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[NEW ENGLAND FINANCIAL LOGO]
PROSPECTUS
[ZENITH FLEXIBLE LIFE LOGO]
Offered by
NEW ENGLAND
LIFE INSURANCE COMPANY
October 25, 1999
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ZENITH FLEXIBLE LIFE
Flexible Premium Adjustable
Variable 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 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. (Policies issued in New York offer one death
benefit guarantee.)
You may choose between two death benefit options. One provides a fixed death
benefit equal to the Policy's face amount. The other provides a death benefit
that may vary daily with the investment experience of the Eligible Funds. Under
both 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
Back Bay Advisors Managed Series
Back Bay Advisors Money Market Series
Capital Growth Series
Westpeak Growth and Income Series
Westpeak Stock Index Series
Loomis Sayles Balanced Series
Loomis Sayles Small Cap Series
Alger Equity Growth Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Morgan Stanley International Magnum Equity Series
MFS Investors Series
MFS Research Managers Series
VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Overseas Portfolio
Equity-Income Portfolio
High Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")
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.
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 AND THE ELIGIBLE FUNDS 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.
OCTOBER 25, 1999
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TABLE OF CONTENTS
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GLOSSARY.................................................... A-4
INTRODUCTION TO THE POLICIES................................ A-5
The Policies............................................ A-5
Availability of the Policy.............................. A-6
Policy Charges.......................................... A-6
How the Policy Works.................................... A-8
Receipt of Communications and Payments at NELICO's Home
Office................................................. A-9
NELICO.................................................. A-9
POLICY VALUES AND BENEFITS.................................. A-10
Death Benefit........................................... A-10
Minimum Guaranteed Death Benefit........................ A-10
Death Proceeds Payable.................................. A-11
Change in Death Benefit Option.......................... A-11
Extending the Maturity Date............................. A-12
Cash Value.............................................. A-12
Net Investment Experience............................... A-12
Allocation of Net Premiums.............................. A-13
Amount Provided for Investment under the Policy......... A-13
Right to Return the Policy.............................. A-13
State Variations........................................ A-13
CHARGES AND EXPENSES........................................ A-14
Deductions from Premiums................................ A-14
Surrender Charge........................................ A-15
Monthly Deduction from Cash Value....................... A-16
Charges Against the Eligible Funds and the Sub-Accounts
of the Variable Account................................ A-19
Group or Sponsored Arrangements......................... A-20
PREMIUMS.................................................... A-20
Flexible Premiums....................................... A-20
Lapse and Reinstatement................................. A-22
OTHER POLICY FEATURES....................................... A-23
Increase in Face Amount................................. A-23
Loan Provision.......................................... A-23
Surrender............................................... A-24
Partial Surrender....................................... A-25
Reduction in Face Amount................................ A-25
Acceleration of Death Benefit Rider..................... A-26
Investment Options...................................... A-26
Transfer Option......................................... A-26
Dollar Cost Averaging................................... A-26
Asset Rebalancing....................................... A-27
Substitution of Insured Person.......................... A-27
Payment of Proceeds..................................... A-27
24 Month Right.......................................... 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 Management................................... A-31
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THE FIXED ACCOUNT........................................... A-32
General Description..................................... A-32
Values and Benefits..................................... A-32
Policy Transactions..................................... A-32
NELICO'S DISTRIBUTION AGREEMENT............................. A-33
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY............ A-34
Misstatement of Age or Sex.............................. A-34
Suicide................................................. A-34
TAX CONSIDERATIONS.......................................... A-34
Introduction............................................ A-34
Tax Status of the Policy................................ A-34
Tax Treatment of Policy Benefits........................ A-34
NELICO's Income Taxes................................... A-36
MANAGEMENT.................................................. A-37
VOTING RIGHTS............................................... A-39
RIGHTS RESERVED BY NELICO................................... A-40
TOLL-FREE NUMBERS........................................... A-40
REPORTS..................................................... A-40
ADVERTISING PRACTICES....................................... A-40
LEGAL MATTERS............................................... A-41
REGISTRATION STATEMENT...................................... A-41
EXPERTS..................................................... A-41
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
NET CASH VALUE AND ACCUMULATED PREMIUMS................... A-42
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............... A-51
APPENDIX C: LONG TERM MARKET TRENDS......................... A-71
APPENDIX D: USES OF LIFE INSURANCE.......................... A-72
APPENDIX E: TAX INFORMATION................................. A-73
APPENDIX F: TAX LAW AND THE DEATH BENEFIT................... A-74
FINANCIAL STATEMENTS........................................ F-1
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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.
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 first receive a
premium payment for the Policy, the date Part II of the Policy application is
signed and the Policy Date.
MATURITY DATE. The Policy anniversary on which the 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 Surrender Charge that would
apply on surrender 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 is a
level amount that 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 Part II of the application was signed
and receipt of the premium payment. If you choose to pay the initial premium
upon delivery of the Policy, we issue the Policy with a Policy Date which is
generally five days after issue.
SALES CHARGE BREAKPOINT PREMIUM. We use the Sales Charge Breakpoint Premium
to measure the portion of the total premiums paid in a Policy year that is
currently subject to the 4% sales charge, as well as sales commissions. It
equals between 110% and 121% of a Target Premium, depending on the insured's
issue age, plus a portion of certain rider premiums.
TARGET PREMIUM. We use the Target Premium to determine the amount of
Deferred Sales Charge that may apply on a surrender, partial surrender, lapse or
face amount reduction. The Target Premium varies by issue age, sex and
underwriting class of the insured and the Policy's face amount. The Target
Premium is less than or equal to 75% of the annual premium necessary to maintain
a fixed benefit whole life insurance Policy for the same face amount on the life
of the insured. We calculate the annual whole life premium using an assumed
interest rate of 4%, guaranteed cost of insurance charges and the current level
of other Policy charges.
YOU. "You" refers to the Policy Owner.
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INTRODUCTION TO THE POLICIES
THE POLICIES
The Policies are designed to provide lifetime insurance coverage. They are
not offered primarily as an investment.
Here is a summary of the Policy's basic features. You should read the entire
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 the insured is in a
substandard risk class. (See "Premiums".)
-- You can allocate net premiums to one or more of the Sub-Accounts of the
Variable Account corresponding to mutual fund portfolios after an
initial period in the Zenith Money Market Sub-Account. (See "Allocation
of Net Premiums" and "Investment Options".)
-- The mutual fund portfolios available under the Policy include several
common stock funds, including funds which invest primarily in foreign
securities, two bond funds, two managed funds, a balanced fund, and a
money market fund. You may allocate your Policy's cash value to a
maximum of ten 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
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FIXED ACCOUNT. We have the right to restrict transfers of cash value and
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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 between two death benefit options under the Policy. The
level option death benefit equals the Policy's face amount. The variable
option death benefit equals 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 in either case could increase to satisfy tax
law requirements if the cash value reaches certain levels. (See "Death
Benefit".)
-- Regardless of investment experience, the death benefit is guaranteed not
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".)
-- Unless the extended maturity option is part of your Policy, if the
insured is alive and the Policy is in force on the Maturity Date, the
Policy will then terminate. In that case we pay you the Policy's net
cash value as of the Maturity Date. (See "Extending the Maturity Date".)
-- 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".)
-- 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
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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 generally 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 exercise the
Policy's 24 Month Right. If you do, we allocate all or part of your
Policy's cash value and future premiums to the Fixed Account. The
purpose of the 24 Month Right is to provide you with fixed Policy values
and benefits. (See "24 Month Right" for a description of this provision
and for a description of the variation which applies to Policies issued
in Maryland and New Jersey.)
In many respects the Policies are similar to fixed-benefit universal life
insurance. Like universal life insurance, the Policies offer death benefits and
provide flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit universal life insurance in
that the death benefit may, and the cash value will, vary to reflect the
investment experience of the selected Sub-Accounts.
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 Life Insurance".
AVAILABILITY OF THE POLICY
The Policies are available for insureds from the age of one to 80 on an
underwritten basis and from the age of 20 to 70 on an automatic issue basis. (We
issue automatic issue Policies based on very limited underwriting information.
Automatic issue Policies are not available in New Jersey.) We may consent to
issue the Policies on insureds below the age of one and up to age 85. All
persons must meet our underwriting and other requirements.
The minimum face amount available is $100,000 unless we consent to a lower
amount, but exceptions apply. The minimum face amount available is $50,000 in
business situations (situations in which two or more Policies, on more than one
life, are totally or partially funded, directly or indirectly, by an employer)
or for pension plans qualified under Section 401 of the Internal Revenue Code
("tax-qualified pension plans"), in each case where the average face amount is
at least $100,000. Policies with a minimum face amount of $50,000 may also be
available for juvenile insureds in the state of New Jersey.
POLICY CHARGES
PREMIUM-BASED CHARGES. We deduct the following charges from premiums:
-- A maximum sales charge of 4%. We currently intend to waive this charge
on premiums paid after the first 15 Policy years. In addition, we
currently intend to deduct this charge in any Policy year only until you
have paid an amount
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equal to a Sales Charge Breakpoint Premium in that Policy year. Premium
payments during a Policy year above that amount will not incur the sales
charge. A 3% sales charge will apply to larger Policies and to Policies
sold in certain business situations or to certain tax-qualified pension
plans;
-- A state premium tax charge of 2.5%;
-- A charge for federal taxes of 1%.
SURRENDER CHARGE. The Surrender Charge includes:
-- A deferred sales charge. This charge applies to a lapse, total or
partial surrender or face amount reduction during the first 11 Policy
years. For Policies covering insureds whose issue age is 55 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
45% of one Target Premium plus 13.5% of a second Target Premium and
13.5% of a third Target Premium. 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 eleventh Policy year. If you lapse
or surrender the Policy, or reduce its face amount, in the first two
Policy years, the maximum Deferred Sales Charge in the first Policy year
will be 25% of one Target Premium and in the second Policy year will be
25% of one Target Premium plus 5% of a second Target Premium. The charge
may be less if the issue age is above 55.
-- A deferred administrative charge. This charge applies to a lapse, total
or partial surrender or reduction in face amount during the first 11
Policy years. This charge is $2.50 per $1,000 of face amount for the
first Policy year, and then reduces monthly until it reaches 0 at the
end of the 11th Policy year. The charge will be less if the issue age is
greater than 65.
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 $0.07 per $1,000 of
face amount for the first Policy year and $0.02 per $1,000 thereafter
(guaranteed not to exceed $0.08 per $1,000 of face amount in the first
Policy year and $0.04 per $1,000 thereafter). On a current basis, we
intend not to charge more than $40 per month for the monthly
administrative charge after the first Policy year. For larger Policies
and Policies sold in certain business situations or to certain
tax-qualified pension plans the monthly administrative charge for the
first Policy year currently equals $0.06 per $1,000 of face amount
rather than $0.07;
-- Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of
face amount;
-- Monthly Policy fee, currently equal to $7.00 per month in the first
Policy year and $5.00 per month thereafter (guaranteed not to exceed
$7.00 per month). For larger Policies and Policies sold in certain
business situations or to certain tax-qualified pension plans the
monthly Policy fee after the first Policy year currently is $3.00 rather
than $5.00.
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 .60% (guaranteed not
to exceed .90%);
-- Daily charges against the Eligible Fund portfolios for investment
advisory services and fund operating expenses.
Currently, we do not charge the Variable Account for any federal income
taxes. We may, however, impose such a charge in the future.
See "Charges and Expenses".
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[HOW THE POLICY WORKS FLOW CHART]
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HOW THE POLICY WORKS
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PREMIUM PAYMENTS
Flexible
Planned premium options
- -Minimum premium (in first three Policy years)
- -Guaranteed Death Benefit B Premium (to age 80)
- -Guaranteed Death Benefit A Premium (to age 100)(not
available under Policies issued in New York)
CHARGES FROM PREMIUM PAYMENTS
Sales Load: 4% (3% for certain larger Policies and Policies
sold in certain business situations or to certain
tax-qualified
pension plans). We intend to waive after 15 policy yrs. We
also
intend to waive for premiums in a Policy year above a Sales
Charge Breakpoint Premium
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 5.25% 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 or the Fixed Account (after an initial period in
the
Zenith Money Market Sub-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 ten
accounts at any time
DEATH BENEFIT
Level or Variable Death Benefit Options
Guaranteed not to be less than 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 .60% (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 or automatic issue rating) from the cash
value each month
Any Rider Charges
Policy Fee: $7.00 per month (first year) and $5.00 (not to
exceed $7.00) per month thereafter. For certain larger
Policies and Policies sold in certain business situations
or to certain tax-qualified pension plans charge is
currently $3.00 per month after first year.
Minimum Death Benefit Guarantee Charge: $.01 per $1000 face
amount monthly
Administrative Charge: $.07 (guaranteed not to exceed $.08)
per $1000 face amount monthly (first year) and $.02
(guaranteed not to exceed $.04) per $1000 face amount
monthly (after first year).
For certain larger Policies and Policies sold in certain
business situations or to certain tax-qualified pension
plans charge is currently $.06 per $1,000 in first year.
SURRENDER CHARGES
Deferred Sales Charge and Deferred Administrative Charge
(see page A-15)
LIVING BENEFITS
If policyholder has elected and qualified for benefits for
disability and becomes totally disabled, we will waive
monthly charges 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
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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 at our Home Office 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.
[NELICO FLOW CHART]
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NELICO
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(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
Zenith Investors Sub-Account
Zenith Research Managers 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
MFS Investors Series
MFS Research Managers 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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POLICY VALUES AND BENEFITS
DEATH BENEFIT
If the insured dies while the Policy is in force, we pay a death benefit to
the beneficiary.
DEATH BENEFIT OPTIONS. When you apply for a Policy, you choose between two
death benefit options.
The Option 1 (Face Amount) death benefit is equal to the face amount of the
Policy. The Option 1 death benefit is fixed, subject to increases required by
the Internal Revenue Code.
The Option 2 (Face Amount Plus Cash Value) death benefit is equal to the
face amount of the Policy, plus the Policy's cash value, if any. The Option 2
death benefit is also subject to increases required by the Internal Revenue
Code.
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,
including the portion of any Monthly Deduction made for a period beyond the date
of death. (See Appendix F.) This means that, if the cash value grows to certain
levels, the death benefit increases to satisfy 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".)
MINIMUM GUARANTEED DEATH BENEFIT
The Policy provides two Minimum Guaranteed Death Benefits. (One of these,
Minimum Guaranteed Death Benefit A, is not available under Policies issued in
New York.) 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.
Generally, if you pay the required premium for a Minimum Guaranteed Death
Benefit each year, that Minimum Guaranteed Death Benefit will apply to your
Policy. The Guaranteed Death Benefit A and Guaranteed Death Benefit B premiums
are shown in Section 1 of your Policy and also appear in your personalized
illustration. If you do not pay one of these premiums in a Policy year, or if
---------------------------------------------------------------
you make certain Policy transactions, you could lose the Minimum Guaranteed
- ---------------------------------------------------------------------------
Death Benefit on a temporary or permanent basis.
- ------------------------------------------------
-- LOANS. No Minimum Guaranteed Death Benefit applies to your Policy while
a Policy loan is outstanding. However, if the total premiums you have
paid, adjusted for interest and any partial surrenders, are sufficient,
the applicable Minimum Guaranteed Death Benefit will apply to the Policy
once the loan is repaid. (Under Policies issued in New Jersey, a Minimum
------------------------------------
Guaranteed Death Benefit may apply while a Policy loan is outstanding.)
---
-- OTHER POLICY TRANSACTIONS. In addition, if you reduce the Policy's face
amount or make a partial surrender which reduces the face amount, or
reduce or delete a rider benefit from your Policy, or if your Policy's
rating classification is improved, you may lose the death benefit
guarantee. Whether a guarantee still applies depends on the total
premiums you have paid and the amount you have withdrawn from the Policy
by partial surrenders. We recalculate the minimum death benefit premiums
shown in Section 1 of your Policy following these transactions and also
following an increase in rider coverage. (See "Premiums" below.) Federal
tax law limits the amount of premiums that you can pay into the Policy.
If, after one of these transactions, the Federal tax law limits the
minimum death benefit premium for your Policy to an amount less than
zero, your Policy will lose its death benefit guarantee permanently.
-- SKIPPING A PREMIUM. If you do not pay a minimum death benefit premium
in a Policy year, a Minimum Guaranteed Death Benefit may still apply to
your Policy, depending on the total premiums paid and partial surrenders
made. However, if you lose a death benefit guarantee because of
insufficient premium payments, Federal tax law limits may prevent you
from paying enough premiums in future Policy years to regain the
guarantee. Although you may be able to regain the Guaranteed Minimum
Death Benefit B, it is unlikely that you will be able to regain the
Guaranteed Minimum Death Benefit A. (See "Minimum Guaranteed Death
Benefit A" and "Minimum Guaranteed Death Benefit B" below for more
information.)
MINIMUM GUARANTEED DEATH BENEFIT A. We determine if Minimum Guaranteed
Death Benefit A is in effect on the first day of each Policy month the Policy is
in force, until the Maturity Date (age 100 of the insured). This Benefit is in
effect if the total of:
(1) premiums paid under the Policy in each prior Policy year accumulated
at a 4% rate from the first day of the year of payment to the most recent
Policy anniversary, less partial surrenders accumulated at a 4% rate from
the date of surrender to the most recent Policy anniversary, plus
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(2) premiums paid less partial surrenders in the current Policy year, is
at least equal to:
(3) the amount shown in the Table of Guaranteed Death Benefit A Premiums
Accumulated at 4% for the prior Policy year plus 1/12 of the Benefit A
Premium for each Policy month of the current Policy year, up to and
including the month for which the Monthly Deduction is being processed, and
there is no outstanding Policy loan.
(Under Policies issued in New Jersey the guarantee may apply while a loan is
-----------------------------------
outstanding. For those Policies, we subtract the amount of the loan plus accrued
interest from premiums paid in the current Policy year when we apply this test.)
For these purposes, we treat premiums paid within 20 days prior to a Policy
anniversary as if paid in the next Policy year.
The Table of Guaranteed Death Benefit A Premiums Accumulated at 4% assumes
that the Guaranteed Death Benefit A Premium shown in your Policy is paid on the
first day of each Policy year and accumulates at a 4% rate per year.
The Minimum Guaranteed Death Benefit A is not available under Policies
----------------------------------------------------------------------
issued in New York.
- -------------------
MINIMUM GUARANTEED DEATH BENEFIT B. We determine if Minimum Guaranteed
Death Benefit B is in effect on the first day of each Policy month the Policy is
in force, until the later of: the date the insured reaches age 80, or 20 years
-----
from the Policy Date, but no later than the Maturity Date of the Policy (age 100
of the insured). This Benefit is in effect if the total of:
(1) premiums paid under the Policy in each prior Policy year accumulated
at a 4% rate from the first day of the year of payment to the most recent
Policy anniversary, less partial surrenders accumulated at a 4% rate from
the date of surrender to the most recent Policy anniversary, plus
(2) premiums paid less partial surrenders in the current Policy year, is
at least equal to:
(3) the amount shown in the Table of Guaranteed Death Benefit B Premiums
Accumulated at 4% for the prior Policy year plus 1/12 of the Benefit B
Premium for each Policy month of the current Policy year, up to and
including the month for which the Monthly Deduction is being processed, and
there is no outstanding Policy loan.
(Under Policies issued in New Jersey the guarantee may apply while a loan is
-----------------------------------
outstanding. For those Policies, we subtract the amount of the loan plus accrued
interest from premiums paid in the current Policy year when we apply this test.)
For these purposes, we treat premiums paid within 20 days prior to a Policy
anniversary as if paid in the next Policy year.
The Table of Guaranteed Death Benefit B Premiums Accumulated at 4% assumes
that the Guaranteed Death Benefit B Premium shown in your Policy is paid on the
first day of each Policy year and accumulates at a 4% rate per year.
Under Policies issued in New York, we call the Minimum Guaranteed Death
----------------------------------
Benefit B the "No Lapse Guarantee Death Benefit".
DEATH PROCEEDS PAYABLE
The death proceeds we pay are equal to the death benefit on the date of the
insured's death, reduced by any outstanding loan and accrued loan interest on
that date and by any unpaid Monthly Deduction for the period before 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 death, unless we already
included this amount in the death benefit calculation because of Federal tax law
requirements (see "Death Benefit Options" above and Appendix F).
We may adjust the death proceeds if the insured's age or sex was misstated
in the application, if death results from the 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 date we
receive it. A change in death benefit option may have tax consequences. (See
"Tax Considerations".)
If you change from Option 1 (Face Amount) to Option 2 (Face Amount Plus Cash
Value), 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; however, special rules apply for
some business situations. 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. There is
no Surrender Charge for a face amount reduction or partial surrender on a change
from Option 1 to Option 2.
If you change from Option 2 (Face Amount Plus Cash Value) to Option 1 (Face
Amount), we increase the Policy's face amount, if necessary, so that the death
benefit is the same immediately before and after the change.
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EXTENDING THE MATURITY DATE
In all states except New York, we will issue your Policy with an extended
maturity endorsement. If endorsed, the Policy will not mature until the date of
the insured's death. The death benefit we pay on and after the original Maturity
Date depends on the endorsement available in your state and on the insured's
issue age. Our latest endorsement (available in approved states and only if the
insured's issue age was below 81) extends the face amount of the Policy. It
provides that the death benefit on and after the original Maturity Date is the
greater of (1) the cash value on the date of death and (2) the Policy face
- -------
amount at the original Maturity Date, or at age 80, whichever is less.
In some states, (and for Policies sold in all states where the insured's
issue age was above 80) the death benefit we pay on and after the original
Maturity Date generally equals the cash value on the date of death. However, we
will extend the Policy face amount 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 B Premium
being paid each Policy year until the original Maturity Date (rather than until
age 80 of the 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.
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. We add to the net cash value the cost of insurance charge
for the remainder of the month. If you surrender in the grace period, we reduce
the net cash value by the Monthly Deduction that applies to the date of
surrender. (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, reduced by the charges against the Sub-Account (currently only the
mortality and expense risk charge) for that period.
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<PAGE> 14
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 and/or the Fixed Account as you choose. You can allocate to
a maximum of ten 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 Part II of the
Policy application is signed and the Policy Date. (For this purpose, receipt of
the premium payment means receipt by your registered representative, if the
payment is made with the application; otherwise, it means receipt by a NELICO
agency.)
PREMIUM WITH APPLICATION. If you make a premium payment with the
application, the Policy Date is generally the later of the date Part II of the
application is signed and receipt of the premium payment. In that case, the
Policy Date and investment start date are the same. The amount of premium paid
with the application must be at least 10% of the annual Planned Premium for the
Policy. 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
insured under a temporary insurance agreement for a limited period that usually
begins when we receive the premium for the Policy (or, if later, on the date
when Part II of the application is signed). The maximum temporary coverage is
the lesser of the amount of insurance applied for and $500,000 for standard and
preferred risks ($250,000 for substandard risks and $50,000 for persons who are
determined to be uninsurable). 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
on the net Minimum Premium (see "Premiums") for any period between the Policy
Date and the investment start date. Insurance coverage under the Policy begins
when we receive the Minimum Premium 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 premiums paid (or any other amount that is required by state
insurance law).
STATE VARIATIONS
Certain Policy features, such as the "Right to Return the Policy", may vary
by state. You should read the Policy carefully for any variations in your state.
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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. We can profit from
certain Policy charges.
DEDUCTIONS FROM PREMIUMS
We deduct a 4% sales charge from premiums. We currently intend to waive the
charge:
-- on all premiums after the 15th Policy year
-- on premiums paid in a Policy year that are in excess of a Sales Charge
Breakpoint 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 indicate your Sales Charge Breakpoint Premium as the "Target
Premium" on your personalized illustration.
The sales charge is 3% rather than 4% for:
-- Policies used in a business situation (defined in "Availability of the
Policy") or a tax-qualified pension plan where either (1) the average
face amount is at least $500,000 or (2) the Policies are issued on the
lives of at least 25 persons and the average face amount is at least
$250,000.
-- All other Policies with a face amount of at least $500,000.
During the first 11 Policy years (less for older insureds), if you surrender
or lapse the Policy, reduce the face amount or make a partial surrender that
reduces 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, state premium tax and federal
premium tax charges (see below) 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. Premium taxes vary from state to
state and the 2.5% charge reflects an average. Administrative expenses covered
by this charge include those related to premium tax and certain other state
filings.
FEDERAL PREMIUM TAX CHARGE. We deduct 1% from each premium for our federal
income tax liability related to premiums.
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EXAMPLE: The following chart shows the net amount that we would allocate to
the Variable Account assuming a premium payment of $3,000 and that the Policy's
Sales Charge Breakpoint Premium equals $2,000.
<TABLE>
<CAPTION>
NET
PREMIUM PREMIUM
- ------- -------
<C> <C> <S>
$3,000 $2,000
- 150 (7.5% X 2,000 = total sales and premium tax charge up to the
------- Sales Charge Breakpoint Premium)
$1,850
$1,000
- 35 (3.5% X 1,000 = total sales and premium tax charge on
------ payments in excess of the Sales Charge Breakpoint Premium)
$ 965
$1,850
+ 965
-------
$2,815 Net Premium
-------
</TABLE>
We intend to waive the 4% sales charge on premiums paid after the 15th
Policy year. In that case, the net premium in this example would be $3,000 - 105
(3.5% X 3,000) or $2,895.
SURRENDER CHARGE
If, during the first eleven 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
insureds whose issue age is 66 to 75 at issue of the Policy, the Surrender
Charge period is nine years, and for insureds whose issue age is 76 to 85, five
years.) The Surrender Charge includes a Deferred Sales Charge and a Deferred
Administrative Charge. The maximum Surrender Charge is shown in your Policy.
DEFERRED SALES CHARGE. We base the Deferred Sales Charge on a percentage of
the Target Premium. The Target Premium varies by issue age, sex and underwriting
class of the insured and the Policy's face amount. (To determine the Target
Premium, we use the nonsmoker aggregate or nonsmoker substandard classes for all
nonsmokers. See "Monthly Charges for the Cost of Insurance" below.)
The Deferred Sales Charge that applies during the first Policy year is equal
----------------------------
to 25% of premiums paid up to one Target Premium. The Deferred Sales Charge
during the second Policy year is equal to 25% of premiums paid up to one Target
- -----------------------------
Premium plus 5% of additional premiums paid up to a second Target Premium. As
--
described below, after the second Policy year, the maximum Deferred Sales Charge
- --------------------------------------------------------------------------------
increases substantially.
- ------------------------
For Policies which cover insureds whose issue age is 55 or less at issue,
the greatest Deferred Sales Charge applies if you lapse or surrender, or reduce
--------
the face amount, in Policy years three through five. The Deferred Sales Charge
----------------------------------
in these years equals 45% of actual premiums paid up to one Target Premium, plus
13.5% of additional premiums paid in excess of one Target Premium up to a second
Target Premium, plus 13.5% of additional premiums paid in excess of two Target
Premiums up to a third Target Premium. 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 eleventh Policy year.
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The table below shows the maximum Deferred Sales Charge that applies to
Policies covering insureds whose issue age is 55 or less at issue, and assumes
that one Target Premium per year is paid under the Policy. The table shows the
charge, expressed as a percentage of total Target 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 TOTAL TARGET
FOR POLICIES WHICH ARE PREMIUMS PAID TO DATE OF
SURRENDERED, LAPSED OR SURRENDER, LAPSE, OR
REDUCED DURING FACE AMOUNT REDUCTION
---------------------- -----------------------------
<S> <C> <C>
Entire Policy Year 3 24.00%
4 18.00%
5 14.40%
Last Month of Policy Years 6 10.00%
7 6.86%
8 4.50%
9 2.67%
10 1.20%
11 0.00%
</TABLE>
For insureds whose issue age is above 55 at issue, the Deferred Sales Charge
percentages are less than or equal to those described above, with the maximum
charge occurring in Policy years three through five for insureds with an issue
age up through 65, in Policy years two through four for insureds with an issue
age from 66 through 75, and in Policy year two for insureds with an issue age
above 75.
In the case of a partial surrender or reduction in 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 during the first eleven Policy years.
<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 $2.50
Last Month of Policy Year* 2 2.25
3 2.00
4 1.75
5 1.50
6 1.25
7 1.00
8 0.75
9 0.50
10 0.25
11 0.00
</TABLE>
- ------------
* The charge declines monthly after the end of the first Policy year.
For insureds whose issue age is above 65 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".)
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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 $7.00 per month in the
first Policy year and $5.00 per month thereafter (guaranteed not to exceed $7.00
per month).
The Policy fee is currently $3.00 per month rather than $5.00 after the
first Policy year for:
-- Policies used in a business situation (defined in "Availability of the
Policy") or a tax-qualified pension plan, where either (1) the average
face amount is at least $500,000 or (2) the Policies are issued on the
lives of at least 25 persons and the average face amount is at least
$250,000.
-- All other Policies with a face amount of at least $500,000.
ADMINISTRATIVE CHARGE. The Administrative Charge is currently equal to
$0.07 per $1,000 of Policy face amount in the first Policy year and $0.02 per
$1,000 of Policy face amount thereafter (guaranteed not to exceed $0.08 per
$1,000 of face amount in the first Policy year and $0.04 per $1,000 of face
amount thereafter).
Currently we intend not to charge more than $40 per month for the
Administrative Charge after the first Policy year. This means that after the
first year the charge will not apply to the portion of a Policy's face amount
above $2 million.
The Administrative Charge is currently $0.06 per $1,000 of face amount
rather than $0.07 for:
-- Policies used in a business situation or a tax-qualified pension plan,
where either (1) the average face amount is at least $500,000 or (2) the
Policies are issued on the lives of at least 25 persons and the average
face amount is at least $250,000.
-- All other Policies with a face amount of at least $500,000.
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. 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 the 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
-- the insured's age at issue
-- the Policy year
-- the face amount (for Policies not sold in a business situation or to a
tax-qualified pension plan)
-- the average face amount sold to the group and possibly the number of
lives in the group (for Policies sold in a business situation or to a
tax-qualified pension plan).
We guarantee that the rates will not be higher than rates based on
-- the 1980 Commissioners Standard Ordinary Mortality Tables (the "1980 CSO
Tables") with smoker/nonsmoker modifications, for Policies issued on
non-juvenile insureds (age 20 and above at issue)
-- the 1980 CSO Tables, for Policies issued on juvenile insureds (below age
20 at issue).
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.
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<PAGE> 19
The underwriting classes we use are
-- for Policies issued on non-juvenile insureds: smoker standard, smoker
substandard, nonsmoker preferred, nonsmoker standard, nonsmoker
aggregate, nonsmoker substandard and automatic issue
-- for Policies issued on juvenile insureds: standard and substandard.
Substandard and automatic issue 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. (See below for a discussion of
automatic issue Policies.)
The three standard nonsmoker classes are available as follows:
-- nonsmoker preferred and nonsmoker standard, for Policies with face
amounts of $250,000 or more where the issue age is 20 through 75
-- nonsmoker aggregate, for Policies with face amounts below $250,000 and
for all Policies where the 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
standard 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. Where required by state law, and for Policies sold in connection with some
employee benefit plans, cost of insurance rates (and Policy values and benefits)
do not vary based on the sex of the insured.
Currently, the face amount of a Policy or the average Policy face amount for
a group may affect a Policy's cost of insurance rates. The current cost of
insurance rates will be most favorable for a particular insured if:
-- For a Policy not used in a business situation or in a tax-qualified
pension plan, the Policy face amount is at least $500,000.
-- For a Policy used in a business situation or in a tax-qualified pension
plan, either (1) the average face amount is at least $500,000, or (2)
the Policies are issued on the lives of at least 25 persons and the
average face amount is at least $250,000.
The current cost of insurance rates will be least favorable for a particular
insured if:
-- For a Policy not used in a business situation or in a tax-qualified
pension plan, the Policy face amount is below $250,000.
-- For a Policy used in a business situation or in a tax-qualified pension
plan, the face amount is below $250,000 and either (1) the average face
amount is below $500,000 or (2) the Policies are issued on the lives of
at least 25 persons and the average face amount is below $250,000.
We may offer Policies on an automatic issue basis to certain group or
sponsored arrangements. We issue these Policies up to predetermined face amount
limits. Because we issue these Policies based on minimal underwriting
information, they may present a greater mortality cost to us than Policies in a
standard class. Therefore, we deduct an additional insurance charge from an
automatic issue Policy's cash value. The additional charge varies based on the
issue age of the insured. For some group or sponsored arrangements, it may also
vary based on the size of the group, the total premium for the group, and
certain characteristics of the group members. The total guaranteed maximum
monthly cost of insurance charges, including the additional charge for automatic
issue status, exceed charges based on 100% of the 1980 CSO Tables.
The underlying cost of insurance rates for automatic issue Policies vary
based on whether the insured is a smoker or nonsmoker, and the preferred
nonsmoker class is not available. The current cost of insurance rates do not
vary by individual Policy face amount but may be lower if the members of the
group or sponsored arrangement have certain characteristics, the Policies are
issued on at least 25 lives, the face amount of each Policy is at least $100,000
and the average face amount is at least $250,000.
Some group or sponsored arrangements may be eligible to purchase Policies on
a simplified underwriting basis. They may elect simplified underwriting instead
of automatic issue or for amounts of insurance above our automatic issue limits.
However, they may not choose automatic issue for some members of the group and
simplified underwriting for others. There is no extra insurance charge for
Policies issued on a simplified underwriting basis. The preferred nonsmoker
class is not available for these Policies.
A-18
<PAGE> 20
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 .60% 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.
The following table shows the annual operating expenses for each series,
based on actual expenses for 1998, (for the two MFS Series, anticipated expenses
for 1999), 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 MORGAN
SACHS LOOMIS STANLEY DAVIS ALGER MFS
MIDCAP SAYLES INTERNATIONAL VENTURE EQUITY MFS RESEARCH
VALUE BALANCED MAGNUM VALUE GROWTH INVESTORS MANAGERS
SERIES SERIES EQUITY SERIES* SERIES SERIES SERIES* SERIES*
------- -------- -------------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......................... .75% .70% .90% .75% .75% .75% .75%
Other Expenses.......................... .15% .12% .40% .08% .08% .15% .15%
--- --- ---- --- --- --- ---
Total Series Operating
Expenses..................... .90% .82% 1.30% .83% .83% .90% .90%
</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%. 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 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.
A-19
<PAGE> 21
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 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 EXPENSE 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. Examples of such arrangements are tax-qualified pension plans and
non-tax qualified deferred compensation plans. 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. Therefore, we offer Policies that do not
vary based on the sex of the insured to certain employee benefit programs. 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 is a level 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. Additional payments could be subject to 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 by
sending your request to us. However, you cannot increase the amount of your
Planned Premium unless we consent, and we may require underwriting.
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
A-20
<PAGE> 22
payments did not exceed the "7-pay test". (See "Tax Considerations".) You need
our consent if, because of tax law requirements, a payment would increase the
Policy's death benefit by more than it would increase cash value. We may require
evidence of insurability before accepting the payment.
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,
second as repayment of Policy loan interest due, and last 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-21
<PAGE> 23
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 insured, and (3)
until age 100 of the insured. (The guarantee to age 100 is not available under
Policies issued in New York.)
First three Policy years--In general, if you pay the three year Minimum
------------------------
Premium amount on time, the Policy will not lapse even if the net cash value is
less than the Monthly Deduction in any month. If (a) the total premiums you have
paid, less all partial surrenders and any outstanding Policy loan balance, at
least equal (b) the total monthly Minimum Premiums for the Policy up to that
Policy month, the Policy will not lapse. The guarantee will not apply if you
substitute the insured or reinstate the Policy. We recalculate the Minimum
Premium if (1) you reduce the face amount or make a partial surrender that
reduces the face amount, (2) you increase or decrease rider coverage, or (3) the
rating classification for your Policy is improved. We base the Minimum Premium
amount (shown in your Policy) on your Policy's face amount, the age, sex (unless
unisex rates apply) and underwriting class of the insured, current Policy
charges and any riders to the Policy.
To Maturity (age 100 of the insured)--Payment of the Guaranteed Death
------------------------------------
Benefit A premium can guarantee that the Policy will stay in force until age 100
of the 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 the insured, the death benefit
option chosen, the guaranteed level of cost of insurance charges, the current
level of other Policy charges and any rider benefit selected. We recalculate
this premium following the same Policy transactions described above for a
recalculation of the three-year Minimum Premium amount. This Guaranteed Death
---------------------
Benefit A premium does not apply under Policies issued in New York.
- -------------------------------------------------------------------
To age 80 of the insured--Payment of the Guaranteed Death Benefit B premium
------------------------
can guarantee that the Policy will stay in force until the later of age 80 of
the insured, or 20 years after issue, but no later than the Maturity Date of the
Policy (age 100 of the insured). 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 A premium. We base this premium on factors similar to the Guaranteed
Death Benefit A premium, but we use the guaranteed level of both cost of
insurance and other Policy charges for coverage to that age. We recalculate the
Guaranteed Death Benefit B premium following the same Policy transactions
described above for a recalculation of the three-year Minimum Premium amount.
Under Policies issued in New Jersey, if you have met the requirements for
------------------------------------
the three-year Minimum Premium death benefit guarantee at the end of the three
year guarantee period, the Minimum Premium death benefit guarantee will continue
to apply during the fourth Policy year as long as (a) payments made during that
Policy year, less partial surrenders and loans made in that year, equal (b) the
guaranteed maximum Policy charges plus the applicable Surrender Charge for the
fourth Policy year. In addition, under Policies issued in New Jersey, if at the
end of the period for Minimum Guaranteed Death Benefit B you have met the
requirements for that guarantee, the guarantee will continue to apply during the
next Policy year as long as (a) payments made during that Policy year, less
partial surrenders and loans made in that year, equal (b) the guaranteed maximum
Policy charges for that Policy year. If you make a Policy transaction that
changes the amount of the guaranteed maximum Policy charges for the year, then
the amount needed to preserve the death benefit guarantee for an extra Policy
year will change accordingly.
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
pay the amount due. The amount due is the least of: a premium large enough to
cover the Monthly Deduction and all deductions from the premium; a premium large
enough to permit Minimum Guaranteed Death Benefit A to be in effect; a premium
large enough to permit Minimum Guaranteed Death Benefit B to be in effect; and a
premium large enough to permit the three-year Minimum Premium death benefit to
be in effect. We will tell you the amount due. You have insurance coverage
during the grace period, but if the insured dies before you have paid the
premium, we deduct from the death proceeds the amount due for the period before
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.
A-22
<PAGE> 24
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 (unlike,
for example, cost of insurance charges that vary by age of the insured), we do
not count the amount of time that a Policy was lapsed.
OTHER POLICY FEATURES
INCREASE IN FACE AMOUNT
The Policy provides that, after the first Policy year, you may increase the
face amount. Currently, we administer requests for increases in face amount by
issuing a new Policy with a face amount equal to the requested increase in face
amount (an "Increase Policy"). Under Increase Policies, we generally waive the
monthly Policy Fee; and we usually base the monthly administrative charge on the
Policy year of the initial Policy. Otherwise, an Increase Policy is subject to
the same terms and conditions as any other Policy except that the minimum
required face amount for an Increase Policy is $10,000, and you may reduce the
face amount of the Increase Policy to below $10,000.
We may in the future administer face amount increases as increases in the
face amount of the initial Policy. A maximum Face Amount Increase Administrative
Charge of $2.50 per $1,000 of the face amount increase will apply to each
increase when it takes effect. Certain terms and conditions will apply to
increases in face amount, as outlined in the Policy. A separate Target Premium
amount will apply to the face amount increase, based on the insured's age and
underwriting class at the time of the increase. The Policy's sales charge and
Surrender Charge scales will apply separately to each face amount segment,
starting with the effective date of the face amount segment. Monthly Deductions
(including cost of insurance charges) will be based on the increase in coverage
and will reflect, in whole or in part, any change in risk classification of the
insured, according to our rules. (See "Charges and Expenses".) An increase in
face amount may have tax consequences.
When increases in the face amount of the initial Policy are available, we
will give Policy Owners who have purchased Increase Policies an opportunity to
consolidate coverage under initial and Increase Policies. The Face Amount
Increase Administrative Charge will not apply to the consolidation.
Consolidation of coverage may raise issues under federal tax law. You should
consult a tax advisor before requesting a consolidation.
For Policies issued in some business situations on an automatic issue basis,
we may offer annual face amount increases which are related to increases in
salary or which are based on a fixed annual percentage (the "Salary Refresh"
program). We determine limits on the annual and/or total amount of face
increases per Policy that we will permit on an automatic issue basis at issue.
Increases over this limit will require underwriting. The Salary Refresh program
is not available for Policies with the Option 2 death benefit.
We may also offer the Salary Refresh program for Policies issued on an
underwritten basis in some business situations. Any Salary Refresh face amount
increases under these Policies are underwritten in connection with the
application for the initial face amount of the Policies, and are subject to
limits that we determine at that time.
The terms and conditions of the Salary Refresh program are contained in our
published rules which are furnished at the time of application.
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.
A-23
<PAGE> 25
EXAMPLE: Using the Policy illustrated on page A-43 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 4.57%). 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
------- ---------
<S> <C> <C>
(1) Cash Value after Premium Payment on 10th Policy
Anniversary............................................... $42,363 $39,963
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4% to the
(a) 11th Policy Anniversary............................. 43,650
(b) Next Planned Premium Due Date....................... 40,243
(3) 90% of Amount Calculated in (2)........................ 39,285 36,219
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge.......................................... 39,020 35,954
(5) Amount Calculated in (4), Reduced by Loan Interest to
the Next Interest Due Date................................ 36,986 34,080
</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 at that time, 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 year. The rate we currently credit is 4% per year for the first
15 Policy years and 5.25% thereafter. (You should consult a tax advisor as to
the tax consequences associated with a Policy loan outstanding after the first
15 Policy years.) 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 Benefit".)
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 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 other 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. 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 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 the
insured is living. We determine the net cash value of the surrendered Policy as
of the date when we receive the 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".) We increase the net cash value paid
on surrender by the portion of any cost of insurance charge we deducted for the
period beyond the date of surrender. If you surrender the Policy during the
grace period, we reduce the net cash value by an amount to cover the Monthly
A-24
<PAGE> 26
Deduction to the date of surrender. 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 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
Target Premium, on which we base any future Surrender Charges, and in the Sales
Charge Breakpoint Premium, on which we currently base the 4% 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. (In some business situations or for
some tax-qualified pension plans we may permit you to withdraw a higher
percentage of the net cash 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 that can be applied under your Policy.
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. 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. (See "The
Fixed Account" below.) We determine the amount of net cash value paid upon
partial surrender as of 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 Target
Premium, on which we base any future Surrender Charges, and in the Sales Charge
Breakpoint Premium, on which we currently base the 4% 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; special rules apply in business situations.
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 your Policy's Minimum Guaranteed Death Benefit. (See "Minimum
Guaranteed Death Benefit".)
A face amount reduction takes effect as of 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".)
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<PAGE> 27
ACCELERATION OF DEATH BENEFIT RIDER
We may offer in the future a rider benefit that will allow you to receive an
accelerated payment of your Policy's death benefit. This benefit will be
available where certain special needs exist, as described briefly below. Your
right to exercise the rider will be subject to certain conditions.
WE WILL MAKE THE ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF: (1)
-------------------------------------------------------------------------
YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, AND (2) WE BELIEVE THAT
- -------------------------------------------------------------------------------
THE RIDER WILL MEET THE DEFINITION OF AN ACCELERATED DEATH BENEFIT FOR FEDERAL
- ------------------------------------------------------------------------------
INCOME TAX PURPOSES AND (3) WE BELIEVE THAT THE RIDER WILL NOT JEOPARDIZE THE
- -----------------------------------------------------------------------------
QUALIFICATION OF THE POLICY AS LIFE INSURANCE UNDER FEDERAL INCOME TAX LAW.
- ---------------------------------------------------------------------------
We expect that payment of the rider benefit will be available if the insured
is diagnosed as terminally ill, as defined in the rider. The benefit may be
subject to discounting and charges. Payment will be subject to evidence
satisfactory to us.
See "Tax Considerations", below, for a discussion of the tax consequences
associated with the accelerated benefits rider.
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 10 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 in 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 10 accounts (including the Fixed Account) at any
one time.
You make the initial premium 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
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.
DOLLAR COST AVERAGING
We plan to offer an automated transfer privilege called dollar cost
averaging. The same dollar amount is transferred to selected Sub-Accounts
(and/or the Fixed Account) periodically. Over time, more purchases of Eligible
Fund shares are made when the value of those shares is low, and fewer shares are
purchased when the value is high. As a result, a lower than average cost of
purchases may be achieved over the long term. This plan of investing allows you
to take advantage of investment fluctuations, but does not assure a profit or
protect against a loss in declining markets.
Under this feature, you may request that a certain amount of your cash value
be transferred on any selected business day of each period (or if not a day when
the New York Stock Exchange is open, the next such day), from any one
Sub-Account to one or more of the other Sub-Accounts (and/or the Fixed Account).
We limit your allocation of cash value to no more than 10
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<PAGE> 28
accounts (including the Fixed Account) at any one time. You must transfer a
minimum of $100 to each account that you select under this feature. Transfers
made under the dollar cost averaging program count against the 12 transfers
allowed in a Policy year. You can select a dollar cost averaging program when
you apply for the Policy or at a later date by contacting our Home Office. You
may participate in the dollar cost averaging program while you are participating
in the asset rebalancing program as long as the Sub-Account from which you are
transferring cash value under the dollar cost averaging program is not included
in the asset rebalancing program. (See "Asset Rebalancing" below). You can
cancel your use of the dollar cost averaging program at any time before a
transfer date. Transfers will continue until you notify us to stop or there no
longer is sufficient cash value in the Sub-Account from which you are
transferring.
Ask your registered representative about the availability of this feature.
ASSET REBALANCING
We plan to offer an asset rebalancing program for cash value. Cash value
allocated to the Sub-Accounts can be expected to increase or decrease at
different rates. An asset rebalancing program automatically reallocates your
cash value among the Sub-Accounts periodically to return the allocation to the
allocation percentages you specify. Asset rebalancing is intended to transfer
cash value from those Sub-Accounts that have increased in value to those that
have declined, or not increased as much, in value. Asset rebalancing does not
guarantee profits, nor does it assure that you will not have losses.
You can select an asset rebalancing program when you apply for the Policy or
at a later date by contacting our Home Office. You specify the percentage
allocations by which your cash value will be reallocated among the Sub-Accounts.
You may participate in the asset rebalancing program while you are participating
in the dollar cost averaging program as long as the Sub-Account from which you
are transferring cash value under the dollar cost averaging program is not
---
included in the asset rebalancing program. (See "Dollar Cost Averaging" above).
On the last day of each period on which the New York Stock Exchange is open, we
will transfer cash value among the Sub-Accounts as necessary to return the
allocation to your specifications. Asset rebalancing will continue until you
notify us in writing or by telephone at our Home Office. Transfers made under
the asset rebalancing program count against the 12 transfers allowed in a Policy
year.
Ask your registered representative about the availability of this feature.
SUBSTITUTION OF INSURED PERSON
Subject to state insurance department approval, we offer a rider benefit
that permits you to substitute the insured person under your Policy, if you
provide satisfactory evidence that the person proposed to be insured is
insurable. The right to substitute the insured person is subject to some
restrictions and may result in a cost or credit to you. A substitution of the
insured person is a taxable exchange. In addition, a substitution of the insured
person could reduce the amount of premiums you can pay into the Policy under
Federal tax law and, therefore, may require a partial surrender of cash value.
(No Surrender Charge will apply.)
Your registered representative can provide current information on the
availability of the rider. You should consult your tax advisor before
substituting the insured person under your Policy.
PAYMENT OF PROCEEDS
We ordinarily pay any net cash value, loan value or death benefit proceeds
from the Sub-Accounts within seven days after we receive a request, or
satisfactory proof of death of the insured (and any other information we need to
pay the death proceeds). (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 if 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
a banking institution at the time for payment. The Access Plus account gives
convenient access to the proceeds, which are maintained in our general account
or that of an affiliate, through checkbook privileges with the bank.
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<PAGE> 29
Normally we promptly make payments of 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.
24 MONTH RIGHT
GENERAL RIGHT. Generally, during the first 24 months after the Policy's
issue date, you may convert the Policy, or a portion of it, to fixed benefit
coverage by transferring all or a portion of your Policy's cash value, and
allocating all or a portion of future premiums, to the Fixed Account. The
request to convert to fixed benefit coverage must be in written form
satisfactory to us. Increase Policies have the same 24 Month Right.
You may exercise this privilege only once within 24 months after issue.
Transfers into the Fixed Account pursuant to this right will not count toward
the limit on the number of cash value transfers permitted under the Policy each
year. Transfers of cash value back to one or more Sub-Accounts of the Variable
Account are subject to the Policy's general limits on transfers from the Fixed
Account (see "The Fixed Account").
The Policy permits us to limit allocations to the Fixed Account under some
circumstances. (See "The Fixed Account.") If we limit such allocations and you
then wish to exercise the 24 Month Right, you may continue to allocate to the
Fixed Account only the percentage of premiums that you allocated to the Fixed
Account pursuant to your exercise of the 24 Month Right. In addition, if you
have exercised this right, and we later limit such allocations, then you may
continue to allocate to the Fixed Account only the lowest percentage of premiums
that you allocated to the Fixed Account at any time since your exercise of the
24 Month Right.
FOR POLICIES ISSUED IN MARYLAND AND NEW JERSEY. Under Policies issued in
Maryland and New Jersey, you can exchange the face amount of your Policy for a
fixed benefit life insurance policy provided that you repay any policy loans and
(1) the Policy has not lapsed and (2) the exchange is made within 24 months
after the Policy's issue date. 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, at
your option, either the same death benefit or the same net amount at risk as
that being exchanged. The new policy will have the same issue age, underwriting
class and policy date as the variable life policy had. 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 24 Month Right in these states. The exchange may result in a cost or
credit to you. On the exchange, you may need to make an immediate premium
payment on the new policy in order to keep it in force.
GROUP OR SPONSORED ARRANGEMENTS. For a Policy issued to some group or
sponsored arrangements, we offer the additional option of exchanging the Policy
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. (Availability of this feature depends on state insurance
department approval.) Contact us or your registered representative for more
information about this feature.
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 death of the insured. 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 that we
pay 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.
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<PAGE> 30
(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.
There may be circumstances in which it will be to your economic advantage to
include a significant portion or percentage of your insurance coverage under a
level term insurance rider. In many other circumstances, it may be in your
interest to obtain a Policy without term rider coverage. These circumstances
depend on many factors, including the premium levels and amount and duration of
coverage you choose, as well as the age, sex and risk classification of the
insured.
Reductions in or elimination of term rider coverage do not trigger a
Surrender Charge, and use of a term rider generally reduces sales compensation.
Your registered representative can provide you more information on the uses of
term rider coverage.
The following riders are available:
LEVEL TERM INSURANCE, which provides term insurance.
WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly Deductions
upon the disability of the insured.
TEMPORARY TERM INSURANCE, which provides for insurance from the date of
issue to the Policy Date.
CHILDREN'S INSURANCE, which provides insurance on the life of the insured's
children.
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
insured.
The beneficiary is also named in the application. You may change the
beneficiary at any time before the death of the insured. The beneficiary has no
rights under the Policy until the death of the insured and must survive the
insured in order to receive the death proceeds. If no named beneficiary survives
the insured, 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.)
A-29
<PAGE> 31
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
Sub-Accounts of the Variable Account that are available in this Policy
invest in the following Eligible Funds:
The Zenith Back Bay Advisors Money Market Series. Its 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. Its investment objective is
a high level of current income consistent with protection of capital.
The Zenith Capital Growth Series. Its 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. Its 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. Its investment objective is a
favorable total return through investment in a diversified portfolio.
The Zenith Westpeak Growth and Income Series. Its investment objective is
long-term total return through investment in equity securities.
The Zenith Goldman Sachs Midcap Value Series. Its investment objective is
long-term capital appreciation.
The Zenith Loomis Sayles Small Cap Series. Its investment objective is
long-term capital growth from investments in common stocks or their equivalents.
The Zenith Loomis Sayles Balanced Series. Its investment objective is
reasonable long-term investment return from a combination of long-term capital
appreciation and moderate current income.
The Zenith Morgan Stanley International Magnum Equity Series. Its 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. Its investment objective is growth of
capital.
The Zenith Alger Equity Growth Series. Its investment objective is long-term
capital appreciation.
The Zenith MFS Investors Series. Its investment objective is reasonable
current income and long-term growth of capital and income.
The Zenith MFS Research Managers Series. Its investment objective is
long-term growth of capital.
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<PAGE> 32
The VIP Equity-Income Portfolio. It 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. It 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. It 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. It seeks high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds and
short-term instruments.
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.
The Eligible Funds' investment 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.
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 Market New England Investment Management, Back Bay Advisors, L.P.*
Inc.
Back Bay Advisors Bond Income New England Investment Management, Back Bay Advisors, L.P.*
Inc.
Back Bay Advisors Managed New England Investment Management, Back Bay Advisors, L.P.*
Inc.
Westpeak Stock Index New England Investment Management, Westpeak Investment Advisors,
Inc. L.P.*
Westpeak Growth and Income New England Investment Management, Westpeak Investment Advisors,
Inc. L.P.*
Loomis Sayles Small Cap New England Investment Management, Loomis, Sayles & Company, L.P.*
Inc.
Loomis Sayles Balanced New England Investment Management, Loomis, Sayles & Company, L.P.*
Inc.
Morgan Stanley International New England Investment Management, Morgan Stanley Dean Witter
Magnum Equity Inc. Investment Management Inc.
Goldman Sachs Midcap Value New England Investment Management, Goldman Sachs Asset Management
Inc.
Davis Venture Value New England Investment Management, Davis Selected Advisers, L.P.**
Inc.
Alger Equity Growth New England Investment Management, Fred Alger Management, Inc.
Inc.
MFS Investors New England Investment Management, Massachusetts Financial Services
Inc. Company
MFS Research Managers New England Investment Management, Massachusetts Financial Services
Inc. 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.
A-31
<PAGE> 33
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, Ltd.
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.) 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. Any loan repayment allocated to the
Fixed Account is credited with the lesser of our current interest rate and the
effective interest rate for your Policy's cash value in the Fixed Account on the
date of the repayment. The Fixed Account 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".)
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".)
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<PAGE> 34
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 ONLY IF
WE RECEIVE THE TRANSFER REQUEST WITHIN THE 30 DAY PERIOD AFTER THE POLICY
ANNIVERSARY. WE MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER REQUEST
AT OUR HOME OFFICE.
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.
We pay the following commissions and/or service fees to the selling agent: a
maximum of 50% of the Sales Charge Breakpoint Premium paid in the first Policy
year, a maximum of 5% in Policy years two through ten, and a maximum of 3%
thereafter. Agents receive a maximum commission of 3% of each payment in excess
of the Sales Charge Breakpoint Premium in any year. For Policies sold in
connection with certain executive benefit plans the maximum commissions are: 20%
of the Sales Charge Breakpoint Premium in the first Policy year, 10% in Policy
years two through ten, and 2% thereafter. For these Policies we will pay a
maximum commission of 3.5% of each payment in excess of the Sales Charge
Breakpoint Premium in Policy years one through ten, and 2% of such excess
premiums thereafter. 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 pay
additional compensation to the broker-dealer and/or reimburse it for portions of
Policy sales expenses.
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<PAGE> 35
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, we can challenge the validity of your Policy or a rider during
the insured's lifetime for two years (or less, if required by state law) from
the date of issue, based on misrepresentations made in the application. We can
challenge the portion of the death benefit resulting from an underwritten
premium payment for two years during the insured's lifetime from receipt of the
premium payment. However, if the 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 in the application.
MISSTATEMENT OF AGE OR SEX
If the application misstates the insured's age or sex, the Policy's death
benefit is the amount that the most recent Monthly Deduction which was made
would provide, based on the insured's correct age and, if the Policy is
sex-based, correct sex.
SUICIDE
If the insured commits 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. (Where required by
state law, we determine the death benefit under this provision by using the
greater of: the reserve of the insurance which is subject to the provision; and
the amounts used to purchase the insurance which is subject to the provision.)
TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy 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 the
Policies should satisfy the applicable requirements. There is less guidance,
however, with respect to Policies issued on a substandard or automatic issue
basis and Policies with term riders added, and it is not clear whether such
Policies will in all cases 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
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
premiums 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 Policy.
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.
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<PAGE> 36
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 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 are 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.
ACCELERATED BENEFITS RIDER. We believe that payments received under the
accelerated benefits rider should be fully excludable from the gross income of
the beneficiary if the beneficiary is the insured under the Policy. (See
"Acceleration of
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<PAGE> 37
Death Benefit Rider" for more information regarding the rider.) However, you
should consult a qualified tax adviser about the consequences of adding this
rider to a Policy or requesting payment under this 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.
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 the 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 Federal income taxes. We reserve the right to charge the
Variable Account for any future Federal income taxes we may incur.
Under current laws in several states, 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.
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<PAGE> 38
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 and President, Individual Business of
Metropolitan Life Insurance Company since 1999; 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 Insurance Co. Chief Executive Officer of Metropolitan Life Insurance
One Madison Avenue Company since 1998; formerly, Director, President and
New York, NY 10010 Chief Operating Officer 1997-1998; Executive Vice
President 1995-1997 of Metropolitan Life; Executive Vice
President 1989-1995 of Paine Webber.
Susan C. Crampton................. Director of NELICO since 1996 and serves as Principal of The
6 Tarbox Road Vermont Partnership, a business consulting firm located in
Jericho, VT 05465 Jericho, Vermont since 1989; formerly, Director 1989-1996
of New England Mutual.
Edward A. Fox..................... Director of NELICO since 1996 and Chairman of the Board of
R.R. Box 67-15 SLM Holdings since 1997; formerly, Director 1994-1996 of New
Harborside, ME 04642 England Mutual.
George J. Goodman................. Director of NELICO since 1996 and author, television
Adam Smith's Global Television journalist, and editor.
50th Floor, Craig Drill Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Evelyn E. Handler............. Director of NELICO since 1996 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 of
Howard, Smith & Levin LLP Howard, Smith & Levin LLP in New York City.
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 Industries,
1345 Avenue of the Americas Inc.; Director and Executive Vice President 1993-1995 of
17th Floor 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 1994;
800 Boylston Street formerly, Director 1994-1996 of New England Mutual.
Boston, MA 02199
Stewart G. Nagler................. Director of NELICO since 1996 and Vice Chairman and Chief
Metropolitan Life Insurance Co. Financial Officer of Metropolitan Life Insurance Company
One Madison Avenue since 1998; formerly, Senior Executive Vice President and
New York, NY 10010 Chief Financial Officer 1986-1998 of Metropolitan Life
Insurance Company.
Catherine A. Rein................. Director of NELICO since 1998 and President and Chief
Metropolitan Property and Executive Officer of Metropolitan Property and Casualty
Casualty Insurance Company since 1999; formerly, Senior Executive Vice President
700 Quaker Lane 1998-1999; Executive Vice President 1989-1998 of
Warwick, RI 02887 Metropolitan Life Insurance Company.
Rand N. Stowell................... Director of NELICO since 1996 and President of United Timber
P.O. Box 60 Corp. of Weld, Maine; formerly, Director 1990-1996 of New
Weld, ME 04285 England Mutual.
</TABLE>
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<PAGE> 39
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Alexander B. Trowbridge........... Director of NELICO since 1996 and President of Trowbridge
Trowbridge Partners Inc. Partners, Inc. in Washington, DC; formerly, Director
1317 F Street, NW, 1983-1996 of New England Mutual.
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 and Senior Vice President
1994-1997 of The Equitable Life Insurance Companies.
Pauline V. Belisle................ Senior Vice President of NELICO since 1996; formerly, Senior
Vice President 1994-1996 of New England Mutual.
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.
Anne Marie Faria.................. Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 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.
Alan C. Leland, Jr. .............. Senior Vice President of NELICO since 1996; formerly, Vice
President 1984-1996 of New England Mutual.
George J. Maloof.................. Senior Vice President of NELICO since 1996; formerly, Vice
President 1991-1996 of New England Mutual.
Kenneth D. Martinelli............. Senior Vice President of NELICO since 1999; formerly, Vice
President 1997-1999 of NELICO and Vice President 1994-1997
of The Equitable Life Assurance Company.
Thomas W. McConnell............... Senior Vice President of NELICO since 1996 and Director,
Chief Executive Officer and President of New England
Securities Corporation since 1993.
Hugh C. McHaffie.................. Senior Vice President of NELICO since 1999; formerly, Vice
President 1994-1999 of Manufacturers Life Insurance Company
of North America.
Stephen J. McLaughlin............. Senior Vice President of NELICO since 1999; formerly, Vice
President 1996-1999 of NELICO and Vice President 1994-1996
of New England Mutual.
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 since
1998; formerly, Second Vice President 1997-1998 of NELICO;
Manager of Life Insurance Accounting 1994-1997 of Liberty
Life Assurance Company.
</TABLE>
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<PAGE> 40
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
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).
</TABLE>
The principal business address for each of the directors and executive
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.
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 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 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.
A-39
<PAGE> 41
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.
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, subaccount transfers, lapses, surrenders and other Policy
transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
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-40
<PAGE> 42
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan LLP, of Washington, D.C., has provided advice on certain
matters relating to federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of
New England Life Insurance Company ("NELICO") 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-41
<PAGE> 43
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
NET CASH VALUES AND ACCUMULATED 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 face amounts of $100,000 and $500,000 for a male aged 40. The
insured is assumed to be in the nonsmoker aggregate class for the $100,000 face
amount and in the nonsmoker preferred class for the $500,000 face amount. The
Tables assume no rider benefits and assume that no allocations are made to the
Fixed Account. Values are first given based on current mortality and other
Policy charges and then based on guaranteed mortality and other Policy charges.
The illustrations for the $500,000 face amount reflect the lower sales charge
and, in the illustrations based on current charges, the cost of insurance,
Policy fee, and first-year administrative charges that would apply to a Policy
if issued in the personal market or if issued in business situations or to
tax-qualified pension plans which qualify for those lower charges. (See "Charges
and Expenses".) Illustrations show Option 1 and Option 2 death benefits.
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 the insured were female or in another 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 and a charge for
the cost of insurance) from the cash value on the first day of each Policy
month. The net cash values reflect a Surrender Charge deducted from the cash
value upon surrender, face reduction or lapse during the first 11 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 .60% (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 -1.35%, 4.57% and 10.49%, 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.
If you request, we will furnish a personalized illustration reflecting the
proposed insured's 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
insured.
A-42
<PAGE> 44
MALE ISSUE AGE 40
$1,520 ANNUAL PREMIUM FOR NONSMOKER
AGGREGATE UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 1 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 1,596 $100,000 $100,000 $100,000 $ 582 $ 654 $ 726 $ 1,021 $ 1,093 $ 1,165
2 3,272 100,000 100,000 100,000 1,641 1,852 2,071 2,093 2,304 2,523
3 5,031 100,000 100,000 100,000 2,382 2,800 3,253 3,127 3,545 3,998
4 6,879 100,000 100,000 100,000 3,409 4,106 4,892 4,129 4,826 5,612
5 8,819 100,000 100,000 100,000 4,406 5,454 6,684 5,101 6,149 7,379
6 10,856 100,000 100,000 100,000 5,460 6,934 8,734 6,039 7,513 9,314
7 12,995 100,000 100,000 100,000 6,495 8,472 10,985 6,959 8,935 11,449
8 15,240 100,000 100,000 100,000 7,533 10,091 13,479 7,880 10,439 13,827
9 17,598 100,000 100,000 100,000 8,587 11,811 16,258 8,819 12,043 16,490
10 20,074 100,000 100,000 100,000 9,678 13,654 19,369 9,794 13,770 19,485
15 34,439 100,000 100,000 100,000 14,580 23,839 40,169 14,580 23,839 40,169
20 52,773 100,000 100,000 100,000 18,673 36,195 74,443 18,673 36,195 74,443
25 76,172 100,000 100,000 157,196 21,787 51,306 130,997 21,787 51,306 130,997
30 106,036 100,000 100,000 256,806 23,549 70,058 223,309 23,549 70,058 223,309
35 144,151 100,000 100,000 392,908 23,040 94,019 374,198 23,040 94,019 374,198
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END 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 -61.74% -56.99% -52.22% 6,478.95% 6,478.95% 6,478.95%
2 -34.69 -28.83 -23.01 662.65 662.65 662.65
3 -29.13 -22.48 -15.96 265.39 265.39 265.39
4 -21.85 -15.10 -8.51 152.66 152.66 152.66
5 -17.65 -10.86 -4.25 102.87 102.87 102.87
6 -14.51 -7.78 -1.23 75.61 75.61 75.61
7 -12.37 -5.70 0.80 58.68 58.68 58.68
8 -10.77 -4.16 2.29 47.26 47.26 47.26
9 -9.49 -2.95 3.44 39.10 39.10 39.10
10 -8.41 -1.96 4.36 33.01 33.01 33.01
15 -5.83 0.55 6.80 17.02 17.02 17.02
20 -4.92 1.63 7.92 10.35 10.35 10.35
25 -4.61 2.24 8.56 6.81 6.81 9.72
30 -4.70 2.64 8.94 4.68 4.68 9.65
35 -5.33 2.97 9.19 3.27 3.27 9.40
</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-43
<PAGE> 45
MALE ISSUE AGE 40
$1,520 ANNUAL PREMIUM FOR NONSMOKER
AGGREGATE UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 1 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 1,596 $100,000 $100,000 $100,000 $ 542 $ 612 $ 683 $ 981 $ 1,052 $ 1,122
2 3,272 100,000 100,000 100,000 1,514 1,716 1,928 1,966 2,168 2,380
3 5,031 100,000 100,000 100,000 2,175 2,573 3,005 2,920 3,318 3,750
4 6,879 100,000 100,000 100,000 3,121 3,779 4,523 3,841 4,499 5,243
5 8,819 100,000 100,000 100,000 4,034 5,018 6,176 4,729 5,713 6,871
6 10,856 100,000 100,000 100,000 5,003 6,380 8,067 5,582 6,959 8,647
7 12,995 100,000 100,000 100,000 5,935 7,774 10,120 6,398 8,237 10,583
8 15,240 100,000 100,000 100,000 6,830 9,200 12,350 7,178 9,548 12,697
9 17,598 100,000 100,000 100,000 7,687 10,659 14,775 7,919 10,891 15,007
10 20,074 100,000 100,000 100,000 8,503 12,149 17,416 8,619 12,265 17,532
15 34,439 100,000 100,000 100,000 11,393 19,553 34,211 11,393 19,553 34,211
20 52,773 100,000 100,000 100,000 12,468 27,246 60,843 12,468 27,246 60,843
25 76,172 100,000 100,000 125,694 10,872 34,834 104,745 10,872 34,834 104,745
30 106,036 100,000 100,000 200,654 4,429 41,217 174,482 4,429 41,217 174,482
35 144,151 100,000 100,000 299,409 44,302 285,151 44,302 285,151
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END 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 -64.33% -59.71% -55.08% 6,478.95% 6,478.95% 6,478.95%
2 -38.36 -32.56 -26.79 662.65 662.65 662.65
3 -32.69 -26.00 -19.45 265.39 265.39 265.39
4 -24.96 -18.14 -11.49 152.66 152.66 152.66
5 -20.41 -13.53 -6.84 102.87 102.87 102.87
6 -16.96 -10.13 -3.49 75.61 75.61 75.61
7 -14.64 -7.85 -1.25 58.68 58.68 58.68
8 -13.01 -6.24 0.34 47.26 47.26 47.26
9 -11.81 -5.04 1.54 39.10 39.10 39.10
10 -10.91 -4.12 2.46 33.01 33.01 33.01
15 -9.30 -1.95 4.92 17.02 17.02 17.02
20 -9.54 -1.06 6.22 10.35 10.35 10.35
25 -11.80 -0.68 7.12 6.81 6.81 8.30
30 -25.55 -0.66 7.67 4.68 4.68 8.39
35 -1.04 8.03 3.27 3.27 8.24
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, 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-44
<PAGE> 46
MALE ISSUE AGE 40
$1,520 ANNUAL PREMIUM FOR NONSMOKER
AGGREGATE UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 2 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 1,596 $101,018 $101,090 $101,163 $ 579 $ 651 $ 723 $ 1,018 $ 1,090 $ 1,163
2 3,272 102,085 102,295 102,514 1,633 1,843 2,061 2,085 2,295 2,514
3 5,031 103,110 103,526 103,977 2,365 2,781 3,232 3,110 3,526 3,977
4 6,879 104,100 104,792 105,571 3,380 4,072 4,851 4,100 4,792 5,571
5 8,819 105,056 106,094 107,311 4,361 5,399 6,616 5,056 6,094 7,311
6 10,856 105,975 107,430 109,207 5,395 6,851 8,628 5,975 7,430 9,207
7 12,995 106,871 108,817 111,291 6,407 8,354 10,828 6,871 8,817 11,291
8 15,240 107,766 110,280 113,606 7,419 9,932 13,259 7,766 10,280 13,606
9 17,598 108,680 111,840 116,196 8,448 11,608 15,965 8,680 11,840 16,196
10 20,074 109,632 113,523 119,112 9,516 13,408 18,996 9,632 13,523 19,112
15 34,439 114,280 123,278 139,116 14,280 23,278 39,116 14,280 23,278 39,116
20 52,773 118,067 134,839 171,334 18,067 34,839 71,334 18,067 34,839 71,334
25 76,172 120,618 148,159 223,083 20,618 48,159 123,083 20,618 48,159 123,083
30 106,036 121,406 162,993 306,235 21,406 62,993 206,235 21,406 62,993 206,235
35 144,151 119,259 178,234 439,404 19,259 78,234 339,404 19,259 78,234 339,404
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END 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 -61.91% -57.17% -52.42% 6,545.91% 6,550.69% 6,555.40%
2 -34.92 -29.07 -23.26 671.04 671.88 672.76
3 -29.41 -22.77 -16.25 269.58 270.13 270.73
4 -22.15 -15.41 -8.83 155.62 156.11 156.66
5 -17.97 -11.19 -4.59 105.27 105.75 106.31
6 -14.84 -8.12 -1.58 77.70 78.19 78.79
7 -12.71 -6.05 0.44 60.57 61.09 61.73
8 -11.12 -4.52 1.92 49.02 49.57 50.27
9 -9.83 -3.30 3.07 40.77 41.35 42.12
10 -8.73 -2.30 4.02 34.62 35.23 36.08
15 -6.12 0.26 6.49 18.48 19.31 20.62
20 -5.27 1.28 7.57 11.69 12.76 14.65
25 -5.11 1.78 8.16 8.03 9.34 11.89
30 -5.47 2.01 8.53 5.74 7.31 10.54
35 -6.72 2.05 8.78 4.11 5.97 9.87
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, 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-45
<PAGE> 47
MALE ISSUE AGE 40
$1,520 ANNUAL PREMIUM FOR NONSMOKER
AGGREGATE UNDERWRITING RISK
$100,000 FACE AMOUNT
OPTION 2 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 1,596 $100,979 $101,049 $101,119 $ 540 $ 610 $ 680 $ 979 $ 1,049 $ 1,119
2 3,272 101,959 102,160 102,370 1,506 1,708 1,918 1,959 2,160 2,370
3 5,031 102,904 103,300 103,729 2,159 2,554 2,984 2,904 3,300 3,729
4 6,879 103,813 104,466 105,204 3,093 3,746 4,484 3,813 4,466 5,204
5 8,819 104,687 105,661 106,807 3,992 4,966 6,112 4,687 5,661 6,807
6 10,856 105,521 106,881 108,546 4,942 6,302 7,967 5,521 6,881 8,546
7 12,995 106,315 108,125 110,434 5,852 7,662 9,970 6,315 8,125 10,434
8 15,240 107,067 109,393 112,482 6,719 9,045 12,135 7,067 9,393 12,482
9 17,598 107,776 110,683 114,706 7,544 10,451 14,475 7,776 10,683 14,706
10 20,074 108,438 111,991 117,120 8,322 11,875 17,004 8,438 11,991 17,120
15 34,439 110,914 118,669 132,572 10,914 18,669 32,572 10,914 18,669 32,572
20 52,773 111,433 124,874 155,331 11,433 24,874 55,331 11,433 24,874 55,331
25 76,172 108,964 129,140 188,397 8,964 29,140 88,397 8,964 29,140 88,397
30 106,036 101,575 128,525 235,336 1,575 28,525 135,336 1,575 28,525 135,336
35 144,151 117,922 300,304 17,922 200,304 17,922 200,304
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END 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 -64.50% -59.89% -55.27% 6,543.33% 6,547.96% 6,552.59%
2 -38.60 -32.80 -27.04 670.54 671.34 672.18
3 -32.98 -26.30 -19.75 269.31 269.83 270.40
4 -25.27 -18.46 -11.81 155.41 155.88 156.40
5 -20.74 -13.86 -7.18 105.10 105.55 106.08
6 -17.30 -10.48 -3.85 77.54 78.01 78.57
7 -15.00 -8.22 -1.63 60.42 60.91 61.51
8 -13.39 -6.62 -0.05 48.87 49.38 50.04
9 -12.21 -5.44 1.13 40.60 41.14 41.86
10 -11.33 -4.54 2.03 34.43 35.00 35.78
15 -9.93 -2.54 4.34 18.16 18.89 20.10
20 -10.63 -1.95 5.41 11.23 12.14 13.88
25 -14.23 -2.11 6.00 7.38 8.47 10.85
30 -49.11 -3.23 6.33 4.76 6.05 9.21
35 -7.31 6.49 3.27 4.06 8.26
</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-46
<PAGE> 48
MALE ISSUE AGE 40
$7,600 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 1 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 7,980 $500,000 $500,000 $ 500,000 $ 3,655 $ 4,042 $ 4,428 $ 5,852 $ 6,238 $ 6,625
2 16,359 500,000 500,000 500,000 9,581 10,726 11,917 11,842 12,986 14,178
3 25,157 500,000 500,000 500,000 13,926 16,217 18,696 17,651 19,942 22,421
4 34,395 500,000 500,000 500,000 19,675 23,508 27,823 23,275 27,108 31,423
5 44,095 500,000 500,000 500,000 25,271 31,053 37,823 28,746 34,528 41,299
6 54,279 500,000 500,000 500,000 31,196 39,344 49,273 34,092 42,240 52,169
7 64,973 500,000 500,000 500,000 37,053 47,998 61,884 39,370 50,314 64,201
8 76,202 500,000 500,000 500,000 42,874 57,065 75,814 44,612 58,802 77,551
9 87,992 500,000 500,000 500,000 48,722 66,626 91,263 49,880 67,784 92,421
10 100,372 500,000 500,000 500,000 54,647 76,753 108,439 55,226 77,333 109,018
15 172,197 500,000 500,000 500,000 81,173 132,570 223,066 81,173 132,570 223,066
20 263,866 500,000 500,000 535,772 104,094 200,993 412,133 104,094 200,993 412,133
25 380,862 500,000 500,000 867,099 121,848 284,858 722,583 121,848 284,858 722,583
30 530,182 500,000 500,000 1,413,729 132,788 389,443 1,229,330 132,788 389,443 1,229,330
35 720,756 500,000 549,493 2,160,937 133,521 523,326 2,058,035 133,521 523,326 2,058,035
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF
POLICY ------------------------ ------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -51.90% -46.82% -41.73% 6,478.95% 6,478.95% 6,478.95%
2 -27.09 -21.11 -15.16 662.65 662.65 662.65
3 -22.70 -16.09 -9.60 265.39 265.39 265.39
4 -16.67 -10.02 -3.51 152.66 152.66 152.66
5 -13.30 -6.66 -0.16 102.87 102.87 102.87
6 -10.76 -4.20 2.22 75.61 75.61 75.61
7 -9.06 -2.57 3.78 58.68 58.68 58.68
8 -7.83 -1.41 4.89 47.26 47.26 47.26
9 -6.87 -0.53 5.72 39.10 39.10 39.10
10 -6.10 0.18 6.37 33.01 33.01 33.01
15 -4.38 1.86 8.01 17.02 17.02 17.02
20 -3.76 2.59 8.77 10.35 10.35 10.91
25 -3.62 2.99 9.19 6.81 6.81 10.33
30 -3.77 3.26 9.43 4.68 4.68 10.14
35 -4.26 3.49 9.60 3.27 3.72 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-47
<PAGE> 49
MALE ISSUE AGE 40
$7,600 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 1 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 7,980 $500,000 $500,000 $ 500,000 $ 3,427 $ 3,803 $ 4,180 $ 5,624 $ 5,999 $ 6,376
2 16,359 500,000 500,000 500,000 8,686 9,780 10,922 10,947 12,041 13,183
3 25,157 500,000 500,000 500,000 12,383 14,540 16,883 16,109 18,266 20,608
4 34,395 500,000 500,000 500,000 17,499 21,070 25,105 21,099 24,670 28,705
5 44,095 500,000 500,000 500,000 22,448 27,790 34,072 25,923 31,265 37,548
6 54,279 500,000 500,000 500,000 27,670 35,148 44,303 30,566 38,044 47,199
7 64,973 500,000 500,000 500,000 32,706 42,691 55,422 35,023 45,008 57,739
8 76,202 500,000 500,000 500,000 37,552 50,424 67,522 39,290 52,161 69,259
9 87,992 500,000 500,000 500,000 42,205 58,349 80,703 43,363 59,508 81,861
10 100,372 500,000 500,000 500,000 46,649 66,464 95,072 47,229 67,043 95,652
15 172,197 500,000 500,000 500,000 62,888 107,359 187,146 62,888 107,359 187,146
20 263,866 500,000 500,000 500,000 70,086 150,993 334,360 70,086 150,993 334,360
25 380,862 500,000 500,000 691,040 64,133 196,251 575,866 64,133 196,251 575,866
30 530,182 500,000 500,000 1,101,376 34,532 239,600 957,718 34,532 239,600 957,718
35 720,756 500,000 500,000 1,641,883 275,629 1,563,698 275,629 1,563,698
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF
POLICY ------------------------ ------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -54.90% -49.96% -45.00% 6,478.95% 6,478.95% 6,478.95%
2 -31.98 -26.03 -20.11 662.65 662.65 662.65
3 -27.56 -20.86 -14.29 265.39 265.39 265.39
4 -20.91 -14.14 -7.51 152.66 152.66 152.66
5 -17.06 -10.25 -3.61 102.87 102.87 102.87
6 -14.13 -7.40 -0.82 75.61 75.61 75.61
7 -12.19 -5.50 1.02 58.68 58.68 58.68
8 -10.84 -4.17 2.33 47.26 47.26 47.26
9 -9.85 -3.20 3.29 39.10 39.10 39.10
10 -9.11 -2.45 4.03 33.01 33.01 33.01
15 -7.88 -0.75 5.98 17.02 17.02 17.02
20 -8.14 -0.06 7.02 10.35 10.35 10.35
25 -9.89 0.25 7.73 6.81 6.81 8.90
30 -18.00 0.32 8.15 4.68 4.68 8.87
35 0.20 8.43 3.27 3.27 8.64
</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> 50
MALE ISSUE AGE 40
$7,600 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 2 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 7,980 $505,842 $506,227 $ 506,614 $ 3,645 $ 4,031 $ 4,417 $ 5,842 $ 6,227 $ 6,614
2 16,359 511,811 512,952 514,141 9,551 10,692 11,880 11,811 12,952 14,141
3 25,157 517,586 519,867 522,336 13,861 16,142 18,611 17,586 19,867 22,336
4 34,395 523,159 526,970 531,260 19,559 23,370 27,659 23,159 26,970 31,260
5 44,095 528,562 534,301 541,019 25,087 30,825 37,544 28,562 34,301 41,019
6 54,279 533,824 541,894 551,728 30,928 38,998 48,832 33,824 41,894 51,728
7 64,973 539,004 549,825 563,551 36,687 47,508 61,234 39,004 49,825 63,551
8 76,202 544,139 558,144 576,640 42,402 56,406 74,902 44,139 58,144 76,640
9 87,992 549,299 566,940 591,202 48,141 65,782 90,043 49,299 66,940 91,202
10 100,372 554,544 576,297 607,455 53,964 75,718 106,876 54,544 76,297 107,455
15 172,197 579,859 630,123 718,497 79,859 130,123 218,497 79,859 130,123 218,497
20 263,866 601,430 695,055 898,656 101,430 195,055 398,656 101,430 195,055 398,656
25 380,862 616,392 770,322 1,188,590 116,392 270,322 688,590 116,392 270,322 688,590
30 530,182 622,203 855,055 1,655,325 122,203 355,055 1,155,325 122,203 355,055 1,155,325
35 720,756 614,187 945,587 2,406,414 114,187 445,587 1,906,414 114,187 445,587 1,906,414
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END 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 -52.03% -46.96% -41.88% 6,555.81% 6,560.88% 6,565.97%
2 -27.25 -21.28 -15.35 672.15 673.07 674.01
3 -22.90 -16.30 -9.81 270.12 270.73 271.38
4 -16.88 -10.25 -3.74 156.00 156.53 157.14
5 -13.53 -6.90 -0.40 105.58 106.11 106.72
6 -11.00 -4.45 1.96 77.97 78.51 79.17
7 -9.30 -2.83 3.52 60.82 61.39 62.10
8 -8.08 -1.67 4.62 49.25 49.86 50.63
9 -7.12 -0.78 5.45 40.99 41.63 42.48
10 -6.34 -0.07 6.12 34.82 35.50 36.43
15 -4.60 1.64 7.77 18.64 19.55 20.97
20 -4.04 2.32 8.49 11.84 13.00 15.03
25 -4.02 2.61 8.88 8.17 9.59 12.28
30 -4.41 2.72 9.12 5.87 7.56 10.93
35 -5.39 2.70 9.27 4.25 6.23 10.25
</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> 51
MALE ISSUE AGE 40
$7,600 ANNUAL PREMIUM FOR NONSMOKER
PREFERRED UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION 2 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
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END 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 $ 7,980 $505,614 $505,989 $ 506,366 $ 3,418 $ 3,793 $ 4,169 $ 5,614 $ 5,989 $ 6,366
2 16,359 510,908 511,998 513,136 8,648 9,738 10,876 10,908 11,998 13,136
3 25,157 516,026 518,171 520,500 12,301 14,446 16,775 16,026 18,171 20,500
4 34,395 520,955 524,498 528,501 17,355 20,898 24,901 20,955 24,498 28,501
5 44,095 525,699 530,987 537,205 22,224 27,512 33,730 25,699 30,987 37,205
6 54,279 530,241 537,625 546,661 27,345 34,729 43,765 30,241 37,625 46,661
7 64,973 534,574 544,406 556,936 32,257 42,089 54,619 34,574 44,406 56,936
8 76,202 538,692 551,327 568,102 36,954 49,589 66,364 38,692 51,327 68,102
9 87,992 542,588 558,383 580,239 41,429 57,225 79,081 42,588 58,383 80,239
10 100,372 546,246 565,561 593,425 45,667 64,982 92,846 46,246 65,561 93,425
15 172,197 560,274 602,548 678,241 60,274 102,548 178,241 60,274 102,548 178,241
20 263,866 564,390 638,007 804,290 64,390 138,007 304,290 64,390 138,007 304,290
25 380,862 553,443 664,803 989,514 53,443 164,803 489,514 53,443 164,803 489,514
30 530,182 517,785 668,456 1,256,500 17,785 168,456 756,500 17,785 168,456 756,500
35 720,756 500,000 623,744 1,633,781 123,744 1,133,781 123,744 1,133,781
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END 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 -55.03% -50.09% -45.14% 6,552.81% 6,557.75% 6,562.70%
2 -32.19 -26.26 -20.35 671.43 672.30 673.21
3 -27.83 -21.14 -14.58 269.71 270.28 270.90
4 -21.20 -14.44 -7.82 155.68 156.19 156.75
5 -17.37 -10.58 -3.95 105.31 105.80 106.37
6 -14.46 -7.74 -1.17 77.72 78.22 78.83
7 -12.54 -5.86 0.66 60.58 61.11 61.76
8 -11.20 -4.55 1.94 49.02 49.57 50.28
9 -10.24 -3.59 2.89 40.74 41.32 42.10
10 -9.52 -2.87 3.61 34.56 35.17 36.02
15 -8.49 -1.34 5.41 18.27 19.06 20.35
20 -9.15 -0.93 6.23 11.33 12.32 14.16
25 -12.00 -1.11 6.68 7.48 8.66 11.15
30 -29.94 -2.03 6.92 4.87 6.26 9.54
35 -4.80 7.04 3.27 4.33 8.62
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, 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> 52
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 August, 1995. The Zenith Fund and the Variable
Account commenced operations on August 26, 1983. The Westpeak Stock Index and
Back Bay Advisors Managed Series of the Zenith Fund commenced operations on May
1, 1987. The Westpeak Growth and Income Series and Goldman Sachs Midcap Value
Series of the Zenith Fund commenced operations on April 30, 1993. The Loomis
Sayles Small Cap Series of the Zenith Fund commenced operations on May 2, 1994.
The remaining Zenith Fund Series shown in this Appendix commenced operations on
October 31, 1994. The MFS Investors Series and MFS Research Managers Series of
the Zenith Fund commenced operations on April 30, 1999, and their results are
not included in this Appendix. 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.
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 .60%. 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-51
<PAGE> 53
SUB-ACCOUNT INVESTING IN ZENITH FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 8/26/83- ------------------------------------------------------------------------------------------------
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
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth*...... 8.64% -.96% 67.09% 94.04% 51.79% -9.34% 29.98% -4.06% 53.06% -6.61%
Bond Income.......... 2.83% 11.93 18.05 14.15 1.65 7.72 11.63 7.44 17.25 7.53
Money Market......... 3.08% 9.96 7.61 6.16 5.89 6.87 8.60 7.54 5.58 3.18
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------- 8/26/83- 8/26/83-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/98 12/31/98
- ----------- --------------------------------------------------------------- TOTAL EFFECTIVE
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>
Capital Growth*...... 14.28% -7.62% 37.21% 20.34% 22.74% 33.29% 2,340.67% 23.14%
Bond Income.......... 11.94 -3.94 20.47 3.98 10.23 8.39 313.89 9.70
Money Market......... 2.36 3.35 5.07 4.50 4.71 4.63 137.26 5.79
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 5/1/87- -------------------------------------------------------------------------------------
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
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..................... -12.55% 15.65% 29.37% -4.72% 29.65% 6.65% 9.07% .51% 36.10%
Managed......................... -1.06% 8.83 18.37 2.59 19.45 6.06 9.99 -1.70 30.48
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------ 5/1/87- 5/1/87-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/98 12/31/98
- ----------- ------------------------------ TOTAL EFFECTIVE
12/31/96 12/31/97 12/31/98 RETURN ANNUAL
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Stock Index..................... 21.73% 31.70% 27.17% 424.37% 15.26%
Managed......................... 14.34 25.81 18.94 299.84 12.61
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------- 4/30/93- 4/30/93-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/98 12/31/98
- ----------- 4/30/93 ---------------------------------------------------- TOTAL EFFECTIVE
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........................ 13.78% -1.80% 35.65% 17.38% 32.67% 23.71% 192.02% 20.80%
Midcap Value**........................... 14.28 -.87 29.57 16.90 16.62 -6.03 88.06 11.78
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
---------------------------------------------------- 5/2/94 5/2/94
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/98 12/31/98
- ----------- 5/2/94- ----------------------------------------- TOTAL EFFECTIVE
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........................................... -3.61% 28.08% 29.90% 24.11% -2.28% 94.47% 15.32%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
---------------------------------------------------- 10/31/94- 10/31/94-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/98 12/31/98
- ----------- 10/31/94 ----------------------------------------- TOTAL EFFECTIVE
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...................................... -4.29% 47.81% 12.49% 24.88% 46.90% 191.92% 29.32%
Balanced........................................... -.20 24.05 16.21 15.48 8.46 80.20 15.18
Venture Value...................................... -3.60 38.45 25.08 32.70 13.73 151.97 24.83
International Magnum Equity***..................... 2.50 5.60 6.03 -1.89 6.63 20.07 4.49
</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%
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 sub-adviser.
SUB-ACCOUNTS INVESTING IN VIP
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 10/9/86- --------------------------------------------------------------------------
12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income........................... .06% -3.08% 21.98% 16.64% -15.80% 31.07% 16.39% 17.59%
<CAPTION>
ANNUAL NET RATE OF RETURN
---------------------------------------------------- 10/9/86- 10/9/86-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/98 12/31/98
- ----------- ---------------------------------------------------- TOTAL EFFECTIVE
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-Income........................... 6.43% 34.29% 13.59% 27.34% 10.96% 382.38% 13.73%
</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
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas........................ -5.90% 7.48% 25.53% -2.26% 7.79% -11.12% 36.53% 1.12% 9.02%
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------ 1/28/87- 1/28/87-
FOR ONE YEAR ENDING 12/31/98 12/31/98
------------------------------ TOTAL EFFECTIVE
12/31/96 12/31/97 12/31/98 RETURN ANNUAL
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Overseas........................ 12.53% 10.89% 12.08% 148.86% 7.95%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 9/19/85- -------------------------------------------------------------------------------------
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
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income...................... 6.20% 16.98% 0.61% 10.97% -4.75% -2.82% 34.27% 22.43% 19.68%
<CAPTION>
ANNUAL NET RATE OF RETURN
---------------------------------------------------- 9/19/85- 9/19/85-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/98 12/31/98
- ----------- ---------------------------------------------------- TOTAL EFFECTIVE
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>
High Income...................... -2.13% 19.88% 13.35% 16.96% -4.90% 273.63% 10.43%
</TABLE>
SUB-ACCOUNT INVESTING IN VIP II
<TABLE>
<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
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Manager...................... .62% 6.08% 21.83% 11.04% 20.51% -6.65% 16.26%
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------ 9/6/89- 9/6/89-
FOR ONE YEAR ENDING 12/31/98 12/31/98
------------------------------ TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/96 12/31/97 12/31/98 RETURN ANNUAL
- ----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Asset Manager...................... 13.91% 19.93% 14.36% 195.04% 12.31%
</TABLE>
A-52
<PAGE> 54
POLICY PERFORMANCE
The material below assumes a Policy was issued with a $100,000 and $500,000
face amount, respectively, with annual premiums paid on August 26 of each year
(May 1 in the case of the Zenith Stock Index, Zenith Managed and Zenith Small
Cap Sub-Accounts; October 31 in the case of the Zenith Balanced, Zenith
International Magnum Equity, Zenith Venture Value and Zenith Equity Growth
Sub-Accounts; October 9 in the case of the Equity-Income Sub-Account, January 28
in the case of the Overseas Sub-Account; April 30 in the case of the Zenith
Growth and Income and Zenith Midcap Value Sub-Accounts; September 19 in the case
of the High Income Sub-Account; September 6 in the case of the Asset Manager
Sub-Account), to a male age 40 in the nonsmoker preferred risk category. Values
and benefits are shown first for Policies with the Option 1 death benefit and
then for the Policies with the Option 2 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.
The illustrations of Policy investment experience reflect all Policy charges
based on NELICO's current rates. The illustrations for the $500,000 face amount
reflect the lower sales charge, cost of insurance and first-year administrative
charges that would apply to the Policy if issued in the personal market or if
issued in business situations or to tax-qualified pension plans which qualify
for those lower charges. (See "Charges and Expenses".) (See Appendix A for the
definition of the internal rate of return.)
MALE NONSMOKER AGGREGATE RISK, AGE 40
$100,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983...... $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1983.... 1,520 100,000 100,000 1,388 949 -74.17% --
December 31, 1984.... 3,040 100,000 100,000 2,419 1,953 -43.40 2,058.97%
December 31, 1985.... 4,560 100,000 100,000 5,357 4,598 0.61 447.23
December 31, 1986.... 6,080 100,000 100,000 11,424 10,689 32.21 212.13
December 31, 1987.... 7,600 100,000 100,000 18,136 17,426 36.70 130.64
December 31, 1988.... 9,120 100,000 100,000 17,530 16,883 21.73 91.23
December 31, 1989.... 10,640 100,000 100,000 23,844 23,313 23.21 68.52
December 31, 1990.... 12,160 100,000 100,000 23,785 23,370 16.63 53.94
December 31, 1991.... 13,680 100,000 100,000 37,646 37,347 22.25 43.89
December 31, 1992.... 15,200 100,000 100,000 36,434 36,251 17.16 36.58
December 31, 1993.... 16,720 100,000 100,000 42,897 42,829 16.67 31.06
December 31, 1994.... 18,240 100,000 100,000 40,454 40,454 12.91 26.76
December 31, 1995.... 19,760 100,000 100,000 57,385 57,385 15.64 23.33
December 31, 1996.... 21,280 100,000 115,212 70,251 70,251 16.06 22.31
December 31, 1997.... 22,800 100,000 137,216 87,399 87,399 16.65 21.87
December 31, 1998.... 24,320 100,000 176,785 117,857 117,857 18.04 22.36
</TABLE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983........ $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1983...... 1,520 100,000 100,000 1,306 866 -80.13% --
December 31, 1984...... 3,040 100,000 100,000 2,615 2,148 -35.42 2,058.97%
December 31, 1985...... 4,560 100,000 100,000 4,239 3,480 -19.07 447.23
December 31, 1986...... 6,080 100,000 100,000 5,935 5,200 -8.35 212.13
December 31, 1987...... 7,600 100,000 100,000 7,107 6,397 -7.30 130.64
December 31, 1988...... 9,120 100,000 100,000 8,721 8,075 -4.28 91.23
December 31, 1989...... 10,640 100,000 100,000 10,795 10,264 -1.08 68.52
December 31, 1990...... 12,160 100,000 100,000 12,693 12,278 0.25 53.94
December 31, 1991...... 13,680 100,000 100,000 16,034 15,735 3.19 43.89
December 31, 1992...... 15,200 100,000 100,000 18,346 18,163 3.63 36.58
December 31, 1993...... 16,720 100,000 100,000 21,691 21,623 4.72 31.06
December 31, 1994...... 18,240 100,000 100,000 21,960 21,960 3.13 26.76
December 31, 1995...... 19,760 100,000 100,000 27,752 27,752 5.20 23.33
December 31, 1996...... 21,280 100,000 100,000 30,081 30,081 4.90 20.53
December 31, 1997...... 22,800 100,000 100,000 34,359 34,359 5.37 18.22
December 31, 1998...... 24,320 100,000 100,000 38,473 38,473 5.60 16.27
</TABLE>
A-53
<PAGE> 55
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983........ $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1983...... 1,520 100,000 100,000 1,308 869 -79.96% --
December 31, 1984...... 3,040 100,000 100,000 2,534 2,068 -38.71 2,058.97%
December 31, 1985...... 4,560 100,000 100,000 3,845 3,085 -26.95 447.23
December 31, 1986...... 6,080 100,000 100,000 5,171 4,437 -16.61 212.13
December 31, 1987...... 7,600 100,000 100,000 6,554 5,844 -11.11 130.64
December 31, 1988...... 9,120 100,000 100,000 8,074 7,427 -7.22 91.23
December 31, 1989...... 10,640 100,000 100,000 9,818 9,287 -4.08 68.52
December 31, 1990...... 12,160 100,000 100,000 11,609 11,194 -2.16 53.94
December 31, 1991...... 13,680 100,000 100,000 13,328 13,028 -1.13 43.89
December 31, 1992...... 15,200 100,000 100,000 14,854 14,670 -0.73 36.58
December 31, 1993...... 16,720 100,000 100,000 16,360 16,292 -0.49 31.06
December 31, 1994...... 18,240 100,000 100,000 18,107 18,107 -0.13 26.76
December 31, 1995...... 19,760 100,000 100,000 20,201 20,201 0.35 23.33
December 31, 1996...... 21,280 100,000 100,000 22,264 22,264 0.66 20.53
December 31, 1997...... 22,800 100,000 100,000 24,457 24,457 0.95 18.22
December 31, 1998...... 24,320 100,000 100,000 26,756 26,756 1.20 16.27
</TABLE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............ $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1987...... 1,520 100,000 100,000 1,024 585 -76.05% --
December 31, 1988...... 3,040 100,000 100,000 2,341 1,880 -35.00 1,070.47%
December 31, 1989...... 4,560 100,000 100,000 4,409 3,656 -12.73 337.59
December 31, 1990...... 6,080 100,000 100,000 5,211 4,482 -13.65 178.58
December 31, 1991...... 7,600 100,000 100,000 7,925 7,222 -1.91 115.51
December 31, 1992...... 9,120 100,000 100,000 9,569 8,951 -0.59 82.89
December 31, 1993...... 10,640 100,000 100,000 11,549 11,047 1.02 63.34
December 31, 1994...... 12,160 100,000 100,000 12,681 12,295 0.26 50.46
December 31, 1995...... 13,680 100,000 100,000 18,723 18,452 6.33 41.41
December 31, 1996...... 15,200 100,000 100,000 23,908 23,753 8.45 34.74
December 31, 1997...... 16,720 100,000 100,000 32,953 32,914 11.53 29.65
December 31, 1998...... 18,240 100,000 100,000 43,229 43,229 13.32 25.65
</TABLE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............ $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1987...... 1,520 100,000 100,000 1,162 723 -67.08% --
December 31, 1988...... 3,040 100,000 100,000 2,409 1,948 -32.80 1,070.47%
December 31, 1989...... 4,560 100,000 100,000 4,129 3,375 -17.08 337.59
December 31, 1990...... 6,080 100,000 100,000 5,354 4,625 -12.28 178.58
December 31, 1991...... 7,600 100,000 100,000 7,567 6,863 -3.80 115.51
December 31, 1992...... 9,120 100,000 100,000 9,159 8,541 -2.07 82.89
December 31, 1993...... 10,640 100,000 100,000 11,165 10,663 0.06 63.34
December 31, 1994...... 12,160 100,000 100,000 12,038 11,652 -1.03 50.46
December 31, 1995...... 13,680 100,000 100,000 17,085 16,815 4.38 41.41
December 31, 1996...... 15,200 100,000 100,000 20,684 20,530 5.73 34.74
December 31, 1997...... 16,720 100,000 100,000 27,437 27,398 8.47 29.65
December 31, 1998...... 18,240 100,000 100,000 33,897 33,897 9.67 25.65
</TABLE>
A-54
<PAGE> 56
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993......... $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1993...... 1,520 100,000 100,000 1,316 877 -55.94% --
December 31, 1994...... 3,040 100,000 100,000 2,389 1,931 -33.29 1,065.53%
December 31, 1995...... 4,560 100,000 100,000 4,611 3,860 -9.68 336.86
December 31, 1996...... 6,080 100,000 100,000 6,605 5,878 -1.55 178.34
December 31, 1997...... 7,600 100,000 100,000 10,121 9,420 8.12 115.39
December 31, 1998...... 9,120 100,000 100,000 13,637 13,029 11.32 82.83
</TABLE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $1,520 $100,000 $100,000 $1,397 $ 958 -- --
December 31, 1993....... 1,520 100,000 100,000 1,323 884 -55.43% --
December 31, 1994....... 3,040 100,000 100,000 2,415 1,957 -32.45 1,065.53%
December 31, 1995....... 4,560 100,000 100,000 4,497 3,746 -11.36 336.86
December 31, 1996....... 6,080 100,000 100,000 6,397 5,671 -3.19 178.34
December 31, 1997....... 7,600 100,000 100,000 8,743 8,042 2.12 115.39
December 31, 1998....... 9,120 100,000 100,000 9,020 8,411 -2.55 82.83
</TABLE>
ZENITH SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. $1,520 $100,000 $100,000 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 100,000 1,113 674 -70.54% --
December 31, 1995....... 3,040 100,000 100,000 2,752 2,292 -22.04 1,075.45%
December 31, 1996....... 4,560 100,000 100,000 4,820 4,067 -6.73 338.33
December 31, 1997....... 6,080 100,000 100,000 7,361 6,633 4.05 178.83
December 31, 1998....... 7,600 100,000 100,000 8,087 7,383 -1.08 115.62
</TABLE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $1,520 $100,000 $100,000 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 100,000 1,327 888 -95.98% --
December 31, 1995....... 3,040 100,000 100,000 2,739 2,268 -38.27 3,427.00%
December 31, 1996....... 4,560 100,000 100,000 4,303 3,539 -20.74 539.22
December 31, 1997....... 6,080 100,000 100,000 6,061 5,322 -7.91 236.33
December 31, 1998....... 7,600 100,000 100,000 7,696 6,982 -3.91 140.81
</TABLE>
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $1,520 $100,000 $100,000 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 100,000 1,361 921 -95.00% --
December 31, 1995....... 3,040 100,000 100,000 2,570 2,099 -46.63 3,427.00%
December 31, 1996....... 4,560 100,000 100,000 3,837 3,073 -31.52 539.22
December 31, 1997....... 6,080 100,000 100,000 4,821 4,082 -23.28 236.33
December 31, 1998....... 7,600 100,000 100,000 6,244 5,530 -14.63 140.81
</TABLE>
A-55
<PAGE> 57
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $1,520 $100,000 $100,000 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 100,000 1,286 846 -96.99% --
December 31, 1995....... 3,040 100,000 100,000 2,857 2,386 -32.39 3,427.00%
December 31, 1996....... 4,560 100,000 100,000 4,706 3,942 -12.15 539.22
December 31, 1997....... 6,080 100,000 100,000 7,332 6,593 4.89 236.33
December 31, 1998....... 7,600 100,000 100,000 9,491 8,777 6.67 140.81
</TABLE>
ZENITH EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1994...... 1,520 100,000 100,000 1,254 815 -97.60% --
December 31, 1995...... 3,040 100,000 100,000 2,856 2,385 -32.46 3,427.00%
December 31, 1996...... 4,560 100,000 100,000 4,332 3,568 -20.11 539.22
December 31, 1997...... 6,080 100,000 100,000 6,483 5,744 -3.40 236.33
December 31, 1998...... 7,600 100,000 100,000 10,781 10,067 13.06 140.81
</TABLE>
EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986........ $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1986...... 1,520 100,000 100,000 1,335 895 -90.25% --
December 31, 1987...... 3,040 100,000 100,000 2,163 1,692 -61.59 2,847.87%
December 31, 1988...... 4,560 100,000 100,000 3,690 2,927 -33.33 505.26
December 31, 1989...... 6,080 100,000 100,000 5,381 4,642 -15.31 227.75
December 31, 1990...... 7,600 100,000 100,000 5,659 4,945 -19.20 137.27
December 31, 1991...... 9,120 100,000 100,000 8,497 7,831 -5.60 94.76
December 31, 1992...... 10,640 100,000 100,000 11,016 10,466 -0.51 70.66
December 31, 1993...... 12,160 100,000 100,000 13,973 13,539 2.87 55.37
December 31, 1994...... 13,680 100,000 100,000 15,891 15,572 3.04 44.89
December 31, 1995...... 15,200 100,000 100,000 22,622 22,419 8.01 37.32
December 31, 1996...... 16,720 100,000 100,000 26,792 26,705 8.66 31.62
December 31, 1997...... 18,240 100,000 100,000 35,304 35,304 10.98 27.20
December 31, 1998...... 19,760 100,000 100,000 40,621 40,621 10.94 23.68
</TABLE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987....... $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1987...... 1,520 100,000 100,000 982 543 -67.22% --
December 31, 1988...... 3,040 100,000 100,000 2,329 1,877 -29.50 731.16%
December 31, 1989...... 4,560 100,000 100,000 4,185 3,440 -13.96 279.55
December 31, 1990...... 6,080 100,000 100,000 5,174 4,454 -12.45 158.04
December 31, 1991...... 7,600 100,000 100,000 6,701 6,006 -7.95 105.56
December 31, 1992...... 9,120 100,000 100,000 6,831 6,251 -10.96 77.19
December 31, 1993...... 10,640 100,000 100,000 10,753 10,290 -0.85 59.70
December 31, 1994...... 12,160 100,000 100,000 11,836 11,488 -1.29 47.97
December 31, 1995...... 13,680 100,000 100,000 14,311 14,079 0.58 39.61
December 31, 1996...... 15,200 100,000 100,000 17,270 17,154 2.22 33.39
December 31, 1997...... 16,720 100,000 100,000 20,507 20,507 3.41 28.61
December 31, 1998...... 18,240 100,000 100,000 24,276 24,276 4.37 24.82
</TABLE>
A-56
<PAGE> 58
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985..... $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1985...... 1,520 100,000 100,000 1,382 943 -81.60% --
December 31, 1986...... 3,040 100,000 100,000 2,720 2,251 -33.68 2,440.56%
December 31, 1987...... 4,560 100,000 100,000 3,816 3,054 -29.03 477.39
December 31, 1988...... 6,080 100,000 100,000 5,317 4,580 -15.54 220.41
December 31, 1989...... 7,600 100,000 100,000 6,072 5,361 -15.19 134.18
December 31, 1990...... 9,120 100,000 100,000 6,926 6,270 -13.56 93.12
December 31, 1991...... 10,640 100,000 100,000 10,349 9,809 -2.49 69.67
December 31, 1992...... 12,160 100,000 100,000 13,696 13,271 2.30 54.71
December 31, 1993...... 13,680 100,000 100,000 17,499 17,190 5.26 44.43
December 31, 1994...... 15,200 100,000 100,000 18,227 18,034 3.53 36.98
December 31, 1995...... 16,720 100,000 100,000 23,062 22,985 5.88 31.37
December 31, 1996...... 18,240 100,000 100,000 27,298 27,298 6.75 27.00
December 31, 1997...... 19,760 100,000 100,000 33,124 33,124 7.88 23.52
December 31, 1998...... 21,280 100,000 100,000 32,758 32,758 6.12 20.69
</TABLE>
ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989...... $ 1,520 $100,000 $100,000 $ 1,397 $ 958 -- --
December 31, 1989...... 1,520 100,000 100,000 1,314 875 -82.41% --
December 31, 1990...... 3,040 100,000 100,000 2,514 2,045 -40.94 2,221.59%
December 31, 1991...... 4,560 100,000 100,000 4,190 3,428 -20.53 460.64
December 31, 1992...... 6,080 100,000 100,000 5,761 5,024 -10.33 215.86
December 31, 1993...... 7,600 100,000 100,000 8,063 7,352 -1.43 132.24
December 31, 1994...... 9,120 100,000 100,000 8,496 7,840 -5.38 92.09
December 31, 1995...... 10,640 100,000 100,000 10,992 10,452 -0.54 69.04
December 31, 1996...... 12,160 100,000 100,000 13,627 13,202 2.15 54.29
December 31, 1997...... 13,680 100,000 100,000 17,414 17,105 5.11 44.14
December 31, 1998...... 15,200 100,000 100,000 21,182 20,989 6.56 36.77
</TABLE>
OPTION 2 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983...... $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1983.... 1,520 100,000 101,387 1,387 948 -74.27% --
December 31, 1984.... 3,040 100,000 102,414 2,414 1,947 -43.62 2,098.82%
December 31, 1985.... 4,560 100,000 105,337 5,337 4,577 0.28 460.65
December 31, 1986.... 6,080 100,000 111,355 11,355 10,621 31.82 223.81
December 31, 1987.... 7,600 100,000 117,979 17,979 17,269 36.28 141.23
December 31, 1988.... 9,120 100,000 117,335 17,335 16,688 21.32 98.29
December 31, 1989.... 10,640 100,000 123,510 23,510 22,979 22.78 75.61
December 31, 1990.... 12,160 100,000 123,388 23,388 22,973 16.20 59.61
December 31, 1991.... 13,680 100,000 136,923 36,923 36,623 21.82 51.00
December 31, 1992.... 15,200 100,000 135,660 35,660 35,476 16.75 42.50
December 31, 1993.... 16,720 100,000 141,919 41,919 41,851 16.27 37.03
December 31, 1994.... 18,240 100,000 139,481 39,481 39,481 12.53 31.82
December 31, 1995.... 19,760 100,000 155,914 55,914 55,914 15.28 29.43
December 31, 1996.... 21,280 100,000 168,333 68,333 68,333 15.71 27.05
December 31, 1997.... 22,800 100,000 184,902 84,902 84,902 16.31 25.30
December 31, 1998.... 24,320 100,000 214,378 114,378 114,378 17.72 24.40
</TABLE>
A-57
<PAGE> 59
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983........ $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1983...... 1,520 100,000 101,304 1,304 865 -80.21% --
December 31, 1984...... 3,040 100,000 102,609 2,609 2,143 -35.66 2,102.05%
December 31, 1985...... 4,560 100,000 104,224 4,224 3,464 -19.38 457.88
December 31, 1986...... 6,080 100,000 105,902 5,902 5,168 -8.68 218.32
December 31, 1987...... 7,600 100,000 107,055 7,055 6,345 -7.65 134.96
December 31, 1988...... 9,120 100,000 108,640 8,640 7,993 -4.64 94.87
December 31, 1989...... 10,640 100,000 110,670 10,670 10,139 -1.44 71.90
December 31, 1990...... 12,160 100,000 112,518 12,518 12,103 -0.12 57.11
December 31, 1991...... 13,680 100,000 115,781 15,781 15,481 2.82 47.19
December 31, 1992...... 15,200 100,000 118,024 18,024 17,841 3.27 39.79
December 31, 1993...... 16,720 100,000 121,284 21,284 21,217 4.38 34.34
December 31, 1994...... 18,240 100,000 121,530 21,530 21,530 2.80 29.72
December 31, 1995...... 19,760 100,000 127,175 27,175 27,175 4.89 26.63
December 31, 1996...... 21,280 100,000 129,410 29,410 29,410 4.59 23.76
December 31, 1997...... 22,800 100,000 133,528 33,528 33,528 5.06 21.56
December 31, 1998...... 24,320 100,000 137,460 37,460 37,460 5.28 19.68
</TABLE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983........ $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1983...... 1,520 100,000 101,307 1,307 868 -80.04% --
December 31, 1984...... 3,040 100,000 102,529 2,529 2,062 -38.94 2,100.72%
December 31, 1985...... 4,560 100,000 103,831 3,831 3,071 -27.24 456.90
December 31, 1986...... 6,080 100,000 105,144 5,144 4,410 -16.92 217.54
December 31, 1987...... 7,600 100,000 106,507 6,507 5,798 -11.45 134.64
December 31, 1988...... 9,120 100,000 108,000 8,000 7,354 -7.57 94.61
December 31, 1989...... 10,640 100,000 109,707 9,707 9,176 -4.44 71.61
December 31, 1990...... 12,160 100,000 111,454 11,454 11,039 -2.53 56.86
December 31, 1991...... 13,680 100,000 113,124 13,124 12,824 -1.49 46.66
December 31, 1992...... 15,200 100,000 114,604 14,604 14,421 -1.09 39.22
December 31, 1993...... 16,720 100,000 116,070 16,070 16,002 -0.82 33.60
December 31, 1994...... 18,240 100,000 117,774 17,774 17,774 -0.44 29.24
December 31, 1995...... 19,760 100,000 119,809 19,809 19,809 0.04 25.81
December 31, 1996...... 21,280 100,000 121,803 21,803 21,803 0.35 23.01
December 31, 1997...... 22,800 100,000 123,910 23,910 23,910 0.64 20.70
December 31, 1998...... 24,320 100,000 126,105 26,105 26,105 0.90 18.76
</TABLE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............ $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1987...... 1,520 100,000 101,022 1,022 583 -76.15% --
December 31, 1988...... 3,040 100,000 102,334 2,334 1,874 -35.21 1,087.58%
December 31, 1989...... 4,560 100,000 104,390 4,390 3,637 -13.02 345.46
December 31, 1990...... 6,080 100,000 105,179 5,179 4,451 -13.96 183.04
December 31, 1991...... 7,600 100,000 107,862 7,862 7,158 -2.24 119.70
December 31, 1992...... 9,120 100,000 109,470 9,470 8,853 -0.94 86.49
December 31, 1993...... 10,640 100,000 111,404 11,404 10,902 0.66 66.67
December 31, 1994...... 12,160 100,000 112,494 12,494 12,108 -0.10 53.42
December 31, 1995...... 13,680 100,000 118,409 18,409 18,139 5.98 45.01
December 31, 1996...... 15,200 100,000 123,467 23,467 23,312 8.10 38.64
December 31, 1997...... 16,720 100,000 132,306 32,306 32,268 11.20 34.22
December 31, 1998...... 18,240 100,000 142,323 42,323 42,323 13.01 30.81
</TABLE>
A-58
<PAGE> 60
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............ $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1987...... 1,520 100,000 101,161 1,161 721 -67.21% --
December 31, 1988...... 3,040 100,000 102,402 2,402 1,941 -33.02 1,088.07%
December 31, 1989...... 4,560 100,000 104,111 4,111 3,357 -17.37 344.97
December 31, 1990...... 6,080 100,000 105,321 5,321 4,593 -12.59 183.16
December 31, 1991...... 7,600 100,000 107,506 7,506 6,803 -4.13 119.52
December 31, 1992...... 9,120 100,000 109,066 9,066 8,448 -2.41 86.34
December 31, 1993...... 10,640 100,000 111,026 11,026 10,524 -0.30 66.56
December 31, 1994...... 12,160 100,000 111,862 11,862 11,476 -1.39 53.28
December 31, 1995...... 13,680 100,000 116,803 16,803 16,533 4.03 44.72
December 31, 1996...... 15,200 100,000 120,310 20,310 20,155 5.38 38.16
December 31, 1997...... 16,720 100,000 126,911 26,911 26,872 8.15 33.54
December 31, 1998...... 18,240 100,000 133,206 33,206 33,206 9.36 29.84
</TABLE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993......... $1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1993...... 1,520 100,000 101,314 1,314 874 -56.12% --
December 31, 1994...... 3,040 100,000 102,382 2,382 1,924 -33.53 1,082.88%
December 31, 1995...... 4,560 100,000 104,589 4,589 3,838 -10.00 345.06
December 31, 1996...... 6,080 100,000 106,561 6,561 5,835 -1.89 183.95
December 31, 1997...... 7,600 100,000 110,034 10,034 9,333 7.77 120.70
December 31, 1998...... 9,120 100,000 113,485 13,485 12,877 10.94 87.87
</TABLE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $1,520 $100,000 $101,397 $1,397 $ 958 -- --
December 31, 1993....... 1,520 100,000 101,321 1,321 881 -55.61% --
December 31, 1994....... 3,040 100,000 102,408 2,408 1,950 -32.69 1,083.07%
December 31, 1995....... 4,560 100,000 104,476 4,476 3,725 -11.67 344.86
December 31, 1996....... 6,080 100,000 106,355 6,355 5,629 -3.53 183.78
December 31, 1997....... 7,600 100,000 108,668 8,668 7,967 1.77 120.00
December 31, 1998....... 9,120 100,000 108,920 8,920 8,312 -2.92 86.22
</TABLE>
ZENITH SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. $1,520 $100,000 $101,397 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 101,111 1,111 672 -70.66% --
December 31, 1995....... 3,040 100,000 102,744 2,744 2,284 -22.28 1,095.67%
December 31, 1996....... 4,560 100,000 104,799 4,799 4,045 -7.03 346.94
December 31, 1997....... 6,080 100,000 107,315 7,315 6,587 3.72 185.09
December 31, 1998....... 7,600 100,000 108,018 8,018 7,315 -1.43 119.90
</TABLE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $1,520 $100,000 $101,397 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 101,327 1,327 887 -96.00% --
December 31, 1995....... 3,040 100,000 102,734 2,734 2,263 -38.51 3,511.46%
December 31, 1996....... 4,560 100,000 104,289 4,289 3,525 -21.05 552.81
December 31, 1997....... 6,080 100,000 106,031 6,031 5,292 -8.24 243.48
December 31, 1998....... 7,600 100,000 107,643 7,643 6,929 -4.26 145.89
</TABLE>
A-59
<PAGE> 61
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $1,520 $100,000 $101,397 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 101,360 1,360 921 -95.02% --
December 31, 1995....... 3,040 100,000 102,565 2,565 2,095 -46.85 3,506.26%
December 31, 1996....... 4,560 100,000 103,825 3,825 3,061 -31.81 551.36
December 31, 1997....... 6,080 100,000 104,798 4,798 4,060 -23.60 242.05
December 31, 1998....... 7,600 100,000 106,205 6,205 5,491 -14.96 144.96
</TABLE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $1,520 $100,000 $101,397 $1,397 $ 958 -- --
December 31, 1994....... 1,520 100,000 101,285 1,285 846 -97.01% --
December 31, 1995....... 3,040 100,000 102,852 2,852 2,381 -32.66 3,515.10%
December 31, 1996....... 4,560 100,000 104,690 4,690 3,926 -12.48 554.07
December 31, 1997....... 6,080 100,000 107,293 7,293 6,555 4.54 244.95
December 31, 1998....... 7,600 100,000 109,422 9,422 8,709 6.30 147.03
</TABLE>
ZENITH EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1994...... 1,520 100,000 101,253 1,253 814 -97.61% --
December 31, 1995...... 3,040 100,000 102,850 2,850 2,379 -32.73 3,515.06%
December 31, 1996...... 4,560 100,000 104,317 4,317 3,554 -20.43 552.90
December 31, 1997...... 6,080 100,000 106,449 6,449 5,711 -3.74 243.97
December 31, 1998...... 7,600 100,000 110,703 10,703 9,990 12.70 147.85
</TABLE>
EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986........ $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1986...... 1,520 100,000 101,334 1,334 895 -90.28% --
December 31, 1987...... 3,040 100,000 102,159 2,159 1,689 -61.77 2,901.04%
December 31, 1988...... 4,560 100,000 103,679 3,679 2,915 -33.60 516.05
December 31, 1989...... 6,080 100,000 105,354 5,354 4,616 -15.63 233.85
December 31, 1990...... 7,600 100,000 105,623 5,623 4,910 -19.52 140.93
December 31, 1991...... 9,120 100,000 108,427 8,427 7,761 -5.94 98.46
December 31, 1992...... 10,640 100,000 110,901 10,901 10,351 -0.85 74.23
December 31, 1993...... 12,160 100,000 113,794 13,794 13,359 2.51 58.93
December 31, 1994...... 13,680 100,000 115,652 15,652 15,333 2.68 48.23
December 31, 1995...... 15,200 100,000 122,237 22,237 22,034 7.66 41.28
December 31, 1996...... 16,720 100,000 126,297 26,297 26,210 8.32 35.66
December 31, 1997...... 18,240 100,000 134,609 34,609 34,609 10.66 31.78
December 31, 1998...... 19,760 100,000 139,767 39,767 39,767 10.63 28.34
</TABLE>
A-60
<PAGE> 62
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987....... $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1987...... 1,520 100,000 100,979 979 540 -67.39% --
December 31, 1988...... 3,040 100,000 102,320 2,320 1,868 -29.74 741.72%
December 31, 1989...... 4,560 100,000 104,163 4,163 3,418 -14.27 285.49
December 31, 1990...... 6,080 100,000 105,137 5,137 4,417 -12.77 161.88
December 31, 1991...... 7,600 100,000 106,640 6,640 5,945 -8.29 108.79
December 31, 1992...... 9,120 100,000 106,753 6,753 6,174 -11.32 79.60
December 31, 1993...... 10,640 100,000 110,610 10,610 10,147 -1.21 62.63
December 31, 1994...... 12,160 100,000 111,652 11,652 11,304 -1.65 50.61
December 31, 1995...... 13,680 100,000 114,064 14,064 13,833 0.23 42.29
December 31, 1996...... 15,200 100,000 116,951 16,951 16,835 1.88 36.18
December 31, 1997...... 16,720 100,000 120,116 20,116 20,116 3.09 31.50
December 31, 1998...... 18,240 100,000 123,788 23,788 23,788 4.07 27.85
</TABLE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985..... $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1985...... 1,520 100,000 101,381 1,381 942 -81.68% --
December 31, 1986...... 3,040 100,000 102,715 2,715 2,246 -33.92 2,495.82%
December 31, 1987...... 4,560 100,000 103,802 3,802 3,041 -29.32 487.79
December 31, 1988...... 6,080 100,000 105,290 5,290 4,553 -15.86 226.21
December 31, 1989...... 7,600 100,000 106,031 6,031 5,319 -15.53 138.01
December 31, 1990...... 9,120 100,000 106,866 6,866 6,210 -13.91 96.10
December 31, 1991...... 10,640 100,000 110,237 10,237 9,696 -2.84 72.98
December 31, 1992...... 12,160 100,000 113,515 13,515 13,090 1.94 58.17
December 31, 1993...... 13,680 100,000 117,229 17,229 16,920 4.90 48.05
December 31, 1994...... 15,200 100,000 117,913 17,913 17,720 3.17 40.21
December 31, 1995...... 16,720 100,000 122,635 22,635 22,558 5.54 34.87
December 31, 1996...... 18,240 100,000 126,766 26,766 26,766 6.43 30.63
December 31, 1997...... 19,760 100,000 132,433 32,433 32,433 7.57 27.40
December 31, 1998...... 21,280 100,000 132,024 32,024 32,024 5.81 24.19
</TABLE>
ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989...... $ 1,520 $100,000 $101,397 $ 1,397 $ 958 -- --
December 31, 1989...... 1,520 100,000 101,313 1,313 874 -82.47% --
December 31, 1990...... 3,040 100,000 102,509 2,509 2,040 -41.14 2,267.08%
December 31, 1991...... 4,560 100,000 104,175 4,175 3,414 -20.82 471.56
December 31, 1992...... 6,080 100,000 105,731 5,731 4,995 -10.64 221.99
December 31, 1993...... 7,600 100,000 108,007 8,007 7,295 -1.77 137.20
December 31, 1994...... 9,120 100,000 108,419 8,419 7,762 -5.73 95.68
December 31, 1995...... 10,640 100,000 110,868 10,868 10,327 -0.90 72.51
December 31, 1996...... 12,160 100,000 113,442 13,442 13,017 1.78 57.71
December 31, 1997...... 13,680 100,000 117,139 17,139 16,830 4.74 47.72
December 31, 1998...... 15,200 100,000 120,810 20,810 20,617 6.20 40.44
</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> 63
MALE NON-SMOKER PREFERRED RISK AGE 40
$500,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983...... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1983.... 7,600 500,000 500,000 7,289 5,093 -68.35% --
December 31, 1984.... 15,200 500,000 500,000 13,202 10,869 -34.40 2,058.98%
December 31, 1985.... 22,800 500,000 500,000 29,463 25,665 8.98 447.23
December 31, 1986.... 30,400 500,000 500,000 63,104 59,430 38.70 212.13
December 31, 1987.... 38,000 500,000 500,000 100,369 96,821 41.63 130.64
December 31, 1988.... 45,600 500,000 500,000 97,082 93,848 25.53 91.23
December 31, 1989.... 53,200 500,000 500,000 132,279 129,624 26.37 68.52
December 31, 1990.... 60,800 500,000 500,000 132,027 129,952 19.30 53.94
December 31, 1991.... 68,400 500,000 500,000 209,040 207,544 24.54 43.89
December 31, 1992.... 76,000 500,000 500,000 202,188 201,271 19.17 36.58
December 31, 1993.... 83,600 500,000 500,000 237,869 237,531 18.44 31.06
December 31, 1994.... 91,200 500,000 500,000 224,128 224,128 14.51 26.76
December 31, 1995.... 98,800 500,000 543,318 317,730 317,730 17.06 24.47
December 31, 1996.... 106,400 500,000 637,291 388,592 388,592 17.35 23.57
December 31, 1997.... 114,000 500,000 758,655 483,220 483,220 17.82 23.03
December 31, 1998.... 121,600 500,000 976,959 651,306 651,306 19.11 23.42
</TABLE>
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983...... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1983.... 7,600 500,000 500,000 6,872 4,676 -75.24% --
December 31, 1984.... 15,200 500,000 500,000 14,228 11,894 -26.12 2,058.98%
December 31, 1985.... 22,800 500,000 500,000 23,265 19,467 -11.38 447.23
December 31, 1986.... 30,400 500,000 500,000 32,723 29,049 -2.45 212.13
December 31, 1987.... 38,000 500,000 500,000 39,285 35,737 -2.61 130.64
December 31, 1988.... 45,600 500,000 500,000 48,328 45,095 -0.39 91.23
December 31, 1989.... 53,200 500,000 500,000 59,990 57,336 2.23 68.52
December 31, 1990.... 60,800 500,000 500,000 70,685 68,609 3.12 53.94
December 31, 1991.... 68,400 500,000 500,000 89,371 87,875 5.68 43.89
December 31, 1992.... 76,000 500,000 500,000 102,244 101,327 5.82 36.58
December 31, 1993.... 83,600 500,000 500,000 120,739 120,401 6.65 31.06
December 31, 1994.... 91,200 500,000 500,000 122,023 122,023 4.86 26.76
December 31, 1995.... 98,800 500,000 500,000 154,028 154,028 6.75 23.33
December 31, 1996.... 106,400 500,000 500,000 166,798 166,798 6.31 20.53
December 31, 1997.... 114,000 500,000 500,000 190,410 190,410 6.67 18.22
December 31, 1998.... 121,600 500,000 500,000 213,064 213,064 6.79 16.27
</TABLE>
A-62
<PAGE> 64
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983...... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1983.... 7,600 500,000 500,000 6,887 4,690 -75.02% --
December 31, 1984.... 15,200 500,000 500,000 13,794 11,461 -29.61 2,058.98%
December 31, 1985.... 22,800 500,000 500,000 21,107 17,308 -19.42 447.23
December 31, 1986.... 30,400 500,000 500,000 28,527 24,853 -10.72 212.13
December 31, 1987.... 38,000 500,000 500,000 36,259 32,711 -6.36 130.64
December 31, 1988.... 45,600 500,000 500,000 44,792 41,558 -3.26 91.23
December 31, 1989.... 53,200 500,000 500,000 54,630 51,975 -0.70 68.52
December 31, 1990.... 60,800 500,000 500,000 64,743 62,667 0.79 53.94
December 31, 1991.... 68,400 500,000 500,000 74,396 72,900 1.46 43.89
December 31, 1992.... 76,000 500,000 500,000 82,882 81,965 1.55 36.58
December 31, 1993.... 83,600 500,000 500,000 91,125 90,787 1.53 31.06
December 31, 1994.... 91,200 500,000 500,000 100,640 100,640 1.67 26.76
December 31, 1995.... 98,800 500,000 500,000 112,105 112,105 1.97 23.33
December 31, 1996.... 106,400 500,000 500,000 123,434 123,434 2.14 20.53
December 31, 1997.... 114,000 500,000 500,000 135,514 135,514 2.31 18.22
December 31, 1998.... 121,600 500,000 500,000 148,147 148,147 2.47 16.27
</TABLE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987.......... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1987.... 7,600 500,000 500,000 5,568 3,371 -70.36% --
December 31, 1988.... 15,200 500,000 500,000 12,937 10,635 -27.12 1,070.47%
December 31, 1989.... 22,800 500,000 500,000 24,432 20,665 -5.79 337.59
December 31, 1990.... 30,400 500,000 500,000 28,936 25,294 -8.33 178.58
December 31, 1991.... 38,000 500,000 500,000 44,092 40,575 2.46 115.51
December 31, 1992.... 45,600 500,000 500,000 53,322 50,233 3.06 82.89
December 31, 1993.... 53,200 500,000 500,000 64,468 61,958 4.15 63.34
December 31, 1994.... 60,800 500,000 500,000 70,868 68,938 3.00 50.46
December 31, 1995.... 68,400 500,000 500,000 104,625 103,273 8.69 41.41
December 31, 1996.... 76,000 500,000 500,000 133,479 132,707 10.51 34.74
December 31, 1997.... 83,600 500,000 500,000 183,666 183,473 13.32 29.65
December 31, 1998.... 91,200 500,000 500,000 240,695 240,695 14.92 25.65
</TABLE>
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987.......... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1987.... 7,600 500,000 500,000 6,312 4,116 -60.05% --
December 31, 1988.... 15,200 500,000 500,000 13,292 10,990 -24.90 1,070.47%
December 31, 1989.... 22,800 500,000 500,000 22,860 19,093 -10.30 337.59
December 31, 1990.... 30,400 500,000 500,000 29,698 26,056 -7.01 178.58
December 31, 1991.... 38,000 500,000 500,000 42,049 38,532 0.52 115.51
December 31, 1992.... 45,600 500,000 500,000 50,982 47,893 1.55 82.89
December 31, 1993.... 53,200 500,000 500,000 62,275 59,766 3.17 63.34
December 31, 1994.... 60,800 500,000 500,000 67,232 65,301 1.71 50.46
December 31, 1995.... 68,400 500,000 500,000 95,428 94,076 6.74 41.41
December 31, 1996.... 76,000 500,000 500,000 115,422 114,650 7.80 34.74
December 31, 1997.... 83,600 500,000 500,000 152,815 152,622 10.28 29.65
December 31, 1998.... 91,200 500,000 500,000 188,574 188,574 11.28 25.65
</TABLE>
A-63
<PAGE> 65
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993......... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1993...... 7,600 500,000 500,000 7,193 4,996 -46.47% --
December 31, 1994...... 15,200 500,000 500,000 13,220 10,928 -25.22 1,065.53%
December 31, 1995...... 22,800 500,000 500,000 25,545 21,788 -2.69 336.86
December 31, 1996...... 30,400 500,000 500,000 36,654 33,023 3.84 178.34
December 31, 1997...... 38,000 500,000 500,000 56,154 52,647 12.41 115.39
December 31, 1998...... 45,600 500,000 500,000 75,793 72,752 14.86 82.83
</TABLE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993......... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1993...... 7,600 500,000 500,000 7,228 5,031 -45.91% --
December 31, 1994...... 15,200 500,000 500,000 13,353 11,061 -24.40 1,065.53%
December 31, 1995...... 22,800 500,000 500,000 24,889 21,133 -4.48 336.86
December 31, 1996...... 30,400 500,000 500,000 35,476 31,845 2.15 178.34
December 31, 1997...... 38,000 500,000 500,000 48,480 44,974 6.36 115.39
December 31, 1998...... 45,600 500,000 500,000 50,223 47,182 1.08 82.83
</TABLE>
ZENITH SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............ $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1994...... 7,600 500,000 500,000 6,066 3,870 -63.71% --
December 31, 1995...... 15,200 500,000 500,000 15,199 12,896 -13.34 1,075.45%
December 31, 1996...... 22,800 500,000 500,000 26,727 22,960 0.42 338.33
December 31, 1997...... 30,400 500,000 500,000 40,797 37,155 9.45 178.83
December 31, 1998...... 38,000 500,000 500,000 44,979 41,462 3.28 115.62
</TABLE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1994...... 7,600 500,000 500,000 6,860 4,664 -94.62% --
December 31, 1995...... 15,200 500,000 500,000 14,766 12,412 -27.62 3,427.01%
December 31, 1996...... 22,800 500,000 500,000 23,463 19,644 -12.43 539.22
December 31, 1997...... 30,400 500,000 500,000 33,256 29,562 -1.67 236.33
December 31, 1998...... 38,000 500,000 500,000 42,349 38,780 0.94 140.81
</TABLE>
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1994...... 7,600 500,000 500,000 7,029 4,833 -93.34% --
December 31, 1995...... 15,200 500,000 500,000 13,852 11,498 -36.70 3,427.01%
December 31, 1996...... 22,800 500,000 500,000 20,905 17,086 -23.47 539.22
December 31, 1997...... 30,400 500,000 500,000 26,434 22,740 -17.07 236.33
December 31, 1998...... 38,000 500,000 500,000 34,337 30,768 -9.72 140.81
</TABLE>
A-64
<PAGE> 66
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1994...... 7,600 500,000 500,000 6,648 4,451 -95.93% --
December 31, 1995...... 15,200 500,000 500,000 15,416 13,062 -21.17 3,427.01%
December 31, 1996...... 22,800 500,000 500,000 25,666 21,847 -3.63 539.22
December 31, 1997...... 30,400 500,000 500,000 40,223 36,529 11.18 236.33
December 31, 1998...... 38,000 500,000 500,000 52,203 48,634 11.45 140.81
</TABLE>
ZENITH EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1994...... 7,600 500,000 500,000 6,486 4,290 -96.73% --
December 31, 1995...... 15,200 500,000 500,000 15,428 13,074 -21.05 3,427.01%
December 31, 1996...... 22,800 500,000 500,000 23,632 19,813 -11.73 539.22
December 31, 1997...... 30,400 500,000 500,000 35,582 31,888 2.88 236.33
December 31, 1998...... 38,000 500,000 500,000 59,346 55,777 17.90 140.81
</TABLE>
EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986...... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1986.... 7,600 500,000 500,000 6,892 4,696 -87.96% --
December 31, 1987.... 15,200 500,000 500,000 11,663 9,309 -53.92 2,847.86%
December 31, 1988.... 22,800 500,000 500,000 20,156 16,337 -25.55 505.26
December 31, 1989.... 30,400 500,000 500,000 29,607 25,914 -9.13 227.75
December 31, 1990.... 38,000 500,000 500,000 31,155 27,586 -14.31 137.27
December 31, 1991.... 45,600 500,000 500,000 46,957 43,627 -1.62 94.76
December 31, 1992.... 53,200 500,000 500,000 61,050 58,299 2.83 70.66
December 31, 1993.... 60,800 500,000 500,000 77,645 75,473 5.74 55.37
December 31, 1994.... 68,400 500,000 500,000 88,410 86,818 5.56 44.89
December 31, 1995.... 76,000 500,000 500,000 125,911 124,898 10.18 37.32
December 31, 1996.... 83,600 500,000 500,000 148,987 148,552 10.56 31.62
December 31, 1997.... 91,200 500,000 500,000 196,143 196,143 12.66 27.20
December 31, 1998.... 98,800 500,000 500,000 225,373 225,373 12.44 23.68
</TABLE>
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987..... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1987.... 7,600 500,000 500,000 5,608 3,412 -58.00% --
December 31, 1988.... 15,200 500,000 500,000 13,097 10,836 -21.57 731.16%
December 31, 1989.... 22,800 500,000 500,000 23,475 19,750 -7.29 279.55
December 31, 1990.... 30,400 500,000 500,000 28,995 25,395 -7.29 158.04
December 31, 1991.... 38,000 500,000 500,000 37,537 34,062 -3.72 105.56
December 31, 1992.... 45,600 500,000 500,000 38,373 35,477 -7.30 77.19
December 31, 1993.... 53,200 500,000 500,000 60,363 58,046 2.22 59.70
December 31, 1994.... 60,800 500,000 500,000 66,482 64,745 1.42 47.97
December 31, 1995.... 68,400 500,000 500,000 80,297 79,139 2.95 39.61
December 31, 1996.... 76,000 500,000 500,000 96,702 96,123 4.29 33.39
December 31, 1997.... 83,600 500,000 500,000 114,469 114,469 5.22 28.61
December 31, 1998.... 91,200 500,000 500,000 135,233 135,233 5.99 24.82
</TABLE>
A-65
<PAGE> 67
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1985.... 7,600 500,000 500,000 7,204 5,008 -77.19% --
December 31, 1986.... 15,200 500,000 500,000 14,713 12,369 -24.08 2,440.56%
December 31, 1987.... 22,800 500,000 500,000 20,838 17,029 -21.56 477.39
December 31, 1988.... 30,400 500,000 500,000 29,216 25,532 -9.65 220.41
December 31, 1989.... 38,000 500,000 500,000 33,486 29,928 -10.41 134.18
December 31, 1990.... 45,600 500,000 500,000 38,340 35,057 -9.49 93.12
December 31, 1991.... 53,200 500,000 500,000 57,521 54,818 0.91 69.67
December 31, 1992.... 60,800 500,000 500,000 76,305 74,181 5.21 54.71
December 31, 1993.... 68,400 500,000 500,000 97,579 96,035 7.78 44.43
December 31, 1994.... 76,000 500,000 500,000 101,607 100,642 5.76 36.98
December 31, 1995.... 83,600 500,000 500,000 128,432 128,045 7.83 31.37
December 31, 1996.... 91,200 500,000 500,000 151,801 151,801 8.48 27.00
December 31, 1997.... 98,800 500,000 500,000 184,027 184,027 9.43 23.52
December 31, 1998.... 106,400 500,000 500,000 181,764 181,764 7.54 20.69
</TABLE>
ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989.... $ 7,600 $500,000 $500,000 $ 7,092 $ 4,896 -- --
December 31, 1989.... 7,600 500,000 500,000 6,855 4,659 -78.56% --
December 31, 1990.... 15,200 500,000 500,000 13,624 11,280 -32.12 2,221.58%
December 31, 1991.... 22,800 500,000 500,000 22,933 19,125 -12.91 460.64
December 31, 1992.... 30,400 500,000 500,000 31,700 28,017 -4.46 215.86
December 31, 1993.... 38,000 500,000 500,000 44,519 40,960 3.24 132.24
December 31, 1994.... 45,600 500,000 500,000 47,025 43,743 -1.48 92.09
December 31, 1995.... 53,200 500,000 500,000 61,048 58,345 2.77 69.04
December 31, 1996.... 60,800 500,000 500,000 75,823 73,700 5.00 54.29
December 31, 1997.... 68,400 500,000 500,000 97,016 95,472 7.59 44.14
December 31, 1998.... 76,000 500,000 500,000 117,933 116,968 8.71 36.77
</TABLE>
OPTION 2 DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983...... $ 7,600 $500,000 $ 507,091 $ 7,091 $ 4,895 -- --
December 31, 1983.... 7,600 500,000 507,284 7,284 5,088 -68.44% --
December 31, 1984.... 15,200 500,000 513,182 13,182 10,848 -34.56 2,102.49%
December 31, 1985.... 22,800 500,000 529,384 29,384 25,586 8.74 461.99
December 31, 1986.... 30,400 500,000 562,830 62,830 59,157 38.41 225.00
December 31, 1987.... 38,000 500,000 599,734 99,734 96,186 41.32 142.31
December 31, 1988.... 45,600 500,000 596,281 96,281 93,047 25.22 99.02
December 31, 1989.... 53,200 500,000 630,908 130,908 128,253 26.05 76.34
December 31, 1990.... 60,800 500,000 630,399 130,399 128,324 18.99 60.20
December 31, 1991.... 68,400 500,000 706,060 206,060 204,563 24.23 51.70
December 31, 1992.... 76,000 500,000 698,980 198,980 198,063 18.86 43.09
December 31, 1993.... 83,600 500,000 733,787 233,787 233,449 18.14 37.60
December 31, 1994.... 91,200 500,000 720,032 220,032 220,032 14.22 32.30
December 31, 1995.... 98,800 500,000 811,518 311,518 311,518 16.79 29.98
December 31, 1996.... 106,400 500,000 880,554 380,554 380,554 17.08 27.62
December 31, 1997.... 114,000 500,000 972,837 472,837 472,837 17.57 25.88
December 31, 1998.... 121,600 500,000 1,136,943 636,943 636,943 18.87 25.02
</TABLE>
A-66
<PAGE> 68
ZENITH BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983........ $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1983...... 7,600 500,000 506,867 6,867 4,671 -75.31% --
December 31, 1984...... 15,200 500,000 514,206 14,206 11,872 -26.29 2,105.86%
December 31, 1985...... 22,800 500,000 523,204 23,204 19,406 -11.60 458.92
December 31, 1986...... 30,400 500,000 532,594 32,594 28,921 -2.69 218.95
December 31, 1987...... 38,000 500,000 539,074 39,074 35,526 -2.86 135.42
December 31, 1988...... 45,600 500,000 547,993 47,993 44,759 -0.65 95.26
December 31, 1989...... 53,200 500,000 559,475 59,475 56,820 1.96 72.27
December 31, 1990...... 60,800 500,000 569,963 69,963 67,888 2.85 57.46
December 31, 1991...... 68,400 500,000 588,322 88,322 86,826 5.41 47.55
December 31, 1992...... 76,000 500,000 600,905 100,905 99,988 5.56 40.14
December 31, 1993...... 83,600 500,000 619,032 119,032 118,694 6.39 34.70
December 31, 1994...... 91,200 500,000 620,198 120,198 120,198 4.62 30.03
December 31, 1995...... 98,800 500,000 651,557 151,557 151,557 6.51 26.96
December 31, 1996...... 106,400 500,000 663,906 163,906 163,906 6.08 24.09
December 31, 1997...... 114,000 500,000 686,814 186,814 186,814 6.43 21.88
December 31, 1998...... 121,600 500,000 708,665 208,665 208,665 6.55 20.01
</TABLE>
ZENITH MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983...... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1983.... 7,600 500,000 506,882 6,882 4,686 -75.09% --
December 31, 1984.... 15,200 500,000 513,773 13,773 11,439 -29.78 2,104.43%
December 31, 1985.... 22,800 500,000 521,052 21,052 17,254 -19.63 457.85
December 31, 1986.... 30,400 500,000 528,418 28,418 24,745 -10.94 218.09
December 31, 1987.... 38,000 500,000 536,071 36,071 32,523 -6.60 135.06
December 31, 1988.... 45,600 500,000 544,491 44,491 41,257 -3.52 94.97
December 31, 1989.... 53,200 500,000 554,175 54,175 51,521 -0.96 71.95
December 31, 1990.... 60,800 500,000 564,102 64,102 62,026 0.52 57.19
December 31, 1991.... 68,400 500,000 573,550 73,550 72,054 1.19 46.98
December 31, 1992.... 76,000 500,000 581,840 81,840 80,923 1.29 39.52
December 31, 1993.... 83,600 500,000 589,904 89,904 89,566 1.28 33.87
December 31, 1994.... 91,200 500,000 599,222 99,222 99,222 1.43 29.51
December 31, 1995.... 98,800 500,000 610,423 110,423 110,423 1.73 26.07
December 31, 1996.... 106,400 500,000 621,439 121,439 121,439 1.91 23.26
December 31, 1997.... 114,000 500,000 633,137 133,137 133,137 2.08 20.95
December 31, 1998.... 121,600 500,000 645,314 145,314 145,314 2.23 19.01
</TABLE>
ZENITH STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987.......... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1987.... 7,600 500,000 505,562 5,562 3,365 -70.44% --
December 31, 1988.... 15,200 500,000 512,912 12,912 10,610 -27.27 1,089.39%
December 31, 1989.... 22,800 500,000 524,357 24,357 20,590 -6.00 346.31%
December 31, 1990.... 30,400 500,000 528,809 28,809 25,167 -8.55 183.53
December 31, 1991.... 38,000 500,000 543,831 43,831 40,314 2.22 120.17
December 31, 1992.... 45,600 500,000 552,917 52,917 49,828 2.80 86.90
December 31, 1993.... 53,200 500,000 563,869 63,869 61,359 3.88 67.05
December 31, 1994.... 60,800 500,000 570,096 70,096 68,165 2.73 53.76
December 31, 1995.... 68,400 500,000 603,325 103,325 101,974 8.43 45.41
December 31, 1996.... 76,000 500,000 631,638 131,638 130,866 10.25 39.06
December 31, 1997.... 83,600 500,000 680,939 180,939 180,746 13.08 34.69
December 31, 1998.... 91,200 500,000 736,836 236,836 236,836 14.68 31.32
</TABLE>
A-67
<PAGE> 69
ZENITH MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987.......... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1987.... 7,600 500,000 506,305 6,305 4,109 -60.15% --
December 31, 1988.... 15,200 500,000 513,266 13,266 10,964 -25.06 1,089.90%
December 31, 1989.... 22,800 500,000 522,790 22,790 19,024 -10.51 345.76
December 31, 1990.... 30,400 500,000 529,568 29,568 25,927 -7.23 183.66
December 31, 1991.... 38,000 500,000 541,802 41,802 38,285 0.28 119.96
December 31, 1992.... 45,600 500,000 550,600 50,600 47,511 1.30 86.73
December 31, 1993.... 53,200 500,000 561,703 61,703 59,193 2.91 66.93
December 31, 1994.... 60,800 500,000 566,507 66,507 64,577 1.44 53.60
December 31, 1995.... 68,400 500,000 594,259 94,259 92,908 6.48 45.09
December 31, 1996.... 76,000 500,000 613,859 113,859 113,086 7.54 38.53
December 31, 1997.... 83,600 500,000 650,597 150,597 150,404 10.03 33.95
December 31, 1998.... 91,200 500,000 685,630 185,630 185,630 11.04 30.27
</TABLE>
ZENITH GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993......... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1993...... 7,600 500,000 507,184 7,184 4,988 -46.61% --
December 31, 1994...... 15,200 500,000 513,192 13,192 10,900 -25.40 1,084.74%
December 31, 1995...... 22,800 500,000 525,461 25,461 21,704 -2.92 345.94
December 31, 1996...... 30,400 500,000 536,481 36,481 32,850 3.60 184.56
December 31, 1997...... 38,000 500,000 555,798 55,798 52,292 12.14 121.27
December 31, 1998...... 45,600 500,000 575,169 75,169 72,128 14.58 88.41
</TABLE>
ZENITH MIDCAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993......... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1993...... 7,600 500,000 507,219 7,219 5,022 -46.05% --
December 31, 1994...... 15,200 500,000 513,324 13,324 11,032 -24.58 1,084.93%
December 31, 1995...... 22,800 500,000 524,808 24,808 21,051 -4.71 345.71
December 31, 1996...... 30,400 500,000 535,309 35,309 31,677 1.90 184.37
December 31, 1997...... 38,000 500,000 548,176 48,176 44,670 6.10 120.49
December 31, 1998...... 45,600 500,000 549,816 49,816 46,775 0.80 86.60
</TABLE>
ZENITH SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............ $ 7,600 $500,000 507,091 $ 7,091 $ 4,895 -- --
December 31, 1994...... 7,600 500,000 506,060 6,060 3,864 -63.80% --
December 31, 1995...... 15,200 500,000 515,169 15,169 12,867 -13.52 1,097.78%
December 31, 1996...... 22,800 500,000 526,642 26,642 22,875 0.20 347.88
December 31, 1997...... 30,400 500,000 540,612 40,612 36,970 9.21 185.76
December 31, 1998...... 38,000 500,000 544,698 44,698 41,181 3.03 120.38
</TABLE>
A-68
<PAGE> 70
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1994...... 7,600 500,000 506,857 6,857 4,661 -94.64% --
December 31, 1995...... 15,200 500,000 514,747 14,747 12,393 -27.81 3,518.11%
December 31, 1996...... 22,800 500,000 523,408 23,408 19,589 -12.65 554.04
December 31, 1997...... 30,400 500,000 533,137 33,137 29,443 -1.91 244.18
December 31, 1998...... 38,000 500,000 542,137 42,137 38,568 0.68 146.40
</TABLE>
ZENITH INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1994...... 7,600 500,000 507,026 7,026 4,830 -93.36% --
December 31, 1995...... 15,200 500,000 513,835 13,835 11,481 -36.87 3,512.48%
December 31, 1996...... 22,800 500,000 520,859 20,859 17,040 -23.68 552.45
December 31, 1997...... 30,400 500,000 526,345 26,345 22,651 -17.30 242.60
December 31, 1998...... 38,000 500,000 534,177 34,177 30,608 -9.96 145.37
</TABLE>
ZENITH VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1994...... 7,600 500,000 506,645 6,645 4,449 -95.94% --
December 31, 1995...... 15,200 500,000 515,396 15,396 13,042 -21.37 3,522.10%
December 31, 1996...... 22,800 500,000 525,605 25,605 21,786 -3.86 555.42
December 31, 1997...... 30,400 500,000 540,072 40,072 36,378 10.92 245.78
December 31, 1998...... 38,000 500,000 551,926 51,926 48,357 11.19 147.65
</TABLE>
ZENITH EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994....... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1994...... 7,600 500,000 506,484 6,484 4,288 -96.75% --
December 31, 1995...... 15,200 500,000 515,407 15,407 13,053 -21.25 3,522.17%
December 31, 1996...... 22,800 500,000 523,576 23,576 19,757 -11.96 554.15
December 31, 1997...... 30,400 500,000 535,451 35,451 31,757 2.63 244.71
December 31, 1998...... 38,000 500,000 559,034 59,034 55,465 17.63 148.54
</TABLE>
EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986...... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1986.... 7,600 500,000 506,890 6,890 4,693 -87.99% --
December 31, 1987.... 15,200 500,000 511,648 11,648 9,294 -54.06 2,905.22%
December 31, 1988.... 22,800 500,000 520,111 20,111 16,292 -25.75 517.04
December 31, 1989.... 30,400 500,000 529,504 29,504 25,810 -9.36 234.46
December 31, 1990.... 38,000 500,000 531,011 31,011 27,442 -14.54 141.30
December 31, 1991.... 45,600 500,000 546,668 46,668 43,338 -1.87 98.84
December 31, 1992.... 53,200 500,000 560,575 60,575 57,824 2.57 74.61
December 31, 1993.... 60,800 500,000 576,904 76,904 74,732 5.48 59.32
December 31, 1994.... 68,400 500,000 587,421 87,421 85,828 5.29 48.60
December 31, 1995.... 76,000 500,000 624,309 124,309 123,296 9.92 41.71
December 31, 1996.... 83,600 500,000 646,909 146,909 146,475 10.31 36.08
December 31, 1997.... 91,200 500,000 693,197 193,197 193,197 12.42 32.24
December 31, 1998.... 98,800 500,000 721,721 221,721 221,721 12.21 28.79
</TABLE>
A-69
<PAGE> 71
OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987..... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1987.... 7,600 500,000 505,599 5,599 3,402 -58.13% --
December 31, 1988.... 15,200 500,000 513,063 13,063 10,803 -21.75 743.04%
December 31, 1989.... 22,800 500,000 523,388 23,388 19,663 -7.51 286.22
December 31, 1990.... 30,400 500,000 528,845 28,845 25,245 -7.53 162.34
December 31, 1991.... 38,000 500,000 537,286 37,286 33,811 -3.97 109.18
December 31, 1992.... 45,600 500,000 538,053 38,053 35,157 -7.56 79.89
December 31, 1993.... 53,200 500,000 559,772 59,772 57,455 1.96 62.98
December 31, 1994.... 60,800 500,000 565,722 65,722 63,985 1.15 50.93
December 31, 1995.... 68,400 500,000 579,274 79,274 78,116 2.69 42.61
December 31, 1996.... 76,000 500,000 595,368 95,368 94,789 4.03 36.50
December 31, 1997.... 83,600 500,000 612,814 112,814 112,814 4.98 31.82
December 31, 1998.... 91,200 500,000 633,148 133,148 133,148 5.76 28.18
</TABLE>
HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1985.... 7,600 500,000 507,201 7,201 5,004 -77.25% --
December 31, 1986.... 15,200 500,000 514,692 14,692 12,349 -24.26 2,500.37%
December 31, 1987.... 22,800 500,000 520,787 20,787 16,978 -21.77 488.75
December 31, 1988.... 30,400 500,000 529,109 29,109 25,426 -9.88 226.79
December 31, 1989.... 38,000 500,000 533,319 33,319 29,760 -10.65 138.40
December 31, 1990.... 45,600 500,000 538,094 38,094 34,812 -9.74 96.42
December 31, 1991.... 53,200 500,000 557,058 57,058 54,355 0.65 73.34
December 31, 1992.... 60,800 500,000 575,558 75,558 73,434 4.95 58.55
December 31, 1993.... 68,400 500,000 596,462 96,462 94,917 7.51 48.45
December 31, 1994.... 76,000 500,000 600,301 100,301 99,335 5.50 40.56
December 31, 1995.... 83,600 500,000 626,638 126,638 126,252 7.58 35.24
December 31, 1996.... 91,200 500,000 649,540 149,540 149,540 8.23 31.01
December 31, 1997.... 98,800 500,000 681,066 181,066 181,066 9.19 27.79
December 31, 1998.... 106,400 500,000 678,600 178,600 178,600 7.30 24.54
</TABLE>
ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL MINIMUM VARIABLE INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989.... $ 7,600 $500,000 $507,091 $ 7,091 $ 4,895 -- --
December 31, 1989.... 7,600 500,000 506,851 6,851 4,655 -78.61% --
December 31, 1990.... 15,200 500,000 513,606 13,606 11,262 -32.28 2,270.91%
December 31, 1991.... 22,800 500,000 522,878 22,878 19,069 -13.12 472.60
December 31, 1992.... 30,400 500,000 531,584 31,584 27,900 -4.69 222.60
December 31, 1993.... 38,000 500,000 544,289 44,289 40,730 3.00 137.71
December 31, 1994.... 45,600 500,000 546,707 46,707 43,425 -1.74 96.05
December 31, 1995.... 53,200 500,000 560,534 60,534 57,831 2.51 72.89
December 31, 1996.... 60,800 500,000 575,061 75,061 72,937 4.73 58.08
December 31, 1997.... 68,400 500,000 595,880 95,880 94,335 7.32 48.11
December 31, 1998.... 76,000 500,000 616,388 116,388 115,423 8.45 40.84
</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-70
<PAGE> 72
APPENDIX C
LONG TERM MARKET TRENDS
The information below compares 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 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.]
------------------------
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
0- 5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 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.]
A-71
<PAGE> 73
APPENDIX D
USES OF LIFE INSURANCE
These are examples of ways the Policy can be used to address certain
financial objectives.
FAMILY INCOME PROTECTION
You may purchase life insurance on the lives of family income earners to
provide a death benefit to cover final expenses, and continue current family
income. The amount of insurance you purchase should be an amount which will
provide a death benefit that, when invested outside the policy at a reasonable
interest rate, will generate enough money to replace the individual's income.
ESTATE PROTECTION
A trust may purchase life insurance on the life of the person whose estate
will incur federal estate taxes upon the person's death. The amount of insurance
purchased should equal the amount of the estimated estate tax liability. On the
insured's death, the trustee makes the death proceeds available to the estate
for the payment of estate tax costs.
EDUCATION FUNDING
You may purchase life insurance on the life of the parent(s) or primary
person funding an education. The amount of insurance you purchase should equal
the total education cost projected at a reasonable inflation rate.
In the event of death, the guaranteed death benefit is available to help pay
the education costs. If the insured lives through the education years, cash
value may be accessed to meet education costs. Loans or surrenders reduce the
Policy's death benefit.
MORTGAGE PROTECTION
You may purchase life insurance on the life of the person responsible for
making mortgage payments. The amount of insurance you purchase should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to pay the mortgage balance.
During the insured's lifetime, cash value may be accessed late in the
mortgage term to help make the remaining mortgage payments. Loans or surrenders
reduce the Policy's death benefit.
KEY PERSON PROTECTION
A business may purchase life insurance on the life of a key person in an
amount equal to the key person's value, considering salary, benefits, and
contribution to the business. On the key person's death, the business uses the
death benefit to ease the interruption of business operations and/or to provide
a replacement fund for hiring a new executive.
BUSINESS CONTINUATION PROTECTION
You can insure each business owner in an amount equal to the value of each
owner's business interest. In the event of death, the guaranteed death benefit
provides funds for the purchase of the deceased's business interest by the
business, or surviving owners, from the deceased owner's heirs.
RETIREMENT INCOME
You may purchase life insurance on the life of a family income earner during
his or her working life. If the insured lives to retirement, cash value may be
accessed to provide retirement payments. In the event of the insured's death,
the proceeds may be used to provide retirement income to his or her spouse.
Loans or surrenders reduce the Policy's death benefit.
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-72
<PAGE> 74
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
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- ----- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as
Distributions No* Yes Loans not allowed Yes, beyond $50,000
Income Ordering Rules (Income
included in First
Distribution) No* Yes Yes Yes
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by
Age 70 1/2 No No Yes Yes
Maximum Annual Distribution
Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
- ------------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
This appendix is not tax advice. You should consult with your own tax advisor
for more complete information.
A-73
<PAGE> 75
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>
<CAPTION>
AGE OF INSURED AGE OF INSURED AT
AT START OF THE PERCENTAGE OF START OF THE PERCENTAGE OF
POLICY YEAR CASH VALUE* POLICY YEAR CASH VALUE*
- --------------- ------------- ----------------- -------------
<S> <C> <C> <C>
0 through 40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 through 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 through 99 101
59 134 100 100
60 130
</TABLE>
- ------------
* including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death.
A-74
<PAGE> 76
<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
- -------------- --------------
Asset
Manager
Sub-
Account Total
- -------------- --------------
<S> <C>
$9,174,668 $2,070,454,260
271 2,780,390
-- 317,906
- -------------- --------------
9,174,938 2,073,552,557
987,748 194,552,345
- -------------- --------------
987,748 194,552,345
- -------------- --------------
$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
- ------------- ------------
Asset
Manager
Sub-
Account Total
- ------------- ------------
<S> <C>
$ 835,511 $187,037,382
50,140 10,697,110
- ------------- ------------
785,371 176,340,272
971,097 203,203,584
1,247,559 390,670,172
- ------------- ------------
276,461 187,466,588
4,137 7,251,049
- ------------- ------------
280,598 194,717,637
- ------------- ------------
$ 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)
<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>
See accompanying notes to consolidated financial statements.
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)
<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>
See accompanying notes to consolidated financial statements.
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)
<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>
See accompanying notes to consolidated financial statements.
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)
<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>
See accompanying notes to consolidated financial statements.
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> 77
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Flexible Life Prospectus dated
October 25, 1999. This Variable Life Policy is offered by New England Life
Insurance Company.
<TABLE>
<S> <C>
- ----------------------------------------------------- -----------------------------------------------------
(Date) (Client's Signature)
</TABLE>
<PAGE> 78
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street
Boston, MA 02116
e-mail: [email protected]
internet: http://www.nefn.com
- --------------------------------------------------------------------------------
Equal Opportunity Employer
(C) 1999 by New England Life Insurance Company (NELICO). New England Financial
is the service mark for NELICO, Boston, MA, and related companies.
VL-96OCT-99
