month. The minimum premiums necessary to maintain either Minimum Guaranteed
Death Benefit are shown in your Policy and also appear in your personalized
illustration.
MINIMUM GUARANTEED DEATH BENEFIT 1. We 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 (age 100 of the younger insured).
This Benefit is in effect if:
(1) the total of all premiums paid for each Policy year, accumulated at a
4% rate as if they were paid on the first day of the Policy year, less
any partial surrender in each Policy year, accumulated at a 4% rate
from the date of surrender, is at least equal to
(2) the Guaranteed Death Benefit 1 Fund
A-12
<PAGE>
and there is no outstanding Policy loan. For these purposes, we treat premiums
paid within 20 days prior to a Policy anniversary as if paid in the next Policy
year.
DURING A POLICY YEAR, the amount of premiums paid in (1) above includes
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above includes 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 shown in your Policy is paid on the first day of each Policy year and
accumulates at a 4% rate per year. The Fund values shown in your Policy are for
the end of each Policy year.
If you lose the Guaranteed Minimum Death Benefit 1 due to insufficient premium
payments, it is unlikely because of Federal tax law limitations that you can
pay enough premiums in future years to regain the guarantee. Federal tax law
limitations also may prevent you from paying enough premiums to maintain the
Minimum Guaranteed Death Benefit 1 following: reductions in face amount,
including 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, we call the Minimum Guaranteed Death Benefit
1 the "No Lapse Guarantee Benefit 1", we call the Minimum Guaranteed Death
Benefit 1 Fund the "No Lapse Guarantee Benefit 1 Fund", and we call the Minimum
Guaranteed Death Benefit 1 Premium the "No Lapse Guarantee Benefit 1 Premium".
MINIMUM GUARANTEED DEATH BENEFIT 2. We 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 reaches 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 (age 100 of the
younger insured) of the Policy.
This Benefit is in effect if:
(1) the total of all premiums paid for each Policy year, accumulated at a
4% rate as if they were paid on the first day of the Policy year, less
any partial surrender in each 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, we treat premiums
paid within 20 days prior to a Policy anniversary as if paid in the next Policy
year.
DURING A POLICY YEAR, the amount of premiums paid in (1) above includes
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above includes 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 shown in your Policy is paid on the first day of each Policy year and
accumulates at a 4% rate per year. The Fund values shown in your Policy are for
the end of each Policy year.
If you lose the Guaranteed Minimum Death Benefit 2 due to insufficient premium
payments, it may be possible to regain the guarantee in future years. Federal
tax law limitations may prevent you from paying enough premiums to maintain the
Minimum Guaranteed Death Benefit 2 following: reductions in face amount,
including 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, we call the Minimum Guaranteed Death Benefit
2 the "No Lapse Guarantee Benefit 2", we call the Minimum Guaranteed Death
Benefit 2 Fund the "No Lapse Guarantee Benefit 2 Fund", and we call the Minimum
Guaranteed Death Benefit 2 Premium the "No Lapse Guarantee Benefit 2 Premium".
A-13
<PAGE>
DEATH PROCEEDS PAYABLE
The death proceeds we pay are equal to the death benefit on the date of the
second insured's death, reduced by any outstanding loan and accrued loan
interest on that date and by any unpaid Monthly Deduction for the period prior
to that date. We increase the death proceeds (1) by any rider benefits payable
and (2) by any Monthly Deduction made for a period beyond the date of the
second insured's death.
We may adjust the death proceeds if either insured's age or sex was misstated
in the application, if death results from either insured's suicide within two
years (less in some states) from the Policy's date of issue, or if a rider
limits the death benefit. (See "Limits to NELICO's Right to Challenge the
Policy".)
CHANGE IN DEATH BENEFIT OPTION
After the first Policy year, you may change your death benefit option by
written request to our Home Office. The request will be effective on the first
day of the Policy month on or after we receive it. A change in death benefit
option may have tax consequences. (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), we reduce the Policy's face amount if
necessary so that the death benefit is the same immediately before and after
the change. A face amount reduction below $100,000 requires our consent. We may
also decrease any rider benefits under the Policy. A partial surrender of cash
value may be necessary to meet Federal tax law limits on the amount of premiums
that you can pay into the Policy. No Surrender Charge applies 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), we increase the Policy's face amount, if
necessary, so that the death benefit is the same immediately before and after
the change.
If you change from Option A or B (enhanced) to Option C or D, in most cases we
reduce the Policy's death benefit amount if the Internal Revenue Code increases
are in effect; the death benefit usually remains the same if they are not in
effect.
Changes from Option C or D to Option A or B (enhanced) require underwriting
approval, and both insureds must be living if the amount at risk under the
Policy would increase.
EXTENDING THE MATURITY DATE
If approved in your state, we will issue or amend your Policy with an extended
maturity endorsement. If endorsed, the Policy will not mature until the date of
the second insured's death (the "Extended Maturity Date"). On and after the
original Maturity Date, the death benefit generally equals the cash value on
the date of death. There is an exception if, on the original Maturity Date,
your premiums paid (with interest at 4%), less partial surrenders (with
interest at 4%) are at least equal to the "Age 100 Amount" shown in the Policy.
In this case, the death benefit on and after the original Maturity Date equals
the GREATER of (1) the cash value on the date of death and (2) the Policy face
amount. We base the Age 100 Amount 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.) Certain Policy transactions--reductions in face
amount, reduction or deletion of a rider benefit, or improvement in rating
class--could prevent you from paying sufficient premiums to reach the Age 100
Amount.
Currently, we do not make Monthly Deduction charges after the original Maturity
Date. You cannot pay premiums after the original Maturity Date unless necessary
to prevent lapse of the Policy. All Policy riders (except the extended maturity
endorsement) terminate on the original Maturity Date.
The tax consequences of the endorsement are unclear, and you should consult a
tax advisor about them. For more information about the extended maturity
option, contact us or your registered representative.
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<PAGE>
CASH VALUE
Your Policy's total cash value includes its cash value in the Variable Account
and in the Fixed Account. If you have a Policy loan, the cash value also
includes the amount we hold in our general account as a result of the loan. The
cash value reflects:
-- net premium payments
-- the net investment experience of the Policy's sub-accounts
-- interest credited to cash value in the Fixed Account
-- interest credited to amounts held in the general account for a Policy
loan
-- the death benefit option you choose
-- Policy charges
-- partial surrenders
-- transfers among the sub-accounts and Fixed Account
-- the premium payment schedule (annual vs. quarterly, for example) you
choose
We pay you the NET cash value if you surrender the Policy. It equals the cash
value minus any outstanding Policy loan (plus interest) and any Surrender
Charge that applies. (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 net investment experience. Poor investment experience can reduce
the cash value to zero. YOU HAVE THE ENTIRE INVESTMENT RISK FOR THE CASH VALUE
IN THE VARIABLE ACCOUNT.
NET INVESTMENT EXPERIENCE
The net investment experience of the sub-accounts affects the Policy's cash
value and, in some cases, the death benefit. We determine the net investment
experience of each sub-account 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 is based on the
investment experience of the underlying Eligible Fund shares for the same
period, and is reduced by the charges against the sub-account (currently only
the mortality and expense risk charge) for that period.
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.
ALLOCATION OF NET PREMIUMS
Your cash value is held in the general account of NELICO or an affiliate until
we issue the Policy. We credit the first net premium with net investment
experience equal to that of the Zenith Money Market Sub-Account from the
investment start date until the later of 45 days after the date Part I of the
application is signed or 10 days after we mail the Notice of Withdrawal Right.
(The "investment start date" is defined below.) Then, we allocate the cash
value to the sub-accounts as you choose. We allocate the amounts you allocated
to the Fixed Account as of the investment start date. You can allocate to a
maximum of nine accounts (including the Fixed Account) at any one time.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
INVESTMENT START DATE. The investment start date is the latest of: the date
when we first receive a premium payment for the Policy, the date each of the
insureds has signed his/her Part II of the Policy application and the
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<PAGE>
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.)
PREMIUM WITH APPLICATION. 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
our 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. You may only make one premium payment before the Policy is issued.
If you make a premium payment with the application, we will cover the insureds
under a temporary insurance agreement for a limited period that generally
begins when we receive the premium for the Policy (or, if later, on the date
when each of the insureds has signed his/her Part II of the application). The
maximum temporary coverage 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). These provisions vary in some states.
If we issue a Policy, Monthly Deductions begin from the Policy Date, even if we
delayed the Policy's issuance for underwriting. The deductions are for the face
amount of the Policy issued, even if the temporary insurance coverage during
underwriting was for a lower amount. If we decline an application, we refund
the premium payment made.
PREMIUM ON DELIVERY. If you pay the initial premium on delivery of the Policy,
the Policy Date is usually five days after issue. The investment start date is
the later of the Policy Date and the date we received the premium. Monthly
Deductions begin on the Policy Date. We credit interest at a 4% net rate to the
Policy for any period between the Policy Date and the investment start date.
Insurance coverage under the Policy begins when we receive the Minimum Premium
(see "Premiums") due for the first quarter (or, on receipt of the number of
monthly payments due under NELICO's Master Service Account arrangement).
BACKDATING. We may sometimes backdate a Policy, if you request, by assigning a
Policy Date earlier than the date the application is signed. You may wish to
backdate so that you can obtain lower cost of insurance rates, based on a
younger insurance age. Backdating in some cases causes a higher Surrender
Charge if it 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, we allocate to the
Policy those net premiums, adjusted for monthly Policy charges and interest at
a 4% net rate for that period.
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 (more in some states) after you receive
the Policy or within 10 days after we mail the Notice of Withdrawal Right,
whichever is latest. You may return the Policy to us or your registered
representative. Insurance coverage ends as soon as you return the Policy
(determined by postmark, if the Policy is mailed). If you cancel the Policy, we
refund any premium paid (or any other amount that is required by state
insurance law).
CHARGES AND EXPENSES
THE AMOUNT OF A CHARGE MAY NOT NECESSARILY CORRESPOND TO THE COSTS OF THE
SERVICES OR BENEFITS THAT ARE IMPLIED BY THE NAME OF THE CHARGE OR THAT ARE
ASSOCIATED WITH THE PARTICULAR POLICY. FOR EXAMPLE, THE SALES CHARGE AND
DEFERRED SALES CHARGE MAY NOT FULLY COVER ALL OF OUR SALES AND DISTRIBUTION
EXPENSES, AND WE MAY USE PROCEEDS FROM OTHER CHARGES, INCLUDING THE MORTALITY
AND EXPENSE RISK CHARGE, TO HELP COVER THOSE EXPENSES.
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<PAGE>
DEDUCTIONS FROM PREMIUMS
We deduct a 9% sales charge from premiums. We currently intend to waive the
charge:
-- on all premiums after the 15th Policy year (after the 17th Policy year
if we issued the Policy in Pennsylvania
-- on premiums paid in a Policy year that are in excess of a Target
Premium.
For these purposes, we consider premiums we receive during the twenty days
prior to a Policy anniversary as paid in the next Policy year. (This rule does
not apply to premiums paid through our Master Service Account arrangement,
described in "Premiums".)
We have the right not to waive the charge or to resume the charge in either
situation.
We indicated your Target Premium on your personalized illustration.
During the first 14 Policy years (less for insureds with higher average issue
ages), if you surrender or lapse the Policy, make a partial surrender or reduce
the face amount, a Deferred Sales Charge also applies. (See "Surrender Charge"
below.)
We may reduce sales charges for Policies sold to some group or sponsored
arrangements. We offer a program under which you may exchange certain fixed-
benefit life insurance policies that New England Mutual issued for the Policies
without a deduction for the sales charge from the amount of cash value that you
transfer to the Policy. Eligibility conditions apply. Your registered
representative can advise you regarding terms and availability of the program.
STATE PREMIUM TAX CHARGE. We deduct 2.5% from each premium for 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. We deduct 1% from each premium for our federal
income tax liability related to premiums.
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<PAGE>
EXAMPLE: The following chart shows the net amount that we would currently
allocate 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
-250
------
(12.5% X 2,000 = total sales and premium tax charge up to
$1,750 Target Premium)
$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 our current
rules)
$1,750
+2,895
------
$4,645 Net Premium
======
</TABLE>
We intend to 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, you surrender or lapse your Policy,
reduce the face amount, or make a partial surrender that reduces the face
amount, then we will deduct a Surrender Charge 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 shown in your Policy.
Any Surrender Charge deducted on lapse is credited back to the Policy's cash
value on 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 on any date after reinstatement, the period the Policy was
lapsed does not count.
DEFERRED SALES CHARGE. We base the Deferred Sales Charge on a percentage of the
Benchmark Premium, rather than the Target Premium. Generally, the Target
Premium may be up to 110% of the Benchmark Premium for the same base Policy.
Some riders to the Policy increase the Target Premium but do not increase the
Benchmark Premium.
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 BELOW, AFTER THE SECOND POLICY YEAR, THE MAXIMUM DEFERRED SALES
CHARGE INCREASES SUBSTANTIALLY.
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. The Deferred Sales Charge will never 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.
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<PAGE>
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.
<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.
In the case of a reduction in face amount or partial surrender that reduces the
face amount, we deduct any Deferred Sales Charge that applies from the Policy's
remaining cash value in an amount that is proportional to the amount of the
Policy's face amount surrendered. (See "Partial Surrender".) The charge reduces
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.
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.
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<PAGE>
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, we deduct
the "Monthly Deduction" from your cash value.
-- If your Policy is protected against lapse by a Minimum Death Benefit
Guarantee or the three year Minimum Premium guarantee, we make the
Monthly Deduction each month unless the cash value equals zero. (See
"Premiums".)
-- If you do not have a Minimum Death Benefit Guarantee and the three year
Minimum Premium guarantee is not in effect, we make the Monthly
Deduction as long as the net cash value is large enough to cover the
entire Monthly Deduction. If it is not large enough, 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.
On a current basis, the monthly Administrative Charge does not apply to 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 Policy
year, for example, is $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.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE. The minimum death benefit guarantee
charge is $0.01 per $1,000 of Policy face amount. (See "Minimum Guaranteed
Death Benefit".)
MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of
providing insurance protection under your Policy. There are no mortality
charges for an insured after he or she reaches age 100 (or would have reached
age 100, if that person dies earlier). 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. We determine the amount at
risk on the first day of the Policy month after we process the Monthly
Deduction. The amount at risk is the amount by which the death benefit
(discounted at the monthly equivalent of 4% per year) exceeds the Policy's cash
value. The cost of insurance rate for your Policy changes from month to month.
The guaranteed cost of insurance rates for a Policy depend on each insured's
-- underwriting class
-- age on the first day of the Policy year
-- sex (if the Policy is sex-based).
A-20
<PAGE>
The current cost of insurance rates will also depend on
-- each insured's age at issue
-- the Policy year.
We guarantee that the joint rates will not be higher than rates based on the
1980 Commissioners Standard Ordinary Mortality Tables with smoker/nonsmoker
modifications (the "1980 CSO Tables"). The actual rates we use may be lower
than the maximum rates, depending on our expectations about our future
mortality and expense experience, lapse rates and investment earnings. We
review the adequacy of our cost of insurance rates periodically and may adjust
them. Any change will apply prospectively.
We underwrite each insured person separately. The underwriting classes we use
are smoker standard, smoker substandard, nonsmoker standard, nonsmoker
preferred, nonsmoker residual, and nonsmoker substandard. Substandard ratings
result in higher cost of insurance deductions. We base the guaranteed maximum
mortality charges for substandard ratings on multiples of the 1980 CSO Tables.
The three standard nonsmoker classes are available as follows:
-- nonsmoker preferred and nonsmoker residual, for Policies with face
amounts of $500,000 or more if the insured's issue age is 20 through 75
-- nonsmoker standard, for Policies with face amounts below $500,000 and
for all insureds whose issue age is above 75.
Of the three standard nonsmoker classes, the nonsmoker preferred class
generally offers the best current cost of insurance rates and the nonsmoker
residual class generally offers the least favorable current cost of insurance
rates.
Cost of insurance rates are generally lower for nonsmokers than for smokers and
generally lower for females than for males. Within a given underwriting class,
cost of insurance rates are generally lower for insureds with lower issue ages.
We may offer Policies with cost of insurance rates (and Policy values and
benefits) that do not vary based on the sex of the insured. These Policies
would only be available where required by state law or to some employee benefit
plans.
CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. We charge for the cost of any
additional rider benefits as described in the rider form. We also may charge
you a nominal fee, which we will bill directly to you, if you request a Policy
re-issue or re-dating.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. We charge the sub-accounts of the Variable
Account for our mortality and expense risks. Currently, the charge is made
daily at an annual rate of .75% of the sub-accounts' assets. We have the right
to increase the charge, up to a maximum annual rate of .90%. The mortality risk
we assume is that insureds may live for shorter periods of time than we
estimated. The expense risk is that our costs of issuing and administering the
Policies may be more than we estimated.
CHARGES FOR INCOME TAXES. We currently do not charge the Variable Account for
income taxes, but in the future we may make such a charge, if appropriate. We
have the right to make a charge for any taxes imposed on the Policies 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.
A-21
<PAGE>
The following table shows the annual operating expenses for each series, based
on actual expenses for 1998, after any 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 .03% .08% .10% .08% .12% .08% --
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses .66% .48% .45% .58% .37% .78% 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% .12% .40% .08% .08%
---- ---- ----- ---- ----
Total Series Operating
Expenses .90% .82% 1.30% .83% .83%
</TABLE>
- --------
* Without the applicable expense cap or expense deferral arrangement (described
below), Total Series Operating Expenses for the year ended December 31, 1998
would have been: Loomis Sayles Small Cap Series, 1.10%; and Morgan Stanley
International Magnum Equity Series, 1.40%.
The following Zenith Fund series are NOT yet available under the Policies as of
the date of this prospectus. We anticipate that they will become available by
the third quarter of 1999. You should consult with your registered
representative for current information about availability of these series.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
MFS
MFS RESEARCH
INVESTORS MANAGERS
SERIES* SERIES*
--------- --------
<S> <C> <C>
Management Fee .75% .75%
Other Expenses .15% .15%
---- ----
Total Series Operating Expenses .90% .90%
</TABLE>
- --------
* Without the expense deferral arrangement, we estimate that Total Series
Operating Expenses for the MFS Investors Series and MFS Research Managers
Series for the year ended December 31, 1999 would be 1.04%, each, on an
annualized basis.
Our affiliate, New England Investment Management, Inc. (formerly known as TNE
Advisers, Inc.), advises the series of the Zenith Fund except for the Capital
Growth Series. New England Investment Management voluntarily limits the
expenses of these series with either an expense cap or expense deferral
arrangement, as shown in the chart above. Under the expense cap, New England
Investment Management bears expenses of a series (other than the management
fee) that exceed 0.15% of average daily net assets (in the case of the Loomis
Sayles Small Cap Series, expenses that exceed 1.00% of average daily net
assets). Under the expense deferral, New England
A-22
<PAGE>
Investment Management bears expenses of a series (other than the management
fee) that exceed a certain limit in the year the series incurs them and charges
those expenses to the series in a future year if actual expenses of the series
are below the limit. New England Investment Management may end these expense
limits at any time.
The investment adviser for VIP and VIP II is Fidelity Management & Research
Company ("FMR"). The Portfolios of VIP and VIP II pay investment management
fees to FMR and also bear certain other expenses. For the year ended December
31, 1998, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
VIP Equity-Income .49% .09% .58%*
VIP Overseas .74% .17% .91%*
VIP High Income .58% .12% .70%
VIP II Asset Manager .54% .10% .64%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. If we
included these reductions, total annual expenses would have been .57% for VIP
Equity-Income Portfolio, .89% for VIP Overseas Portfolio, and .63% for VIP II
Asset Manager Portfolio.
Affiliates of FMR compensate NELICO and/or certain affiliates for
administrative, distribution, or other services relating to these Portfolios of
VIP and VIP II. This compensation is based on assets of the Portfolios
attributable to the Policies and certain other variable insurance products that
we and our affiliates issue.
GROUP OR SPONSORED ARRANGEMENTS
We may issue the Policies to group or sponsored arrangements, as well as on an
individual basis. A "group arrangement" includes a situation where 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 situation where an
employer or an association permits group solicitation of its employees or
members for the purchase of individual Policies.
We may waive, reduce or vary any Policy charges under Policies sold to a group
or sponsored arrangement. We may also raise the interest rate credited to
loaned amounts under these Policies. The amount of the variations and our
eligibility rules may change from time to time. In general, they reflect cost
savings over time that we anticipate for Policies sold to the eligible group or
sponsored arrangements and relate to objective factors such as the size of the
group, its stability, the purpose of the funding arrangement and
characteristics of the group members. These variations of charges do not apply
to Policies sold in New York other than Policies sold to non-tax qualified
deferred compensation plans of various types. Consult your registered
representative for any variations that may be available and appropriate for
your case.
The United States Supreme Court has ruled that insurance policies with values
and benefits that vary with the sex of the insured may not be used to fund
certain employee benefit programs. We may offer Policies that do not vary based
on the sex of the insured to certain employee benefit programs. Your registered
representative can advise you as to the availability of such Policies. We
recommend that employers consult an attorney before offering or purchasing the
Policies in connection with an employee benefit program.
PREMIUMS
FLEXIBLE PREMIUMS
Within limits, you choose the amount and frequency of premium payments. You
select a Planned Premium schedule, which may be a fixed amount or a varying
amount. This schedule appears in your Policy. YOUR PLANNED PREMIUMS WILL NOT
NECESSARILY KEEP YOUR POLICY IN FORCE. You may skip Planned Premium payments or
make
A-23
<PAGE>
additional payments. You cannot make a Planned Premium or additional payment
that increases the Policy's death benefit by more than it increases the cash
value except with our consent, and we may require underwriting. No payment can
be less than $25 ($10 for payments made through the Master Service Account,
described below, or certain other monthly payment arrangements). We limit the
total of Planned Premiums and other payments to our published maximum.
You can pay Planned Premiums on an annual, semi-annual or quarterly schedule
or, with our consent, monthly. You can change your Planned Premium schedule at
any time by sending your request to our Home Office.
You may make payments by check or money order. We will send premium notices for
annual, semi-annual or quarterly Planned Premiums. You may also choose to have
us withdraw your premium payments from your bank checking account or New
England Cash Management Trust account. (This is known as the Master Service
Account arrangement.)
Federal tax law limits the amount of premiums that you can pay under the
Policy. In addition, if any payments under the Policy exceed the "7-pay test"
under Federal tax law, your Policy will become a "modified endowment contract"
and you may have more adverse tax consequences with respect to certain
distributions than would otherwise be the case if premium payments did not
exceed the "7-pay test". (See "Tax Considerations".)
We allocate net payments to your Policy's sub-accounts as of the date we
receive the payment. (See "Receipt of Communications and Payments at NELICO's
Home Office".)
Under our current processing, we treat a payment first as a Planned Premium,
and then as an unscheduled payment, unless you instruct us otherwise in
writing. (FOR POLICIES ISSUED IN NEW YORK, we treat a payment 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, we treat it first as
repayment of Policy loan interest due, second as a Planned Premium, and last as
an unscheduled payment.) We do not treat a payment as repayment of a Policy
loan unless you instruct us to.
If you have a Policy loan, it may be better 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,
repaying the loan instead of paying a premium could make your Policy ineligible
for a death benefit guarantee. (See "Loan Provision", "Deductions from
Premiums" and "Death Benefit".)
A-24
<PAGE>
Three types of premium payment levels can protect your Policy against
lapse (1) for the first three Policy years, (2) until age 80 of the
younger insured, and (3) until age 100 of the younger insured.
First three Policy years--In general, if you pay the three year Minimum
Premium amount on time AND THERE IS NO OUTSTANDING POLICY LOAN, the Policy
will not lapse even if the net cash value is less than the Monthly
Deduction in any month. The guarantee will not apply if (1) you reinstate
the Policy, (2) you reduce the face amount or make a partial surrender
that reduces the face amount, (3) you increase or decrease rider coverage,
or (4) the rating classification for your Policy is improved. We base the
Minimum Premium on your Policy's face amount, the age, sex (unless unisex
rates apply), and underwriting class of each insured, the current level of
Policy charges and any riders to the Policy.
To Maturity (age 100 of the younger insured)--Payment of the Guaranteed
Death Benefit 1 premium can guarantee that the Policy will stay in force
until 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". We base this guaranteed minimum death benefit
premium 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. We recalculate this premium following the Policy
transactions described above (other than insufficient premiums) as well as
following an increase in rider coverage.
To age 80 of the younger insured--Payment of the Guaranteed Death Benefit
2 premium can guarantee 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 (age 100 of the younger insured) of the Policy.
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
terminate this guarantee, although termination for insufficient premium
payments is less likely here than in the case of the Guaranteed Death
Benefit 1 premium. We base this premium on factors similar to the
Guaranteed Death Benefit 1 premium for coverage to the earlier age. We
recalculate the Guaranteed Death Benefit 2 premium following the same
transactions described above (other than insufficient premiums) as well as
following an increase in rider coverage.
LAPSE AND REINSTATEMENT
LAPSE. Unless your Policy is protected by a guaranteed death benefit or minimum
premium guarantee, any month that your Policy's net cash value is not large
enough to cover a Monthly Deduction, your Policy will be in default. Your
Policy provides a 62 day grace period for payment of a premium large enough to
cover the amount in default and all deductions from the premium. We will notify
you of the amount due. You have insurance coverage during the grace period, but
if the second insured dies before you have paid the premium, we deduct from the
death proceeds the unpaid Monthly Deduction for the period prior to the date of
death. If you have not paid the required premium by the end of the grace
period, your Policy will lapse without value.
REINSTATEMENT. If your Policy has lapsed, you may reinstate it within seven
years after the date of lapse. If more than seven years have passed, or if you
have surrendered the Policy, you need our consent to reinstate. Reinstatement
in all cases requires payment of certain charges described in the Policy and
usually requires evidence of insurability that is satisfactory to us.
If we deducted a Surrender Charge on lapse, we credit it back to the Policy's
cash value on reinstatement. The Surrender Charge on the date of reinstatement
is the same as it was on the date of lapse. When we determine the Surrender
Charge and other charges that vary by duration of the Policy (rather than by
age of the insured), we do not count the amount of time that a Policy was
lapsed.
A-25
<PAGE>
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. We make the loan as of the date when we
receive a loan request. (See "Receipt of Communications and Payments at
NELICO's Home Office".) You should contact our Home Office or your registered
representative for information on loan procedures.
The Policy's loan value equals:
(i) 90% (or more if required by state law) of the Policy's "projected cash
value"; minus
(ii) the Policy's Surrender Charge on the next Planned Premium due date or,
if greater, on the date the loan is made; minus
(iii) loan interest to the next loan interest due date.
The "projected cash value" is the cash value projected to the next Policy
anniversary or, if earlier, to the next Planned Premium due date, at a 4% rate
and using current Policy charges. The loan value available is reduced by any
outstanding loan plus interest. We currently intend to base the loan value on
100% of the Policy's projected cash value, rather than 90%, for Policy years 16
and after.
The example below illustrates how the loan value is determined.
EXAMPLE: Using the Policy illustrated on page A-50 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
you could borrow 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, we attribute Policy
loans first to the sub-accounts of the Variable Account in proportion to the
cash value in each, and then the Fixed Account. We allocate loan repayments
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). Interest accrues daily and is due on
the Policy anniversary. If not paid, we add the interest accrued to the loan
amount, and we deduct an amount equal to the unpaid interest from the Policy's
cash value in the sub-accounts and the Fixed Account in proportion to the
amount in each. The amount we take 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
A-26
<PAGE>
year. The rate we currently credit is 4% per year for the first 15 Policy years
and 5% thereafter. We credit this interest amount 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, loans
can permanently affect the death benefit and cash value of the Policy, even if
repaid. In addition, we reduce any proceeds payable under a Policy by the
amount of any outstanding loan plus accrued interest.
If a Policy loan is outstanding, it may be better 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, repaying the loan
instead of paying a premium could make your Policy ineligible 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),
we will notify you that the Policy is going to terminate. (This is called an
"excess Policy loan". We test for an excess Policy loan on each monthly
processing date and in connection with Policy processing transactions.) The
Policy terminates without value 62 days after we mail the notice unless you pay
us the excess Policy loan amount within that time. (See "Lapse and
Reinstatement".) If the Policy lapses with a loan outstanding, adverse tax
consequences may result. If your Policy is a "modified endowment contract",
loans under your Policy may be treated as taxable distributions. (See "Tax
Considerations" below.)
Department of Labor ("DOL") regulations impose requirements for participant
loans under tax-qualified pension plans. Therefore, plan loan provisions may
differ from Policy loan provisions. (See "Tax Considerations".)
SURRENDER
You may surrender a Policy for its net cash value at any time while either
insured is living. We determine the net cash value of the surrendered Policy as
of the date when we receive a surrender request. 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 apply all or
part of the net cash value 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 reduces the Policy's death benefit and may
reduce the Policy's face amount if necessary so that the amount at risk under
the Policy will not increase. Any reduction in the face amount causes a
proportionate reduction in the Policy's Benchmark Premium, on which we base any
future Surrender Charges, and in the Target Premium, on which we currently base
the 9% sales charge. A partial surrender may also reduce rider benefits. We
reserve the right to decline a partial surrender request that would reduce the
face amount below the Policy's required minimum.
We have the right to limit partial surrenders in any one Policy year to 20% of
the Policy's net cash value on the date of the first partial surrender for the
Policy year or, if less, the Policy's available loan value. Currently, we
permit partial surrenders of up to 75% of the Policy's net cash value per year,
if there is sufficient available loan value.
We deduct any Surrender Charge that applies to the partial surrender 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.
A-27
<PAGE>
You may not reinvest cash value paid upon partial surrender 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. We determine the amount
of net cash value paid upon partial surrender as of the first day of the Policy
month on or after the date when we receive a request. You can contact your
registered representative or the Home Office for information on partial
surrender procedures.
A reduction in the death benefit as a result of a partial surrender may create
a "modified endowment contract" or have other adverse tax consequences. If you
are contemplating a partial surrender, you should consult your tax advisor
regarding the tax consequences. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
You may reduce the face amount of your Policy without receiving a distribution
of any Policy cash value. (This feature differs from a partial surrender, which
reduces the Policy's net cash value.)
If you decrease the face amount of your Policy, we also decrease the Benchmark
Premium, on which we base any future Surrender Charges, and the Target Premium,
on which we currently base the 9% sales charge. We deduct any Surrender Charge
that applies from the Policy's cash value when you reduce its face amount.
A face amount reduction usually decreases the Policy's death benefit. (However,
if we are increasing the death benefit to satisfy federal income tax laws, a
face amount reduction will not decrease the death benefit unless we deducted a
Surrender Charge from the cash value. A reduction in face amount in this
situation may not be advisable, because it will not reduce your death benefit
or cost of insurance charges and may result in a Surrender Charge.) We also may
decrease any rider benefits attached to the Policy. The face amount remaining
after a reduction must meet our minimum face amount requirements for issue,
except with our consent.
A reduction in face amount reduces the Federal tax law limits on the amount of
premiums that you can pay under the Policy. In these cases, you may need a
partial surrender of cash value to comply with Federal tax law. This could
terminate the Minimum Guaranteed Death Benefit 1 or 2. (See "Minimum Guaranteed
Death Benefit".)
A face amount reduction takes effect as of the first day of the Policy month on
or after the date when we receive a request. You can contact your registered
representative or the Home Office for information on face reduction procedures.
A reduction in the face amount of a Policy that causes a death benefit
reduction may create 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 can allocate your Policy's premiums among the sub-accounts of the Variable
Account and the Fixed Account in any combination, as long as you choose no more
than nine accounts (including the Fixed Account) at any one time. The Policy
provides that you must allocate a minimum of 10% of the premium to each sub-
account selected and that you must allocate whole percentages; currently, we
will permit you to allocate ANY whole percentage to a sub-account. You can
allocate your Policy's cash value 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 can change the
allocation of future premiums at any time thereafter. The change will be
effective for premiums applied on or after the date when we receive your
A-28
<PAGE>
request. You may request the change by telephone or by written request. (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, you may transfer your Policy's
cash value between sub-accounts. We reserve the right to limit sub-account
transfers to four per Policy year (twelve per Policy year for Policies issued
in New York). We currently allow 12 sub-account transfers per Policy year under
all Policies. We do not count transfers out of the Fixed Account against this
limit. We treat all sub-account transfer requests made at the same time as a
single request. The transfer is effective as of the date when we receive the
transfer request. (See "Receipt of Communications and Payments at NELICO's Home
Office".) For special rules regarding transfers involving the Fixed Account,
see "The Fixed Account".
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisors or registered representatives acting under power(s) of attorney from
one or more Policy owners.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to us or by telephoning us. To
request a transfer or reallocation by telephone, you should contact your
registered representative or contact us at 1-800-200-2214. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Any telephone instructions that we reasonably believe to be genuine are your
responsibility, including losses arising from any errors in the communication
of instructions.
PAYMENT OF PROCEEDS
We ordinarily pay any net cash value, loan value or death benefit proceeds
coming from the sub-accounts within seven days after we receive a request, or
satisfactory proof of death of an insured. (See "Receipt of Communications and
Payments at NELICO's Home Office".) However, we may delay payment (except when
a loan is made to pay a premium to us ) or transfers from the sub-accounts: (i)
if the New York Stock Exchange is closed for other than weekends or holidays,
or trading on the New York Stock Exchange is restricted, (ii) if the SEC
determines that an 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.
We may withhold payment of surrender or loan proceeds if those proceeds are
coming from a Policy Owner's check, or from a Master Service Account premium
transaction, which has not yet cleared. We may also delay payment while we
consider whether to contest the Policy. We pay interest on the death benefit
proceeds from the date they become payable to the date we pay them.
The beneficiary can elect our Access Plus program for payment of death proceeds
at any time before we pay them. We establish an Access Plus account at State
Street Bank & Trust Company at the time for payment. The Access Plus account
gives convenient access to the proceeds, which are maintained in MetLife's
general account, through checkbook privileges with State Street.
Normally we promptly make payments of net cash value, or of any loan value
available, from cash value in the Fixed Account. However, we may delay those
payments for up to six months. We pay interest in accordance with state
insurance law requirements on delayed payments.
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EXCHANGE OF POLICY DURING FIRST 24 MONTHS
During the first 24 months after the Policy's issue date, you can exchange it
for a fixed-benefit traditional survivorship life insurance policy, provided
that (1) you repay any policy loans and (2) the Policy has not lapsed. 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. We make the exchange 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, and the same policy date,
issue ages and risk classifications as 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. We will attach any riders to the
original Policy to the new policy if they are available.
Contact us or your registered representative for more specific information
about the exchange. The exchange may result in a cost or credit to you.
For a Policy issued to some 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 us or an
affiliate. Contact us or your registered representative for more information
about this feature.
POLICY SPLIT RIDER
Subject to state availability and our underwriting guidelines, we may issue or
amend your Policy with a split rider which allows you to "split" the Policy
into two new NELICO individual flexible premium adjustable variable life
insurance policies. The rider permits you to split the Policy 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 lists
the requirements for a split event. If you exercise the split rider, this
Policy will be canceled, and we will transfer its cash value (in equal
portions, unless we agree otherwise) to two new individual policies issued on
the effective date of the split. A new Surrender Charge will apply to each
individual policy. We will issue each new policy with either a level or
variable death benefit option in effect, depending on which type of death
benefit option you have under this Policy at the time of the split.
For more information about the Policy split rider you should contact us or your
registered representative. You can request a prospectus and additional
information regarding the individual policies that are issued following a
split. For a discussion of the possible tax consequences of splitting the
Policy, see "Tax Considerations."
PAYMENT OPTIONS
We pay the Policy's death benefit and net cash value in one sum, unless you or
the payee choose a payment option for all or part of the proceeds. You can
choose a combination of payment options. You can make, change or revoke the
selection of payee or payment option before the last death under the Policy.
You can contact your registered representative or the Home Office for the
procedure to follow. The payment options available are fixed benefit options
only and are not affected by the investment experience of the Variable Account.
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. We pay proceeds 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 for any
year is added to the monthly payments for that year.
(ii) LIFE INCOME. We pay proceeds 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.
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(iii) LIFE INCOME WITH REFUND. We pay proceeds in equal monthly
installments during the life of the payee. At the payee's death, we
pay any unpaid proceeds remaining either in one sum or in equal
monthly installments until we have paid the total proceeds.
(iv) INTEREST. We hold proceeds for the life of the payee or another agreed
upon period. We pay interest of at least 3.5% a year monthly or add it
to the principal annually. At the death of the payee, or at the end of
the period agreed to, we pay the balance of principal and any interest
in one sum.
(v) SPECIFIED AMOUNT OF INCOME. We pay proceeds plus accrued interest of at
least 3.5% a year in an amount and at a frequency elected until we have
paid total proceeds. We pay any amounts unpaid at the death of the
payee in one sum.
(vi) LIFE INCOME FOR TWO LIVES. We pay proceeds in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the life of the surviving payee or 10 years, or (iii) while
the two payees are living and, after the death of one payee, we pay
two-thirds of the monthly amount for the life of the surviving payee.
You need our consent to use an option if the installment payments would be less
than $20.
ADDITIONAL BENEFITS BY RIDER
You can add additional benefits to the Policy by rider, subject to our
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.
It may be to your economic advantage to include a significant portion of your
insurance coverage under a joint life term insurance rider to age 100.
Reductions in or elimination of term rider coverage does not trigger 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 usually 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 riders.
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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.
The beneficiary is also named in the application. You may change the
beneficiary 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, we pay proceeds to the Policy Owner.
A change of Policy Owner or beneficiary is subject to all payments made and
actions taken by us under the Policy before we receive a signed change form.
You can contact your registered representative or the Home Office for the
procedure to follow.
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 are subject to all payments made and actions taken
by us under the Policy before we receive a signed copy of the assignment form.
We are not 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
We established the Variable Account as a separate investment account on January
31, 1983 under Delaware law. It became subject to Massachusetts law when we
changed our domicile to Massachusetts on August 30, 1996. The Variable Account
is the funding vehicle for the Policies and other NELICO variable life
insurance 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, and 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 SEC supervision of the Variable Account's management
or investments. However, the Massachusetts Insurance Commissioner regulates
NELICO and the Variable Account, which are also subject to the insurance laws
and regulations where the Policies are sold.
Although we own the assets of the Variable Account, 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 we may conduct. We believe 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 our general
creditors, and may only be used to support the cash values under our variable
life insurance policies issued by the Variable Account. We may transfer to our
general account assets which exceed the reserves and other liabilities of the
Variable Account. We will consider any possible adverse impact such a 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 our other
income or capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
The Variable Account currently has 16 sub-accounts. Each invests in an Eligible
Fund. The sub-accounts and the Eligible Funds are:
-- The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the Zenith Fund
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<PAGE>
-- 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
-- The Equity-Income Sub-Account, which invests in the VIP Equity-Income
Portfolio
-- The Overseas Sub-Account, which invests in the VIP Overseas Portfolio
-- The High Income Sub-Account, which invests in the VIP High Income
Portfolio
-- The Asset Manager Sub-Account, which invests in the VIP II Asset Manager
Portfolio
The following sub-accounts are NOT yet available as of the date of this
prospectus. We anticipate that they will become available by the third quarter
of 1999, although they could be available sooner. Availability of these sub-
accounts will also be subject to any necessary state insurance department
approvals. You should consult with your registered representative for up to
date information about the availability of these sub-accounts. YOU SHOULD NOT
BASE A DECISION TO PURCHASE THE POLICY ON THE CURRENT AVAILABILITY OF THESE
SUB-ACCOUNTS UNLESS YOUR REGISTERED REPRESENTATIVE HAS CONFIRMED THAT THEY ARE
CURRENTLY AVAILABLE.
-- The Zenith Investors Sub-Account, which invests in the MFS Investors
Series of the Zenith Fund
-- The Zenith Research Managers Sub-Account, which invests in the MFS
Research Managers Series of the Zenith Fund
The Zenith Fund is an open-end diversified management investment company, more
commonly known as a mutual fund. The Zenith Fund is an investment vehicle for
separate investment accounts of NELICO and of other life insurance companies.
VIP and VIP 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 Variable Account purchases and sells Eligible Fund shares 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.
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<PAGE>
INVESTMENT OBJECTIVES
The investment objectives of the Eligible Funds are described briefly below.
These objectives may not be met. More about the Eligible Funds, including their
investments, expenses, and risks is in the attached Eligible Fund prospectuses
and the Eligible Funds' Statements of Additional Information.
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 may be
higher or lower than the results of these funds. There is 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.
The Zenith Back Bay Advisors Money Market Series' investment objective is the
highest possible level of current income consistent with preservation of
capital. An investment in the Money Market Series is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Series seeks to maintain a net asset value of $100
per share, it is possible to lose money by investing in the Money Market
Series.
The Zenith Back Bay Advisors Bond Income Series' investment objective is a high
level of current income consistent with protection of capital.
The Zenith Capital Growth Series' investment objective is the 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 United States economy.
The Zenith Westpeak Stock Index Series' investment objective is investment
results that correspond to the composite price and yield performance of United
States publicly traded common stocks.
The Zenith Back Bay Advisors Managed Series' investment objective is a
favorable total return through investment in a diversified portfolio.
The Zenith Westpeak Growth and Income Series' investment objective is long-term
total return through investment in equity securities.
The Zenith Goldman Sachs Midcap Value Series' investment objective is long-term
capital appreciation.
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalents.
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 Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
international equity securities. In addition to the risks associated with
equity securities generally, foreign securities present additional risks.
The Zenith Davis Venture Value Series' investment objective is growth of
capital.
The Zenith Alger Equity Growth Series' investment objective is long-term
capital appreciation.
The VIP Equity-Income Portfolio seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500.
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The VIP Overseas Portfolio seeks long-term growth of capital. Foreign markets,
particularly emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or economic
developments and can perform differently than the U.S. market.
The VIP High Income Portfolio seeks a high level of current income while also
considering growth of capital. Lower-quality debt securities (those of less
than investment-grade quality) can be more volatile due to increased
sensitivity to adverse issuer, political, regulatory, market or economic
developments.
The VIP II Asset Manager Portfolio seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds and short-term
instruments.
The following Zenith Fund Series are NOT yet available under the Policies as of
the date of this prospectus. You should not base a decision to purchase the
Policy on the current availability of these series unless your registered
representative has confirmed that they are currently available under the
Policy.
The Zenith MFS Investors Series' investment objective is reasonable current
income and long-term growth of capital and income.
The Zenith MFS Research Managers Series' investment objective is long-term
growth of capital.
INVESTMENT MANAGEMENT
The chart below shows the adviser and sub-adviser for each series of the Zenith
Fund. New England Investment Management, 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 New England Investment Management, Back Bay Advisors, L.P.*
Market Inc.
Back Bay Advisors Bond New England Investment Management, Back Bay Advisors, L.P.*
Income Inc.
Back Bay Advisors Man- New England Investment Management, Back Bay Advisors, L.P.*
aged Inc.
Westpeak Stock Index New England Investment Management, Westpeak Investment Advisors,
Inc. L.P.*
Westpeak Growth and In- New England Investment Management, Westpeak Investment Advisors,
come Inc. L.P.*
Loomis Sayles Small Cap New England Investment Management, Loomis, Sayles & Company,
Inc. L.P.*
Loomis Sayles Balanced New England Investment Management, Loomis, Sayles & Company,
Inc. L.P.*
Morgan Stanley New England Investment Management, Morgan Stanley Dean Witter
International Magnum Inc. Investment Management Inc.
Equity
Goldman Sachs Midcap New England Investment Management, Goldman Sachs Asset Management
Value Inc.
Davis Venture Value New England Investment Management, Davis Selected Advisers,
Inc. L.P.**
Alger Equity Growth New England Investment Management, Fred Alger Management, Inc.
Inc.
Series anticipated to be available under the Policies by the third quarter of 1999***
MFS Investors*** New England Investment Management, Massachusetts Financial
Inc. Services Company
MFS Research Managers*** New England Investment Management, Massachusetts Financial
Inc. Services Company
</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.
***Consult your registered representative about the availability of sub-
accounts that invest in these series.
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
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<PAGE>
Series and Loomis Sayles Small Cap Series, New England Investment Management
(formerly TNE Advisers, Inc.) became the adviser on May 1, 1995. The Morgan
Stanley International Magnum Equity Series' sub-adviser was Draycott Partners
until May 1, 1997, when Morgan Stanley Dean Witter Investment Management
(formerly 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.
FMR is the investment adviser for VIP and VIP II. For more information
regarding the VIP Equity-Income, VIP Overseas, VIP High Income and VIP II Asset
Manager Portfolios and Fidelity Management & Research Company, see the VIP and
VIP II prospectuses attached at the end of this prospectus and their Statements
of Additional Information.
THE FIXED ACCOUNT
THE POLICY HAS A FIXED ACCOUNT OPTION ONLY IN STATES THAT APPROVE IT.
You may allocate net premiums and transfer 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 are not registered under the Securities Act of 1933. Neither the Fixed
Account nor the general account is 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 the SEC does not review Fixed Account disclosure.
This disclosure may, however, be subject to certain provisions of the Federal
securities laws on the accuracy and completeness of prospectuses.
GENERAL DESCRIPTION
Our general account includes all of our assets, except assets in the Variable
Account or in our other separate accounts. We decide how to invest our general
account assets. Fixed Account allocations do not share in the actual investment
experience of the Fixed Account. Instead, we guarantee that the Fixed Account
will credit interest at an annual effective rate of at least 4%. We may or may
not credit interest at a higher rate. We declare the current interest rate for
the Fixed Account periodically. The Fixed Account earns interest daily.
We can change our Fixed Account interest crediting procedures. Currently, all
cash value in the Fixed Account on a Policy anniversary earns interest at the
declared annual rate in effect on the anniversary until the next Policy
anniversary, when it is credited with our current rate. (Although our current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with our current annual rate until the next anniversary, we can
select any portion, from 0% to 100%, of your Fixed Account cash value on a
Policy anniversary to earn interest at our current rate until the next Policy
anniversary, unless otherwise required by state law.) Any net premiums
allocated or cash value transferred to the Fixed Account on a date other than a
Policy anniversary earn interest at our current rate until the next Policy
anniversary. The effective interest rate is a weighted average of all the Fixed
Account rates for your Policy.
VALUES AND BENEFITS
Cash value in the Fixed Account increases from net premiums allocated and
transfers to the Fixed Account and Fixed Account interest, and decreases from
loans, partial surrenders made from the Fixed Account, charges, and transfers
from the Fixed Account. We deduct charges from the Fixed Account and the
Policy's sub-accounts in proportion to the amount of cash value in each. (See
"Monthly Deduction from Cash Value".) A Policy's total cash value includes cash
value in the Variable Account, the Fixed Account, and any cash value held in
our general account (but outside of the Fixed Account) due to a Policy loan.
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Cash value in the Fixed Account is included 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
We can restrict allocations and transfers to the Fixed Account if the effective
annual rate of interest on the amount would be 4%. Otherwise, the requirements
for Fixed Account and Variable Account allocations are the same. (See
"Allocation of Net Premiums".)
Except as described below, the Fixed Account has the same rights and
limitations about premium allocations, transfers, loans, surrenders and partial
surrenders as the Variable Account. (See "Other Policy Features".) The
following special rules apply to the Fixed Account.
TRANSFERS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT ARE ALLOWED ONLY ONCE
IN EACH POLICY YEAR. WE PROCESS A TRANSFER FROM THE FIXED ACCOUNT IF WE RECEIVE
THE TRANSFER REQUEST NO MORE THAN 30 DAYS BEFORE THE POLICY ANNIVERSARY. WE
MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER REQUEST AT OUR HOME
OFFICE. YOU MAY ALSO 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 YOU MAY TRANSFER 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 Fixed Account cash
value. 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
our consent. We currently allow 12 transfers per Policy year. We do not count
transfers out of the Fixed Account against this limit.
Unless you request otherwise, a Policy loan reduces the Policy's cash value in
the sub-accounts and not the Fixed Account. If there is not enough cash value
in the Policy's sub-accounts for the loan, we take the balance from the Fixed
Account. We allocate all loan repayments 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 earns interest at an
effective rate of at least 4% per year, which we credit 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, we take partial surrenders 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 for the partial surrender, we take the balance from
the Fixed Account.
We can delay transfers, surrenders, and Policy loans from the Fixed Account for
up to six months (to the extent allowed by state insurance law). We will not
delay loans to pay premiums on policies issued by us.
NELICO'S DISTRIBUTION AGREEMENT
We sell the Policies through licensed insurance agents. 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, 399 Boylston Street, Boston, Massachusetts 02116, also
serves as the principal underwriter for the Policies under a Distribution
Agreement with NELICO. Under the Distribution Agreement, we pay 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.
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We pay 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 NELICO productivity and persistency standards 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, commissions
paid to the broker-dealer on behalf of the registered representative will not
exceed those described above. We may pay certain broker-dealers an additional
bonus after the first Policy year on behalf of certain registered
representatives, which may be up to the amount of the basic commission for the
particular Policy year. We pay commissions through the registered broker-
dealer, and may also pay additional compensation to the broker dealer and/or
reimburse it for portions of Policy sales expenses.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
NOTIFICATION OF FIRST DEATH
Generally, we can challenge the validity of your Policy or a rider 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. We
can challenge the portion of the death benefit resulting from an underwritten
premium payment for two years (during either insured's lifetime) from the
premium payment. However, if either insured dies within two years of the date
of issue, we can challenge all or part of the Policy at any time, based on
misrepresentations relating to that insured.
You should notify us immediately upon the first death of an insured under the
Policy. Even if premiums continue to be paid after the first death, we
generally can contest the Policy or limit benefits under the suicide provision
(described below) and terminate the Policy at any time, even beyond the two-
year period, if we were 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.
MISSTATEMENT OF AGE OR SEX
If either insured's age or sex is misstated in the application, the Policy's
death benefit is the amount that the most recent Monthly Deduction which was
made would provide, based on the insureds' correct ages and, if the Policy is
sex-based, 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, the death benefit is limited to
premiums paid, less any policy loan balance and partial surrenders (more in
some states). 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 (not variable) life policy. Contact us or
your registered representative for more information.
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<PAGE>
TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income tax
considerations associated with the Policies and does not purport to be complete
or to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete
information. This discussion is based upon our understanding of the present
Federal income tax laws. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that it is
reasonable to conclude that the Policies will satisfy the applicable
requirements. If it is subsequently determined that a Policy does not satisfy
the applicable requirements, we may take appropriate steps to bring the Policy
into compliance with such requirements and we reserve the right to restrict
Policy transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the owners of the assets of
the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to allocate
payments and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Policy Owners
investment control over Variable Account assets, we reserve the right to modify
the Policies as necessary to prevent a Policy Owner from being treated as the
owner of the Variable Account assets supporting the Policies.
In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through the Eligible Funds, will satisfy these
diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Policy Owner or beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the Policy Owner will not be deemed to be in constructive receipt of
the Policy cash value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with less
favorable income tax treatment than other life insurance contracts. In general
a Policy will be classified as a Modified Endowment Contract if the amount of
premiums paid into the Policy causes the Policy to fail the "7-pay test." A
Policy will fail the 7-pay test if at any time in the first seven Policy years,
the amount paid into the Policy exceeds the sum of the level premiums that
would have been paid at that point under a Policy that provided for paid-up
future benefits after the payment of seven level annual payments.
If there is a reduction in the benefits under the Policy during the first seven
Policy years, for example, as a result of a partial surrender, the 7-pay test
will have to be reapplied as if the Policy had originally been issued at the
A-39
<PAGE>
reduced face amount. If there is a "material change" in the Policy's benefits
or other terms, even after the first seven Policy years, the Policy may have to
be retested as if it were a newly issued Policy. A material change can occur,
for example, when there is an increase in the death benefit which is due to the
payment of an unnecessary premium. Unnecessary premiums are premiums paid into
the Policy which are not needed in order to provide a death benefit equal to
the lowest death benefit that was payable in the first seven Policy years. To
prevent your Policy from becoming a Modified Endowment Contract, it may be
necessary to limit premium payments or to limit reductions in benefits. A
current or prospective Policy Owner should consult a tax advisor to determine
whether a Policy transaction will cause the Policy to be classified as a
Modified Endowment Contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a Modified Endowment Contract will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Policy Owner's investment in the Policy only after
all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Policy Owner has
attained age 59 1/2 or is disabled, or where the distribution is part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the Policy Owner or the joint lives (or joint life
expectancies) of the Policy Owner and the Policy Owner's beneficiary or
designated beneficiary.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy
that is not classified as a Modified Endowment Contract are generally treated
first as a recovery of the Policy Owner's investment in the Policy and only
after the recovery of all investment in the Policy as taxable income. However,
certain distributions which must be made in order to enable the Policy to
continue to qualify as a life insurance contract for Federal income tax
purposes if Policy benefits are reduced during the first 15 Policy years may be
treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract are
generally not treated as distributions. However, the tax consequences
associated with Policy loans that are outstanding after the first 15 Policy
years is less clear and a tax adviser should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate Premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
POLICY LOANS. In general, interest on a Policy loan will not be deductible.
Before taking out a Policy loan, you should consult a tax adviser as to the tax
consequences.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by NELICO
(or its affiliates) to the same Policy Owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Policy Owner's income when a taxable distribution
occurs.
TAX TREATMENT OF POLICY SPLIT. The policy split rider permits a Policy to be
split into two individual Policies. It is not clear whether exercising the
policy split rider will be treated as a taxable transaction or whether the
individual Policies that result would be classified as Modified Endowment
Contracts. A competent tax advisor should be consulted before exercising the
policy split rider.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance,
transfer, and other tax consequences depend on the individual circumstances of
each Policy Owner or beneficiary.
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<PAGE>
The tax consequences of continuing the Policy beyond the insured's 100th year
are unclear. You should consult a tax adviser if you intend to keep the Policy
in force beyond the insured's 100th year.
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 consequences under federal tax law.
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 and how ownership or receipt of Policy proceeds will be
treated for purposes of federal, state and local estate, inheritance,
generation skipping and other taxes.
If a trustee under a pension or profit-sharing plan, or similar deferred
compensation arrangement, owns a Policy, the Federal, state and estate tax
consequences could differ. The amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan are limited. The
current cost of insurance for the net amount at risk is treated as a "current
fringe benefit" and must be included annually in the plan participant's gross
income. We report this cost (generally referred to as the "P.S. 58" cost) 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 is not taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. Policies owned under these types of
plans may be subject to restrictions under the Employee Retirement Income
Security Act of 1974 ("ERISA"). You should consult a qualified adviser
regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with
the requirements and provisions of the DOL regulations and of tax law may
result in adverse tax consequences and/or adverse consequences under ERISA.
Plan fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
Businesses can use the Policies 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. If you are
purchasing the Policy for any arrangement the value of which depends in part on
its tax consequences, you should consult a qualified tax adviser. In recent
years, moreover, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new Policy or
a change in an existing Policy should consult a tax adviser.
We believe that Policies subject to Puerto Rican tax law will generally receive
treatment similar, with certain modifications, to that described above. Among
other differences, Policies governed by Puerto Rican tax law are not currently
subject to the rules described above regarding Modified Endowment Contracts.
You should consult your tax adviser with respect to Puerto Rican tax law
governing the Policies.
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 otherwise. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
NELICO'S INCOME TAXES
Under current Federal income tax law NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for company Federal income taxes. (We do deduct a charge for
Federal taxes from premiums.) We reserve the right to charge the Variable
Account for any future Federal income taxes we may incur.
Under current laws we may incur state and local taxes (in addition to premium
taxes). These taxes are not now significant and we are not currently charging
for them. If they increase, we may deduct charges for such taxes.
A-41
<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......... Chairman, President and Chief Executive Officer of NELICO
since 1998; formerly, Director, President and Chief
Operating Officer 1997-1998 of NELICO; President and
Chief Executive Officer 1996-1997 of Equitable Life
Assurance Society; President and Chief Operating Officer
1996-1997 of Equitable Companies, Inc.; President and
Chief Operating Officer 1994-1996 of Equitable Life
Assurance Society.
Robert H. Benmosche..... Director of NELICO since 1998 and Chairman, President and
Metropolitan Life In- Chief Executive Officer of Metropolitan Life Insurance
surance Company Company since 1998; formerly, Director, President and
One Madison Avenue Chief Operating Officer 1997-1998; Executive Vice
New York, New York President 1995-1997 of Metropolitan Life; Executive Vice
10010 President 1989-1995 of Paine Webber.
Susan C. Crampton....... Director of NELICO since 1996 and serves as Principal of
6 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.
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 and President of Merrimack
Ten Sterling Place Higher Education Associates, Inc. since 1998; formerly
Bow, NH 03304 Director 1987-1996 of New England Mutual and Executive
Director and Chief Executive Officer 1994-1997 of the
California Academy of Sciences and Research Fellow.
Philip K. Howard, Esq... Director of NELICO since 1996 and Partner of the law firm
Howard, Smith & Levin of Howard, Smith & Levin LLP in New York City.
LLP
1330 Avenue of the
Americas
New York, NY 10019
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.; Director and Executive Vice President
Americas 1993-1995 of Burlington Menswear Division.
New York, NY 10105
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
Stewart G. Nagler....... Director of NELICO since 1996 and Vice Chairman of Board
Metropolitan Life and Chief Financial Officer of Metropolitan Life
One Madison Avenue Insurance Company since 1998; formerly, Senior Executive
New York, NY 10010 Vice President and Chief Financial Officer 1986-1998 of
Metropolitan Life Insurance Company.
</TABLE>
A-42
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Catherine A. Rein....... Director of NELICO since 1998 and President and Chief
Metropolitan Auto & Executive Officer of Metropolitan Auto & Home Insurance
Home Company since 1999; formerly, Senior Executive Vice
Insurance Company President 1998-1999; Executive Vice President 1989-1998
700 Quaker Lane of Metropolitan Life Insurance Company.
Warwick, RI 02887
Rand N. Stowell......... Director of NELICO since 1996 and President of United
P.O. Box 60 Timber Corp. of Dixfield, Maine; formerly, Director 1990-
Weld, ME 04285 1996 of New England Mutual.
Alexander B. Director of NELICO since 1996 and President of Trowbridge
Trowbridge............. Partners, Inc. in Washington, DC; formerly, Director
Trowbridge Partners 1983-1996 of New England Mutual.
Inc.
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 of New England Mutual.
A. Frank Beaz........... Executive Vice President of NELICO since 1999; formerly,
Senior Vice President 1998-1999 of NELICO; Chief
Administrative Officer and Senior Vice President 1997-
1998 of Equitable Distributors and Senior Vice President
1994-1997 of the Equitable Life Insurance Companies.
Mary Ann Brown.......... President, New England Products and Services (a business
unit of NELICO) since 1998; formerly, Director, Worldwide
Life Insurance 1997-1998 of Swiss Reinsurance New
Markets; President & Chief Executive Officer 1996-1998 of
Atlantic International Reinsurance Company; Executive
Vice President 1996-1997 of Swiss Re Atrium and Swiss Re
Services and Principal 1987-1996 of Tillinghast/Towers
Perrin.
Anthony J. Candito...... President, NEF Information Services (a business unit of
NELICO) and Chief Information Officer since 1998;
formerly, Senior Vice President 1996-1998 of NELICO;
Senior Vice President 1995-1996 and Vice President 1994-
1995 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
of New England Mutual.
Daniel D. Jordan........ Second Vice President, Counsel, Secretary and Clerk since
1996; formerly, Counsel and Assistant Secretary 1990-1996
of New England Mutual.
Stephan M. Largent...... Senior Vice President of NELICO since 1998; formerly,
President 1995-1998 of First Variable Life Insurance
Company, President 1993-1995 of ING Equities, Inc. and
Vice President 1993-1995 of Security Life of Denver.
Alan C. Leland, Jr. .... Senior Vice President of NELICO since 1996; formerly, Vice
President 1984-1996 of New England Mutual.
</TABLE>
A-43
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
Bruce C. Long........... President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996 of New
England Annuities (a business unit of New England
Mutual).
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.
Thomas W. Moore......... Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
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 of Liberty Life Assurance Company.
David Y. Rogers......... Executive Vice President and Chief Financial Officer of
NELICO since 1999; formerly, Partner, Actuarial
Consulting 1992-1999 of Price Waterhouse Coopers LLP.
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.
H. James Wilson......... Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996 of New England Mutual.
John W. Wright.......... President, New England Financial Employee Benefits Group
(a business unit of NELICO) since 1996; formerly,
President 1993-1996 of New England Employee Benefits
Group (a business unit of New England Mutual).
Frederick K. Zimmer- Executive Vice President and Chief Investment Officer of
mann................... NELICO since 1996; formerly, Executive Vice President and
Chief Investment Officer 1993-1996 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.
Like all financial services providers, we utilize systems that may be affected
by Year 2000 transition issues and we rely on a number of third parties,
including banks and investment managers, that also may be affected. We and our
affiliates have developed, and are in the process of implementing, a Year 2000
transition plan. We are also confirming that service providers are also so
engaged. The resources being devoted to this effort are substantial. We cannot
predict whether the resources being devoted, or the outcome of these efforts,
will have any negative impact. If we or our service providers or the Eligible
Funds are not successful in the Year 2000 transition, computer systems could
fail or erroneous results or delays could occur when processing information
after December 31, 1999. However, as of the date of this prospectus, we do not
anticipate that you will experience negative effects on your investment, or on
the Policy services provided, as a result of Year 2000 transition
implementation. Currently we have converted our systems to be Year 2000
compliant and are conducting systems testing and compliance verification which
we expect to complete in mid-1999. Service providers may not have anticipated
every step necessary to avoid any adverse effect on the Variable Account
attributable to Year 2000 transition.
A-44
<PAGE>
VOTING RIGHTS
We own the Eligible Fund shares held in the Variable Account and vote those
shares at meetings of the Eligible Fund shareholders. Under Federal securities
law, you currently have the right to instruct us how to vote shares that are
attributable to your Policy.
Policy Owners who are entitled to give voting instructions and the number of
shares attributable to their Policies are determined as of the meeting record
date. If we do not receive timely instructions, we will vote shares 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 we
receive voting instructions. No voting privileges apply to the Fixed Account or
to cash value removed from the Variable Account due to a Policy loan.
We will vote all Eligible Fund shares held by our general account (or any
unregistered separate account for which voting privileges were not extended) 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 Eligible Funds' Boards of Trustees 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 result from changes in state
insurance law or Federal income tax law, changes in investment management of an
Eligible Fund, or differences in voting instructions given by variable life and
variable annuity contract owners. If there is a material conflict, the Board of
Trustees will determine what action should be taken, including the removal of
the affected sub-accounts from the Eligible Fund(s), if necessary. If we
believe any Eligible Fund action is insufficient, we will consider taking other
action to protect Policy Owners. There could, however, be unavoidable delays or
interruptions of operations of the Variable Account that we may be unable to
remedy.
We may disregard voting instructions for changes in the investment policy,
investment adviser or principal underwriter of an Eligible Fund portfolio if
required by state insurance law, or if we (i) reasonably disapprove of the
changes and (ii) in the case of a change in investment policy or investment
adviser, make a good faith determination that the proposed change is prohibited
by state authorities or inconsistent with a sub-account's investment
objectives. If we do disregard voting instructions, the next annual report to
Policy Owners will include a summary of that action and the reasons for it.
RIGHTS RESERVED BY NELICO
We and our affiliates may change the voting procedures described above, and
vote Eligible Fund shares without Policy Owner instructions, if the securities
laws change. We also reserve the right: (1) to add sub-accounts; (2) to combine
sub-accounts; (3) to invest sub-account assets as a substitute for Eligible
Fund shares, to close a sub-account, or to transfer assets to our general
account as permitted by applicable law; (4) to operate the Variable Account as
a management investment company under the Investment Company Act of 1940 or in
any other form; and (5) to deregister the Variable Account under the Investment
Company Act of 1940. We will exercise these rights in accordance with
applicable law, including approval of Policy Owners if required. We 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 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of Additional
Information for the Eligible Funds, call 1-800-200-2214.
A-45
<PAGE>
You may also call our Client TeleService Center 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 Policy changes, please contact your registered representative.
REPORTS
We will send you an annual statement showing your Policy's death benefit, cash
value and any outstanding Policy loan principal. We 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
Professional organizations may endorse the Policies. We may use such
endorsements in Policy sales material. We may pay the professional organization
for the use of its customer or mailing lists to distribute Policy promotional
materials. An endorsement by a third party does not predict the future
performance of the Policies.
Articles discussing the Variable Account's investment performance, rankings and
other characteristics may appear in 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. We may use references to, or reprints of such articles or
rankings as sales material and may include rankings that indicate the names of
other variable contract separate accounts and their investment experience.
Publications may use articles and releases, developed by NELICO, the Eligible
Funds and other parties, about the Variable Account or the Eligible Funds. We
may use references to or reprints of such articles in sales material 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, and include excerpts from media articles.
We are a member of the Insurance Marketplace Standards Association ("IMSA"),
and may include the IMSA logo and information about IMSA membership in our
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.
Policy sales material may refer to historical, current and prospective economic
trends. In addition, sales material may discuss topics of general investor
interest for the benefit of registered representatives and prospective Policy
Owners. These materials may include, but are not limited to, discussions of
college planning, retirement planning, reasons for investing and historical
examples of the investment performance of various classes of securities,
securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus have
been passed on by H. James Wilson, General Counsel of NELICO. Sutherland Asbill
& Brennan LLP, of Washington, D.C., has provided advice on certain matters
relating to the Federal securities laws.
A-46
<PAGE>
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of New
England Life Insurance Company ("NELICO") and the consolidated financial
statements of NELICO and subsidiaries included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority 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-47
<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 work. 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. Illustrations show Option A,
Option B, and Option C death benefits. 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.
The illustrated death benefits, net cash values and cash values for a Policy
would be different, either higher or lower, from the amounts shown if the
actual gross rates of return averaged 0%, 6% or 12%, but varied above and below
that average during 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 a 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. For example, as a result of variations in actual
returns, additional premium payments beyond those illustrated may be necessary
to maintain the Policy in force for the periods shown or to realize the Policy
values shown on particular illustrations even if the average rate of return is
achieved.
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 reflect an average of
the investment advisory fees and operating expenses of 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 New England Investment Management and the Zenith Fund that New England
Investment Management could terminate at any time.
Taking account of the mortality and expense risk charge 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 the current charge for mortality and expense risks, and -1.65%, 4.25%
and 10.16%, respectively, based on the guaranteed maximum charge for mortality
and expense risks. (See "Net Investment Experience".)
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.
A-48
<PAGE>
If you request, we will furnish a personalized illustration reflecting the
proposed insureds' age, sex, underwriting classification, and the face amount
or premium payment schedule requested. Where applicable, we will also furnish
on 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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
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 predict future performance.
The Policies became available 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 shown in this Appendix commenced operations on October 31, 1994 and were
made available under the Policies in May 1996. The VIP Equity-Income Portfolio
and VIP Overseas Portfolio commenced operations on October 9, 1986 and January
28, 1987, respectively. The VIP High Income Portfolio and the VIP II Asset
Manager Portfolio commenced operations on September 19, 1985 and September 6,
1989, respectively, and were added as investment options on December 19, 1994.
We base the illustrations on the actual investment experience of the relevant
Eligible Funds for the periods shown (net of actual charges and expenses
incurred by the Eligible Funds), 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.
Many factors other than investment experience affect Policy values and
benefits. 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, we calculate the
rate 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-56
<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-
12/31/98 12/31/98
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 RETURN ANNUAL
- ----------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital
Growth*........ 37.00% 20.16% 22.56% 33.09% 2,285.11% 22.96%
Bond Income..... 20.29 3.82 10.06 8.23 304.47 9.53
Money Market.... 4.91 4.34 4.55 4.48 131.85 5.63
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
5/1/87- --------------------------------------------------------------------------------------------------
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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% 26.98%
Managed......... -1.15 8.67 18.20 2.44 19.28 5.90 9.82 -1.85 30.28 14.16 25.62 18.76
<CAPTION>
5/1/87- 5/1/87-
12/31/98 12/31/98
TOTAL EFFECTIVE
SUB-ACCOUNT RETURN ANNUAL
- ----------- -------- ---------
<S> <C> <C>
Stock Index..... 415.27% 15.09%
Managed......... 292.90 12.44
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------- 4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/98 12/31/98
4/30/93- -------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income....... 13.67% -1.94% 35.45% 17.21% 32.47% 23.52% 189.55% 20.62%
Midcap Value**.......... 14.16 -1.01 29.38 16.72 16.45 -6.17 86.47 11.62
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------- 5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/98 12/31/98
5/2/94- ----------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 RETURN ANNUAL
- ----------- --------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Small Cap............... -3.71% 27.88% 29.70% 23.92% -2.43% 93.11% 15.15%
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------- 10/31/94- 10/31/94-
FOR ONE YEAR ENDING 12/31/98 12/31/98
10/31/94- ----------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 RETURN ANNUAL
- ----------- --------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........... -4.32% 47.59% 12.32% 24.69% 46.68% 190.10% 29.12%
Balanced................ -.22 23.86 16.03 15.31 8.29 79.07 15.01
Venture Value........... -3.62 38.25 24.89 32.50 13.56 150.40 24.64
International Magnum
Equity***.............. 2.48 5.44 5.87 -2.04 6.47 19.32 4.33
</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 for the period through April 30, 1998 and .75%
therafter.
*** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Dean Witter
Investment Management became sub-adviser.
SUB-ACCOUNTS INVESTING IN VIP
<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-
12/31/98 12/31/98
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/98 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
Equity-Income... 10.79% 373.61% 13.56%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
1/28/87- --------------------------------------------------------------------------------------------------
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 12/31/98
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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% 11.91%
<CAPTION>
1/28/87- 1/28/87-
12/31/98 12/31/98
TOTAL EFFECTIVE
RETURN ANNUAL
-------- ---------
<S> <C> <C>
Overseas........ 144.44% 7.78%
</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-
12/31/98 12/31/98
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 12/31/98 RETURN ANNUAL
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
High Income..... 16.79% -5.04% 266.26% 10.27%
</TABLE>
SUB-ACCOUNT INVESTING IN VIP II
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------------------------------------------- 9/6/89- 9/6/89-
FOR ONE YEAR ENDING 12/31/98 12/31/98
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 12/31/98 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <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% 14.19% 190.94% 12.15%
</TABLE>
A-57
<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 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 1,160,323 678,155 675,804 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
December 31, 1998....... 256,000 1,000,000 2,307,151 1,383,599 1,383,599 19.20 24.63
</TABLE>
A-58
<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
December 31, 1998....... 256,000 1,000,000 1,000,000 463,556 463,556 7.17 15.72
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
December 31, 1998....... 256,000 1,000,000 1,000,000 323,831 323,821 2.92 15.72
</TABLE>
A-59
<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
December 31, 1998....... 192,000 1,000,000 1,000,000 527,597 524,132 15.42 24.90
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
December 31, 1998....... 192,000 1,000,000 1,000,000 413,743 410,279 11.77 24.90
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
December 31, 1998....... 96,000 1,000,000 1,000,000 165,526 153,701 14.97 80.81
</TABLE>
A-60
<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
December 31, 1998....... 96,000 1,000,000 1,000,000 110,110 98,286 0.74 80.81
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
December 31, 1998....... 80,000 1,000,000 1,000,000 97,762 84,899 2.24 112.81
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $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
December 31, 1998....... 80,000 1,000,000 1,000,000 127,577 114,714 16.79 137.32
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
December 31, 1998....... 80,000 1,000,000 1,000,000 91,341 78,478 -0.89 137.32
</TABLE>
A-61
<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
December 31, 1998....... 80,000 1,000,000 1,000,000 112,076 99,213 9.98 137.32
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
December 31, 1998....... 80,000 1,000,000 1,000,000 74,352 61,488 -12.11 137.32
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
December 31, 1998....... 208,000 1,000,000 1,000,000 493,314 490,716 12.93 22.96
</TABLE>
A-62
<PAGE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 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
December 31, 1998....... 192,000 1,000,000 1,000,000 297,818 294,848 6.51 24.10
HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 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
December 31, 1998....... 224,000 1,000,000 1,000,000 397,512 396,523 8.02 20.04
</TABLE>
A-63
<PAGE>
ASSET MANAGER 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 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
December 31, 1998....... 160,000 1,000,000 1,000,000 259,333 252,471 9.21 35.77
</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 for the period through April 30, 1998 and .75% thereafter.
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 19.32 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
December 31, 1998....... 256,000 1,000,000 2,380,417 1,380,417 1,380,417 19.18 24.97
</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 $1,014,290 $ 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 46.78
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 1,413,385 413,385 413,385 7.05 21.62
December 31, 1998....... 256,000 1,000,000 1,461,836 461,836 461,836 7.13 19.79
</TABLE>
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
December 31, 1998....... 256,000 1,000,000 1,322,671 322,671 322,671 2.88 18.72
</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 $1,014,290 $ 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
December 31, 1998....... 192,000 1,000,000 1,526,955 526,955 523,491 15.40 31.09
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
December 31, 1998....... 192,000 1,000,000 1,413,247 413,247 409,783 11.76 29.96
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 $1,014,290 $ 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
December 31, 1998....... 96,000 1,000,000 1,165,508 165,508 153,684 14.97 86.88
</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 $1,014,290 $ 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
December 31, 1998....... 96,000 1,000,000 1,110,099 110,099 98,274 0.74 84.93
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
December 31, 1998....... 80,000 1,000,000 1,097,757 97,757 84,894 2.23 117.94
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
December 31, 1998....... 80,000 1,000,000 1,127,572 127,572 114,709 16.79 145.55
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
December 31, 1998....... 80,000 1,000,000 1,091,338 91,338 78,475 -.89 143.29
</TABLE>
A-67
<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
December 31, 1998....... 80,000 1,000,000 1,112,072 112,072 99,209 9.98 144.59
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
December 31, 1998....... 80,000 1,000,000 1,074,349 74,349 61,486 -12.11 142.21
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 1,327,612 327,612 322,044 11.09 35.64
December 31, 1997....... 192,000 1,000,000 1,430,129 430,129 426,046 13.15 31.93
December 31, 1998....... 208,000 1,000,000 1,492,605 492,605 490,007 12.90 28.54
</TABLE>
A-68
<PAGE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 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
December 31, 1998....... 192,000 1,000,000 1,297,429 297,429 294,459 6.49 27.79
HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 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
December 31, 1998....... 224,000 1,000,000 1,396,716 396,716 395,726 7.99 24.26
</TABLE>
A-69
<PAGE>
ASSET MANAGER 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 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
December 31, 1998....... 160,000 1,000,000 1,259,197 259,197 252,335 9.20 40.25
</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 for the period through April 30, 1998 and .75% thereafter.
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
December 31, 1998....... 256,000 1,000,000 1,593,076 1,385,283 1,385,283 19.22 20.71
</TABLE>
A-70
<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
December 31, 1998....... 256,000 1,000,000 1,000,000 463,556 463,556 7.17 15.72
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
December 31, 1998....... 256,000 1,000,000 1,000,000 323,831 323,831 2.92 15.72
</TABLE>
A-71
<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
December 31, 1998....... 192,000 1,000,000 1,000,000 527,597 524,132 15.42 24.90
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
December 31, 1998....... 192,000 1,000,000 1,000,000 413,743 410,279 11.77 24.90
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 21,871 -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
December 31, 1998....... 96,000 1,000,000 1,000,000 165,526 153,701 14.97 80.81
</TABLE>
A-72
<PAGE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $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
December 31, 1998....... 96,000 1,000,000 1,000,000 110,110 98,286 .74 80.81
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
December 31, 1998....... 80,000 1,000,000 1,000,000 97,762 84,899 2.24 112.81
ZENITH EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $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
December 31, 1998....... 80,000 1,000,000 1,000,000 127,577 114,714 16.79 137.32
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
December 31, 1998....... 80,000 1,000,000 1,000,000 91,341 78,478 -.89 137.32
</TABLE>
A-73
<PAGE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 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
December 31, 1998....... 80,000 1,000,000 1,000,000 112,076 99,213 9.98 137.32
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
December 31, 1998....... 80,000 1,000,000 1,000,000 74,352 61,488 -12.11 137.32
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
December 31, 1998....... 208,000 1,000,000 1,000,000 493,314 490,716 12.93 22.96
</TABLE>
A-74
<PAGE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 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
December 31, 1998....... 192,000 1,000,000 1,000,000 297,818 294,848 6.51 24.10
HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 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
December 31, 1998....... 224,000 1,000,000 1,000,000 397,512 396,523 8.02 20.04
</TABLE>
A-75
<PAGE>
ASSET MANAGER 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 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
December 31, 1998....... 160,000 1,000,000 1,000,000 259,333 252,471 9.21 35.77
</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 for the period through April 30, 1998 and .75% thereafter.
A-76
<PAGE>
APPENDIX C
LONG TERM MARKET TRENDS
The information below compares 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 does
not predict future performance. The information does not reflect policy
charges.
The data indicates that, historically, the investment performance of common
stocks over long periods has been positive and generally superior to that of
long-term, high grade debt securities. Common stocks have, however, been
subject to more dramatic market adjustments over short periods.
Over the 54 20-year time periods beginning in 1926 and ending in 1998 (i.e.,
1926-1945, 1927-1946, and so on through 1979-1998):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 51 of the 54 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 54 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 54 periods.
Over the 44 30-year time periods beginning in 1926 and ending in 1998, 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 44 periods.
From 1926 through 1998 the average annual return for common stocks was 11.2%,
compared to 5.8% for high grade, long-term corporate bonds, 3.8% for U.S.
Treasury bills and 3.1% for the Consumer Price Index.
- --------
* Used with permission. (C)1999 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger
G. Ibbotson and Rex Sinquefield.]
A-77
<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 1998.
The chart does not predict future stock market results. It shows the historic
performance of a broad index of stocks, and not the performance of any fund or
investment.
---------------------
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........................ 27% 4% 11% 7% 11% 40%
5 years....................... 10% 14% 14% 31% 19% 12%
10 years....................... 3% 10% 33% 24% 28% 2%
20 years....................... 0% 6% 31% 54% 9% 0%
</TABLE>
- --------
Used with permission. (C)1999 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
DOLLAR COST AVERAGING
Dollar cost averaging 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--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. Under dollar cost averaging, an investor does not invest more when the
price of shares is high and less 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 you have the ability and desire to maintain this
program over a long period of time (for example, 20 years), and the stock fund
you chose follows the historical upward market trends, the price at which you
sell shares should be higher than their average cost. This price could be
lower, however, if the fund chosen does not follow these historical trends.
You should consider your ability to continue on-going dollar cost averaging
purchases so that you can take advantage of periods of low price levels if you
are considering dollar cost averaging.
A-78
<PAGE>
APPENDIX D
USES OF SURVIVORSHIP LIFE INSURANCE
These are examples of ways 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 enough insurance to provide for dependent children if
one of the parents dies but not enough to provide for them if both parents die.
Survivorship life can provide protection against extraordinary expenses if both
parents die while the children are dependent.
CHARITABLE GIVING
You can use life insurance 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 support or
if the individual wants 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 policy's death benefit proceeds can pass
directly to the children, free of income and estate taxes, at the same time
that the assets in the spouse's estate pass to charity.
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
can receive.
BUSINESS USES
You can use survivorship life 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 cash value accumulation, you
can use the Policy for various individual and business planning purposes. If
you purchase the Policy for such purposes, you assume 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 you don't pay sufficient premiums or maintain cash
values, the Policy may lapse or may not accumulate sufficient cash value or net
cash value to fund the purpose for which you purchased the Policy. Because the
Policy is designed to provide benefits on a long-term basis, before purchasing
a Policy for a specialized purpose, you should consider whether the long-term
nature of the Policy is consistent with your goals. 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-79
<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.
This appendix is not tax advice. You should consult with your own tax advisor
for more complete information.
A-80
<PAGE>
APPENDIX F
TAX LAW AND THE DEATH BENEFIT
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. These percentages are set forth below.
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-81
<PAGE>
APPENDIX G
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-82
<PAGE>
New England Variable Life Separate Account of New England Life Insurance
Company
Report of Independent Accountants
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, Midcap Value Sub-Account (formerly 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 Magnum Equity Sub-Account
(formerly 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 as of December 31, 1998, and the related statements of
operations and changes in net assets for each of the three years in the period
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 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, 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, 1998, and the results of
their operations and the changes in their net assets for each of the three
years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1999
F-1
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
----------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
-------------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments in New England Zenith
Fund, Variable Insurance Products
Fund, and Variable Insurance
Products Fund II at value
(Note 2)........................ $1,062,879,735 $63,810,233 $91,999,048 $112,951,497 $58,280,968 $36,325,954 $66,354,407
<CAPTION>
Shares Cost
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,270,965 $ 846,910,241
Back Bay
Advisors Bond
Income Series.. 580,674 62,600,962
Back Bay
Advisors Money
Market Series.. 919,990 91,999,048
Westpeak Stock
Index Series... 575,256 72,986,331
Back Bay
Advisors
Managed Series. 280,521 44,995,302
Goldman Sachs
Midcap Value
Series......... 295,718 40,133,483
Westpeak Growth
and Income
Series......... 318,506 52,737,711
Loomis Sayles
Small Cap
Series......... 466,286 68,072,072
Salomon Brothers
U.S. Government
Series......... 67,545 759,527
Loomis Sayles
Balanced
Series......... 927,883 13,354,477
Alger Equity
Growth Series.. 4,069,269 71,472,170
Morgan Stanley
International
Magnum Equity
Series......... 1,025,541 11,496,216
Davis Venture
Value Series... 4,661,398 87,902,713
Salomon Brothers
Bond
Opportunities
Series......... 105,941 1,257,497
VIP Equity-
Income
Portfolio...... 6,075,186 114,838,775
VIP Overseas
Portfolio...... 4,647,523 78,413,065
VIP High Income
Portfolio...... 981,426 11,927,393
VIP II Asset
Manager
Portfolio...... 505,178 7,927,108
--------------
Total $1,679,784,090
==============
Amount due and accrued (payable) from
policy-related transactions, net... 177,286 141,063 1,688,024 146,440 (922) 61,118 58,059
Dividends receivable................ -- -- 317,906 -- -- -- --
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Total Assets........................ 1,063,057,021 63,951,296 94,004,978 113,097,938 58,280,046 36,387,072 66,412,466
Liabilities
Due New England Life Insurance
Company........................... 88,352,429 6,135,252 8,674,054 12,388,146 5,030,060 3,676,010 7,460,673
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Total Liabilities................. 88,352,429 6,135,252 8,674,054 12,388,146 5,030,060 3,676,010 7,460,673
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Net Assets for Variable Life
Insurance Policies................. $ 974,704,592 $57,816,044 $85,330,924 $100,709,791 $53,249,987 $32,711,062 $58,951,793
============== =========== =========== ============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund
- ----------------------------------------------------------------------------------------- -------------------------------------
International
Small U.S. Equity Magnum Venture Bond Equity- High
Cap Government Balanced Growth Equity Value Opportunities Income Overseas Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account Account Account
- ----------- ---------- ----------- ------------ ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$71,588,857 $774,736 $14,391,467 $102,179,339 $11,691,171 $107,911,360 $1,210,903 $154,432,484 $93,181,595 $11,315,839
134,394 5,294 13,282 356,305 15,466 52,450 7,704 9,726 (100,707) 15,136
-- -- -- -- -- -- -- -- -- --
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
71,723,251 780,030 14,404,749 102,535,644 11,706,637 107,963,810 1,218,608 154,442,210 93,080,888 11,330,975
7,924,364 88,418 1,928,101 11,661,794 1,388,081 12,691,342 127,954 15,888,809 8,807,089 1,342,020
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
7,924,364 88,418 1,928,101 11,661,794 1,388,081 12,691,342 127,954 15,888,809 8,807,089 1,342,020
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
$63,798,887 $691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654 $138,553,401 $84,273,799 $ 9,988,955
=========== ======== =========== ============ =========== ============ ========== ============ =========== ===========
<CAPTION>
Variable
Insurance
Products
Fund II
- ------------------------ --------------
Small Asset
Cap Manager
Sub- Sub-
Account Account Total
- ------------ ---------- --------------
<S> <C> <C>
$71,588,857 $9,174,668 $2,070,454,260
134,394 271 2,780,390
-- -- 317,906
- ------------ ---------- --------------
71,723,251 9,174,938 2,073,552,557
7,924,364 987,748 194,552,345
- ------------ ---------- --------------
7,924,364 987,748 194,552,345
- ------------ ---------- --------------
$63,798,887 $8,187,191 $1,879,000,212
============ ========== ==============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value 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.............. $136,031,595 $4,500,888 $2,243,738 $ 1,665,717 $ 4,920,327 $ 8,522,091 $ 4,438,526
Expense
Mortality and expense
risk charge (Note 3).. 5,675,180 329,452 281,233 574,859 295,717 213,136 321,673
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net investment income
(loss)................ 130,356,415 4,171,436 1,962,505 1,090,858 4,624,610 8,308,955 4,116,853
Net Realized and
Unrealized Gain (Loss)
on Investments
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.... 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665
End of period.......... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation)........ 124,603,132 317,214 -- 20,076,109 3,838,229 (10,771,908) 6,758,031
Net realized gain on
investments........... 5,610,899 1,800 -- 190,803 163,910 236,891 14,655
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net realized and
unrealized gain (loss)
on investments........ 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $260,570,446 $4,490,449 $1,962,505 $21,357,770 $ 8,626,750 $ (2,226,063) $10,889,538
============ ========== ========== =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund
- --------------------------------------------------------------------------------------- ----------------------------------
International
Small U.S. Equity Magnum Venture Bond Equity- High
Cap Government Balanced Growth Equity Value Opportunities Income Overseas Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account Account Account
- ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,148,975 $32,331 $ 607,129 $ 3,598,904 $ 251,292 $ 2,912,129 $ 81,480 $ 8,088,940 $6,093,523 $ 1,064,286
380,727 (2,318) 52,939 452,661 48,632 512,333 (9,440) 902,569 550,070 67,547
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
768,248 34,649 554,190 3,146,243 202,660 2,399,796 90,920 7,186,371 5,543,453 996,739
5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
3,516,783 15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) 39,593,709 14,768,529 (611,552)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,905,274) 17,125 394,379 25,315,901 349,959 9,291,865 (44,337) 6,894,545 3,631,231 (1,576,072)
20,862 11 6,840 56,142 5,897 22,521 493 561,003 333,272 20,913
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,884,412) 17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
$(1,116,164) $51,785 $ 955,409 $28,518,286 $ 558,517 $11,714,181 $ 47,076 $14,641,919 $9,507,956 $ (558,420)
=========== ======= ========== =========== ========= =========== ======== =========== ========== ===========
<CAPTION>
Variable
Insurance
Products
Fund II
- ------------------------ ------------
Small Asset
Cap Manager
Sub- Sub-
Account Account Total
- ------------- ---------- ------------
<S> <C> <C>
$ 1,148,975 $ 835,511 $187,037,382
380,727 50,140 10,697,110
- ------------- ---------- ------------
768,248 785,371 176,340,272
5,422,058 971,097 203,203,584
3,516,783 1,247,559 390,670,172
- ------------- ---------- ------------
(1,905,274) 276,461 187,466,588
20,862 4,137 7,251,049
- ------------- ---------- ------------
(1,884,412) 280,598 194,717,637
- ------------- ---------- ------------
$(1,116,164) $1,065,969 $371,057,909
============= ========== ============
</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 Year Ended December 31, 1997
<TABLE>
<CAPTION>
New England Zenith Fund
--------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value 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.............. $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
(loss)................ 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>
- ---------------------------------------------------------------------------------
International
Small U.S. Equity Magnum Venture Bond
Cap Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
- ---------- ---------- -------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $1,822,395 $43,914
275,141 2,290 50,941 265,599 51,702 276,055 9,400
- ---------- ------ -------- ---------- --------- ---------- -------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153)
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256)
- ---------- ------ -------- ---------- --------- ---------- -------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103)
20,956 1 55,231 75,802 8,303 21,718 201
- ---------- ------ -------- ---------- --------- ---------- -------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902)
- ---------- ------ -------- ---------- --------- ---------- -------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $9,886,818 $33,612
========== ====== ======== ========== ========= ========== =======
<CAPTION>
- ---------------------------------------------------------------------------------
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- ------------------------------- ---------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
$ 8,872,794 $5,434,055 $393,295 $528,401 $231,072,203
676,059 447,597 41,502 33,135 7,755,657
- ----------- ---------- -------- -------- ------------
8,196,735 4,986,458 351,793 495,266 223,316,546
16,409,989 9,502,216 362,600 547,647 194,486,245
32,699,163 11,137,299 964,520 971,097 203,203,584
- ----------- ---------- -------- -------- ------------
16,289,174 1,635,083 601,920 423,450 8,717,339
126,489 67,905 12,234 5,368 2,491,649
- ----------- ---------- -------- -------- ------------
16,415,663 1,702,988 614,154 428,818 11,208,988
- ----------- ---------- -------- -------- ------------
$24,612,398 $6,689,446 $965,947 $924,084 $234,525,534
=========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Operations
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
New England Zenith Fund
-------------------------------------------------------------------------------
Capital Bond Money Stock Midcap Growth and
Growth Income Market Index Managed Value 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>
- ----------------------------------------------------------------------------------
International
Small U.S. Equity Magnum Venture Bond
Cap Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account* Account Account Account Account Account*
- ---------- ---------- -------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$1,624,708 $ 702 $104,939 $ 44,863 $ 71,347 $ 444,012 $ 1,218
90,146 28 11,713 104,685 19,385 64,656 40
- ---------- ----- -------- ---------- -------- ---------- -------
1,534,562 674 93,226 (59,822) 51,962 379,356 1,178
768,552 -- 3,769 65,901 24,089 171,931 --
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153)
- ---------- ----- -------- ---------- -------- ---------- -------
2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153)
31,570 -- 2,318 11,723 159 4,907 --
- ---------- ----- -------- ---------- -------- ---------- -------
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
========== ===== ======== ========== ======== ========== =======
<CAPTION>
- ----------------------------------------------------------------------------------
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- ------------------------------- ---------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
$ 2,662,990 $1,164,550 $199,463 $174,907 $ 50,453,549
428,473 325,346 19,551 20,483 4,984,819
- ----------- ---------- -------- -------- ------------
2,234,517 839,204 179,912 154,424 45,468,730
9,642,454 4,022,725 167,043 269,255 101,153,516
16,409,989 9,502,216 362,600 547,647 194,486,245
- ----------- ---------- -------- -------- ------------
6,767,535 5,479,491 195,557 278,392 93,332,729
27,750 44,049 1,942 4,122 1,232,236
- ----------- ---------- -------- -------- ------------
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
=========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-9
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Changes in Net Assets
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
------------------------------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and Small
Growth Income Market Index Managed Value 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 (loss).. $ 130,356,415 $ 4,171,436 $ 1,962,505 $ 1,090,858 $ 4,624,610 $ 8,308,955 $ 4,116,853 $ 768,248
Net realized and
unrealized gain
(loss) on
investments.... 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686 (1,884,412)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 260,570,446 4,490,449 1,962,505 21,357,770 8,626,750 (2,226,063) 10,889,538 (1,116,164)
From Policy-
Related
Transactions
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 130,346,621 10,522,040 221,378,611 15,997,005 6,508,238 8,067,127 10,034,046 16,979,803
Net transfers
(to) from other
sub-
accounts....... 28,412,166 9,220,311 (149,270,654) 22,094,429 6,317,021 (102,089) 15,004,643 9,499,585
Net transfers to
New England
Life Insurance
Company........ (136,266,249) (7,932,456) (21,844,962) (16,290,249) (6,742,406) (4,094,516) (8,744,105) (9,074,771)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 22,492,538 11,809,895 50,262,995 21,801,185 6,082,853 3,870,522 16,294,584 17,404,617
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net increase in
net assets..... 283,062,984 16,300,344 52,225,500 43,158,955 14,709,603 1,644,459 27,184,123 16,288,452
Net Assets, at
beginning of the
period.......... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670 47,510,435
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Assets, at
end of the
period.......... $ 974,704,592 $57,816,044 $ 85,330,924 $100,709,791 $53,249,987 $ 32,711,062 $58,951,793 $63,798,887
============= =========== ============= ============ =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account
- ---------- ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920
17,136 401,219 25,372,043 355,856 9,314,386 (43,844)
- ---------- ----------- ------------ ----------- ------------ ----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076
-- 3,185,034 18,566,913 3,131,225 24,165,947 --
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947)
- ---------- ----------- ------------ ----------- ------------ ----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841
- ---------- ----------- ------------ ----------- ------------ ----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737
- ---------- ----------- ------------ ----------- ------------ ----------
$ 691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654
========== =========== ============ =========== ============ ==========
<CAPTION>
Variable Insurance
Variable Insurance Products
Products Fund Fund II
- --------------------------------------- -------------------------------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C>
$ 7,186,371 $ 5,543,453 $ 996,739 $ 785,371 $ 176,340,272
7,455,548 3,964,503 (1,555,159) 280,598 194,717,637
- ------------ ------------ ----------- ------------ ---------------
14,641,919 9,507,956 (558,420) 1,065,969 371,057,909
26,170,240 17,386,996 2,434,923 1,626,307 516,501,076
8,474,098 342,473 2,823,884 1,297,121 --
(18,064,178) (10,788,946) (1,891,706) (1,251,084) (277,154,223)
- ------------ ------------ ----------- ------------ ---------------
16,580,160 6,940,523 3,367,101 1,672,344 239,346,853
- ------------ ------------ ----------- ------------ ---------------
31,222,080 16,448,479 2,808,682 2,738,313 610,404,762
107,331,321 67,825,320 7,180,273 5,448,878 1,268,595,450
- ------------ ------------ ----------- ------------ ---------------
$138,553,401 $ 84,273,799 $ 9,988,955 $ 8,187,191 $1,879,000,212
============ ============ =========== ============ ===============
</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 Year Ended December 31, 1997
<TABLE>
<CAPTION>
New England Zenith Fund
-----------------------------------------------------------------------------------------------------------
Capital Bond Money Stock Midcap Small
Growth Income Market Index Managed Value Growth and Cap
Sub- Sub- Sub- Sub- Sub- Sub- Income 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 (loss).. $ 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>
- -------------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account
- ---------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902)
-------- ----------- ----------- ----------- ------------ --------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612
-- 2,146,406 14,606,449 3,056,999 13,157,429 --
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000)
-------- ----------- ----------- ----------- ------------ --------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357
-------- ----------- ----------- ----------- ------------ --------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768
-------- ----------- ----------- ----------- ------------ --------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737
======== =========== =========== =========== ============ ========
<CAPTION>
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- -------------------------------------- ---------------------------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
$ 8,196,735 $ 4,986,458 $ 351,793 $ 495,266 $ 223,316,546
16,415,663 1,702,988 614,154 428,818 11,208,988
- ------------ ----------- ----------- ----------- ---------------
24,612,398 6,689,446 965,947 924,084 234,525,534
23,866,781 17,551,475 2,042,291 1,403,144 360,665,925
5,377,892 1,724,137 1,829,771 422,784 --
(18,885,322) (9,549,079) (1,756,377) (881,229) (212,980,807)
- ------------ ----------- ----------- ----------- ---------------
10,359,351 9,726,533 2,115,685 944,699 147,685,118
- ------------ ----------- ----------- ----------- ---------------
34,971,749 16,415,979 3,081,632 1,868,783 382,210,652
72,359,572 51,409,341 4,098,641 3,580,095 886,384,798
- ------------ ----------- ----------- ----------- ---------------
$107,331,321 $67,825,320 $ 7,180,273 $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 Year Ended December 31, 1996
<TABLE>
<CAPTION>
New England Zenith Fund
--------------------------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and Small
Growth Income Market Index Managed Value 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 (loss)...... $ 30,009,869 $ 2,386,677 $ 1,145,809 $ 672,864 $ 2,783,808 $ 1,356,904 $ 1,703,606 $ 1,534,562
Net realized and
unrealized gain
(loss) on
investments........ 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277 2,322,583
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 3,857,145
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 5,440,860
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 10,060,122
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) (3,338,871) (4,380,392)
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 11,120,590
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 14,977,735
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 6,544,996
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 $21,522,731
============ =========== ============ =========== =========== =========== =========== ===========
</TABLE>
*For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-14
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account* Account Account Account Account Account*
- ---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 674 $ 93,226 $ (59,822) $ 51,962 $ 379,356 $ 1,178
(819) 235,174 2,030,211 112,261 2,230,999 (1,153)
------- ---------- ----------- ----------- ----------- -------
(145) 328,400 1,970,389 164,223 2,610,355 25
-- 811,932 9,286,073 1,454,605 4,876,053 --
46,951 2,383,695 11,496,667 2,908,047 9,510,686 27,190
(769) (708,829) (6,395,345) (1,242,748) (3,721,564) (447)
------- ---------- ----------- ----------- ----------- -------
46,182 2,486,798 14,387,395 3,119,904 10,665,175 26,743
------- ---------- ----------- ----------- ----------- -------
46,037 2,815,198 16,357,784 3,284,127 13,275,530 26,768
-- 418,211 5,712,498 953,848 3,386,440 --
------- ---------- ----------- ----------- ----------- -------
$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- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ------------ ---------- ---------- --------------
<C> <C> <C> <C> <C>
$ 2,234,517 $ 839,204 $ 179,912 $ 154,424 $ 45,468,730
6,795,285 5,523,540 197,499 282,514 94,564,965
- ------------ ------------ ---------- ---------- --------------
9,029,802 6,362,744 377,411 436,938 140,033,695
20,426,731 17,135,189 970,763 1,258,847 285,719,085
9,029,810 1,051,463 1,631,762 560,948 --
(13,479,623) (11,522,274) (623,788) (649,631) (152,002,266)
- ------------ ------------ ---------- ---------- --------------
15,976,918 6,664,378 1,978,737 1,170,164 133,716,819
- ------------ ------------ ---------- ---------- --------------
25,006,720 13,027,122 2,356,148 1,607,102 273,750,514
47,352,852 38,382,219 1,742,493 1,972,993 612,634,284
- ------------ ------------ ---------- ---------- --------------
$ 72,359,572 $ 51,409,341 $4,098,641 $3,580,095 $ 886,384,798
============ ============ ========== ========== ==============
</TABLE>
See Notes to Financial Statements
F-15
<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") 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% and .75% 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")
and flexible premium ("Zenith Executive Advantage Plus") 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% and a maximum annual rate of .75%, respectively.
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, administrative charges, premium tax charges, risk
charges, cost of insurance charges, and charges for rider benefits and special
risk charges.
F-16
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
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 Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Bond Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and Income TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Goldman Sachs Midcap Value Series TNE Advisers, Inc. Goldman Sachs Asset Management, Inc
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley International Magnum TNE Advisers, Inc. Morgan Stanley Dean Witter
Equity Investment Management, Inc.
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. Government TNE Advisers, Inc. Salomon Brothers Asset Management, Inc
Salomon Brothers Strategic Bond
Opportunities TNE Advisers, Inc. Salomon Brothers Asset Management, Inc
</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 Dean Witter Investment
Management, Inc. (formerly Morgan Stanley Asset Management Inc.) went into
effect replacing the prior agreement between TNE Advisers, Inc. and Draycott
Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management, ("Goldman Sachs"),
became the subadvisor of the Loomis Sayles Avanti Growth Series, succeeding
Loomis Sayles & Company, L.P., and the name of the Series was changed to the
"Goldman Sachs Midcap Value Series". Goldman Sachs is a separate operating
division of Goldman, Sachs & Co., a privately-owned global financial services
company.
F-17
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
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, 1998:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Capital Growth Series $229,923,840 $194,572,879
Back Bay Advisors Money Market Series 303,898,559 250,343,059
Back Bay Advisors Bond Income Series 29,019,450 16,718,466
Back Bay Advisors Managed Series 16,871,874 10,374,817
Westpeak Stock Index Series 52,293,114 27,237,590
Westpeak Growth and Income Series 31,543,693 13,028,848
Goldman Sachs Midcap Value Series 13,255,960 10,518,399
Loomis Sayles Small Cap Series 36,489,723 19,320,276
Loomis Sayles Balanced Series 9,318,701 4,071,999
Morgan Stanley International Magnum Equity Series 7,480,032 4,717,292
Davis Venture Value Series 59,616,224 23,838,504
Alger Equity Growth Series 42,615,754 18,064,237
Salomon Bothers U.S. Government Series 867,216 285,257
Salomon Bothers Strategic Bond Opportunities
Series 1,003,667 429,636
VIP Equity-Income Portfolio 50,932,583 36,386,679
VIP Overseas Portfolio 34,976,709 29,742,167
VIP High Income Portfolio 8,610,053 5,246,052
VIP II Asset Manager Portfolio 4,502,242 2,748,465
</TABLE>
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, and Zenith Executive Advantage Plus, 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.
F-18
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Fixed Premium ("Zenith Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.30% (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 %
Bond Income............. 11.91% 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 %
Money Market............ 8.87% 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.70% (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 %
Managed................. 18.67% 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.47% (0.62)% 29.90% 17.20% 16.91 % (5.79)%
Growth and Income........................................... 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.29% 6.69 % 34.62% 13.88% 27.66 % 11.24 %
Overseas.................................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.45)% 28.40% 30.22% 24.42 % (2.04)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.58)% 20.18% 13.63% 17.26 % (4.66)%
Asset Manager........................................................ (4.41)% 16.55% 14.20% 20.23 % 14.65 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.84% 12.78% 25.19 % 47.27 %
Balanced...................................................................... 13.75% 16.50% 15.77 % 8.73 %
International Magnum Equity................................................... 3.85% 6.30% (1.64)% 6.90 %
Venture Value................................................................. 21.64% 25.40% 33.03 % 14.02 %
</TABLE>
F-19
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Single Premium ("Zenith Life One") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.17% (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 %
Bond Income............. 11.79% 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 %
Money Market............ 8.77% 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.57% (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 %
Managed................. 18.55% 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.39% (0.72)% 29.77% 17.08% 16.80 % (5.88)%
Growth and Income........................................... 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income............................................... 9.22% 6.59 % 34.49% 13.77% 27.53 % 11.13 %
Overseas.................................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.52)% 28.27% 30.09% 24.29 % (2.14)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.61)% 20.06% 13.52% 17.14 % (4.76)%
Asset Manager........................................................ (4.45)% 16.43% 14.09% 20.11 % 14.53 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.76% 12.66% 25.06 % 47.12 %
Balanced...................................................................... 13.67% 16.39% 15.66 % 8.62 %
International Magnum Equity................................................... 3.79% 6.19% (1.74)% 6.79 %
Venture Value................................................................. 21.56% 25.27% 32.90 % 13.90 %
</TABLE>
F-20
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
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
---------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 29.98% (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 %
Bond Income............. 11.63% 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 %
Money Market............ 8.60% 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.37% (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 %
Managed................. 18.37% 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.28% (0.87)% 29.57% 16.90% 16.62 % (6.03)%
Growth and Income........................................... 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.11% 6.43 % 34.29% 13.59% 27.34 % 10.96 %
Overseas.................................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.61)% 28.08% 29.90% 24.11 % (2.28)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.66)% 19.88% 13.35% 16.96 % (4.90)%
Asset Manager........................................................ (4.49)% 16.26% 13.91% 19.93 % 14.36 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.64% 12.49% 24.88 % 46.90 %
Balanced...................................................................... 13.56% 16.21% 15.48 % 8.46 %
International Magnum Equity................................................... 3.68% 6.03% (1.89)% 6.63 %
Venture Value................................................................. 21.44% 25.08% 32.70 % 13.73 %
</TABLE>
F-21
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Variable Survivorship ("Zenith Survivorship Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts*
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 29.59% (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 %
Bond Income............. 11.29% 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 %
Money Market............ 8.28% 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 28.99% (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 %
Managed................. 18.02% 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.05% (1.16)% 29.19% 16.55% 16.27% (6.31)%
Growth and Income........................................... 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 8.89% 6.11 % 33.89% 13.25% 26.96% 10.63 %
Overseas.................................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.80)% 27.69% 29.50% 23.73% (2.58)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.76)% 19.53% 13.00% 16.61% (5.19)%
Asset Manager........................................................ (4.59)% 15.91% 13.57% 19.57% 14.02 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.39% 12.15% 24.50 % 46.46 %
Balanced...................................................................... 13.33% 15.86% 15.14 % 8.13 %
International Magnum Equity................................................... 3.48% 5.71% (2.18)% 6.31 %
Venture Value................................................................. 21.20% 24.71% 32.30 % 13.39 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .90%.
Certain Zenith Survivorship Life Policies currently have a mortality and
expense risk charge at an annual rate of .75%.
F-22
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Flexible Premium ("Zenith Flexible Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 31.88% (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 %
Bond Income............. 11.46% 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 %
Money Market............ 8.44% 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.18% (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 %
Managed................. 18.20% 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.16% (1.01)% 29.38% 16.72% 16.45 % (6.17)%
Growth and Income........................................... 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.00% 6.27 % 34.09% 13.42% 27.15 % 10.79 %
Overseas.................................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.71)% 27.88% 29.70% 23.92 % (2.43)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.71)% 19.71% 13.17% 16.79 % (5.04)%
Asset Manager........................................................ (4.54)% 16.08% 13.74% 19.75 % 14.19 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.51% 12.32% 24.69 % 46.68 %
Balanced...................................................................... 13.44% 16.03% 15.31 % 8.29 %
International Magnum Equity................................................... 3.58% 5.87% (2.04)% 6.47 %
Venture Value................................................................. 21.32% 24.89% 32.50 % 13.56 %
</TABLE>
F-23
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Flexible Premium ("Zenith Executive Advantage Plus") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
----------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.76 % (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 %
Bond Income............. 12.30 % 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 %
Money Market............ 9.25 % 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 30.15 % (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 %
Managed................. 19.08 % 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)%
Growth and Income........................................... 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.55% 6.93 % 35.90% 13.75% 28.11 % 11.63 %
Overseas.................................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.23)% 28.84% 30.68% 24.85 % (1.69)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (.37)% 20.79% 13.75% 17.67 % (4.33)%
Asset Manager........................................................ (4.65)% 17.68% 14.31% 20.65 % 15.05 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 25.13% 13.17% 25.63 % 47.78 %
Balanced...................................................................... 14.01% 16.91% 16.18 % 9.11 %
International Magnum Equity................................................... 4.01% 6.67% (1.30)% 7.27 %
Venture Value................................................................. 21.92% 25.84% 33.50 % 14.41 %
</TABLE>
F-24
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Modified Single Premium ("American Gateway") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
--------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 12.30% 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 %
Money Market............ 9.25% 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 30.15% (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 %
Managed................. 19.08% 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)%
Growth and Income........................................... 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.23)% 28.84% 30.68% 24.85 % (1.69)%
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 25.13% 13.17% 25.63 % 47.78 %
Balanced...................................................................... 14.01% 16.91% 16.18 % 9.11 %
International Magnum Equity................................................... 4.01% 6.67% (1.30)% 7.27 %
Venture Value................................................................. 21.92% 25.84% 33.50 % 14.41 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98-
Sub-Account 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government........................................................................ 4.55% 8.47 % 7.61 %
Strategic Bond Opportunities........................................................... 8.46% 11.07 % 2.04 %
</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-25
<PAGE>
New England Life Insurance Company
Independent Auditors' Report
New England Life Insurance Company:
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, 1998 and 1997, and the related
consolidated statements of income and comprehensive income, equity, and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
February 16, 1999
F-26
<PAGE>
New England Life Insurance Company
Consolidated Balance Sheets
December 31, 1998 and 1997 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair Value............ $ 769,364 $ 734,391
Equity Securities....................................... 13,240 9,399
Policy Loans............................................ 135,800 104,783
Real Estate............................................. 0 2,757
Short-Term Investments.................................. 52,285 27,944
Other Invested Assets................................... 16,372 24,349
---------- ----------
Total Investments.................................... 987,061 903,623
Cash and Cash Equivalents................................ 43,598 74,148
Deferred Policy Acquisition Costs........................ 710,961 565,769
Accrued Investment Income................................ 21,802 18,712
Premiums and Other Receivables........................... 145,117 63,036
Other Assets............................................. 111,067 62,326
Separate Account Assets.................................. 3,258,383 1,988,225
---------- ----------
Total Assets......................................... $5,277,989 $3,675,839
========== ==========
LIABILITIES AND EQUITY
Liabilities
Future Policy Benefits................................... $ 561,746 $ 500,429
Policyholder Account Balances............................ 210,242 150,648
Other Policyholder Funds................................. 169,090 98,143
Policyholder Dividends Payable........................... 17,774 14,719
Short and Long-Term Debt................................. 82,855 85,981
Income Taxes Payable:
Current................................................. 10,984 9,102
Deferred................................................ 42,334 42,066
Due to Parent............................................ 789 107,337
Other Liabilities........................................ 78,721 45,647
Separate Account Liabilities............................. 3,258,383 1,988,225
---------- ----------
Total Liabilities.................................... 4,432,918 3,042,297
---------- ----------
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
Preferred Stock, $0.00 par value; 1,000,000 shares
authorized, 200,000 shares issued and outstanding....... 0 0
Contributed Capital...................................... 647,273 447,273
Retained Earnings........................................ 177,859 166,422
Accumulated Other Comprehensive Income................... 17,439 17,347
---------- ----------
Total Equity......................................... 845,071 633,542
---------- ----------
Total Liabilities and Equity............................. $5,277,989 $3,675,839
========== ==========
</TABLE>
F-27
<PAGE>
New England Life Insurance Company
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31, 1998, 1997, and 1996 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums........................................... $100,689 $ 63,616 $ 37,410
Universal Life and Investment-Type Product Policy
Fees ............................................. 173,766 145,157 101,756
Net Investment Income.............................. 49,077 61,059 49,628
Investment Gains (Losses), Net..................... 5,610 890 8,822
Commissions, Fees and Other Income................. 192,411 28,302 44,930
-------- -------- --------
Total Revenues................................. 521,553 299,024 242,546
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.............................. 149,687 100,180 65,520
Interest Credited to Policyholder Account Balances
.................................................. 7,735 6,220 5,558
Policyholder Dividends............................. 22,989 21,325 14,830
Other Operating Costs and Expenses................. 316,659 144,342 143,886
-------- -------- --------
Total Benefits and Other Deductions............ 497,070 272,067 229,794
-------- -------- --------
Income From Operations Before Income Taxes......... 24,483 26,957 12,752
Income Taxes....................................... 13,046 4,988 3,051
-------- -------- --------
Net Income......................................... $ 11,437 $ 21,969 $ 9,701
-------- -------- --------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Investment Gains (Losses) (Net of
Related Offsets, Reclassification Adjustments
and Income Taxes, $(299), $(16,588) and $24,212,
Respectively)................................... 92 13,620 (22,629)
-------- -------- --------
Comprehensive Income (Loss)........................ $ 11,529 $ 35,589 $(12,928)
======== ======== ========
</TABLE>
F-28
<PAGE>
New England Life Insurance Company
Consolidated Statements of Equity
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Capital Accumulated
Stock & Other
Contributed Retained Comprehensive
Capital Earnings Income Total
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1995..... $193,396 $134,752 $26,356 $354,504
Net Income........................ 9,701 9,701
Change in Net Unrealized
Investment Gains (Losses)........ (22,629) (22,629)
Contributed Capital............... 208,846 208,846
-------- -------- ------- --------
Balances at December 31, 1996..... 402,242 144,453 3,727 550,422
Net Income........................ 21,969 21,969
Change in Net Unrealized
Investment Gains (Losses)........ 13,620 13,620
Contributed Capital............... 47,531 47,531
-------- -------- ------- --------
Balances at December 31, 1997..... 449,773 166,422 17,347 633,542
Net Income........................ 11,437 11,437
Change in Net Unrealized
Investment Gains (Losses)........ 92 92
Contributed Capital............... 200,000 200,000
-------- -------- ------- --------
Balances at December 31, 1998..... $649,773 $177,859 $17,439 $845,071
======== ======== ======= ========
</TABLE>
F-29
<PAGE>
New England Life Insurance Company
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars in Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net Cash Used in Operating Activities........ $(311,296) $(121,838) $ (85,674)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities......... 164,566 178,003 276,420
Held to Maturity Fixed Maturities........... 0 0 10,519
Equity Securities........................... 39,333 0 0
Mortgage Loans on Real Estate............... 0 0 2,210
Other, Net.................................. 721 128 0
Purchases of:
Available for Sale Fixed Maturities......... (184,810) (326,059) (259,713)
Equity Securities........................... (80,066) 0 0
Real Estate................................. (3,644) 0 (480)
Fixed Asset Property and Equipment.......... (1,459) (101) (3,786)
Other Assets................................ (89) 0 (11,024)
Net Change in Short-Term Investments........ (24,341) 128,616 (135,731)
Net Change in Policy Loans.................. (31,017) (28,520) (18,052)
Other, Net.................................. 1,631 177 67
--------- --------- ---------
Net Cash Used in Investing Activities........ (119,175) (47,756) (139,570)
--------- --------- ---------
Cash Flows from Financing Activities:
Capital Contributions....................... 200,000 46,681 159,162
Borrowed Money.............................. (8,670) (3,181) 0
Policyholder Account Balances:
Deposits.................................... 358,090 244,338 482,552
Withdrawals................................. (149,499) (95,066) (364,933)
Financial Reinsurance Receivables........... 0 1,823 (37,519)
--------- --------- ---------
Net Cash Provided by Financing Activities.... 399,921 194,595 239,262
--------- --------- ---------
Change in Cash and Cash Equivalents.......... (30,550) 25,001 14,018
Cash and Cash Equivalents, Beginning of Year. 74,148 49,147 35,129
--------- --------- ---------
Cash and Cash Equivalents, End of Year....... $ 43,598 $ 74,148 $ 49,147
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid............................... $ 3,830 $ 1,495 $ 1,523
========= ========= =========
Income Taxes Paid........................... $ 14,118 $ 5,470 $ 4,721
========= ========= =========
Net Income................................... $ 11,437 $ 21,969 $ 9,701
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net......................................... (145,787) (140,578) (68,626)
Change in Accrued Investment Income......... (3,090) (4,999) 909
Change in Premiums and Other Receivables.... (82,081) (57,095) 4,370
Gains from Sales of Investments, Net........ (5,610) (890) (8,822)
Depreciation and Amortization Expenses...... 13,137 10,085 3,118
Interest Credited to Policyholder Account
Balances................................... 7,735 6,220 5,558
Universal Life and Investment-Type Product
Policy Fee Income.......................... (173,766) (145,157) (101,756)
Change in Future Policy Benefits............ 61,317 35,540 18,202
Change in Other Policyholder Funds.......... 70,947 6,309 (283)
Change in Policyholder Dividends Payable.... 3,055 5,701 1,671
Change in Income Taxes Payable.............. 2,358 1,674 (6,634)
Other, Net.................................. (70,948) 139,383 56,918
--------- --------- ---------
Net Cash Used in Operating Activities........ $(311,296) $(121,838) $ (85,674)
========= ========= =========
</TABLE>
F-30
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
New England Life Insurance Company and its subsidiaries (the Company or
NELICO) is a wholly-owned stock life insurance subsidiary of Metropolitan Life
Insurance Company (MetLife). The Company is headquartered in Boston,
Massachusetts as a Massachusetts chartered company. The Company principally
provides variable life insurance and variable annuity contracts through a
network of general agencies located throughout the United States. The Company
also provides participating traditional life insurance, fixed 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. As a result of the merger, NEMLICO ceased to exist as a
separate mutual life insurance company, and NELICO became a subsidiary of
MetLife. NELICO has continued after the merger to conduct its existing
business as well as administer the business activities of the former parent
NEMLICO. (Note 13)
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. On April 30, 1998
the Company acquired all of the outstanding stock of NL Holding Corporation
and its wholly owned subsidiaries, Nathan and Lewis Securities, Inc., and
Nathan and Lewis Associates, Inc. Subsequent to the acquistion, NL Holding
Corporation was transferred to New England Life Holdings, 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, which are principally assumed from MetLife.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses to sell
annuity contracts in 22 states, but is currently not actively engaged in the
sale or distribution of insurance products.
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.
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.
F-31
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
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
series of the New England Zenith Fund and does not intend to engage in any
business activities other than providing investment management and
administrative services. TNE Advisers, Inc. changed its name to New England
Investment Management, Inc. in March 1999.
NL Holding Corporation (NL Holding), engages in Securities brokerage, dealer
trading in fixed income securities, over the counter stock, unit investment
trusts, and the sale of insurance related products and annuities, sold through
licensed brokers and independent agents. Nathan and Lewis Securities, Inc., a
wholly owned subsidiary, is a National Association of Securities Dealers
(NASD) registered broker/dealer.
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 as of and
for the year ended December 31, 1996 have been prepared as though the current
reporting entity had always existed. Significant intercompany transactions and
balances have been eliminated in consolidation.
The preparation of financial statements 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. The most significant estimates include those used in
determining deferred policy acquisition costs, investment allowances and the
liability for future policyholder benefits. Actual results could differ from
those estimates.
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.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of New
England Life Insurance and its subsidiaries, partnerships and joint ventures
in which NELICO has a controlling interest. All material intercompany accounts
and transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which, it does not have a controlling
interest, under the equity method of accounting.
Certain amounts in the prior years' financial statements have been
reclassified to conform with the 1998 presentation.
Investments
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income, net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
F-32
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Short-term investments are stated at amortized cost, which approximates fair
value.
Other invested assets are reported at their estimated fair value.
Cash and Cash Equivalents
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.
Property and Equipment
Property, equipment and leasehold improvements which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined 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 on property and equipment and amortization of
leasehold improvements was $24,772, and $13,203 at December 31, 1998 and 1997,
respectively. Related depreciation and amortization expense was $11,570,
$10,085, and $3,118 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Deferred Policy Acquisition Costs
The costs of acquiring new business that vary with, and are primarily related
to, the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over the expected life of the contract for participating traditional life,
variable life, universal life, investment-type products, and variable
annuities. Generally, deferred policy acquisition costs are amortized in
proportion to the present value of estimated gross margins or profits from
investments, mortality, expense margins and surrender charges. Actual gross
profits can vary from management's estimates resulting in increases and
decreases in the rate of amortization. Management periodically updates these
estimates and evaluates the recoverability of deferred policy acquisition
costs. When appropriate, management revises its assumptions of the estimated
gross margins or profits of these contracts, and the cumulative amortization
is reestimated and adjusted by a cumulative charge or credit to current
operations.
Deferred policy acquisition costs for nonmedical health policies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Other Intangible Assets
The excess of cost over the fair value of net assets acquired, which
represents goodwill, and the value of insurance acquired are included in other
assets. Goodwill is amortized on a straight-line basis over 10 years. The
Company reviews goodwill to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results
if a permanent diminution in value is deemed to have occurred.
F-33
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Excess of Purchase Price Over Fair Value of Net Assets Acquired
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net Balance, January 1............................. $ 0 $ 0 $ 0
Acquisitions..................................... 23,498 0 0
Dispositions..................................... 0 0 0
Amortization..................................... (1,567) 0 0
------- ------- -------
Net Balance, December 31........................... $21,931 $ 0 $ 0
======= ======= =======
December 31
Accumulated Amortization......................... $(1,567) $ 0 $ 0
======= ======= =======
</TABLE>
Acquisitions
The Company acquired certain assets and assumed certain liabilities of NL
Holding Corporation effective April 30, 1998. The acquisition was accounted
for under the purchase method of accounting and is included in the financial
statements as of the effective date of the transaction. The cost of the
acquisition was $35,082, which represents an initial cash settlement and
payment of direct acquisition costs of $27,873, as well as, accrued contingent
payment arrangements of $7,209 anticipated to be paid to the sellers over a
three year period for years ending December 31, 1998, 1999 and 2000,
respectively. Goodwill of $23,498 was recorded, to be amortized on a straight-
line basis over a ten year period.
The 1998 and 1997 pro forma, unaudited financial data shown as follows
presents the effect of the acquisition as if it had occurred at the beginning
of the respective reporting periods. The pro forma financial data does not
necessarily reflect the results of operations that would have been obtained
had the acquisition occurred on the assumed date, nor is the financial data
necessarily indicative of the results of the combined entities that may be
achieved for any future period.
Pro forma Impact of Acquisition
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue............................................ $ 557,229 $ 381,691
============ ============
Net Income......................................... $ 10,311 $ 25,049
============ ============
</TABLE>
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 such
liabilities range from 4% to 4.5% for life insurance policies.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 5.5% to 7%.
F-34
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Future policy benefit liabilities for non-medical health insurance are
calculated as the net GAAP liability plus the unamortized deferred acquisition
costs. Future policy benefit liabilities for disabled lives are estimated
using the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest. Interest rates used in establishing
such liabilities range from 4% to 6.5%.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values, which
consist of an accumulation of gross premium payments plus credited interest
ranging from 3.75% to 6.5%, less expense and mortality charges and
withdrawals.
Recognition of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with life
contingencies are recognized as income when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated life of
the policies.
Premiums related to non-medical health contracts are recognized as income when
due.
Premiums related to variable life and universal life contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality recognized
ratably over the policy period, policy administration charges recognized as
services are provided and surrender charges recognized as earned. Amounts that
are charged to income include interest credited to policyholders and benefit
claims incurred in excess of related policyholder account balances.
Premiums related to investment-type contracts are credited to policyholder
account balances. Revenues from such contracts consist of amounts assessed
against policyholder account balances for contract administration charges
recognized ratably over the policy period. Amounts that are charged to income
include interest credited to policyholders.
Dividends to Policyholders
Dividends to policyholders are 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, as well as
management's judgment as to the appropriate level of statutory surplus to be
retained by the Company.
Participating Business
Participating business represented approximately 3.52% and 2.94% of the
Company's life insurance in force, and 7.96% and 5.79% of the number of life
insurance policies in force at December 31, 1998 and 1997, respectively.
Participating policies represented approximately 6.15%, 6.22% and 0.74% of
gross life insurance premiums, for the years ended December 31, 1998, 1997 and
1996, respectively.
Income Taxes
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., file a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and non-life
insurance direct subsidiaries. Income tax expense has been calculated in
accordance with the provisions of the Internal Revenue Service Code, as
amended. The Company uses the liability method of accounting for income taxes.
Income tax provisions are based on income reported for financial statement
purposes. 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.
F-35
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Reinsurance
The Company has reinsured certain of its life insurance contracts with other
insurance companies under various agreements. Amounts due from reinsurers are
estimated based upon assumptions consistent with those used in establishing
the liabilities related to the underlying reinsured contracts. Policy and
contract liabilities are reported gross of reinsurance credits.
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,
investment income, and realized and unrealized gains and losses on the
investments of the Separate Account accrue directly to contractholders and,
accordingly, are not reflected in the Company's financial statements.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
Application of Accounting Pronouncements
In December 1997, the AICPA issued SOP No. 97-3 Accounting for Insurance and
Other Enterprises for Insurance Related Assessments (SOP 97-3). SOP 97-3
provides guidance on accounting by insurance and other enterprises for
assessments related to insurance activities including recognition, measurement
and disclosure of guaranty fund and other insurance related assessments. The
Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP
97-3 is not expected to have a material effect on the Company's consolidated
financial condition or results of operations.
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1
provides guidance for determining when an entity should capitalize or expense
external and internal costs of computer software developed or obtained for
internal use. The Company is required to adopt SOP 98-1 as of January 1, 1999.
Adoption of SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial condition or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as
incurred. SOP 98-5 broadly defines start-up activities and provides examples
to help entities determine what costs are and are not within the scope of this
SOP. The Company is required to adopt SOP 98-5 as of January 1, 1999. Adoption
of SOP 98-5 is not expected to have a material effect on the Company's
consolidated financial condition or results of operations.
In October 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position SOP 98-7, Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance Risk (SOP 98-7). SOP 98-7
provides guidance on the method of accounting for insurance and reinsurance
contracts that do not transfer insurance risk, defined in the SOP as the
deposit method. SOP 98-7 classifies insurance and reinsurance contracts for
which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial condition or results of operations.
F-36
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Effective January 1, 1998, the Company adopted SFAS No. 130 Reporting
Comprehensive Income (SFAS 130). SFAS 130 establishes standards for reporting
and displaying comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Adoption of SFAS 130 had no effect on the Company's consolidated
financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 131 Disclosures About
Segments of an Enterprise and Related Information (SFAS 131). SFAS 131
establishes standards for reporting financial information and related
disclosures about products and services, geographic areas and major customers
relating to operating segments in annual financial statements. Adoption of
SFAS 131 had no effect on the Company's consolidated financial condition or
results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 requires, among other
things, that all derivatives be recognized in the consolidated balance sheets
as either assets or liabilities and measured at fair value. The corresponding
derivative gains and losses should be reported based upon the hedge
relationship, if such a relationship exists. Changes in the fair value of
derivatives designated as fair value hedges are required to be reported in
income. Changes in the fair value of derivatives designated as cash flow
hedges are required to be reported in other comprehensive income to the extent
the hedge is effective, and until such time as the hedged cash flow is
reported in income, whereupon any associated change in fair value of the
derivative is also reported in income. Changes in the fair value of
derivatives designated as cash flow hedges, to the extent it is ineffective,
are reported in income. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in SFAS
133 are required to be reported in income. The Company is required to adopt
SFAS 133 as of January 1, 2000. The Company is currently in the process of
quantifying the impact of SFAS 133.
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, 1998
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 27,260 $ 91 $ 47 $ 27,304
Foreign governments.................... 1,679 0 0 1,679
Corporate.............................. 644,636 43,036 5,139 682,533
Mortgage-backed securities............. 55,027 2,821 0 57,848
-------- -------- ------- --------
Total Fixed Maturities............... $728,602 $ 45,948 $ 5,186 $769,364
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 12,075 1,645 480 13,240
-------- -------- ------- --------
Total Equity Securities.............. $ 12,075 $ 1,645 $ 480 $ 13,240
======== ======== ======= ========
</TABLE>
F-37
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
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 $ 0 $ 12,206
Foreign governments.................... 2,316 67 0 2,383
Corporate.............................. 620,916 41,564 3,308 659,172
Mortgage-backed securities............. 57,348 3,282 0 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
======== ======== ======= ========
</TABLE>
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>
1998 1997
---- ----
<S> <C> <C>
Net unrealized gains on investments................................ $ 0 $281
Unrealized gains (losses) on the maturity of forward contracts..... 0 14
---- ----
$ 0 $295
==== ====
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1998 are shown below.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 24,215 $ 24,469
Due after one year through five years................... 92,090 93,343
Due after five years through ten years.................. 179,470 191,671
Due after ten years..................................... 377,800 402,033
-------- --------
Subtotal.............................................. 673,575 711,516
Mortgage-backed securities.............................. 55,027 57,848
-------- --------
Total................................................. $728,602 $769,364
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above tables in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
F-38
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Sales of fixed maturities and equity securities are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities classified as available-for-
sale
Proceeds..................................... $159,749 $143,107 $275,008
Gross realized gains......................... $ 10,901 $ 680 $ 19,109
Gross realized losses........................ $ 2 $ 1,454 $ 3,878
Fixed maturities classified as held-to-maturity
Proceeds..................................... $ 0 $ 0 $ 5,291
Gross realized gains......................... $ 0 $ 0 $ 236
Gross realized losses........................ $ 0 $ 0 $ 0
Equity Securities
Proceeds..................................... $ 0 $ 0 $ 0
Gross realized gains......................... $ 0 $ 0 $ 0
Gross realized losses........................ $ 0 $ 0 $ 0
</TABLE>
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
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, 1998 the trust held $530,563 of bonds and short-
term investments, and at December 31, 1997, the trust held $516,491 of bonds
and short-term investments.
Statutory Deposits
The Company had assets on deposit with regulatory agencies of $6,245 and
$7,020, at December 31, 1998 and 1997 respectively.
3. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The components of net investment income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................. $53,467 $50,348 $44,630
Equity securities................................ (9,118) 4,915 0
Mortgage loans on real estate.................... 0 0 110
Real estate...................................... 4,149 815 55
Policy loans..................................... 6,855 5,081 3,734
Cash, cash equivalents and short-term
Investments..................................... 861 4,160 3,656
Other investment income.......................... 76 591 38
------- ------- -------
Gross investment income.......................... 56,290 65,910 52,223
Investment expenses.............................. (7,213) (4,851) (2,595)
------- ------- -------
Net Investment income............................ $49,077 $61,059 $49,628
======= ======= =======
</TABLE>
F-39
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Realized investment gains (losses), including changes in valuation allowances,
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................ $10,899 $ (774) $15,467
Equity securities............................... 0 0 0
Other invested assets........................... (7) 1,032 512
------- ------- -------
Subtotal.................................... 10,892 258 15,979
Amounts allocable to:
Amortization of deferred policy acquisition
costs........................................ 5,282 (632) 7,157
------- ------- -------
Investment gains (losses), net................ $ 5,610 $ 890 $ 8,822
======= ======= =======
The changes in unrealized investment gains (losses), net, included in other
comprehensive income, are as follows:
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year...................... $17,347 $ 3,727 $26,356
Change in unrealized investment gains
(losses)..................................... 391 30,207 (46,850)
Change in unrealized investment gains (losses)
attributable to:
Deferred policy acquisition cost allowances. (595) (9,446) 12,211
Deferred income tax (expense) benefit....... 296 (7,141) 12,010
------- ------- -------
Balance, end of year............................ $17,439 $17,347 $ 3,727
======= ======= =======
The components of unrealized investment gains (losses), net, included in other
comprehensive income, are as follows:
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
December 31
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed Maturities............................ $40,928 $41,706 $11,525
Equity Securities........................... 1,191 0 0
Other....................................... 0 22 (4)
------- ------- -------
42,119 41,728 11,521
Amounts of unrealized investment gains (losses)
attributable to:
Deferred policy acquisition cost allowances... (15,798) (15,202) (5,756)
Deferred income tax (expense) benefit......... (8,882) (9,179) (2,038)
------- ------- -------
Balance, end of year............................ $17,439 $17,347 $ 3,727
======= ======= =======
</TABLE>
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The Company assumes and cedes reinsurance with other insurance companies. The
company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The consolidated statements of
income are presented net of reinsurance ceded.
F-40
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Reinsurance recoverables, included in other assets, were outstanding with the
following reinsurers:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
<S> <C> <C>
Paul Revere Life Insurance Company.......................... $10,795 $ 4,548
Cologne Life Reinsurance Company............................ 6,519 3,724
Security Life of Denver Insurance Company................... 4,395 1,804
American United Life Insurance Company...................... 3,852 1,332
Great West Life & Annuity Insurance Company................. 6,394 2,505
Swiss Re Life & Health Limited.............................. 2,422 908
Other....................................................... 17,828 3,164
------- -------
$52,205 $17,985
======= =======
</TABLE>
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $110,768 $ 30,975 $ 2,682
Reinsurance assumed............................ 58,329 62,315 67,483
Reinsurance ceded.............................. (68,408) (29,674) (32,755)
-------- -------- --------
Net premiums earned............................ $100,689 $ 63,616 $ 37,410
======== ======== ========
</TABLE>
Reinsurance and ceded commissions payables, included in other liabilities,
were $10,162 and $5,852, at December 31, 1998 and 1997, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to group accident and nonmedical health policies and
contracts:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Balance at January 1.......................... $ 809 $ 0 $ 0
Reinsurance recoverables.................... (647) 0 0
--------- ------- ------
Net balance at January 1...................... 162 0 0
--------- ------- ------
Incurred related to:
Current year................................ 303 173 0
Prior years................................. (57) (11) 0
--------- ------- ------
246 162 0
--------- ------- ------
Paid related to:
Current year................................ 2 0 0
Prior years................................. 18 0 0
--------- ------- ------
20 0 0
--------- ------- ------
Balance at December 31........................ 388 162 0
Add: Reinsurance recoverables............... 1,565 647 0
--------- ------- ------
Balance at December 31........................ $ 1,953 $ 809 $ 0
========= ======= ======
</TABLE>
F-41
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
5. INCOME TAXES
The provision for income tax expense (benefit) in the consolidated statements
of income is shown below:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
<S> <C> <C> <C>
1998
Federal............................................ $13,734 $ (788) $12,946
State and Local.................................... 0 100 100
------- ------- -------
Total............................................ $13,734 $ (688) $13,046
======= ======= =======
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.................................... 0 (751) (751)
------- ------- -------
Total............................................ $ 5,333 $(2,282) $ 3,051
======= ======= =======
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $24,483 $26,957 $12,752
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 8,569 9,435 4,463
Tax effect of:
Change in valuation allowance.................. 0 0 (13,948)
NOL benefit write-off.......................... 0 0 13,012
Tax exempt investment income................... (100) 0 0
Tax Credits.................................... (100) 0 0
State and local income taxes................... 100 (1,013) (488)
Other, net..................................... 4,577 (3,434) 12
------- ------- -------
Income Tax Expense............................... $13,046 $ 4,988 $ 3,051
======= ======= =======
</TABLE>
Deferred income taxes represent the tax effect of the differences between the
book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................ $ 177,017 $ 63,723
Other, net.......................................... 15,453 81,988
--------- ---------
Total gross assets................................ 192,470 145,711
--------- ---------
Deferred tax liabilities:
Investments......................................... (1,068) (2,456)
Deferred policy acquisition costs................... (208,881) (168,270)
Unrealized investment gains, net.................... (8,882) (9,179)
Other, net.......................................... (15,973) (7,872)
--------- ---------
Total gross liabilities........................... (234,804) (187,777)
--------- ---------
Net deferred tax liability............................ $ (42,334) $ (42,066)
========= =========
</TABLE>
F-42
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Policyholder liabilities...................... $(49,251) $(23,759) $(17,818)
Net operating loss carryforward............... 0 12,548 464
Investments................................... (1,388) 1,319 0
Deferred policy acquisition costs............. 40,611 33,621 21,828
Other, net.................................... 9,340 (27,530) (6,756)
-------- -------- --------
Total....................................... $ (688) $ (3,801) $ (2,282)
======== ======== ========
</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.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
December 31,
--------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in projected benefit
obligation
Projected benefit obligation at
beginning of year.................. $210,590 $177,125 $ 46,591 $ 49,654
Service cost........................ 6,927 5,310 942 885
Interest cost....................... 15,878 13,958 3,267 3,707
Actuarial gain...................... 14,831 15,926 1,256 (3,972)
Divestitures........................ 0 0 0 0
Curtailments........................ 0 0 0 0
Terminations........................ 0 0 0 0
Change in benefits.................. 11,935 5,755 (10) 0
Benefits paid....................... (7,674) (7,484) (3,059) (3,683)
-------- -------- -------- --------
Projected benefit obligation at end
of year............................ $252,487 $210,590 $ 48,987 $ 46,591
-------- -------- -------- --------
Change in plan assets
Contract value of plan assets at
beginning of year.................. $150,820 $130,995 $ 0 $ 0
Actual return on plan assets........ 28,309 22,250 0 0
Employer contribution............... 12,997 5,059 0 0
Benefits paid....................... (7,323) (7,484) 0 0
-------- -------- -------- --------
Contract value of plan assets at end
of year............................ $184,803 $150,820 $ 0 $ 0
-------- -------- -------- --------
Over/(Under) funded................. $(67,684) $(59,770) $(48,987) $(46,591)
Unrecognized net asset at
transition......................... (1,674) (2,844) 0 0
Unrecognized net actuarial gains.... 34,350 35,889 (17,787) (18,872)
Unrecognized prior service cost..... 16,854 5,832 (9) 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost...... $(18,154) $(20,893) $(66,783) $(65,463)
======== ======== ======== ========
Qualified plan prepaid pension cost. $ (2,164) $ (7,205) $ 0 $ 0
Non-qualified plan accrued pension
cost............................... (15,990) (13,688) 0 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost...... $(18,154) $(20,893) $ 0 $ 0
======== ======== ======== ========
</TABLE>
F-43
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
Non-Qualified
Qualified Plan Plan Total
------------------ ------------------ ------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected
benefit obligation..... $226,717 $193,652 $ 25,770 $ 16,938 $252,487 $210,590
Aggregate contract value
of plan assets
(principally Company
contracts)............. 184,803 150,820 0 0 184,803 150,820
-------- -------- -------- -------- -------- --------
Over/(Under) funded..... $(41,914) $(42,832) $(25,770) $(16,938) $(67,684) $(59,770)
======== ======== ======== ======== ======== ========
</TABLE>
The assumptions used in determining the aggregate projected benefit obligation
and aggregate contract value for the pension and other benefits were as
follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Benefits
------------------ ----------
1998 1997 1998 1997
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of
December 31,
Discount rate............................. 7.25% 7.75% 7.00% 7.75%
Expected return on plan assets............ 8.50% 8.75% -- --
Rate of compensation increase............. 4.50% 5.00% -- --
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 7.40% in 1998,
gradually decreasing to 5.00% over five years and generally 7.80% in 1997,
gradually decreasing to 5.00% over eight years.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One % One %
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components... 14.50% 12.70%
Effect on accumulated postretirement benefit obligation... 12.80% 11.30%
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------- ---------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of periodic
benefit cost
Service cost............ $ 6,927 $ 5,310 $ 5,761 $ 942 $ 885 $ 876
Interest cost........... 15,878 13,958 12,489 3,267 3,707 3,183
Expected return on plan
assets................. (12,866) (22,250) (15,468) 0 0 0
Net amortization and
deferrals.............. 669 11,092 6,009 167 (871) (1,155)
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost................... $ 10,608 $ 8,110 $ 8,791 $4,376 $3,721 $2,904
======== ======== ======== ====== ====== ======
</TABLE>
Savings and Investment Plans
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $2,252, $1,588 and $3,386 for the years ended December
31, 1998, 1997 and 1996, respectively.
F-44
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenue. Additionally, the Company, as lessee, has entered into
various lease and sublease agreements for office space, data processing and
other equipment. Future minimum rental and sub-rental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
Rental Sub-rental Gross Rental
Income Income Expense
------ ---------- ------------
<S> <C> <C> <C>
1999.......................................... $52 $ 4,066 $ 14,851
2000.......................................... 31 7,845 14,805
2001.......................................... 0 7,854 13,221
2002.......................................... 0 7,864 12,336
2003.......................................... 0 8,026 12,023
Thereafter.................................... 0 34,525 114,855
--- ------- --------
Total....................................... $83 $70,180 $182,091
=== ======= ========
</TABLE>
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest, payable
monthly, at a variable rate equal to the greater of the bank's base rate or
money market rates plus 0.6% per annum. The interest rate applied was 6.4%,
5.8% and 5.7% at December 31, 1998, 1997 and 1996, respectively. 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 or
less. The carrying value of the loan approximates its fair value of $13,295.
Repayments of principal and interest of $8,612, $3,155 and $0 were made during
1998, 1997 and 1996, respectively. The Company repaid the entire outstanding
balance of the loan in January 1999.
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 $69,560, repayments of $0, $0 and $0 were made
during 1998, 1997 and 1996, respectively.
9. CONTINGENCIES
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company's insurance subsidiaries
pursuant to these laws may be used as credits
F-45
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
for a portion of the Company's premium taxes. The Company paid guaranty fund
assessments of approximately, $202, $42, and $42 in 1998, 1997, and 1996,
respectively, of which $202, $33, and $27 were to be credited against premium
taxes.
The Company has no contingent liabilities that would materially affect the
financial position of the Company or the results of its operations. There are
no pending legal proceedings that are beyond the ordinary course of business
that could have a material financial effect.
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Compensation................................. $ 86,822 $ 58,754 $ 36,172
Commissions.................................. 166,218 77,351 51,617
Interest and debt expense.................... 9,374 6,750 6,261
Amortization of policy acquisition costs..... 31,994 17,723 22,233
Capitalization of policy acquisition costs... (183,064) (157,670) (98,016)
Rent expense, net of sub-lease income........ 4,252 4,473 3,060
Other........................................ 201,063 136,961 122,559
--------- --------- --------
Total...................................... $ 316,659 $ 144,342 $143,886
========= ========= ========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments have been determined
by using available market information and the valuation methodologies
described below. Considerable judgment is often required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein may not necessarily be indicative of amounts that could be
realized in a current market exchange. The use of different assumptions or
valuation methodologies may have a material effect on the estimated fair value
amounts.
Amounts related to the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
December 31, 1998:
Assets
Fixed Maturities......................................... $769,364 $769,364
Equity Securities........................................ 13,240 13,240
Policy loans............................................. 135,800 135,800
Short-term investments................................... 52,285 52,285
Cash and cash equivalents................................ 43,598 43,598
Liabilities
Policyholder account balances............................ 23,365 22,524
Other policyholder funds................................. 7,832 7,832
Short and long-term debt................................. 82,855 82,855
</TABLE>
F-46
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<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............................ 13,356 12,593
Other policyholder funds................................. 4,324 4,324
Short and long-term debt................................. 85,981 85,981
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
Fixed Maturities and Equity Securities
The fair value of fixed maturities and equity securities that are publicly
traded are based upon quotations obtained from an independent market pricing
service or published by applicable stock exchanges. For securities for which
the market values were not readily available, fair values were estimated by
management, based primarily on interest rates, maturity, credit quality and
average life.
Policy Loans
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Cash and Cash Equivalents and Short-term Investments
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
Policyholder Account Balances
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based on interest rates currently 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.
Short-term and Long-term Debt
Short-term and long-term debt are stated at unpaid principal balances, which
approximates fair value.
F-47
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
12. STATUTORY FINANCIAL INFORMATION
The reconciliation of statutory surplus and statutory net income, determined
in accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with such amounts determined in conformity with
generally accepted accounting principles were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus............................. $ 456,525 $ 307,290 $ 355,853
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................... (336,821) (279,510) (195,273)
Deferred policy acquisition costs........... 710,961 565,769 434,637
Deferred Federal Income taxes............... (42,334) (42,066) (40,185)
Valuation of investments.................... 53,514 56,873 11,503
Statutory asset valuation reserves.......... 10,636 8,388 3,335
Statutory interest maintenance reserve...... 816 571 306
Surplus notes............................... (69,560) (64,016) (58,911)
Receivables from reinsurance transactions... 26,004 27,519 26,030
Other, net.................................. 35,330 52,724 13,127
--------- --------- ---------
GAAP Equity................................... $ 845,071 $ 633,542 $ 550,422
========= ========= =========
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................... $ (28,043) $ (37,358) $ (46,021)
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................... (196,754) (311,588) (41,174)
Deferred policy acquisition costs........... 135,788 139,947 68,626
Deferred Federal Income taxes............... 688 3,801 2,282
Valuation of investments.................... (13,490) 0 0
Statutory interest maintenance reserve...... 245 342 231
Other, net.................................. 113,003 226,825 25,757
--------- --------- ---------
Net GAAP Income............................... $ 11,437 $ 21,969 $ 9,701
========= ========= =========
</TABLE>
The Company is currently undergoing an examination by the Massachusetts
Department of Insurance. The Company believes that there will be no material
audit adjustments for the periods under examination.
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under an Administrative Services Agreement
with its parent NEMLICO to receive all executive, legal, clerical and other
personnel services. Subsequent to the merger of NEMLICO and MetLife, the
Company entered into an Administrative Services 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, and those policies and contracts defined in
the Administrative Services Agreement as Transition Policies which were sold
by the Company's field force post-merger.
The Company charged MetLife $193,641, $186,757 and $88,043 including accruals
for administrative services on NEMLICO administered contracts for 1998, 1997,
and for the period of September 1, 1996 through December 31, 1996,
respectively. Prior to the merger, the Company paid $62,643 to NEMLICO for
administrative services on
F-48
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
variable-life and variable-annuity contracts for the period of January 1, 1996
through August 31, 1996. In addition, $14,123 and $600 for 1998 and 1997,
respectively, was paid or payable by MetLife to the Company for varied and
miscellaneous other services. These services were charged based upon direct
costs incurred. Service fees are recorded by NELICO as a reduction in
operating expenses.
On December 30, 1998 the Company sold to MetLife Credit Corporation shares of
preferred stock for $200,000. 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.
On April 30, 1998 the Company acquired all the outstanding stock of N.L.
Holding Corporation and its subsidiaries, and concurrently contributed such
stock to the Company's downstream holding company, New England Life Holding
Inc. In conjunction with the acquisition, the Company entered into employment
agreements with key individuals of N.L. Holding Corporation. Under these
agreements the Company paid $6,166 in 1998.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building that it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $2,340, $2,340
and $780 in 1998, 1997 and 1996, respectively.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,217 that
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 1998 were $15,204
and $1,159, respectively. Included in accrued income at December 31, 1998,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$385 and $14, respectively. In 1998, NES earned asset-based income of $9,193
and $139 on average assets of approximately $4,300,000 and $77,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1998 were amounts receivable for asset-based commissions from NEF
and SSR totaling $593 and $13, respectively.
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 $3,900,000 and $33,000 under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$69,560 and $64,016 at December 31, 1998 and 1997, respectively.
Pursuant to certain Reinsurance Agreements, the Company cedes a portion of
premiums on certain variable life, traditional life and universal life
policies to Omega Reinsurance Corporation. Reinsurance premiums paid by the
Company to Omega were $11,539, $10,372 and $5,009 for 1998, 1997 and 1996,
respectively.
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.
F-49
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (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. SEPARATE ACCOUNTS
Separate accounts reflect non-guaranteed separate accounts totaling $3,258,383
and $1,988,225 at December 31, 1998 and 1997, respectively, wherein the
policyholder assumes the investment risk.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees totaling $30,714, $12,642 and $6,464 in 1998, 1997 and 1996,
respectively.
15. YEAR 2000
The Year 2000 issue is the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant cost associated with additional mainframe capacity necessary to
accommodate a four digit year field. As a result, any of the Company's
computer systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
systems failure or miscalculations. The Company has conducted a comprehensive
review of its computer systems to identify the systems that could be affected
by the Year 2000 issue and has developed and implemented a plan to resolve the
issue. The Company currently believes that, with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company's computer systems. However,
if such modifications and conversions are not completed on a timely basis, the
Year 2000 issue may have a material impact on the operations of the Company.
Furthermore, even if the Company completes such modifications and conversions
on a timely basis, there can be no assurance that the failure by vendors or
other third parties to solve the Year 2000 issue will not have a material
impact on the operations of the Company. The Company estimates the total cost
to resolve its Year 2000 problem to be approximately $51,000, (unaudited) of
which approximately $41,300 has been incurred through December 31, 1998.
16. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers primarily
in the United States. The Company's core businesses are divided into five
segments: Individual Life, Individual Annuity, Group Pension, Group Accident
and Health, and Corporate. These segments are managed separately because they
either provide different products and services, require different strategies,
or have different technology requirements.
Individual Life sells primarily variable life as well as traditional life
policies. Individual Annuity sells a variety of fixed annuity and variable
annuity contracts. Group Pension sells a variety of group annuity and pension
contracts to corporations and other institutions. Group Accident and Health
provides group life, group medical, and group disability contracts to
corporations and small businesses. Through its Corporate segment, the Company
reports the operating results of subsidiaries as well as items that are not
allocated to any of the business segments.
Set forth in the following tables is certain financial information with
respect to the Company's operating segments for the years ended December 31,
1998, 1997 and 1996. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates the performance of each operating segment based on profit or loss
from operations after income taxes. The Company does not allocate non-
recurring items to the segments.
F-50
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Allocation of net investment income and investment gains (losses), net were
based on the amount of assets allocated to each segment. Other costs and
operating costs were allocated to each of the segments based on: (i) a review
of the nature of such costs, (ii) time studies analyzing the amount of
employee compensation costs incurred by each segment, and (iii) cost estimates
included in the Company's product pricing.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 48,733 $ 31 $ 417 $ 21,394 $ 30,114 $ 100,689
Universal Life and
Investment-Type
Product Policy Fees.... 161,936 9,332 2,788 (290) 0 173,766
Net Investment Income... (22,496) (1,752) (405) 651 73,079 49,077
Investment Gains,
(Losses) Net........... (182) (7) (4) 17 5,786 5,610
Commissions, Fees, and
Other Income........... 9,408 6,042 1,118 20,430 155,413 192,411
---------- -------- -------- -------- -------- ----------
Total Revenues........ 197,399 13,646 3,914 42,202 264,392 521,553
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 84,709 3,943 874 13,561 46,600 149,687
Interest Credited to
Policyholder
Account Balances....... 6,337 1,264 83 0 51 7,735
Policyholder Dividends.. 1,135 4 0 3 21,847 22,989
Other Operating Costs
and Expenses........... 103,284 14,324 3,617 15,731 179,703 316,659
---------- -------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 195,465 19,535 4,574 29,295 248,201 497,070
Income from Operations
Before
Income Taxes........... 1,934 (5,889) (660) 12,907 16,191 24,483
Income Taxes............ 9,968 (402) (423) 3,986 (83) 13,046
---------- -------- -------- -------- -------- ----------
Net Income............ $ (8,034) $ (5,487) $ (237) $ 8,921 $ 16,274 $ 11,437
========== ======== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 616,959 42,524 2,359 2,511 46,608 710,961
Separate Account Assets. 2,073,552 835,648 235,467 113,716 0 3,258,383
Policyholder
Liabilities............ 380,586 38,912 768 19,233 501,579 941,078
Separate Account
Liabilities............ 2,073,552 835,648 235,467 113,716 0 3,258,383
</TABLE>
F-51
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 27,200 $ 31 $ 0 $ 3,743 $ 32,642 $ 63,616
Universal Life and
Investment-Type
Product Policy Fees.... 139,235 4,732 486 704 0 145,157
Net Investment Income... 31,905 (270) (20) (118) 29,562 61,059
Investment Gains,
(Losses) Net........... 523 0 0 0 367 890
Commissions, Fees, and
Other Income........... 9,542 3,253 266 4,383 10,858 28,302
---------- -------- -------- ------- -------- ----------
Total Revenue........... 208,405 7,746 732 8,712 73,429 299,024
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 71,010 3,431 0 3,827 21,912 100,180
Interest Credited to
Policyholder
Account Balances....... 5,371 664 149 0 36 6,220
Policyholder Dividends.. 507 1 0 0 20,817 21,325
Other Operating Costs
and Expenses........... 98,664 10,777 2,092 6,745 26,064 144,342
---------- -------- -------- ------- -------- ----------
Total Benefits and
Other Deductions..... 175,552 14,873 2,241 10,572 68,829 272,067
Income from Operations
Before Income Taxes.... 32,853 (7,127) (1,509) (1,860) 4,600 26,957
Income Taxes............ 2,701 (1,203) (504) (447) 4,441 4,988
---------- -------- -------- ------- -------- ----------
Net Income............ $ 30,152 $ (5,924) $ (1,005) $(1,413) $ 159 $ 21,969
========== ======== ======== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 498,208 24,226 1,347 877 41,111 565,769
Separate Account Assets. 1,426,347 450,441 111,437 0 0 1,988,225
Policyholder
Liabilities............ 258,880 20,476 197 6,398 463,269 749,220
Separate Account
Liabilities............ 1,426,347 450,441 111,437 0 0 1,988,225
</TABLE>
F-52
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- ------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 1,729 $ 0 $ 0 $ 56 $ 35,625 $ 37,410
Universal Life and
Investment-Type
Product Policy Fees.... 101,153 603 0 0 0 101,756
Net Investment Income... 23,667 (105) (2) (6) 26,074 49,628
Investment Gains,
(Losses) Net........... 396 0 0 0 8,426 8,822
Commissions, Fees and
Other Income........... 8,340 45 290 363 35,892 44,930
-------- -------- ------ ------- -------- ----------
Total Revenues........ 135,285 543 288 413 106,017 242,546
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 25,595 654 0 176 39,095 65,520
Interest Credited to
Policyholder
Account Balances....... 5,345 167 0 0 46 5,558
Policyholder Dividends.. 13 0 0 0 14,817 14,830
Other Operating Costs
and Expenses........... 81,559 13,499 71 1,798 46,959 143,886
-------- -------- ------ ------- -------- ----------
Total Benefits and
Other Deductions..... 112,512 14,320 71 1,974 100,917 229,794
Income from Operations
Before Income Taxes.... 22,773 (13,777) 217 (1,561) 5,100 12,752
Income Taxes............ (2,772) 723 0 0 5,100 3,051
-------- -------- ------ ------- -------- ----------
Net Income............ $ 25,545 $(14,500) $ 217 $(1,561) $ 0 $ 9,701
======== ======== ====== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 378,397 11,883 147 0 44,209 434,636
Separate Account Assets. 999,130 201,180 6,649 0 0 1,206,959
Policyholder
Liabilities............ 181,484 6,657 0 529 459,884 648,554
Separate Account
Liabilities............ 999,130 201,180 6,649 0 0 1,206,959
</TABLE>
Revenues derived from any single customer do not exceed 10% of the total
consolidated revenues for the years presented. Revenues were predominantly
generated from United States activity. Activity from other geographic locations
did not exceed 10% for any geographic location.
F-53
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Survivorship Life Prospectus dated
April 30, 1999. This Variable Life Policy is offered by New England Life
Insurance Company.
- ------------------------------------- -------------------------------------
(Date) (Client's Signature)
<PAGE>
ZENITH SURVIVORSHIP LIFE
Flexible Premium Adjustable
Variable Survivorship Life Insurance Policies
Issued by
New England Variable Life Separate Account of
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus offers individual flexible premium adjustable variable
survivorship life insurance policies (the "Policies") issued by New England
Life Insurance Company ("NELICO").
The Policy provides premium flexibility and two types of death benefit
guarantees as long as your total premiums paid meet certain minimum
requirements and no policy loan is outstanding. Insurance coverage is provided
on the lives of two insureds. The death benefit is payable at the death of the
second to die.
You may choose among four death benefit options. Two provide a fixed death
benefit equal to the Policy's face amount. Two provide a death benefit that may
vary daily with the investment experience of the Eligible Funds. Under any of
the death benefit options, the minimum death benefit guarantee(s) are
available. Cash value allocated to the Eligible Funds is not guaranteed, and
fluctuates daily with the investment results of the Eligible Funds.
You allocate net premiums among the investment sub-accounts of NELICO's
Variable Life Separate Account (the "Variable Account"). Each sub-account of
the Variable Account invests in shares of an Eligible Fund. The Eligible Funds
are:
NEW ENGLAND ZENITH FUND
<TABLE>
<S> <C>
Back Bay Advisors Bond Income Series Goldman Sachs Midcap Value Series
Back Bay Advisors Managed Series Morgan Stanley International Magnum
Back Bay Advisors Money Market Equity Series
Series
Capital Growth Series VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Westpeak Growth and Income Series
Westpeak Stock Index Series Overseas Portfolio
Loomis Sayles Balanced Series Equity-Income Portfolio
Loomis Sayles Small Cap Series High Income Portfolio
Alger Equity Growth Series
Davis Venture Value Series VARIABLE INSURANCE PRODUCTS FUND II
("VIP II")
Asset Manager Portfolio.
</TABLE>
You may also allocate net premiums to a Fixed Account in most states. Limits
apply to transfers to and from the Fixed Account.
You may cancel the Policy during the "Right to Return the Policy" period. In
addition, replacing existing insurance with the Policy might not be to your
advantage.
- --------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE POLICIES
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ELIGIBLE FUND PROSPECTUSES ARE ATTACHED. PLEASE READ THEM AND KEEP THEM FOR
REFERENCE.
WE DO NOT GUARANTEE HOW ANY OF THE SUB-ACCOUNTS OR ELIGIBLE FUNDS WILL PERFORM.
THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
APRIL 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY................................................................. A-4
INTRODUCTION TO THE POLICIES............................................. A-5
The Policies............................................................ A-5
Availability of the Policy.............................................. A-7
Policy Charges.......................................................... A-7
How the Policy Works.................................................... A-9
Receipt of Communications and Payments at NELICO's Home Office.......... A-10
NELICO.................................................................. A-10
POLICY VALUES AND BENEFITS............................................... A-11
Death Benefit........................................................... A-11
Minimum Guaranteed Death Benefit........................................ A-11
Death Proceeds Payable.................................................. A-13
Change in Death Benefit Option.......................................... A-13
Extending the Maturity Date............................................. A-13
Cash Value.............................................................. A-14
Net Investment Experience............................................... A-14
Allocation of Net Premiums.............................................. A-14
Amount Provided for Investment under the Policy......................... A-14
Right to Return the Policy.............................................. A-15
CHARGES AND EXPENSES..................................................... A-15
Deductions from Premiums................................................ A-16
Surrender Charge........................................................ A-16
Monthly Deduction from Cash Value....................................... A-18
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-19
Group or Sponsored Arrangements......................................... A-21
PREMIUMS................................................................. A-22
Flexible Premiums....................................................... A-22
Lapse and Reinstatement................................................. A-23
OTHER POLICY FEATURES.................................................... A-24
Loan Provision.......................................................... A-24
Surrender............................................................... A-25
Partial Surrender....................................................... A-25
Reduction in Face Amount................................................ A-26
Investment Options...................................................... A-26
Transfer Option......................................................... A-27
Payment of Proceeds..................................................... A-27
Exchange of Policy During First 24 Months............................... A-28
Policy Split Rider...................................................... A-28
Payment Options......................................................... A-28
Additional Benefits by Rider............................................ A-29
Policy Owner and Beneficiary............................................ A-29
THE VARIABLE ACCOUNT..................................................... A-30
Investments of the Variable Account..................................... A-30
Investment Objectives................................................... A-31
Investment Management................................................... A-33
THE FIXED ACCOUNT........................................................ A-34
General Description..................................................... A-34
Values and Benefits..................................................... A-34
Policy Transactions..................................................... A-35
NELICO'S DISTRIBUTION AGREEMENT.......................................... A-35
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY........................ A-36
Notification of First Death............................................ A-36
Misstatement of Age or Sex............................................. A-36
Suicide................................................................ A-36
TAX CONSIDERATIONS...................................................... A-37
Introduction........................................................... A-37
Tax Status of the Policy............................................... A-37
Tax Treatment of Policy Benefits....................................... A-37
NELICO's Income Taxes.................................................. A-40
MANAGEMENT.............................................................. A-40
VOTING RIGHTS........................................................... A-43
RIGHTS RESERVED BY NELICO............................................... A-43
TOLL-FREE NUMBERS....................................................... A-44
REPORTS................................................................. A-44
ADVERTISING PRACTICES................................................... A-44
LEGAL MATTERS........................................................... A-45
REGISTRATION STATEMENT.................................................. A-45
EXPERTS................................................................. A-45
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH
VALUES AND ACCUMULATED SCHEDULED PREMIUMS ............................. A-46
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION........................... A-54
APPENDIX C: LONG TERM MARKET TRENDS..................................... A-74
APPENDIX D: USES OF SURVIVORSHIP LIFE INSURANCE......................... A-76
APPENDIX E: TAX INFORMATION............................................. A-77
APPENDIX F: TAX LAW AND THE DEATH BENEFIT............................... A-78
APPENDIX G: ENHANCED DEATH BENEFIT LIMITATIONS.......................... A-79
FINANCIAL STATEMENTS.................................................... F-1
</TABLE>
A-3
<PAGE>
GLOSSARY
Account. A sub-account of the Variable Account or the Fixed Account.
Age. The age of an insured refers to the insured's age at his or her nearest
birthday.
Benchmark Premium. We use the Benchmark Premium to determine the amount of
Deferred Sales Charge that may apply on 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), assuming charges are imposed at the guaranteed levels and a 4% rate of
interest.
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 our general
account as a result of the loan.
Excess Policy Loan. When Policy loans plus accrued interest exceed the Policy's
cash value less the applicable Surrender Charge.
Fixed Account. The Fixed Account is a part of our general account to which you
may allocate net premiums. It provides guarantees of principal and interest.
Investment Start Date. This is the latest of the date we receive 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.
Maturity Date. The Policy anniversary on which the younger insured is (or would
have been) age 100. The Policy will not mature on this date if the extended
maturity option has been added to the Policy.
Net Cash Value. The amount you receive if you surrender the Policy. It is equal
to the Policy's cash value reduced by any applicable Surrender Charge and by
any outstanding Policy loan and accrued interest.
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.
Planned Premium. The Planned Premium is the premium payment schedule you choose
to help 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 called unscheduled
payments in the Policy and can be paid at any time, subject to certain limits.
Premiums. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment.
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, we issue the Policy with a
Policy Date which is generally five days after issue.
You. "You" refers to the Policy Owner.
A-4
<PAGE>
INTRODUCTION TO THE POLICIES
The Policies
The Policies are designed to provide lifetime insurance coverage for two
insureds payable at the death of the second to die. They are not offered
primarily as an investment.
Here is a summary of the Policy's basic features. You should read the
prospectus for more complete information.
--You can make premium payments under the Policy based on a schedule you
determine, subject to some limits. We can limit or prohibit unscheduled
payments in some situations, including cases where an insured is in a
substandard risk class. (See "Premiums".)
--You can allocate net premiums, after an initial period in the Zenith
Money Market Sub-Account, to 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 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. We provide guarantees of Fixed Account principal
and Interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE FROM THE
FIXED ACCOUNT. We have 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 the net investment
experience of your Policy's sub-accounts and the amount of interest
credited to your 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 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 your Policy's sub-accounts and the rate of
interest credited on your cash value in the Fixed Account. The death
benefit under each option could increase 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, the 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".)
--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 allows you to
transfer cash value among the sub-accounts and, generally, to the Fixed
Account up to four times in a policy year (twelve times in a policy year
for Policies issued in New York) without our consent. We currently allow
12 transfers per policy year in all states. Transfers and allocations
involving the Fixed Account are subject to some limits. (See "Transfer
Option" and "The Fixed Account--Policy Transactions".)
--A loan privilege and a partial surrender feature are available. (See
"Loan Provision" and "Partial Surrender".)
A-5
<PAGE>
--Death benefits paid to the beneficiary generally are not subject to
Federal income tax. Under current law, undistributed increases in cash
value generally are not taxable to you. (See "Tax Considerations".)
--Loans, assignments and other pre-death distributions 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 cause the Policy 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, we believe that loans
under the Policy will not be taxable to you as long as the Policy has not
lapsed, been surrendered or terminated. With some 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 your
investment in the Policy. (See "Tax Considerations".)
--During the "Right to Return the Policy" period you can return the Policy
for a refund. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue, you may exchange the
Policy, without evidence of insurability, for a fixed-benefit
survivorship life insurance policy issued by us 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.
The Policies 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 our 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 you pay additional premiums. If the
Policy lapses when Policy loans are outstanding, adverse tax consequences
may result.
--In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is deferred until you
receive a distribution from the Policy. Transfers from one underlying
fund portfolio to another do not incur 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".
A-6
<PAGE>
Availability of the Policy
The Policies are available for insureds from the age of 20 to 85, and, if we
consent, to older or younger insureds. All persons must meet our underwriting
and other requirements. The minimum face amount available is $100,000 unless we
consent to a lower amount. The Policies are not available to employee benefit
plans qualified under Section 401 of the Internal Revenue Code, except with our
consent. Policies for which insurance charges do not vary based on the sex of
the insured may not be available; and use of sex-based insurance charges may
not meet requirements that apply to some employee benefit plans.
Policy Charges
Premium-Based Charges. We deduct the following charges from premiums:
--A sales charge of 9%. We currently intend to waive this charge on
premiums paid after the first 15 policy years (17 policy years, for
Policies issued in Pennsylvania);
--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, face amount reduction or partial surrender that reduces the
face amount during the first 14 Policy years. 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, face
amount reduction or partial surrender that reduces the face amount during
the first 14 Policy years. For Policies covering insureds whose average
issue age is 60 or less at issue, the maximum Deferred Sales Charge
applies 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. The
Deferred Sales Charge will never 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 charge may be less if the average of the
issue ages is above 60.
We deduct the Surrender Charge from the Policy's available cash value,
regardless of whether that cash value comes from premiums or investment
experience.
Monthly Deduction from Cash Value. We deduct certain charges from the cash
value:
--Monthly charge for the cost of insurance and for any benefits provided by
rider;
--Monthly administrative charge, currently equal to $0.12 per $1,000 of
face amount in the first Policy year and $0.06 per $1,000 thereafter
(guaranteed not to exceed $0.16 per $1,000 of face amount in the first
Policy year and $0.10 per $1,000 thereafter). Currently, we intend 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).
A-7
<PAGE>
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 our mortality and expense
risk, equal to an annual rate of .90%;
--Daily charges against the Eligible Fund portfolios for investment
advisory services and fund operating expenses.
See "Charges and Expenses".
A-8
<PAGE>
HOW THE POLICY WORKS
[CHART APPEARS HERE]
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%. We intend 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%. We transfer loaned funds out of the Eligible
Funds into the General Account where we credit them with not less than 4.0%
interest. (Currently we intend 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
. We do not guarantee the cash value invested in the Eligible Funds
. Any earnings you accumulate are generally 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.
We limit the timing, frequency and amount of transfers from (and in some
cases to) the Fixed Account
. You may allocate your cash value among a maximum of nine accounts at any
one time
Death Benefit
. Paid upon the 2nd death
. Level or Variable Death Benefit Options
. Guaranteed not to be less than initial face amount (less any loan balance) if
Death Benefit Guarantee is in effect
. Income tax free to named beneficiary
Daily Deductions from Assets
. Mortality and expense risk charges of .90% on an annual basis are deducted
from the cash value
. Investment advisory fees and other expenses are deducted from the Eligible
Fund values
Beginning of Month Charges
. We deduct the cost of insurance protection (reflecting any substandard risk
rating) 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: $.12 (guaranteed not to exceed $.16) per $1000 face
amount monthly (first year) and $.06 (guaranteed not to exceed $.10) per
$1000 face amount monthly (after first year)
Surrender Charges
. Deferred Sales Charge and Deferred Administrative Charge (see page A-16)
Living Benefits
. If policyholder has elected and qualified for benefits for disability of
covered insured who becomes totally disabled, we will provide specified
premium amounts or waive monthly charges, depending on the option selected,
during the period of disability up to certain limits.
. You may surrender the Policy 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 our rules, you may reinstate a lapsed Policy within seven years
of date of lapse if it has not been surrendered
A-9
<PAGE>
Receipt of Communications and Payments at NELICO's Home Office
We will treat your request for a Policy transaction, or your submission of a
payment, as received by us if we receive a request conforming to our
administrative procedures or a payment before the close of regular trading on
the New York Stock Exchange on that day. If we receive it after that time, or
if the New York Stock Exchange is not open that day, then we will treat it 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. Originally, NELICO was a wholly-owned subsidiary of New England
Mutual Life Insurance Company ("New England Mutual"). On 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. MetLife then 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.
[CHART APPEARS HERE]
NELICO
(Insurance company subsidiary of MetLife)
We deduct charges.
We allocate net premiums and net unscheduled payments to your choice of
sub-accounts in the Variable Account or to the Fixed Account.
Premiums and Unscheduled Payments
Fixed Account
VARIABLE ACCOUNT
Zenith Capital Growth Sub-Account
Zenith Bond Income Sub-Account
Zenith Money Market Sub-Account
Zenith Managed Sub-Account
Zenith Stock Index Sub-Account
Zenith Growth and Income Sub-Account
Zenith Small Cap Sub-Account
Zenith Balanced Sub-Account
Zenith Equity Growth Sub-Account
Zenith Venture Value Sub-Account
Zenith Midcap Value Sub-Account
Zenith International Magnum Equity Sub-Account
Equity-Income Sub-Account
Overseas Sub-Account
High Income Sub-Account
Asset Manager Sub-Account
Sub-accounts buy shares of the Eligible Funds.
NEW ENGLAND ZENITH FUND
Capital Growth Series
Back Bay Advisors Bond Income Series
Back Bay Advisors Money Market Series
Back Bay Advisors Managed Series
Westpeak Stock Index Series
Westpeak Growth and Income Series
Loomis Sayles Small Cap Series
Loomis Sayles Balanced Series
Alger Equity Growth Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Morgan Stanley International Magnum Equity Series
VIP
Equity-Income Portfolio
Overseas Portfolio
High Income Portfolio
VIP II
Asset Manager Portfolio
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
A-10
<PAGE>
POLICY VALUES AND BENEFITS
Death Benefit
Death Benefit Options. When you apply for a Policy, you choose among four death
benefit options. The death benefit is payable to the beneficiary at the death
of the second insured to die.
The Option A (Enhanced with Face Amount) death benefit is 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 is equal
to the face amount of the Policy, plus the Policy's cash value, if any. 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 is 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. For Option C, these
increases are NOT enhanced.
The Option D (Face Amount Plus Cash Value) death benefit is equal to the face
amount of the Policy, plus the Policy's cash value, if any. The Option D death
benefit is also subject to increases required by the Internal Revenue Code. For
Option D, these increases are NOT enhanced.
To meet the Internal Revenue Code's definition of life insurance, the death
benefit will not be less than a certain multiple of the Policy's cash value.
(See Appendix F.) This means that, if the cash value grows to certain levels,
the death benefit increases 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".)
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. This results 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, until the factor is 1.00. The
enhanced death benefit is subject to some limits that depend in part on your
Policy's tabular cash value. (Tabular cash value is a hypothetical value that
uses the Guaranteed Death Benefit 1 Premium, maximum guaranteed charges and a
4% interest rate. See Appendix G).
Minimum Guaranteed Death Benefit
The Policy provides two Minimum Guaranteed Death Benefits. We determine whether
a Minimum Guaranteed Death Benefit is in effect on the first day of each Policy
month. If a Minimum Guaranteed Death Benefit is in effect, the Policy will not
lapse even if the net cash value is less than the Monthly Deduction for that
month. The minimum premiums necessary to maintain either Minimum Guaranteed
Death Benefit are shown in your Policy and also appear in your personalized
illustration.
Minimum Guaranteed Death Benefit 1. We 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 (age 100 of the younger insured).
This Benefit is in effect if:
(1) the total of all premiums paid for each Policy year, accumulated at a
4% rate as if they were paid on the first day of the Policy year, less
any partial surrender in each Policy year, accumulated at a 4% rate
from the date of surrender, is at least equal to
(2) the Guaranteed Death Benefit 1 Fund
A-11
<PAGE>
and there is no outstanding Policy loan. For these purposes, we treat premiums
paid within 20 days prior to a Policy anniversary as if paid in the next Policy
year.
DURING A POLICY YEAR, the amount of premiums paid in (1) above includes
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above includes 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 shown in your Policy is paid on the first day of each Policy year and
accumulates at a 4% rate per year. The Fund values shown in your Policy are for
the end of each Policy year.
If you lose the Guaranteed Minimum Death Benefit 1 due to insufficient premium
payments, it is unlikely because of Federal tax law limitations that you can
pay enough premiums in future years to regain the guarantee. Federal tax law
limitations also may prevent you from paying enough premiums to maintain the
Minimum Guaranteed Death Benefit 1 following: reductions in face amount,
including 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, we call the Minimum Guaranteed Death Benefit
1 the "No Lapse Guarantee Benefit 1", we call the Minimum Guaranteed Death
Benefit 1 Fund the "No Lapse Guarantee Benefit 1 Fund", and we call the Minimum
Guaranteed Death Benefit 1 Premium the "No Lapse Guarantee Benefit 1 Premium".
MINIMUM GUARANTEED DEATH BENEFIT 2. We 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 reaches 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 (age 100 of the
younger insured) of the Policy.
This Benefit is in effect if:
(1) the total of all premiums paid for each Policy year, accumulated at a
4% rate as if they were paid on the first day of the Policy year, less
any partial surrender in each 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, we treat premiums
paid within 20 days prior to a Policy anniversary as if paid in the next Policy
year.
DURING A POLICY YEAR, the amount of premiums paid in (1) above includes
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above includes 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 shown in your Policy is paid on the first day of each Policy year and
accumulates at a 4% rate per year. The Fund values shown in your Policy are for
the end of each Policy year.
If you lose the Guaranteed Minimum Death Benefit 2 due to insufficient premium
payments, it may be possible to regain the guarantee in future years. Federal
tax law limitations may prevent you from paying enough premiums to maintain the
Minimum Guaranteed Death Benefit 2 following: reductions in face amount,
including 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, we call the Minimum Guaranteed Death Benefit
2 the "No Lapse Guarantee Benefit 2", we call the Minimum Guaranteed Death
Benefit 2 Fund the "No Lapse Guarantee Benefit 2 Fund", and we call the Minimum
Guaranteed Death Benefit 2 Premium the "No Lapse Guarantee Benefit 2 Premium".
A-12
<PAGE>
Death Proceeds Payable
The death proceeds we pay are equal to the death benefit on the date of the
second insured's death, reduced by any outstanding loan and accrued loan
interest on that date and by any unpaid Monthly Deduction for the period prior
to that date. We increase the death proceeds (1) by any rider benefits payable
and (2) by any Monthly Deduction made for a period beyond the date of the
second insured's death.
We may adjust the death proceeds if either insured's age or sex was misstated
in the application, if death results from either insured's suicide within two
years (less in some states) from the Policy's date of issue, or if a rider
limits the death benefit. (See "Limits to NELICO's Right to Challenge the
Policy".)
Change in Death Benefit Option
After the first Policy year, you may change your death benefit option by
written request to our Home Office. The request will be effective on the first
day of the Policy month on or after we receive it. A change in death benefit
option may have tax consequences. (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), we reduce the Policy's face amount if
necessary so that the death benefit is the same immediately before and after
the change. A face amount reduction below $100,000 requires our consent. We may
also decrease any rider benefits under the Policy. A partial surrender of cash
value may be necessary to meet Federal tax law limits on the amount of premiums
that you can pay into the Policy. No Surrender Charge applies 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), we increase the Policy's face amount, if
necessary, so that the death benefit is the same immediately before and after
the change.
If you change from Option A or B (enhanced) to Option C or D, in most cases we
reduce the Policy's death benefit amount if the Internal Revenue Code increases
are in effect; the death benefit usually remains the same if they are not in
effect.
Changes from Option C or D to Option A or B (enhanced) require underwriting
approval, and both insureds must be living if the amount at risk under the
Policy would increase.
Extending the Maturity Date
If approved in your state, we will amend your Policy with an extended maturity
endorsement. If endorsed, the Policy will not mature until the date of the
second insured's death (the "Extended Maturity Date"). On and after the
original Maturity Date, the death benefit generally equals the cash value on
the date of death. There is an exception if, on the original Maturity Date,
your premiums paid (with interest at 4%), less partial surrenders (with
interest at 4%) are at least equal to the "Age 100 Amount" shown in the Policy.
In this case, the death benefit on and after the original Maturity Date equals
the GREATER of (1) the cash value on the date of death and (2) the Policy face
amount. We base the Age 100 Amount 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.) Certain Policy transactions--reductions in face
amount, reduction or deletion of a rider benefit, or improvement in rating
class--could prevent you from paying sufficient premiums to reach the Age 100
Amount.
Currently, we do not make Monthly Deduction charges after the original Maturity
Date. You cannot pay premiums after the original Maturity Date unless necessary
to prevent lapse of the Policy. All Policy riders (except the extended maturity
endorsement) terminate on the original Maturity Date.
The tax consequences of the endorsement are unclear, and you should consult a
tax advisor about them. For more information about the extended maturity
option, contact us or your registered representative.
A-13
<PAGE>
Cash Value
Your Policy's total cash value includes its cash value in the Variable Account
and in the Fixed Account. If you have a Policy loan, the cash value also
includes the amount we hold in our general account as a result of the loan. The
cash value reflects:
-- net premium payments
-- the net investment experience of the Policy's sub-accounts
-- interest credited to cash value in the Fixed Account
-- interest credited to amounts held in the general account for a Policy
loan
-- the death benefit option you choose
-- Policy charges
-- partial surrenders
-- transfers among the sub-accounts and Fixed Account
-- the premium payment schedule (annual vs. quarterly, for example) you
choose
We pay you the NET cash value if you surrender the Policy. It equals the cash
value minus any outstanding Policy loan (plus interest) and any Surrender
Charge that applies. (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 net investment experience. Poor investment experience can reduce
the cash value to zero. YOU HAVE THE ENTIRE INVESTMENT RISK FOR THE CASH VALUE
IN THE VARIABLE ACCOUNT.
Net Investment Experience
The net investment experience of the sub-accounts affects the Policy's cash
value and, in some cases, the death benefit. We determine the net investment
experience of each sub-account 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 is based on the
investment experience of the underlying Eligible Fund shares for the same
period, and is reduced by the charges against the sub-account (currently only
the mortality and expense risk charge) for that period.
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.
Allocation of Net Premiums
Your cash value is held in the general account of NELICO or an affiliate until
we issue the Policy. We credit the first net premium with net investment
experience equal to that of the Zenith Money Market Sub-Account from the
investment start date until the later of 45 days after the date Part I of the
application is signed or 10 days after we mail the Notice of Withdrawal Right.
(The "investment start date" is defined below.) Then, we allocate the cash
value to the sub-accounts as you choose. We allocate the amounts you allocated
to the Fixed Account as of the investment start date. You can allocate to a
maximum of nine accounts (including the Fixed Account) at any one time.
Amount Provided for Investment under the Policy
Investment Start Date. The investment start date is the latest of: the date
when we first receive a premium payment for the Policy, the date each of the
insureds has signed his/her Part II of the Policy application and the
A-14
<PAGE>
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.)
PREMIUM WITH APPLICATION. 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
our 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. You may only make one premium payment before the Policy is issued.
If you make a premium payment with the application, we will cover the insureds
under a temporary insurance agreement for a limited period that generally
begins when we receive the premium for the Policy (or, if later, on the date
when each of the insureds has signed his/her Part II of the application). The
maximum temporary coverage 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). These provisions vary in some states.
If we issue a Policy, Monthly Deductions begin from the Policy Date, even if we
delayed the Policy's issuance for underwriting. The deductions are for the face
amount of the Policy issued, even if the temporary insurance coverage during
underwriting was for a lower amount. If we decline an application, we refund
the premium payment made.
PREMIUM ON DELIVERY. If you pay the initial premium on delivery of the Policy,
the Policy Date is usually five days after issue. The investment start date is
the later of the Policy Date and the date we received the premium. Monthly
Deductions begin on the Policy Date. We credit interest at a 4% net rate to the
Policy for any period between the Policy Date and the investment start date.
Insurance coverage under the Policy begins when we receive the Minimum Premium
(see "Premiums") due for the first quarter (or, on receipt of the number of
monthly payments due under NELICO's Master Service Account arrangement).
BACKDATING. We may sometimes backdate a Policy, if you request, by assigning a
Policy Date earlier than the date the application is signed. You may wish to
backdate so that you can obtain lower cost of insurance rates, based on a
younger insurance age. Backdating in some cases causes a higher Surrender
Charge if it 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, we allocate to the
Policy those net premiums, adjusted for monthly Policy charges and interest at
a 4% net rate for that period.
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 (more in some states) after you receive
the Policy or within 10 days after we mail the Notice of Withdrawal Right,
whichever is latest. You may return the Policy to us or your registered
representative. Insurance coverage ends as soon as you return the Policy
(determined by postmark, if the Policy is mailed). If you cancel the Policy, we
refund any premium paid (or any other amount that is required by state
insurance law).
CHARGES AND EXPENSES
THE AMOUNT OF A CHARGE MAY NOT NECESSARILY CORRESPOND TO THE COSTS OF THE
SERVICES OR BENEFITS THAT ARE IMPLIED BY THE NAME OF THE CHARGE OR THAT ARE
ASSOCIATED WITH THE PARTICULAR POLICY. FOR EXAMPLE, THE SALES CHARGE AND
DEFERRED SALES CHARGE MAY NOT FULLY COVER ALL OF OUR SALES AND DISTRIBUTION
EXPENSES, AND WE MAY USE PROCEEDS FROM OTHER CHARGES, INCLUDING THE MORTALITY
AND EXPENSE RISK CHARGE, TO HELP COVER THOSE EXPENSES.
A-15
<PAGE>
Deductions from Premiums
We deduct a 9% sales charge from premiums. We currently intend to waive the
charge on all premiums after the 15th Policy year (after the 17th Policy year
if we issued the Policy in Pennsylvania.
For these purposes, we consider premiums we receive during the twenty days
prior to a Policy anniversary as paid in the next Policy year. (This rule does
not apply to premiums paid through our Master Service Account arrangement,
described in "Premiums".)
We have the right not to waive the charge or to resume the charge.
During the first 14 Policy years (less for insureds with higher average issue
ages), if you surrender or lapse the Policy, make a partial surrender or reduce
the face amount, a Deferred Sales Charge also applies. (See "Surrender Charge"
below.)
We may reduce sales charges for Policies sold to some group or sponsored
arrangements.
State Premium Tax Charge. We deduct 2.5% from each premium for 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. We deduct 1% from each premium for our federal
income tax liability related to premiums.
Example: The following chart shows the net amount that we would allocate
to the Variable Account assuming a premium payment of $2,000.
<TABLE>
<CAPTION>
Net
Premium Premium
------- -------
<C> <C> <S>
$2,000 $2,000
-250
------
$1,750 (12.5% X 2,000 = total sales and premium tax charge)
</TABLE>
We intend to 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
$2,000 - 70 (3.5% X 2,000), or $1,930.
Surrender Charge
If, during the first 14 Policy years, you surrender or lapse your Policy,
reduce the face amount, or make a partial surrender that reduces the face
amount, then we will deduct a Surrender Charge 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 shown in your Policy.
Any Surrender Charge deducted on lapse is credited back to the Policy's cash
value on 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 on any date after reinstatement, the period the Policy was
lapsed does not count.
Deferred Sales Charge. We base the Deferred Sales Charge on a percentage of the
Benchmark Premium.
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 BELOW, AFTER THE SECOND POLICY YEAR, THE MAXIMUM DEFERRED SALES
CHARGE INCREASES SUBSTANTIALLY.
A-16
<PAGE>
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. The Deferred Sales Charge will never 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 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.
<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.
In the case of a reduction in face amount or partial surrender that reduces the
face amount, we deduct any Deferred Sales Charge that applies from the Policy's
remaining cash value in an amount that is proportional to the amount of the
Policy's face amount surrendered. (See "Partial Surrender".) The charge reduces
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-17
<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.
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, we deduct
the "Monthly Deduction" from your cash value.
-- If your Policy is protected against lapse by a Minimum Death Benefit
Guarantee or the three year Minimum Premium guarantee, we make the
Monthly Deduction each month unless the cash value equals zero. (See
"Premiums".)
-- If you do not have a Minimum Death Benefit Guarantee and the three year
Minimum Premium guarantee is not in effect, we make the Monthly
Deduction as long as the net cash value is large enough to cover the
entire Monthly Deduction. If it is not large enough, 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 $0.12 PER $1,000
of Policy face amount in the FIRST Policy year and $0.06 per $1,000 of Policy
face amount thereafter (guaranteed not to exceed $0.16 per $1,000 of face
amount in the first Policy year and $0.10 per $1,000 of Policy face amount
thereafter).
On a current basis, the monthly Administrative Charge does not apply to more
than $4 million of Policy face amount beginning in the second Policy year. As a
result, the maximum monthly charge currently deducted after the first Policy
year is $240 per month.
A-18
<PAGE>
Minimum Death Benefit Guarantee Charge. The minimum death benefit guarantee
charge is $0.01 per $1,000 of Policy face amount. (See "Minimum Guaranteed
Death Benefit".)
Monthly Charges for the Cost of Insurance. This charge covers the cost of
providing insurance protection under your Policy. There are no mortality
charges for an insured after he or she reaches age 100 (or would have reached
age 100, if that person dies earlier). 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. We determine the amount at
risk on the first day of the Policy month after we process the Monthly
Deduction. The amount at risk is the amount by which the death benefit
(discounted at the monthly equivalent of 4% per year) exceeds the Policy's cash
value. The cost of insurance rate for your Policy changes from month to month.
The guaranteed cost of insurance rates for a Policy depend on each insured's
-- underwriting class
-- age on the first day of the Policy year
-- sex (if the Policy is sex-based).
The current cost of insurance rates will also depend on
-- each insured's age at issue
-- the Policy year.
We guarantee that the joint rates will not be higher than rates based on the
1980 Commissioners Standard Ordinary Mortality Tables with smoker/nonsmoker
modifications (the "1980 CSO Tables"). The actual rates we use may be lower
than the maximum rates, depending on our expectations about our future
mortality and expense experience, lapse rates and investment earnings. We
review the adequacy of our cost of insurance rates periodically and may adjust
them. Any change will apply prospectively.
We underwrite each insured person separately. The underwriting classes we use
are smoker standard, smoker substandard, nonsmoker standard, and nonsmoker
substandard. Substandard ratings result in higher cost of insurance deductions.
We base the guaranteed maximum mortality charges for substandard ratings on
multiples of the 1980 CSO Tables.
Cost of insurance rates are generally lower for nonsmokers than for smokers and
generally lower for females than for males. Within a given underwriting class,
cost of insurance rates are generally lower for insureds with lower issue ages.
We may offer Policies with cost of insurance rates (and Policy values and
benefits) that do not vary based on the sex of the insured. These Policies
would only be available where required by state law or to some employee benefit
plans.
Charges for Additional Benefits and Services. We charge for the cost of any
additional rider benefits as described in the rider form. We also may charge
you a nominal fee, which we will bill directly to you, if you request a Policy
re-issue or re-dating.
Charges Against the Eligible Funds and the Sub-Accounts of the Variable Account
Mortality and Expense Risk Charge. We charge the sub-accounts of the Variable
Account for our mortality and expense risks. Currently, the charge is made
daily at an annual rate of .90% of the sub-accounts' assets. The mortality risk
we assume is that insureds may live for shorter periods of time than we
estimated. The expense risk is that our costs of issuing and administering the
Policies may be more than we estimated.
A-19
<PAGE>
Charges for Income Taxes. We currently do not charge the Variable Account for
income taxes, but in the future we may make such a charge, if appropriate. We
have the right to make a charge for any taxes imposed on the Policies 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 following table shows the annual operating expenses for each series, based
on actual expenses for 1998, after any 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 .03% .08% .10% .08% .12% .08% --
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses .66% .48% .45% .58% .37% .78% 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% .12% .40% .08% .08%
---- ---- ----- ---- ----
Total Series Operating
Expenses .90% .82% 1.30% .83% .83%
</TABLE>
- --------
* Without the applicable expense cap or expense deferral arrangement
(described below), Total Series Operating Expenses for the year ended
December 31, 1998 would have been: Loomis Sayles Small Cap Series, 1.10%;
and Morgan Stanley International Magnum Equity Series, 1.40%.
The following Zenith Fund series are NOT yet available under the Policies as
of the date of this prospectus. We anticipate that they will become available
by the third quarter of 1999. You should consult with your registered
representative for current information about availability of these series.
Annual Operating Expenses
(as a percentage of average net assets after expense deferral)
<TABLE>
<CAPTION>
MFS
MFS Research
Investors Managers
Series* Series*
--------- --------
<S> <C> <C>
Management Fee .75% .75%
Other Expenses .15% .15%
---- ----
Total Series Operating Expenses .90% .90%
</TABLE>
- --------
* Without the expense deferral arrangement, we estimate that Total Series
Operating Expenses for the MFS Investors Series and MFS Research Managers
Series for the year ended December 31, 1999 would be 1.04%, each, on an
annualized basis.
A-20
<PAGE>
Our affiliate, New England Investment Management, Inc. (formerly known as TNE
Advisers, Inc.), advises the series of the Zenith Fund except for the Capital
Growth Series. New England Investment Management voluntarily limits the
expenses of these series with either an expense cap or expense deferral
arrangement, as shown in the chart above. Under the expense cap, New England
Investment Management bears expenses of a series (other than the management
fee) that exceed 0.15% of average daily net assets (in the case of the Loomis
Sayles Small Cap Series, expenses that exceed 1.00% of average daily net
assets). Under the expense deferral, New England Investment Management bears
expenses of a series (other than the management fee) that exceed a certain
limit in the year the series incurs them and charges those expenses to the
series in a future year if actual expenses of the series are below the limit.
New England Investment Management may end these expense limits at any time.
The investment adviser for VIP and VIP II is Fidelity Management & Research
Company ("FMR"). The Portfolios of VIP and VIP II pay investment management
fees to FMR and also bear certain other expenses. For the year ended December
31, 1998, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
VIP Equity-Income .49% .09% .58%*
VIP Overseas .74% .17% .91%*
VIP High Income .58% .12% .70%
VIP II Asset Manager .54% .10% .64%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. If we
included these reductions, total annual expenses would have been .57% for VIP
Equity-Income Portfolio, .89% for VIP Overseas Portfolio, and .63% for VIP II
Asset Manager Portfolio.
Affiliates of FMR compensate NELICO and/or certain affiliates for
administrative, distribution, or other services relating to these Portfolios of
VIP and VIP II. This compensation is based on assets of the Portfolios
attributable to the Policies and certain other variable insurance products that
we and our affiliates issue.
GROUP OR SPONSORED ARRANGEMENTS
We may issue the Policies to group or sponsored arrangements, as well as on an
individual basis. A "group arrangement" includes a situation where 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 situation where an
employer or an association permits group solicitation of its employees or
members for the purchase of individual Policies.
We may waive, reduce or vary any Policy charges under Policies sold to a group
or sponsored arrangement. We may also raise the interest rate credited to
loaned amounts under these Policies. The amount of the variations and our
eligibility rules may change from time to time. In general, they reflect cost
savings over time that we anticipate for Policies sold to the eligible group or
sponsored arrangements and relate to objective factors such as the size of the
group, its stability, the purpose of the funding arrangement and
characteristics of the group members. These variations of charges do not apply
to Policies sold in New York other than Policies sold to non-tax qualified
deferred compensation plans of various types. Consult your registered
representative for any variations that may be available and appropriate for
your case.
The United States Supreme Court has ruled that insurance policies with values
and benefits that vary with the sex of the insured may not be used to fund
certain employee benefit programs. We may offer Policies that do not vary based
on the sex of the insured to certain employee benefit programs. Your registered
representative can advise you as to the availability of such Policies. We
recommend that employers consult an attorney before offering or purchasing the
Policies in connection with an employee benefit program.
A-21
<PAGE>
PREMIUMS
Flexible Premiums
Within limits, you choose the amount and frequency of premium payments. You
select a Planned Premium schedule, which may be a fixed amount or a varying
amount. This schedule appears in your Policy. YOUR PLANNED PREMIUMS WILL NOT
NECESSARILY KEEP YOUR POLICY IN FORCE. You may skip Planned Premium payments or
make additional payments. You cannot make a Planned Premium or additional
payment that increases the Policy's death benefit by more than it increases the
cash value except with our consent, and we may require underwriting. No payment
can be less than $25 ($10 for payments made through the Master Service Account,
described below, or certain other monthly payment arrangements). We limit the
total of Planned Premiums and other payments to our published maximum.
You can pay Planned Premiums on an annual, semi-annual or quarterly schedule
or, with our consent, monthly. You can change your Planned Premium schedule at
any time by sending your request to our Home Office.
You may make payments by check or money order. We will send premium notices for
annual, semi-annual or quarterly Planned Premiums. You may also choose to have
us withdraw your premium payments from your bank checking account or New
England Cash Management Trust account. (This is known as the Master Service
Account arrangement.)
Federal tax law limits the amount of premiums that you can pay under the
Policy. In addition, if any payments under the Policy exceed the "7-pay test"
under Federal tax law, your Policy will become a "modified endowment contract"
and you may have more adverse tax consequences with respect to certain
distributions than would otherwise be the case if premium payments did not
exceed the "7-pay test". (See "Tax Considerations".)
We allocate net payments to your Policy's sub-accounts as of the date we
receive the payment. (See "Receipt of Communications and Payments at NELICO's
Home Office".)
Under our current processing we treat a payment first as a Planned Premium, and
then as an unscheduled payment, unless you instruct us otherwise in writing.
(FOR POLICIES ISSUED IN NEW YORK, we treat a payment 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, we treat it first as repayment of Policy
loan interest due, second as a Planned Premium, and last as an unscheduled
payment.) We do not treat a payment as repayment of a Policy loan unless you
instruct us to.
If you have a Policy loan, it may be better 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,
repaying the loan instead of paying a premium could make your Policy ineligible
for a death benefit guarantee. (See "Loan Provision", "Deductions from
Premiums" and "Death Benefit".)
A-22
<PAGE>
Three types of premium payment levels can protect your Policy against
lapse (1) for the first three Policy years, (2) until age 80 of the
younger insured, and (3) until age 100 of the younger insured.
FIRST THREE POLICY YEARS--In general, if you pay the three year Minimum
Premium amount on time AND THERE IS NO OUTSTANDING POLICY LOAN, the Policy
will not lapse even if the net cash value is less than the Monthly
Deduction in any month. The guarantee will not apply if (1) you reinstate
the Policy, (2) you reduce the face amount or make a partial surrender
that reduces the face amount, (3) you increase or decrease rider coverage,
or (4) the rating classification for your Policy is improved. We base the
Minimum Premium on your Policy's face amount, the age, sex (unless unisex
rates apply), and underwriting class of each insured, the current level of
Policy charges and any riders to the Policy.
TO MATURITY (AGE 100 OF THE YOUNGER INSURED)--Payment of the Guaranteed
Death Benefit 1 premium can guarantee that the Policy will stay in force
until 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". We base this guaranteed minimum death benefit
premium 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. We recalculate this premium following the Policy
transactions described above (other than insufficient premiums) as well as
following an increase in rider coverage.
TO AGE 80 OF THE YOUNGER INSURED--Payment of the Guaranteed Death Benefit
2 premium can guarantee 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 (age 100 of the younger insured) of the Policy.
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
terminate this guarantee, although termination for insufficient premium
payments is less likely here than in the case of the Guaranteed Death
Benefit 1 premium. We base this premium on factors similar to the
Guaranteed Death Benefit 1 premium for coverage to the earlier age. We
recalculate the Guaranteed Death Benefit 2 premium following the same
transactions described above (other than insufficient premiums) as well as
following an increase in rider coverage.
Lapse and Reinstatement
Lapse. Unless your Policy is protected by a guaranteed death benefit or minimum
premium guarantee, any month that your Policy's net cash value is not large
enough to cover a Monthly Deduction, your Policy will be in default. Your
Policy provides a 62 day grace period for payment of a premium large enough to
cover the amount in default and all deductions from the premium. We will notify
you of the amount due. You have insurance coverage during the grace period, but
if the second insured dies before you have paid the premium, we deduct from the
death proceeds the unpaid Monthly Deduction for the period prior to the date of
death. If you have not paid the required premium by the end of the grace
period, your Policy will lapse without value.
Reinstatement. If your Policy has lapsed, you may reinstate it within seven
years after the date of lapse. If more than seven years have passed, or if you
have surrendered the Policy, you need our consent to reinstate. Reinstatement
in all cases requires payment of certain charges described in the Policy and
usually requires evidence of insurability that is satisfactory to us.
If we deducted a Surrender Charge on lapse, we credit it back to the Policy's
cash value on reinstatement. The Surrender Charge on the date of reinstatement
is the same as it was on the date of lapse. When we determine the Surrender
Charge and other charges that vary by duration of the Policy (rather than by
age of the insured), we do not count the amount of time that a Policy was
lapsed.
A-23
<PAGE>
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. We make the loan as of the date when we
receive a loan request. (See "Receipt of Communications and Payments at
NELICO's Home Office".) You should contact our Home Office or your registered
representative for information on loan procedures.
The Policy's loan value equals:
(i) 90% (or more if required by state law) of the Policy's "projected cash
value"; minus
(ii) the Policy's Surrender Charge on the next Planned Premium due date or,
if greater, on the date the loan is made; minus
(iii) loan interest to the next loan interest due date.
The "projected cash value" is the cash value projected to the next Policy
anniversary or, if earlier, to the next Planned Premium due date, at a 4% rate
and using current Policy charges. The loan value available is reduced by any
outstanding loan plus interest. We currently intend to base the loan value on
100% of the Policy's projected cash value, rather than 90%, for Policy years 16
and after.
The example below illustrates how the loan value is determined.
Example: Using the Policy illustrated on page A-48 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
you could borrow 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..................................... $172,252 $161,752
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4% to the
(a) 11th Policy Anniversary...................... 177,963
(b) Next Planned Premium Due Date................ 163,054
(3) 90% of Amount Calculated in (2).................. 160,167 146,749
(4) Amount Calculated in (3), Reduced by the
Applicable Surrender Charge..................... 154,350 140,932
(5) Amount Calculated in (4), Reduced by Loan
Interest to the Next Interest Due Date.......... 146,303 139,020
</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, we attribute Policy
loans first to the sub-accounts of the Variable Account in proportion to the
cash value in each, and then the Fixed Account. We allocate loan repayments
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). Interest accrues daily and is due on
the Policy anniversary. If not paid, we add the interest accrued to the loan
amount, and we deduct an amount equal to the unpaid interest from the Policy's
cash value in the sub-accounts and the Fixed Account in proportion to the
amount in each. The amount we take 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
A-24
<PAGE>
year. The rate we currently credit is 4% per year for the first 15 Policy years
and 5% thereafter. We credit this interest amount 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, loans
can permanently affect the death benefit and cash value of the Policy, even if
repaid. In addition, we reduce any proceeds payable under a Policy by the
amount of any outstanding loan plus accrued interest.
If a Policy loan is outstanding, it may be better 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, repaying the loan
instead of paying a premium could make your Policy ineligible 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),
we will notify you that the Policy is going to terminate. (This is called an
"excess Policy loan". We test for an excess Policy loan on each monthly
processing date and in connection with Policy processing transactions.) The
Policy terminates without value 62 days after we mail the notice unless you pay
us the excess Policy loan amount within that time. (See "Lapse and
Reinstatement".) If the Policy lapses with a loan outstanding, adverse tax
consequences may result. If your Policy is a "modified endowment contract",
loans under your Policy may be treated as taxable distributions. (See "Tax
Considerations" below.)
Department of Labor ("DOL") regulations impose requirements for participant
loans under tax-qualified pension plans. Therefore, plan loan provisions may
differ from Policy loan provisions. (See "Tax Considerations".)
Surrender
You may surrender a Policy for its net cash value at any time while either
insured is living. We determine the net cash value of the surrendered Policy as
of the date when we receive a surrender request. 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 apply all or
part of the net cash value 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 reduces the Policy's death benefit and may
reduce the Policy's face amount if necessary so that the amount at risk under
the Policy will not increase. Any reduction in the face amount causes a
proportionate reduction in the Policy's Benchmark Premium, on which we base any
future Surrender Charges. A partial surrender may also reduce rider benefits.
We reserve the right to decline a partial surrender request that would reduce
the face amount below the Policy's required minimum.
We have the right to limit partial surrenders in any one Policy year to 20% of
the Policy's net cash value on the date of the first partial surrender for the
Policy year or, if less, the Policy's available loan value. Currently, we
permit partial surrenders of up to 75% of the Policy's net cash value per year,
if there is sufficient available loan value.
We deduct any Surrender Charge that applies to the partial surrender 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.
A-25
<PAGE>
You may not reinvest cash value paid upon partial surrender 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. We determine the amount
of net cash value paid upon partial surrender as of the first day of the Policy
month on or after the date when we receive a request. You can contact your
registered representative or the Home Office for information on partial
surrender procedures.
A reduction in the death benefit as a result of a partial surrender may create
a "modified endowment contract" or have other adverse tax consequences. If you
are contemplating a partial surrender, you should consult your tax advisor
regarding the tax consequences. (See "Tax Considerations".)
Reduction in Face Amount
You may reduce the face amount of your Policy without receiving a distribution
of any Policy cash value. (This feature differs from a partial surrender, which
reduces the Policy's net cash value.)
If you decrease the face amount of your Policy, we also decrease the Benchmark
Premium, on which we base any future Surrender Charges. We deduct any Surrender
Charge that applies from the Policy's cash value when you reduce its face
amount.
A face amount reduction usually decreases the Policy's death benefit. (However,
if we are increasing the death benefit to satisfy federal income tax laws, a
face amount reduction will not decrease the death benefit unless we deducted a
Surrender Charge from the cash value. A reduction in face amount in this
situation may not be advisable, because it will not reduce your death benefit
or cost of insurance charges and may result in a Surrender Charge.) We also may
decrease any rider benefits attached to the Policy. The face amount remaining
after a reduction must meet our minimum face amount requirements for issue,
except with our consent.
A reduction in face amount reduces the Federal tax law limits on the amount of
premiums that you can pay under the Policy. In these cases, you may need a
partial surrender of cash value to comply with Federal tax law. This could
terminate the Minimum Guaranteed Death Benefit 1 or 2. (See "Minimum Guaranteed
Death Benefit".)
A face amount reduction takes effect as of the first day of the Policy month on
or after the date when we receive a request. You can contact your registered
representative or the Home Office for information on face reduction procedures.
A reduction in the face amount of a Policy that causes a death benefit
reduction may create 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 can allocate your Policy's premiums among the sub-accounts of the Variable
Account and the Fixed Account in any combination, as long as you choose no more
than nine accounts (including the Fixed Account) at any one time. The Policy
provides that you must allocate a minimum of 10% of the premium to each sub-
account selected and that you must allocate whole percentages; currently, we
will permit you to allocate any whole percentage to a sub-account. You can
allocate your Policy's cash value 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 can change the
allocation of future premiums at any time thereafter. The change will be
effective for premiums applied on or after the date when we receive your
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request. You may request the change by telephone or by written request. (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, you may transfer your Policy's
cash value between sub-accounts. We reserve the right to limit sub-account
transfers to four per Policy year (twelve per Policy year for Policies issued
in New York). We currently allow 12 sub-account transfers per Policy year under
all Policies. We do not count transfers out of the Fixed Account against this
limit. We treat all sub-account transfer requests made at the same time as a
single request. The transfer is effective as of the date when we receive the
transfer request. (See "Receipt of Communications and Payments at NELICO's Home
Office".) For special rules regarding transfers involving the Fixed Account,
see "The Fixed Account".
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisors or registered representatives acting under power(s) of attorney from
one or more Policy owners.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to us or by telephoning us. To
request a transfer or reallocation by telephone, you should contact your
registered representative or contact us at 1-800-200-2214. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Any telephone instructions that we reasonably believe to be genuine are your
responsibility, including losses arising from any errors in the communication
of instructions.
Payment of Proceeds
We ordinarily pay any net cash value, loan value or death benefit proceeds
coming from the sub-accounts within seven days after we receive a request, or
satisfactory proof of death of an insured. (See "Receipt of Communications and
Payments at NELICO's Home Office".) However, we may delay payment (except when
a loan is made to pay a premium to us) or transfers from the sub-accounts: (i)
if the New York Stock Exchange is closed for other than weekends or holidays,
or trading on the New York Stock Exchange is restricted, (ii) if the SEC
determines that an 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.
We may withhold payment of surrender or loan proceeds if those proceeds are
coming from a Policy Owner's check, or from a Master Service Account premium
transaction, which has not yet cleared. We may also delay payment while we
consider whether to contest the Policy. We pay interest on the death benefit
proceeds from the date they become payable to the date we pay them.
The beneficiary can elect our Access Plus program for payment of death proceeds
at any time before we pay them. We establish an Access Plus account at State
Street Bank & Trust Company at the time for payment. The Access Plus account
gives convenient access to the proceeds, which are maintained in MetLife's
general account, through checkbook privileges with State Street.
Normally we promptly make payments of net cash value, or of any loan value
available, from cash value in the Fixed Account. However, we may delay those
payments for up to six months. We pay interest in accordance with state
insurance law requirements on delayed payments.
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Exchange of Policy During First 24 Months
During the first 24 months after the Policy's issue date, you can exchange it
for a fixed-benefit traditional survivorship life insurance policy, provided
that (1) you repay any policy loans and (2) the Policy has not lapsed. 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. We make the exchange 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, and the same policy date,
issue ages and risk classifications as 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. We will attach any riders to the
original Policy to the new policy if they are available.
Contact us or your registered representative for more specific information
about the exchange. The exchange may result in a cost or credit to you.
Policy Split Rider
Subject to state availability and our underwriting guidelines, we may add to
your Policy a split rider which allows you to "split" the Policy into two new
NELICO individual flexible premium adjustable variable life insurance policies.
The rider permits you to split the Policy 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 lists the requirements
for a split event. If you exercise the split rider, this Policy will be
canceled, and we will transfer its cash value (in equal portions, unless we
agree otherwise) to two new individual policies issued on the effective date of
the split. A new Surrender Charge will apply to each individual policy. We will
issue each new policy with either a level or variable death benefit option in
effect, depending on which type of death benefit option you have under this
Policy at the time of the split.
For more information about the Policy split rider you should contact us or your
registered representative. You can request a prospectus and additional
information regarding the individual policies that are issued following a
split. For a discussion of the possible tax consequences of splitting the
Policy, see "Tax Considerations."
Payment Options
We pay the Policy's death benefit and net cash value in one sum, unless you or
the payee choose a payment option for all or part of the proceeds. You can
choose a combination of payment options. You can make, change or revoke the
selection of payee or payment option before the last death under the Policy.
You can contact your registered representative or the Home Office for the
procedure to follow. The payment options available are fixed benefit options
only and are not affected by the investment experience of the Variable Account.
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. We pay proceeds 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 for any
year is added to the monthly payments for that year.
(ii) Life Income. We pay proceeds 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. We pay proceeds in equal monthly
installments during the life of the payee. At the payee's death, we
pay any unpaid proceeds remaining either in one sum or in equal
monthly installments until we have paid the total proceeds.
(iv) Interest. We hold proceeds for the life of the payee or another agreed
upon period. We pay interest of at least 3.5% a year monthly or add it
to the principal annually. At the death of the payee, or at the end of
the period agreed to, we pay the balance of principal and any interest
in one sum.
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(v) Specified Amount of Income. We pay proceeds plus accrued interest of at
least 3.5% a year in an amount and at a frequency elected until we have
paid total proceeds. We pay any amounts unpaid at the death of the
payee in one sum.
(vi) Life Income for Two Lives. We pay proceeds in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the life of the surviving payee or 10 years, or (iii) while
the two payees are living and, after the death of one payee, we pay
two-thirds of the monthly amount for the life of the surviving payee.
You need our consent to use an option if the installment payments would be less
than $20.
Additional Benefits by Rider
You can add additional benefits to the Policy by rider, subject to our
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.
It may be to your economic advantage to include a significant portion of your
insurance coverage under a joint life term insurance rider to age 100.
Reductions in or elimination of term rider coverage does not trigger 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 usually 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 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.
The beneficiary is also named in the application. You may change the
beneficiary 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
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survive the second insured in order to receive the death proceeds. If no named
beneficiary survives the second insured, we pay proceeds to the Policy Owner.
A change of Policy Owner or beneficiary is subject to all payments made and
actions taken by us under the Policy before we receive a signed change form.
You can contact your registered representative or the Home Office for the
procedure to follow.
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 are subject to all payments made and actions taken
by us under the Policy before we receive a signed copy of the assignment form.
We are not 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
We established the Variable Account as a separate investment account on January
31, 1983 under Delaware law. It became subject to Massachusetts law when we
changed our domicile to Massachusetts on August 30, 1996. The Variable Account
is the funding vehicle for the Policies and other NELICO variable life
insurance 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, and 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 SEC supervision of the Variable Account's management
or investments. However, the Massachusetts Insurance Commissioner regulates
NELICO and the Variable Account, which are also subject to the insurance laws
and regulations where the Policies are sold.
Although we own the assets of the Variable Account, 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 we may conduct. We believe 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 our general
creditors, and may only be used to support the cash values under our variable
life insurance policies issued by the Variable Account. We may transfer to our
general account assets which exceed the reserves and other liabilities of the
Variable Account. We will consider any possible adverse impact such a 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 our other
income or capital gains and losses.
Investments of the Variable Account
The Variable Account currently has 16 sub-accounts. Each invests in an Eligible
Fund. The sub-accounts and the Eligible Funds 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
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-- 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 VIP Equity-Income
Portfolio
-- The Overseas Sub-Account, which invests in the VIP Overseas Portfolio
-- The High Income Sub-Account, which invests in the VIP High Income
Portfolio
-- The Asset Manager Sub-Account, which invests in the VIP II Asset Manager
Portfolio
The following sub-accounts are NOT yet available as of the date of this
prospectus. We anticipate that they will become available by the third quarter
of 1999, although they could be available sooner. Availability of these sub-
accounts will also be subject to any necessary state insurance department
approvals. You should consult with your registered representative for up to
date information about the availability of these sub-accounts.
-- The Zenith Investors Sub-Account, which invests in the MFS Investors
Series of the Zenith Fund
-- The Zenith Research Managers Sub-Account, which invests in the MFS
Research Managers Series of the Zenith Fund
The Zenith Fund is an open-end diversified management investment company, more
commonly known as a mutual fund. The Zenith Fund is an investment vehicle for
separate investment accounts of NELICO and of other life insurance companies.
VIP and VIP 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 Variable Account purchases and sells Eligible Fund shares 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.
Investment Objectives
The investment objectives of the Eligible Funds are described briefly below.
These objectives may not be met. More about the Eligible Funds, including their
investments, expenses, and risks is in the attached Eligible Fund prospectuses
and the Eligible Funds' Statements of Additional Information.
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 may be
higher or lower than the results of these funds. There is no assurance, and no
representation is
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made, that the investment results of any of the Eligible Funds will be
comparable to the investment results of any other fund.
The Zenith Back Bay Advisors Money Market Series' investment objective is the
highest possible level of current income consistent with preservation of
capital. An investment in the Money Market Series is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Series seeks to maintain a net asset value of $100
per share, it is possible to lose money by investing in the Money Market
Series.
The Zenith Back Bay Advisors Bond Income Series' investment objective is a high
level of current income consistent with protection of capital.
The Zenith Capital Growth Series' investment objective is the 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 United States economy.
The Zenith Westpeak Stock Index Series' investment objective is investment
results that correspond to the composite price and yield performance of United
States publicly traded common stocks.
The Zenith Back Bay Advisors Managed Series' investment objective is a
favorable total return through investment in a diversified portfolio.
The Zenith Westpeak Growth and Income Series' investment objective is long-term
total return through investment in equity securities.
The Zenith Goldman Sachs Midcap Value Series' investment objective is long-term
capital appreciation.
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalents.
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 Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
international equity securities. In addition to the risks associated with
equity securities generally, foreign securities present additional risks.
The Zenith Davis Venture Value Series' investment objective is growth of
capital.
The Zenith Alger Equity Growth Series' investment objective is long-term
capital appreciation.
The VIP Equity-Income Portfolio seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500.
The VIP Overseas Portfolio seeks long-term growth of capital. Foreign markets,
particularly emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or economic
developments and can perform differently than the U.S. market.
The VIP High Income Portfolio seeks a high level of current income while also
considering growth of capital. Lower-quality debt securities (those of less
than investment-grade quality) can be more volatile due to increased
sensitivity to adverse issuer, political, regulatory, market or economic
developments.
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The VIP II Asset Manager Portfolio seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds and short-term
instruments.
The following Zenith Fund Series are NOT yet available under the Policies as of
the date of this prospectus. You should consult with your registered
representative for up to date information on the current availability of these
series.
The Zenith MFS Investors Series' investment objective is reasonable current
income and long-term growth of capital and income.
The Zenith MFS Research Managers Series' investment objective is long-term
growth of capital.
Investment Management
The chart below shows the adviser and sub-adviser for each series of the Zenith
Fund. New England Investment Management, 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 Capital Growth Management
Growth Limited Partnership ("CGM")*
Back Bay
Advisors
Money Market New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay
Advisors
Bond Income New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay
Advisors
Managed New England Investment Management, Inc. Back Bay Advisors, L.P.*
Westpeak
Stock Index New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Westpeak New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Growth and
Income
Loomis Sayles
Small Cap New England Investment Management, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles
Balanced New England Investment Management, Inc. Loomis, Sayles & Company, L.P.*
Morgan New England Investment Management, Inc.
Stanley
International
Magnum Morgan Stanley Dean Witter
Equity Investment Management Inc.
Goldman Sachs
Midcap Value New England Investment Management, Inc. Goldman Sachs Asset Management
Davis Venture
Value New England Investment Management, Inc. Davis Selected Advisers, L.P.**
Alger Equity
Growth New England Investment Management, Inc. Fred Alger Management, Inc.
Series anticipated to be available under the Policies by the third quarter of 1999***
MFS New England Investment Management, Inc. Massachusetts Financial
Investors*** Services Company
MFS Research New England Investment Management, Inc. Massachusetts Financial
Managers*** Services Company
</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.
***Consult your registered representative about the availability of sub-
accounts that invest in these series.
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, New England Investment Management (formerly
TNE Advisers, Inc.) became the adviser on May 1, 1995. The Morgan Stanley
International Magnum Equity Series' sub-adviser was Draycott Partners until May
1, 1997, when Morgan Stanley Dean Witter Investment Management
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(formerly 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.
FMR is the investment adviser for VIP and VIP II. For more information
regarding the VIP Equity-Income, VIP Overseas, VIP High Income and VIP II Asset
Manager Portfolios and Fidelity Management & Research Company, see the VIP and
VIP II prospectuses attached at the end of this prospectus and their Statements
of Additional Information.
THE FIXED ACCOUNT
THE POLICY HAS A FIXED ACCOUNT OPTION ONLY IN STATES THAT APPROVE IT.
You may allocate net premiums and transfer 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 are not registered under the Securities Act of 1933. Neither the Fixed
Account nor the general account is 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 the SEC does not review Fixed Account disclosure.
This disclosure may, however, be subject to certain provisions of the Federal
securities laws on the accuracy and completeness of prospectuses.
GENERAL DESCRIPTION
Our general account includes all of our assets, except assets in the Variable
Account or in our other separate accounts. We decide how to invest our general
account assets. Fixed Account allocations do not share in the actual investment
experience of the Fixed Account. Instead, we guarantee that the Fixed Account
will credit interest at an annual effective rate of at least 4%. We may or may
not credit interest at a higher rate. We declare the current interest rate for
the Fixed Account periodically. The Fixed Account earns interest daily.
We can change our Fixed Account interest crediting procedures. Currently, all
cash value in the Fixed Account on a Policy anniversary earns interest at the
declared annual rate in effect on the anniversary until the next Policy
anniversary, when it is credited with our current rate. (Although our current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with our current annual rate until the next anniversary, we can
select any portion, from 0% to 100%, of your Fixed Account cash value on a
Policy anniversary to earn interest at our current rate until the next Policy
anniversary, unless otherwise required by state law.) Any net premiums
allocated or cash value transferred to the Fixed Account on a date other than a
Policy anniversary earn interest at our current rate until the next Policy
anniversary. The effective interest rate is a weighted average of all the Fixed
Account rates for your Policy.
VALUES AND BENEFITS
Cash value in the Fixed Account increases from net premiums allocated and
transfers to the Fixed Account and Fixed Account interest, and decreases from
loans, partial surrenders made from the Fixed Account, charges, and transfers
from the Fixed Account. We deduct charges from the Fixed Account and the
Policy's sub-accounts in proportion to the amount of cash value in each. (See
"Monthly Deduction from Cash Value".) A Policy's total cash value includes cash
value in the Variable Account, the Fixed Account, and any cash value held in
our general account (but outside of the Fixed Account) due to a Policy loan.
Cash value in the Fixed Account is included in the calculation of the Policy's
death benefit in the same manner as the cash value in the Variable Account.
(See "Death Benefit".)
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POLICY TRANSACTIONS
We can restrict allocations and transfers to the Fixed Account if the effective
annual rate of interest on the amount would be 4%. Otherwise, the requirements
for Fixed Account and Variable Account allocations are the same. (See
"Allocation of Net Premiums".)
Except as described below, the Fixed Account has the same rights and
limitations about premium allocations, transfers, loans, surrenders and partial
surrenders as the Variable Account. (See "Other Policy Features".) The
following special rules apply to the Fixed Account.
TRANSFERS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT ARE ALLOWED ONLY ONCE
IN EACH POLICY YEAR. WE PROCESS A TRANSFER FROM THE FIXED ACCOUNT IF WE RECEIVE
THE TRANSFER REQUEST NO MORE THAN 30 DAYS BEFORE THE POLICY ANNIVERSARY. WE
MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER REQUEST AT OUR HOME
OFFICE. YOU MAY ALSO 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 YOU MAY TRANSFER 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 Fixed Account cash
value. 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
our consent. We currently allow 12 transfers per Policy year. We do not count
transfers out of the Fixed Account against this limit.
Unless you request otherwise, a Policy loan reduces the Policy's cash value in
the sub-accounts and not the Fixed Account. If there is not enough cash value
in the Policy's sub-accounts for the loan, we take the balance from the Fixed
Account. We allocate all loan repayments 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 earns interest at an
effective rate of at least 4% per year, which we credit 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, we take partial surrenders 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 for the partial surrender, we take the balance from
the Fixed Account.
We can delay transfers, surrenders, and Policy loans from the Fixed Account for
up to six months (to the extent allowed by state insurance law). We will not
delay loans to pay premiums on policies issued by us.
NELICO'S DISTRIBUTION AGREEMENT
We sell the Policies through licensed insurance agents. 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, 399 Boylston Street, Boston, Massachusetts 02116, also
serves as the principal underwriter for the Policies under a Distribution
Agreement with NELICO. Under the Distribution Agreement, we pay the following
sales expenses: general agent and agency manager's compensation, agents'
training
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<PAGE>
allowances, deferred compensation and insurance benefits of agents, general
agents and agency managers and advertising expenses and all other expenses of
distributing the Policies.
We pay the following commissions and/or service fees to the selling agent: a
maximum of 50% of the Benchmark Premium (plus any additional portion of a
premium that we attribute to certain riders for commission paying purposes)
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
Benchmark Premium (plus any additional portion of a premium that we attribute
to certain riders for commission paying purposes) in any year. Agents who meet
certain NELICO productivity and persistency standards 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, commissions
paid to the broker-dealer on behalf of the registered representative will not
exceed those described above. We may pay certain broker-dealers an additional
bonus after the first Policy year on behalf of certain registered
representatives, which may be up to the amount of the basic commission for the
particular Policy year. We pay commissions through the registered broker-
dealer, and may also pay additional compensation to the broker dealer and/or
reimburse it for portions of Policy sales expenses.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Notification of First Death
Generally, we can challenge the validity of your Policy or a rider 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. We
can challenge the portion of the death benefit resulting from an underwritten
premium payment for two years (during either insured's lifetime) from the
premium payment. However, if either insured dies within two years of the date
of issue, we can challenge all or part of the Policy at any time, based on
misrepresentations relating to that insured.
You should notify us immediately upon the first death of an insured under the
Policy. Even if premiums continue to be paid after the first death, we
generally can contest the Policy or limit benefits under the suicide provision
(described below) and terminate the Policy at any time, even beyond the two-
year period, if we were 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.
Misstatement of Age or Sex
If either insured's age or sex is misstated in the application, the Policy's
death benefit is the amount that the most recent Monthly Deduction which was
made would provide, based on the insureds' correct ages and, if the Policy is
sex-based, 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, the death benefit is limited to
premiums paid, less any policy loan balance and partial surrenders (more in
some states). 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 (not variable) life policy. Contact us or
your registered representative for more information.
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<PAGE>
TAX CONSIDERATIONS
Introduction
The following summary provides a general description of the Federal income tax
considerations associated with the Policies and does not purport to be complete
or to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete
information. This discussion is based upon our understanding of the present
Federal income tax laws. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
Tax Status of the Policy
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that it is
reasonable to conclude that the Policies will satisfy the applicable
requirements. If it is subsequently determined that a Policy does not satisfy
the applicable requirements, we may take appropriate steps to bring the Policy
into compliance with such requirements and we reserve the right to restrict
Policy transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the owners of the assets of
the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to allocate
payments and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Policy Owners
investment control over Variable Account assets, we reserve the right to modify
the Policies as necessary to prevent a Policy Owner from being treated as the
owner of the Variable Account assets supporting the Policies.
In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through the Eligible Funds, will satisfy these
diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Policy Owner or beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the Policy Owner will not be deemed to be in constructive receipt of
the Policy cash value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with less
favorable income tax treatment than other life insurance contracts. In general
a Policy will be classified as a Modified Endowment Contract if the amount of
premiums paid into the Policy causes the Policy to fail the "7-pay test." A
Policy will fail the 7-pay test if at any time in the first seven Policy years,
the amount paid into the Policy exceeds the sum of the level premiums that
would have been paid at that point under a Policy that provided for paid-up
future benefits after the payment of seven level annual payments.
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<PAGE>
If there is a reduction in the benefits under the Policy during the first seven
Policy years, for example, as a result of a partial surrender, the 7-pay test
will have to be reapplied as if the Policy had originally been issued at the
reduced face amount. If there is a "material change" in the Policy's benefits
or other terms, even after the first seven Policy years, the Policy may have to
be retested as if it were a newly issued Policy. A material change can occur,
for example, when there is an increase in the death benefit which is due to the
payment of an unnecessary premium. Unnecessary premiums are premiums paid into
the Policy which are not needed in order to provide a death benefit equal to
the lowest death benefit that was payable in the first seven Policy years. To
prevent your Policy from becoming a Modified Endowment Contract, it may be
necessary to limit premium payments or to limit reductions in benefits. A
current or prospective Policy Owner should consult a tax advisor to determine
whether a Policy transaction will cause the Policy to be classified as a
Modified Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a Modified Endowment Contract will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Policy Owner's investment in the Policy only after
all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Policy Owner has
attained age 59 1/2 or is disabled, or where the distribution is part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the Policy Owner or the joint lives (or joint life
expectancies) of the Policy Owner and the Policy Owner's beneficiary or
designated beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Policy Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole
or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract are
generally not treated as distributions. However, the tax consequences
associated with Policy loans that are outstanding after the first 15 Policy
years is less clear and a tax adviser should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
Investment in the Policy. Your investment in the Policy is generally your
aggregate Premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
Policy Loans. In general, interest on a Policy loan will not be deductible.
Before taking out a Policy loan, you should consult a tax adviser as to the tax
consequences.
Multiple Policies. All Modified Endowment Contracts that are issued by NELICO
(or its affiliates) to the same Policy Owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Policy Owner's income when a taxable distribution
occurs.
Tax Treatment of Policy Split. The policy split rider permits a Policy to be
split into two individual Policies. It is not clear whether exercising the
policy split rider will be treated as a taxable transaction or whether the
individual
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<PAGE>
Policies that result would be classified as Modified Endowment Contracts. A
competent tax advisor should be consulted before exercising the policy split
rider.
Other Policy Owner Tax Matters. Federal and state estate, inheritance,
transfer, and other tax consequences depend on the individual circumstances of
each Policy Owner or beneficiary.
The tax consequences of continuing the Policy beyond the insured's 100th year
are unclear. You should consult a tax adviser if you intend to keep the Policy
in force beyond the insured's 100th year.
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 consequences under federal tax law.
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 and how ownership or receipt of Policy proceeds will be
treated for purposes of federal, state and local estate, inheritance,
generation skipping and other taxes.
If a trustee under a pension or profit-sharing plan, or similar deferred
compensation arrangement, owns a Policy, the Federal, state and estate tax
consequences could differ. The amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan are limited. The
current cost of insurance for the net amount at risk is treated as a "current
fringe benefit" and must be included annually in the plan participant's gross
income. We report this cost (generally referred to as the "P.S. 58" cost) 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 is not taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. Policies owned under these types of
plans may be subject to restrictions under the Employee Retirement Income
Security Act of 1974 ("ERISA"). You should consult a qualified adviser
regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with
the requirements and provisions of the DOL regulations and of tax law may
result in adverse tax consequences and/or adverse consequences under ERISA.
Plan fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
Businesses can use the Policies 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. If you are
purchasing the Policy for any arrangement the value of which depends in part on
its tax consequences, you should consult a qualified tax adviser. In recent
years, moreover, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new Policy or
a change in an existing Policy should consult a tax adviser.
We believe that Policies subject to Puerto Rican tax law will generally receive
treatment similar, with certain modifications, to that described above. Among
other differences, Policies governed by Puerto Rican tax law are not currently
subject to the rules described above regarding Modified Endowment Contracts.
You should consult your tax adviser with respect to Puerto Rican tax law
governing the Policies.
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 otherwise. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
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<PAGE>
NELICO's Income Taxes
Under current Federal income tax law NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for company Federal income taxes. (We do deduct a charge for
Federal taxes from premiums.) We reserve the right to charge the Variable
Account for any future Federal income taxes we may incur.
Under current laws we may incur state and local taxes (in addition to premium
taxes). These taxes are not now significant and we are not currently charging
for them. If they increase, we may deduct charges for such taxes.
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......... Chairman, President and Chief Executive Officer of NELICO
since 1998; formerly, President and Chief Operating
Officer 1997-1998 of NELICO; President and Chief
Executive Officer 1996-1997 of Equitable Life Assurance
Society; President and Chief Operating Officer 1996-1997
of Equitable Companies, Inc.; President and Chief
Operating Officer 1994-1996 of Equitable Life Assurance
Society.
Robert H. Benmosche..... Director of NELICO since 1998 and Chairman, President and
Metropolitan Life In- Chief Executive Officer of Metropolitan Life Insurance
surance Company Company since 1998; formerly, Director, President and
One Madison Avenue Chief Operating Officer 1997-1998; Executive Vice
New York, New York President 1995-1997 of Metropolitan Life; Executive Vice
10010 President 1989-1995 of Paine Webber.
Susan C. Crampton....... Director of NELICO since 1996 and serves as Principal of
6 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.
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 and President of Merrimack
Ten Sterling Place Higher Education Associates, Inc. since 1998; formerly
Bow, NH 03304 Director 1987-1996 of New England Mutual and Executive
Director and Chief Executive Officer 1994-1997 of the
California Academy of Sciences.
Philip K. Howard, Esq... Director of NELICO since 1996 and Partner of the law firm
Howard, Smith & Levin of Howard, Smith & Levin LLP in New York City.
LLP
1330 Avenue of the
Americas
New York, NY 10019
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.; Director and Executive Vice President
Americas 1993-1995 of Burlington Menswear Division.
New York, NY 10105
</TABLE>
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<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
Stewart G. Nagler....... Director of NELICO since 1996 and Vice Chairman of Board
Metropolitan Life and Chief Financial Officer of Metropolitan Life
One Madison Avenue Insurance Company since 1998; formerly, Senior Executive
New York, NY 10010 Vice President and Chief Financial Officer 1986-1998 of
Metropolitan Life Insurance Company.
Catherine A. Rein....... Director of NELICO since 1998 and President and Chief
Metropolitan Auto & Executive Officer of Metropolitan Auto & Home Insurance
Home Company Company since 1999; formerly, Senior Executive Vice
700 Quaker Lane President 1998-1999 and Executive Vice President 1989-
Warwick, RI 02887 1998 of Metropolitan Life Insurance Company.
Rand N. Stowell......... Director of NELICO since 1996 and President of United
P.O. Box 60 Timber Corp. of Dixfield, Maine; formerly, Director 1990-
Weld, ME 04285 1996 of New England Mutual.
Alexander B. Director of NELICO since 1996 and President of Trowbridge
Trowbridge............. Partners, Inc. in Washington, DC; formerly, Director
Trowbridge Partners 1983-1996 of New England Mutual.
Inc.
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.
A. Frank Beaz....... Executive Vice President of NELICO since 1999, formerly,
Senior Vice President 1998-1999 of NELICO; Chief
Administrative Officer and Senior Vice President 1997-
1998 of Equitable Distributors; Senior Vice President
1994-1997 of The Equitable Life Insurance Companies.
Mary Ann Brown...... President, New England Products and Services (a business
unit of NELICO) since 1998; formerly, Director, Worldwide
Life Insurance 1997-1998 of Swiss Reinsurance New
Markets; President & Chief Executive Officer 1996-1998 of
Atlantic International Reinsurance Company; Executive
Vice President 1996-1997 of Swiss Re Atrium and Swiss Re
Services and Principal 1987-1996 of Tillinghast/Towers
Perrin.
Anthony J. Candito.. President, NEF Information Services (a business unit of
NELICO) and Chief Information Officer since 1998;
formerly, Senior Vice President 1996-1998 of NELICO;
Senior Vice President 1995-1996 and Vice President 1994-
1995 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
of New England Mutual.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Principal Business Experience
Name During the Past Five Years
---- -----------------------------
<S> <C>
Daniel D. Jordan........ Second Vice President, Counsel; Secretary and Clerk since
1996; formerly, Counsel and Assistant Secretary 1990-1996
of New England Mutual.
Stephan M. Largent...... Senior Vice President of NELICO since 1998; formerly,
President 1995-1998 of First Variable Life Insurance
Company; President 1993-1995 of ING Equities, Inc. and
Vice President 1993-1995 of Security Life of Denver.
Alan C. Leland, Jr. .... Senior Vice President of NELICO since 1996; formerly, Vice
President 1984-1996 of New England Mutual.
Bruce C. Long........... President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996 of New
England Annuities (a business unit of New England
Mutual).
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.
Thomas W. Moore......... Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
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 of Liberty Life Assurance Company.
David Y. Rogers......... Executive Vice President and Chief Financial Officer of
NELICO since 1999; formerly, Partner, Actuarial
Consulting 1992-1999 of Price Waterhouse Coopers LLP.
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.
H. James Wilson......... Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996 of New England Mutual.
John W. Wright.......... President, New England Financial Employee Benefits Group
(a business unit of NELICO) since 1996; formerly,
President 1993-1996 of New England Employee Benefits
Group (a business unit of New England Mutual).
Frederick K. Zimmer- Executive Vice President and Chief Investment Officer of
mann................... NELICO since 1996; formerly, Executive Vice President and
Chief Investment Officer 1993-1996 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.
Like all financial services providers, we utilize systems that may be affected
by Year 2000 transition issues and we rely on a number of third parties,
including banks and investment managers, that also may be affected. We and our
affiliates have developed, and are in the process of implementing, a Year 2000
transition plan. We are also confirming that service providers are also so
engaged. The resources being devoted to this effort are substantial. We cannot
predict whether the resources being devoted, or the outcome of these efforts,
will have any negative impact. If we or our service providers or the Eligible
Funds are not successful in the Year 2000 transition, computer systems could
fail or erroneous results or delays could occur when processing information
after December 31, 1999. However, as of the date of this prospectus, we do not
anticipate that you will experience negative effects on your investment, or on
the Policy services provided, as a result of Year 2000
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<PAGE>
transition implementation. Currently we have converted our systems to be Year
2000 compliant and are conducting systems testing and compliance verification
which we expect to complete in mid-1999. Service providers may not have
anticipated every step necessary to avoid any adverse effect on the Variable
Account attributable to Year 2000 transition.
VOTING RIGHTS
We own the Eligible Fund shares held in the Variable Account and vote those
shares at meetings of the Eligible Fund shareholders. Under Federal securities
law, you currently have the right to instruct us how to vote shares that are
attributable to your Policy.
Policy Owners who are entitled to give voting instructions and the number of
shares attributable to their Policies are determined as of the meeting record
date. If we do not receive timely instructions, we will vote shares 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 we
receive voting instructions. No voting privileges apply to the Fixed Account or
to cash value removed from the Variable Account due to a Policy loan.
We will vote all Eligible Fund shares held by our general account (or any
unregistered separate account for which voting privileges were not extended) 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 Eligible Funds' Boards of Trustees 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 result from changes in state
insurance law or Federal income tax law, changes in investment management of an
Eligible Fund, or differences in voting instructions given by variable life and
variable annuity contract owners. If there is a material conflict, the Board of
Trustees will determine what action should be taken, including the removal of
the affected sub-accounts from the Eligible Fund(s), if necessary. If we
believe any Eligible Fund action is insufficient, we will consider taking other
action to protect Policy Owners. There could, however, be unavoidable delays or
interruptions of operations of the Variable Account that we may be unable to
remedy.
We may disregard voting instructions for changes in the investment policy,
investment adviser or principal underwriter of an Eligible Fund portfolio if
required by state insurance law, or if we (i) reasonably disapprove of the
changes and (ii) in the case of a change in investment policy or investment
adviser, make a good faith determination that the proposed change is prohibited
by state authorities or inconsistent with a sub-account's investment
objectives. If we do disregard voting instructions, the next annual report to
Policy Owners will include a summary of that action and the reasons for it.
RIGHTS RESERVED BY NELICO
We and our affiliates may change the voting procedures described above, and
vote Eligible Fund shares without Policy Owner instructions, if the securities
laws change. We also reserve the right: (1) to add sub-accounts; (2) to combine
sub-accounts; (3) to invest sub-account assets as a substitute for Eligible
Fund shares, to close a sub-account, or to transfer assets to our general
account as permitted by applicable law; (4) to operate the Variable Account as
a management investment company under the Investment Company Act of 1940 or in
any other form; and (5) to deregister the Variable Account under the Investment
Company Act of 1940. We will exercise these rights in accordance with
applicable law, including approval of Policy Owners if required. We will notify
you if exercise of any of these rights would result in a material change in the
Variable Account or its investments.
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<PAGE>
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-accounts,
call 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of Additional
Information for the Eligible Funds, call 1-800-200-2214.
You may also call our Client TeleService Center 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 Policy changes, please contact your registered representative.
REPORTS
We will send you an annual statement showing your Policy's death benefit, cash
value and any outstanding Policy loan principal. We 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
Professional organizations may endorse the Policies. We may use such
endorsements in Policy sales material. We may pay the professional organization
for the use of its customer or mailing lists to distribute Policy promotional
materials. An endorsement by a third party does not predict the future
performance of the Policies.
Articles discussing the Variable Account's investment performance, rankings and
other characteristics may appear in 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. We may use references to, or reprints of such articles or
rankings as sales material and may include rankings that indicate the names of
other variable contract separate accounts and their investment experience.
Publications may use articles and releases, developed by NELICO, the Eligible
Funds and other parties, about the Variable Account or the Eligible Funds. We
may use references to or reprints of such articles in sales material 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, and include excerpts from media articles.
We are a member of the Insurance Marketplace Standards Association ("IMSA"),
and may include the IMSA logo and information about IMSA membership in our
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.
Policy sales material may refer to historical, current and prospective economic
trends. In addition, sales material may discuss 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.
A-44
<PAGE>
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus have
been passed on by H. James Wilson, General Counsel of NELICO. Sutherland Asbill
& Brennan LLP, of Washington, D.C., has provided advice on certain matters
relating to the Federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of New
England Life Insurance Company ("NELICO") and the consolidated financial
statements of NELICO and subsidiaries included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney J.
Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-45
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES, NET CASH VALUES AND ACCUMULATED SCHEDULED PREMIUMS
The tables in Appendix A illustrate the way the Policies work. 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. Illustrations show Option A,
Option B, and Option C death benefits. 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.
The illustrated death benefits, net cash values and cash values for a Policy
would be different, either higher or lower, from the amounts shown if the
actual gross rates of return averaged 0%, 6% or 12%, but varied above and below
that average during 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 a 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. For example, as a result of variations in actual
returns, additional premium payments beyond those illustrated may be necessary
to maintain the Policy in force for the periods shown or to realize the Policy
values shown on particular illustrations even if the average rate of return is
achieved.
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 .90% of the average daily value of the assets in the Variable Account
attributable to the Policies. (See "Charges and Expenses".) The illustrations
reflect an approximate average of the investment advisory fees and operating
expenses of the Eligible Funds, at an annual rate of .77% of the average daily
net assets of the Eligible Funds. (The actual average currently is .76%.) This
average reflects voluntary expense cap and expense deferral arrangements
between New England Investment Management and the Zenith Fund that New England
Investment Management could terminate at any time.
Taking account of the mortality and expense risk charge 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 -1.66%, 4.24% and 10.15%, respectively.
(See "Net Investment Experience".)
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.
A-46
<PAGE>
If you request, we will furnish a personalized illustration reflecting the
proposed insureds' age, sex, underwriting classification, and the face amount
or premium payment schedule requested. Where applicable, we will also furnish
on 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-47
<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 $ 6,047 $ 6,820 $ 7,595 $ 12,115 $ 12,888 $ 13,664
2 34,440 1,000,000 1,000,000 1,000,000 18,575 20,889 23,299 24,644 26,957 29,368
3 52,962 1,000,000 1,000,000 1,000,000 23,990 28,646 33,686 36,856 41,512 46,552
4 72,410 1,000,000 1,000,000 1,000,000 35,885 43,700 52,496 48,751 56,566 65,362
5 92,831 1,000,000 1,000,000 1,000,000 47,460 59,270 73,091 60,326 72,136 85,957
6 114,272 1,000,000 1,000,000 1,000,000 60,098 76,755 97,034 71,579 88,236 108,515
7 136,786 1,000,000 1,000,000 1,000,000 72,412 94,788 123,137 82,507 104,883 133,233
8 160,425 1,000,000 1,000,000 1,000,000 84,394 113,381 151,613 93,105 122,092 160,323
9 185,246 1,000,000 1,000,000 1,000,000 96,037 132,550 182,700 103,363 139,875 190,025
10 211,309 1,000,000 1,000,000 1,000,000 107,336 152,311 216,664 113,276 158,252 222,605
15 362,520 1,000,000 1,000,000 1,000,000 163,994 266,661 447,188 163,994 266,661 447,188
20 555,508 1,000,000 1,000,000 1,267,244 210,150 401,840 816,786 210,150 401,840 816,786
25 801,815 1,000,000 1,000,000 2,120,297 231,327 553,827 1,392,642 231,327 553,827 1,392,642
30 1,116,173 1,000,000 1,094,750 3,389,671 199,518 719,047 2,226,385 199,518 719,047 2,226,385
35 1,517,381 1,000,000 1,283,644 4,906,171 23,468 843,116 3,222,444 23,468 843,116 3,222,444
<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 -62.21% -57.38% -52.53% 6,150.00% 6,150.00% 6,150.00%
2 -31.22 -25.28 -19.38 642.15 642.15 642.15
3 -30.87 -23.68 -16.69 258.47 258.47 258.47
4 -21.85 -14.69 -7.77 148.92 148.92 148.92
5 -16.92 -9.84 -3.00 100.39 100.39 100.39
6 -13.25 -6.36 .31 73.77 73.77 73.77
7 -10.92 -4.17 2.37 57.22 57.22 57.22
8 -9.35 -2.70 3.75 46.06 46.06 46.06
9 -8.23 -1.66 4.73 38.07 38.07 38.07
10 -7.41 -.90 5.44 32.11 32.11 32.11
15 -4.93 1.31 7.45 16.46 16.46 16.46
20 -4.20 2.12 8.27 9.93 9.93 11.85
25 -4.53 2.42 8.62 6.48 6.48 11.26
30 -6.50 2.49 8.66 4.39 4.89 10.79
35 -40.54 2.17 8.34 3.02 4.22 10.12
</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-48
<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 $1,012,115 $1,012,888 $1,013,663 $ 6,046 $ 6,819 $ 7,594 $ 12,115 $ 12,888 $ 13,663
2 34,440 1,024,640 1,026,953 1,029,362 18,571 20,884 23,294 24,640 26,953 29,362
3 52,962 1,036,842 1,041,495 1,046,534 23,976 28,629 33,668 36,842 41,495 46,534
4 72,410 1,048,717 1,056,527 1,065,316 35,851 43,661 52,450 48,717 56,527 65,316
5 92,831 1,060,261 1,072,056 1,085,860 47,395 59,190 72,994 60,261 72,056 85,860
6 114,272 1,071,466 1,088,093 1,108,335 59,985 76,612 96,854 71,466 88,093 108,335
7 136,786 1,082,327 1,104,646 1,132,922 72,231 94,550 122,826 82,327 104,646 132,922
8 160,425 1,092,832 1,121,720 1,159,818 84,121 113,009 151,107 92,832 121,720 159,818
9 185,246 1,102,968 1,139,317 1,189,237 95,642 131,991 181,911 102,968 139,317 189,237
10 211,309 1,112,725 1,157,443 1,221,418 106,785 151,502 215,478 112,725 157,443 221,418
15 362,520 1,163,044 1,264,921 1,443,984 163,044 264,921 443,984 163,044 264,921 443,984
20 555,508 1,206,799 1,394,825 1,802,739 206,799 394,825 802,739 206,799 394,825 802,739
25 801,815 1,218,793 1,522,505 2,347,843 218,793 522,505 1,347,843 218,793 522,505 1,347,843
30 1,116,173 1,163,616 1,604,711 3,147,251 163,616 604,711 2,147,251 163,616 604,711 2,147,251
35 1,517,381 1,528,113 4,242,190 528,113 3,242,190 528,113 3,242,190
<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 -62.21% -57.38% -52.54% 6,225.72% 6,230.55% 6,235.40%
2 -31.23 -25.29 -19.39 651.81 652.71 653.65
3 -30.90 -23.70 -16.71 263.34 263.95 264.60
4 -21.88 -14.73 -7.80 152.39 152.93 153.54
5 -16.97 -9.88 -3.04 103.22 103.76 104.38
6 -13.31 -6.41 .25 76.24 76.80 77.46
7 -10.99 -4.24 2.31 59.47 60.05 60.77
8 -9.42 -2.78 3.68 48.14 48.76 49.55
9 -8.32 -1.75 4.64 40.04 40.69 41.55
10 -7.51 -.99 5.35 33.98 34.67 35.62
15 -5.01 1.23 7.36 18.11 19.03 20.47
20 -4.37 1.96 8.13 11.46 12.62 14.65
25 -5.04 2.00 8.42 7.77 9.19 11.89
30 -8.30 1.45 8.48 5.23 6.96 10.42
35 -.33 8.37 5.03 9.51
</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-49
<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 $ 6,047 $ 6,820 $ 7,595 $ 12,115 $ 12,888 $ 13,664
2 34,440 1,000,000 1,000,000 1,000,000 18,575 20,889 23,299 24,644 26,957 29,368
3 52,962 1,000,000 1,000,000 1,000,000 23,990 28,646 33,686 36,856 41,512 46,552
4 72,410 1,000,000 1,000,000 1,000,000 35,885 43,700 52,496 48,751 56,566 65,362
5 92,831 1,000,000 1,000,000 1,000,000 47,460 59,270 73,091 60,326 72,136 85,957
6 114,272 1,000,000 1,000,000 1,000,000 60,098 76,755 97,034 71,579 88,236 108,515
7 136,786 1,000,000 1,000,000 1,000,000 72,412 94,788 123,137 82,507 104,883 133,233
8 160,425 1,000,000 1,000,000 1,000,000 84,394 113,381 151,613 93,105 122,092 160,323
9 185,246 1,000,000 1,000,000 1,000,000 96,037 132,550 182,700 103,363 139,875 190,025
10 211,309 1,000,000 1,000,000 1,000,000 107,336 152,311 216,664 113,276 158,252 222,605
15 362,520 1,000,000 1,000,000 1,000,000 163,994 266,661 447,188 163,994 266,661 447,188
20 555,508 1,000,000 1,000,000 1,000,000 210,150 401,840 818,035 210,150 401,840 818,035
25 801,815 1,000,000 1,000,000 1,492,343 231,327 553,827 1,421,279 231,327 553,827 1,421,279
30 1,116,173 1,000,000 1,000,000 2,510,248 199,518 722,599 2,390,713 199,518 722,599 2,390,713
35 1,517,381 1,000,000 1,000,000 4,121,254 23,468 923,004 3,925,004 23,468 923,004 3,925,004
<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 -62.21% -57.38% -52.53% 6,150.00% 6,150.00% 6,150.00%
2 -31.22 -25.28 -19.38 642.15 642.15 642.15
3 -30.87 -23.68 -16.69 258.47 258.47 258.47
4 -21.85 -14.69 -7.77 148.92 148.92 148.92
5 -16.92 -9.84 -3.00 100.39 100.39 100.39
6 -13.25 -6.36 .31 73.77 73.77 73.77
7 -10.92 -4.17 2.37 57.22 57.22 57.22
8 -9.35 -2.70 3.75 46.06 46.06 46.06
9 -8.23 -1.66 4.73 38.07 38.07 38.07
10 -7.41 -.90 5.44 32.11 32.11 32.11
15 -4.93 1.31 7.45 16.46 16.46 16.46
20 -4.20 2.12 8.28 9.93 9.93 9.93
25 -4.53 2.42 8.75 6.48 6.48 9.06
30 -6.50 2.52 9.03 4.39 4.39 9.28
35 -40.54 2.62 9.18 3.02 3.02 9.39
</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-50
<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 $ 5,541 $ 6,298 $ 7,057 $ 11,610 $ 12,367 $ 13,126
2 34,440 1,000,000 1,000,000 1,000,000 17,565 19,815 22,161 23,634 25,884 28,230
3 52,962 1,000,000 1,000,000 1,000,000 22,463 26,976 31,864 35,329 39,842 44,730
4 72,410 1,000,000 1,000,000 1,000,000 33,811 41,370 49,882 46,677 54,236 62,748
5 92,831 1,000,000 1,000,000 1,000,000 44,791 56,191 69,545 57,657 69,057 82,411
6 114,272 1,000,000 1,000,000 1,000,000 56,758 72,811 92,373 68,239 84,292 103,854
7 136,786 1,000,000 1,000,000 1,000,000 68,292 89,820 117,128 78,388 99,916 127,224
8 160,425 1,000,000 1,000,000 1,000,000 79,340 107,182 143,958 88,051 115,892 152,669
9 185,246 1,000,000 1,000,000 1,000,000 89,835 124,840 173,016 97,161 132,165 180,341
10 211,309 1,000,000 1,000,000 1,000,000 99,692 142,724 204,463 105,633 148,664 210,404
15 362,520 1,000,000 1,000,000 1,000,000 135,060 231,700 404,262 135,060 231,700 404,262
20 555,508 1,000,000 1,000,000 1,089,549 127,020 302,423 702,256 127,020 302,423 702,256
25 801,815 1,000,000 1,000,000 1,707,834 26,002 316,905 1,121,730 26,002 316,905 1,121,730
30 1,116,173 1,000,000 2,391,034 158,067 1,570,466 158,067 1,570,466
35 1,517,381 2,715,295 1,783,445 1,783,445
<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 -65.37% -60.64% -55.89% 6,150.00% 6,150.00% 6,150.00%
2 -33.90 -28.00 -22.13 642.15 642.15 642.15
3 -33.43 -26.17 -19.13 258.47 258.47 258.47
4 -23.95 -16.71 -9.72 148.92 148.92 148.92
5 -18.74 -11.55 -4.63 100.39 100.39 100.39
6 -14.86 -7.85 -1.10 73.77 73.77 73.77
7 -12.40 -5.52 1.12 57.22 57.22 57.22
8 -10.76 -3.96 2.61 46.06 46.06 46.06
9 -9.62 -2.87 3.65 38.07 38.07 38.07
10 -8.82 -2.09 4.41 32.11 32.11 32.11
15 -7.60 -.44 6.28 16.46 16.46 16.46
20 -9.95 -.54 7.00 9.93 9.93 10.63
25 -38.09 -1.84 7.23 6.48 6.48 9.92
30 -8.63 6.84 4.39 9.03
35 5.74 7.60
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, 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-51
<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 $1,011,609 $1,012,366 $1,013,125 $ 5,541 $ 6,297 $ 7,057 $ 11,609 $ 12,366 $ 13,125
2 34,440 1,023,629 1,025,879 1,028,224 17,560 19,810 22,155 23,629 25,879 28,224
3 52,962 1,035,313 1,039,824 1,044,711 22,447 26,958 31,845 35,313 39,824 44,711
4 72,410 1,046,640 1,054,192 1,062,697 33,774 41,326 49,831 46,640 54,192 62,697
5 92,831 1,057,582 1,068,966 1,082,300 44,716 56,100 69,434 57,582 68,966 82,300
6 114,272 1,068,103 1,084,119 1,103,637 56,622 72,639 92,156 68,103 84,119 103,637
7 136,786 1,078,158 1,099,615 1,126,832 68,063 89,520 116,736 78,158 99,615 126,832
8 160,425 1,087,686 1,115,396 1,151,966 78,976 106,685 143,286 87,686 115,396 151,966
9 185,246 1,096,603 1,131,378 1,179,233 89,277 124,052 171,908 96,603 131,378 179,233
10 211,309 1,104,806 1,147,454 1,208,634 98,865 141,513 202,693 104,806 147,454 208,634
15 362,520 1,130,961 1,224,406 1,391,162 130,961 224,406 391,162 130,961 224,406 391,162
20 555,508 1,113,977 1,272,253 1,633,940 113,777 272,253 633,940 113,777 272,253 633,940
25 801,815 1,218,496 1,899,477 218,496 899,477 218,496 899,477
30 1,116,173 2,074,649 1,074,649 1,074,649
35 1,517,381 1,880,484 880,484 880,484
<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 -65.37% -60.64% -55.90% 6,222.56% 6,227.29% 6,232.03%
2 -33.92 -28.01 -22.14 651.42 652.29 653.21
3 -33.45 -26.19 -19.16 263.14 263.73 264.37
4 -23.99 -16.75 -9.76 152.24 152.77 153.36
5 -18.80 -11.60 -4.69 103.09 103.61 104.22
6 -14.93 -7.92 -1.17 76.13 76.67 77.31
7 -12.48 -5.60 1.04 59.36 59.92 60.62
8 -10.86 -4.06 2.50 48.03 48.62 49.39
9 -9.75 -3.00 3.52 39.92 40.55 41.38
10 -8.98 -2.25 4.26 33.85 34.52 35.44
15 -8.04 -.84 5.89 17.81 18.67 20.06
20 -11.35 -1.57 6.14 10.81 11.88 13.87
25 -5.05 5.77 7.77 10.58
30 4.79 8.30
35 2.39 5.98
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, 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-52
<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 $ 5,541 $ 6,298 $ 7,057 $ 11,610 $ 12,367 $ 13,126
2 34,440 1,000,000 1,000,000 1,000,000 17,565 19,815 22,161 23,634 25,884 28,230
3 52,962 1,000,000 1,000,000 1,000,000 22,463 26,976 31,864 35,329 39,842 44,730
4 72,410 1,000,000 1,000,000 1,000,000 33,811 41,370 49,882 46,677 54,236 62,748
5 92,831 1,000,000 1,000,000 1,000,000 44,791 56,191 69,545 57,657 69,057 82,411
6 114,272 1,000,000 1,000,000 1,000,000 56,758 72,811 92,373 68,239 84,292 103,854
7 136,786 1,000,000 1,000,000 1,000,000 68,292 89,820 117,128 78,388 99,916 127,224
8 160,425 1,000,000 1,000,000 1,000,000 79,340 107,182 143,958 88,051 115,892 152,669
9 185,246 1,000,000 1,000,000 1,000,000 89,835 124,840 173,016 97,161 132,165 180,341
10 211,309 1,000,000 1,000,000 1,000,000 99,692 142,724 204,463 105,633 148,664 210,404
15 362,520 1,000,000 1,000,000 1,000,000 135,060 231,700 404,262 135,060 231,700 404,262
20 555,508 1,000,000 1,000,000 1,000,000 127,020 302,423 703,099 127,020 302,423 703,099
25 801,815 1,000,000 1,000,000 1,261,478 26,002 316,905 1,201,407 26,002 316,905 1,201,407
30 1,116,173 1,000,000 2,098,400 158,067 1,998,476 158,067 1,998,476
35 1,517,381 3,372,010 3,211,438 3,211,438
<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 -65.37% -60.64% -55.89% 6,150.00% 6,150.00% 6,150.00%
2 -33.90 -28.00 -22.13 642.15 642.15 642.15
3 -33.43 -26.17 -19.13 258.47 258.47 258.47
4 -23.95 -16.71 -9.72 148.92 148.92 148.92
5 -18.74 -11.55 -4.63 100.39 100.39 100.39
6 -14.86 -7.85 -1.10 73.77 73.77 73.77
7 -12.40 -5.52 1.12 57.22 57.22 57.22
8 -10.76 -3.96 2.61 46.06 46.06 46.06
9 -9.62 -2.87 3.65 38.07 38.07 38.07
10 -8.82 -2.09 4.41 32.11 32.11 32.11
15 -7.60 -.44 6.28 16.46 16.46 16.46
20 -9.95 -.54 7.02 9.93 9.93 9.93
25 -38.09 -1.84 7.68 6.48 6.48 7.99
30 -8.63 8.11 4.39 8.36
35 8.33 8.53
</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-53
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
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 predict future performance.
The Policies became available 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 shown in this Appendix commenced operations on October 31, 1994 and were
made available under the Policies in May 1996. The VIP Equity-Income Portfolio
and VIP Overseas Portfolio commenced operations on October 9, 1986 and January
28, 1987, respectively. The VIP High Income Portfolio and the VIP II Asset
Manager Portfolio commenced operations on September 19, 1985 and September 6,
1989, respectively, and were added as investment options on December 19, 1994.
We base the illustrations on the actual investment experience of the relevant
Eligible Funds for the periods shown (net of actual charges and expenses
incurred by the Eligible Funds), and reflect a charge for mortality and expense
risks against the Variable Account's assets at an annual rate of .90%. 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.
Many factors other than investment experience affect Policy values and
benefits. 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, we calculate the
rate 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-54
<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*........ 8.52% -1.25% 66.59% 93.46% 51.34% -9.61% 29.59% -4.35% 52.61% -6.90% 13.94% -7.90%
Bond Income..... 2.72 11.77 17.70 13.81 1.35 7.40 11.29 7.11 16.90 7.21 11.60 -4.23
Money Market.... 2.97 9.63 7.29 5.85 5.57 6.55 8.28 7.22 5.26 2.87 2.05 3.04
<CAPTION>
8/26/83- 8/26/83-
12/31/98 12/31/98
Total Effective
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98 Return Annual
- ----------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital
Growth*........ 36.80% 19.98% 22.37% 32.89% 2,230.81% 22.77%
Bond Income..... 20.12 3.67 9.90 8.07 295.26 9.37
Money Market.... 4.75 4.18 4.39 4.32 126.58 5.47
</TABLE>
<TABLE>
<CAPTION>
Annual Net Rate of Return
------------------------------------------------------------------------------------------------------------
For One Year Ending
5/1/87- ---------------------------------------------------------------------------------------------------
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index........ -12.73% 15.30% 28.99% -5.01% 29.27% 6.33% 8.74% 0.21% 35.69% 21.36% 31.31% 26.79%
Managed............ -1.26 8.50 18.02 2.28 19.10 5.74 9.69 -2.00 30.09 13.99 25.43 18.58
<CAPTION>
Annual Net Rate of Return
------------------------------------------------------
For One Year Ending
4/30/93- ---------------------------------------------
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income........................................................ 13.55% -2.09% 35.25% 17.03% 32.28% 23.34%
Midcap Value**........................................................... 14.05 -1.16 29.19 16.55 16.27 -6.31
<CAPTION>
Annual Net Rate of Return
---------------------------------------------
For One Year Ending
5/3/94- -----------------------------------
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap......................................................................... -3.80% 27.69% 29.50% 23.73% -2.58%
<CAPTION>
Annual Net Rate of Return
---------------------------------------------
For One Year Ending
10/31/94- -----------------------------------
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth..................................................................... -4.34% 47.37% 12.15% 24.50% 46.46%
Balanced.......................................................................... -.25 23.68 15.86 15.14 8.13
Venture Value..................................................................... -3.64 38.04 24.71 32.30 13.39
International Magnum Equity***.................................................... 2.45 5.28 5.71 -2.18 6.31
<CAPTION>
5/1/87- 5/1/87-
12/31/98 12/31/98
Total Effective
Sub-Account Return Annual
- ----------- ------ ---------
<S> <C> <C>
Stock Index..... 406.33% 14.91%
Managed......... 286.19 12.28
<CAPTION>
4/30/93- 4/30/93-
12/31/98 12/31/98
Total Effective
Sub-Account Return Annual
- ----------- ------ ---------
<S> <C> <C>
Growth Income...... 187.09% 20.44%
Midcap Value**..... 84.89 11.45
<CAPTION>
5/2/94- 5/2/94-
12/31/98 12/31/98
Total Effective
Sub-Account Return Annual
- ----------- ------ ---------
<S> <C> <C>
Small Cap.......... 97.76% 14.98%
<CAPTION>
10/31/94- 10/31/94-
12/31/98 12/31/98
Total Effective
Sub-Account Return Annual
- ----------- ------- ---------
<S> <C> <C>
Equity Growth........ 188.30% 28.93%
Balanced............. 77.96 14.83
Venture Value........ 148.84 24.45
International Magnum
Equity***........... 18.57 4.17
</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 subadviser. Rates
of return reflect the Series' former investment advisory fee of .70% of
average daily net assets for the period through April 30, 1998 and .75%
thereafter.
*** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Dean Witter
Investment Management became the sub-adviser.
Sub-Accounts Investing in VIP
<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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............ 0.00% -2.02% 21.61% 16.30% -16.05% 30.26% 15.84% 17.23% 6.11% 33.89% 13.25%
<CAPTION>
Annual Net Rate of Return
-----------------------------------------------------------------------------------------
For One Year Ending
1/28/87- --------------------------------------------------------------------------------
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
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas.......................... -6.16% 7.16% 25.15% -2.55% 7.03% -11.52% 36.12% 0.82% 8.70% 12.19%
<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..... 6.11% 16.63% 0.31% 10.64% -5.03% -3.11% 33.87% 22.06% 19.32% -2.43% 19.53% 13.00%
<CAPTION>
10/9/86- 10/9/86-
12/31/98 12/31/98
Total Effective
Sub-Account 12/31/97 12/31/98 Return Annual
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Equity-Income... 26.96% 10.63% 365.00% 13.39%
<CAPTION>
5/1/87- 5/1/87-
12/31/98 12/31/98
Total Effective
Sub-Account 12/31/97 12/31/98 Return Annual
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Overseas....... 10.56% 11.74% 140.10% 7.62%
<CAPTION>
9/19/85- 9/19/85-
12/31/98 12/31/98
Total Effective
Sub-Account 12/31/97 12/31/98 Return Annual
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
High Income..... 16.61% -5.19% 259.03% 10.10%
Sub-Account Investing in VIP II
<CAPTION>
Annual Net Rate of Return
-----------------------------------------------------------------------
For One Year Ending
9/6/89- --------------------------------------------------------------
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
- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager....................................... 0.53% 5.76% 21.46% 10.71% 20.15% -6.93% 15.91% 13.57%
<CAPTION>
12/31/98 12/31/98
Total Effective
Sub-Account 12/31/97 12/31/98 Return Annual
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Asset Manager... 19.57% 14.02% 186.90% 11.98%
</TABLE>
A-55
<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 Overseas Sub-Account; April 30 in the
case of the Zenith Growth and Income and Zenith Avanti Growth 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 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 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 14,491 8,422 -84.19% --
December 31, 1984....... 32,000 1,000,000 1,000,000 26,856 20,787 -42.50 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 60,394 47,528 -.73 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 129,603 116,737 34.44 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 205,962 193,096 39.09 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 198,941 186,652 23.49 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 270,617 259,713 24.89 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 269,342 259,823 18.01 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 424,971 416,837 23.52 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 409,235 402,486 18.18 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 479,444 474,123 17.53 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 450,141 446,304 13.64 25.98
December 31, 1995....... 208,000 1,000,000 1,088,149 635,972 633,621 16.31 23.78
December 31, 1996....... 224,000 1,000,000 1,315,133 775,204 774,337 16.65 23.32
December 31, 1997....... 240,000 1,000,000 1,616,364 960,978 960,978 17.16 23.16
December 31, 1998....... 256,000 1,000,000 2,155,266 1,292,514 1,292,514 18.48 23.91
</TABLE>
A-56
<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 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 13,680 7,611 -88.18% --
December 31, 1984....... 32,000 1,000,000 1,000,000 28,890 22,822 -34.63 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 47,663 34,797 -22.48 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 67,356 54,490 -8.59 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 81,112 68,245 -6.74 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 99,937 87,648 -3.20 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 124,057 113,153 .31 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 145,900 136,381 1.64 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 183,803 175,669 4.52 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 209,173 202,424 4.78 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 245,781 240,459 5.71 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 247,530 243,694 4.00 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 311,461 309,109 6.04 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 336,221 335,354 5.69 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 382,600 382,600 6.08 17.62
December 31, 1998....... 256,000 1,000,000 1,000,000 427,911 427,911 6.24 15.72
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 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 13,710 7,642 -88.04% --
December 31, 1984....... 32,000 1,000,000 1,000,000 28,017 21,948 -38.00 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 43,264 30,398 -31.13 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 58,797 45,931 -17.46 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 75,013 62,147 -10.68 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 92,845 80,556 -6.17 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 113,251 102,347 -2.70 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 133,966 124,447 -.73 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 153,354 145,221 .19 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 169,848 163,099 .40 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 185,716 180,395 .46 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 204,420 200,583 .74 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 227,033 224,682 1.21 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 249,272 248,406 1.50 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 272,888 272,888 1.73 17.62
December 31, 1998....... 256,000 1,000,000 1,000,000 298,610 298,610 1.93 15.72
</TABLE>
A-57
<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 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,256 5,188 -81.45% --
December 31, 1988....... 32,000 1,000,000 1,000,000 26,542 20,473 -32.91 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 50,376 37,510 -14.14 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 59,886 47,020 -13.80 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 91,460 78,594 -.66 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 110,640 98,698 .87 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 133,587 123,030 2.56 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 146,438 137,266 1.67 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 215,224 207,437 7.71 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 273,032 266,630 9.65 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 373,956 369,006 12.57 28.82
December 31, 1998....... 192,000 1,000,000 1,000,000 488,241 484,776 14.26 24.90
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 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 12,752 6,684 -72.90% --
December 31, 1988....... 32,000 1,000,000 1,000,000 27,239 21,170 -30.79 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 47,116 34,250 -19.04 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 61,438 48,572 -12.39 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 87,193 74,327 -2.75 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 105,767 93,825 -.72 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 129,080 118,522 1.54 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 138,970 129,797 .33 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 196,363 188,575 5.71 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 236,097 229,695 6.87 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 311,120 306,169 9.47 28.82
December 31, 1998....... 192,000 1,000,000 1,000,000 382,528 379,063 10.58 24.90
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 $ 13,861 $ 7,792 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,577 8,508 -60.97% --
December 31, 1994....... 32,000 1,000,000 1,000,000 27,146 21,078 -31.00 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 52,666 39,800 -10.84 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 75,783 62,917 -.78 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 116,088 103,222 9.66 112.58
December 31, 1998....... 96,000 1,000,000 1,000,000 156,615 144,788 13.05 80.81
</TABLE>
A-58
<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 $ 13,861 $ 7,792 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,645 8,576 -60.51% --
December 31, 1994....... 32,000 1,000,000 1,000,000 27,406 21,338 -30.21 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 51,283 38,417 -12.80 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 73,313 60,447 -2.62 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 100,231 87,365 3.31 112.58
December 31, 1998....... 96,000 1,000,000 1,000,000 104,010 92,182 -1.28 80.81
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 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 12,279 6,210 -75.86% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,142 25,073 -19.28 1,038.05%
December 31, 1996....... 48,000 1,000,000 1,000,000 55,058 42,192 -7.57 329.07
December 31, 1997....... 64,000 1,000,000 1,000,000 84,141 71,275 5.02 174.35
December 31, 1998....... 80,000 1,000,000 1,000,000 93,030 80,164 .08 112.81
Zenith Equity Growth Sub-Account
<CAPTION>
Internal Rate
Total Minimum Variable of Return on Internal Rate
Premiums Death Death Cash Net Cash Net Cash of Return on
Date Paid Benefit Benefit Value Value Value Death Benefit
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $1,000,000 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 12,802 6,733 -100.00% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,158 25,089 -32.53 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 48,185 35,319 -24.88 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 72,931 60,065 -3.79 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 121,929 109,063 14.42 137.32
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 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,532 7,464 -98.96% --
December 31, 1995....... 32,000 1,000,000 1,000,000 29,802 23,733 -38.93 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 47,858 34,992 -25.59 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 68,213 55,347 -8.62 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 87,147 74,281 -3.42 137.32
</TABLE>
A-59
<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 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,117 7,049 -100.00% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,121 25,052 -32.71 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 52,326 39,460 -16.20 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 82,380 69,514 4.99 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 107,157 94,291 7.61 137.32
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 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,863 7,795 -98.65% --
December 31, 1995....... 32,000 1,000,000 1,000,000 27,965 21,896 -47.56 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 42,658 29,792 -37.55 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 54,289 41,423 -25.37 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 70,793 57,927 -14.86 137.32
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 $ 13,861 $ 7,792 -- --
December 31, 1986....... 16,000 1,000,000 1,000,000 13,590 7,521 -96.38% --
December 31, 1987....... 32,000 1,000,000 1,000,000 23,548 17,479 -63.02 2,723.89%
December 31, 1988....... 48,000 1,000,000 1,000,000 41,197 28,331 -39.03 490.23
December 31, 1989....... 64,000 1,000,000 1,000,000 60,910 48,044 -16.25 221.84
December 31, 1990....... 80,000 1,000,000 1,000,000 64,281 51,415 -19.75 133.88
December 31, 1991....... 96,000 1,000,000 1,000,000 97,173 84,653 -4.62 92.44
December 31, 1992....... 112,000 1,000,000 1,000,000 126,352 115,217 .88 68.91
December 31, 1993....... 128,000 1,000,000 1,000,000 160,443 150,694 4.34 53.96
December 31, 1994....... 144,000 1,000,000 1,000,000 182,079 173,714 4.39 43.72
December 31, 1995....... 160,000 1,000,000 1,000,000 258,099 251,120 9.26 36.31
December 31, 1996....... 176,000 1,000,000 1,000,000 303,832 298,262 9.72 30.74
December 31, 1997....... 192,000 1,000,000 1,000,000 398,567 394,483 11.93 26.41
December 31, 1998....... 208,000 1,000,000 1,000,000 456,231 453,632 11.79 22.96
</TABLE>
A-60
<PAGE>
Overseas Sub-Account
<TABLE>
<CAPTION>
Internal Rate
Total Minimum Variable of Return on Internal Rate
Premiums Death Death Cash Net Cash Net Cash of Return on
Date Paid Benefit Benefit Value Value Value Death Benefit
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 16,000 $1,000,000 $1,000,000 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,596 5,527 -68.38% --
December 31, 1988....... 32,000 1,000,000 1,000,000 27,183 21,115 -25.92 707.99%
December 31, 1989....... 48,000 1,000,000 1,000,000 48,821 35,955 -14.30 272.18
December 31, 1990....... 64,000 1,000,000 1,000,000 60,413 47,547 -11.91 154.15
December 31, 1991....... 80,000 1,000,000 1,000,000 78,294 65,428 -6.81 103.01
December 31, 1992....... 96,000 1,000,000 1,000,000 80,122 68,641 -9.74 75.31
December 31, 1993....... 112,000 1,000,000 1,000,000 125,608 115,513 .79 58.22
December 31, 1994....... 128,000 1,000,000 1,000,000 137,840 129,129 .20 46.75
December 31, 1995....... 144,000 1,000,000 1,000,000 165,500 158,174 1.90 38.57
December 31, 1996....... 160,000 1,000,000 1,000,000 197,835 191,894 3.32 32.48
December 31, 1997....... 176,000 1,000,000 1,000,000 233,194 228,738 4.36 27.80
December 31, 1998....... 192,000 1,000,000 1,000,000 274,477 271,507 5.28 24.10
High Income Sub-Account
<CAPTION>
Internal Rate
Total Minimum Variable of Return on Internal Rate
Premiums Death Death Cash Net Cash Net Cash of Return on
Date Paid Benefit Benefit Value Value Value Death Benefit
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 16,000 $1,000,000 $1,000,000 $ 13,861 $ 7,792 -- --
December 31, 1985....... 16,000 1,000,000 1,000,000 14,274 8,205 -90.62% --
December 31, 1986....... 32,000 1,000,000 1,000,000 29,761 23,692 -33.71 2,337.90%
December 31, 1987....... 48,000 1,000,000 1,000,000 42,563 29,697 -34.27 463.37
December 31, 1988....... 64,000 1,000,000 1,000,000 60,045 47,179 -16.70 214.72
December 31, 1989....... 80,000 1,000,000 1,000,000 69,113 56,247 -15.33 130.87
December 31, 1990....... 96,000 1,000,000 1,000,000 79,401 66,997 -13.01 90.84
December 31, 1991....... 112,000 1,000,000 1,000,000 119,247 108,228 -1.05 67.95
December 31, 1992....... 128,000 1,000,000 1,000,000 157,896 148,262 3.86 53.32
December 31, 1993....... 144,000 1,000,000 1,000,000 201,189 192,940 6.72 43.27
December 31, 1994....... 160,000 1,000,000 1,000,000 208,379 201,515 4.75 35.98
December 31, 1995....... 176,000 1,000,000 1,000,000 262,022 256,576 6.94 30.49
December 31, 1996....... 192,000 1,000,000 1,000,000 308,587 304,627 7.70 26.21
December 31, 1997....... 208,000 1,000,000 1,000,000 372,825 370,350 8.77 22.81
December 31, 1998....... 224,000 1,000,000 1,000,000 366,946 365,955 6.93 20.04
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 $ 13,861 $ 7,792 -- --
December 31, 1989....... 16,000 1,000,000 1,000,000 13,583 7,514 -90.73% --
December 31, 1990....... 32,000 1,000,000 1,000,000 27,598 21,529 -40.93 2,130.09%
December 31, 1991....... 48,000 1,000,000 1,000,000 46,904 34,038 -24.47 447.21
December 31, 1992....... 64,000 1,000,000 1,000,000 65,176 52,310 -10.91 210.30
December 31, 1993....... 80,000 1,000,000 1,000,000 91,834 78,968 -.56 128.98
December 31, 1994....... 96,000 1,000,000 1,000,000 97,152 84,747 -4.43 89.83
December 31, 1995....... 112,000 1,000,000 1,000,000 126,191 115,172 .84 67.33
December 31, 1996....... 128,000 1,000,000 1,000,000 156,439 146,805 3.57 52.92
December 31, 1997....... 144,000 1,000,000 1,000,000 199,506 191,257 6.47 42.98
December 31, 1998....... 160,000 1,000,000 1,000,000 241,251 234,387 7.74 35.77
</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 for the period through April 30, 1998 and .75% thereafter.
A-61
<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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,014,491 14,491 8,422 -84.19% --
December 31, 1984....... 32,000 1,000,000 1,026,854 26,854 20,785 -42.51 2,018.29%
December 31, 1985....... 48,000 1,000,000 1,060,380 60,380 47,514 -.75 449.10
December 31, 1986....... 64,000 1,000,000 1,129,535 129,535 116,669 34.41 219.75
December 31, 1987....... 80,000 1,000,000 1,205,770 205,770 192,904 39.05 139.32
December 31, 1988....... 96,000 1,000,000 1,198,653 198,653 186,364 23.43 96.96
December 31, 1989....... 112,000 1,000,000 1,270,045 270,045 259,141 24.83 74.82
December 31, 1990....... 128,000 1,000,000 1,268,560 268,560 259,041 17.93 58.97
December 31, 1991....... 144,000 1,000,000 1,423,320 423,320 415,186 23.43 50.71
December 31, 1992....... 160,000 1,000,000 1,407,176 407,176 400,428 18.09 42.22
December 31, 1993....... 176,000 1,000,000 1,476,651 476,651 471,329 17.43 36.83
December 31, 1994....... 192,000 1,000,000 1,447,430 447,430 443,593 13.55 31.60
December 31, 1995....... 208,000 1,000,000 1,631,940 631,940 629,588 16.22 29.35
December 31, 1996....... 224,000 1,000,000 1,770,021 770,021 769,154 16.56 27.04
December 31, 1997....... 240,000 1,000,000 1,954,303 954,303 954,303 17.08 25.34
December 31, 1998....... 256,000 1,000,000 2,283,344 1,283,344 1,283,344 18.40 24.53
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,013,680 13,680 7,611 -88.18% --
December 31, 1984....... 32,000 1,000,000 1,028,888 28,888 22,819 -34.64 2,021.51%
December 31, 1985....... 48,000 1,000,000 1,047,652 47,652 34,786 -22.50 446.02
December 31, 1986....... 64,000 1,000,000 1,067,324 67,324 54,458 -8.62 213.62
December 31, 1987....... 80,000 1,000,000 1,081,045 81,045 68,179 -6.78 132.32
December 31, 1988....... 96,000 1,000,000 1,099,811 99,811 87,522 -3.25 93.15
December 31, 1989....... 112,000 1,000,000 1,123,830 123,830 112,926 .25 70.70
December 31, 1990....... 128,000 1,000,000 1,145,530 145,530 136,011 1.57 56.21
December 31, 1991....... 144,000 1,000,000 1,183,177 183,177 175,044 4.44 46.52
December 31, 1992....... 160,000 1,000,000 1,208,239 208,239 201,491 4.68 39.25
December 31, 1993....... 176,000 1,000,000 1,244,514 244,514 239,192 5.61 33.91
December 31, 1994....... 192,000 1,000,000 1,246,235 246,235 242,398 3.91 29.32
December 31, 1995....... 208,000 1,000,000 1,309,757 309,757 307,406 5.96 26.33
December 31, 1996....... 224,000 1,000,000 1,334,246 334,246 333,379 5.61 23.51
December 31, 1997....... 240,000 1,000,000 1,380,113 380,113 380,113 6.00 21.35
December 31, 1998....... 256,000 1,000,000 1,424,749 424,749 424,749 6.15 19.52
</TABLE>
A-62
<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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,013,710 13,710 7,641 -88.04% --
December 31, 1984....... 32,000 1,000,000 1,028,015 28,015 21,946 -38.01 2,020.13%
December 31, 1985....... 48,000 1,000,000 1,043,254 43,254 30,388 -31.15 444.95
December 31, 1986....... 64,000 1,000,000 1,058,770 58,770 45,904 -17.49 212.76
December 31, 1987....... 80,000 1,000,000 1,074,953 74,953 62,087 -10.72 131.96
December 31, 1988....... 96,000 1,000,000 1,092,731 92,731 80,442 -6.22 92.86
December 31, 1989....... 112,000 1,000,000 1,113,048 113,048 102,144 -2.76 70.38
December 31, 1990....... 128,000 1,000,000 1,133,632 133,632 124,114 -.80 55.93
December 31, 1991....... 144,000 1,000,000 1,152,843 152,843 144,710 .11 45.93
December 31, 1992....... 160,000 1,000,000 1,169,110 169,110 162,362 .30 38.61
December 31, 1993....... 176,000 1,000,000 1,184,796 184,796 179,474 .36 33.07
December 31, 1994....... 192,000 1,000,000 1,203,402 203,402 199,565 .66 28.79
December 31, 1995....... 208,000 1,000,000 1,225,863 225,863 223,511 1.13 25.42
December 31, 1996....... 224,000 1,000,000 1,247,899 247,899 247,033 1.42 22.67
December 31, 1997....... 240,000 1,000,000 1,271,230 271,230 271,230 1.64 20.40
December 31, 1998....... 256,000 1,000,000 1,296,551 296,551 296,551 1.85 18.51
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,011,256 11,256 5,187 -81.45% --
December 31, 1988....... 32,000 1,000,000 1,026,538 26,538 20,470 -32.92 1,052.13%
December 31, 1989....... 48,000 1,000,000 1,050,361 50,361 37,494 -14.16 337.20
December 31, 1990....... 64,000 1,000,000 1,059,852 59,852 46,986 -13.83 179.18
December 31, 1991....... 80,000 1,000,000 1,091,373 91,373 78,507 -.71 117.50
December 31, 1992....... 96,000 1,000,000 1,110,481 110,481 98,538 .82 85.01
December 31, 1993....... 112,000 1,000,000 1,133,312 133,312 122,755 2.50 65.61
December 31, 1994....... 128,000 1,000,000 1,146,026 146,026 136,854 1.60 52.60
December 31, 1995....... 144,000 1,000,000 1,214,419 214,419 206,631 7.63 44.45
December 31, 1996....... 160,000 1,000,000 1,271,698 271,698 265,296 9.55 38.23
December 31, 1997....... 176,000 1,000,000 1,371,958 371,958 367,008 12.48 33.97
December 31, 1998....... 192,000 1,000,000 1,485,523 485,523 482,058 14.18 30.69
</TABLE>
A-63
<PAGE>
Zenith Managed Sub-Account
<TABLE>
<CAPTION>
Internal Rate
Total Minimum Variable of Return on Internal Rate
Premiums Death Death Cash Net Cash Net Cash of Return on
Date Paid Benefit Benefit Value Value Value Death Benefit
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,012,752 12,752 6,683 -72.91% --
December 31, 1988....... 32,000 1,000,000 1,027,235 27,235 21,167 -30.80 1,052.62%
December 31, 1989....... 48,000 1,000,000 1,047,102 47,102 34,236 -19.06 336.64
December 31, 1990....... 64,000 1,000,000 1,061,403 61,403 48,537 -12.42 179.31
December 31, 1991....... 80,000 1,000,000 1,087,111 87,111 74,245 -2.79 117.29
December 31, 1992....... 96,000 1,000,000 1,105,617 105,617 93,674 -.77 84.84
December 31, 1993....... 112,000 1,000,000 1,128,816 128,816 118,259 1.48 65.49
December 31, 1994....... 128,000 1,000,000 1,138,582 138,582 129,410 .26 52.43
December 31, 1995....... 144,000 1,000,000 1,195,635 195,635 187,848 5.63 44.12
December 31, 1996....... 160,000 1,000,000 1,234,958 234,958 228,556 6.78 37.69
December 31, 1997....... 176,000 1,000,000 1,309,486 309,486 304,536 9.38 33.21
December 31, 1998....... 192,000 1,000,000 1,380,448 380,448 376,983 10.50 29.61
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1993....... 16,000 1,000,000 1,014,576 14,576 8,508 -60.98% --
December 31, 1994....... 32,000 1,000,000 1,027,143 27,143 21,074 -31.01 1,047.72%
December 31, 1995....... 48,000 1,000,000 1,052,648 52,648 39,782 -10.86 336.86
December 31, 1996....... 64,000 1,000,000 1,075,736 75,736 62,870 -.82 180.24
December 31, 1997....... 80,000 1,000,000 1,115,970 115,970 103,104 9.62 118.62
December 31, 1998....... 96,000 1,000,000 1,156,371 156,371 144,544 13.00 86.56
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1993....... 16,000 1,000,000 1,014,645 14,645 8,576 -60.51% --
December 31, 1994....... 32,000 1,000,000 1,027,403 27,403 21,334 -30.23 1,047.90%
December 31, 1995....... 48,000 1,000,000 1,051,266 51,266 38,400 -12.83 336.63
December 31, 1996....... 64,000 1,000,000 1,073,268 73,268 60,401 -2.65 180.04
December 31, 1997....... 80,000 1,000,000 1,100,130 100,130 87,264 3.27 117.83
December 31, 1998....... 96,000 1,000,000 1,103,850 103,850 92,023 -1.33 84.71
</TABLE>
A-64
<PAGE>
Zenith Small Cap 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 2, 1994............. $16,000 $1,000,000 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,012,279 12,279 6,210 -75.87% --
December 31, 1995....... 32,000 1,000,000 1,031,138 31,138 25,069 -19.29 1,060.27%
December 31, 1996....... 48,000 1,000,000 1,055,041 55,041 42,175 -7.59 338.75
December 31, 1997....... 64,000 1,000,000 1,084,092 84,092 71,226 4.99 181.43
December 31, 1998....... 80,000 1,000,000 1,092,938 92,938 80,072 0.03 117.70
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,012,801 12,801 6,733 -100.00% --
December 31, 1995....... 32,000 1,000,000 1,031,155 31,155 25,087 -32.54 3,363.77%
December 31, 1996....... 48,000 1,000,000 1,048,176 48,176 35,310 -24.90 537.86
December 31, 1997....... 64,000 1,000,000 1,072,901 72,901 60,035 -3.82 238.64
December 31, 1998....... 80,000 1,000,000 1,121,836 121,836 108,970 14.38 145.20
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,013,532 13,532 7,463 -98.96% --
December 31, 1995....... 32,000 1,000,000 1,029,800 29,800 23,731 -38.94 3,359.77%
December 31, 1996....... 48,000 1,000,000 1,047,849 47,849 34,983 -25.61 537.76
December 31, 1997....... 64,000 1,000,000 1,068,185 68,185 55,319 -8.65 238.11
December 31, 1998....... 80,000 1,000,000 1,087,083 87,083 74,217 -3.46 143.03
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,013,117 13,117 7,049 -100.00% --
December 31, 1995....... 32,000 1,000,000 1,031,119 31,119 25,050 -32.72 3,363.66%
December 31, 1996....... 48,000 1,000,000 1,052,316 52,316 39,450 -16.22 539.12
December 31, 1997....... 64,000 1,000,000 1,082,345 82,345 69,479 4.96 239.71
December 31, 1998....... 80,000 1,000,000 1,107,076 107,076 94,210 7.57 144.28
</TABLE>
A-65
<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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,013,863 13,863 7,794 -98.65% --
December 31, 1995....... 32,000 1,000,000 1,027,963 27,963 21,895 -47.57 3,354.36%
December 31, 1996....... 48,000 1,000,000 1,042,650 42,650 29,784 -37.57 536.17
December 31, 1997....... 64,000 1,000,000 1,054,268 54,268 41,402 -25.40 236.51
December 31, 1998....... 80,000 1,000,000 1,070,744 70,744 57,878 -14.90 141.98
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1986....... 16,000 1,000,000 1,013,589 13,589 7,521 -96.38% --
December 31, 1987....... 32,000 1,000,000 1,023,546 23,546 17,477 -63.03 2,779.50%
December 31, 1988....... 48,000 1,000,000 1,041,189 41,189 28,323 -39.05 502.03
December 31, 1989....... 64,000 1,000,000 1,060,885 60,885 48,019 -16.28 228.66
December 31, 1990....... 80,000 1,000,000 1,064,237 64,237 51,371 -19.78 138.00
December 31, 1991....... 96,000 1,000,000 1,097,066 97,066 84,547 -4.67 96.64
December 31, 1992....... 112,000 1,000,000 1,126,145 126,145 115,011 .82 72.98
December 31, 1993....... 128,000 1,000,000 1,160,068 160,068 150,318 4.28 58.04
December 31, 1994....... 144,000 1,000,000 1,181,497 181,497 173,133 4.31 47.54
December 31, 1995....... 160,000 1,000,000 1,257,002 257,002 250,023 9.17 40.82
December 31, 1996....... 176,000 1,000,000 1,302,262 302,262 296,693 9.62 35.30
December 31, 1997....... 192,000 1,000,000 1,396,444 396,444 392,359 11.84 31.56
December 31, 1998....... 208,000 1,000,000 1,453,682 453,682 451,083 11.71 28.17
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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,011,595 11,595 5,526 -68.38% --
December 31, 1988....... 32,000 1,000,000 1,027,179 27,179 21,110 -25.93 720.03%
December 31, 1989....... 48,000 1,000,000 1,048,802 48,802 35,936 -14.33 279.02
December 31, 1990....... 64,000 1,000,000 1,060,370 60,370 47,504 -11.94 158.60
December 31, 1991....... 80,000 1,000,000 1,078,207 78,207 65,341 -6.85 106.76
December 31, 1992....... 96,000 1,000,000 1,079,990 79,990 68,509 -9.79 78.13
December 31, 1993....... 112,000 1,000,000 1,125,323 125,323 115,227 .72 61.64
December 31, 1994....... 128,000 1,000,000 1,137,413 137,413 128,702 .12 49.82
December 31, 1995....... 144,000 1,000,000 1,164,829 164,829 157,503 1.81 41.68
December 31, 1996....... 160,000 1,000,000 1,196,804 196,804 190,863 3.23 35.67
December 31, 1997....... 176,000 1,000,000 1,231,982 231,982 227,527 4.28 31.09
December 31, 1998....... 192,000 1,000,000 1,273,009 273,009 270,039 5.20 27.52
</TABLE>
A-66
<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 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1985....... 16,000 1,000,000 1,014,274 14,274 8,205 -90.62% --
December 31, 1986....... 32,000 1,000,000 1,029,758 29,758 23,690 -33.72 2,396.09%
December 31, 1987....... 48,000 1,000,000 1,042,554 42,554 29,688 -34.29 474.74
December 31, 1988....... 64,000 1,000,000 1,060,019 60,019 47,153 -16.73 221.19
December 31, 1989....... 80,000 1,000,000 1,069,061 69,061 56,195 -15.37 135.19
December 31, 1990....... 96,000 1,000,000 1,079,309 79,309 66,905 -13.06 94.24
December 31, 1991....... 112,000 1,000,000 1,119,043 119,043 108,024 -1.10 71.75
December 31, 1992....... 128,000 1,000,000 1,157,513 157,513 147,879 3.79 57.30
December 31, 1993....... 144,000 1,000,000 1,200,524 200,524 192,275 6.64 47.42
December 31, 1994....... 160,000 1,000,000 1,207,472 207,472 200,608 4.66 39.67
December 31, 1995....... 176,000 1,000,000 1,260,674 260,674 255,228 6.85 34.46
December 31, 1996....... 192,000 1,000,000 1,306,964 306,964 303,004 7.62 30.31
December 31, 1997....... 208,000 1,000,000 1,370,764 370,764 368,289 8.69 27.17
December 31, 1998....... 224,000 1,000,000 1,364,770 364,770 363,780 6.85 23.97
Asset Manager Sub-Account
<CAPTION>
Internal Rate
Total Minimum Variable of Return on Internal Rate
Premiums Death Death Cash Net Cash Net Cash of Return on
Date Paid Benefit Benefit Value Value Value Death Benefit
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 16,000 $1,000,000 $1,013,861 $ 13,861 $ 7,792 -- --
December 31, 1989....... 16,000 1,000,000 1,013,583 13,583 7,514 -90.73% --
December 31, 1990....... 32,000 1,000,000 1,027,596 27,596 21,527 -40.94 2,178.20%
December 31, 1991....... 48,000 1,000,000 1,046,894 46,894 34,028 -24.49 459.19
December 31, 1992....... 64,000 1,000,000 1,065,147 65,147 52,281 -10.94 217.15
December 31, 1993....... 80,000 1,000,000 1,091,762 91,762 78,896 -.60 134.58
December 31, 1994....... 96,000 1,000,000 1,097,034 97,034 84,630 -4.48 93.92
December 31, 1995....... 112,000 1,000,000 1,125,967 125,967 114,948 .78 71.30
December 31, 1996....... 128,000 1,000,000 1,156,053 156,053 146,419 3.50 56.83
December 31, 1997....... 144,000 1,000,000 1,198,839 198,839 190,590 6.39 47.08
December 31, 1998....... 160,000 1,000,000 1,240,192 240,192 233,328 7.65 39.95
</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 for the period through April 30, 1998 and .75% thereafter.
A-67
<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 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 14,491 8,422 -84.19% --
December 31, 1984....... 32,000 1,000,000 1,000,000 26,856 20,787 -42.50 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 60,394 47,528 -.73 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 129,603 116,737 34.44 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 205,962 193,096 39.09 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 198,941 186,652 23.49 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 270,617 259,713 24.89 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 269,342 259,823 18.01 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 424,971 416,837 23.52 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 409,235 402,486 18.18 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 479,444 474,123 17.53 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 450,141 446,304 13.64 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 635,988 633,637 16.31 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 775,345 774,478 16.65 19.89
December 31, 1997....... 240,000 1,000,000 1,115,413 961,563 961,563 17.16 18.89
December 31, 1998....... 256,000 1,000,000 1,488,152 1,294,046 1,294,046 18.49 19.98
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 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 13,680 7,611 -88.18% --
December 31, 1984....... 32,000 1,000,000 1,000,000 28,890 22,822 -34.63 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 47,663 34,797 -22.48 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 67,356 54,490 -8.59 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 81,112 68,245 -6.74 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 99,937 87,648 -3.20 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 124,057 113,153 .31 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 145,900 136,381 1.64 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 183,803 175,669 4.52 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 209,173 202,424 4.78 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 245,781 240,459 5.71 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 247,530 243,694 4.00 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 311,461 309,109 6.04 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 336,221 335,354 5.69 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 382,600 382,600 6.08 17.62
December 31, 1998....... 256,000 1,000,000 1,000,000 427,911 427,911 6.24 15.72
</TABLE>
A-68
<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 $ 13,861 $ 7,792 -- --
December 31, 1983....... 16,000 1,000,000 1,000,000 13,710 7,642 -88.04% --
December 31, 1984....... 32,000 1,000,000 1,000,000 28,017 21,948 -38.00 1,975.63%
December 31, 1985....... 48,000 1,000,000 1,000,000 43,264 30,398 -31.13 434.27
December 31, 1986....... 64,000 1,000,000 1,000,000 58,797 45,931 -17.46 206.69
December 31, 1987....... 80,000 1,000,000 1,000,000 75,013 62,147 -10.68 127.42
December 31, 1988....... 96,000 1,000,000 1,000,000 92,845 80,556 -6.17 88.99
December 31, 1989....... 112,000 1,000,000 1,000,000 113,251 102,347 -2.70 66.82
December 31, 1990....... 128,000 1,000,000 1,000,000 133,966 124,447 -.73 52.57
December 31, 1991....... 144,000 1,000,000 1,000,000 153,354 145,221 .19 42.74
December 31, 1992....... 160,000 1,000,000 1,000,000 169,848 163,099 .40 35.59
December 31, 1993....... 176,000 1,000,000 1,000,000 185,716 180,395 .46 30.19
December 31, 1994....... 192,000 1,000,000 1,000,000 204,420 200,583 .74 25.98
December 31, 1995....... 208,000 1,000,000 1,000,000 227,033 224,682 1.21 22.62
December 31, 1996....... 224,000 1,000,000 1,000,000 249,272 248,406 1.50 19.89
December 31, 1997....... 240,000 1,000,000 1,000,000 272,888 272,888 1.73 17.62
December 31, 1998....... 256,000 1,000,000 1,000,000 298,610 298,610 1.93 15.72
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 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,256 5,188 -81.45% --
December 31, 1988....... 32,000 1,000,000 1,000,000 26,542 20,473 -32.91 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 50,376 37,510 -14.14 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 59,886 47,020 -13.80 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 91,460 78,594 -.66 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 110,640 98,698 .87 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 133,587 123,030 2.56 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 146,438 137,266 1.67 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 215,224 207,437 7.71 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 273,032 266,630 9.65 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 373,956 369,006 12.57 28.82
December 31, 1998....... 192,000 1,000,000 1,000,000 488,241 484,776 14.26 24.90
</TABLE>
A-69
<PAGE>
Zenith Managed Sub-Account
<TABLE>
<CAPTION>
Internal Rate
Total Minimum Variable of Return on Internal Rate
Premiums Death Death Cash Net Cash Net Cash of Return on
Date Paid Benefit Benefit Value Value Value Death Benefit
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $1,000,000 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 12,752 6,684 -72.90% --
December 31, 1988....... 32,000 1,000,000 1,000,000 27,239 21,170 -30.79 1,033.28%
December 31, 1989....... 48,000 1,000,000 1,000,000 47,116 34,250 -19.04 328.36
December 31, 1990....... 64,000 1,000,000 1,000,000 61,438 48,572 -12.39 174.11
December 31, 1991....... 80,000 1,000,000 1,000,000 87,193 74,327 -2.75 112.69
December 31, 1992....... 96,000 1,000,000 1,000,000 105,767 93,825 -.72 80.87
December 31, 1993....... 112,000 1,000,000 1,000,000 129,080 118,522 1.54 61.77
December 31, 1994....... 128,000 1,000,000 1,000,000 138,970 129,797 .33 49.18
December 31, 1995....... 144,000 1,000,000 1,000,000 196,363 188,575 5.71 40.32
December 31, 1996....... 160,000 1,000,000 1,000,000 236,097 229,695 6.87 33.80
December 31, 1997....... 176,000 1,000,000 1,000,000 311,120 306,169 9.47 28.82
December 31, 1998....... 192,000 1,000,000 1,000,000 382,528 379,063 10.58 24.90
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 $ 13,861 $ 7,792 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,577 8,508 -60.97% --
December 31, 1994....... 32,000 1,000,000 1,000,000 27,146 21,078 -31.00 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 52,666 39,800 -10.84 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 75,783 62,917 -.78 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 116,088 103,222 9.66 112.58
December 31, 1998....... 96,000 1,000,000 1,000,000 156,615 144,788 13.05 80.81
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 $ 13,861 $ 7,792 -- --
December 31, 1993....... 16,000 1,000,000 1,000,000 14,645 8,576 -60.51% --
December 31, 1994....... 32,000 1,000,000 1,000,000 27,406 21,338 -30.21 1,028.55%
December 31, 1995....... 48,000 1,000,000 1,000,000 51,283 38,417 -12.80 327.65
December 31, 1996....... 64,000 1,000,000 1,000,000 73,313 60,447 -2.62 173.87
December 31, 1997....... 80,000 1,000,000 1,000,000 100,231 87,365 3.31 112.58
December 31, 1998....... 96,000 1,000,000 1,000,000 104,010 92,182 -1.28 80.81
</TABLE>
A-70
<PAGE>
Zenith Small Cap 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 2, 1994............. $16,000 $1,000,000 $1,000,000 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 12,279 6,210 -75.86% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,142 25,073 -19.28 1,038.05%
December 31, 1996....... 48,000 1,000,000 1,000,000 55,058 42,192 -7.57 329.07
December 31, 1997....... 64,000 1,000,000 1,000,000 84,141 71,275 5.02 174.35
December 31, 1998....... 80,000 1,000,000 1,000,000 93,030 80,164 0.08 112.81
Zenith Equity Growth Sub-Account
<CAPTION>
Internal Rate
Total Minimum Variable of Return on Internal Rate
Premiums Death Death Cash Net Cash Net Cash of Return on
Date Paid Benefit Benefit Value Value Value Death Benefit
- ---- -------- ---------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $1,000,000 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 12,802 6,733 -100.00% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,158 25,089 -32.53 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 48,185 35,319 -24.88 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 72,931 60,065 -3.79 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 121,929 109,063 14.42 137.32
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 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,532 7,464 -98.96% --
December 31, 1995....... 32,000 1,000,000 1,000,000 29,802 23,733 -38.93 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 47,858 34,992 -25.59 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 68,213 55,347 -8.62 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 87,147 74,281 -3.42 137.32
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 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,117 7,049 -100.00% --
December 31, 1995....... 32,000 1,000,000 1,000,000 31,121 25,052 -32.71 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 52,326 39,460 -16.20 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 82,380 69,514 4.99 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 107,157 94,291 7.61 137.32
</TABLE>
A-71
<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 $ 13,861 $ 7,792 -- --
December 31, 1994....... 16,000 1,000,000 1,000,000 13,863 7,795 -98.65% --
December 31, 1995....... 32,000 1,000,000 1,000,000 27,965 21,896 -47.56 3,271.69%
December 31, 1996....... 48,000 1,000,000 1,000,000 42,658 29,792 -37.55 522.96
December 31, 1997....... 64,000 1,000,000 1,000,000 54,289 41,423 -25.37 230.16
December 31, 1998....... 80,000 1,000,000 1,000,000 70,793 57,927 -14.86 137.32
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 $ 13,861 $ 7,792 -- --
December 31, 1986....... 16,000 1,000,000 1,000,000 13,590 7,521 -96.38% --
December 31, 1987....... 32,000 1,000,000 1,000,000 23,548 17,479 -63.02 2,723.89%
December 31, 1988....... 48,000 1,000,000 1,000,000 41,197 28,331 -39.03 490.23
December 31, 1989....... 64,000 1,000,000 1,000,000 60,910 48,044 -16.25 221.84
December 31, 1990....... 80,000 1,000,000 1,000,000 64,281 51,415 -19.75 133.88
December 31, 1991....... 96,000 1,000,000 1,000,000 97,173 84,653 -4.62 92.44
December 31, 1992....... 112,000 1,000,000 1,000,000 126,352 115,217 .88 68.91
December 31, 1993....... 128,000 1,000,000 1,000,000 160,443 150,694 4.34 53.96
December 31, 1994....... 144,000 1,000,000 1,000,000 182,079 173,714 4.39 43.72
December 31, 1995....... 160,000 1,000,000 1,000,000 258,099 251,120 9.26 36.31
December 31, 1996....... 176,000 1,000,000 1,000,000 303,832 298,262 9.72 30.74
December 31, 1997....... 192,000 1,000,000 1,000,000 398,567 394,483 11.93 26.41
December 31, 1998....... 208,000 1,000,000 1,000,000 456,231 453,632 11.79 22.96
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 $ 13,861 $ 7,792 -- --
December 31, 1987....... 16,000 1,000,000 1,000,000 11,596 5,527 -68.38% --
December 31, 1988....... 32,000 1,000,000 1,000,000 27,183 21,115 -25.92 707.99%
December 31, 1989....... 48,000 1,000,000 1,000,000 48,821 35,955 -14.30 272.18
December 31, 1990....... 64,000 1,000,000 1,000,000 60,413 47,547 -11.91 154.15
December 31, 1991....... 80,000 1,000,000 1,000,000 78,294 65,428 -6.81 103.01
December 31, 1992....... 96,000 1,000,000 1,000,000 80,122 68,641 -9.74 75.31
December 31, 1993....... 112,000 1,000,000 1,000,000 125,608 115,513 .79 58.22
December 31, 1994....... 128,000 1,000,000 1,000,000 137,840 129,129 .20 46.75
December 31, 1995....... 144,000 1,000,000 1,000,000 165,500 158,174 1.90 38.57
December 31, 1996....... 160,000 1,000,000 1,000,000 197,835 191,894 3.32 32.48
December 31, 1997....... 176,000 1,000,000 1,000,000 233,194 228,738 4.36 27.80
December 31, 1998....... 192,000 1,000,000 1,000,000 274,477 271,507 5.28 24.10
</TABLE>
A-72
<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 $ 13,861 $ 7,792 -- --
December 31, 1985....... 16,000 1,000,000 1,000,000 14,274 8,205 -90.62% --
December 31, 1986....... 32,000 1,000,000 1,000,000 29,761 23,692 -33.71 2,337.90%
December 31, 1987....... 48,000 1,000,000 1,000,000 42,563 29,697 -34.27 463.37
December 31, 1988....... 64,000 1,000,000 1,000,000 60,045 47,179 -16.70 214.72
December 31, 1989....... 80,000 1,000,000 1,000,000 69,113 56,247 -15.33 130.87
December 31, 1990....... 96,000 1,000,000 1,000,000 79,401 66,997 -13.01 90.84
December 31, 1991....... 112,000 1,000,000 1,000,000 119,247 108,228 -1.05 67.95
December 31, 1992....... 128,000 1,000,000 1,000,000 157,896 148,262 3.86 53.32
December 31, 1993....... 144,000 1,000,000 1,000,000 201,189 192,940 6.72 43.27
December 31, 1994....... 160,000 1,000,000 1,000,000 208,379 201,515 4.75 35.98
December 31, 1995....... 176,000 1,000,000 1,000,000 262,022 256,576 6.94 30.49
December 31, 1996....... 192,000 1,000,000 1,000,000 308,587 304,627 7.70 26.21
December 31, 1997....... 208,000 1,000,000 1,000,000 372,825 370,350 8.77 22.81
December 31, 1998....... 224,000 1,000,000 1,000,000 366,946 365,955 6.93 20.04
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 $ 13,861 $ 7,792 -- --
December 31, 1989....... 16,000 1,000,000 1,000,000 13,583 7,514 -90.73% --
December 31, 1990....... 32,000 1,000,000 1,000,000 27,598 21,529 -40.93 2,130.09%
December 31, 1991....... 48,000 1,000,000 1,000,000 46,904 34,038 -24.47 447.21
December 31, 1992....... 64,000 1,000,000 1,000,000 65,176 52,310 -10.91 210.30
December 31, 1993....... 80,000 1,000,000 1,000,000 91,834 78,968 -.56 128.98
December 31, 1994....... 96,000 1,000,000 1,000,000 97,152 84,747 -4.43 89.83
December 31, 1995....... 112,000 1,000,000 1,000,000 126,191 115,172 .84 67.33
December 31, 1996....... 128,000 1,000,000 1,000,000 156,439 146,805 3.57 52.92
December 31, 1997....... 144,000 1,000,000 1,000,000 199,506 191,257 6.47 42.98
December 31, 1998....... 160,000 1,000,000 1,000,000 241,251 234,387 7.74 35.77
</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 for the period through April 30, 1998 and .75% thereafter.
A-73
<PAGE>
APPENDIX C
LONG TERM MARKET TRENDS
The information below compares 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 does
not predict future performance. The information does not reflect policy
charges.
The data indicates that, historically, the investment performance of common
stocks over long periods has been positive and generally superior to that of
long-term, high grade debt securities. Common stocks have, however, been
subject to more dramatic market adjustments over short periods.
Over the 54 20-year time periods beginning in 1926 and ending in 1998 (i.e.,
1926-1945, 1927-1946, and so on through 1979-1998):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 51 of the 54 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 54 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 54 periods.
Over the 44 30-year time periods beginning in 1926 and ending in 1998, 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 44 periods.
From 1926 through 1998 the average annual return for common stocks was 11.2%,
compared to 5.8% for high grade, long-term corporate bonds, 3.8% for U.S.
Treasury bills and 3.1% for the Consumer Price Index.
- --------
* Used with permission. (C)1999 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger
G. Ibbotson and Rex Sinquefield.]
A-74
<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 1998.
The chart does not predict future stock market results. It shows the historic
performance of a broad index of stocks, and not the performance of any fund or
investment.
---------------------
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........................ 27% 4% 11% 7% 11% 40%
5 years....................... 10% 14% 14% 31% 19% 12%
10 years....................... 3% 10% 33% 24% 28% 2%
20 years....................... 0% 6% 31% 54% 9% 0%
</TABLE>
- --------
Used with permission. (C)1999 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
DOLLAR COST AVERAGING
Dollar cost averaging 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--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. Under dollar cost averaging, an investor does not invest more when the
price of shares is high and less 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 you have the ability and desire to maintain this
program over a long period of time (for example, 20 years), and the stock fund
you chose follows the historical upward market trends, the price at which you
sell shares should be higher than their average cost. This price could be
lower, however, if the fund chosen does not follow these historical trends.
You should consider your ability to continue on-going dollar cost averaging
purchases so that you can take advantage of periods of low price levels if you
are considering dollar cost averaging.
A-75
<PAGE>
APPENDIX D
USES OF SURVIVORSHIP LIFE INSURANCE
These are examples of ways 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 enough insurance to provide for dependent children if
one of the parents dies but not enough to provide for them if both parents die.
Survivorship life can provide protection against extraordinary expenses if both
parents die while the children are dependent.
Charitable Giving
You can use life insurance 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 support or
if the individual wants 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 policy's death benefit proceeds can pass
directly to the children, free of income and estate taxes, at the same time
that the assets in the spouse's estate pass to charity.
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
can receive.
Business Uses
You can use survivorship life 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 cash value accumulation, you
can use the Policy for various individual and business planning purposes. If
you purchase the Policy for such purposes, you assume 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 you don't pay sufficient premiums or maintain cash
values, the Policy may lapse or may not accumulate sufficient cash value or net
cash value to fund the purpose for which you purchased the Policy. Because the
Policy is designed to provide benefits on a long-term basis, before purchasing
a Policy for a specialized purpose, you should consider whether the long-term
nature of the Policy is consistent with your goals. 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-76
<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.
This appendix is not tax advice. You should consult with your own tax advisor
for more complete information.
A-77
<PAGE>
APPENDIX F
TAX LAW AND THE DEATH BENEFIT
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. These percentages are set forth below.
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-78
<PAGE>
APPENDIX G
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-79
<PAGE>
New England Variable Life Separate Account of New England Life Insurance
Company
Report of Independent Accountants
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, Midcap Value Sub-Account (formerly 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 Magnum Equity Sub-Account
(formerly 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 as of December 31, 1998, and the related statements of
operations and changes in net assets for each of the three years in the period
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 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, 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, 1998, and the results of
their operations and the changes in their net assets for each of the three
years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1999
F-1
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
----------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
-------------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments in New England Zenith
Fund, Variable Insurance Products
Fund, and Variable Insurance
Products Fund II at value
(Note 2)........................ $1,062,879,735 $63,810,233 $91,999,048 $112,951,497 $58,280,968 $36,325,954 $66,354,407
<CAPTION>
Shares Cost
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,270,965 $ 846,910,241
Back Bay
Advisors Bond
Income Series.. 580,674 62,600,962
Back Bay
Advisors Money
Market Series.. 919,990 91,999,048
Westpeak Stock
Index Series... 575,256 72,986,331
Back Bay
Advisors
Managed Series. 280,521 44,995,302
Goldman Sachs
Midcap Value
Series......... 295,718 40,133,483
Westpeak Growth
and Income
Series......... 318,506 52,737,711
Loomis Sayles
Small Cap
Series......... 466,286 68,072,072
Salomon Brothers
U.S. Government
Series......... 67,545 759,527
Loomis Sayles
Balanced
Series......... 927,883 13,354,477
Alger Equity
Growth Series.. 4,069,269 71,472,170
Morgan Stanley
International
Magnum Equity
Series......... 1,025,541 11,496,216
Davis Venture
Value Series... 4,661,398 87,902,713
Salomon Brothers
Bond
Opportunities
Series......... 105,941 1,257,497
VIP Equity-
Income
Portfolio...... 6,075,186 114,838,775
VIP Overseas
Portfolio...... 4,647,523 78,413,065
VIP High Income
Portfolio...... 981,426 11,927,393
VIP II Asset
Manager
Portfolio...... 505,178 7,927,108
--------------
Total $1,679,784,090
==============
Amount due and accrued (payable) from
policy-related transactions, net... 177,286 141,063 1,688,024 146,440 (922) 61,118 58,059
Dividends receivable................ -- -- 317,906 -- -- -- --
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Total Assets........................ 1,063,057,021 63,951,296 94,004,978 113,097,938 58,280,046 36,387,072 66,412,466
Liabilities
Due New England Life Insurance
Company........................... 88,352,429 6,135,252 8,674,054 12,388,146 5,030,060 3,676,010 7,460,673
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Total Liabilities................. 88,352,429 6,135,252 8,674,054 12,388,146 5,030,060 3,676,010 7,460,673
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Net Assets for Variable Life
Insurance Policies................. $ 974,704,592 $57,816,044 $85,330,924 $100,709,791 $53,249,987 $32,711,062 $58,951,793
============== =========== =========== ============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund
- ----------------------------------------------------------------------------------------- -------------------------------------
International
Small U.S. Equity Magnum Venture Bond Equity- High
Cap Government Balanced Growth Equity Value Opportunities Income Overseas Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account Account Account
- ----------- ---------- ----------- ------------ ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$71,588,857 $774,736 $14,391,467 $102,179,339 $11,691,171 $107,911,360 $1,210,903 $154,432,484 $93,181,595 $11,315,839
134,394 5,294 13,282 356,305 15,466 52,450 7,704 9,726 (100,707) 15,136
-- -- -- -- -- -- -- -- -- --
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
71,723,251 780,030 14,404,749 102,535,644 11,706,637 107,963,810 1,218,608 154,442,210 93,080,888 11,330,975
7,924,364 88,418 1,928,101 11,661,794 1,388,081 12,691,342 127,954 15,888,809 8,807,089 1,342,020
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
7,924,364 88,418 1,928,101 11,661,794 1,388,081 12,691,342 127,954 15,888,809 8,807,089 1,342,020
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
$63,798,887 $691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654 $138,553,401 $84,273,799 $ 9,988,955
=========== ======== =========== ============ =========== ============ ========== ============ =========== ===========
<CAPTION>
Variable
Insurance
Products
Fund II
- ------------------------ --------------
Small Asset
Cap Manager
Sub- Sub-
Account Account Total
- ------------ ---------- --------------
<S> <C> <C>
$71,588,857 $9,174,668 $2,070,454,260
134,394 271 2,780,390
-- -- 317,906
- ------------ ---------- --------------
71,723,251 9,174,938 2,073,552,557
7,924,364 987,748 194,552,345
- ------------ ---------- --------------
7,924,364 987,748 194,552,345
- ------------ ---------- --------------
$63,798,887 $8,187,191 $1,879,000,212
============ ========== ==============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value 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.............. $136,031,595 $4,500,888 $2,243,738 $ 1,665,717 $ 4,920,327 $ 8,522,091 $ 4,438,526
Expense
Mortality and expense
risk charge (Note 3).. 5,675,180 329,452 281,233 574,859 295,717 213,136 321,673
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net investment income
(loss)................ 130,356,415 4,171,436 1,962,505 1,090,858 4,624,610 8,308,955 4,116,853
Net Realized and
Unrealized Gain (Loss)
on Investments
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.... 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665
End of period.......... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation)........ 124,603,132 317,214 -- 20,076,109 3,838,229 (10,771,908) 6,758,031
Net realized gain on
investments........... 5,610,899 1,800 -- 190,803 163,910 236,891 14,655
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net realized and
unrealized gain (loss)
on investments........ 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $260,570,446 $4,490,449 $1,962,505 $21,357,770 $ 8,626,750 $ (2,226,063) $10,889,538
============ ========== ========== =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund
- --------------------------------------------------------------------------------------- ----------------------------------
International
Small U.S. Equity Magnum Venture Bond Equity- High
Cap Government Balanced Growth Equity Value Opportunities Income Overseas Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account Account Account
- ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,148,975 $32,331 $ 607,129 $ 3,598,904 $ 251,292 $ 2,912,129 $ 81,480 $ 8,088,940 $6,093,523 $ 1,064,286
380,727 (2,318) 52,939 452,661 48,632 512,333 (9,440) 902,569 550,070 67,547
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
768,248 34,649 554,190 3,146,243 202,660 2,399,796 90,920 7,186,371 5,543,453 996,739
5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
3,516,783 15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) 39,593,709 14,768,529 (611,552)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,905,274) 17,125 394,379 25,315,901 349,959 9,291,865 (44,337) 6,894,545 3,631,231 (1,576,072)
20,862 11 6,840 56,142 5,897 22,521 493 561,003 333,272 20,913
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,884,412) 17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
$(1,116,164) $51,785 $ 955,409 $28,518,286 $ 558,517 $11,714,181 $ 47,076 $14,641,919 $9,507,956 $ (558,420)
=========== ======= ========== =========== ========= =========== ======== =========== ========== ===========
<CAPTION>
Variable
Insurance
Products
Fund II
- ------------------------ ------------
Small Asset
Cap Manager
Sub- Sub-
Account Account Total
- ------------- ---------- ------------
<S> <C> <C>
$ 1,148,975 $ 835,511 $187,037,382
380,727 50,140 10,697,110
- ------------- ---------- ------------
768,248 785,371 176,340,272
5,422,058 971,097 203,203,584
3,516,783 1,247,559 390,670,172
- ------------- ---------- ------------
(1,905,274) 276,461 187,466,588
20,862 4,137 7,251,049
- ------------- ---------- ------------
(1,884,412) 280,598 194,717,637
- ------------- ---------- ------------
$(1,116,164) $1,065,969 $371,057,909
============= ========== ============
</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 Year Ended December 31, 1997
<TABLE>
<CAPTION>
New England Zenith Fund
--------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value 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.............. $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
(loss)................ 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>
- ---------------------------------------------------------------------------------
International
Small U.S. Equity Magnum Venture Bond
Cap Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
- ---------- ---------- -------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $1,822,395 $43,914
275,141 2,290 50,941 265,599 51,702 276,055 9,400
- ---------- ------ -------- ---------- --------- ---------- -------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153)
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256)
- ---------- ------ -------- ---------- --------- ---------- -------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103)
20,956 1 55,231 75,802 8,303 21,718 201
- ---------- ------ -------- ---------- --------- ---------- -------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902)
- ---------- ------ -------- ---------- --------- ---------- -------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $9,886,818 $33,612
========== ====== ======== ========== ========= ========== =======
<CAPTION>
- ---------------------------------------------------------------------------------
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- ------------------------------- ---------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
$ 8,872,794 $5,434,055 $393,295 $528,401 $231,072,203
676,059 447,597 41,502 33,135 7,755,657
- ----------- ---------- -------- -------- ------------
8,196,735 4,986,458 351,793 495,266 223,316,546
16,409,989 9,502,216 362,600 547,647 194,486,245
32,699,163 11,137,299 964,520 971,097 203,203,584
- ----------- ---------- -------- -------- ------------
16,289,174 1,635,083 601,920 423,450 8,717,339
126,489 67,905 12,234 5,368 2,491,649
- ----------- ---------- -------- -------- ------------
16,415,663 1,702,988 614,154 428,818 11,208,988
- ----------- ---------- -------- -------- ------------
$24,612,398 $6,689,446 $965,947 $924,084 $234,525,534
=========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Operations
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
New England Zenith Fund
-------------------------------------------------------------------------------
Capital Bond Money Stock Midcap Growth and
Growth Income Market Index Managed Value 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>
- ----------------------------------------------------------------------------------
International
Small U.S. Equity Magnum Venture Bond
Cap Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account* Account Account Account Account Account*
- ---------- ---------- -------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$1,624,708 $ 702 $104,939 $ 44,863 $ 71,347 $ 444,012 $ 1,218
90,146 28 11,713 104,685 19,385 64,656 40
- ---------- ----- -------- ---------- -------- ---------- -------
1,534,562 674 93,226 (59,822) 51,962 379,356 1,178
768,552 -- 3,769 65,901 24,089 171,931 --
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153)
- ---------- ----- -------- ---------- -------- ---------- -------
2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153)
31,570 -- 2,318 11,723 159 4,907 --
- ---------- ----- -------- ---------- -------- ---------- -------
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
========== ===== ======== ========== ======== ========== =======
<CAPTION>
- ----------------------------------------------------------------------------------
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- ------------------------------- ---------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
$ 2,662,990 $1,164,550 $199,463 $174,907 $ 50,453,549
428,473 325,346 19,551 20,483 4,984,819
- ----------- ---------- -------- -------- ------------
2,234,517 839,204 179,912 154,424 45,468,730
9,642,454 4,022,725 167,043 269,255 101,153,516
16,409,989 9,502,216 362,600 547,647 194,486,245
- ----------- ---------- -------- -------- ------------
6,767,535 5,479,491 195,557 278,392 93,332,729
27,750 44,049 1,942 4,122 1,232,236
- ----------- ---------- -------- -------- ------------
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
=========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-9
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Changes in Net Assets
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
------------------------------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and Small
Growth Income Market Index Managed Value 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 (loss).. $ 130,356,415 $ 4,171,436 $ 1,962,505 $ 1,090,858 $ 4,624,610 $ 8,308,955 $ 4,116,853 $ 768,248
Net realized and
unrealized gain
(loss) on
investments.... 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686 (1,884,412)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 260,570,446 4,490,449 1,962,505 21,357,770 8,626,750 (2,226,063) 10,889,538 (1,116,164)
From Policy-
Related
Transactions
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 130,346,621 10,522,040 221,378,611 15,997,005 6,508,238 8,067,127 10,034,046 16,979,803
Net transfers
(to) from other
sub-
accounts....... 28,412,166 9,220,311 (149,270,654) 22,094,429 6,317,021 (102,089) 15,004,643 9,499,585
Net transfers to
New England
Life Insurance
Company........ (136,266,249) (7,932,456) (21,844,962) (16,290,249) (6,742,406) (4,094,516) (8,744,105) (9,074,771)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 22,492,538 11,809,895 50,262,995 21,801,185 6,082,853 3,870,522 16,294,584 17,404,617
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net increase in
net assets..... 283,062,984 16,300,344 52,225,500 43,158,955 14,709,603 1,644,459 27,184,123 16,288,452
Net Assets, at
beginning of the
period.......... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670 47,510,435
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Assets, at
end of the
period.......... $ 974,704,592 $57,816,044 $ 85,330,924 $100,709,791 $53,249,987 $ 32,711,062 $58,951,793 $63,798,887
============= =========== ============= ============ =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account
- ---------- ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920
17,136 401,219 25,372,043 355,856 9,314,386 (43,844)
- ---------- ----------- ------------ ----------- ------------ ----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076
-- 3,185,034 18,566,913 3,131,225 24,165,947 --
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947)
- ---------- ----------- ------------ ----------- ------------ ----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841
- ---------- ----------- ------------ ----------- ------------ ----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737
- ---------- ----------- ------------ ----------- ------------ ----------
$ 691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654
========== =========== ============ =========== ============ ==========
<CAPTION>
Variable Insurance
Variable Insurance Products
Products Fund Fund II
- --------------------------------------- -------------------------------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C>
$ 7,186,371 $ 5,543,453 $ 996,739 $ 785,371 $ 176,340,272
7,455,548 3,964,503 (1,555,159) 280,598 194,717,637
- ------------ ------------ ----------- ------------ ---------------
14,641,919 9,507,956 (558,420) 1,065,969 371,057,909
26,170,240 17,386,996 2,434,923 1,626,307 516,501,076
8,474,098 342,473 2,823,884 1,297,121 --
(18,064,178) (10,788,946) (1,891,706) (1,251,084) (277,154,223)
- ------------ ------------ ----------- ------------ ---------------
16,580,160 6,940,523 3,367,101 1,672,344 239,346,853
- ------------ ------------ ----------- ------------ ---------------
31,222,080 16,448,479 2,808,682 2,738,313 610,404,762
107,331,321 67,825,320 7,180,273 5,448,878 1,268,595,450
- ------------ ------------ ----------- ------------ ---------------
$138,553,401 $ 84,273,799 $ 9,988,955 $ 8,187,191 $1,879,000,212
============ ============ =========== ============ ===============
</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 Year Ended December 31, 1997
<TABLE>
<CAPTION>
New England Zenith Fund
-----------------------------------------------------------------------------------------------------------
Capital Bond Money Stock Midcap Small
Growth Income Market Index Managed Value Growth and Cap
Sub- Sub- Sub- Sub- Sub- Sub- Income 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 (loss).. $ 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>
- -------------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account
- ---------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902)
-------- ----------- ----------- ----------- ------------ --------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612
-- 2,146,406 14,606,449 3,056,999 13,157,429 --
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000)
-------- ----------- ----------- ----------- ------------ --------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357
-------- ----------- ----------- ----------- ------------ --------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768
-------- ----------- ----------- ----------- ------------ --------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737
======== =========== =========== =========== ============ ========
<CAPTION>
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- -------------------------------------- ---------------------------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
$ 8,196,735 $ 4,986,458 $ 351,793 $ 495,266 $ 223,316,546
16,415,663 1,702,988 614,154 428,818 11,208,988
- ------------ ----------- ----------- ----------- ---------------
24,612,398 6,689,446 965,947 924,084 234,525,534
23,866,781 17,551,475 2,042,291 1,403,144 360,665,925
5,377,892 1,724,137 1,829,771 422,784 --
(18,885,322) (9,549,079) (1,756,377) (881,229) (212,980,807)
- ------------ ----------- ----------- ----------- ---------------
10,359,351 9,726,533 2,115,685 944,699 147,685,118
- ------------ ----------- ----------- ----------- ---------------
34,971,749 16,415,979 3,081,632 1,868,783 382,210,652
72,359,572 51,409,341 4,098,641 3,580,095 886,384,798
- ------------ ----------- ----------- ----------- ---------------
$107,331,321 $67,825,320 $ 7,180,273 $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 Year Ended December 31, 1996
<TABLE>
<CAPTION>
New England Zenith Fund
--------------------------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and Small
Growth Income Market Index Managed Value 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 (loss)...... $ 30,009,869 $ 2,386,677 $ 1,145,809 $ 672,864 $ 2,783,808 $ 1,356,904 $ 1,703,606 $ 1,534,562
Net realized and
unrealized gain
(loss) on
investments........ 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277 2,322,583
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 3,857,145
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 5,440,860
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 10,060,122
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) (3,338,871) (4,380,392)
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 11,120,590
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 14,977,735
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 6,544,996
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
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 $21,522,731
============ =========== ============ =========== =========== =========== =========== ===========
</TABLE>
*For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-14
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account* Account Account Account Account Account*
- ---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 674 $ 93,226 $ (59,822) $ 51,962 $ 379,356 $ 1,178
(819) 235,174 2,030,211 112,261 2,230,999 (1,153)
------- ---------- ----------- ----------- ----------- -------
(145) 328,400 1,970,389 164,223 2,610,355 25
-- 811,932 9,286,073 1,454,605 4,876,053 --
46,951 2,383,695 11,496,667 2,908,047 9,510,686 27,190
(769) (708,829) (6,395,345) (1,242,748) (3,721,564) (447)
------- ---------- ----------- ----------- ----------- -------
46,182 2,486,798 14,387,395 3,119,904 10,665,175 26,743
------- ---------- ----------- ----------- ----------- -------
46,037 2,815,198 16,357,784 3,284,127 13,275,530 26,768
-- 418,211 5,712,498 953,848 3,386,440 --
------- ---------- ----------- ----------- ----------- -------
$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- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ------------ ---------- ---------- --------------
<C> <C> <C> <C> <C>
$ 2,234,517 $ 839,204 $ 179,912 $ 154,424 $ 45,468,730
6,795,285 5,523,540 197,499 282,514 94,564,965
- ------------ ------------ ---------- ---------- --------------
9,029,802 6,362,744 377,411 436,938 140,033,695
20,426,731 17,135,189 970,763 1,258,847 285,719,085
9,029,810 1,051,463 1,631,762 560,948 --
(13,479,623) (11,522,274) (623,788) (649,631) (152,002,266)
- ------------ ------------ ---------- ---------- --------------
15,976,918 6,664,378 1,978,737 1,170,164 133,716,819
- ------------ ------------ ---------- ---------- --------------
25,006,720 13,027,122 2,356,148 1,607,102 273,750,514
47,352,852 38,382,219 1,742,493 1,972,993 612,634,284
- ------------ ------------ ---------- ---------- --------------
$ 72,359,572 $ 51,409,341 $4,098,641 $3,580,095 $ 886,384,798
============ ============ ========== ========== ==============
</TABLE>
See Notes to Financial Statements
F-15
<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") 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% and .75% 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")
and flexible premium ("Zenith Executive Advantage Plus") 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% and a maximum annual rate of .75%, respectively.
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, administrative charges, premium tax charges, risk
charges, cost of insurance charges, and charges for rider benefits and special
risk charges.
F-16
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
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 Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Bond Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and Income TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Goldman Sachs Midcap Value Series TNE Advisers, Inc. Goldman Sachs Asset Management, Inc
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley International Magnum TNE Advisers, Inc. Morgan Stanley Dean Witter
Equity Investment Management, Inc.
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. Government TNE Advisers, Inc. Salomon Brothers Asset Management, Inc
Salomon Brothers Strategic Bond
Opportunities TNE Advisers, Inc. Salomon Brothers Asset Management, Inc
</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 Dean Witter Investment
Management, Inc. (formerly Morgan Stanley Asset Management Inc.) went into
effect replacing the prior agreement between TNE Advisers, Inc. and Draycott
Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management, ("Goldman Sachs"),
became the subadvisor of the Loomis Sayles Avanti Growth Series, succeeding
Loomis Sayles & Company, L.P., and the name of the Series was changed to the
"Goldman Sachs Midcap Value Series". Goldman Sachs is a separate operating
division of Goldman, Sachs & Co., a privately-owned global financial services
company.
F-17
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
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, 1998:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Capital Growth Series $229,923,840 $194,572,879
Back Bay Advisors Money Market Series 303,898,559 250,343,059
Back Bay Advisors Bond Income Series 29,019,450 16,718,466
Back Bay Advisors Managed Series 16,871,874 10,374,817
Westpeak Stock Index Series 52,293,114 27,237,590
Westpeak Growth and Income Series 31,543,693 13,028,848
Goldman Sachs Midcap Value Series 13,255,960 10,518,399
Loomis Sayles Small Cap Series 36,489,723 19,320,276
Loomis Sayles Balanced Series 9,318,701 4,071,999
Morgan Stanley International Magnum Equity Series 7,480,032 4,717,292
Davis Venture Value Series 59,616,224 23,838,504
Alger Equity Growth Series 42,615,754 18,064,237
Salomon Bothers U.S. Government Series 867,216 285,257
Salomon Bothers Strategic Bond Opportunities
Series 1,003,667 429,636
VIP Equity-Income Portfolio 50,932,583 36,386,679
VIP Overseas Portfolio 34,976,709 29,742,167
VIP High Income Portfolio 8,610,053 5,246,052
VIP II Asset Manager Portfolio 4,502,242 2,748,465
</TABLE>
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, and Zenith Executive Advantage Plus, 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.
F-18
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Fixed Premium ("Zenith Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.30% (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 %
Bond Income............. 11.91% 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 %
Money Market............ 8.87% 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.70% (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 %
Managed................. 18.67% 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.47% (0.62)% 29.90% 17.20% 16.91 % (5.79)%
Growth and Income........................................... 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.29% 6.69 % 34.62% 13.88% 27.66 % 11.24 %
Overseas.................................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.45)% 28.40% 30.22% 24.42 % (2.04)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.58)% 20.18% 13.63% 17.26 % (4.66)%
Asset Manager........................................................ (4.41)% 16.55% 14.20% 20.23 % 14.65 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.84% 12.78% 25.19 % 47.27 %
Balanced...................................................................... 13.75% 16.50% 15.77 % 8.73 %
International Magnum Equity................................................... 3.85% 6.30% (1.64)% 6.90 %
Venture Value................................................................. 21.64% 25.40% 33.03 % 14.02 %
</TABLE>
F-19
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Single Premium ("Zenith Life One") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.17% (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 %
Bond Income............. 11.79% 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 %
Money Market............ 8.77% 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.57% (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 %
Managed................. 18.55% 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.39% (0.72)% 29.77% 17.08% 16.80 % (5.88)%
Growth and Income........................................... 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income............................................... 9.22% 6.59 % 34.49% 13.77% 27.53 % 11.13 %
Overseas.................................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.52)% 28.27% 30.09% 24.29 % (2.14)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.61)% 20.06% 13.52% 17.14 % (4.76)%
Asset Manager........................................................ (4.45)% 16.43% 14.09% 20.11 % 14.53 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.76% 12.66% 25.06 % 47.12 %
Balanced...................................................................... 13.67% 16.39% 15.66 % 8.62 %
International Magnum Equity................................................... 3.79% 6.19% (1.74)% 6.79 %
Venture Value................................................................. 21.56% 25.27% 32.90 % 13.90 %
</TABLE>
F-20
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
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
---------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 29.98% (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 %
Bond Income............. 11.63% 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 %
Money Market............ 8.60% 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.37% (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 %
Managed................. 18.37% 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.28% (0.87)% 29.57% 16.90% 16.62 % (6.03)%
Growth and Income........................................... 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.11% 6.43 % 34.29% 13.59% 27.34 % 10.96 %
Overseas.................................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.61)% 28.08% 29.90% 24.11 % (2.28)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.66)% 19.88% 13.35% 16.96 % (4.90)%
Asset Manager........................................................ (4.49)% 16.26% 13.91% 19.93 % 14.36 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.64% 12.49% 24.88 % 46.90 %
Balanced...................................................................... 13.56% 16.21% 15.48 % 8.46 %
International Magnum Equity................................................... 3.68% 6.03% (1.89)% 6.63 %
Venture Value................................................................. 21.44% 25.08% 32.70 % 13.73 %
</TABLE>
F-21
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Variable Survivorship ("Zenith Survivorship Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts*
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 29.59% (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 %
Bond Income............. 11.29% 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 %
Money Market............ 8.28% 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 28.99% (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 %
Managed................. 18.02% 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.05% (1.16)% 29.19% 16.55% 16.27% (6.31)%
Growth and Income........................................... 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 8.89% 6.11 % 33.89% 13.25% 26.96% 10.63 %
Overseas.................................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.80)% 27.69% 29.50% 23.73% (2.58)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.76)% 19.53% 13.00% 16.61% (5.19)%
Asset Manager........................................................ (4.59)% 15.91% 13.57% 19.57% 14.02 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.39% 12.15% 24.50 % 46.46 %
Balanced...................................................................... 13.33% 15.86% 15.14 % 8.13 %
International Magnum Equity................................................... 3.48% 5.71% (2.18)% 6.31 %
Venture Value................................................................. 21.20% 24.71% 32.30 % 13.39 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .90%.
Certain Zenith Survivorship Life Policies currently have a mortality and
expense risk charge at an annual rate of .75%.
F-22
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Flexible Premium ("Zenith Flexible Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 31.88% (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 %
Bond Income............. 11.46% 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 %
Money Market............ 8.44% 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.18% (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 %
Managed................. 18.20% 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.16% (1.01)% 29.38% 16.72% 16.45 % (6.17)%
Growth and Income........................................... 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.00% 6.27 % 34.09% 13.42% 27.15 % 10.79 %
Overseas.................................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.71)% 27.88% 29.70% 23.92 % (2.43)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.71)% 19.71% 13.17% 16.79 % (5.04)%
Asset Manager........................................................ (4.54)% 16.08% 13.74% 19.75 % 14.19 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.51% 12.32% 24.69 % 46.68 %
Balanced...................................................................... 13.44% 16.03% 15.31 % 8.29 %
International Magnum Equity................................................... 3.58% 5.87% (2.04)% 6.47 %
Venture Value................................................................. 21.32% 24.89% 32.50 % 13.56 %
</TABLE>
F-23
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Flexible Premium ("Zenith Executive Advantage Plus") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
----------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.76 % (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 %
Bond Income............. 12.30 % 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 %
Money Market............ 9.25 % 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 30.15 % (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 %
Managed................. 19.08 % 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)%
Growth and Income........................................... 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.55% 6.93 % 35.90% 13.75% 28.11 % 11.63 %
Overseas.................................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.23)% 28.84% 30.68% 24.85 % (1.69)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (.37)% 20.79% 13.75% 17.67 % (4.33)%
Asset Manager........................................................ (4.65)% 17.68% 14.31% 20.65 % 15.05 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 25.13% 13.17% 25.63 % 47.78 %
Balanced...................................................................... 14.01% 16.91% 16.18 % 9.11 %
International Magnum Equity................................................... 4.01% 6.67% (1.30)% 7.27 %
Venture Value................................................................. 21.92% 25.84% 33.50 % 14.41 %
</TABLE>
F-24
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Modified Single Premium ("American Gateway") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
--------------------------------------------------------------------------------------------
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 12.30% 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 %
Money Market............ 9.25% 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 %
<CAPTION>
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- 1/1/98-
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 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 30.15% (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 %
Managed................. 19.08% 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)%
Growth and Income........................................... 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.23)% 28.84% 30.68% 24.85 % (1.69)%
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 25.13% 13.17% 25.63 % 47.78 %
Balanced...................................................................... 14.01% 16.91% 16.18 % 9.11 %
International Magnum Equity................................................... 4.01% 6.67% (1.30)% 7.27 %
Venture Value................................................................. 21.92% 25.84% 33.50 % 14.41 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98-
Sub-Account 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government........................................................................ 4.55% 8.47 % 7.61 %
Strategic Bond Opportunities........................................................... 8.46% 11.07 % 2.04 %
</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-25
<PAGE>
New England Life Insurance Company
Independent Auditors' Report
New England Life Insurance Company:
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, 1998 and 1997, and the related
consolidated statements of income and comprehensive income, equity, and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
February 16, 1999
F-26
<PAGE>
New England Life Insurance Company
Consolidated Balance Sheets
December 31, 1998 and 1997 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair Value............ $ 769,364 $ 734,391
Equity Securities....................................... 13,240 9,399
Policy Loans............................................ 135,800 104,783
Real Estate............................................. 0 2,757
Short-Term Investments.................................. 52,285 27,944
Other Invested Assets................................... 16,372 24,349
---------- ----------
Total Investments.................................... 987,061 903,623
Cash and Cash Equivalents................................ 43,598 74,148
Deferred Policy Acquisition Costs........................ 710,961 565,769
Accrued Investment Income................................ 21,802 18,712
Premiums and Other Receivables........................... 145,117 63,036
Other Assets............................................. 111,067 62,326
Separate Account Assets.................................. 3,258,383 1,988,225
---------- ----------
Total Assets......................................... $5,277,989 $3,675,839
========== ==========
LIABILITIES AND EQUITY
Liabilities
Future Policy Benefits................................... $ 561,746 $ 500,429
Policyholder Account Balances............................ 210,242 150,648
Other Policyholder Funds................................. 169,090 98,143
Policyholder Dividends Payable........................... 17,774 14,719
Short and Long-Term Debt................................. 82,855 85,981
Income Taxes Payable:
Current................................................. 10,984 9,102
Deferred................................................ 42,334 42,066
Due to Parent............................................ 789 107,337
Other Liabilities........................................ 78,721 45,647
Separate Account Liabilities............................. 3,258,383 1,988,225
---------- ----------
Total Liabilities.................................... 4,432,918 3,042,297
---------- ----------
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
Preferred Stock, $0.00 par value; 1,000,000 shares
authorized, 200,000 shares issued and outstanding....... 0 0
Contributed Capital...................................... 647,273 447,273
Retained Earnings........................................ 177,859 166,422
Accumulated Other Comprehensive Income................... 17,439 17,347
---------- ----------
Total Equity......................................... 845,071 633,542
---------- ----------
Total Liabilities and Equity............................. $5,277,989 $3,675,839
========== ==========
</TABLE>
F-27
<PAGE>
New England Life Insurance Company
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31, 1998, 1997, and 1996 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums........................................... $100,689 $ 63,616 $ 37,410
Universal Life and Investment-Type Product Policy
Fees ............................................. 173,766 145,157 101,756
Net Investment Income.............................. 49,077 61,059 49,628
Investment Gains (Losses), Net..................... 5,610 890 8,822
Commissions, Fees and Other Income................. 192,411 28,302 44,930
-------- -------- --------
Total Revenues................................. 521,553 299,024 242,546
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.............................. 149,687 100,180 65,520
Interest Credited to Policyholder Account Balances
.................................................. 7,735 6,220 5,558
Policyholder Dividends............................. 22,989 21,325 14,830
Other Operating Costs and Expenses................. 316,659 144,342 143,886
-------- -------- --------
Total Benefits and Other Deductions............ 497,070 272,067 229,794
-------- -------- --------
Income From Operations Before Income Taxes......... 24,483 26,957 12,752
Income Taxes....................................... 13,046 4,988 3,051
-------- -------- --------
Net Income......................................... $ 11,437 $ 21,969 $ 9,701
-------- -------- --------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Investment Gains (Losses) (Net of
Related Offsets, Reclassification Adjustments
and Income Taxes, $(299), $(16,588) and $24,212,
Respectively)................................... 92 13,620 (22,629)
-------- -------- --------
Comprehensive Income (Loss)........................ $ 11,529 $ 35,589 $(12,928)
======== ======== ========
</TABLE>
F-28
<PAGE>
New England Life Insurance Company
Consolidated Statements of Equity
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Capital Accumulated
Stock & Other
Contributed Retained Comprehensive
Capital Earnings Income Total
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1995..... $193,396 $134,752 $26,356 $354,504
Net Income........................ 9,701 9,701
Change in Net Unrealized
Investment Gains (Losses)........ (22,629) (22,629)
Contributed Capital............... 208,846 208,846
-------- -------- ------- --------
Balances at December 31, 1996..... 402,242 144,453 3,727 550,422
Net Income........................ 21,969 21,969
Change in Net Unrealized
Investment Gains (Losses)........ 13,620 13,620
Contributed Capital............... 47,531 47,531
-------- -------- ------- --------
Balances at December 31, 1997..... 449,773 166,422 17,347 633,542
Net Income........................ 11,437 11,437
Change in Net Unrealized
Investment Gains (Losses)........ 92 92
Contributed Capital............... 200,000 200,000
-------- -------- ------- --------
Balances at December 31, 1998..... $649,773 $177,859 $17,439 $845,071
======== ======== ======= ========
</TABLE>
F-29
<PAGE>
New England Life Insurance Company
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars in Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net Cash Used in Operating Activities........ $(311,296) $(121,838) $ (85,674)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities......... 164,566 178,003 276,420
Held to Maturity Fixed Maturities........... 0 0 10,519
Equity Securities........................... 39,333 0 0
Mortgage Loans on Real Estate............... 0 0 2,210
Other, Net.................................. 721 128 0
Purchases of:
Available for Sale Fixed Maturities......... (184,810) (326,059) (259,713)
Equity Securities........................... (80,066) 0 0
Real Estate................................. (3,644) 0 (480)
Fixed Asset Property and Equipment.......... (1,459) (101) (3,786)
Other Assets................................ (89) 0 (11,024)
Net Change in Short-Term Investments........ (24,341) 128,616 (135,731)
Net Change in Policy Loans.................. (31,017) (28,520) (18,052)
Other, Net.................................. 1,631 177 67
--------- --------- ---------
Net Cash Used in Investing Activities........ (119,175) (47,756) (139,570)
--------- --------- ---------
Cash Flows from Financing Activities:
Capital Contributions....................... 200,000 46,681 159,162
Borrowed Money.............................. (8,670) (3,181) 0
Policyholder Account Balances:
Deposits.................................... 358,090 244,338 482,552
Withdrawals................................. (149,499) (95,066) (364,933)
Financial Reinsurance Receivables........... 0 1,823 (37,519)
--------- --------- ---------
Net Cash Provided by Financing Activities.... 399,921 194,595 239,262
--------- --------- ---------
Change in Cash and Cash Equivalents.......... (30,550) 25,001 14,018
Cash and Cash Equivalents, Beginning of Year. 74,148 49,147 35,129
--------- --------- ---------
Cash and Cash Equivalents, End of Year....... $ 43,598 $ 74,148 $ 49,147
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid............................... $ 3,830 $ 1,495 $ 1,523
========= ========= =========
Income Taxes Paid........................... $ 14,118 $ 5,470 $ 4,721
========= ========= =========
Net Income................................... $ 11,437 $ 21,969 $ 9,701
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net......................................... (145,787) (140,578) (68,626)
Change in Accrued Investment Income......... (3,090) (4,999) 909
Change in Premiums and Other Receivables.... (82,081) (57,095) 4,370
Gains from Sales of Investments, Net........ (5,610) (890) (8,822)
Depreciation and Amortization Expenses...... 13,137 10,085 3,118
Interest Credited to Policyholder Account
Balances................................... 7,735 6,220 5,558
Universal Life and Investment-Type Product
Policy Fee Income.......................... (173,766) (145,157) (101,756)
Change in Future Policy Benefits............ 61,317 35,540 18,202
Change in Other Policyholder Funds.......... 70,947 6,309 (283)
Change in Policyholder Dividends Payable.... 3,055 5,701 1,671
Change in Income Taxes Payable.............. 2,358 1,674 (6,634)
Other, Net.................................. (70,948) 139,383 56,918
--------- --------- ---------
Net Cash Used in Operating Activities........ $(311,296) $(121,838) $ (85,674)
========= ========= =========
</TABLE>
F-30
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
New England Life Insurance Company and its subsidiaries (the Company or
NELICO) is a wholly-owned stock life insurance subsidiary of Metropolitan Life
Insurance Company (MetLife). The Company is headquartered in Boston,
Massachusetts as a Massachusetts chartered company. The Company principally
provides variable life insurance and variable annuity contracts through a
network of general agencies located throughout the United States. The Company
also provides participating traditional life insurance, fixed 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. As a result of the merger, NEMLICO ceased to exist as a
separate mutual life insurance company, and NELICO became a subsidiary of
MetLife. NELICO has continued after the merger to conduct its existing
business as well as administer the business activities of the former parent
NEMLICO. (Note 13)
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. On April 30, 1998
the Company acquired all of the outstanding stock of NL Holding Corporation
and its wholly owned subsidiaries, Nathan and Lewis Securities, Inc., and
Nathan and Lewis Associates, Inc. Subsequent to the acquistion, NL Holding
Corporation was transferred to New England Life Holdings, 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, which are principally assumed from MetLife.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses to sell
annuity contracts in 22 states, but is currently not actively engaged in the
sale or distribution of insurance products.
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.
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.
F-31
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
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
series of the New England Zenith Fund and does not intend to engage in any
business activities other than providing investment management and
administrative services. TNE Advisers, Inc. changed its name to New England
Investment Management, Inc. in March 1999.
NL Holding Corporation (NL Holding), engages in Securities brokerage, dealer
trading in fixed income securities, over the counter stock, unit investment
trusts, and the sale of insurance related products and annuities, sold through
licensed brokers and independent agents. Nathan and Lewis Securities, Inc., a
wholly owned subsidiary, is a National Association of Securities Dealers
(NASD) registered broker/dealer.
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 as of and
for the year ended December 31, 1996 have been prepared as though the current
reporting entity had always existed. Significant intercompany transactions and
balances have been eliminated in consolidation.
The preparation of financial statements 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. The most significant estimates include those used in
determining deferred policy acquisition costs, investment allowances and the
liability for future policyholder benefits. Actual results could differ from
those estimates.
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.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of New
England Life Insurance and its subsidiaries, partnerships and joint ventures
in which NELICO has a controlling interest. All material intercompany accounts
and transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which, it does not have a controlling
interest, under the equity method of accounting.
Certain amounts in the prior years' financial statements have been
reclassified to conform with the 1998 presentation.
Investments
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income, net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
F-32
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Short-term investments are stated at amortized cost, which approximates fair
value.
Other invested assets are reported at their estimated fair value.
Cash and Cash Equivalents
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.
Property and Equipment
Property, equipment and leasehold improvements which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined 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 on property and equipment and amortization of
leasehold improvements was $24,772, and $13,203 at December 31, 1998 and 1997,
respectively. Related depreciation and amortization expense was $11,570,
$10,085, and $3,118 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Deferred Policy Acquisition Costs
The costs of acquiring new business that vary with, and are primarily related
to, the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over the expected life of the contract for participating traditional life,
variable life, universal life, investment-type products, and variable
annuities. Generally, deferred policy acquisition costs are amortized in
proportion to the present value of estimated gross margins or profits from
investments, mortality, expense margins and surrender charges. Actual gross
profits can vary from management's estimates resulting in increases and
decreases in the rate of amortization. Management periodically updates these
estimates and evaluates the recoverability of deferred policy acquisition
costs. When appropriate, management revises its assumptions of the estimated
gross margins or profits of these contracts, and the cumulative amortization
is reestimated and adjusted by a cumulative charge or credit to current
operations.
Deferred policy acquisition costs for nonmedical health policies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Other Intangible Assets
The excess of cost over the fair value of net assets acquired, which
represents goodwill, and the value of insurance acquired are included in other
assets. Goodwill is amortized on a straight-line basis over 10 years. The
Company reviews goodwill to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results
if a permanent diminution in value is deemed to have occurred.
F-33
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Excess of Purchase Price Over Fair Value of Net Assets Acquired
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net Balance, January 1............................. $ 0 $ 0 $ 0
Acquisitions..................................... 23,498 0 0
Dispositions..................................... 0 0 0
Amortization..................................... (1,567) 0 0
------- ------- -------
Net Balance, December 31........................... $21,931 $ 0 $ 0
======= ======= =======
December 31
Accumulated Amortization......................... $(1,567) $ 0 $ 0
======= ======= =======
</TABLE>
Acquisitions
The Company acquired certain assets and assumed certain liabilities of NL
Holding Corporation effective April 30, 1998. The acquisition was accounted
for under the purchase method of accounting and is included in the financial
statements as of the effective date of the transaction. The cost of the
acquisition was $35,082, which represents an initial cash settlement and
payment of direct acquisition costs of $27,873, as well as, accrued contingent
payment arrangements of $7,209 anticipated to be paid to the sellers over a
three year period for years ending December 31, 1998, 1999 and 2000,
respectively. Goodwill of $23,498 was recorded, to be amortized on a straight-
line basis over a ten year period.
The 1998 and 1997 pro forma, unaudited financial data shown as follows
presents the effect of the acquisition as if it had occurred at the beginning
of the respective reporting periods. The pro forma financial data does not
necessarily reflect the results of operations that would have been obtained
had the acquisition occurred on the assumed date, nor is the financial data
necessarily indicative of the results of the combined entities that may be
achieved for any future period.
Pro forma Impact of Acquisition
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue............................................ $ 557,229 $ 381,691
============ ============
Net Income......................................... $ 10,311 $ 25,049
============ ============
</TABLE>
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 such
liabilities range from 4% to 4.5% for life insurance policies.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 5.5% to 7%.
F-34
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Future policy benefit liabilities for non-medical health insurance are
calculated as the net GAAP liability plus the unamortized deferred acquisition
costs. Future policy benefit liabilities for disabled lives are estimated
using the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest. Interest rates used in establishing
such liabilities range from 4% to 6.5%.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values, which
consist of an accumulation of gross premium payments plus credited interest
ranging from 3.75% to 6.5%, less expense and mortality charges and
withdrawals.
Recognition of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with life
contingencies are recognized as income when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated life of
the policies.
Premiums related to non-medical health contracts are recognized as income when
due.
Premiums related to variable life and universal life contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality recognized
ratably over the policy period, policy administration charges recognized as
services are provided and surrender charges recognized as earned. Amounts that
are charged to income include interest credited to policyholders and benefit
claims incurred in excess of related policyholder account balances.
Premiums related to investment-type contracts are credited to policyholder
account balances. Revenues from such contracts consist of amounts assessed
against policyholder account balances for contract administration charges
recognized ratably over the policy period. Amounts that are charged to income
include interest credited to policyholders.
Dividends to Policyholders
Dividends to policyholders are 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, as well as
management's judgment as to the appropriate level of statutory surplus to be
retained by the Company.
Participating Business
Participating business represented approximately 3.52% and 2.94% of the
Company's life insurance in force, and 7.96% and 5.79% of the number of life
insurance policies in force at December 31, 1998 and 1997, respectively.
Participating policies represented approximately 6.15%, 6.22% and 0.74% of
gross life insurance premiums, for the years ended December 31, 1998, 1997 and
1996, respectively.
Income Taxes
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., file a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and non-life
insurance direct subsidiaries. Income tax expense has been calculated in
accordance with the provisions of the Internal Revenue Service Code, as
amended. The Company uses the liability method of accounting for income taxes.
Income tax provisions are based on income reported for financial statement
purposes. 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.
F-35
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Reinsurance
The Company has reinsured certain of its life insurance contracts with other
insurance companies under various agreements. Amounts due from reinsurers are
estimated based upon assumptions consistent with those used in establishing
the liabilities related to the underlying reinsured contracts. Policy and
contract liabilities are reported gross of reinsurance credits.
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,
investment income, and realized and unrealized gains and losses on the
investments of the Separate Account accrue directly to contractholders and,
accordingly, are not reflected in the Company's financial statements.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
Application of Accounting Pronouncements
In December 1997, the AICPA issued SOP No. 97-3 Accounting for Insurance and
Other Enterprises for Insurance Related Assessments (SOP 97-3). SOP 97-3
provides guidance on accounting by insurance and other enterprises for
assessments related to insurance activities including recognition, measurement
and disclosure of guaranty fund and other insurance related assessments. The
Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP
97-3 is not expected to have a material effect on the Company's consolidated
financial condition or results of operations.
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1
provides guidance for determining when an entity should capitalize or expense
external and internal costs of computer software developed or obtained for
internal use. The Company is required to adopt SOP 98-1 as of January 1, 1999.
Adoption of SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial condition or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as
incurred. SOP 98-5 broadly defines start-up activities and provides examples
to help entities determine what costs are and are not within the scope of this
SOP. The Company is required to adopt SOP 98-5 as of January 1, 1999. Adoption
of SOP 98-5 is not expected to have a material effect on the Company's
consolidated financial condition or results of operations.
In October 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position SOP 98-7, Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance Risk (SOP 98-7). SOP 98-7
provides guidance on the method of accounting for insurance and reinsurance
contracts that do not transfer insurance risk, defined in the SOP as the
deposit method. SOP 98-7 classifies insurance and reinsurance contracts for
which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial condition or results of operations.
F-36
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Effective January 1, 1998, the Company adopted SFAS No. 130 Reporting
Comprehensive Income (SFAS 130). SFAS 130 establishes standards for reporting
and displaying comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Adoption of SFAS 130 had no effect on the Company's consolidated
financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 131 Disclosures About
Segments of an Enterprise and Related Information (SFAS 131). SFAS 131
establishes standards for reporting financial information and related
disclosures about products and services, geographic areas and major customers
relating to operating segments in annual financial statements. Adoption of
SFAS 131 had no effect on the Company's consolidated financial condition or
results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 requires, among other
things, that all derivatives be recognized in the consolidated balance sheets
as either assets or liabilities and measured at fair value. The corresponding
derivative gains and losses should be reported based upon the hedge
relationship, if such a relationship exists. Changes in the fair value of
derivatives designated as fair value hedges are required to be reported in
income. Changes in the fair value of derivatives designated as cash flow
hedges are required to be reported in other comprehensive income to the extent
the hedge is effective, and until such time as the hedged cash flow is
reported in income, whereupon any associated change in fair value of the
derivative is also reported in income. Changes in the fair value of
derivatives designated as cash flow hedges, to the extent it is ineffective,
are reported in income. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in SFAS
133 are required to be reported in income. The Company is required to adopt
SFAS 133 as of January 1, 2000. The Company is currently in the process of
quantifying the impact of SFAS 133.
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, 1998
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 27,260 $ 91 $ 47 $ 27,304
Foreign governments.................... 1,679 0 0 1,679
Corporate.............................. 644,636 43,036 5,139 682,533
Mortgage-backed securities............. 55,027 2,821 0 57,848
-------- -------- ------- --------
Total Fixed Maturities............... $728,602 $ 45,948 $ 5,186 $769,364
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 12,075 1,645 480 13,240
-------- -------- ------- --------
Total Equity Securities.............. $ 12,075 $ 1,645 $ 480 $ 13,240
======== ======== ======= ========
</TABLE>
F-37
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
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 $ 0 $ 12,206
Foreign governments.................... 2,316 67 0 2,383
Corporate.............................. 620,916 41,564 3,308 659,172
Mortgage-backed securities............. 57,348 3,282 0 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
======== ======== ======= ========
</TABLE>
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>
1998 1997
---- ----
<S> <C> <C>
Net unrealized gains on investments................................ $ 0 $281
Unrealized gains (losses) on the maturity of forward contracts..... 0 14
---- ----
$ 0 $295
==== ====
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1998 are shown below.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 24,215 $ 24,469
Due after one year through five years................... 92,090 93,343
Due after five years through ten years.................. 179,470 191,671
Due after ten years..................................... 377,800 402,033
-------- --------
Subtotal.............................................. 673,575 711,516
Mortgage-backed securities.............................. 55,027 57,848
-------- --------
Total................................................. $728,602 $769,364
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above tables in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
F-38
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Sales of fixed maturities and equity securities are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities classified as available-for-
sale
Proceeds..................................... $159,749 $143,107 $275,008
Gross realized gains......................... $ 10,901 $ 680 $ 19,109
Gross realized losses........................ $ 2 $ 1,454 $ 3,878
Fixed maturities classified as held-to-maturity
Proceeds..................................... $ 0 $ 0 $ 5,291
Gross realized gains......................... $ 0 $ 0 $ 236
Gross realized losses........................ $ 0 $ 0 $ 0
Equity Securities
Proceeds..................................... $ 0 $ 0 $ 0
Gross realized gains......................... $ 0 $ 0 $ 0
Gross realized losses........................ $ 0 $ 0 $ 0
</TABLE>
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
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, 1998 the trust held $530,563 of bonds and short-
term investments, and at December 31, 1997, the trust held $516,491 of bonds
and short-term investments.
Statutory Deposits
The Company had assets on deposit with regulatory agencies of $6,245 and
$7,020, at December 31, 1998 and 1997 respectively.
3. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The components of net investment income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................. $53,467 $50,348 $44,630
Equity securities................................ (9,118) 4,915 0
Mortgage loans on real estate.................... 0 0 110
Real estate...................................... 4,149 815 55
Policy loans..................................... 6,855 5,081 3,734
Cash, cash equivalents and short-term
Investments..................................... 861 4,160 3,656
Other investment income.......................... 76 591 38
------- ------- -------
Gross investment income.......................... 56,290 65,910 52,223
Investment expenses.............................. (7,213) (4,851) (2,595)
------- ------- -------
Net Investment income............................ $49,077 $61,059 $49,628
======= ======= =======
</TABLE>
F-39
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Realized investment gains (losses), including changes in valuation allowances,
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................ $10,899 $ (774) $15,467
Equity securities............................... 0 0 0
Other invested assets........................... (7) 1,032 512
------- ------- -------
Subtotal.................................... 10,892 258 15,979
Amounts allocable to:
Amortization of deferred policy acquisition
costs........................................ 5,282 (632) 7,157
------- ------- -------
Investment gains (losses), net................ $ 5,610 $ 890 $ 8,822
======= ======= =======
The changes in unrealized investment gains (losses), net, included in other
comprehensive income, are as follows:
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year...................... $17,347 $ 3,727 $26,356
Change in unrealized investment gains
(losses)..................................... 391 30,207 (46,850)
Change in unrealized investment gains (losses)
attributable to:
Deferred policy acquisition cost allowances. (595) (9,446) 12,211
Deferred income tax (expense) benefit....... 296 (7,141) 12,010
------- ------- -------
Balance, end of year............................ $17,439 $17,347 $ 3,727
======= ======= =======
The components of unrealized investment gains (losses), net, included in other
comprehensive income, are as follows:
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
December 31
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed Maturities............................ $40,928 $41,706 $11,525
Equity Securities........................... 1,191 0 0
Other....................................... 0 22 (4)
------- ------- -------
42,119 41,728 11,521
Amounts of unrealized investment gains (losses)
attributable to:
Deferred policy acquisition cost allowances... (15,798) (15,202) (5,756)
Deferred income tax (expense) benefit......... (8,882) (9,179) (2,038)
------- ------- -------
Balance, end of year............................ $17,439 $17,347 $ 3,727
======= ======= =======
</TABLE>
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The Company assumes and cedes reinsurance with other insurance companies. The
company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The consolidated statements of
income are presented net of reinsurance ceded.
F-40
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Reinsurance recoverables, included in other assets, were outstanding with the
following reinsurers:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
<S> <C> <C>
Paul Revere Life Insurance Company.......................... $10,795 $ 4,548
Cologne Life Reinsurance Company............................ 6,519 3,724
Security Life of Denver Insurance Company................... 4,395 1,804
American United Life Insurance Company...................... 3,852 1,332
Great West Life & Annuity Insurance Company................. 6,394 2,505
Swiss Re Life & Health Limited.............................. 2,422 908
Other....................................................... 17,828 3,164
------- -------
$52,205 $17,985
======= =======
</TABLE>
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $110,768 $ 30,975 $ 2,682
Reinsurance assumed............................ 58,329 62,315 67,483
Reinsurance ceded.............................. (68,408) (29,674) (32,755)
-------- -------- --------
Net premiums earned............................ $100,689 $ 63,616 $ 37,410
======== ======== ========
</TABLE>
Reinsurance and ceded commissions payables, included in other liabilities,
were $10,162 and $5,852, at December 31, 1998 and 1997, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to group accident and nonmedical health policies and
contracts:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Balance at January 1.......................... $ 809 $ 0 $ 0
Reinsurance recoverables.................... (647) 0 0
--------- ------- ------
Net balance at January 1...................... 162 0 0
--------- ------- ------
Incurred related to:
Current year................................ 303 173 0
Prior years................................. (57) (11) 0
--------- ------- ------
246 162 0
--------- ------- ------
Paid related to:
Current year................................ 2 0 0
Prior years................................. 18 0 0
--------- ------- ------
20 0 0
--------- ------- ------
Balance at December 31........................ 388 162 0
Add: Reinsurance recoverables............... 1,565 647 0
--------- ------- ------
Balance at December 31........................ $ 1,953 $ 809 $ 0
========= ======= ======
</TABLE>
F-41
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
5. INCOME TAXES
The provision for income tax expense (benefit) in the consolidated statements
of income is shown below:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
<S> <C> <C> <C>
1998
Federal............................................ $13,734 $ (788) $12,946
State and Local.................................... 0 100 100
------- ------- -------
Total............................................ $13,734 $ (688) $13,046
======= ======= =======
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.................................... 0 (751) (751)
------- ------- -------
Total............................................ $ 5,333 $(2,282) $ 3,051
======= ======= =======
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $24,483 $26,957 $12,752
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 8,569 9,435 4,463
Tax effect of:
Change in valuation allowance.................. 0 0 (13,948)
NOL benefit write-off.......................... 0 0 13,012
Tax exempt investment income................... (100) 0 0
Tax Credits.................................... (100) 0 0
State and local income taxes................... 100 (1,013) (488)
Other, net..................................... 4,577 (3,434) 12
------- ------- -------
Income Tax Expense............................... $13,046 $ 4,988 $ 3,051
======= ======= =======
</TABLE>
Deferred income taxes represent the tax effect of the differences between the
book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................ $ 177,017 $ 63,723
Other, net.......................................... 15,453 81,988
--------- ---------
Total gross assets................................ 192,470 145,711
--------- ---------
Deferred tax liabilities:
Investments......................................... (1,068) (2,456)
Deferred policy acquisition costs................... (208,881) (168,270)
Unrealized investment gains, net.................... (8,882) (9,179)
Other, net.......................................... (15,973) (7,872)
--------- ---------
Total gross liabilities........................... (234,804) (187,777)
--------- ---------
Net deferred tax liability............................ $ (42,334) $ (42,066)
========= =========
</TABLE>
F-42
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Policyholder liabilities...................... $(49,251) $(23,759) $(17,818)
Net operating loss carryforward............... 0 12,548 464
Investments................................... (1,388) 1,319 0
Deferred policy acquisition costs............. 40,611 33,621 21,828
Other, net.................................... 9,340 (27,530) (6,756)
-------- -------- --------
Total....................................... $ (688) $ (3,801) $ (2,282)
======== ======== ========
</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.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
December 31,
--------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in projected benefit
obligation
Projected benefit obligation at
beginning of year.................. $210,590 $177,125 $ 46,591 $ 49,654
Service cost........................ 6,927 5,310 942 885
Interest cost....................... 15,878 13,958 3,267 3,707
Actuarial gain...................... 14,831 15,926 1,256 (3,972)
Divestitures........................ 0 0 0 0
Curtailments........................ 0 0 0 0
Terminations........................ 0 0 0 0
Change in benefits.................. 11,935 5,755 (10) 0
Benefits paid....................... (7,674) (7,484) (3,059) (3,683)
-------- -------- -------- --------
Projected benefit obligation at end
of year............................ $252,487 $210,590 $ 48,987 $ 46,591
-------- -------- -------- --------
Change in plan assets
Contract value of plan assets at
beginning of year.................. $150,820 $130,995 $ 0 $ 0
Actual return on plan assets........ 28,309 22,250 0 0
Employer contribution............... 12,997 5,059 0 0
Benefits paid....................... (7,323) (7,484) 0 0
-------- -------- -------- --------
Contract value of plan assets at end
of year............................ $184,803 $150,820 $ 0 $ 0
-------- -------- -------- --------
Over/(Under) funded................. $(67,684) $(59,770) $(48,987) $(46,591)
Unrecognized net asset at
transition......................... (1,674) (2,844) 0 0
Unrecognized net actuarial gains.... 34,350 35,889 (17,787) (18,872)
Unrecognized prior service cost..... 16,854 5,832 (9) 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost...... $(18,154) $(20,893) $(66,783) $(65,463)
======== ======== ======== ========
Qualified plan prepaid pension cost. $ (2,164) $ (7,205) $ 0 $ 0
Non-qualified plan accrued pension
cost............................... (15,990) (13,688) 0 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost...... $(18,154) $(20,893) $ 0 $ 0
======== ======== ======== ========
</TABLE>
F-43
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
Non-Qualified
Qualified Plan Plan Total
------------------ ------------------ ------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected
benefit obligation..... $226,717 $193,652 $ 25,770 $ 16,938 $252,487 $210,590
Aggregate contract value
of plan assets
(principally Company
contracts)............. 184,803 150,820 0 0 184,803 150,820
-------- -------- -------- -------- -------- --------
Over/(Under) funded..... $(41,914) $(42,832) $(25,770) $(16,938) $(67,684) $(59,770)
======== ======== ======== ======== ======== ========
</TABLE>
The assumptions used in determining the aggregate projected benefit obligation
and aggregate contract value for the pension and other benefits were as
follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Benefits
------------------ ----------
1998 1997 1998 1997
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of
December 31,
Discount rate............................. 7.25% 7.75% 7.00% 7.75%
Expected return on plan assets............ 8.50% 8.75% -- --
Rate of compensation increase............. 4.50% 5.00% -- --
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 7.40% in 1998,
gradually decreasing to 5.00% over five years and generally 7.80% in 1997,
gradually decreasing to 5.00% over eight years.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One % One %
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components... 14.50% 12.70%
Effect on accumulated postretirement benefit obligation... 12.80% 11.30%
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------- ---------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of periodic
benefit cost
Service cost............ $ 6,927 $ 5,310 $ 5,761 $ 942 $ 885 $ 876
Interest cost........... 15,878 13,958 12,489 3,267 3,707 3,183
Expected return on plan
assets................. (12,866) (22,250) (15,468) 0 0 0
Net amortization and
deferrals.............. 669 11,092 6,009 167 (871) (1,155)
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost................... $ 10,608 $ 8,110 $ 8,791 $4,376 $3,721 $2,904
======== ======== ======== ====== ====== ======
</TABLE>
Savings and Investment Plans
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $2,252, $1,588 and $3,386 for the years ended December
31, 1998, 1997 and 1996, respectively.
F-44
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenue. Additionally, the Company, as lessee, has entered into
various lease and sublease agreements for office space, data processing and
other equipment. Future minimum rental and sub-rental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
Rental Sub-rental Gross Rental
Income Income Expense
------ ---------- ------------
<S> <C> <C> <C>
1999.......................................... $52 $ 4,066 $ 14,851
2000.......................................... 31 7,845 14,805
2001.......................................... 0 7,854 13,221
2002.......................................... 0 7,864 12,336
2003.......................................... 0 8,026 12,023
Thereafter.................................... 0 34,525 114,855
--- ------- --------
Total....................................... $83 $70,180 $182,091
=== ======= ========
</TABLE>
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest, payable
monthly, at a variable rate equal to the greater of the bank's base rate or
money market rates plus 0.6% per annum. The interest rate applied was 6.4%,
5.8% and 5.7% at December 31, 1998, 1997 and 1996, respectively. 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 or
less. The carrying value of the loan approximates its fair value of $13,295.
Repayments of principal and interest of $8,612, $3,155 and $0 were made during
1998, 1997 and 1996, respectively. The Company repaid the entire outstanding
balance of the loan in January 1999.
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 $69,560, repayments of $0, $0 and $0 were made
during 1998, 1997 and 1996, respectively.
9. CONTINGENCIES
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company's insurance subsidiaries
pursuant to these laws may be used as credits
F-45
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
for a portion of the Company's premium taxes. The Company paid guaranty fund
assessments of approximately, $202, $42, and $42 in 1998, 1997, and 1996,
respectively, of which $202, $33, and $27 were to be credited against premium
taxes.
The Company has no contingent liabilities that would materially affect the
financial position of the Company or the results of its operations. There are
no pending legal proceedings that are beyond the ordinary course of business
that could have a material financial effect.
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Compensation................................. $ 86,822 $ 58,754 $ 36,172
Commissions.................................. 166,218 77,351 51,617
Interest and debt expense.................... 9,374 6,750 6,261
Amortization of policy acquisition costs..... 31,994 17,723 22,233
Capitalization of policy acquisition costs... (183,064) (157,670) (98,016)
Rent expense, net of sub-lease income........ 4,252 4,473 3,060
Other........................................ 201,063 136,961 122,559
--------- --------- --------
Total...................................... $ 316,659 $ 144,342 $143,886
========= ========= ========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments have been determined
by using available market information and the valuation methodologies
described below. Considerable judgment is often required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein may not necessarily be indicative of amounts that could be
realized in a current market exchange. The use of different assumptions or
valuation methodologies may have a material effect on the estimated fair value
amounts.
Amounts related to the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
December 31, 1998:
Assets
Fixed Maturities......................................... $769,364 $769,364
Equity Securities........................................ 13,240 13,240
Policy loans............................................. 135,800 135,800
Short-term investments................................... 52,285 52,285
Cash and cash equivalents................................ 43,598 43,598
Liabilities
Policyholder account balances............................ 23,365 22,524
Other policyholder funds................................. 7,832 7,832
Short and long-term debt................................. 82,855 82,855
</TABLE>
F-46
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<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............................ 13,356 12,593
Other policyholder funds................................. 4,324 4,324
Short and long-term debt................................. 85,981 85,981
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
Fixed Maturities and Equity Securities
The fair value of fixed maturities and equity securities that are publicly
traded are based upon quotations obtained from an independent market pricing
service or published by applicable stock exchanges. For securities for which
the market values were not readily available, fair values were estimated by
management, based primarily on interest rates, maturity, credit quality and
average life.
Policy Loans
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Cash and Cash Equivalents and Short-term Investments
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
Policyholder Account Balances
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based on interest rates currently 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.
Short-term and Long-term Debt
Short-term and long-term debt are stated at unpaid principal balances, which
approximates fair value.
F-47
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
12. STATUTORY FINANCIAL INFORMATION
The reconciliation of statutory surplus and statutory net income, determined
in accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with such amounts determined in conformity with
generally accepted accounting principles were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus............................. $ 456,525 $ 307,290 $ 355,853
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................... (336,821) (279,510) (195,273)
Deferred policy acquisition costs........... 710,961 565,769 434,637
Deferred Federal Income taxes............... (42,334) (42,066) (40,185)
Valuation of investments.................... 53,514 56,873 11,503
Statutory asset valuation reserves.......... 10,636 8,388 3,335
Statutory interest maintenance reserve...... 816 571 306
Surplus notes............................... (69,560) (64,016) (58,911)
Receivables from reinsurance transactions... 26,004 27,519 26,030
Other, net.................................. 35,330 52,724 13,127
--------- --------- ---------
GAAP Equity................................... $ 845,071 $ 633,542 $ 550,422
========= ========= =========
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................... $ (28,043) $ (37,358) $ (46,021)
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................... (196,754) (311,588) (41,174)
Deferred policy acquisition costs........... 135,788 139,947 68,626
Deferred Federal Income taxes............... 688 3,801 2,282
Valuation of investments.................... (13,490) 0 0
Statutory interest maintenance reserve...... 245 342 231
Other, net.................................. 113,003 226,825 25,757
--------- --------- ---------
Net GAAP Income............................... $ 11,437 $ 21,969 $ 9,701
========= ========= =========
</TABLE>
The Company is currently undergoing an examination by the Massachusetts
Department of Insurance. The Company believes that there will be no material
audit adjustments for the periods under examination.
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under an Administrative Services Agreement
with its parent NEMLICO to receive all executive, legal, clerical and other
personnel services. Subsequent to the merger of NEMLICO and MetLife, the
Company entered into an Administrative Services 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, and those policies and contracts defined in
the Administrative Services Agreement as Transition Policies which were sold
by the Company's field force post-merger.
The Company charged MetLife $193,641, $186,757 and $88,043 including accruals
for administrative services on NEMLICO administered contracts for 1998, 1997,
and for the period of September 1, 1996 through December 31, 1996,
respectively. Prior to the merger, the Company paid $62,643 to NEMLICO for
administrative services on
F-48
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
variable-life and variable-annuity contracts for the period of January 1, 1996
through August 31, 1996. In addition, $14,123 and $600 for 1998 and 1997,
respectively, was paid or payable by MetLife to the Company for varied and
miscellaneous other services. These services were charged based upon direct
costs incurred. Service fees are recorded by NELICO as a reduction in
operating expenses.
On December 30, 1998 the Company sold to MetLife Credit Corporation shares of
preferred stock for $200,000. 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.
On April 30, 1998 the Company acquired all the outstanding stock of N.L.
Holding Corporation and its subsidiaries, and concurrently contributed such
stock to the Company's downstream holding company, New England Life Holding
Inc. In conjunction with the acquisition, the Company entered into employment
agreements with key individuals of N.L. Holding Corporation. Under these
agreements the Company paid $6,166 in 1998.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building that it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $2,340, $2,340
and $780 in 1998, 1997 and 1996, respectively.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,217 that
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 1998 were $15,204
and $1,159, respectively. Included in accrued income at December 31, 1998,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$385 and $14, respectively. In 1998, NES earned asset-based income of $9,193
and $139 on average assets of approximately $4,300,000 and $77,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1998 were amounts receivable for asset-based commissions from NEF
and SSR totaling $593 and $13, respectively.
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 $3,900,000 and $33,000 under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$69,560 and $64,016 at December 31, 1998 and 1997, respectively.
Pursuant to certain Reinsurance Agreements, the Company cedes a portion of
premiums on certain variable life, traditional life and universal life
policies to Omega Reinsurance Corporation. Reinsurance premiums paid by the
Company to Omega were $11,539, $10,372 and $5,009 for 1998, 1997 and 1996,
respectively.
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.
F-49
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (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. SEPARATE ACCOUNTS
Separate accounts reflect non-guaranteed separate accounts totaling $3,258,383
and $1,988,225 at December 31, 1998 and 1997, respectively, wherein the
policyholder assumes the investment risk.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees totaling $30,714, $12,642 and $6,464 in 1998, 1997 and 1996,
respectively.
15. YEAR 2000
The Year 2000 issue is the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant cost associated with additional mainframe capacity necessary to
accommodate a four digit year field. As a result, any of the Company's
computer systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
systems failure or miscalculations. The Company has conducted a comprehensive
review of its computer systems to identify the systems that could be affected
by the Year 2000 issue and has developed and implemented a plan to resolve the
issue. The Company currently believes that, with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company's computer systems. However,
if such modifications and conversions are not completed on a timely basis, the
Year 2000 issue may have a material impact on the operations of the Company.
Furthermore, even if the Company completes such modifications and conversions
on a timely basis, there can be no assurance that the failure by vendors or
other third parties to solve the Year 2000 issue will not have a material
impact on the operations of the Company. The Company estimates the total cost
to resolve its Year 2000 problem to be approximately $51,000, (unaudited) of
which approximately $41,300 has been incurred through December 31, 1998.
16. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers primarily
in the United States. The Company's core businesses are divided into five
segments: Individual Life, Individual Annuity, Group Pension, Group Accident
and Health, and Corporate. These segments are managed separately because they
either provide different products and services, require different strategies,
or have different technology requirements.
Individual Life sells primarily variable life as well as traditional life
policies. Individual Annuity sells a variety of fixed annuity and variable
annuity contracts. Group Pension sells a variety of group annuity and pension
contracts to corporations and other institutions. Group Accident and Health
provides group life, group medical, and group disability contracts to
corporations and small businesses. Through its Corporate segment, the Company
reports the operating results of subsidiaries as well as items that are not
allocated to any of the business segments.
Set forth in the following tables is certain financial information with
respect to the Company's operating segments for the years ended December 31,
1998, 1997 and 1996. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates the performance of each operating segment based on profit or loss
from operations after income taxes. The Company does not allocate non-
recurring items to the segments.
F-50
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Allocation of net investment income and investment gains (losses), net were
based on the amount of assets allocated to each segment. Other costs and
operating costs were allocated to each of the segments based on: (i) a review
of the nature of such costs, (ii) time studies analyzing the amount of
employee compensation costs incurred by each segment, and (iii) cost estimates
included in the Company's product pricing.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 48,733 $ 31 $ 417 $ 21,394 $ 30,114 $ 100,689
Universal Life and
Investment-Type
Product Policy Fees.... 161,936 9,332 2,788 (290) 0 173,766
Net Investment Income... (22,496) (1,752) (405) 651 73,079 49,077
Investment Gains,
(Losses) Net........... (182) (7) (4) 17 5,786 5,610
Commissions, Fees, and
Other Income........... 9,408 6,042 1,118 20,430 155,413 192,411
---------- -------- -------- -------- -------- ----------
Total Revenues........ 197,399 13,646 3,914 42,202 264,392 521,553
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 84,709 3,943 874 13,561 46,600 149,687
Interest Credited to
Policyholder
Account Balances....... 6,337 1,264 83 0 51 7,735
Policyholder Dividends.. 1,135 4 0 3 21,847 22,989
Other Operating Costs
and Expenses........... 103,284 14,324 3,617 15,731 179,703 316,659
---------- -------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 195,465 19,535 4,574 29,295 248,201 497,070
Income from Operations
Before
Income Taxes........... 1,934 (5,889) (660) 12,907 16,191 24,483
Income Taxes............ 9,968 (402) (423) 3,986 (83) 13,046
---------- -------- -------- -------- -------- ----------
Net Income............ $ (8,034) $ (5,487) $ (237) $ 8,921 $ 16,274 $ 11,437
========== ======== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 616,959 42,524 2,359 2,511 46,608 710,961
Separate Account Assets. 2,073,552 835,648 235,467 113,716 0 3,258,383
Policyholder
Liabilities............ 380,586 38,912 768 19,233 501,579 941,078
Separate Account
Liabilities............ 2,073,552 835,648 235,467 113,716 0 3,258,383
</TABLE>
F-51
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 27,200 $ 31 $ 0 $ 3,743 $ 32,642 $ 63,616
Universal Life and
Investment-Type
Product Policy Fees.... 139,235 4,732 486 704 0 145,157
Net Investment Income... 31,905 (270) (20) (118) 29,562 61,059
Investment Gains,
(Losses) Net........... 523 0 0 0 367 890
Commissions, Fees, and
Other Income........... 9,542 3,253 266 4,383 10,858 28,302
---------- -------- -------- ------- -------- ----------
Total Revenue........... 208,405 7,746 732 8,712 73,429 299,024
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 71,010 3,431 0 3,827 21,912 100,180
Interest Credited to
Policyholder
Account Balances....... 5,371 664 149 0 36 6,220
Policyholder Dividends.. 507 1 0 0 20,817 21,325
Other Operating Costs
and Expenses........... 98,664 10,777 2,092 6,745 26,064 144,342
---------- -------- -------- ------- -------- ----------
Total Benefits and
Other Deductions..... 175,552 14,873 2,241 10,572 68,829 272,067
Income from Operations
Before Income Taxes.... 32,853 (7,127) (1,509) (1,860) 4,600 26,957
Income Taxes............ 2,701 (1,203) (504) (447) 4,441 4,988
---------- -------- -------- ------- -------- ----------
Net Income............ $ 30,152 $ (5,924) $ (1,005) $(1,413) $ 159 $ 21,969
========== ======== ======== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 498,208 24,226 1,347 877 41,111 565,769
Separate Account Assets. 1,426,347 450,441 111,437 0 0 1,988,225
Policyholder
Liabilities............ 258,880 20,476 197 6,398 463,269 749,220
Separate Account
Liabilities............ 1,426,347 450,441 111,437 0 0 1,988,225
</TABLE>
F-52
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- ------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 1,729 $ 0 $ 0 $ 56 $ 35,625 $ 37,410
Universal Life and
Investment-Type
Product Policy Fees.... 101,153 603 0 0 0 101,756
Net Investment Income... 23,667 (105) (2) (6) 26,074 49,628
Investment Gains,
(Losses) Net........... 396 0 0 0 8,426 8,822
Commissions, Fees and
Other Income........... 8,340 45 290 363 35,892 44,930
-------- -------- ------ ------- -------- ----------
Total Revenues........ 135,285 543 288 413 106,017 242,546
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 25,595 654 0 176 39,095 65,520
Interest Credited to
Policyholder
Account Balances....... 5,345 167 0 0 46 5,558
Policyholder Dividends.. 13 0 0 0 14,817 14,830
Other Operating Costs
and Expenses........... 81,559 13,499 71 1,798 46,959 143,886
-------- -------- ------ ------- -------- ----------
Total Benefits and
Other Deductions..... 112,512 14,320 71 1,974 100,917 229,794
Income from Operations
Before Income Taxes.... 22,773 (13,777) 217 (1,561) 5,100 12,752
Income Taxes............ (2,772) 723 0 0 5,100 3,051
-------- -------- ------ ------- -------- ----------
Net Income............ $ 25,545 $(14,500) $ 217 $(1,561) $ 0 $ 9,701
======== ======== ====== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 378,397 11,883 147 0 44,209 434,636
Separate Account Assets. 999,130 201,180 6,649 0 0 1,206,959
Policyholder
Liabilities............ 181,484 6,657 0 529 459,884 648,554
Separate Account
Liabilities............ 999,130 201,180 6,649 0 0 1,206,959
</TABLE>
Revenues derived from any single customer do not exceed 10% of the total
consolidated revenues for the years presented. Revenues were predominantly
generated from United States activity. Activity from other geographic locations
did not exceed 10% for any geographic location.
F-53
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street
Boston, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Survivorship Life Prospectus dated
April 30, 1999. This Variable Life Policy is offered by New England Life
Insurance Company.
- ------------------------------------- -------------------------------------
(Date) (Client's Signature)
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(vsl)
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 prospectuses consisting of 267 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
Representations.
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 Auditor (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 Organization of
NELICO ###
(b) Amended and restated By-Laws of NELICO ####
(c) Amendments to the Amended and restated Articles of
Organization +++
(7) None
(8) None
(9) None
2. See Exhibit 3(i)
3.(i) Opinion and Consent of H. James Wilson, Esquire *
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A.,
M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland Asbill & Brennan LLP
7.(i) Powers of Attorney ###
(ii) Power of Attorney for James M. Benson, Robert H. Benmosche
and Catherine A. Rein +
(iii) Power of Attorney for David Y. Rogers and 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) ##
(iii) Second Addendum to Consolidated Memorandum ++++
II - 3
<PAGE>
14.(i) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and New England
Variable Life Insurance Company **
(ii) Amendment No. 1 to Participation Agreement 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 Post Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed February 25, 1998.
** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 24, 1998.
*** Incorporated herein by reference to Post Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed April 30, 1998.
+ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 333-46401,
filed July 9, 1998.
II - 4
<PAGE>
++ Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed January 20, 1999.
+++ Incorporated herein by reference to the Post-Effective Amendment No.4 to
the Variable Account's Form S-6 Registration Statement, File No. 33-65263,
filed February 24, 1999.
++++ Incorporated herein by reference to the Post-Effective Amendment No.10 to
the Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 26, 1999.
II - 5
<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 26th day of April, 1999.
New England Variable Life Separate Account
(Registrant)
By: New England Life Insurance Company
(Depositor)
By: /s/ H. James Wilson
-------------------
H. James Wilson
Executive Vice President and
General Counsel
Attest:
/s/ Marie C. Swift
- ------------------
Marie C. Swift
II - 6
<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 26th day of
April, 1999.
New England Life Insurance Company
(Seal)
Attest: /s/ Marie C. Swift By: /s/ H. James Wilson
------------------ -------------------
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 26, 1999.
* Chairman, President and
- ----------------------- Chief Executive Officer
James M. Benson
* Director
- -----------------------
Robert H. Benmosche
* Director
- -----------------------
Susan C. Crampton
* Director
- -----------------------
Edward A. Fox
* Director
- -----------------------
George J. Goodman
* Director
- -----------------------
Evelyn E. Handler
* Director
- -----------------------
Philip K. Howard, Esq.
* Director
- -----------------------
Bernard A. Leventhal
* Director
- -----------------------
Thomas J. May
II - 7
<PAGE>
* Director
- -----------------------
Stewart G. Nagler
* Director
- -----------------------
Catherine A. Rein
* Second Vice President and
- ----------------------- Chief Accounting Officer
Richard A. Robinson
* Executive Vice President and
- ----------------------- Chief Financial Officer
David Y. Rogers
* Director
- -----------------------
Rand N. Stowell
* Director
- -----------------------
Alexander B. Trowbridge
By: /s/ Anne M. Goggin
-------------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant
to powers of attorney filed with the Variable Account's Form S-6
Registration Statement, File No. 333-21767, on February 13, 1997, Pre-
Effective Amendment No. 1 to the Variable Account's Form S-6 Registration
Statement, File No. 333-46401, on July 9, 1998, and Post-Effective
Amendment No. 4 to the Variable Account's Form S-6 Registration Statement,
File No. 33-88082, on January 20, 1999.
II - 8
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
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 3(ii)
April 26, 1999
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. 11 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 Prospectuses, 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 Prospectuses contains the net
premium amounts allocated to the Variable Account for, in one Prospectus,
a $5,000 premium under a Policy, and in the other Prospectus, a $2,000
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 Prospectuses 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 Prospectuses.
Sincerely,
Rodney J. Chandler, F.S.A., M.A.A.A.
Second Vice President and Actuary
<PAGE>
Exhibit 6
[Sutherland Asbill & Brennan LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the prospectus included in Post-
Effective Amendment No. 11 to the Registration Statement on Form S-6 for
Survivorship Life, issued through the New England Variable Life Separate Account
(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
By: /s/ Kimberly J. Smith
---------------------------
Kimberly J. Smith
Washington, D.C.
April 26, 1999
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 11 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, 1999 and February 16,
1999 appearing in the Prospectuses, which are part of such Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectuses.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 26, 1999
