<PAGE>
As filed with Securities and Exchange Commission on April 26, 2000
Registration No. 33-52050
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 11
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
_________________________
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
NEW ENGLAND LIFE INSURANCE COMPANY
(Name of Depositor)
501 Boylston Street
Boston, Massachusetts 02117
(Address of depositor's principal executive offices)
________________________
MARIE C. SWIFT
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
___________________________
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities being Registered: Units of Interest in Variable Ordinary
Life Insurance Policies.
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross-Reference Sheet
Form N-8B-2
Item No. Caption in Prospectus
- ----------- ---------------------
1 Cover Page
2 Cover Page
3 Inapplicable
4 NELICO's Distribution Agreement
5 NELICO
6 The Variable Account
9 Inapplicable
10(a) Other Policy Features
10(b) Policy Values and Benefits
10(c), (d), (e) Death Benefit; Cash Value; Tabular Cash Value; Exchange
of Policy During First 24 Months; Default and Lapse
Options; Surrender; Partial Surrender and Partial
Withdrawal; Right to Return the Policy; Loan Provision;
Transfer Option; Premiums
10(f), (g), (h) Voting Rights; Rights Reserved by NELICO
10(i) Limits to NELICO's Right to Challenge the Policy; Payment
of Proceeds; Investment Options
11 The Variable Account
12 Investments of the Variable Account; NELICO's
Distribution Agreement
13 Charges and Expenses; NELICO's Distribution Agreement;
Charge for NELICO's Income Taxes; Appendix A
14 Amount Provided for Investment Under the Policy; NELICO's
Distribution Agreement
15 Premiums
16 Investments of the Variable Account
17 Captions referenced under Items 10(c), (d), (e) and (i)
above
18 The Variable Account; Net Investment Experience
19 Reports; NELICO's Distribution Agreement
20 Captions referenced under Items 6 and 10(g) above
21 Loan Provision
22 Inapplicable
23 NELICO's Distribution Agreement
24 Limits to NELICO's Right to Challenge the Policy
25 NELICO
26 NELICO's Distribution Agreement
<PAGE>
Form N-8B-2
Item No. Caption in Prospectus
- ----------- ---------------------
27 NELICO
28 Management
29 NELICO
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 NELICO's Distribution Agreement
35 NELICO
36 Inapplicable
37 Inapplicable
38 NELICO's Distribution Agreement
39 NELICO's Distribution Agreement
40 NELICO's Distribution Agreement
41(a) NELICO's Distribution Agreement
42 Inapplicable
43 Inapplicable
44(a) Investments of the Variable Account; Amount Provided for
Investment Under the Policy; Deductions from Premiums and
Unscheduled Payments; Scheduled Premiums; Scheduled
Premium Recalculation
44(b) Charges and Expenses
44(c) Scheduled Premiums; Deductions from Premiums and
Unscheduled Payments
45 Inapplicable
46 Investments of the Variable Account; Captions referenced
under Items 10(c), (d) and (e) above
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Cover Page; Death Benefit; Default and Lapse Options;
Charges and Expenses; Additional Benefits by Rider;
Exchange of Policy During First 24 Months; Payment
Options; Policy Owner and Beneficiary; Premiums; NELICO's
Distribution Agreement; Substitution of Insured Person
52 Rights Reserved by NELICO
53 Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
<PAGE>
ZENITH LIFE PLUS II
Supplement dated May 1, 2000
to Prospectus dated May 1, 2000
For Policies purchased through payroll deductions:
If you elect to pay your scheduled premiums using payroll deductions
that your employer will remit to us, New England Life Insurance Company, on your
behalf, the following special provisions apply to you.
1. Policy Date. The Policy Date and the investment start date for
your Policy will be six weeks after the date your employer begins making payroll
deductions that will be used to pay the scheduled premiums due on your Policy.
2. Temporary Life Insurance Coverage. The insured under your Policy
will be covered by temporary life insurance for a limited period under the terms
of a temporary insurance agreement. Coverage will begin as of the date of the
temporary insurance agreement, which is generally the same date you sign your
application.
3. Scheduled Premium Payments. Your first scheduled premium payment
will be due on the Policy Date. Subsequent scheduled premium payments will be
due on the same day each month thereafter, for a total of 12 scheduled premium
payments each year, regardless of the frequency with which payroll deductions
are made. We will apply premiums to your Policy each month on the due date, and
the amount applied each month will be the amount of scheduled premium due for
that month. If the amount of payroll deductions exceeds the amount of scheduled
premium due for any month, your employer will retain the excess for inclusion
with the next scheduled premium payment.
4. Default and Lapse. If we do not receive scheduled premium
payments each month as they become due, your Policy may lapse. See "Default and
Lapse Options." Hence, to keep your Policy in force if you miss a payroll
deduction, you may need to give your employer the amount of the missed
deductions, so that your employer can remit the full amount of the next
scheduled premium due. If you receive a lapse notice from us, you will need to
send payment directly to us in order to reinstate your Policy.
5. Unscheduled Payments and Loan Repayments. You cannot use payroll
deductions to make unscheduled payments or to repay a Policy loan. Please
contact us or your registered representative if you would like to arrange either
of these types of transactions.
6. Premium Recalculation. The scheduled premium due for your Policy
will remain at its initial level until the later of: a) the anniversary when the
insured reaches age 71; or b) eleven years. At that time, the scheduled premium
due may be increased, depending on the amount of the Policy's cash value on the
preceding policy anniversary, and it may be appropriate to adjust your payroll
deduction accordingly. (See "Scheduled Premium Recalculation.") THE CASH VALUE
OF PREMIUMS ALLOCATED TO THE VARIABLE ACCOUNT IS NOT GUARANTEED, AND UNFAVORABLE
INVESTMENT EXPERIENCE CAN REDUCE IT TO ZERO. YOU WILL BEAR THE ENTIRE
INVESTMENT RISK WITH RESPECT TO CASH VALUE IN THE VARIABLE ACCOUNT.
u:\vl3-supp.doc
<PAGE>
ZENITH LIFE PLUS II
Variable Ordinary 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 variable ordinary life Insurance policies
(the "Policies") issued by New England Life Insurance Company ("NELICO").
The Policy provides a guaranteed minimum death benefit equal to the Policy's
face amount, as long as you pay required scheduled premiums and there is no
"excess Policy loan." (See "Loan Provision.") You must pay scheduled premium
payments until the insured reaches age 100. Under some circumstances you may
skip a scheduled premium payment. You may also make additional payments.
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. Cash
value allocated to the Eligible Funds is not guaranteed and fluctuates daily
with the investment results of the Eligible Funds.
You allocate net scheduled premiums and net unscheduled payments among the
investment sub-accounts of NELICO's Variable Life Separate Account (the
"Variable Account"). Each sub-account of the Variable Account invests in the
shares of an Eligible Fund. The Eligible Funds are:
<TABLE>
<S> <C>
NEW ENGLAND ZENITH FUND MFS Investors Series
MFS Research Managers Series
Back Bay Advisors Bond Income Series
Back Bay Advisors Managed Series METROPOLITAN SERIES FUND, INC.
Back Bay Advisors Money Market Series
Capital Growth Series Putnam Large Cap Growth Portfolio*
Westpeak Growth and Income Series Janus Mid Cap Portfolio*
Westpeak Stock Index Series Russell 2000(R) Index Portfolio*
Balanced Series
Loomis Sayles Small Cap Series VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Alger Equity Growth Series
Davis Venture Value Series Overseas Portfolio
Harris Oakmark Mid Cap Value Series Equity-Income Portfolio
Morgan Stanley International High Income Portfolio
Magnum Equity Series
VARIABLE INSURANCE PRODUCTS FUND II
("VIP II")
Asset Manager Portfolio
</TABLE>
You may also allocate net premiums to a Fixed Account in most states. Limits
apply to transfers to and from the Fixed Account.
You may cancel the Policy during the "Right to Return the Policy" period.
Replacing existing insurance with the Policy might not be to your advantage.
- -------
* Availability is subject to any necessary state insurance department
approvals.
DURING THE FOURTH QUARTER OF 2000, WE ANTICIPATE REPLACING THE MORGAN
STANLEY INTERNATIONAL MAGNUM EQUITY SERIES WITH THE PUTNAM INTERNATIONAL STOCK
PORTFOLIO OF THE METROPOLITAN SERIES FUND, INC., SUBJECT TO REGULATORY
APPROVALS.
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 SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE THAT CONTAINS
THE STATEMENT OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE,
AND OTHER INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE ADDRESS OF THE SITE IS
HTTP://WWW.SEC.GOV.
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.
MAY 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY................................................................. A-4
INTRODUCTION TO THE POLICIES............................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-8
Policy Charges.......................................................... A-8
How the Policy Works.................................................... A-10
Receipt of Communications and Payments at NELICO's Home Office.......... A-11
NELICO.................................................................. A-11
POLICY VALUES AND BENEFITS............................................... A-12
Death Benefit........................................................... A-12
Guaranteed Minimum Death Benefit........................................ A-13
Age 100................................................................. A-13
Death Proceeds Payable.................................................. A-13
Tabular Cash Value...................................................... A-13
Cash Value.............................................................. A-14
Net Investment Experience............................................... A-14
Allocation of Net Premiums.............................................. A-14
Amount Provided for Investment under the Policy......................... A-15
Right to Return the Policy.............................................. A-15
CHARGES AND EXPENSES..................................................... A-16
Deductions from Premiums and Unscheduled Payments....................... A-16
Surrender Charge........................................................ A-17
Deductions from Cash Value.............................................. A-19
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-20
Group or Sponsored Arrangements......................................... A-22
PREMIUMS................................................................. A-22
Scheduled Premiums...................................................... A-22
Scheduled Premium Recalculation......................................... A-23
Unscheduled Payments.................................................... A-24
Special Premium Option.................................................. A-25
Automatic Premium Loan.................................................. A-25
Default and Lapse Options............................................... A-25
OTHER POLICY FEATURES.................................................... A-27
Loan Provision.......................................................... A-27
Surrender............................................................... A-28
Partial Surrender and Partial Withdrawal................................ A-28
Reduction in Face Amount................................................ A-30
Investment Options...................................................... A-30
Transfer Option......................................................... A-30
Dollar Cost Averaging................................................... A-31
Substitution of Insured Person.......................................... A-31
Payment of Proceeds..................................................... A-31
Exchange of Policy During First 24 Months............................... A-32
Payment Options......................................................... A-32
Additional Benefits by Rider............................................ A-33
Policy Owner and Beneficiary............................................ A-33
THE VARIABLE ACCOUNT..................................................... A-34
Investments of the Variable Account..................................... A-34
Investment Management................................................... A-36
THE FIXED ACCOUNT........................................................ A-37
General Description..................................................... A-37
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
Values and Benefits..................................................... A-37
Policy Transactions..................................................... A-38
NELICO'S DISTRIBUTION AGREEMENT.......................................... A-38
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY......................... A-39
Misstatement of Age or Sex.............................................. A-39
Suicide................................................................. A-39
TAX CONSIDERATIONS....................................................... A-39
Introduction............................................................ A-39
Tax Status of the Policy................................................ A-39
Tax Treatment of Policy Benefits........................................ A-40
NELICO's Income Taxes................................................... A-42
MANAGEMENT............................................................... A-42
VOTING RIGHTS............................................................ A-45
RIGHTS RESERVED BY NELICO................................................ A-45
TOLL-FREE NUMBERS........................................................ A-45
REPORTS.................................................................. A-46
ADVERTISING PRACTICES.................................................... A-46
LEGAL MATTERS............................................................ A-46
REGISTRATION STATEMENT................................................... A-46
EXPERTS.................................................................. A-47
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUES
AND ACCUMULATED SCHEDULED PREMIUMS...................................... A-48
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................ A-57
APPENDIX C: LONG TERM MARKET TRENDS...................................... A-87
APPENDIX D: USES OF LIFE INSURANCE....................................... A-89
APPENDIX E: TAX INFORMATION.............................................. A-91
APPENDIX F: EFFECT OF CHANGE IN TABULAR CASH VALUE....................... A-92
FINANCIAL STATEMENTS..................................................... AA-1
</TABLE>
A-3
<PAGE>
GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AUTOMATIC PREMIUM LOAN OPTION. If you elect this option, we will use the
Policy's loan value to pay a scheduled premium that you have not paid by the
end of the grace period.
BASIC SCHEDULED PREMIUM. Scheduled premium minus (i) charges for any rider
benefits; (ii) any extra premiums for substandard or automatic issue class;
and (iii) the portion of the annual Policy administrative charge that is due
with the premium.
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 and net unscheduled payments. It provides
guarantees of principal and interest.
INVESTMENT START DATE. This is the latest of the date we receive a premium
payment for the Policy, the date Part II of the Policy application is signed
and the Policy Date.
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.
NET SCHEDULED PREMIUM. The amount allocated to the Variable Account and/or
the Fixed Account. It is the basic scheduled premium less the sales charge,
state premium tax charge and federal premium tax charge.
NET UNSCHEDULED PAYMENT. The amount allocated to the Variable Account and/or
the Fixed Account. It is the unscheduled payment less the sales charge, state
premium tax charge and federal premium tax charge.
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.
SCHEDULED PREMIUM RECALCULATION. On the Policy anniversary when the insured
is age 70 (or 10 years after the Policy is issued, if later), we recalculate
the Policy's scheduled premium. The recalculated scheduled premium will not be
less than the initial premium and may be higher, depending on the amount of
the Policy's cash value at that time. The recalculated scheduled premium will
not be higher than the maximum scheduled premium shown on the Policy's
schedule page. The recalculated premium applies to the Policy beginning on the
following anniversary. (See "Scheduled Premium Recalculation".)
SPECIAL PREMIUM OPTION. If you elect this option, you may be able to skip a
scheduled premium or premiums.
TABULAR CASH VALUE. Before the scheduled premium recalculation, the tabular
cash value is the value which the Policy would have if: (i) you paid all
scheduled premiums when due; (ii) you made no unscheduled payments
A-4
<PAGE>
and no loans or other withdrawals; (iii) the Policy's sub-accounts earned a
4.5% annual net rate of return; and (iv) we deducted maximum Policy charges
from the cash value. A reduction in face amount reduces the tabular cash
value. When we recalculate the scheduled premium, the tabular cash value is
the amount which, along with payment of the recalculated scheduled premiums,
would cause the Policy's cash value to at least equal its face amount when the
insured reaches age 100, if we deducted maximum Policy charges and the
Policy's sub-accounts earned a 4.5% annual net rate of return. Thereafter, we
calculate the tabular cash value in the same manner as before the premium
recalculation, starting with the tabular cash value on the premium
recalculation date and assuming payment of the recalculated scheduled premium
when due.
YOU. When used in this prospectus, "you" refers to the Policy Owner.
A-5
<PAGE>
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
prospectus for more complete information.
-- The Policy requires payment of scheduled premiums. (See "Scheduled
Premiums".)
-- The Policy's scheduled premium remains at its initial level until the
Policy anniversary when the insured is age 71, or for 11 years,
whichever is later. Then, the scheduled premium level may increase,
depending on the Policy's cash value on the prior Policy anniversary.
Your Policy's schedule page shows the maximum possible increase in the
scheduled premium. (See "Scheduled Premium Recalculation".)
-- You can make additional unscheduled payments under the Policy. We can
limit or prohibit unscheduled payments in some situations, including
cases where the insured is in a substandard risk class. (See
"Unscheduled Payments".)
-- You can allocate net scheduled premiums and net unscheduled payments to
one or more of the sub-accounts of the Variable Account corresponding to
mutual fund portfolios, or the Fixed Account, after an initial period in
the Zenith Back Bay 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
--------------------------------------------------------
FIXED ACCOUNT. We have the right to restrict transfers of cash value and
-------------
allocations of premiums into the Fixed Account. (See "The Fixed
Account".)
-- The cash value of the Policy will vary daily based on the net investment
experience of your Policy's sub-accounts and the amount of interest
credited to your Policy's cash value in the Fixed Account. (See "Cash
Value", "Charges and Expenses", "Premiums", "Loan Provision", and
"Partial Surrender and Partial Withdrawal".)
-- 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 forms of death benefit options under the
Policy. One provides a death benefit equal to the Policy's face amount.
The other provides a death benefit 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
never to be less than the Policy's face amount, as long as you have paid
the required scheduled premiums when due. (See "Death Benefit".)
-- If you elect the "Special Premium Option", you may be able to skip a
scheduled premium payment without causing the Policy to lapse. In that
case, the Policy will keep its minimum death benefit guarantee. (See
"Special Premium Option".)
-- You may change your allocation of future net scheduled premiums and net
unscheduled payments at any time. (See "Allocation of Net Premiums" and
"Investment Options".)
A-6
<PAGE>
-- 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 without our consent. We
currently allow 12 transfers per Policy year. Transfers and allocations
involving the Fixed Account are subject to some limits. (See "Transfer
Option" and "The Fixed Account--Policy Transactions".)
-- A loan privilege, a partial withdrawal feature and a partial surrender
feature are also available. (See "Loan Provision" and "Partial Surrender
and Partial Withdrawal".)
-- 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. If premium payments or a material change cause the Policy to
become a "modified endowment contract", then pre-death distributions
will be includible 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 premiums and unscheduled payments and certain Policy
transactions which you choose to make. (See "Tax Considerations".)
-- If the Policy is not a modified endowment contract, we believe that
loans under the Policy will not be taxable to you as long as the Policy
has not lapsed, been surrendered or terminated. With some exceptions,
other pre-death distributions under a Policy that is not a modified
endowment contract are includible in income only to the extent they
exceed your investment in the Policy. (See "Tax Considerations".)
-- During the "Right to Return the Policy" period you can return the Policy
for a refund. (See "Right to Return the Policy".)
-- Within 24 months after a Policy's date of issue, you may exchange the
Policy, without evidence of insurability, for a fixed-benefit policy
issued by us or an affiliate on the life of the insured. If you exercise
this option, you will have to make up any investment loss. (See
"Exchange of Policy During First 24 Months".)
In many respects the Policies are similar to traditional fixed-benefit whole
life insurance. Like whole life insurance, the Policies provide for a
guaranteed minimum death benefit, scheduled premiums, a cash value, and loan
privileges.
The Policies are different from traditional, fixed-benefit whole life
insurance in that the death benefit may, and the cash value will, vary to
reflect the investment experience of the selected sub-accounts. In addition,
you can elect an option which will allow you, under some circumstances, to
skip a particular scheduled premium or premiums and still keep the Policy in
force on a premium paying basis.
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 you do not pay the scheduled premiums, the Policy may lapse. 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 generally 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.
A-7
<PAGE>
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Life Insurance".
AVAILABILITY OF THE POLICY
Generally, the Policies are available for insureds from the age of one to
75, and, if we consent, from the age of 76 to 80 and below the age of one. For
automatic issue Policies (that is, Policies we issue based on very limited
underwriting information), the permitted issue ages are 20 through 70. All
persons must meet our underwriting and other criteria. The minimum face amount
available is $25,000 unless we consent to a lower amount. However, $5,000 is
the minimum face amount for Policies issued to employee benefit plans
qualified under Section 401 of the Internal Revenue Code ("tax-qualified
pension plans"). For a tax-qualified pension plan, the tax deferred accrual
feature is provided by the plan. Therefore, there should be reasons other than
tax deferral for acquiring a life insurance policy within a tax-qualified
pension plan.
We offer other variable life insurance policies, with different fees and
charges, that invest in the Eligible Funds. Your registered representative has
additional information.
POLICY CHARGES
PREMIUM-BASED CHARGES. WE DEDUCT THE FOLLOWING CHARGES:
-- From scheduled premiums
(i) an annual administrative charge ($55 for annual premium Policies, up to
a total of $57.75, or $14.4375 per quarter and $4.8125 per month, for
Policies that are billed on a quarterly or monthly basis or that use
our Master Service Account arrangement), plus any extra premiums for
riders, substandard risk or automatic issue class;
(ii) a sales charge of 5.5%. We currently intend to waive this charge on
scheduled premiums paid after the first 15 Policy years;
(iii) a state premium tax charge of 2.5%;
(iv) a charge for federal taxes of 1%.
-- From unscheduled payments
(i) a sales charge of 5.5% in all Policy years;
(ii) a state premium tax charge of 2.5%;
(iii) a charge for federal taxes of 1%.
SURRENDER CHARGE. During the first 15 Policy years, a Surrender Charge will
apply if you totally or partially surrender the Policy, or allow it to lapse,
or reduce the face amount. The Surrender Charge includes:
-- a deferred administrative charge. This charge is $2.50 per $1,000 of
face amount in the first Policy year, and then reduces monthly until it
reaches 0 at the end of the 11th Policy year;
-- a deferred sales charge. For Policies covering insureds who are 53 or
less at issue, the maximum charge applies if you lapse or surrender the
Policy, or reduce its face amount, in Policy years four through eight.
The maximum charge in those years is an amount equal to 43.5% of the
Policy's basic scheduled premiums in the first Policy year plus 23.5% of
the basic scheduled premiums in the second and third Policy years and
14.5% of basic scheduled premiums in the fourth Policy year. The charge
decreases on a monthly basis beginning in Policy year nine until it
reaches 0 at the end of Policy year 15. If you lapse or surrender the
Policy, or reduce its face amount, in the first two Policy years, the
maximum charge is 23.5% of the first year basic scheduled premiums plus
3.5% of the second year basic scheduled premiums. The charge may be less
if the issue age is above 53.
We deduct the Surrender Charge from the Policy's available cash value,
regardless of whether that cash value comes from scheduled premiums,
unscheduled payments, or investment experience.
A-8
<PAGE>
CHARGES DEDUCTED FROM CASH VALUE. We deduct certain charges from the cash
value:
-- Monthly charge for the cost of insurance;
-- Monthly administrative charge, currently equal to $0.05 per $1,000 of
face amount (guaranteed not to exceed $0.08 per $1,000 of face amount);
-- Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of
face amount.
In addition, if you use the Special Premium Option to skip a scheduled
premium payment, we will deduct from your cash value 91% of the portion of the
annual $55 administrative charge, and of any rider, substandard risk or
automatic issue premium, that was due with the skipped premium.
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.
See "Charges and Expenses".
A-9
<PAGE>
[CHART APPEARS HERE]
HOW THE POLICY WORKS
PREMIUM PAYMENTS
. Guaranteed not to Increase until the anniversary when the insured reaches age
71 or for 11 years, whichever is later. At that point, the premium may
increase depending on the policy's cash value amount on the prior anniversary.
CHARGES FROM PREMIUM
. Any rider premiums
. Annual Admin. Charge-$55
. Substandard Risk Premium
. Automatic Issue Premium
. Sales Load (5.5%*) We intend to waive after 15 policy yrs.
. State Premium Tax Charge (2.5%*)
. Charge for Federal Taxes (1%*)
UNSCHEDULED PAYMENTS
. Sales Load (5.5%)
. State Premium Tax Charge (2.5%)
. Charge for Federal Taxes (1%)
SPECIAL PREMIUM OPTION
. If used, we deduct charges for Annual Admin. Charge and any riders or
substandard risk or automatic issue premium from cash value
LOANS
. After the free look period, you may borrow up to 90% of the adjusted cash
value (100% in Alabama)
. The loan interest charge is 6%. We transfer loaned funds out of the Eligible
Funds into the General Account where we credit them with not less than 4.5%
interest
RETIREMENT BENEFITS
. Fixed settlement options are available for policy proceeds
* Percent of Premium after deducting Annual Admin. Charge, Rider Premiums and
Substandard Risk and Automatic Issue Premiums
CASH VALUES
. Net scheduled premiums or net unscheduled 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, payments and policy
charges
. We do not guarantee the cash value invested in the Eligible Funds
. Any earnings you accumulate are 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 one
time
DEATH BENEFIT
. Level or Variable Death Benefit Options
. Guaranteed not to be less than initial face amount less any loan balance
. Income tax free to named beneficiary
DAILY DEDUCTIONS FROM ASSETS
. Mortality and expense risk charges of 0.60% (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 from the cash value each month
. Minimum Death Benefit Guarantee Charge $.01 per $1000 face amount monthly
. Admin. Charge $.05 (guaranteed not to exceed $.08) per $1000 face amount
monthly
SURRENDER CHARGE
. Deferred Sales Charge and Deferred Administrative Charge (see page A-17)
LIVING BENEFITS
. If policyholder has elected and qualified for disability waiver of premium
rider and becomes totally disabled, we will waive premiums during the period
of disability. Unscheduled payments are not covered by the waiver of premium
rider
. You may surrender the Policy at any time for its cash surrender value
. Deferred income taxes, including taxes on certain amounts borrowed, become
payable upon surrender
. Grace period for scheduled premiums is 31 days from due date. Nonforfeiture
options are fixed extended term insurance and fixed or variable paid-up
insurance
. Subject to our rules, you may reinstate a lapsed Policy within seven years of
date of lapse if it has not been surrendered
A-10
<PAGE>
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S HOME OFFICE
We will treat your request for a Policy transaction, or your submission of a
payment, as received by us if we receive a request conforming to our
administrative procedures or a payment 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 Metropolitan Life Insurance Company
("MetLife"), a life insurance company whose principal office is One Madison
Avenue, New York, NY 10010. MetLife then became the parent of NELICO. MetLife
is a wholly-owned subsidiary of MetLife, Inc., a publicly-traded company. 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.
A-11
<PAGE>
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
[CHART APPEARS HERE]
NELICO
(Insurance company subsidiary of MetLife)
We deduct charges.
We allocate net premiums and net unscheduled payments to your choice of
sub-accounts in the Variable Account or to the Fixed Account.
Premiums and Unscheduled Payments
Fixed Account
VARIABLE ACCOUNT
Zenith Capital Growth Sub-Account
Zenith Back Bay Bond Income Sub-Account
Zenith Back Bay Money Market Sub-Account
Zenith Back Bay Managed Sub-Account
Zenith Westpeak Stock Index Sub-Account
Zenith Westpeak Growth and Income Sub-Account
Zenith Loomis Sayles Small Cap Sub-Account
Zenith Balanced Sub-Account
Zenith Alger Equity Growth Sub-Account
Zenith Davis Venture Value Sub-Account
Zenith Harris Oakmark Mid Cap Value Sub-Account
Zenith Morgan Stanley International Magnum Equity Sub-Account
Zenith MFS Investors Sub-Account
Zenith MFS Research Managers Sub-Account
Metropolitan Putnam Large Cap Growth Sub-Account
Metropolitan Janus Mid Cap Sub-Account
Metropolitan Russell 2000 Index Sub-Account
VIP Equity-Income Sub-Account
VIP Overseas Sub-Account
VIP High Income Sub-Account
VIP II 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
Balanced Series
Alger Equity Growth Series
Davis Venture Value Series
Harris Oakmark Mid Cap Value Series
Morgan Stanley International Magnum Equity Series
MFS Investors Series
MFS Research Managers Series
METROPOLITAN SERIES FUND, INC.*
Putnam Large Cap Growth Portfolio
Janus Mid Cap Portfolio
Russell 2000 Index Portfolio
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.
- ---------------
* Availability of the Portfolios of the Metropolitan Series Fund, Inc. is
subject to any necessary state insurance department approvals.
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. When you apply for a Policy, you choose between two
death benefit options. The death benefit option under a Policy may not be
changed.
The Option 1 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 death benefit is equal to the face amount of the Policy plus
the amount, if any, by which the Policy's cash value exceeds its "tabular cash
value". The Policy's tabular cash value is a hypothetical value and is
discussed under "Tabular Cash Value" below. We recalculate the Policy's
tabular cash value when we recalculate the Policy's scheduled premium, so the
Option 2 death benefit may change at that time. An increase in tabular cash
value at that time may reduce the Option 2 death benefit. The Option 2 death
benefit is also subject to increases required by the Internal Revenue Code.
Generally, the Option 2 death benefit may exceed the face amount if the
Policy's sub-accounts (and the cash value in the Fixed Account) have earned
greater than a 4.5% net return, if you have paid more than the scheduled
premiums, or if less than the maximum charges were deducted.
To meet the Internal Revenue Code's definition of life insurance, the death
benefit will not be less than the Policy's cash value divided by the net single
premium per dollar of death benefit at the insured's attained age. 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.
A-12
<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT
Under both death benefit options, the death benefit is guaranteed not to be
less than the Policy's face amount regardless of the investment experience of
the Policy's sub-accounts, as long as you paid the scheduled premiums when due
or, under the Special Premium Option, they were not required to be paid. (See
"Scheduled Premiums" and "Special Premium Option".) However, if an "excess
Policy loan" exists, the Policy may terminate even if you paid all scheduled
premiums. (See "Loan Provision" for a definition of "excess Policy loan".)
AGE 100
The Policies endow at age 100 of the insured for the greater of the current
cash value and the Policy face amount (each reduced by any outstanding loans
plus interest). You can elect to continue the Policy beyond age 100 of the
insured instead of taking payment at age 100. Sixty days before the
anniversary when the insured is age 100 we will send you an election form. If
you elect to continue the Policy, the cash value will remain in the sub-
accounts and/or Fixed Account that you have chosen. We will not deduct Policy
charges or accept premium payments after age 100. You can continue to make
loans, surrenders and account transfers. The death benefit after age 100
equals the greater of (1) the Policy's face amount at age 100 (as reduced by
any later surrenders or face amount reductions), and (2) the cash value on the
date of death. The proceeds we pay will be reduced by any outstanding loan
plus interest.
DEATH PROCEEDS PAYABLE
The death proceeds we pay are equal to the death benefit reduced by any
outstanding loan and accrued loan interest. If the death occurs during the
grace period, we reduce the proceeds by the portion of any unpaid scheduled
premium for the period prior to the date of death. (See "Default and Lapse
Options".) We increase the death proceeds by any rider benefits payable and by
the portion of any scheduled premium paid for a period beyond the date of
death.
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".)
TABULAR CASH VALUE
The Policy's tabular cash value is a hypothetical value. We use it to
determine (1) the Option 2 death benefit, (2) whether you can skip a scheduled
premium payment under the Special Premium Option, and (3) how much cash value
you can withdraw from the Policy. (See "Death Benefit", "Special Premium
Option" and "Partial Surrender and Partial Withdrawal".) We recalculate the
tabular cash value when we recalculate the Policy's scheduled premium.
See the Glossary for the definition of the tabular cash value.
When we recalculate the scheduled premium (at the Policy anniversary when
the insured is age 70, or after 10 years, if later), the new scheduled premium
and tabular cash value amounts depend on the Policy's actual cash value on the
recalculation date. (See "Premiums--Scheduled Premium Recalculation".)
The tabular cash value increases on the premium recalculation date if the
Policy's actual cash value on that date is higher than the tabular cash value
just before the recalculation. We determine the new scheduled premium amount
based on the new tabular cash value. (See "Premiums--Scheduled Premium
Recalculation".)
After the premium recalculation date, we determine the tabular cash value in
the same manner as before the recalculation, starting with the tabular cash
value on the premium recalculation date and assuming payment of the
recalculated scheduled premium starting at age 71 (or 11 years after the
Policy is issued, if later).
The change in the scheduled premium does not take effect until the next
Policy anniversary, but the new tabular cash value takes effect immediately.
This means that the amount of the Option 2 death benefit, the cash
A-13
<PAGE>
value available for withdrawal, and your ability to skip scheduled premium
payments under the Special Premium Option may also be affected on the premium
recalculation date. See Appendix F for examples.
Your premium payment schedule (annual vs. quarterly, for example) affects
the amount of the tabular cash value. We calculate the tabular cash value on
any day up to the premium recalculation date as if the current payment
schedule had always been in effect. Thereafter, we calculate it as if the
current payment schedule had been in effect since the premium recalculation
date.
CASH VALUE
Your Policy's 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:
-- scheduled premiums
-- unscheduled payments
-- the net investment experience of the Policy's sub-accounts
-- interest credited to the 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 (including amounts deducted when you use the Special
Premium Option)
-- partial surrenders and partial withdrawals
-- 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 (and accrued 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. (See "Loan Provision",
"Surrender Charge" and "Monthly Charges for the Cost of Insurance".)
The Policy's net 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.
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 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 scheduled premium (and any
net unscheduled payment made with it) with net investment experience
A-14
<PAGE>
equal to that of the Zenith Back Bay Money Market Sub-Account from the
investment start date until the later of 45 days after the date Part 1 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.
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 the Home Office, or by a NELICO agency if earlier.)
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 scheduled premium for
the Policy or one monthly scheduled premium. You may only make one premium
payment before the Policy is issued. Generally, you cannot submit a premium
payment with an application for a Policy to be used in a tax-qualified pension
plan.
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 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 Policy charges 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 and any unscheduled 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 charges begin on the Policy Date. We credit interest at a 4.5% net
rate to the Policy for any period between the Policy Date and the investment
start date. Insurance coverage begins when we receive the premium.
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 a lower premium, based on a younger insurance
age. Backdating in some cases results in a Policy with a higher Surrender
Charge, or causes the insured to be treated as a juvenile which could result
in higher cost of insurance rates under the Policy than if the insured had
been assigned to a nonsmoker class. For a backdated Policy, you must also pay
the scheduled premiums 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 scheduled premiums, adjusted for monthly Policy charges and
interest at a 4.5% 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 scheduled premium paid (or any other amount that is required by
state insurance law) and any unscheduled payments made.
A-15
<PAGE>
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 AND UNSCHEDULED PAYMENTS
We deduct these charges from scheduled premiums to arrive at the Policy's
BASIC scheduled premium:
(i) charges for any rider benefits;
(ii) extra premiums if your Policy is in a substandard risk or automatic
issue class;
(iii) the portion of the annual Policy administrative charge that is due
with that scheduled premium payment. The total annual Policy
administrative charge is $55 per year for Policies that pay premiums
once a year and increases if you pay your premium in installments.
The amount of the charge for the other premium frequencies is as
follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
PAYMENT FREQUENCY PER PAYMENT PER YEAR
----------------- ----------- --------
<S> <C> <C>
Semi-annual......................................... $28.325 $56.65
Quarterly........................................... $14.4375 $57.75
Master Service Account.............................. $ 4.8125 $57.75
Monthly............................................. $ 4.8125 $57.75
</TABLE>
If an automatic issue Policy and an underwritten Policy are both issued on
the same insured (because the total coverage exceeds our automatic issue
limits), we waive the annual Policy administrative charge on the automatic
issue Policy.
We do not deduct the charges described above from unscheduled payments.
SALES CHARGE. We deduct a 5.5% sales charge from each BASIC scheduled
premium and each unscheduled payment. We currently intend to waive the charge
on basic scheduled premiums after the 15th Policy year. We have the right not
to waive the charge, or to resume it. The sales charge will apply to
unscheduled payments made in all Policy years.
During the first 15 Policy years, if you surrender or lapse the Policy, take
a partial surrender or reduce the face amount, a Deferred Sales Charge will
also apply. (See "Surrender Charge" below.)
Sales charges for Policies sold to some group or sponsored arrangements may
be reduced. We offer a program under which you may exchange certain fixed-
benefit life insurance policies that New England Mutual issued for the
Policies without a deduction for the sales charge from the amount of cash
value that you transfer to the Policy. Eligibility conditions will apply. Your
registered representative can advise you regarding terms and availability of
the program.
STATE PREMIUM TAX CHARGE. We deduct 2.5% from each BASIC scheduled premium
and each unscheduled payment for state premium taxes and administrative
expenses. These taxes vary from state to state and the 2.5% rate reflects an
average. Administrative expenses covered by this charge include those related
to premium tax and certain other state filings.
A-16
<PAGE>
FEDERAL PREMIUM TAX CHARGE. We deduct 1% from each BASIC scheduled premium
and each unscheduled payment for our federal income tax liability related to
premiums.
EXAMPLE: The following chart shows the net amount that would be allocated
to the Variable Account under a Policy with no riders and which is not a
substandard or automatic issue Policy. The example assumes an annual
scheduled premium payment of $2,000 and unscheduled payment of $2,000.
<TABLE>
<CAPTION>
SCHEDULED NET SCHEDULED
PREMIUM PREMIUM
--------- -------------
<S> <C> <C>
$2,000 $ 2,000
-55 (administrative charge)
---------
$ 1,945 (BASIC scheduled premium)
$ 1,945
-175.05 (9% X 1,945 = total sales and premium tax charges)
---------
$1,769.95
---------
</TABLE>
We may waive the 5.5% sales charge on scheduled premiums paid after the
15th Policy year. In that case, the net scheduled premium in this example
would be $1,945 - 68.08 (3.5% X 1,945), or $1,876.92.
<TABLE>
<CAPTION>
NET
UNSCHEDULED UNSCHEDULED
PAYMENT PAYMENT
----------- -----------
<S> <C> <C>
$2,000 $2,000
-180 (9% X 2,000 = total sales and premium tax charges)
------
$1,820
------
</TABLE>
SURRENDER CHARGE
During the first 15 Policy years, if you totally or partially surrender your
Policy, or allow it to lapse, or reduce its face amount, we deduct a Surrender
Charge from the cash value. The Surrender Charge includes a Deferred Sales
Charge and a Deferred Administrative Charge. (Policies issued in some states
may have lower Surrender Charges because of insurance law requirements.)
DEFERRED SALES CHARGE. The Deferred Sales Charge applies to the lesser of:
(i) the total payments (both scheduled premiums and unscheduled payments)
made; and
(ii) the Policy's total BASIC scheduled premiums up to the date of the
surrender, lapse or face amount reduction, whether or not you have paid each
of those premiums.
For Policies with scheduled premiums that are paid once a year and which
cover insureds who are age 53 or less at issue, the maximum Deferred Sales
Charge in the first two Policy years is 23.5% of the first year basic
-----------------------------
scheduled premium plus 3.5% of the second year basic scheduled premium. The
maximum Deferred Sales Charge increases substantially beginning in the third
Policy year. The greatest Deferred Sales Charge applies in Policy years four
--------------------
through eight. The Deferred Sales Charge in those years equals 43.5% of the
- -------------
first year basic scheduled premium, plus 23.5% of the basic scheduled premiums
for the second and third Policy years and 14.5% of the fourth year basic
scheduled premium. After the eighth Policy year, the maximum Deferred Sales
Charge declines on a monthly basis until it reaches 0% in the last month of
the fifteenth Policy year.
A-17
<PAGE>
The table below shows the Deferred Sales Charge for insureds who are age 53
or less at issue when scheduled premiums are paid on an annual frequency. The
table shows the charge as a percentage of the total annual basic scheduled
premiums 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 THE TOTAL ANNUAL
FOR POLICIES WHICH ARE BASIC SCHEDULED PREMIUMS
SURRENDERED, LAPSED TO DATE OF SURRENDER, LAPSE OR
OR REDUCED DURING FACE AMOUNT REDUCTION
---------------------- ------------------------------
<S> <C> <C>
Entire Policy year 1 23.50 %
2 13.50 %
3 30.17 %
4 26.25 %
5 21.00 %
6 17.50 %
7 15.00 %
8 13.125%
Last month of Policy
years 9 10.00 %
10 7.50 %
11 5.46 %
12 3.75 %
13 2.31 %
14 1.08 %
15 0.00 %
</TABLE>
For insureds who are above age 53 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 and in Policy years two through four for insureds with an
issue age above 65.
The Deferred Sales Charge rate is the same regardless of your premium
schedule. However, because the dollar amount of an annual premium is higher if
you pay it in installments instead of annually (e.g. semi-annually or
quarterly), the dollar amount of the Deferred Sales Charge will also be higher
if you pay premiums in installments rather than once a year.
In the case of a partial surrender or reduction in face amount, we deduct
any Deferred Sales Charge that applies from the Policy's cash value in an
amount that is proportional to the amount of the Policy's face amount
surrendered. (See "Partial Surrender and Partial Withdrawal".)
DEFERRED ADMINISTRATIVE CHARGE. The table below shows the Deferred
Administrative Charge we deduct if you totally or partially surrender, lapse
or reduce the face amount of the Policy.
<TABLE>
<CAPTION>
FOR POLICIES WHICH
ARE SURRENDERED, DEFERRED ADMINISTRATIVE
LAPSED OR CHARGE PER $1,000 OF
REDUCED DURING FACE AMOUNT
------------------ -----------------------
<S> <C> <C>
Entire Policy year 1 $2.50
Last Month of Policy years* 2 2.25
3 2.00
4 1.75
5 1.50
6 1.25
7 1.00
8 .75
9 .50
10 .25
11 zero
</TABLE>
- --------
* The charge declines monthly in equal dollar amounts after the end of the
first Policy year.
A-18
<PAGE>
DEDUCTIONS FROM CASH VALUE
MONTHLY DEDUCTION. On the first day of each Policy month, starting with the
Policy Date, we make a deduction (the "Monthly Deduction") from your cash
value for these charges:
(i) an administrative charge, currently equal to 0.05 per $1,000 of Policy
face amount (guaranteed not to exceed $0.08 per $1,000 of face amount); and
(ii) a minimum death benefit guarantee charge of $0.01 per $1,000 of Policy
face amount.
If there is an outstanding loan under your Policy and the net cash value is
not large enough to pay the Monthly Deduction in any month, the difference is
treated as an excess Policy loan and the Policy may terminate. (See "Loan
Provision".)
MONTHLY CHARGES FOR THE COST OF INSURANCE. We deduct the cost of providing
insurance protection under your Policy from your Policy's cash value at the
beginning of each Policy month, beginning with the Policy Date. 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 4.5% per year) exceeds
the Policy's cash value. The cost of insurance rate for your Policy changes
from month to month.
If a Policy loan is outstanding and your Policy's net cash value is not
large enough to cover the cost of insurance charge for a Policy month, the
difference between the net cash value available and the cost of insurance
charge is treated as an excess Policy loan and the Policy may terminate. (See
"Loan Provision".)
The guaranteed cost of insurance rates for a Policy depend on 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.
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.
The underwriting classes we use for standard issues are
-- for Policies issued on non-juvenile insureds: smoker and nonsmoker
-- for Policies issued on juvenile insureds: standard.
Substandard and automatic issue Policies use the same smoker and nonsmoker
standard rates (or, for juveniles, standard rates), but require an extra
premium as part of the total scheduled premium. The overall monthly cost of
insurance charges of a substandard risk Policy, including the extra premium,
could exceed charges based on 100% of the 1980 CSO Tables. (See below for a
discussion of automatic issue Policies.)
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.
A-19
<PAGE>
We 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 limited underwriting information,
they may present a greater mortality cost to us than underwritten Policies
issued in a standard class. Therefore, we charge an additional premium for
automatic issue Policies. The amount of the premium depends on the issue age
of the insured. It may also depend on the size of the group and the total
premium to be paid by the group. The additional premium is usually higher if
the Policy is sold to a tax-qualified pension plan. We deduct the additional
premium from the scheduled premium before we allocate the net scheduled
premium to the Variable Account. The overall guaranteed maximum monthly cost
of insurance charges, including the extra premium, exceed charges based on
100% of the 1980 CSO Tables.
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 premium
for Policies issued on a simplified underwriting basis unless the insured is
in a substandard risk class.
CHARGES UNDER THE SPECIAL PREMIUM OPTION. If you use the Special Premium
Option to skip a scheduled premium, we deduct from the Policy's cash value 91%
OF:
-- the amount of the annual administrative charge, plus
-- any rider premiums, plus
-- any premiums for substandard risk or automatic issue class
that were due with the scheduled premium. (See "Special Premium Option".) We
deduct these charges from the Policy's sub-accounts in proportion to the
Policy's cash value in each sub-account.
CHARGES FOR ADDITIONAL SERVICES. We 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.
(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 New England
Zenith Fund series, based on actual 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 BAY BACK BAY WESTPEAK LOOMIS
ADVISORS ADVISORS BACK 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.......... .62% .40% .35% .50% .25% .68% .90%
Other Expenses.......... .04% .08% .05% .08% .10% .06% .10%
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses............. .66% .48% .40% .58% .35% .74% 1.00%
</TABLE>
A-20
<PAGE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
HARRIS MORGAN
OAKMARK STANLEY DAVIS ALGER MFS
MID CAP 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.......... .13% .07% .40% .06% .05% .15% .15%
---- ---- ----- ---- ---- ---- ----
Total Series Operating
Expenses............. .88% .77% 1.30% .81% .80% .90% .90%
</TABLE>
- --------
* Without the applicable expense cap or expense deferral arrangement
(described below), Total Series Operating Expenses for the year ended
December 31, 1999 would have been: MFS Investors Series, 2.03%; and MFS
Research Managers Series, 2.03%, both on an annualized basis since the
Series' start date of April 30, 1999. In 1999 the management fee for the
Loomis Sayles Small Cap Series was 1.00%, and Total Series Operating
Expenses were capped at 1.00%. Without the expense cap, Total Series
Operating Expenses would have been 1.10%.
Our affiliate, New England Investment Management, Inc., advises the series
of the Zenith Fund except for the Capital Growth Series. New England
Investment Management voluntarily limits the expenses (other than brokerage
costs, interest, taxes or extraordinary expenses) of certain series with
either an expense cap or expense deferral arrangement. Under the expense cap,
New England Investment Management bears expenses of the Loomis Sayles Small
Cap Series that exceed 1.00% of average daily net assets. Under the expense
deferral agreement, New England Investment Management bears expenses of the
Harris Oakmark Mid Cap Value, Morgan Stanley International Magnum Equity, MFS
Investors, and MFS Research Managers Series that exceed .90% of average daily
net assets (1.30% for the Morgan Stanley International Magnum Equity Series)
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.
MetLife is the investment advisor for the Portfolios of the Metropolitan
Series Fund, Inc. The Portfolios pay investment management fees to MetLife and
also bear other expenses. The chart below shows the total operating expenses
of the Portfolios based on the year ended December 31, 1999 and current
expense subsidies (in the case of the Putnam Large Cap Growth Portfolio,
anticipated expenses for 2000) as a percentage of Portfolio net assets.
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Putnam Large Cap Growth....................... .80% .20% 1.00%*
Janus Mid Cap................................. .67% .04% .71%
Russell 2000 Index............................ .25% .30% .55%*
</TABLE>
- --------
* MetLife voluntarily pays expenses (other than the management fee, brokerage
commissions, taxes, interest and other loan costs, and any unusual one-time
expenses) of the Putnam Large Cap Growth Portfolio that exceed .20% of net
assets until the earlier of (i) July 1, 2002 and (ii) the date when the
Portfolio's net assets reach $100 million. Without this subsidy, the
anticipated total annual expenses of the Putnam Large Cap Growth Portfolio
would be 1.39%. MetLife also paid such expenses that exceeded .20% of net
assets for the Russell 2000 Index Portfolio until December 3, 1999. Without
this subsidy the total annual expenses of the Russell 2000 Index Portfolio
for 1999 would have been .89%. Beginning February 22, 2000, MetLife is
paying such expenses that exceed .30% of the Russell 2000 Index Portfolio's
net assets until the earlier of (i) April 30, 2001 and (ii) the date when
the Portfolio's assets reach $200 million. Total Annual Expenses for the
Russell 2000 Index Portfolio are shown as if this subsidy was in effect for
the entire current year. MetLife can terminate these arrangements at any
time upon notice to the Board of Directors and to Fund shareholders.
A-21
<PAGE>
The investment adviser for VIP and VIP II is Fidelity Management & Research
Company ("FMR"). The Portfolios of VIP and VIP II pay investment management
fees to FMR and also bear certain other expenses. For the year ended December
31, 1999, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
VIP Equity-Income.............................. .48% .09% .57%*
VIP Overseas................................... .73% .18% .91%*
VIP High Income................................ .58% .11% .69%
VIP II Asset Manager........................... .53% .10% .63%*
</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 .56% for
VIP Equity-Income Portfolio, .87% for VIP Overseas Portfolio and .62% for
VIP II Asset Manager Portfolio.
An investment adviser or affiliates thereof may compensate NELICO and/or
certain affiliates for administrative, distribution, or other services
relating to Eligible Funds. This compensation is based on assets of the
Eligible Funds attributable to the Policies and certain other variable
insurance products that we and our affiliates issue. Some advisers and/or
affiliates may pay us more than others. New England Securities may also
receive brokerage commissions on securities transactions initiated by an
investment adviser.
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. Consult your registered representative
for any variations that may be available and appropriate for your case.
The United States Supreme Court has ruled that certain 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
SCHEDULED PREMIUMS
The Policy requires scheduled premium payments until the insured reaches age
100. The scheduled premium amount depends on the Policy's face amount, the
age, sex (unless unisex rates apply) and underwriting class of the insured,
the premium payment schedule you select, and any rider benefit premiums.
On the Policy anniversary when the insured reaches age 70, or 10 years after
issue, whichever is later, we recalculate the scheduled premium. You may be
required to pay a higher scheduled premium following the recalculation. The
recalculated scheduled premium applies beginning on the next Policy
anniversary, when the insured is age 71 (or 11 years after the Policy is
issued, whichever is later). (See "Scheduled Premium Recalculation" below.)
The underwriting classes we use for setting the scheduled premium are smoker
standard, smoker substandard, nonsmoker standard, nonsmoker substandard,
automatic issue and, for juvenile insureds, standard and substandard.
Scheduled premiums for substandard and automatic issue Policies reflect
additional premiums
A-22
<PAGE>
that we charge for those classes. Scheduled premiums are generally higher for
males than for females and generally higher for smokers than for nonsmokers.
Scheduled premiums are also generally higher for Policies issued on older
insureds.
You can pay scheduled premiums on an annual, semi-annual or quarterly
schedule or, with our consent, monthly. The premium payment schedule you
select affects the total premium you pay in a Policy year. The total premium
is highest if you select the monthly frequency and lowest if you select the
annual frequency. The payment schedule also affects the Policy's cash value
and tabular cash value and, therefore, may affect the death benefit.
You can change your premium payment schedule by sending your request to us.
If you change to a less frequent payment schedule (e.g. from quarterly to
annual), the change goes into effect on the next premium due date under the
new schedule. Until then, you make payments under the old schedule; we do not
accept an advance payment of the remaining premiums due for the year under the
old schedule. If you change to a more frequent payment schedule (e.g. from
annual to quarterly), the change goes into effect on the next premium due date
under the original schedule. (See "Receipt of Communications and Payments at
NELICO's Home Office".)
You may make scheduled payments by check or money order. You may also choose
to have us withdraw your scheduled premium payments from your bank checking
account or Nvest Cash Management Trust account. (This is known as the Master
Service Account arrangement, or "MSA". Scheduled payments made through MSA may
be maintained by NELICO or an affiliate in the general account pending their
due date.)
Scheduled premiums are due at NELICO's Home Office or a NELICO agency on or
before their due dates. We allocate net scheduled premiums, after the first,
to your Policy's sub-accounts on the premium due dates, not when they are
received. However, if you have not paid a premium by the due date, the cash
value attributable to you does not include that premium, or any investment
performance on it, until you actually pay it. If you use the Special Premium
Option to skip a scheduled premium payment or if you miss a required scheduled
premium payment, we withdraw from the Variable Account the net scheduled
premium that we advanced, adjusted for investment experience on it since the
due date. IF YOU DO NOT PAY A REQUIRED SCHEDULED PREMIUM, THE POLICY MAY
LAPSE. SEE "DEFAULT AND LAPSE OPTIONS".
We may apply a credit to the initial scheduled premium under a Policy
converted from certain term insurance that was issued by New England Mutual,
NELICO or NELICO's affiliates and also to scheduled premiums under a Policy
issued to a home office employee of NELICO on the life of the employee, if the
employee has worked for NELICO for at least one year.
SCHEDULED PREMIUM RECALCULATION
We recalculate the initial scheduled premium for the Policy on the
anniversary when the insured is age 70, or 10 years after the Policy is
issued, whichever is later. We recalculate the scheduled premium using the
Policy's current cash value and assuming that guaranteed maximum charges will
apply and that the Policy will earn a 4.5% net rate of return. The
recalculation is done before we credit the premium and deduct the monthly
charges due on that anniversary. The recalculated scheduled premium will not
be less than the initial scheduled premium, and it will not be higher than the
maximum scheduled premium shown on your Policy's schedule page. The
recalculated scheduled premium applies to the Policy starting on the following
Policy anniversary, when the insured has reached age 71 (or 11 years after the
Policy is issued, whichever is later).
If the Policy earned a net return of greater than 4.5%, if you made
unscheduled payments, if less than the guaranteed maximum charges were
deducted or if you made no loans or withdrawals of cash value, the increase in
the scheduled premium could be reduced, or possibly avoided. Generally, the
Policy's scheduled premium will not increase if the Policy's sub-accounts have
earned the daily equivalent of a constant annual net rate of return (after
deduction of the mortality and expense risk charge and Eligible Fund fees and
expenses) of 6% to 8%, depending on the insured's age at issue, sex and
underwriting class, and: you have paid each scheduled premium (and have not
used the Special Premium Option to skip payments); you have made no loans,
partial withdrawals, partial surrenders or unscheduled payments; and all
Policy charges including cost of insurance charges do not increase above their
current levels. However, variations in the rate of return, even if it averages
6% to 8%, could cause a scheduled premium increase.
A-23
<PAGE>
If your scheduled premium increases and you do not wish to pay the higher
amount, you may (i) lapse the Policy to variable paid-up insurance (if
available under your Policy) or to a fixed-benefit lapse option, (ii) take a
partial surrender to reduce the Policy's face amount and cash value and keep
the scheduled premium at its initial level (as long as the remaining face
amount meets our minimum face amount requirement), or (iii) reduce the
Policy's face amount, without reducing the Policy's cash value (except by the
amount of any Surrender Charge that applies).
For a description of how the premium recalculation affects the Policy's
tabular cash value, see "Tabular Cash Value".
UNSCHEDULED PAYMENTS
Within limits, you may make unscheduled payments as long as the Policy has
not lapsed. We may require satisfactory evidence of insurability. In addition,
our consent is needed if, in order to satisfy tax law requirements, the
payment would increase the Policy's death benefit by more than it would
increase the cash value. We will not accept an unscheduled payment if the
Policy's scheduled premiums are being waived under a waiver of premium rider.
(See "Additional Benefits by Rider".) We can prohibit or limit the amount of
unscheduled payments under a substandard risk or automatic issue Policy. An
unscheduled payment must be at least $10 if made under the Master Service
Account or certain other monthly payment arrangements, and otherwise must be
at least $25.
You may ask us to include on your premium notice for the Policy anniversary
a planned unscheduled payment amount in addition to the scheduled premium.
Subject to our rules, you may use MSA to make unscheduled payments if you are
using MSA to pay your scheduled premiums.
Annual Level Billing Option--If your Policy has a level term
---------------------------
rider and you are paying premiums once a year or through MSA,
you may have us bill you or deduct through MSA a single level
amount each year to pay the scheduled premium plus the
increasing premium for the term insurance rider. We allocate a
portion of the billed amount to your Policy as an unscheduled
payment. This amount decreases each year because the premium for
the term rider goes up. You may need to recalculate your Annual
Level Billing amount as the term rider premium increases.
Under any billing option, the total of all premiums and payments made could
create a "modified endowment contract". You should consider the potential tax
consequences before planning a series of unscheduled payments. (See "Tax
Considerations".)
We allocate an unscheduled payment to your Policy's sub-accounts as of the
date we receive it. (See "Receipt of Communications and Payments at NELICO's
Home Office".)
RULES FOR CREDITING PAYMENTS TO THE VARIABLE ACCOUNT. We credit payments
that are at least equal to the scheduled premium due, and that we receive
--with a premium notice, or
--within the period of 25 days before the premium due date to 31 days after
the due date
first, as the scheduled premium due;
next, to pay any loan interest due; and
then, as an unscheduled payment.
We credit all other payments as unscheduled payments, unless you designate
them as loan repayments.
If you make an unscheduled payment during the grace period and the Policy
lapses, we return the payment to you.
If you pay premiums monthly, including by MSA, we credit payments as agreed
by you and us. Payments made by MSA may be maintained by NELICO or an
affiliate in the general account pending crediting. Billing and crediting
procedures for some group or sponsored arrangements may differ from those used
for other Policy Owners.
If you have a Policy loan, it may be better to repay the loan than to make
an unscheduled payment, because the unscheduled payment has sales and tax
charges, whereas the loan repayment does not incur any charges.
A-24
<PAGE>
(See "Loan Provision" and "Deductions from Premiums and Unscheduled
Payments".) We will not treat a payment as repayment of a Policy loan unless
so designated by you.
SPECIAL PREMIUM OPTION
When you apply for a Policy, or at a later date as long as the Policy is not
lapsed, you may elect the Special Premium Option. If you do, you may be able
to skip a scheduled premium payment or payments after the first Policy year.
Specifically, if you have not paid a scheduled premium by the end of the
grace period, the Policy will not lapse if the cash value on the premium due
date (before we advanced the net premium due) exceeded the tabular cash value
by at least the amount of the scheduled premium due, including any rider and
substandard risk or automatic issue premiums due. We will not use the Special
Premium Option to prevent lapse if, immediately afterward, the amount of any
outstanding Policy loan plus accrued interest would exceed the Policy's loan
value.
If we use the Special Premium Option, we deduct from the cash value, as of
the premium due date, 91% of the portion of the annual administrative charge,
and of any rider, substandard risk or automatic issue premiums, that were due.
We deduct these amounts from the Policy's sub-accounts in proportion to the
Policy's cash value in each. (We also withdraw the net scheduled premium that
we advanced to the Policy, adjusted for investment experience on it since the
due date.)
If you have elected both the Special Premium Option and the automatic
premium loan feature, we first determine whether we can use the Special
Premium Option before attempting to use an automatic premium loan. (See
"Automatic Premium Loan".)
You may cancel the Special Premium Option and, generally, re-elect it at any
time. The Special Premium Option is not available to you, however, while you
are paying premiums by MSA.
AUTOMATIC PREMIUM LOAN
If you elect this feature and you have not paid a scheduled premium by the
end of the grace period, we use your Policy's available loan value to pay the
scheduled premium to the next due date, if possible, but at least to the next
quarterly due date. We will not make a premium loan if the Policy's loan value
cannot pay at least a quarterly premium. Interest on the loan is charged from
the premium due date. Like other Policy loans, an automatic premium loan can
result in an excess Policy loan. (See "Loan Provision".) We will not make an
automatic premium loan if you can skip the scheduled premium payment under the
Special Premium Option.
DEFAULT AND LAPSE OPTIONS
If you have not paid a required scheduled premium by the due date, then the
premium is in default. The Policy provides a 31 day grace period for the
payment. You have insurance coverage during the grace period, but if the
insured dies before you pay the premium, we deduct from the death proceeds the
portion of the unpaid premium for the period prior to the date of death.
For 60 days after the due date of a premium in default, we do not make the
usual Monthly Deductions and cost of insurance deductions from the Policy's
cash value. If you pay the premium in default, we make these deductions
retroactively. If you surrender the Policy while the premium is in default, we
deduct the full Monthly Deduction and a prorated cost of insurance charge from
the proceeds.
If your Policy lapses, there are three lapse options that may be available:
Fixed Extended Term Insurance, Fixed Paid-Up Insurance and Variable Paid-Up
Insurance. You may select a lapse option, or change your selection, by written
request to us at any time up to 60 days after the due date of the premium in
default. Eligibility conditions apply to the lapse options.
Fixed Extended Term Insurance is fixed benefit life insurance for a limited
-----------------------------
term with no further premiums due. The death benefit is the same as the amount
of your Policy's death benefit on the due date of the premium in default. We
determine the term by applying the Policy's NET cash value as of the due date
of the premium in default (that is, the cash value reduced by any Surrender
Charge that applies and by any Policy loan balance), less any
A-25
<PAGE>
partial surrenders or partial withdrawals made during the grace period. Policy
loans are not available. Fixed Extended Term Insurance is not available if
your Policy is in a substandard or automatic issue class, or is used in a
pension plan.
If you are eligible for this option, it automatically applies unless you
have elected Fixed or Variable Paid-Up Insurance. We will apply Fixed Paid-Up
Insurance, however, if it would provide a greater death benefit.
Paid-Up Insurance is permanent life insurance with no further premiums due.
-----------------
We determine the amount of insurance by applying the Policy's NET cash value
as of the due date of the premium in default (that is, the cash value reduced
by any Surrender Charge that applies and by any Policy loan balance), less any
partial surrenders or partial withdrawals made during the grace period, as a
net single premium at the current age of the insured. Policy loans are
available.
You can elect Variable Paid-Up Insurance as a lapse option if the NET cash
--------------------------
value of your Policy as of the due date of the premium in default (that is,
the cash value reduced by any Surrender Charge that applies and by any Policy
loan balance), less any partial surrenders or partial withdrawals made during
the grace period, is sufficient, when used as a net single premium at the
insured's current age, to purchase paid-up insurance with an initial face
amount at least equal to $5,000. If your Policy's net cash value will not
purchase this minimum amount of insurance, then we will provide Fixed Paid-Up
Insurance instead. Variable Paid-Up Insurance is not available under Policies
in a substandard or automatic issue class.
The death benefit under Variable Paid-Up Insurance can vary monthly and the
cash value can vary daily, depending on the net investment experience of the
Policy's sub-accounts (and on the interest credited to any cash value in the
Fixed Account). The death benefit will never be less than the initial amount
of the Variable Paid-Up Insurance if there is no outstanding Policy loan.
There is no minimum guaranteed cash value.
We set the death benefit under Variable Paid-Up Insurance at the end of each
Policy month for the next Policy month. The death benefit is the greater of
the initial face amount of your Variable Paid-Up Insurance and the Variable
Death Benefit. The Variable Death Benefit can increase or decrease, depending
on how the Policy's actual investment experience for the month (plus any cost
of insurance adjustment) compares to investment experience at the monthly
equivalent of 4.5% per year.
If the actual investment experience of the Policy's sub-accounts (and the
net interest earned on any cash value in the Fixed Account), plus any cost of
insurance adjustment, is greater than the monthly equivalent of 4.5% per year,
the Variable Death Benefit increases. If it is less, the Variable Death
Benefit decreases. The change in the Variable Death Benefit equals this
difference between the actual return (plus any cost of insurance adjustment)
and the assumed return, divided by the net single premium per dollar of death
benefit at the current age of the insured. The cost of insurance adjustment
reflects any difference between the actual and the guaranteed maximum cost of
insurance charges under the Policy. Thus, changes in the Variable Death
Benefit depend on the age, sex (unless the Policy is unisex) and underwriting
class of the insured as well as on net investment experience.
Although the death benefit will not be less than the initial face amount
under the option, the Variable Death Benefit can be higher or lower than the
initial amount. Changes in the Variable Death Benefit are carried forward, so
that if investment experience has reduced the Variable Death Benefit below the
initial amount of Variable Paid-Up Insurance, subsequent favorable investment
experience must first restore the Variable Death Benefit to the initial amount
before it can cause the Variable Death Benefit to exceed the initial amount of
Variable Paid-Up Insurance.
The initial cash value under Variable Paid-Up Insurance is the Policy's NET
cash value as of the due date of the premium in default, reduced by any
partial surrenders or partial withdrawals made during the grace period.
Thereafter, we determine the cash value in the same way as before lapse,
except that we deduct the charge for the cost of insurance at the end of the
Policy month instead of the beginning, and there are no Monthly Deductions.
Because of this, the current cost of insurance rates under Variable Paid-Up
Insurance are usually somewhat higher than they are under the Policy before
lapse. Cost of insurance rates under Variable Paid-Up Insurance depend on the
insured's underwriting class, attained age and sex (if the Policy is sex-
based).
You cannot make partial withdrawals, premium payments or unscheduled
payments under Variable Paid-Up Insurance. You may surrender the Policy for
its net cash value, which is its cash value reduced by any outstanding
A-26
<PAGE>
loan (and accrued interest) and by a pro rated charge for the cost of
insurance. The amount available for a Policy loan under Variable Paid-Up
Insurance is determined in the same way as prior to lapse, and an excess
Policy loan may also cause your Variable Paid-Up Insurance to lapse. (See
"Loan Provision".) We reserve the right to limit sub-account transfers under a
Variable Paid-Up Insurance Policy to four per Policy year. We currently allow
12 sub-account transfers per Policy year.
REINSTATEMENT. If your Policy has lapsed, you may reinstate it within seven
years after the date of default. 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.
OTHER POLICY FEATURES
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" at any time after
the Right to Return the Policy period. We make the loan as of the date when we
receive a loan request. (See "Receipt of Communications and Payments at
NELICO's Home Office".) You should contact our Home Office or your registered
representative for information on loan procedures. Policy loans are not
available under a Policy continued as Fixed Extended Term Insurance.
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 loan interest due date or,
if greater, on the date the loan is made;
(iii) discounted at the loan interest rate (6%).
The "projected cash value" is the cash value projected to the next Policy
anniversary or, if earlier, to the next premium due date, at a 4.5% rate. The
loan value available is reduced by any outstanding loan plus interest.
EXAMPLE: Using the Policy illustrated on page A-49 assume that the
Policy's premiums have been paid when due 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 4.58%). After the premium payment on
the 10th Policy anniversary, the maximum amount that you could borrow would
be determined as follows under (i) an annual premium payment schedule and
(ii) a quarterly premium payment schedule:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
------- ---------
<C> <S> <C> <C>
(1) Cash Value after Premium Payment on 10th Policy
Anniversary......................................... $18,066 $16,761
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4.5% to the
(a) 11th Policy Anniversary......................... 18,230
(b) Next Premium Due Date........................... 16,786
(3) 90% of Amount Calculated in (2)...................... 16,407 15,107
(4) Amount Calculated in (3), Reduced by the Applicable
Surrender Charge.................................... 14,930 13,630
(5) Amount Calculated in (4), Discounted at an Annual
Rate of 6% Back to the 10th Policy Anniversary...... 14,085 13,429
</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 and loan repayments to the sub-accounts in proportion
to the cash value in each. (See "The Fixed Account" for information on when
loans and loan repayments can impact cash value in the Fixed Account.)
The interest rate charged on Policy loans is an effective rate of 6% per
year (using simple interest during the year) and is due on the Policy
anniversary. If not paid, we add the interest accrued to the loan amount, and
we deduct an amount equal to the unpaid interest from the Policy's cash value
in the sub-accounts. 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 4.5% per year. The rate we currently credit is 4.75% per year.
We credit this interest amount to the Policy's sub-accounts annually, in
proportion to the cash value in each.
A-27
<PAGE>
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
make an unscheduled payment, because the unscheduled payment has sales and
premium tax charges, and the loan repayment does not incur charges. (See
"Deductions from Premiums and Unscheduled Payments".)
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 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 certain other Policy processing transactions.) The Policy terminates
without value 31 days after we mail the notice unless you pay us the excess
Policy loan amount within that time. (See "Default and Lapse Options".) 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 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 by a signed written request to us. 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".) 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 AND PARTIAL WITHDRAWAL
Partial Surrender. You may make a partial surrender of the Policy to receive
-----------------
a portion of its net cash value. A partial surrender causes a proportionate
reduction in the Policy's face amount, tabular cash value, death benefit and
basic scheduled premium. We reserve the right to decline a partial surrender
request that would reduce the face amount below the Policy's required minimum.
We deduct any Surrender Charge that applies to a partial surrender from the
Policy's cash value in an amount that is proportional to the amount of the
Policy's face amount surrendered. The Surrender Charge applied reduces any
remaining Surrender Charge under your Policy.
Partial Withdrawal. If your Policy has the Option 2 death benefit, you may
------------------
make a partial withdrawal of the Policy's cash value that exceeds its tabular
cash value. If there is a Policy loan outstanding, we limit the partial
withdrawal so that the Policy loan plus accrued interest does not exceed the
Policy's loan value. (See "Loan Provision".) A partial withdrawal reduces the
Policy's Option 2 death benefit and cash value but does not affect its face
amount or current scheduled premium level. However, a partial withdrawal may
affect the recalculation of the Policy's scheduled premium if the withdrawal
is before the premium recalculation date. No Surrender Charge will apply.
A-28
<PAGE>
EXAMPLE: Using the Policy illustrated on page A-50, assume that the
Policy's premiums have been paid when due and that the Policy's sub-accounts
have earned constant hypothetical gross annual rates of return of 0%, 6% and
12%. These hypothetical rates are illustrative only and may not reflect the
rates of return you would realize under the Policy. Before the premium
payment on the 20th Policy anniversary, the maximum amount that can be
withdrawn is as follows:
<TABLE>
<CAPTION>
AT HYPOTHETICAL AT HYPOTHETICAL AT HYPOTHETICAL
0% RETURN 6% RETURN 12% RETURN
--------------- --------------- ---------------
<C> <S> <C> <C> <C>
(1) Cash Value at the 20th
anniversary, before
premium payment........ $19,664 $39,615 $82,971
(2) Tabular Cash Value...... 34,562 34,562 34,562
(3) Maximum Withdrawal =
(1) - (2).............. 0 5,053 48,409
</TABLE>
The death benefit immediately after the withdrawal is temporarily reduced
to the initial face amount. However, the death benefit will increase above
the face amount if the cash value exceeds the tabular value after the
premium payment due on the 20th Policy anniversary is paid and monthly
charges are deducted.
If you have a Policy with the Option 2 death benefit and you request a
portion of the cash value, unless you instruct us otherwise, we will treat the
request as a partial withdrawal first and, if necessary, as a partial
surrender next. In this way we minimize your Surrender Charge costs.
If you have a Policy with the Option 1 death benefit, you may make a partial
withdrawal only if the death benefit has increased above the face amount to
satisfy tax law requirements. The amount you may withdraw is limited to the
cash value, less the face amount multiplied by the net single premium per $1
of death benefit at the insured's current age. If there is a Policy loan
outstanding, we limit the partial withdrawal so that the Policy loan plus
accrued interest does not exceed the Policy's loan value. (See "Loan
Provision".) A partial withdrawal under a Policy with the Option 1 death
benefit reduces the Policy's death benefit (but not below the face amount) and
cash value but does not reduce its face amount or affect its current scheduled
premium level. However, a partial withdrawal may affect the recalculation of
the Policy's scheduled premium if the withdrawal is before the premium
recalculation date. A partial withdrawal under a Policy with the Option 1
death benefit always reduces the death benefit by more than it reduces the
cash value. No Surrender Charge will apply.
EXAMPLE: Using the Policy with $184,011 face amount illustrated on page A-
49 assume that the Policy's premiums have been paid when due and that the
Policy's sub-accounts have earned constant hypothetical gross annual rates
of return of 0%, 6% and 12%. These hypothetical rates are illustrative only
and may not reflect the rates of return you would realize under the Policy.
The amount available for withdrawal is calculated as of the 20th Policy
anniversary.
AT THE HYPOTHETICAL 0% AND 6% RETURNS, NO PORTION OF THE CASH VALUE MAY BE
WITHDRAWN.
AT THE HYPOTHETICAL 12% RETURN, BEFORE THE PREMIUM PAYMENT ON THE 20TH
POLICY ANNIVERSARY, THE MAXIMUM AMOUNT THAT CAN BE WITHDRAWN IS AS FOLLOWS:
<TABLE>
<C> <S> <C>
(1) Cash Value at the 20th anniversary, before premium
payment.................................................. $ 84,535
(2) Net Single Premium per $1 at age 55....................... .4068241212
(3) Face Amount X .4068241212................................. $ 74,860
(4) Maximum Withdrawal = (1) - (3)............................ $ 9,675
</TABLE>
THE DEATH BENEFIT IMMEDIATELY AFTER THE WITHDRAWAL IS TEMPORARILY REDUCED
TO THE INITIAL FACE AMOUNT. HOWEVER, THE PREMIUM PAYMENT DUE ON THE 20TH
POLICY ANNIVERSARY INCREASES THE DEATH BENEFIT ABOVE THE FACE AMOUNT IN
ORDER TO SATISFY FEDERAL TAX LAW REQUIREMENTS.
----------------
We limit the total number of partial surrenders and partial withdrawals you
may make in one Policy year to four, unless we consent. You may not reinvest
amounts withdrawn except as scheduled premiums or unscheduled payments, which
incur the charges described under "Deductions From Premiums and Unscheduled
Payments".
A-29
<PAGE>
A partial withdrawal or partial surrender reduces the Policy's cash value in
the sub-accounts in proportion to the amount of cash value in each, unless you
request otherwise. We determine the amount of net cash value paid on partial
surrender or partial withdrawal as of the date when we receive a request. You
can contact your registered representative or the Home Office for information
on withdrawal and partial surrender procedures.
A reduction in the death benefit as a result of a partial withdrawal or
partial surrender may create a "modified endowment contract" or have other
adverse tax consequences. If you are contemplating a partial surrender or
partial withdrawal, you should consult your tax advisor regarding the tax
consequences. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
In most states, the Policies allow you to reduce the face amount of your
Policy without receiving a distribution of any of the Policy's cash value.
(This feature differs from a partial surrender, which pays a portion of the
Policy's net cash value to you.)
If you decrease the face amount of your Policy, we also decrease the
scheduled premiums and tabular cash value. We deduct any Surrender Charge that
applies from the Policy's actual 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). We may also decrease any rider benefits
attached to the Policy. The face amount remaining after a reduction must meet
our minimum face amount requirements for issue, except with our consent.
A face amount reduction will take 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 may create a "modified endowment
contract". If you are contemplating a reduction in face amount, you should
consult your tax advisor regarding the tax consequences of the transaction.
(See "Tax Considerations".)
INVESTMENT OPTIONS
You can allocate your Policy's scheduled premiums and unscheduled payments
among the sub-accounts of the Variable Account in any combination. The Policy
provides that you must allocate a minimum of 10% of the premium or payment 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 ten accounts (including the Fixed
Account) at any one time.
You make the initial allocation when you apply for a Policy. You may change
the allocation of future premiums and payments at any time thereafter. The
change will be effective for scheduled premiums due and unscheduled payments
applied 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. We currently allow 12 sub-account transfers
per Policy year. 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". You may distribute your Policy's cash
value among no more than ten accounts (including the Fixed Account) at any one
time.
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
A-30
<PAGE>
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. In addition, the Metropolitan Series Fund, Inc. may restrict or
refuse purchases or redemptions of shares in its Portfolios as a result of
certain market timing activities. You should read the prospectuses of these
Eligible Funds for more details.
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 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 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.
There is no extra charge for this feature.
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. Your registered
representative can provide current information on the availability of the
rider. Substitution of the insured person is a taxable exchange. 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 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 they are paid.
A-31
<PAGE>
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 proceeds, which are maintained in our general
account or that of an affiliate, through checkbook privileges with the bank.
Normally we promptly make payments of net cash value, or of any loan value
available, under a fixed-benefit lapse option or from cash value in the Fixed
Account. However, we may delay such payments for up to six months. We pay
interest in accordance with state insurance law requirements on delayed
payments.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
During the first 24 months after the Policy's issue date, you can exchange
it for a fixed-benefit life insurance policy, provided that (1) you repay any
policy loans and (2) the Policy has not lapsed. If you exercise this option,
you will have to make up any investment loss you had under the variable life
insurance policy. We make the exchange without evidence of insurability. The
new policy will have the same face amount, policy date, issue age and risk
classification for the insured 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 exchange. The exchange may result in a cost or credit to you.
For a Policy issued to some group or sponsored arrangements, you may (if
approved in your state) have the additional option of exchanging at any time
during the first 36 months after the Policy's issue date, if the Policy has
not lapsed, to a fixed-benefit term life insurance policy issued by us or an
affiliate. Contact us or your registered representative for more information
about this feature.
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 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 for any
year is added to the monthly payments for that year.
(ii) LIFE INCOME. We pay proceeds in equal monthly installments (i) during
the life of the payee, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20 years.
(iii) LIFE INCOME WITH REFUND. We pay proceeds in equal monthly
installments during the life of the payee. At the payee's death, we
pay any unpaid proceeds remaining either in one sum or in equal
monthly installments until we have paid the total proceeds.
(iv) INTEREST. We hold proceeds for the life of the payee or another agreed
upon period. We pay interest of at least 3.5% a year monthly or add it
to the principal annually. At the death of the payee, or at the end of
the period agreed to, we pay the balance of principal and any interest
in one sum.
(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
A-32
<PAGE>
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 premium. 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.
LEVEL TERM INSURANCE, which provides term insurance;
ACCIDENTAL DEATH BENEFIT, which provides additional insurance if death
results from accidental bodily injury;
OPTION TO PURCHASE ADDITIONAL LIFE INSURANCE, which provides the right to
purchase additional insurance on the life of the insured at certain times,
without proof of insurability;
GUARANTEED INCOME BENEFIT RIDER, which provides a monthly income payment
(subject to a $1,000 maximum) directly to the Policy Owner in the event of
the total disability of the insured. The Policy Owner must also purchase
the Waiver of Scheduled Premiums--Disability of Insured Rider in order to
purchase this rider. Availability of the rider is subject to state
insurance department approval.)
WAIVER OF SCHEDULED PREMIUMS-DISABILITY OF INSURED, which provides for
waiver of scheduled premiums for the total disability of the insured;
WAIVER OF SCHEDULED PREMIUMS-DISABILITY OF APPLICANT, which provides for
waiver of scheduled premiums for the total disability of the applicant;
WAIVER OF SCHEDULED PREMIUMS-DEATH OF APPLICANT, which provides for
waiver of scheduled premiums for a limited period upon the death of the
applicant;
WAIVER OF SCHEDULED PREMIUMS-DEATH OR DISABILITY OF APPLICANT, which
provides for waiver of scheduled premiums for a limited period upon the
death or disability of the applicant;
TEMPORARY TERM INSURANCE, which provides for term insurance from the date
of issue to the Policy Date;
CHILDREN'S INSURANCE, which provides for insurance on the life of the
insured's children for a defined period.
Certain riders are available only for sex based Policies. 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 when the
insured dies.
A-33
<PAGE>
The beneficiary is also named in the application. You may change the
beneficiary of the Policy 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.)
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.
A-34
<PAGE>
The Zenith Westpeak Stock Index Series. Its investment objective is
investment results that correspond to the composite price and yield
performance of the S&P 500 Index.
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 Harris Oakmark Mid Cap Value Series (formerly, the 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 Balanced Series (formerly, the Loomis Sayles Balanced Series).
Its investment objective is long-term total return from a combination of
capital appreciation and 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.
The Metropolitan Putnam Large Cap Growth Portfolio.* Its investment
objective is capital appreciation.
The Metropolitan Janus Mid Cap Portfolio.* Its investment objective is long-
term growth of capital.
The Metropolitan Russell 2000 Index Portfolio.* Its investment objective is
to equal the return of the Russell 2000 Index.
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.
- --------
*Availability of these Portfolios is subject to any necessary state insurance
department approvals.
WE INTEND TO SUBSTITUTE SHARES OF THE PUTNAM INTERNATIONAL STOCK PORTFOLIO
OF THE METROPOLITAN SERIES FUND, INC. FOR SHARES OF THE MORGAN STANLEY
INTERNATIONAL MAGNUM EQUITY SERIES OF THE NEW ENGLAND ZENITH FUND ONCE WE
RECEIVE NECESSARY REGULATORY APPROVAL (CURRENTLY ANTICIPATED DURING THE FOURTH
QUARTER OF 2000).
The Zenith Fund and the Metropolitan Series Fund, Inc. are open-end
management investment companies, more commonly known as mutual funds. These
funds are available as investment vehicles for separate investment accounts of
MetLife, NELICO, and other life insurance companies.
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<PAGE>
VIP and VIP II are 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 Capital Growth Management
Growth Limited Partnership ("CGM")*
Back Bay Ad-
visors Money
Market New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay Ad-
visors Bond
Income New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay Ad-
visors Man-
aged New England Investment Management, Inc. Back Bay Advisors, L.P.*
Westpeak
Stock Index New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Westpeak
Growth and
Income New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Loomis Sayles
Small Cap New England Investment Management, Inc. Loomis, Sayles & Company, L.P.*
Balanced New England Investment Management, Inc. Wellington Management Company, LLP
Morgan Stan- Morgan Stanley Dean Witter
ley Interna- Investment Management, Inc.
tional Mag-
num Equity New England Investment Management, Inc.
Harris
Oakmark Mid
Cap Value New England Investment Management, Inc. Harris Associates L.P.*
Davis Venture
Value New England Investment Management, Inc. Davis Selected Advisers, L.P.**
Alger Equity
Growth New England Investment Management, Inc. Fred Alger Management, Inc.
MFS Investors New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research New England Investment Management, Inc. Massachusetts Financial
Managers Services Company
</TABLE>
- --------
*An affiliate of NELICO
**Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
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, Harris Oakmark Mid Cap Value Series
and Loomis Sayles Small Cap Series, New England Investment Management 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 Harris Oakmark Mid Cap Value Series'
sub-adviser was Loomis, Sayles
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<PAGE>
until May 1, 1998, when Goldman Sachs Asset Management, a separate operating
division of Goldman Sachs & Co., became the sub-adviser. Harris Associates
became the sub-adviser on May 1, 2000. The Balanced Series' sub-adviser was
Loomis, Sayles until May 1, 2000, when Wellington Management Company 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.
MetLife is the investment adviser for the Metropolitan Series Fund
Portfolios. Putnam Investment Management, Inc. is the sub-investment manager
of the Putnam Large Cap Growth Portfolio. Janus Capital Corporation is the
sub-investment manager of the Janus Mid Cap Portfolio. For more information
regarding the investment adviser and sub-investment managers of the
Metropolitan Series Fund Portfolios, see the Metropolitan Series Fund
prospectus attached at the end of this prospectus and its Statement of
Additional Information.
Fidelity Management & Research Company ("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 FMR, 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. IT IS
NOT AVAILABLE UNDER POLICIES ISSUED IN NEW YORK.
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
4.5%. We may or may not credit interest at a higher rate. We declare the
current interest rate for the Fixed Account periodically. The Fixed Account
earns interest daily.
We can change our Fixed Account interest crediting procedures. Currently,
all cash value in the Fixed Account on a Policy anniversary earns interest at
the declared annual rate in effect on the anniversary until the next Policy
anniversary, when it is credited with our current rate. (Although our current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with our current annual rate until the next anniversary, we can
select any portion, from 0% to 100%, of your Fixed Account cash value on a
Policy anniversary to earn interest at our current rate until the next Policy
anniversary, unless otherwise required by state law.) Any net premiums or net
unscheduled payments allocated or cash value transferred to the Fixed Account
on a date other than a Policy anniversary earn interest at our current rate
until the next Policy anniversary. The effective interest rate is a weighted
average of all the Fixed Account rates for your Policy.
VALUES AND BENEFITS
Cash value in the Fixed Account increases from net premiums and net
unscheduled payments allocated and transfers to the Fixed Account and Fixed
Account interest, and decreases from loans, partial surrenders or partial
withdrawals 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.
A-37
<PAGE>
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 4.5%. Otherwise, the
requirements for Fixed Account and Variable Account allocations are the same.
(See "Allocation of Net Premiums".)
Except as described below, the Fixed Account has the same rights and
limitations about premium allocations, transfers, loans, surrenders and
partial withdrawals as the Variable Account. (See "Other Policy Features".)
The following special rules apply to the Fixed Account.
TRANSFERS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT ARE ALLOWED ONLY
ONCE IN EACH POLICY YEAR. WE PROCESS A TRANSFER FROM THE FIXED ACCOUNT IF WE
RECEIVE THE TRANSFER REQUEST NO MORE THAN 30 DAYS BEFORE THE POLICY
ANNIVERSARY. WE MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER
REQUEST AT OUR HOME OFFICE. YOU MAY ALSO REQUEST A TRANSFER FROM THE FIXED
ACCOUNT WITHIN 30 DAYS AFTER A POLICY ANNIVERSARY IF YOU HAVE NOT REQUESTED
-----
ONE IN THE 30 DAY PERIOD BEFORE THE ANNIVERSARY.
THE AMOUNT OF CASH VALUE YOU MAY TRANSFER FROM THE FIXED ACCOUNT IS LIMITED
TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE
TRANSFER DATE OR THE AMOUNT OF CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT
IN THE PRECEDING POLICY YEAR. Regardless of these limits, if a transfer of
cash value from the Fixed Account would reduce the remaining cash value in the
Fixed Account below $100, you may transfer the entire amount of Fixed Account
cash value. We may limit the total number of transfers among sub-accounts and
from the sub-accounts to the Fixed Account to four in one Policy year. 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 4.5% 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 and partial
withdrawals 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
transaction, 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 scheduled premium paid in the first Policy year; a
maximum of 6.5% of scheduled premiums in Policy years two through ten; and a
maximum of 2% of scheduled premiums paid thereafter. Agents receive a
commission of 3% of each unscheduled payment. We pay commissions for
substandard risk and rider premiums based on our rules
A-38
<PAGE>
at the time of payment. Agents with less than four years of service may be
compensated differently. Agents who meet certain NELICO productivity and
persistency standards may be eligible for additional compensation. Agents may
receive a portion of the general agent's expense reimbursement allowance.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life
insurance policies. Under the agreements with those broker-dealers, the
commission paid to the broker-dealer on behalf of the registered
representative will not exceed 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. The
registered representative may receive a portion of the expense reimbursement
allowance paid to the broker-dealer.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, we can challenge the validity of your Policy or a rider to your
Policy based on misrepresentations made in the application. However, we cannot
challenge the Policy or a rider after it has been in force, during the
insured's lifetime, for two years from the date of issue. We cannot challenge
the portion of the death benefit resulting from payment of an underwritten
unscheduled payment for more than two years (during the insured's lifetime)
from receipt of the unscheduled payment.
MISSTATEMENT OF AGE OR SEX
If the application misstates the insured's age or sex, the Policy's cash
value and death benefit are what (i) the premiums paid before the premium
recalculation date, (ii) unscheduled payments made, and (iii) premiums due
starting on the Policy anniversary after the premium recalculation date would
purchase, based on the insured's correct age and, if the Policy is sex-based,
correct sex. The adjustment in values may involve a cost or credit to you.
SUICIDE
If the insured commits suicide within two years from the Policy's date of
issue (or less if required by state law), the death benefit is limited to the
scheduled premiums paid and unscheduled payments made, reduced by any
outstanding Policy loan plus interest and by any partial withdrawals or
partial surrenders made (or any greater amount required by state law).
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
Policy should satisfy the applicable requirements. There is less guidance,
however, with respect to Policies issued on a substandard risk 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.
A-39
<PAGE>
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to
allocate 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.
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. This may be the case when the insured
reaches very high ages, even if you have not made any unscheduled payments for
the Policy. The point at which you may have to limit your scheduled premium
payments will depend on the issue age, sex and underwriting class of the
insured, investment experience and the amount of any unscheduled payments you
have made. You may be able to limit payment of scheduled premiums by using the
Special Premium Option, when it is available, or by allowing the Policy to
lapse to paid-up insurance. (See "Special Premium Option" and "Default and
Lapse Options".) 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.
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<PAGE>
(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.
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.
If a Policy becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a
modified endowment contract.
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.
If a Policy loan is outstanding when a Policy is canceled or lapses, the
amount of the outstanding indebtedness will be added to the amount distributed
and will be taxed accordingly. 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.
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 Policy loan provisions. Failure of plan loans to
comply with the
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<PAGE>
requirements and provisions of the DOL regulations and of tax law may result
in adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
Businesses can use the Policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the Policy for any arrangement the value of which depends
in part on its tax consequences, you should consult a qualified tax adviser.
In recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a
new Policy or a change in an existing Policy should consult a tax adviser.
We believe that Policies subject to Puerto Rican tax law will generally
receive treatment similar, with certain modifications, to that described
above. Among other differences, Policies governed by Puerto Rican tax law are
not currently subject to the rules described above regarding Modified
Endowment Contracts. You should consult your tax adviser with respect to
Puerto Rican tax law governing the Policies.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or otherwise. Consult a tax adviser with
respect to legislative developments and their effect on the Policy.
NELICO'S INCOME TAXES
Under current Federal income tax law NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for company Federal income taxes, except for the charge for
federal taxes that is deducted from scheduled premiums and unscheduled
payments. 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.
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
NAME AND PRINCIPAL DURING THE PAST FIVE
BUSINESS ADDRESS YEARS
------------------------------------ -----------------------------------------
<C> <S>
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
Metropolitan Life Insurance Company Chairman, President and Chief Executive
One Madison Avenue Officer of Metropolitan Life Insurance
New York, NY 10010 Company since 1998; formerly, Director,
President and 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
6 Tarbox Road as Principal of The Vermont Partnership,
Jericho, VT 05465 a business consulting firm located in
Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England
Mutual.
</TABLE>
A-42
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
NAME AND PRINCIPAL DURING THE PAST FIVE
BUSINESS ADDRESS YEARS
----------------------------------- ------------------------------------------
<C> <S>
Edward A. Fox Director of NELICO since 1996 and Chairman
RR Box 67-15 of the Board of SLM Holdings since 1997;
Harborside, ME 04642 formerly, Director 1994-1996 of New
England Mutual.
George J. Goodman Director of NELICO since 1996 and author,
Adam Smith's Global Television 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
Ten Sterling Place President of Merrimack Higher Education
Bow, NH 03304 Associates, Inc. since 1998; formerly
Executive Director and Chief Executive
Officer 1994-1997 of the California
Academy of Sciences; Director 1987-1996
of New England Mutual.
Philip K. Howard, Esq. Director of NELICO since 1996 and Partner
Covington & Burling of the law firm of Covington & Burling in
1330 Avenue of the Americas New York City.
New York, NY 10019
Bernard A. Leventhal Director of NELICO since 1996; formerly,
Burlington Industries Vice Chairman of the Board of Directors
1345 Avenue of the Americas 1995-1998 of Burlington Industries, Inc.;
New York, NY 10105 Director and Executive Vice President
1993-1995 of Burlington Menswear
Division.
Thomas J. May Director of NELICO since 1996 and
Boston Edison Company Chairman, President and Chief Executive
800 Boylston Street Officer of Boston Edison Company since
Boston, MA 02199 1994; formerly, Director 1994-1996 of New
England Mutual.
Stewart G. Nagler Director of NELICO since 1996 and Vice
Metropolitan Life Chairman and Chief Financial Officer of
One Madison Avenue Metropolitan Life since 1998; formerly,
New York, NY 10010 Senior Executive Vice President and Chief
Financial Officer 1986-1998 of
Metropolitan Life Insurance Company.
Catherine A. Rein Director of NELICO since 1998 and
Metropolitan Property and Casualty President and Chief Executive Officer of
Insurance Company Metropolitan Property and Casualty
700 Quaker Lane Insurance Company since 1999; formerly,
Warwick, RI 02887 Senior Executive Vice President 1998-1999
and Executive Vice President 1989-1998 of
Metropolitan Life Insurance Company.
Rand N. Stowell Director of NELICO since 1996 and
P.O. Box 60 President of United Timber Corp. and
Weld, ME 04285 President, Randwell Co. since 2000 of
Weld, Maine; formerly, Director 1990-1996
of New England Mutual.
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
DURING THE PAST FIVE
NAME YEARS
---- ------------------------------------------
<C> <S>
James M. Benson See Directors above.
David W. Allen Senior Vice President of NELICO since
1996; formerly, Senior Vice President
1994-1996 and Vice President 1990-1994 of
New England Mutual.
</TABLE>
A-43
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
DURING THE PAST FIVE
NAME YEARS
---- --------------------------------------------------------
<C> <S>
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 Farla 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.
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.
</TABLE>
The principal business address for each of the directors and officers is the
same as NELICO's except where indicated otherwise.
A-44
<PAGE>
VOTING RIGHTS
We own the Eligible Fund shares held in the Variable Account and vote those
shares at meetings of the Eligible Fund shareholders. Under Federal securities
law, you currently have the right to instruct us how to vote shares that are
attributable to your Policy.
Policy Owners who are entitled to give voting instructions and the number of
shares attributable to their Policies are determined as of the meeting record
date. If we do not receive timely instructions, we will vote shares in the
same proportion as (i) the aggregate cash value of policies giving
instructions, respectively, to vote for, against, or withhold votes on a
proposition, bears to (ii) the total cash value in that sub-account for all
policies for which we receive voting instructions. No voting privileges apply
to the Fixed Account or to cash value removed from the Variable Account due to
a Policy loan.
We will vote all Eligible Fund shares held by our general account (or any
unregistered separate account for which voting privileges were not extended)
in the same proportion as the total of (i) shares for which voting
instructions were received and (ii) shares that are voted in proportion to
such voting instructions.
The Eligible Funds' Boards of Trustees monitor events to identify conflicts
that may arise from the sale of Eligible Fund shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could result from changes in state
insurance law or Federal income tax law, changes in investment management of
an Eligible Fund, or differences in voting instructions given by variable life
and variable annuity contract owners. If there is a material conflict, the
Board of Trustees will determine what action should be taken, including the
removal of the affected sub-accounts from the Eligible Fund(s), if necessary.
If we believe any Eligible Fund action is insufficient, we will consider
taking other action to protect Policy Owners. There could, however, be
unavoidable delays or interruptions of operations of the Variable Account that
we may be unable to remedy.
We may disregard voting instructions for changes in the investment policy,
investment adviser or principal underwriter of an Eligible Fund portfolio if
required by state insurance law, or if we (i) reasonably disapprove of the
changes and (ii) in the case of a change in investment policy or investment
adviser, make a good faith determination that the proposed change is
prohibited by state authorities or inconsistent with a sub-account's
investment objectives. If we do disregard voting instructions, the next annual
report to Policy Owners will include a summary of that action and the reasons
for it.
RIGHTS RESERVED BY NELICO
We and our affiliates may change the voting procedures described above, and
vote Eligible Fund shares without Policy Owner instructions, if the securities
laws change. We also reserve the right: (1) to add sub-accounts; (2) to
combine sub-accounts; (3) to substitute shares of a new fund for shares of an
Eligible Fund (the new fund may have different fees and expenses), to close a
sub-account to allocations of premium payments or cash value or both at any
time in our sole discretion, 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.
A-45
<PAGE>
For all other Policy changes, please contact your registered representative.
REPORTS
We will send you an annual statement showing your Policy's death benefit,
cash value and any outstanding Policy loan principal. We will also confirm
Policy loans, sub-account transfers, lapses, surrenders and other Policy
transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
Professional organizations may endorse the Policies. We may use such
endorsements in Policy sales material. We may pay the professional
organization for the use of its customer or mailing lists to distribute Policy
promotional materials. An endorsement by a third party does not predict the
future performance of the Policies.
Articles discussing the Variable Account's investment performance, rankings
and other characteristics may appear in publications. Some or all of these
publishers or ranking services (including, but not limited to, Lipper
Analytical Services, Inc. and Morningstar, Inc.) may publish their own
rankings or performance reviews of variable contract separate accounts,
including the Variable Account. We may use references to, or reprints of such
articles or rankings as sales material and may include rankings that indicate
the names of other variable contract separate accounts and their investment
experience. We may also use "unit values" to provide information about the
Variable Account's investment performance in this prospectus, marketing
materials, and historical illustrations.
Publications may use articles and releases, developed by NELICO, the
Eligible Funds and other parties, about the Variable Account or the Eligible
Funds. We may use references to or reprints of such articles in sales material
for the Policies or the Variable Account. Such literature may refer to
personnel of the advisers, who have portfolio management responsibility, and
their investment style, and include excerpts from media articles.
We are a member of the Insurance Marketplace Standards Association ("IMSA"),
and may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
Policy sales material may refer to historical, current and prospective
economic trends. In addition, sales material may discuss topics of general
investor interest for the benefit of registered representatives and
prospective Policy Owners. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland
Asbill & Brennan LLP, of Washington, D.C., has provided advice on certain
matters relating to the Federal securities laws.
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.
A-46
<PAGE>
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 James J.
Reilly, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-47
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES, NET CASH VALUES AND ACCUMULATED SCHEDULED PREMIUMS
The tables in Appendix A illustrate the way the Policies work. They show how
the death benefit, net cash value and cash value could vary over an extended
period of time assuming hypothetical gross rates of return (i.e. investment
income and capital gains and losses, realized or unrealized) for the Variable
Account equal to constant after tax annual rates of 0%, 6% and 12%. The tables
show annual scheduled premiums of $2,000 for males aged 35 and 45. The males
aged 35 and 45 are assumed to be in the nonsmoker standard risk
classification. Illustrations show Option 1 and Option 2 death benefits.
(Substandard risk Policies and automatic issue Policies have the same basic
scheduled premiums and cost of insurance rates as standard risk Policies but
require an additional premium.)
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 scheduled premiums were paid at other
than annual intervals, or if unscheduled payments were made. They would also
be different depending on the allocation of cash value among the Variable
Account's sub-accounts, if the actual gross rate of return for all sub-
accounts averaged 0%, 6% or 12%, but varied above or below that average for
individual sub-accounts. They would also differ if a Policy loan were made
during the period of time illustrated, if the insured were female or in the
smoker standard risk classification, or if the Policies were issued at unisex
rates. For example, as a result of variations in actual returns, cash values
available for the special premium option or automatic premium loan feature, or
for withdrawal, may not be adequate for the purposes or periods illustrated
even if the average rate of return is achieved. Thus, additional premiums or
unscheduled payments beyond those illustrated may be necessary to achieve the
results shown on particular illustrations.
The death benefits, net cash values and cash values shown in the tables
reflect: (i) deductions from annual premiums for the annual administrative
charge, sales charge and state and federal premium tax charge; and (ii) a
monthly deduction (consisting of an administrative charge and 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 on surrender, face reduction or
lapse during the first 15 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 .75% 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, as well as expense
subsidies by MetLife of certain Portfolios of the Metropolitan Series Fund,
Inc. that may be voluntary and of limited duration.
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 -1.34%, 4.58% and 10.50%, respectively,
based on the current charge for mortality and expense risks, and -1.64%, 4.27%
and 10.17%, 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 an illustration reflecting the proposed
insured's age, sex, underwriting classification, and the face amount or
scheduled premium 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-48
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$184,011 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- --------------------- --------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $184,011 $184,011 $184,011 $ 392 $ 483 $ 574 $1,309 $1,400 $ 1,491 -80.38% -75.84% -71.29%
2 4,305 184,011 184,011 184,011 1,650 1,913 2,188 2,589 2,852 3,127 -46.32 -40.16 -34.08
3 6,620 184,011 184,011 184,011 1,706 2,225 2,788 3,834 4,353 4,916 -50.80 -41.97 -33.70
4 9,051 184,011 184,011 184,011 2,680 3,540 4,511 5,044 5,904 6,875 -39.18 -30.06 -21.65
5 11,604 184,011 184,011 184,011 3,897 5,186 6,700 6,215 7,504 9,018 -29.89 -21.14 -13.07
6 14,284 184,011 184,011 184,011 5,074 6,882 9,091 7,347 9,154 11,364 -24.21 -15.71 -7.88
7 17,098 184,011 184,011 184,011 6,208 8,625 11,703 8,434 10,851 13,929 -20.46 -12.14 -4.48
8 20,053 184,011 184,011 184,011 7,299 10,419 14,559 9,479 12,599 16,739 -17.84 -9.63 -2.10
9 23,156 184,011 184,011 184,011 8,651 12,571 17,990 10,493 14,413 19,833 -15.14 -7.28 -0.01
10 26,414 184,011 184,011 184,011 9,973 14,792 21,738 11,478 16,296 23,243 -13.17 -5.57 1.51
15 45,315 184,011 184,011 184,011 15,749 26,659 46,159 15,749 26,659 46,159 -8.59 -1.49 5.22
20 69,439 184,011 184,011 206,648 19,664 39,755 84,535 19,664 39,755 84,535 -7.39 -0.06 6.69
25 100,227 184,011 184,011 303,137 21,854 55,037 145,540 21,854 55,037 145,540 -7.17 0.73 7.47
30 139,522 184,011 184,011 431,762 20,782 72,058 240,128 20,782 72,058 240,128 -8.15 1.16 7.90
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 9,100.59% 9,100.59% 9,100.59%
2 810.50 810.50 810.50
3 313.62 313.62 313.62
4 178.25 178.25 178.25
5 119.64 119.64 119.64
6 87.93 87.93 87.93
7 68.37 68.37 68.37
8 55.25 55.25 55.25
9 45.89 45.89 45.89
10 38.92 38.92 38.92
15 20.68 20.68 20.68
20 13.05 13.05 13.97
25 8.98 8.98 12.09
30 6.50 6.50 10.89
</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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $8,435, ASSUMING THE 0%
RETURN; $3,573, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-49
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$184,011 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- --------------------- --------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $184,011 $184,080 $184,164 $ 392 $ 483 $ 574 $1,309 $1,400 $ 1,491 -80.38% -75.85% -71.30%
2 4,305 184,011 184,153 184,411 1,650 1,913 2,187 2,589 2,852 3,126 -46.32 -40.16 -34.09
3 6,620 184,011 184,230 184,767 1,706 2,224 2,786 3,834 4,353 4,914 -50.80 -41.98 -33.73
4 9,051 184,011 184,312 185,245 2,680 3,539 4,507 5,044 5,903 6,871 -39.18 -30.07 -21.68
5 11,604 184,011 184,399 185,860 3,897 5,184 6,692 6,215 7,502 9,010 -29.89 -21.15 -13.10
6 14,284 184,011 184,491 186,630 5,074 6,879 9,077 7,347 9,151 11,349 -24.21 -15.73 -7.93
7 17,098 184,011 184,589 187,572 6,208 8,621 11,679 8,434 10,847 13,905 -20.46 -12.15 -4.53
8 20,053 184,011 184,692 188,708 7,299 10,413 14,520 9,479 12,593 16,700 -17.84 -9.65 -2.16
9 23,156 184,011 184,819 190,079 8,651 12,562 17,932 10,493 14,404 19,775 -15.14 -7.30 -0.08
10 26,414 184,011 184,970 191,711 9,973 14,780 21,652 11,478 16,284 23,157 -13.17 -5.58 1.44
15 45,315 184,011 186,056 204,875 15,749 26,615 45,713 15,749 26,615 45,713 -8.59 -1.51 5.10
20 69,439 184,011 189,042 231,858 19,664 39,615 82,971 19,664 39,615 82,971 -7.39 -0.09 6.53
25 100,227 184,011 194,108 297,340 21,854 54,588 142,756 21,854 54,588 142,756 -7.17 0.67 7.35
30 139,522 184,011 201,871 423,902 20,782 70,650 235,757 20,782 70,650 235,757 -8.15 1.03 7.81
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 9,100.59% 9,104.01% 9,108.18%
2 810.50 810.87 811.54
3 313.62 313.80 314.24
4 178.25 178.38 178.78
5 119.64 119.75 120.16
6 87.93 88.02 88.46
7 68.37 68.46 68.94
8 55.25 55.34 55.85
9 45.89 45.98 46.56
10 38.92 39.02 39.65
15 20.68 20.80 21.84
20 13.05 13.26 14.87
25 8.98 9.32 11.97
30 6.50 6.99 10.79
</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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $8,435, ASSUMING THE 0%
RETURN; $4,169, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-50
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$184,011 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- --------------------- --------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $184,011 $184,011 $184,011 $ 322 $ 411 $ 499 $1,239 $1,328 $ 1,416 -83.90% -79.47% -75.04%
2 4,305 184,011 184,011 184,011 1,506 1,760 2,025 2,446 2,700 2,964 -49.84 -43.69 -37.64
3 6,620 184,011 184,011 184,011 1,487 1,984 2,523 3,615 4,112 4,652 -55.01 -45.90 -37.45
4 9,051 184,011 184,011 184,011 2,382 3,202 4,127 4,746 5,566 6,492 -42.87 -33.41 -24.78
5 11,604 184,011 184,011 184,011 3,517 4,742 6,179 5,836 7,060 8,497 -32.96 -23.91 -15.64
6 14,284 184,011 184,011 184,011 4,612 6,322 8,411 6,884 8,594 10,684 -26.86 -18.08 -10.08
7 17,098 184,011 184,011 184,011 5,660 7,939 10,839 7,886 10,166 13,066 -22.83 -14.23 -6.40
8 20,053 184,011 184,011 184,011 6,662 9,596 13,484 8,843 11,776 15,664 -19.98 -11.51 -3.82
9 23,156 184,011 184,011 184,011 7,908 11,581 16,656 9,750 13,424 18,498 -17.09 -8.98 -1.56
10 26,414 184,011 184,011 184,011 9,104 13,605 20,089 10,609 15,110 21,593 -14.99 -7.15 0.08
15 45,315 184,011 184,011 184,011 14,043 24,041 41,932 14,043 24,041 41,932 -10.26 -2.82 4.08
20 69,439 184,011 184,011 184,011 15,612 33,527 73,962 15,612 33,527 73,962 -10.16 -1.71 5.55
25 100,227 184,011 184,011 256,857 14,105 42,606 123,290 14,105 42,606 123,290 -11.97 -1.25 6.39
30 139,522 184,011 184,011 352,772 7,461 49,628 196,148 7,461 49,628 196,148 -21.13 -1.26 6.84
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 9,100.59% 9,100.59% 9,100.59%
2 810.50 810.50 810.50
3 313.62 313.62 313.62
4 178.25 178.25 178.25
5 119.64 119.64 119.64
6 87.93 87.93 87.93
7 68.37 68.37 68.37
8 55.25 55.25 55.25
9 45.89 45.89 45.89
10 38.92 38.92 38.92
15 20.68 20.68 20.68
20 13.05 13.05 13.05
25 8.98 8.98 11.07
30 6.50 6.50 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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $8,435, ASSUMING THE 0%
RETURN; $8,435, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-51
<PAGE>
MALE ISSUE AGE 35
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$184,011 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- --------------------- --------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $184,011 $184,011 $184,090 $ 322 $ 411 $ 499 $1,239 $1,328 $ 1,416 -83.90% -79.47% -75.04%
2 4,305 184,011 184,011 184,251 1,506 1,760 2,025 2,446 2,700 2,964 -49.84 -43.69 -37.65
3 6,620 184,011 184,011 184,507 1,487 1,984 2,522 3,615 4,112 4,650 -55.01 -45.90 -37.46
4 9,051 184,011 184,011 184,868 2,382 3,202 4,125 4,746 5,566 6,489 -42.87 -33.41 -24.80
5 11,604 184,011 184,011 185,348 3,517 4,742 6,173 5,836 7,060 8,492 -32.96 -23.91 -15.67
6 14,284 184,011 184,011 185,962 4,612 6,322 8,401 6,884 8,594 10,674 -26.86 -18.08 -10.11
7 17,098 184,011 184,011 186,726 5,660 7,939 10,822 7,886 10,166 13,048 -22.83 -14.23 -6.44
8 20,053 184,011 184,011 187,657 6,662 9,596 13,456 8,843 11,776 15,637 -19.98 -11.51 -3.86
9 23,156 184,011 184,011 188,775 7,908 11,581 16,612 9,750 13,424 18,455 -17.09 -8.98 -1.61
10 26,414 184,011 184,011 190,100 9,104 13,605 20,023 10,609 15,110 21,527 -14.99 -7.15 0.02
15 45,315 184,011 184,011 200,759 14,043 24,041 41,553 14,043 24,041 41,553 -10.26 -2.82 3.97
20 69,439 184,011 184,011 221,327 15,612 33,527 72,334 15,612 33,527 72,334 -10.16 -1.71 5.35
25 100,227 184,011 184,011 258,121 14,105 42,606 119,358 14,105 42,606 119,358 -11.97 -1.25 6.17
30 139,522 184,011 184,011 341,967 7,461 49,628 190,141 7,461 49,628 190,141 -21.13 -1.26 6.68
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 9,100.59% 9,100.59% 9,104.46%
2 810.50 810.50 811.12
3 313.62 313.62 314.03
4 178.25 178.25 178.61
5 119.64 119.64 120.01
6 87.93 87.93 88.32
7 68.37 68.37 68.80
8 55.25 55.25 55.72
9 45.89 45.89 46.41
10 38.92 38.92 39.50
15 20.68 20.68 21.62
20 13.05 13.05 14.51
25 8.98 8.98 11.10
30 6.50 6.50 9.71
</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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $8,435, ASSUMING THE 0%
RETURN; $8,435, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-52
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$116,328 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ----------------------- ----------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $116,328 $116,328 $116,328 $ 538 $ 628 $ 718 $ 1,285 $ 1,376 $ 1,466 -73.12% -68.61% -64.09%
2 4,305 116,328 116,328 116,328 1,741 2,001 2,272 2,527 2,788 3,059 -44.16 -38.18 -32.27
3 6,620 116,328 116,328 116,328 1,732 2,243 2,799 3,725 4,236 4,791 -50.33 -41.68 -33.56
4 9,051 116,328 116,328 116,328 2,631 3,476 4,431 4,877 5,722 6,677 -39.77 -30.67 -22.28
5 11,604 116,328 116,328 116,328 3,762 5,026 6,513 5,979 7,243 8,730 -30.94 -22.11 -13.97
6 14,284 116,328 116,328 116,328 4,844 6,613 8,779 7,032 8,800 10,967 -25.50 -16.83 -8.87
7 17,098 116,328 116,328 116,328 5,870 8,231 11,244 8,028 10,389 13,403 -21.89 -13.32 -5.48
8 20,053 116,328 116,328 116,328 6,833 9,875 13,925 8,962 12,005 16,055 -19.39 -10.85 -3.10
9 23,156 116,328 116,328 116,328 8,028 11,843 17,141 9,836 13,652 18,950 -16.76 -8.51 -0.98
10 26,414 116,328 116,328 116,328 9,154 13,836 20,623 10,642 15,323 22,110 -14.88 -6.83 0.56
15 45,315 116,328 116,328 116,328 13,421 23,913 42,987 13,421 23,913 42,987 -10.94 -2.89 4.38
20 69,439 116,328 116,328 140,806 15,436 34,531 78,310 15,436 34,531 78,310 -10.30 -1.42 6.04
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,716.41% 5,716.41% 5,716.41%
2 614.29 614.29 614.29
3 248.97 248.97 248.97
4 143.75 143.75 143.75
5 96.95 96.95 96.95
6 71.22 71.22 71.22
7 55.20 55.20 55.20
8 44.38 44.38 44.38
9 36.63 36.63 36.63
10 30.85 30.85 30.85
15 15.67 15.67 15.67
20 9.35 9.35 10.90
</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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $5,397, ASSUMING THE 0%
RETURN; $3,705, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-53
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$116,328 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ----------------------- ----------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $116,328 $116,372 $116,455 $ 538 $ 628 $ 718 $ 1,285 $ 1,376 $ 1,466 -73.12% -68.62% -64.11%
2 4,305 116,328 116,419 116,674 1,741 2,000 2,271 2,527 2,787 3,058 -44.16 -38.19 -32.29
3 6,620 116,328 116,469 116,998 1,732 2,243 2,795 3,725 4,235 4,788 -50.33 -41.69 -33.60
4 9,051 116,328 116,522 117,437 2,631 3,475 4,424 4,877 5,720 6,669 -39.77 -30.69 -22.34
5 11,604 116,328 116,580 118,008 3,762 5,024 6,498 5,979 7,241 8,714 -30.94 -22.12 -14.04
6 14,284 116,328 116,641 118,726 4,844 6,609 8,751 7,032 8,796 10,939 -25.50 -16.85 -8.96
7 17,098 116,328 116,705 119,607 5,870 8,224 11,197 8,028 10,383 13,356 -21.89 -13.34 -5.59
8 20,053 116,328 116,774 120,670 6,833 9,866 13,849 8,962 11,996 15,979 -19.39 -10.87 -3.22
9 23,156 116,328 116,855 121,943 8,028 11,830 17,023 9,836 13,639 18,832 -16.76 -8.54 -1.12
10 26,414 116,328 116,948 123,449 9,154 13,818 20,444 10,642 15,306 21,932 -14.88 -6.85 0.40
15 45,315 116,328 117,592 135,417 13,421 23,840 41,924 13,421 23,840 41,924 -10.94 -2.93 4.08
20 69,439 116,328 120,773 160,571 15,436 34,256 74,544 15,436 34,256 74,544 -10.30 -1.50 5.61
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,716.41% 5,718.61% 5,722.75%
2 614.29 614.59 615.42
3 248.97 249.13 249.72
4 143.75 143.87 144.43
5 96.95 97.05 97.63
6 71.22 71.31 71.94
7 55.20 55.29 55.98
8 44.38 44.46 45.23
9 36.63 36.72 37.57
10 30.85 30.94 31.89
15 15.67 15.79 17.34
20 9.35 9.65 11.96
</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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $5,397, ASSUMING THE 0%
RETURN; $3,861, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-54
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$116,328 FACE AMOUNT
OPTION 1--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ----------------------- ----------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $116,328 $116,328 $116,328 $ 491 $ 580 $ 669 $ 1,239 $ 1,328 $ 1,417 -75.43% -71.00% -66.56%
2 4,305 116,328 116,328 116,328 1,645 1,899 2,164 2,432 2,686 2,950 -46.44 -40.48 -34.60
3 6,620 116,328 116,328 116,328 1,584 2,081 2,619 3,577 4,074 4,612 -53.10 -44.29 -36.06
4 9,051 116,328 116,328 116,328 2,427 3,245 4,168 4,673 5,491 6,414 -42.28 -32.97 -24.44
5 11,604 116,328 116,328 116,328 3,501 4,719 6,150 5,718 6,936 8,367 -33.10 -24.05 -15.79
6 14,284 116,328 116,328 116,328 4,522 6,221 8,300 6,709 8,409 10,487 -27.41 -18.54 -10.45
7 17,098 116,328 116,328 116,328 5,484 7,745 10,628 7,643 9,904 12,786 -23.63 -14.85 -6.90
8 20,053 116,328 116,328 116,328 6,381 9,286 13,148 8,511 11,416 15,278 -21.00 -12.26 -4.38
9 23,156 116,328 116,328 116,328 7,500 11,133 16,171 9,309 12,942 17,980 -18.24 -9.80 -2.15
10 26,414 116,328 116,328 116,328 8,542 12,986 19,420 10,030 14,474 20,908 -16.29 - 8.03 -0.54
15 45,315 116,328 116,328 116,328 12,265 22,057 39,860 12,265 22,057 39,860 -12.30 -3.95 3.48
20 69,439 116,328 116,328 125,112 11,311 28,763 69,565 11,311 28,763 69,565 -14.46 -3.26 5.02
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,716.41% 5,716.41% 5,716.41%
2 614.29 614.29 614.29
3 248.97 248.97 248.97
4 143.75 143.75 143.75
5 96.95 96.95 96.95
6 71.22 71.22 71.22
7 55.20 55.20 55.20
8 44.38 44.38 44.38
9 36.63 36.63 36.63
10 30.85 30.85 30.85
15 15.67 15.67 15.67
20 9.35 9.35 9.94
</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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $5,397, ASSUMING THE 0%
RETURN; $5,397, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-55
<PAGE>
MALE ISSUE AGE 45
$2,000 ANNUAL PREMIUM FOR NON-SMOKER STANDARD UNDERWRITING RISK
$116,328 FACE AMOUNT
OPTION 2--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED MAXIMUM POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE INTERNAL RATE OF RETURN
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ON NET CASH VALUE
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL ASSUMING HYPOTHETICAL GROSS
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY INTEREST -------------------------- ----------------------- ----------------------- -------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $116,328 $116,328 $116,407 $ 491 $ 580 $ 669 $ 1,239 $ 1,328 $ 1,417 -75.43% -71.00% -66.57%
2 4,305 116,328 116,328 116,568 1,645 1,899 2,163 2,432 2,686 2,950 -46.44 -40.48 -34.61
3 6,620 116,328 116,328 116,822 1,584 2,081 2,617 3,577 4,074 4,610 -53.10 -44.29 -36.10
4 9,051 116,328 116,328 117,180 2,427 3,245 4,162 4,673 5,491 6,408 -42.28 -32.97 -24.49
5 11,604 116,328 116,328 117,654 3,501 4,719 6,139 5,718 6,936 8,355 -33.10 -24.05 -15.85
6 14,284 116,328 116,328 118,259 4,522 6,221 8,278 6,709 8,409 10,466 -27.41 -18.54 -10.52
7 17,098 116,328 116,328 119,008 5,484 7,745 10,591 7,643 9,904 12,750 -23.63 -14.85 -6.98
8 20,053 116,328 116,328 119,919 6,381 9,286 13,088 8,511 11,416 15,218 -21.00 -12.26 -4.48
9 23,156 116,328 116,328 121,008 7,500 11,133 16,076 9,309 12,942 17,885 -18.24 -9.80 -2.27
10 26,414 116,328 116,328 122,295 8,542 12,986 19,275 10,030 14,474 20,762 -16.29 -8.03 -0.67
15 45,315 116,328 116,328 132,484 12,265 22,057 38,957 12,265 22,057 38,957 -12.30 -3.95 3.20
20 69,439 116,328 116,328 151,639 11,311 28,763 65,521 11,311 28,763 65,521 -14.46 -3.26 4.49
<CAPTION>
INTERNAL RATE OF RETURN
ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF
POLICY --------------------------------
YEAR 0% 6% 12%
- ------- -- -- ---
<S> <C> <C> <C>
1 5,716.41% 5,716.41% 5,720.36%
2 614.29 614.29 615.07
3 248.97 248.97 249.52
4 143.75 143.75 144.27
5 96.95 96.95 97.49
6 71.22 71.22 71.80
7 55.20 55.20 55.84
8 44.38 44.38 45.08
9 36.63 36.63 37.42
10 30.85 30.85 31.72
15 15.67 15.67 17.10
20 9.35 9.35 11.50
</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
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.
THE RECALCULATED SCHEDULED PREMIUM AT AGE 71 WOULD BE $5,397, ASSUMING THE 0%
RETURN; $5,397, ASSUMING THE 6% RETURN; AND $2,000, ASSUMING THE 12% RETURN.
A-56
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
This Appendix gives hypothetical illustrations of the Variable Account's and
the Policy's investment experience based on the historical investment
experience of the Eligible Funds. It does not predict future performance.
The Policies became available in January, 1993. 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 Harris
Oakmark Mid Cap Value Series of the Zenith Fund commenced operations on April
30, 1993. The Loomis Sayles Small Cap Series commenced operations on May 2,
1994 and was made available to the Variable Account on December 19, 1994. The
MFS Investors Series and MFS Research Managers Series of the Zenith Fund
commenced operations on April 30, 1999. The remaining Zenith Fund series shown
in this Appendix commenced operations on October 31, 1994 and were made
available to the Variable Account on May 1, 1995. The commencement of
operations for the Metropolitan Series Fund, Inc. Portfolios was: March 3,
1997 for the Janus Mid Cap Portfolio; and November 9, 1998 for the Russell
2000 Index Portfolio. Both were made available to the Variable Account on May
1, 2000. The Putnam Large Cap Growth Portfolio of the Metropolitan Series
Fund, Inc. commenced operations on May 1, 2000 and is 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, and were
added as investment options of the Variable Account on April 30, 1993. The VIP
High Income Portfolio and the VIP II Asset Manager Portfolio commenced
operations on September 19, 1985 and September 6, 1989, respectively, and were
added as investment options of the Variable Account on December 19, 1994.
We base the illustrations on the actual investment experience of the
relevant Eligible Funds for the periods shown (and reflect actual charges and
expenses incurred by the Eligible Funds), and reflect a charge for mortality
and expense risks against the Variable Account's assets at an annual rate of
.60%. The illustrations assume that annual scheduled 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 of return 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.
SUB-ACCOUNT INVESTING IN ZENITH FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
8/26/83- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth*. 8.64% -.96% 67.09% 94.04% 51.79% -9.34% 29.98% -4.06% 53.06% -6.61% 14.28% -7.62%
Bond Income..... 2.83% 11.93 18.05 14.15 1.65 7.72 11.63 7.44 17.25 7.53 11.94 -3.94
Money Market.... 3.08% 9.96 7.61 6.16 5.89 6.87 8.60 7.54 5.58 3.18 2.36 3.35
<CAPTION>
8/26/83- 8/26/83-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth*. 37.21% 20.34% 22.74% 33.29% 15.01% 2,707.00% 22.63%
Bond Income..... 20.47 3.98 10.23 8.39 -1.06 309.50 9.01
Money Market.... 5.07 4.50 4.71 4.63 4.34 147.55 5.70
</TABLE>
A-57
<PAGE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
5/1/87- --------------------------------------------------------------------------------------------------
Sub-Account 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..... -12.55% 15.65% 29.37% -4.72% 29.65% 6.65% 9.07% .51% 36.10% 21.73% 31.70% 27.17%
Managed......... -1.06% 8.83 18.37 2.59 19.45 6.06 9.99 -1.70 30.48 14.34 25.81 18.94
<CAPTION>
5/1/87- 5/1/87-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/99 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
Stock Index..... 19.66% 527.46% 15.60%
Managed......... 9.31 337.07 12.35
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------- 4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/99 12/31/99
4/30/93- ----------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income....... 13.78% -1.80% 35.65% 17.38% 32.67% 23.71% 8.70% 217.42% 18.91%
Mid Cap Value**......... 14.28 -.87 29.57 16.90 16.62 -6.03 -0.25 87.59 9.89
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------- 5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/99 12/31/99
5/2/94- -------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............... -3.61% 28.08% 29.90% 24.11% -2.28% 30.96% 154.68% 17.94%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------------------------ 10/31/94- 10/31/94-
FOR ONE YEAR ENDING 12/31/99 12/31/99
10/31/94- -------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- --------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........... -4.29% 47.81% 12.49% 24.88% 46.90% 33.33% 289.22% 30.09%
Balanced***............. -.20 24.05 16.21 15.48 8.46 -5.63 70.05 10.82
Venture Value........... -3.60 38.45 25.08 32.70 13.73 16.81 194.33 23.24
International Magnum
Equity****............. 2.50 5.60 6.03 -1.89 6.63 23.87 48.72 7.99
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------
4/30/99- 4/30/99-
12/31/99 12/31/99
4/30/99- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/99 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
Investors.......................... 2.44% 2.44% N/A
Research Managers.................. 19.32 19.32 N/A
</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 Harris Oakmark Mid Cap Value Series' Sub-adviser was Loomis Sayles
until May 1, 1998, when Goldman Sachs Asset Management became the sub-
adviser. Harris Associates became the sub-adviser on May 1, 2000. 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 Balanced Series' sub-adviser was Loomis, Sayles until May 1, 2000,
when Wellington Management Company became the sub-adviser.
**** 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 METROPOLITAN SERIES FUND, INC.
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------ 3/3/97- 3/3/97-
FOR ONE YEAR ENDING 12/31/99 12/31/99
3/3/97- --------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Mid Cap........................ 27.57% 36.37% 121.59% 285.53% 61.15%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
---------------------------- 11/9/98- 11/9/98-
FOR ONE YEAR ENDING 12/31/99 12/31/99
11/9/98- ------------------- TOTAL EFFECTIVE
12/31/98 12/31/99 RETURN ANNUAL
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Russell 2000 Index............. 5.39% 22.00% 28.57% 24.63%
</TABLE>
A-58
<PAGE>
SUB-ACCOUNTS INVESTING IN VIP
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
10/9/86- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-
Income......... .06% -3.08% 21.98% 16.64% -15.80% 31.07% 16.39% 17.59% 6.43% 34.29% 13.59% 27.34%
<CAPTION>
10/9/86- 10/9/86-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Equity-
Income......... 10.96% 5.69% 409.85% 13.11%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
1/28/87- --------------------------------------------------------------------------------------------------
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas........ -5.90% 7.48% 25.53% -2.26% 7.79% -11.12% 36.53% 1.12% 9.02% 12.53% 10.89% 12.08%
<CAPTION>
1/28/87- 1/28/87-
12/31/99 12/31/99
TOTAL EFFECTIVE
12/31/99 RETURN ANNUAL
-------- -------- ---------
<S> <C> <C> <C>
Overseas........ 41.77% 252.81% 10.25%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
9/19/85- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income..... 6.20% 16.98% 0.61% 10.97% -4.75% -2.82% 34.27% 22.43% 19.68% -2.13% 19.88% 13.35%
<CAPTION>
9/19/85- 9/19/85-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
High Income..... 16.96% -4.90% 7.51% 301.69% 10.23%
</TABLE>
SUB-ACCOUNT INVESTING IN VIP II
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------------------- 9/6/89-
FOR ONE YEAR ENDING 12/31/99
9/6/89- ----------------------------------------------------------------------------------------- TOTAL
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 12/31/99 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager... .62% 6.08% 21.83% 11.04% 20.51% -6.65% 16.26% 13.91% 19.93% 14.36% 10.43% 225.80%
<CAPTION>
9/6/89-
12/31/99
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
Asset Manager... 12.13%
</TABLE>
POLICY PERFORMANCE
The material below assumes, in the first example, a Policy with an Option 1
death benefit was issued with a $184,011 face amount and annual premiums of
$2,000, paid on August 26 of each year (May 1 in the case of the Zenith
Westpeak Stock Index and Back Bay Managed Sub-Accounts; May 2 in the case of
the Zenith Loomis Sayles Small Cap Sub-Account; October 31 in the case of the
Zenith Balanced, Zenith Morgan Stanley International Magnum Equity, Zenith
Davis Venture Value and Zenith Alger Equity Growth Sub-Accounts; October 9 in
the case of the VIP Equity-Income Sub-Account; January 28 in the case of the
VIP Overseas Sub-Account; April 30 in the case of the Zenith Westpeak Growth
and Income and Zenith Harris Oakmark Mid Cap Value Sub-Accounts; September 19
in the case of the VIP High Income Sub-Account; September 6 in the case of the
VIP II Asset Manager Sub-Account; March 3 in the case of the Metropolitan
Janus Mid Cap Sub-Account; November 9 in the case of the Metropolitan Russell
2000 Index Sub-Account), to a male nonsmoker standard risk, age 35. The second
example assumes a Policy was issued with a $116,328 face amount and annual
premiums of $2,000, paid on August 26 of each year (May 1 in the case of the
Zenith Westpeak Stock Index and Back Bay Managed Sub-Accounts; May 2 in the
case of the Zenith Loomis Sayles Small Cap Sub-Account; October 31 in the case
of the Zenith Balanced, Zenith Morgan Stanley International Magnum Equity,
Zenith Davis Venture Value and Zenith Alger Equity Growth Sub-Accounts;
October 9 in the case of the VIP Equity-Income Sub-Account; January 28 in the
case of the VIP Overseas Sub-Account; April 30 in the case of the Zenith
Westpeak Growth and Income and Zenith Harris Oakmark Mid Cap Value Sub-
Accounts; September 19 in the case of the VIP High Income Sub-Account;
September 6 in the case of the VIP II Asset Manager Sub-Account; March 3 in
the case of the Metropolitan Janus Mid Cap Sub-Account; November 9 in the case
of the Metropolitan Russell 2000 Index Sub-Account), to a male nonsmoker
standard risk, age 45. The death benefits, cash values and internal rates of
return assume in each instance that the entire Policy value was invested in
the particular sub-account for the period shown. These illustrations of Policy
investment experience also reflect all charges applicable to the Policy,
including cost of insurance charges based on NELICO's current rates. (See
Appendix A for the definition of the internal rate of return.)
A-59
<PAGE>
MALE NONSMOKER STANDARD RISK, AGE 35
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1983....... 2,000 184,011 184,011 1,738 821 -92.27% --
December 31, 1984....... 4,000 184,011 184,011 3,023 2,057 -59.32 2,689.63%
December 31, 1985....... 6,000 184,011 184,011 6,624 4,469 -20.69 539.20
December 31, 1986....... 8,000 184,011 184,011 14,078 11,687 21.24 249.75
December 31, 1987....... 10,000 184,011 184,011 22,306 19,961 30.33 152.51
December 31, 1988....... 12,000 184,011 184,011 21,523 19,224 16.59 106.26
December 31, 1989....... 14,000 184,011 184,011 29,221 26,968 19.40 79.87
December 31, 1990....... 16,000 184,011 184,011 29,072 26,865 13.23 63.04
December 31, 1991....... 18,000 184,011 184,011 45,872 43,833 19.76 51.48
December 31, 1992....... 20,000 184,011 184,011 44,227 42,525 14.95 43.10
December 31, 1993....... 22,000 184,011 184,011 51,841 50,477 14.78 36.78
December 31, 1994....... 24,000 184,011 184,011 48,647 47,602 11.16 31.86
December 31, 1995....... 26,000 184,011 218,504 68,663 67,909 14.15 30.29
December 31, 1996....... 28,000 184,011 265,505 83,623 83,161 14.71 29.32
December 31, 1997....... 30,000 184,011 296,822 103,450 103,279 15.39 27.58
December 31, 1998....... 32,000 184,011 401,505 138,787 138,787 16.85 28.14
December 31, 1999....... 34,000 184,011 432,564 160,394 160,394 16.61 26.39
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1983....... 2,000 184,011 184,011 1,635 718 -94.73% --
December 31, 1984....... 4,000 184,011 184,011 3,268 2,302 -51.73 2,689.63%
December 31, 1985....... 6,000 184,011 184,011 5,236 3,081 -43.65 539.20
December 31, 1986....... 8,000 184,011 184,011 7,296 4,905 -25.43 249.75
December 31, 1987....... 10,000 184,011 184,011 8,711 6,366 -19.03 152.51
December 31, 1988....... 12,000 184,011 184,011 10,667 8,368 -12.72 106.26
December 31, 1989....... 14,000 184,011 184,011 13,172 10,918 -7.49 79.87
December 31, 1990....... 16,000 184,011 184,011 15,426 13,219 -5.01 63.04
December 31, 1991....... 18,000 184,011 184,011 19,376 17,336 -0.87 51.48
December 31, 1992....... 20,000 184,011 184,011 22,009 20,307 0.31 43.10
December 31, 1993....... 22,000 184,011 184,011 25,794 24,430 1.94 36.78
December 31, 1994....... 24,000 184,011 184,011 25,856 24,810 0.57 31.86
December 31, 1995....... 26,000 184,011 184,011 32,402 31,648 3.04 27.93
December 31, 1996....... 28,000 184,011 184,011 34,862 34,400 2.95 24.74
December 31, 1997....... 30,000 184,011 184,011 39,542 39,372 3.60 22.09
December 31, 1998....... 32,000 184,011 184,011 44,079 44,079 3.95 19.87
December 31, 1999....... 34,000 184,011 184,011 44,802 44,802 3.21 17.98
</TABLE>
A-60
<PAGE>
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1983....... 2,000 184,011 184,011 1,638 721 -94.67% --
December 31, 1984....... 4,000 184,011 184,011 3,167 2,201 -54.87 2,689.63%
December 31, 1985....... 6,000 184,011 184,011 4,747 2,592 -53.17 539.20
December 31, 1986....... 8,000 184,011 184,011 6,353 3,962 -35.96 249.75
December 31, 1987....... 10,000 184,011 184,011 8,026 5,681 -23.80 152.51
December 31, 1988....... 12,000 184,011 184,011 9,865 7,566 -16.31 106.26
December 31, 1989....... 14,000 184,011 184,011 11,967 9,714 -11.07 79.87
December 31, 1990....... 16,000 184,011 184,011 14,093 11,886 -7.85 63.04
December 31, 1991....... 18,000 184,011 184,011 16,078 14,038 -5.82 51.48
December 31, 1992....... 20,000 184,011 184,011 17,766 16,064 -4.60 43.10
December 31, 1993....... 22,000 184,011 184,011 19,344 17,980 -3.84 36.78
December 31, 1994....... 24,000 184,011 184,011 21,145 20,100 -3.08 31.86
December 31, 1995....... 26,000 184,011 184,011 23,336 22,582 -2.25 27.93
December 31, 1996....... 28,000 184,011 184,011 25,469 25,007 -1.67 24.74
December 31, 1997....... 30,000 184,011 184,011 27,714 27,544 -1.17 22.09
December 31, 1998....... 32,000 184,011 184,011 30,130 30,130 -.77 19.87
December 31, 1999....... 34,000 184,011 184,011 32,576 32,576 -0.51 17.98
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1987....... 2,000 184,011 184,011 1,294 377 -91.77% --
December 31, 1988....... 4,000 184,011 184,011 2,912 1,957 -48.16 1,344.00%
December 31, 1989....... 6,000 184,011 184,011 5,431 3,287 -32.35 402.45
December 31, 1990....... 8,000 184,011 184,011 6,391 4,011 -29.80 209.30
December 31, 1991....... 10,000 184,011 184,011 9,694 7,360 -11.33 134.57
December 31, 1992....... 12,000 184,011 184,011 11,681 9,394 -7.71 96.47
December 31, 1993....... 14,000 184,011 184,011 14,065 11,823 -4.62 73.82
December 31, 1994....... 16,000 184,011 184,011 15,375 13,180 -4.68 58.98
December 31, 1995....... 18,000 184,011 184,011 22,573 20,618 2.89 48.59
December 31, 1996....... 20,000 184,011 184,011 28,640 27,022 5.73 40.95
December 31, 1997....... 22,000 184,011 184,011 39,221 37,942 9.33 35.13
December 31, 1998....... 24,000 184,011 184,011 51,170 50,197 11.45 30.56
December 31, 1999....... 26,000 184,011 188,907 62,524 61,843 12.31 27.23
</TABLE>
A-61
<PAGE>
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1987....... 2,000 184,011 184,011 1,468 551 -85.46% --
December 31, 1988....... 4,000 184,011 184,011 2,997 2,042 -45.94 1,344.00%
December 31, 1989....... 6,000 184,011 184,011 5,085 2,942 -37.54 402.45
December 31, 1990....... 8,000 184,011 184,011 6,566 4,186 -28.07 209.30
December 31, 1991....... 10,000 184,011 184,011 9,254 6,921 -13.57 134.57
December 31, 1992....... 12,000 184,011 184,011 11,180 8,893 -9.43 96.47
December 31, 1993....... 14,000 184,011 184,011 13,596 11,354 -5.73 73.82
December 31, 1994....... 16,000 184,011 184,011 14,591 12,396 -6.18 58.98
December 31, 1995....... 18,000 184,011 184,011 20,584 18,629 .73 48.59
December 31, 1996....... 20,000 184,011 184,011 24,741 23,124 2.79 40.95
December 31, 1997....... 22,000 184,011 184,011 32,564 31,285 6.08 35.13
December 31, 1998....... 24,000 184,011 184,011 39,955 38,982 7.62 30.56
December 31, 1999....... 26,000 184,011 184,011 44,835 44,154 7.65 26.88
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1993....... 2,000 184,011 184,011 1,674 757 -76.50% --
December 31, 1994....... 4,000 184,011 184,011 3,000 2,050 -45.66 1,337.45%
December 31, 1995....... 6,000 184,011 184,011 5,537 3,397 -30.71 401.55
December 31, 1996....... 8,000 184,011 184,011 7,846 5,471 -16.87 209.01
December 31, 1997....... 10,000 184,011 184,011 10,699 8,370 -6.61 134.44
December 31, 1998....... 12,000 184,011 184,011 11,014 8,730 -10.00 96.39
December 31, 1999....... 14,000 184,011 184,011 12,108 9,870 -9.58 73.77
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1993....... 2,000 184,011 184,011 1,665 748 -76.89% --
December 31, 1994....... 4,000 184,011 184,011 2,968 2,018 -46.50 1,337.45%
December 31, 1995....... 6,000 184,011 184,011 5,677 3,537 -28.75 401.55
December 31, 1996....... 8,000 184,011 184,011 8,101 5,725 -14.92 209.01
December 31, 1997....... 10,000 184,011 184,011 12,387 10,058 .22 134.44
December 31, 1998....... 12,000 184,011 184,011 16,661 14,377 5.71 96.39
December 31, 1999....... 14,000 184,011 184,011 19,351 17,113 5.46 73.77
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,407 490 -87.90% --
December 31, 1995....... 4,000 184,011 184,011 3,429 2,475 -35.06 1,350.62%
December 31, 1996....... 6,000 184,011 184,011 5,949 3,806 -25.18 403.37
December 31, 1997....... 8,000 184,011 184,011 9,050 6,671 -8.25 209.60
December 31, 1998....... 10,000 184,011 184,011 9,913 7,579 -10.27 134.71
December 31, 1999....... 12,000 184,011 184,011 14,712 12,424 1.10 96.54
</TABLE>
A-62
<PAGE>
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,563 646 -99.88% --
December 31, 1995....... 4,000 184,011 184,011 3,581 2,607 -52.42 4,629.61%
December 31, 1996....... 6,000 184,011 184,011 5,366 3,203 -48.15 655.43
December 31, 1997....... 8,000 184,011 184,011 7,990 5,591 -20.98 279.08
December 31, 1998....... 10,000 184,011 184,011 13,250 10,897 3.97 164.61
December 31, 1999....... 12,000 184,011 184,011 19,112 16,806 12.59 112.60
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,654 737 -99.74% --
December 31, 1995....... 4,000 184,011 184,011 3,431 2,457 -57.99 4,629.61%
December 31, 1996....... 6,000 184,011 184,011 5,324 3,161 -49.05 655.43
December 31, 1997....... 8,000 184,011 184,011 7,462 5,063 -26.65 279.08
December 31, 1998....... 10,000 184,011 184,011 9,445 7,092 -15.81 164.61
December 31, 1999....... 12,000 184,011 184,011 10,169 7,862 -16.07 112.60
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,603 685 -99.84% --
December 31, 1995....... 4,000 184,011 184,011 3,580 2,607 -52.43 4,629.61%
December 31, 1996....... 6,000 184,011 184,011 5,828 3,665 -38.70 655.43
December 31, 1997....... 8,000 184,011 184,011 9,039 6,640 -11.03 279.08
December 31, 1998....... 10,000 184,011 184,011 11,667 9,314 -3.28 164.61
December 31, 1999....... 12,000 184,011 184,011 14,973 12,666 2.02 112.60
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,696 779 -99.65% --
December 31, 1995....... 4,000 184,011 184,011 3,217 2,243 -65.80 4,629.61%
December 31, 1996....... 6,000 184,011 184,011 4,742 2,579 -62.36 655.43
December 31, 1997....... 8,000 184,011 184,011 5,926 3,527 -46.96 279.08
December 31, 1998....... 10,000 184,011 184,011 7,652 5,299 -29.34 164.61
December 31, 1999....... 12,000 184,011 184,011 10,846 8,539 -12.88 112.60
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1999....... 2,000 184,011 184,011 1,469 552 -85.31% --
</TABLE>
A-63
<PAGE>
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1999....... 2,000 184,011 184,011 1,732 815 -73.76% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1997....... 2,000 184,011 184,011 1,838 921 -60.69% --
December 31, 1998....... 4,000 184,011 184,011 4,182 3,235 -14.96 1,029.57%
December 31, 1999....... 6,000 184,011 184,011 12,244 10,109 31.21 354.35
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1998....... 2,000 184,011 184,011 1,788 871 -99.71% --
December 31, 1999....... 4,000 184,011 184,011 3,666 2,689 -51.13 5,047.70%
VIP EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1986....... 2,000 184,011 184,011 1,663 746 -98.69% --
December 31, 1987....... 4,000 184,011 184,011 2,706 1,733 -77.89 3,799.62%
December 31, 1988....... 6,000 184,011 184,011 4,556 2,393 -63.26 612.38
December 31, 1989....... 8,000 184,011 184,011 6,609 4,211 -35.58 268.67
December 31, 1990....... 10,000 184,011 184,011 6,931 4,578 -35.02 160.39
December 31, 1991....... 12,000 184,011 184,011 10,382 8,076 -14.66 110.41
December 31, 1992....... 14,000 184,011 184,011 13,434 11,174 -7.06 82.38
December 31, 1993....... 16,000 184,011 184,011 16,985 14,770 -2.16 64.70
December 31, 1994....... 18,000 184,011 184,011 19,218 17,123 -1.19 52.65
December 31, 1995....... 20,000 184,011 184,011 27,191 25,433 5.00 43.96
December 31, 1996....... 22,000 184,011 184,011 31,983 30,563 6.13 37.43
December 31, 1997....... 24,000 184,011 184,011 41,855 40,761 8.87 32.37
December 31, 1998....... 26,000 184,011 184,011 47,911 47,109 9.09 28.34
December 31, 1999....... 28,000 184,011 184,011 51,840 51,329 8.55 25.07
</TABLE>
A-64
<PAGE>
VIP OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1987....... 2,000 184,011 184,011 1,258 341 -85.28% --
December 31, 1988....... 4,000 184,011 184,011 2,878 1,939 -41.34 898.91%
December 31, 1989....... 6,000 184,011 184,011 5,135 3,006 -31.93 330.95
December 31, 1990....... 8,000 184,011 184,011 6,327 3,963 -27.03 184.67
December 31, 1991....... 10,000 184,011 184,011 8,174 5,856 -17.81 122.82
December 31, 1992....... 12,000 184,011 184,011 8,317 6,045 -19.81 89.78
December 31, 1993....... 14,000 184,011 184,011 13,058 10,832 -6.55 69.57
December 31, 1994....... 16,000 184,011 184,011 14,296 12,115 -6.33 56.07
December 31, 1995....... 18,000 184,011 184,011 17,158 15,315 -3.30 46.49
December 31, 1996....... 20,000 184,011 184,011 20,513 19,009 -.94 39.38
December 31, 1997....... 22,000 184,011 184,011 24,103 22,936 .70 33.91
December 31, 1998....... 24,000 184,011 184,011 28,283 27,408 2.05 29.59
December 31, 1999....... 26,000 184,011 184,011 41,753 41,169 6.45 26.10
VIP HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1985....... 2,000 184,011 184,011 1,726 809 -95.95% --
December 31, 1986....... 4,000 184,011 184,011 3,403 2,433 -51.12 3,223.26%
December 31, 1987....... 6,000 184,011 184,011 4,716 2,557 -56.75 577.18
December 31, 1988....... 8,000 184,011 184,011 6,537 4,142 -35.18 259.77
December 31, 1989....... 10,000 184,011 184,011 7,442 5,093 -29.33 156.72
December 31, 1990....... 12,000 184,011 184,011 8,467 6,164 -24.38 108.49
December 31, 1991....... 14,000 184,011 184,011 12,621 10,364 -9.28 81.22
December 31, 1992....... 16,000 184,011 184,011 16,644 14,433 -2.74 63.94
December 31, 1993....... 18,000 184,011 184,011 21,158 19,091 1.37 52.11
December 31, 1994....... 20,000 184,011 184,011 21,892 20,162 0.17 43.56
December 31, 1995....... 22,000 184,011 184,011 27,469 26,077 3.18 37.13
December 31, 1996....... 24,000 184,011 184,011 32,239 31,169 4.42 32.14
December 31, 1997....... 26,000 184,011 184,011 38,848 38,070 5.87 28.16
December 31, 1998....... 28,000 184,011 184,011 38,189 37,703 4.27 24.92
December 31, 1999....... 30,000 184,011 184,011 42,182 41,987 4.47 22.24
</TABLE>
A-65
<PAGE>
VIP II ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 2,000 $184,011 $184,011 $ 1,733 $ 816 -- --
December 31, 1989....... 2,000 184,011 184,011 1,642 725 -95.90% --
December 31, 1990....... 4,000 184,011 184,011 3,143 2,174 -57.43 2,916.23%
December 31, 1991....... 6,000 184,011 184,011 5,177 3,018 -45.88 556.07
December 31, 1992....... 8,000 184,011 184,011 7,084 4,689 -28.18 254.26
December 31, 1993....... 10,000 184,011 184,011 9,886 7,537 -12.12 154.41
December 31, 1994....... 12,000 184,011 184,011 10,393 8,090 -14.08 107.27
December 31, 1995....... 14,000 184,011 184,011 13,416 11,159 -6.89 80.48
December 31, 1996....... 16,000 184,011 184,011 16,572 14,361 -2.85 63.45
December 31, 1997....... 18,000 184,011 184,011 21,069 19,001 1.25 51.77
December 31, 1998....... 20,000 184,011 184,011 25,467 23,737 3.51 43.31
December 31, 1999....... 22,000 184,011 184,011 29,366 27,973 4.44 36.94
MALE NONSMOKER STANDARD RISK, AGE 45
OPTION 1--FIXED DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1983....... 2,000 116,328 116,328 1,728 980 -87.13% --
December 31, 1984....... 4,000 116,328 116,328 2,982 2,178 -55.58 1,864.00%
December 31, 1985....... 6,000 116,328 116,328 6,502 4,493 -20.34 416.56
December 31, 1986....... 8,000 116,328 116,328 13,793 11,530 20.46 199.19
December 31, 1987....... 10,000 116,328 116,328 21,844 19,610 29.53 122.97
December 31, 1988....... 12,000 116,328 116,328 21,061 18,857 15.91 85.89
December 31, 1989....... 14,000 116,328 116,328 28,575 26,399 18.77 64.45
December 31, 1990....... 16,000 116,328 116,328 28,412 26,265 12.66 50.66
December 31, 1991....... 18,000 116,328 116,328 44,813 42,817 19.25 41.14
December 31, 1992....... 20,000 116,328 116,328 43,183 41,508 14.49 34.21
December 31, 1993....... 22,000 116,328 123,459 50,573 49,219 14.35 29.98
December 31, 1994....... 24,000 116,328 116,328 47,402 46,356 10.75 24.89
December 31, 1995....... 26,000 116,328 151,061 66,755 66,001 13.75 25.22
December 31, 1996....... 28,000 116,328 183,699 81,068 80,606 14.31 24.71
December 31, 1997....... 30,000 116,328 205,462 99,947 99,777 14.99 23.36
December 31, 1998....... 32,000 116,328 278,100 133,620 133,620 16.44 24.25
December 31, 1999....... 34,000 116,328 299,944 153,914 153,914 16.20 22.80
</TABLE>
A-66
<PAGE>
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1983....... 2,000 116,328 116,328 1,625 877 -90.64% --
December 31, 1984....... 4,000 116,328 116,328 3,225 2,421 -48.02 1,864.00%
December 31, 1985....... 6,000 116,328 116,328 5,141 3,131 -42.74 416.56
December 31, 1986....... 8,000 116,328 116,328 7,134 4,872 -25.78 199.19
December 31, 1987....... 10,000 116,328 116,328 8,486 6,252 -19.79 122.97
December 31, 1988....... 12,000 116,328 116,328 10,353 8,148 -13.66 85.89
December 31, 1989....... 14,000 116,328 116,328 12,739 10,563 -8.50 64.45
December 31, 1990....... 16,000 116,328 116,328 14,865 12,719 -6.04 50.66
December 31, 1991....... 18,000 116,328 116,328 18,599 16,603 -1.87 41.14
December 31, 1992....... 20,000 116,328 116,328 21,036 19,361 -0.67 34.21
December 31, 1993....... 22,000 116,328 116,328 24,545 23,191 0.98 28.97
December 31, 1994....... 24,000 116,328 116,328 24,471 23,426 -0.41 24.89
December 31, 1995....... 26,000 116,328 116,328 30,499 29,746 2.09 21.63
December 31, 1996....... 28,000 116,328 116,328 32,640 32,178 2.00 18.98
December 31, 1997....... 30,000 116,328 116,328 36,832 36,662 2.68 16.78
December 31, 1998....... 32,000 116,328 116,328 40,891 40,891 3.05 14.94
December 31, 1999....... 34,000 116,328 116,328 41,422 41,422 2.32 13.37
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1983....... 2,000 116,328 116,328 1,628 880 -90.54% --
December 31, 1984....... 4,000 116,328 116,328 3,125 2,321 -51.13 1,864.00%
December 31, 1985....... 6,000 116,328 116,328 4,659 2,649 -52.02 416.56
December 31, 1986....... 8,000 116,328 116,328 6,206 3,943 -36.19 199.19
December 31, 1987....... 10,000 116,328 116,328 7,807 5,573 -24.60 122.97
December 31, 1988....... 12,000 116,328 116,328 9,557 7,352 -17.33 85.89
December 31, 1989....... 14,000 116,328 116,328 11,549 9,373 -12.18 64.45
December 31, 1990....... 16,000 116,328 116,328 13,546 11,399 -8.98 50.66
December 31, 1991....... 18,000 116,328 116,328 15,382 13,387 -6.95 41.14
December 31, 1992....... 20,000 116,328 116,328 16,902 15,227 -5.75 34.21
December 31, 1993....... 22,000 116,328 116,328 18,279 16,924 -5.02 28.97
December 31, 1994....... 24,000 116,328 116,328 19,825 18,780 -4.30 24.89
December 31, 1995....... 26,000 116,328 116,328 21,693 20,939 -3.49 21.63
December 31, 1996....... 28,000 116,328 116,328 23,463 23,001 -2.93 18.98
December 31, 1997....... 30,000 116,328 116,328 25,294 25,123 -2.46 16.78
December 31, 1998....... 32,000 116,328 116,328 27,263 27,263 -2.08 14.94
December 31, 1999....... 34,000 116,328 116,328 29,263 29,263 -1.83 13.37
</TABLE>
A-67
<PAGE>
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1987....... 2,000 116,328 116,328 1,280 532 -86.20% --
December 31, 1988....... 4,000 116,328 116,328 2,861 2,064 -45.37 983.04%
December 31, 1989....... 6,000 116,328 116,328 5,313 3,311 -32.01 315.71
December 31, 1990....... 8,000 116,328 116,328 6,228 3,972 -30.19 167.95
December 31, 1991....... 10,000 116,328 116,328 9,412 7,185 -12.21 108.80
December 31, 1992....... 12,000 116,328 116,328 11,306 9,109 -8.68 78.06
December 31, 1993....... 14,000 116,328 116,328 13,574 11,406 -5.61 59.58
December 31, 1994....... 16,000 116,328 116,328 14,787 12,648 -5.69 47.39
December 31, 1995....... 18,000 116,328 116,328 21,638 19,722 1.95 38.81
December 31, 1996....... 20,000 116,328 116,328 27,372 25,777 4.85 32.48
December 31, 1997....... 22,000 116,328 116,328 37,413 36,139 8.51 27.65
December 31, 1998....... 24,000 116,328 116,328 48,741 47,768 10.71 23.85
December 31, 1999....... 26,000 116,328 127,888 59,472 58,791 11.61 22.06
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1987....... 2,000 116,328 116,328 1,453 705 -78.98% --
December 31, 1988....... 4,000 116,328 116,328 2,946 2,149 -43.18 983.04%
December 31, 1989....... 6,000 116,328 116,328 4,976 2,973 -37.05 315.71
December 31, 1990....... 8,000 116,328 116,328 6,399 4,143 -28.49 167.95
December 31, 1991....... 10,000 116,328 116,328 8,985 6,758 -14.43 108.80
December 31, 1992....... 12,000 116,328 116,328 10,819 8,622 -10.40 78.06
December 31, 1993....... 14,000 116,328 116,328 13,117 10,948 -6.73 59.58
December 31, 1994....... 16,000 116,328 116,328 14,024 11,885 -7.21 47.39
December 31, 1995....... 18,000 116,328 116,328 19,709 17,793 -.25 38.81
December 31, 1996....... 20,000 116,328 116,328 23,599 22,005 1.84 32.48
December 31, 1997....... 22,000 116,328 116,328 30,966 29,692 5.19 27.65
December 31, 1998....... 24,000 116,328 116,328 37,887 36,914 6.79 23.85
December 31, 1999....... 26,000 116,328 116,328 42,408 41,727 6.86 20.80
ZENITH HARRIS OAKMARK MIDCAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1993....... 2,000 116,328 116,328 1,655 907 -69.21% --
December 31, 1994....... 4,000 116,328 116,328 2,947 2,153 -43.00 978.60%
December 31, 1995....... 6,000 116,328 116,328 5,419 3,419 -30.41 315.03
December 31, 1996....... 8,000 116,328 116,328 7,653 5,400 -17.43 167.72
December 31, 1997....... 10,000 116,328 116,328 10,410 8,186 -7.43 108.69
December 31, 1998....... 12,000 116,328 116,328 10,675 8,480 -10.92 78.00
December 31, 1999....... 14,000 116,328 116,328 11,689 9,523 -10.57 59.54
</TABLE>
A-68
<PAGE>
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1993....... 2,000 116,328 116,328 1,647 899 -69.63% --
December 31, 1994....... 4,000 116,328 116,328 2,915 2,121 -43.82 978.60%
December 31, 1995....... 6,000 116,328 116,328 5,554 3,554 -28.51 315.03
December 31, 1996....... 8,000 116,328 116,328 7,900 5,646 -15.52 167.72
December 31, 1997....... 10,000 116,328 116,328 12,055 9,831 -.64 108.69
December 31, 1998....... 12,000 116,328 116,328 16,181 13,987 4.84 78.00
December 31, 1999....... 14,000 116,328 116,328 18,762 16,597 4.63 59.54
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,392 644 -81.77% --
December 31, 1995....... 4,000 116,328 116,328 3,371 2,575 -32.60 987.52%
December 31, 1996....... 6,000 116,328 116,328 5,825 3,822 -24.96 316.39
December 31, 1997....... 8,000 116,328 116,328 8,839 6,584 -8.83 168.17
December 31, 1998....... 10,000 116,328 116,328 9,646 7,420 -11.05 108.91
December 31, 1999....... 12,000 116,328 116,328 14,270 12,073 0.19 78.12
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,558 810 -99.55% --
December 31, 1995....... 4,000 116,328 116,328 3,542 2,733 -47.71 3,065.15%
December 31, 1996....... 6,000 116,328 116,328 5,281 3,266 -46.82 500.79
December 31, 1997....... 8,000 116,328 116,328 7,833 5,565 -21.25 221.67
December 31, 1998....... 10,000 116,328 116,328 12,952 10,714 3.19 132.49
December 31, 1999....... 12,000 116,328 116,328 18,652 16,443 11.78 90.95
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,649 901 -99.16% --
December 31, 1995....... 4,000 116,328 116,328 3,394 2,585 -53.25 3,065.15%
December 31, 1996....... 6,000 116,328 116,328 5,238 3,223 -47.73 500.79
December 31, 1997....... 8,000 116,328 116,328 7,311 5,043 -26.88 221.67
December 31, 1998....... 10,000 116,328 116,328 9,221 6,982 -16.53 132.49
December 31, 1999....... 12,000 116,328 116,328 9,892 7,683 -16.96 90.95
</TABLE>
A-69
<PAGE>
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,597 849 -99.41% --
December 31, 1995....... 4,000 116,328 116,328 3,542 2,733 -47.71 3,065.15%
December 31, 1996....... 6,000 116,328 116,328 5,736 3,721 -37.61 500.79
December 31, 1997....... 8,000 116,328 116,328 8,865 6,597 -11.41 221.67
December 31, 1998....... 10,000 116,328 116,328 11,411 9,172 -3.98 132.49
December 31, 1999....... 12,000 116,328 116,328 14,609 12,400 1.23 90.95
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,690 942 -98.90% --
December 31, 1995....... 4,000 116,328 116,328 3,182 2,373 -61.07 3,065.15%
December 31, 1996....... 6,000 116,328 116,328 4,663 2,649 -60.68 500.79
December 31, 1997....... 8,000 116,328 116,328 5,800 3,533 -46.88 221.67
December 31, 1998....... 10,000 116,328 116,328 7,459 5,220 -30.04 132.49
December 31, 1999....... 12,000 116,328 116,328 10,525 8,316 -13.90 90.95
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1999....... 2,000 116,328 116,328 1,450 702 -78.96% --
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1999....... 2,000 116,328 116,328 1,711 963 -66.32% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1997....... 2,000 116,328 116,328 1,816 1,068 -53.03% --
December 31, 1998....... 4,000 116,328 116,328 4,107 3,315 -13.34 767.63%
December 31, 1999....... 6,000 116,328 116,328 12,005 10,008 30.56 279.71
</TABLE>
A-70
<PAGE>
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1998....... 2,000 116,328 116,328 1,784 1,036 -99.01% --
December 31, 1999....... 4,000 116,328 116,328 3,630 2,819 -46.08 3,316.93%
VIP EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1986....... 2,000 116,328 116,328 1,657 909 -96.88% --
December 31, 1987....... 4,000 116,328 116,328 2,677 1,868 -73.59 2,558.62%
December 31, 1988....... 6,000 116,328 116,328 4,477 2,462 -61.64 469.74
December 31, 1989....... 8,000 116,328 116,328 6,464 4,197 -35.75 213.70
December 31, 1990....... 10,000 116,328 116,328 6,753 4,514 -35.66 129.18
December 31, 1991....... 12,000 116,328 116,328 10,071 7,861 -15.67 89.21
December 31, 1992....... 14,000 116,328 116,328 12,987 10,807 -8.12 66.47
December 31, 1993....... 16,000 116,328 116,328 16,370 14,218 -3.19 52.00
December 31, 1994....... 18,000 116,328 116,328 18,461 16,412 -2.20 42.08
December 31, 1995....... 20,000 116,328 116,328 26,033 24,304 4.07 34.91
December 31, 1996....... 22,000 116,328 116,328 30,531 29,124 5.25 29.50
December 31, 1997....... 24,000 116,328 116,328 39,859 38,765 8.06 25.30
December 31, 1998....... 26,000 116,328 116,328 45,553 44,751 8.33 21.96
December 31, 1999....... 28,000 116,328 116,328 49,220 48,709 7.84 19.25
VIP OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1987....... 2,000 116,328 116,328 1,236 488 -78.30% --
December 31, 1988....... 4,000 116,328 116,328 2,813 2,026 -39.32 676.54%
December 31, 1989....... 6,000 116,328 116,328 5,000 3,007 -31.92 262.07
December 31, 1990....... 8,000 116,328 116,328 6,140 3,894 -27.65 148.78
December 31, 1991....... 10,000 116,328 116,328 7,903 5,687 -18.76 99.48
December 31, 1992....... 12,000 116,328 116,328 8,004 5,817 -20.91 72.70
December 31, 1993....... 14,000 116,328 116,328 12,532 10,373 -7.66 56.16
December 31, 1994....... 16,000 116,328 116,328 13,669 11,539 -7.45 45.04
December 31, 1995....... 18,000 116,328 116,328 16,328 14,519 -4.40 37.11
December 31, 1996....... 20,000 116,328 116,328 19,418 17,930 -2.03 31.21
December 31, 1997....... 22,000 116,328 116,328 22,706 21,539 -.36 26.67
December 31, 1998....... 24,000 116,328 116,328 26,508 25,633 1.02 23.08
December 31, 1999....... 26,000 116,328 116,328 38,951 38,368 5.48 20.17
</TABLE>
A-71
<PAGE>
VIP HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1985....... 2,000 116,328 116,328 1,718 970 -92.30% --
December 31, 1986....... 4,000 116,328 116,328 3,363 2,557 -47.05 2,200.75%
December 31, 1987....... 6,000 116,328 116,328 4,635 2,623 -55.32 444.22
December 31, 1988....... 8,000 116,328 116,328 6,395 4,130 -35.33 206.88
December 31, 1989....... 10,000 116,328 116,328 7,249 5,013 -30.02 126.29
December 31, 1990....... 12,000 116,328 116,328 8,205 5,998 -25.41 87.67
December 31, 1991....... 14,000 116,328 116,328 12,179 10,001 -10.40 65.54
December 31, 1992....... 16,000 116,328 116,328 16,010 13,861 -3.82 51.39
December 31, 1993....... 18,000 116,328 116,328 20,292 18,270 0.35 41.65
December 31, 1994....... 20,000 116,328 116,328 20,920 19,218 -0.84 34.59
December 31, 1995....... 22,000 116,328 116,328 26,140 24,759 2.22 29.26
December 31, 1996....... 24,000 116,328 116,328 30,559 29,489 3.50 25.11
December 31, 1997....... 26,000 116,328 116,328 36,689 35,911 5.00 21.81
December 31, 1998....... 28,000 116,328 116,328 35,945 35,459 3.40 19.12
December 31, 1999....... 30,000 116,328 116,328 39,546 39,351 3.63 16.90
VIP II ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 2,000 $116,328 $116,328 $ 1,731 $ 983 -- --
December 31, 1989....... 2,000 116,328 116,328 1,634 886 -92.28% --
December 31, 1990....... 4,000 116,328 116,328 3,105 2,299 -53.45 2,007.69%
December 31, 1991....... 6,000 116,328 116,328 5,086 3,074 -44.81 428.86
December 31, 1992....... 8,000 116,328 116,328 6,930 4,665 -28.44 202.65
December 31, 1993....... 10,000 116,328 116,328 9,636 7,400 -12.90 124.47
December 31, 1994....... 12,000 116,328 116,328 10,096 7,889 -14.99 86.70
December 31, 1995....... 14,000 116,328 116,328 12,983 10,805 -7.88 64.95
December 31, 1996....... 16,000 116,328 116,328 15,986 13,837 -3.83 50.99
December 31, 1997....... 18,000 116,328 116,328 20,257 18,234 .30 41.37
December 31, 1998....... 20,000 116,328 116,328 24,407 22,706 2.61 34.38
December 31, 1999....... 22,000 116,328 116,328 28,043 26,662 3.56 29.10
</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 Harris
Oakmark Mid Cap Value Series' investment advisory fee of .70% of average
daily net assets for the period through April 30, 1998 and .75% thereafter.
The material below assumes, in the first example, a Policy with an Option 2
death benefit was issued with a $184,011 face amount and annual premiums of
$2,000, paid on August 26 of each year (May 1 in the case of the Zenith
Westpeak Stock Index and Back Bay Managed Sub-Accounts; May 2 in the case of
the Zenith Loomis Sayles Small Cap Sub-Account; October 31 in the case of the
Zenith Balanced, Zenith Morgan Stanley International Magnum Equity, Zenith
Davis Venture Value and Zenith Alger Equity Growth Sub-Accounts; October 9 in
the case of the VIP Equity-Income Sub-Account; January 28 in the case of the
VIP Overseas Sub-Account; April 30 in the case of the Zenith Westpeak Growth
and Income and Zenith Harris Oakmark Mid Cap Value Sub-Accounts; September 19
in the case of the VIP High Income Sub-Account; September 6 in the case of the
VIP II Asset
A-72
<PAGE>
Manager Sub-Account; March 3 in the case of the Metropolitan Janus Mid Cap
Sub-Account; November 9 in the case of the Metropolitan Russell 2000 Index
Sub-Account), to a male nonsmoker standard risk, age 35. The second example
assumes a Policy was issued with a $116,328 face amount and annual premiums of
$2,000, paid on August 26 of each year (May 1 in the case of the Zenith
Westpeak Stock Index and Back Bay Managed Sub-Accounts; May 2 in the case of
the Zenith Loomis Sayles Small Cap Sub-Account; October 31 in the case of the
Zenith Balanced, Zenith Morgan Stanley International Magnum Equity, Zenith
Davis Venture Value and Zenith Alger Equity Growth Sub-Accounts; October 9 in
the case of the VIP Equity-Income Sub-Account; January 28 in the case of the
VIP Overseas Sub-Account; April 30 in the case of the Zenith Westpeak Growth
and Income and Zenith Harris Oakmark Mid Cap Value Sub-Accounts; September 19
in the case of the VIP High Income Sub-Account; September 6 in the case of the
VIP II Asset Manager Sub-Account; March 3 in the case of the Metropolitan
Janus Mid Cap Sub-Account; November 9 in the case of the Metropolitan Russell
2000 Index Sub-Account), to a male nonsmoker standard risk, age 45. The death
benefits, cash values and internal rates of return assume in each instance
that the entire Policy value was invested in the particular sub-account for
the period shown. These illustrations of Policy investment experience also
reflect all charges applicable to the Policy, including cost of insurance
charges based on NELICO's current rates. (See Appendix A for the definition of
the internal rate of return.)
MALE NONSMOKER STANDARD RISK, AGE 35
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1983....... 2,000 184,011 184,174 1,738 820 -92.28% --
December 31, 1984....... 4,000 184,011 184,129 3,023 2,057 -59.33 2,691.00%
December 31, 1985....... 6,000 184,011 186,124 6,621 4,466 -20.73 542.57
December 31, 1986....... 8,000 184,011 192,527 14,059 11,668 21.15 255.10
December 31, 1987....... 10,000 184,011 198,706 22,245 19,900 30.20 157.74
December 31, 1988....... 12,000 184,011 196,589 21,440 19,141 16.44 109.31
December 31, 1989....... 14,000 184,011 201,932 29,069 26,815 19.23 83.09
December 31, 1990....... 16,000 184,011 200,878 28,883 26,675 13.05 65.46
December 31, 1991....... 18,000 184,011 214,853 45,502 43,462 19.57 55.04
December 31, 1992....... 20,000 184,011 211,947 43,801 42,099 14.76 45.87
December 31, 1993....... 22,000 184,011 218,443 51,254 49,890 14.58 39.72
December 31, 1994....... 24,000 184,011 213,867 48,013 46,968 10.95 34.15
December 31, 1995....... 26,000 184,011 230,623 67,694 66,941 13.95 31.03
December 31, 1996....... 28,000 184,011 261,736 82,436 81,974 14.53 29.14
December 31, 1997....... 30,000 184,011 292,673 102,004 101,833 15.22 27.42
December 31, 1998....... 32,000 184,011 395,972 136,874 136,874 16.70 27.99
December 31, 1999....... 34,000 184,011 426,676 158,210 158,210 16.47 26.26
</TABLE>
A-73
<PAGE>
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1983....... 2,000 184,011 184,071 1,635 718 -94.74% --
December 31, 1984....... 4,000 184,011 184,351 3,267 2,301 -51.74 2,693.56%
December 31, 1985....... 6,000 184,011 184,914 5,235 3,080 -43.68 540.64
December 31, 1986....... 8,000 184,011 185,577 7,292 4,901 -25.48 250.75
December 31, 1987....... 10,000 184,011 185,439 8,704 6,359 -19.08 153.03
December 31, 1988....... 12,000 184,011 185,923 10,655 8,356 -12.77 106.73
December 31, 1989....... 14,000 184,011 186,796 13,152 10,899 -7.55 80.39
December 31, 1990....... 16,000 184,011 187,424 15,398 13,191 -5.07 63.55
December 31, 1991....... 18,000 184,011 189,581 19,330 17,290 -0.93 52.16
December 31, 1992....... 20,000 184,011 190,662 21,942 20,240 0.25 43.79
December 31, 1993....... 22,000 184,011 192,762 25,694 24,330 1.87 37.57
December 31, 1994....... 24,000 184,011 191,088 25,736 24,691 0.48 32.43
December 31, 1995....... 26,000 184,011 195,399 32,224 31,470 2.96 28.76
December 31, 1996....... 28,000 184,011 196,191 34,635 34,173 2.86 25.54
December 31, 1997....... 30,000 184,011 198,803 39,237 39,067 3.50 22.98
December 31, 1998....... 32,000 184,011 201,036 43,680 43,680 3.84 20.81
December 31, 1999....... 34,000 184,011 200,067 44,339 44,339 3.09 18.81
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1983....... 2,000 184,011 184,063 1,638 721 -94.67% --
December 31, 1984....... 4,000 184,011 184,244 3,166 2,200 -54.88 2,692.32%
December 31, 1985....... 6,000 184,011 184,431 4,746 2,591 -53.19 539.87
December 31, 1986....... 8,000 184,011 184,600 6,351 3,960 -35.99 250.13
December 31, 1987....... 10,000 184,011 184,791 8,022 5,677 -23.83 152.80
December 31, 1988....... 12,000 184,011 185,093 9,859 7,560 -16.34 106.53
December 31, 1989....... 14,000 184,011 185,622 11,958 9,704 -11.10 80.17
December 31, 1990....... 16,000 184,011 186,135 14,077 11,870 -7.89 63.36
December 31, 1991....... 18,000 184,011 186,463 16,055 14,015 -5.86 51.78
December 31, 1992....... 20,000 184,011 186,453 17,735 16,033 -4.64 43.36
December 31, 1993....... 22,000 184,011 186,283 19,306 17,942 -3.88 36.99
December 31, 1994....... 24,000 184,011 186,283 21,098 20,053 -3.13 32.04
December 31, 1995....... 26,000 184,011 186,642 23,278 22,524 -2.29 28.13
December 31, 1996....... 28,000 184,011 186,910 25,399 24,937 -1.71 24.93
December 31, 1997....... 30,000 184,011 187,241 27,628 27,458 -1.22 22.29
December 31, 1998....... 32,000 184,011 187,713 30,025 30,025 -.82 20.08
December 31, 1999....... 34,000 184,011 188,167 32,450 32,450 -0.56 18.20
</TABLE>
A-74
<PAGE>
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1987....... 2,000 184,011 184,011 1,294 377 -91.77% --
December 31, 1988....... 4,000 184,011 184,058 2,912 1,957 -48.17 1,344.23%
December 31, 1989....... 6,000 184,011 185,062 5,429 3,286 -32.37 403.63
December 31, 1990....... 8,000 184,011 184,601 6,388 4,008 -29.83 209.61
December 31, 1991....... 10,000 184,011 185,696 9,686 7,353 -11.37 135.11
December 31, 1992....... 12,000 184,011 186,822 11,667 9,380 -7.76 97.10
December 31, 1993....... 14,000 184,011 187,614 14,041 11,800 -4.67 74.43
December 31, 1994....... 16,000 184,011 187,096 15,343 13,147 -4.74 59.41
December 31, 1995....... 18,000 184,011 192,911 22,509 20,554 2.83 49.61
December 31, 1996....... 20,000 184,011 197,824 28,529 26,912 5.66 42.30
December 31, 1997....... 22,000 184,011 206,145 39,016 37,737 9.24 36.99
December 31, 1998....... 24,000 184,011 213,768 50,815 49,842 11.35 32.76
December 31, 1999....... 26,000 184,011 222,328 61,972 61,291 12.18 29.40
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1987....... 2,000 184,011 184,011 1,468 551 -85.46% --
December 31, 1988....... 4,000 184,011 184,164 2,997 2,042 -45.94 1,344.75%
December 31, 1989....... 6,000 184,011 184,804 5,084 2,941 -37.56 403.34
December 31, 1990....... 8,000 184,011 184,788 6,563 4,183 -28.10 209.71
December 31, 1991....... 10,000 184,011 185,525 9,248 6,914 -13.61 135.06
December 31, 1992....... 12,000 184,011 186,274 11,169 8,881 -9.47 96.98
December 31, 1993....... 14,000 184,011 187,251 13,576 11,334 -5.78 74.37
December 31, 1994....... 16,000 184,011 186,414 14,565 12,369 -6.23 59.31
December 31, 1995....... 18,000 184,011 190,926 20,535 18,580 .68 49.39
December 31, 1996....... 20,000 184,011 193,827 24,661 23,044 2.72 41.92
December 31, 1997....... 22,000 184,011 199,528 32,423 31,143 6.01 36.46
December 31, 1998....... 24,000 184,011 203,876 39,725 38,753 7.53 32.06
December 31, 1999....... 26,000 184,011 206,500 44,506 43,825 7.55 28.41
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1993....... 2,000 184,011 184,248 1,674 757 -76.50% --
December 31, 1994....... 4,000 184,011 184,245 3,000 2,049 -45.68 1,338.59%
December 31, 1995....... 6,000 184,011 185,340 5,534 3,395 -30.75 403.02
December 31, 1996....... 8,000 184,011 186,255 7,840 5,464 -16.93 210.17
December 31, 1997....... 10,000 184,011 187,515 10,685 8,355 -6.67 135.55
December 31, 1998....... 12,000 184,011 186,052 10,994 8,710 -10.08 96.85
December 31, 1999....... 14,000 184,011 185,693 12,082 9,845 -9.65 74.06
</TABLE>
A-75
<PAGE>
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1993....... 2,000 184,011 184,243 1,665 748 -76.90% --
December 31, 1994....... 4,000 184,011 184,189 2,968 2,017 -46.51 1,338.31%
December 31, 1995....... 6,000 184,011 185,480 5,674 3,535 -28.78 403.18
December 31, 1996....... 8,000 184,011 186,558 8,094 5,719 -14.97 210.32
December 31, 1997....... 10,000 184,011 189,182 12,369 10,040 .15 136.07
December 31, 1998....... 12,000 184,011 191,883 16,622 14,338 5.63 98.13
December 31, 1999....... 14,000 184,011 192,950 19,288 17,050 5.36 75.28
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,407 490 -87.90% --
December 31, 1995....... 4,000 184,011 184,505 3,429 2,474 -35.07 1,353.05%
December 31, 1996....... 6,000 184,011 185,557 5,947 3,803 -25.21 405.09
December 31, 1997....... 8,000 184,011 187,352 9,042 6,662 -8.30 211.33
December 31, 1998....... 10,000 184,011 186,188 9,898 7,565 -10.34 135.40
December 31, 1999....... 12,000 184,011 188,424 14,686 12,398 1.03 97.53
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,563 646 -99.88% --
December 31, 1995....... 4,000 184,011 184,597 3,580 2,606 -52.45 4,642.74%
December 31, 1996....... 6,000 184,011 184,996 5,363 3,201 -48.20 657.43
December 31, 1997....... 8,000 184,011 186,188 7,984 5,585 -21.05 280.66
December 31, 1998....... 10,000 184,011 189,962 13,231 10,878 3.89 166.95
December 31, 1999....... 12,000 184,011 194,282 19,068 16,761 12.50 115.26
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,654 737 -99.74% --
December 31, 1995....... 4,000 184,011 184,447 3,430 2,456 -58.01 4,639.36%
December 31, 1996....... 6,000 184,011 184,955 5,322 3,159 -49.09 657.34
December 31, 1997....... 8,000 184,011 185,661 7,457 5,058 -26.70 280.28
December 31, 1998....... 10,000 184,011 186,167 9,436 7,083 -15.87 165.46
December 31, 1999....... 12,000 184,011 185,370 10,157 7,850 -16.13 112.96
</TABLE>
A-76
<PAGE>
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,011 1,603 685 -99.84% --
December 31, 1995....... 4,000 184,011 184,597 3,580 2,606 -52.45 4,642.74%
December 31, 1996....... 6,000 184,011 185,458 5,825 3,663 -38.75 658.36
December 31, 1997....... 8,000 184,011 187,234 9,030 6,631 -11.11 281.42
December 31, 1998....... 10,000 184,011 188,380 11,649 9,296 -3.36 166.34
December 31, 1999....... 12,000 184,011 190,154 14,940 12,633 1.93 114.21
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1994....... 2,000 184,011 184,051 1,696 779 -99.65% --
December 31, 1995....... 4,000 184,011 184,234 3,217 2,243 -65.80 4,634.62%
December 31, 1996....... 6,000 184,011 184,374 4,741 2,578 -62.38 656.17
December 31, 1997....... 8,000 184,011 184,129 5,925 3,526 -46.98 279.17
December 31, 1998....... 10,000 184,011 184,380 7,650 5,297 -29.36 164.75
December 31, 1999....... 12,000 184,011 186,055 10,841 8,534 -12.91 113.14
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1999....... 2,000 184,011 184,037 1,469 552 -85.31% --
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1999....... 2,000 184,011 184,292 1,732 815 -73.77% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1997....... 2,000 184,011 184,399 1,838 921 -60.70% --
December 31, 1998....... 4,000 184,011 184,838 4,180 3,233 -14.99 1,032.47%
December 31, 1999....... 6,000 184,011 190,317 12,232 10,096 31.13 360.32
</TABLE>
A-77
<PAGE>
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1998....... 2,000 184,011 184,025 1,788 871 -99.71% --
December 31, 1999....... 4,000 184,011 184,367 3,666 2,688 -51.15 5,056.54%
VIP EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1986....... 2,000 184,011 184,073 1,663 746 -98.69% --
December 31, 1987....... 4,000 184,011 184,011 2,706 1,732 -77.90 3,799.62%
December 31, 1988....... 6,000 184,011 184,223 4,555 2,392 -63.28 612.77
December 31, 1989....... 8,000 184,011 184,701 6,607 4,208 -35.60 269.15
December 31, 1990....... 10,000 184,011 184,011 6,929 4,576 -35.04 160.39
December 31, 1991....... 12,000 184,011 184,817 10,378 8,071 -14.68 110.62
December 31, 1992....... 14,000 184,011 186,802 13,424 11,163 -7.09 82.91
December 31, 1993....... 16,000 184,011 188,787 16,961 14,746 -2.20 65.42
December 31, 1994....... 18,000 184,011 189,179 19,178 17,082 -1.24 53.29
December 31, 1995....... 20,000 184,011 196,035 27,110 25,352 4.93 45.22
December 31, 1996....... 22,000 184,011 199,163 31,850 30,430 6.05 38.81
December 31, 1997....... 24,000 184,011 206,949 41,621 40,527 8.78 34.19
December 31, 1998....... 26,000 184,011 209,427 47,566 46,764 8.98 30.15
December 31, 1999....... 28,000 184,011 212,058 51,373 50,862 8.43 26.87
VIP OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1987....... 2,000 184,011 184,011 1,258 341 -85.29% --
December 31, 1988....... 4,000 184,011 184,125 2,878 1,939 -41.35 899.25%
December 31, 1989....... 6,000 184,011 185,044 5,133 3,005 -31.95 331.86
December 31, 1990....... 8,000 184,011 184,755 6,324 3,960 -27.06 185.01
December 31, 1991....... 10,000 184,011 185,044 8,169 5,851 -17.84 123.12
December 31, 1992....... 12,000 184,011 184,011 8,311 6,039 -19.84 89.78
December 31, 1993....... 14,000 184,011 186,837 13,046 10,819 -6.58 70.02
December 31, 1994....... 16,000 184,011 186,514 14,275 12,095 -6.37 56.40
December 31, 1995....... 18,000 184,011 187,457 17,127 15,284 -3.34 46.88
December 31, 1996....... 20,000 184,011 189,093 20,466 18,961 -.99 39.87
December 31, 1997....... 22,000 184,011 190,913 24,028 22,861 .65 34.49
December 31, 1998....... 24,000 184,011 193,227 28,171 27,296 1.99 30.28
December 31, 1999....... 26,000 184,011 203,716 41,540 40,957 6.37 27.41
</TABLE>
A-78
<PAGE>
VIP HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1985....... 2,000 184,011 184,092 1,726 809 -95.95% --
December 31, 1986....... 4,000 184,011 184,415 3,402 2,432 -51.14 3,229.10%
December 31, 1987....... 6,000 184,011 184,288 4,714 2,555 -56.78 577.66
December 31, 1988....... 8,000 184,011 184,720 6,534 4,139 -35.22 260.24
December 31, 1989....... 10,000 184,011 184,158 7,438 5,089 -29.36 156.78
December 31, 1990....... 12,000 184,011 184,011 8,463 6,160 -24.40 108.49
December 31, 1991....... 14,000 184,011 186,164 12,613 10,356 -9.30 81.63
December 31, 1992....... 16,000 184,011 188,579 16,623 14,412 -2.78 64.62
December 31, 1993....... 18,000 184,011 191,424 21,116 19,048 1.32 53.02
December 31, 1994....... 20,000 184,011 190,372 21,831 20,101 0.11 44.24
December 31, 1995....... 22,000 184,011 194,790 27,368 25,976 3.10 38.12
December 31, 1996....... 24,000 184,011 197,068 32,085 31,016 4.34 33.19
December 31, 1997....... 26,000 184,011 201,926 38,613 37,835 5.78 29.44
December 31, 1998....... 28,000 184,011 199,055 37,907 37,421 4.16 25.91
December 31, 1999....... 30,000 184,011 201,203 41,811 41,616 4.35 23.27
VIP II ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 2,000 $184,011 $184,017 $ 1,733 $ 816 -- --
December 31, 1989....... 2,000 184,011 184,025 1,642 725 -95.90% --
December 31, 1990....... 4,000 184,011 184,158 3,143 2,174 -57.43 2,918.11%
December 31, 1991....... 6,000 184,011 184,637 5,176 3,017 -45.90 557.11
December 31, 1992....... 8,000 184,011 185,259 7,080 4,686 -28.22 255.07
December 31, 1993....... 10,000 184,011 186,409 9,878 7,529 -12.16 155.30
December 31, 1994....... 12,000 184,011 185,882 10,381 8,078 -14.13 107.74
December 31, 1995....... 14,000 184,011 187,135 13,396 11,139 -6.95 81.07
December 31, 1996....... 16,000 184,011 188,744 16,540 14,329 -2.91 64.15
December 31, 1997....... 18,000 184,011 191,513 21,013 18,945 1.18 52.69
December 31, 1998....... 20,000 184,011 193,365 25,378 23,648 3.44 44.29
December 31, 1999....... 22,000 184,011 195,476 29,233 27,841 4.35 37.98
</TABLE>
A-79
<PAGE>
MALE NONSMOKER STANDARD RISK, AGE 45
OPTION 2--VARIABLE DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1983....... 2,000 116,328 116,481 1,728 980 -87.14% --
December 31, 1984....... 4,000 116,328 116,409 2,982 2,178 -55.59 1,865.07%
December 31, 1985....... 6,000 116,328 118,345 6,498 4,488 -20.41 420.75
December 31, 1986....... 8,000 116,328 124,589 13,755 11,492 20.27 206.34
December 31, 1987....... 10,000 116,328 130,601 21,721 19,488 29.24 130.17
December 31, 1988....... 12,000 116,328 128,510 20,892 18,687 15.59 90.20
December 31, 1989....... 14,000 116,328 133,681 28,261 26,086 18.41 69.04
December 31, 1990....... 16,000 116,328 132,634 28,017 25,870 12.28 54.16
December 31, 1991....... 18,000 116,328 146,144 44,031 42,036 18.85 46.25
December 31, 1992....... 20,000 116,328 143,298 42,269 40,594 14.06 38.23
December 31, 1993....... 22,000 116,328 149,517 49,306 47,952 13.90 33.23
December 31, 1994....... 24,000 116,328 145,075 46,016 44,971 10.27 28.24
December 31, 1995....... 26,000 116,328 161,052 64,629 63,875 13.29 26.10
December 31, 1996....... 28,000 116,328 177,739 78,437 77,975 13.89 24.30
December 31, 1997....... 30,000 116,328 198,906 96,758 96,588 14.60 22.98
December 31, 1998....... 32,000 116,328 269,360 129,420 129,420 16.09 23.91
December 31, 1999....... 34,000 116,328 290,640 149,140 149,140 15.88 22.49
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1983....... 2,000 116,328 116,378 1,625 877 -90.64% --
December 31, 1984....... 4,000 116,328 116,630 3,224 2,420 -48.03 1,867.93%
December 31, 1985....... 6,000 116,328 117,158 5,138 3,128 -42.79 418.29
December 31, 1986....... 8,000 116,328 117,781 7,126 4,864 -25.86 200.47
December 31, 1987....... 10,000 116,328 117,620 8,472 6,238 -19.88 123.65
December 31, 1988....... 12,000 116,328 118,063 10,330 8,125 -13.76 86.53
December 31, 1989....... 14,000 116,328 118,880 12,701 10,526 -8.61 65.16
December 31, 1990....... 16,000 116,328 119,457 14,810 12,663 -6.16 51.37
December 31, 1991....... 18,000 116,328 121,492 18,507 16,511 -2.00 42.11
December 31, 1992....... 20,000 116,328 122,481 20,898 19,223 -0.82 35.20
December 31, 1993....... 22,000 116,328 124,426 24,333 22,978 0.81 30.11
December 31, 1994....... 24,000 116,328 122,787 24,212 23,167 -0.61 25.71
December 31, 1995....... 26,000 116,328 126,765 30,101 29,348 1.89 22.81
December 31, 1996....... 28,000 116,328 127,432 32,121 31,659 1.77 20.13
December 31, 1997....... 30,000 116,328 129,777 36,119 35,949 2.42 18.06
December 31, 1998....... 32,000 116,328 131,796 39,942 39,942 2.76 16.29
December 31, 1999....... 34,000 116,328 130,944 40,305 40,305 2.00 14.57
</TABLE>
A-80
<PAGE>
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1983....... 2,000 116,328 116,370 1,628 880 -90.54% --
December 31, 1984....... 4,000 116,328 116,524 3,124 2,320 -51.14 1,866.56%
December 31, 1985....... 6,000 116,328 116,683 4,657 2,647 -52.05 417.30
December 31, 1986....... 8,000 116,328 116,822 6,202 3,940 -36.23 199.62
December 31, 1987....... 10,000 116,328 116,982 7,801 5,567 -24.65 123.32
December 31, 1988....... 12,000 116,328 117,247 9,546 7,342 -17.39 86.23
December 31, 1989....... 14,000 116,328 117,729 11,531 9,355 -12.24 64.85
December 31, 1990....... 16,000 116,328 118,194 13,517 11,371 -9.05 51.09
December 31, 1991....... 18,000 116,328 118,475 15,339 13,343 -7.03 41.55
December 31, 1992....... 20,000 116,328 118,422 16,842 15,167 -5.83 34.55
December 31, 1993....... 22,000 116,328 118,211 18,203 16,849 -5.11 29.24
December 31, 1994....... 24,000 116,328 118,150 19,732 18,686 -4.38 25.13
December 31, 1995....... 26,000 116,328 118,416 21,576 20,823 -3.58 21.88
December 31, 1996....... 28,000 116,328 118,589 23,319 22,857 -3.03 19.22
December 31, 1997....... 30,000 116,328 118,817 25,115 24,945 -2.56 17.03
December 31, 1998....... 32,000 116,328 119,202 27,044 27,044 -2.19 15.20
December 31, 1999....... 34,000 116,328 119,626 28,997 28,997 -1.94 13.66
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1987....... 2,000 116,328 116,328 1,280 532 -86.21% --
December 31, 1988....... 4,000 116,328 116,333 2,861 2,064 -45.38 983.07%
December 31, 1989....... 6,000 116,328 117,294 5,311 3,308 -32.04 317.15
December 31, 1990....... 8,000 116,328 116,818 6,222 3,967 -30.25 168.30
December 31, 1991....... 10,000 116,328 117,856 9,398 7,171 -12.28 109.50
December 31, 1992....... 12,000 116,328 118,921 11,280 9,082 -8.77 78.92
December 31, 1993....... 14,000 116,328 119,659 13,528 11,359 -5.72 60.44
December 31, 1994....... 16,000 116,328 119,134 14,723 12,583 -5.81 47.98
December 31, 1995....... 18,000 116,328 124,670 21,509 19,593 1.81 40.27
December 31, 1996....... 20,000 116,328 129,308 27,140 25,546 4.67 34.42
December 31, 1997....... 22,000 116,328 137,164 36,966 35,692 8.31 30.33
December 31, 1998....... 24,000 116,328 144,311 47,942 46,969 10.45 27.00
December 31, 1999....... 26,000 116,328 152,311 58,232 57,551 11.32 24.38
</TABLE>
A-81
<PAGE>
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1987....... 2,000 116,328 116,328 1,453 705 -78.98% --
December 31, 1988....... 4,000 116,328 116,439 2,946 2,149 -43.19 983.69%
December 31, 1989....... 6,000 116,328 117,042 4,974 2,971 -37.08 316.77
December 31, 1990....... 8,000 116,328 117,001 6,394 4,138 -28.54 168.44
December 31, 1991....... 10,000 116,328 117,692 8,973 6,747 -14.50 109.43
December 31, 1992....... 12,000 116,328 118,392 10,798 8,601 -10.48 78.75
December 31, 1993....... 14,000 116,328 119,308 13,078 10,910 -6.83 60.35
December 31, 1994....... 16,000 116,328 118,476 13,972 11,833 -7.32 47.84
December 31, 1995....... 18,000 116,328 122,761 19,610 17,694 -.37 39.94
December 31, 1996....... 20,000 116,328 125,479 23,434 21,839 1.69 33.87
December 31, 1997....... 22,000 116,328 130,837 30,661 29,387 5.02 29.56
December 31, 1998....... 24,000 116,328 134,876 37,374 36,402 6.57 26.01
December 31, 1999....... 26,000 116,328 137,274 41,651 40,970 6.60 23.00
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1993....... 2,000 116,328 116,545 1,655 907 -69.22% --
December 31, 1994....... 4,000 116,328 116,518 2,946 2,152 -43.02 979.70%
December 31, 1995....... 6,000 116,328 117,569 5,414 3,414 -30.47 316.88
December 31, 1996....... 8,000 116,328 118,437 7,640 5,387 -17.53 169.24
December 31, 1997....... 10,000 116,328 119,640 10,382 8,158 -7.55 110.20
December 31, 1998....... 12,000 116,328 118,189 10,635 8,440 -11.06 78.62
December 31, 1999....... 14,000 116,328 117,814 11,639 9,473 -10.72 59.93
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1993....... 2,000 116,328 116,541 1,646 898 -69.65% --
December 31, 1994....... 4,000 116,328 116,463 2,915 2,120 -43.84 979.39%
December 31, 1995....... 6,000 116,328 117,705 5,550 3,550 -28.57 317.08
December 31, 1996....... 8,000 116,328 118,730 7,887 5,634 -15.61 169.46
December 31, 1997....... 10,000 116,328 121,261 12,019 9,795 -.77 110.93
December 31, 1998....... 12,000 116,328 123,853 16,104 13,909 4.67 80.45
December 31, 1999....... 14,000 116,328 124,858 18,634 16,468 4.42 61.69
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,392 644 -81.77% --
December 31, 1995....... 4,000 116,328 116,774 3,371 2,574 -32.61 990.16%
December 31, 1996....... 6,000 116,328 117,780 5,820 3,817 -25.02 318.55
December 31, 1997....... 8,000 116,328 119,513 8,822 6,567 -8.94 170.48
December 31, 1998....... 10,000 116,328 118,347 9,618 7,391 -11.19 109.83
December 31, 1999....... 12,000 116,328 120,488 14,218 12,021 0.06 79.49
</TABLE>
A-82
<PAGE>
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,558 810 -99.55% --
December 31, 1995....... 4,000 116,328 116,877 3,540 2,732 -47.76 3,078.30%
December 31, 1996....... 6,000 116,328 117,246 5,276 3,262 -46.91 503.18
December 31, 1997....... 8,000 116,328 118,389 7,820 5,552 -21.38 223.72
December 31, 1998....... 10,000 116,328 122,050 12,915 10,677 3.03 135.71
December 31, 1999....... 12,000 116,328 126,233 18,563 16,354 11.57 94.70
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,649 901 -99.16% --
December 31, 1995....... 4,000 116,328 116,730 3,393 2,584 -53.27 3,074.77%
December 31, 1996....... 6,000 116,328 117,204 5,235 3,220 -47.79 503.07
December 31, 1997....... 8,000 116,328 117,870 7,302 5,034 -26.98 223.21
December 31, 1998....... 10,000 116,328 118,339 9,204 6,965 -16.65 133.64
December 31, 1999....... 12,000 116,328 117,538 9,868 7,659 -17.08 91.43
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,328 1,597 849 -99.41% --
December 31, 1995....... 4,000 116,328 116,878 3,541 2,732 -47.74 3,078.30%
December 31, 1996....... 6,000 116,328 117,700 5,731 3,716 -37.70 504.36
December 31, 1997....... 8,000 116,328 119,416 8,848 6,580 -11.56 224.74
December 31, 1998....... 10,000 116,328 120,511 11,376 9,137 -4.16 134.86
December 31, 1999....... 12,000 116,328 122,213 14,543 12,334 1.03 93.21
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1994....... 2,000 116,328 116,361 1,690 942 -98.90% --
December 31, 1995....... 4,000 116,328 116,519 3,182 2,373 -61.08 3,069.72%
December 31, 1996....... 6,000 116,328 116,632 4,662 2,648 -60.70 501.58
December 31, 1997....... 8,000 116,328 116,367 5,798 3,531 -46.91 221.71
December 31, 1998....... 10,000 116,328 116,589 7,455 5,216 -30.08 132.64
December 31, 1999....... 12,000 116,328 118,186 10,517 8,307 -13.94 91.68
</TABLE>
A-83
<PAGE>
ZENITH MFS INVESTORS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1999....... 2,000 116,328 116,335 1,450 702 -78.96% --
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1999....... 2,000 116,328 116,588 1,711 963 -66.33% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1997....... 2,000 116,328 116,693 1,815 1,067 -53.06% --
December 31, 1998....... 4,000 116,328 117,100 4,103 3,312 -13.40 770.96%
December 31, 1999....... 6,000 116,328 122,452 11,980 9,982 30.40 287.48
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1998....... 2,000 116,328 116,338 1,784 1,036 -99.01% --
December 31, 1999....... 4,000 116,328 116,653 3,630 2,819 -46.10 3,325.51%
VIP EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1986....... 2,000 116,328 116,384 1,657 909 -96.88% --
December 31, 1987....... 4,000 116,328 116,328 2,676 1,867 -73.61 2,558.62%
December 31, 1988....... 6,000 116,328 116,479 4,476 2,461 -61.66 470.10
December 31, 1989....... 8,000 116,328 116,921 6,460 4,193 -35.80 214.27
December 31, 1990....... 10,000 116,328 116,328 6,749 4,510 -35.70 129.18
December 31, 1991....... 12,000 116,328 116,982 10,062 7,853 -15.71 89.46
December 31, 1992....... 14,000 116,328 118,877 12,968 10,787 -8.17 67.21
December 31, 1993....... 16,000 116,328 120,760 16,323 14,172 -3.28 53.02
December 31, 1994....... 18,000 116,328 121,106 18,381 16,332 -2.32 43.00
December 31, 1995....... 20,000 116,328 127,616 25,864 24,136 3.92 36.72
December 31, 1996....... 22,000 116,328 130,541 30,247 28,839 5.07 31.49
December 31, 1997....... 24,000 116,328 137,856 39,338 38,244 7.84 27.92
December 31, 1998....... 26,000 116,328 140,146 44,763 43,961 8.07 24.56
December 31, 1999....... 28,000 116,328 142,566 48,120 47,609 7.53 21.84
</TABLE>
A-84
<PAGE>
VIP OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1987....... 2,000 116,328 116,328 1,236 488 -78.31% --
December 31, 1988....... 4,000 116,328 116,392 2,813 2,026 -39.33 676.78%
December 31, 1989....... 6,000 116,328 117,264 4,998 3,005 -31.95 263.19
December 31, 1990....... 8,000 116,328 116,958 6,134 3,889 -27.71 149.18
December 31, 1991....... 10,000 116,328 117,212 7,894 5,677 -18.81 99.85
December 31, 1992....... 12,000 116,328 116,328 7,993 5,806 -20.97 72.70
December 31, 1993....... 14,000 116,328 118,879 12,509 10,350 -7.71 56.78
December 31, 1994....... 16,000 116,328 118,542 13,629 11,500 -7.53 45.49
December 31, 1995....... 18,000 116,328 119,404 16,268 14,459 -4.49 37.64
December 31, 1996....... 20,000 116,328 120,909 19,322 17,834 -2.13 31.90
December 31, 1997....... 22,000 116,328 122,581 22,550 21,383 -.48 27.49
December 31, 1998....... 24,000 116,328 124,693 26,262 25,387 .87 24.06
December 31, 1999....... 26,000 116,328 134,364 38,471 37,887 5.31 22.04
VIP HIGH INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1985....... 2,000 116,328 116,400 1,718 970 -92.30% --
December 31, 1986....... 4,000 116,328 116,697 3,362 2,556 -47.08 2,206.62%
December 31, 1987....... 6,000 116,328 116,546 4,633 2,621 -55.38 444.71
December 31, 1988....... 8,000 116,328 116,944 6,390 4,125 -35.39 207.45
December 31, 1989....... 10,000 116,328 116,371 7,242 5,006 -30.08 126.31
December 31, 1990....... 12,000 116,328 116,328 8,198 5,991 -25.45 87.67
December 31, 1991....... 14,000 116,328 118,246 12,164 9,986 -10.44 66.09
December 31, 1992....... 16,000 116,328 120,541 15,971 13,822 -3.90 52.34
December 31, 1993....... 18,000 116,328 123,237 20,207 18,184 0.24 42.95
December 31, 1994....... 20,000 116,328 122,192 20,793 19,092 -0.98 35.54
December 31, 1995....... 22,000 116,328 126,337 25,924 24,543 2.05 30.67
December 31, 1996....... 24,000 116,328 128,431 30,221 29,151 3.31 26.63
December 31, 1997....... 26,000 116,328 132,927 36,155 35,377 4.77 23.66
December 31, 1998....... 28,000 116,328 130,196 35,288 34,802 3.14 20.55
December 31, 1999....... 30,000 116,328 132,133 38,665 38,470 3.33 18.39
</TABLE>
A-85
<PAGE>
VIP II ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL MINIMUM VARIABLE OF RETURN ON INTERNAL RATE
PREMIUMS DEATH DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- -------- -------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 2,000 $116,328 $116,331 $ 1,731 $ 983 -- --
December 31, 1989....... 2,000 116,328 116,334 1,634 886 -92.28% --
December 31, 1990....... 4,000 116,328 116,441 3,105 2,298 -53.46 2,009.30%
December 31, 1991....... 6,000 116,328 116,888 5,084 3,072 -44.85 430.07
December 31, 1992....... 8,000 116,328 117,471 6,924 4,659 -28.51 203.68
December 31, 1993....... 10,000 116,328 118,566 9,620 7,384 -12.99 125.66
December 31, 1994....... 12,000 116,328 118,026 10,072 7,865 -15.10 87.33
December 31, 1995....... 14,000 116,328 119,208 12,945 10,767 -7.99 65.76
December 31, 1996....... 16,000 116,328 120,732 15,922 13,773 -3.96 51.99
December 31, 1997....... 18,000 116,328 123,357 20,143 18,121 .16 42.69
December 31, 1998....... 20,000 116,328 125,091 24,221 22,520 2.44 35.79
December 31, 1999....... 22,000 116,328 127,054 27,760 26,379 3.37 30.60
</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 Harris
Oakmark Mid Cap Value Series' investment advisory fee of .70% of average
daily net assets for the period through April 30, 1998 and .75%
thereafter.
A-86
<PAGE>
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 55 20-year time periods beginning in 1926 and ending in 1999 (i.e.
1926-1945, 1927-1946, and so on through 1980-1999):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 52 of the 55 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 55 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 55 periods.
Over the 45 30-year time periods beginning in 1926 and ending in 1999 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 45
periods.
From 1926 through 1999 the average annual return for common stocks was
11.3%, compared to 5.6% 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)2000 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger
G. Ibbotson and Rex Sinquefield.]
---------------------
SUMMARY TABLE: HISTORIC S&P 500 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,
ten-year and twenty-year periods beginning in 1926 and ending in 1999.
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
THAN
HOLDING NEGATIVE 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
-------- -------- ------- ----------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year 27% 4% 11% 7% 11% 40%
5 years 10% 14% 14% 30% 19% 13%
10 years 3% 10% 33% 24% 28% 2%
20 years 0% 6% 31% 53% 10% 0%
</TABLE>
- --------
Used with permission. (C)2000 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
A-87
<PAGE>
DOLLAR COST AVERAGING
Dollar cost averaging does not guarantee a profit or protect against a loss.
If an investor follows a program of dollar cost averaging on a long-term
basis, and the stock fund selected performs at least as well as the S&P 500
has historically, it is likely--not guaranteed--that the price at which shares
are surrendered, for whatever reason, will be higher than the average cost per
share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Under dollar cost averaging, an investor does not invest more when
the price of shares is high and less when the price is low. When the price of
shares is low, the money invested buys more shares. When it is high, the money
invested buys fewer shares. If you have the ability and desire to maintain
this program over a long period of time (for example, 20 years), and the stock
fund you chose follows the historical upward market trends, the price at which
you sell shares should be higher than their average cost. This price could be
lower, however, if the fund chosen does not follow these historical trends.
You should consider your ability to continue on-going dollar cost averaging
purchases so that you can take advantage of periods of low price levels if you
are considering dollar cost averaging.
A-88
<PAGE>
APPENDIX D
USES OF LIFE INSURANCE
The following 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 the 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 the 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, the cash value
may be accessed to provide retirement payments. In the event of the
A-89
<PAGE>
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-90
<PAGE>
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distribu- No* Yes Loans not Yes,
tions allowed 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 your own tax advisor for
more complete information.
A-91
<PAGE>
APPENDIX F
EFFECT OF CHANGE IN TABULAR CASH VALUE
When we recalculate the Policy's scheduled premium, we also recalculate the
tabular cash value. The following are examples that demonstrate the effect of
the change in the tabular cash value on a Policy. All examples assume a Policy
issued on a male, issue age 35, nonsmoker. The gross annual premium is $2,000;
the face amount is $184,011. The tabular cash value is recalculated on the
35th Policy anniversary. Examples assume constant hypothetical gross annual
rates of return of 0%, 6% and 12%. These hypothetical rates are illustrative
only and may not reflect the rates of return you would realize under the
Policy.
IMPACT ON PARTIAL WITHDRAWALS
For a Policy with the Option 2 death benefit, the maximum withdrawal
available is the difference between the cash value and the tabular cash value.
The following shows the maximum withdrawal available one month before the 35th
Policy anniversary and at the 35th Policy anniversary, after monthly
processing.
<TABLE>
<CAPTION>
TABULAR
CASH VALUE CASH VALUE WITHDRAWAL
---------- ---------- ----------
<S> <C> <C> <C> <C>
0% Return
Before $ 14,361 $ 55,796 $ 0
After 15,904 57,391 0
6% Return
Before 86,096 55,796 30,300
After 88,109 87,893 221
12% Return
Before 375,083 55,796 319,287
After 379,678 103,413 276,265
</TABLE>
Of course, partial surrenders and Policy loans will be available according
to normal rules.
IMPACT ON OPTION 2 DEATH BENEFIT
The Option 2 death benefit generally is equal to the Policy's face amount,
plus the excess, if any, of the Policy's actual cash value over its tabular
cash value. The following examples illustrate, for the three hypothetical
rates of return, the death benefits one month before the 35th Policy
anniversary and at the 35th Policy anniversary.
(1)0% Return
DEATH BENEFIT BEFORE CHANGE
Face Amount = $184,011
Cash Value = $14,361
Tabular Cash Value = $55,796
Death Benefit = $184,011
DEATH BENEFIT AFTER CHANGE
Face Amount = $184,011
Cash Value = $15,904
Tabular Cash Value = $57,391
Death Benefit = $184,011
The death benefit equals the face amount both before and after the
recalculation date, because the cash value is less than the tabular cash
value.
A-92
<PAGE>
(2)6% Return
DEATH BENEFIT BEFORE CHANGE
Face Amount = $184,011
Cash Value = $86,096
Tabular Cash Value = $55,796
Death Benefit = $214,311 [$184,011+($85,096-55,796)]
DEATH BENEFIT AFTER CHANGE
Face Amount = $184,011
Cash Value = $88,109
Tabular Cash Value = $87,893
Death Benefit = $184,227 [184,011+(88,109-87,893)]
The death benefit decreases after the recalculation date due to the
increase in the tabular cash value.
(3)12% Return
In this situation, the cash value has grown sufficiently so that the
death benefit is equal to the cash value divided by the net single
premium per dollar of death benefit at the insured's attained age. This
calculation is made in order to satisfy Federal tax law requirements.
DEATH BENEFIT BEFORE CHANGE
Cash Value = $375,083
Tabular Cash Value = $55,796
Net Single Premium = .628316
Death Benefit = $596,967 ($375,083/.628316)
DEATH BENEFIT AFTER CHANGE
Cash Value = $379,678
Tabular Cash Value = $103,413
Net Single Premium = .629627
Death Benefit = $603,020 ($379,678/.629627)
The tabular cash value recalculation does not reduce the death benefit
because the death benefit no longer depends on the tabular cash value
amount.
IMPACT ON SPECIAL PREMIUM OPTION
The ability to use the Special Premium Option is affected by the tabular
cash value. (See "Special Premium Option" for information on how the Special
Premium Option works.)
Assuming the 0% and 6% returns on the case described above, and assuming
that the scheduled premium has been paid for the first 15 years, the Policy
Owner will not be able to exercise the Special Premium Option for the entire
remaining lifetime of the Policy.
Assuming the 12% return and payment of scheduled premiums for the first 15
years, the Policy Owner will be able to exercise the Special Premium Option
for the entire remaining lifetime of the Policy.
A-93
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of the following Sub-
Accounts: Capital Growth, Bond Income, Money Market, Stock Index, Managed,
Midcap Value (formerly Avanti Growth), Growth and Income (formerly Value
Growth), Small Cap, U.S. Government, Balanced, Equity Growth, International
Magnum Equity (formerly International Equity), Venture Value, Bond
Opportunities, Investors, Research Managers, Equity-Income, Overseas, High
Income and Asset Manager) of New England Life Insurance Company (the
"Company") as of December 31, 1999, 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, 1999, 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 4, 2000
AA-1
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)..........................
<CAPTION>
SHARES COST
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,831,583 $1,086,202,933
Back Bay
Advisors Bond
Income Series.. 738,049 79,337,797
Back Bay
Advisors Money
Market Series.. 1,481,735 148,173,522
Westpeak Stock
Index Series... 796,217 120,113,367
Back Bay
Advisors
Managed Series. 356,133 60,490,121
Goldman Sachs
Midcap Value
Series......... 303,945 41,326,387
Westpeak Growth
and Income
Series......... 476,840 86,077,139
Loomis Sayles
Small Cap
Series......... 494,133 72,214,392
Salomon Brothers
U.S. Government
Series......... 72,858 844,414
Loomis Sayles
Balanced
Series......... 1,214,912 18,213,928
Alger Equity
Growth Series.. 7,670,932 172,788,088
Morgan Stanley
International
Magnum Equity
Series......... 1,284,810 14,534,170
Davis Venture
Value Series... 6,183,625 126,513,387
Salomon Brothers
Bond
Opportunities
Series......... 104,337 1,267,848
MFS Investors
Series......... 77,411 773,570
MFS Research
Managers
Series......... 78,902 806,954
VIP Equity-
Income
Portfolio...... 6,551,702 126,034,149
VIP Overseas
Portfolio...... 5,064,896 87,116,523
VIP High Income
Portfolio...... 1,322,300 15,875,113
VIP II Asset
Manager
Portfolio...... 707,988 11,460,518
--------------
Total........... $2,270,164,320
==============
Amount due and accrued (payable) from
policy-related transactions, net........
Dividends receivable.....................
Total Assets
LIABILITIES
Due to New England Life Insurance
Company.................................
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................
<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>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2).. $1,230,974,235 $74,838,213 $148,173,522 $183,798,637 $70,090,490 $36,996,243 $94,643,283 $99,681,359
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
Series.........
Back Bay
Advisors Bond
Income Series..
Back Bay
Advisors Money
Market Series..
Westpeak Stock
Index Series...
Back Bay
Advisors
Managed Series.
Goldman Sachs
Midcap Value
Series.........
Westpeak Growth
and Income
Series.........
Loomis Sayles
Small Cap
Series.........
Salomon Brothers
U.S. Government
Series.........
Loomis Sayles
Balanced
Series.........
Alger Equity
Growth Series..
Morgan Stanley
International
Magnum Equity
Series.........
Davis Venture
Value Series...
Salomon Brothers
Bond
Opportunities
Series.........
MFS Investors
Series.........
MFS Research
Managers
Series.........
VIP Equity-
Income
Portfolio......
VIP Overseas
Portfolio......
VIP High Income
Portfolio......
VIP II Asset
Manager
Portfolio......
Total...........
Amount due and accrued (payable) from
policy-related transactions,
net............... (136,071) 21,370 560,723 49,113 (11,519) 39,928 7,685 84,454
Dividends receivable.. -- -- -- -- -- -- -- --
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
Total Assets 1,230,838,164 74,859,583 148,734,245 183,847,750 70,078,971 37,036,171 94,650,968 99,765,813
LIABILITIES
Due to New England Life Insurance
Company........... 84,134,782 6,819,176 11,964,362 19,325,681 5,908,740 3,542,818 9,540,656 10,713,149
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES....... $1,146,703,382 $68,040,407 $136,769,883 $164,522,069 $64,170,231 $33,493,353 $85,110,312 $89,052,664
=============== =========== ============ ============ ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
AA-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS MANAGERS
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ------------ ------------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$787,592 $16,826,533 $225,065,146 $18,180,067 $164,917,275 $1,113,279 $794,240 $945,245
10,965 157,461 236,677 96,973 124,826 5,544 (2,239) (2,139)
-- -- -- -- -- -- -- --
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
798,557 16,983,994 225,301,823 18,277,040 165,042,101 1,118,823 792,001 943,106
41,247 1,694,626 26,656,245 2,058,494 18,572,069 57,789 99,163 154,903
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
$757,310 $15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
======== =========== ============ =========== ============ ========== ======== ========
<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>
$168,444,262 $138,980,751 $14,955,213 $13,218,146 $2,703,423,731
(5,066) 101,197 2,344 592 1,342,818
-- -- -- -- --
- ------------- ------------ ----------- ----------- --------------
168,439,196 139,081,948 14,957,557 13,218,738 2,704,766,549
16,380,286 12,743,559 1,476,634 1,448,557 233,332,936
- ------------- ------------ ----------- ----------- --------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============ =========== =========== ==============
</TABLE>
See Notes to Financial Statements
AA-3
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<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>
INCOME
Dividends.............. $239,049,928 $5,475,221 $5,083,165 $ 4,154,533 $9,783,326 $ 459,624 $12,174,462 $ 260,319
EXPENSE
Mortality and expense
risk charge (Note 3)... 6,723,595 471,818 638,578 1,013,735 421,255 330,436 578,297 538,571
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net investment income
(loss)................. 232,326,333 5,003,403 4,444,587 3,140,798 9,362,071 129,188 11,596,165 (278,252)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695 3,516,783
End of period......... 144,771,302 (4,499,584) -- 63,685,270 9,600,369 (4,330,144) 8,566,144 27,466,967
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net change in
unrealized appreciation
(depreciation)......... (71,198,193) (5,708,857) -- 23,720,103 (3,685,297) (522,617) (5,050,551) 23,950,184
Net realized gain
(loss) on investments.. (572,298) 1,487 -- (52,322) (65,614) (9,202) (33,403) 2,146
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net realized and
unrealized gain (loss)
on investments......... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819) (5,083,954) 23,952,330
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $160,555,842 $ (703,967) $4,444,587 $26,808,579 $5,611,160 $ (402,631) $ 6,512,211 $23,674,078
============ ========== ========== =========== ========== ========== =========== ===========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-4
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ----------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 46,383 $ 998,875 $26,651,028 $ 60,426 $ 3,101,039 $ 90,809 $ 1,921 $ --
10,668 126,629 1,069,420 119,372 961,922 24,177 533 1,540
-------- ----------- ----------- ---------- ----------- -------- ------- --------
35,715 872,246 25,581,608 (58,946) 2,139,117 66,632 1,388 (1,540)
15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) -- --
(56,822) (1,387,395) 52,277,058 3,645,897 38,403,888 (154,569) 20,670 138,291
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(72,031) (2,424,386) 21,569,890 3,450,943 18,395,240 (107,975) 20,670 138,291
(1,634) (14,874) (116,438) (4,634) (47,139) 1,097 8,670 (34,566)
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(73,665) (2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
-------- ----------- ----------- ---------- ----------- -------- ------- --------
$(37,950) $(1,567,014) $47,035,060 $3,387,363 $20,487,218 $(40,246) $30,728 $102,185
======== =========== =========== ========== =========== ======== ======= ========
<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>
$ 7,478,140 $ 3,746,050 $1,147,254 $ 713,060 $320,475,563
1,005,310 681,381 87,077 74,260 14,878,574
- ------------ ------------ ----------- ----------- -------------
6,472,830 3,064,669 1,060,177 638,800 305,596,989
39,593,709 14,768,529 (611,552) 1,247,559 390,670,173
42,410,113 51,864,228 (919,900) 1,757,628 433,259,411
- ------------ ------------ ----------- ----------- -------------
2,816,404 37,095,699 (308,348) 510,069 42,589,238
(592,373) (370,244) 48,706 (3,669) (1,856,304)
- ------------ ------------ ----------- ----------- -------------
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------ ------------ ----------- ----------- -------------
$ 8,696,861 $39,790,124 $ 800,535 $1,145,200 $346,329,923
============ ============ =========== =========== =============
</TABLE>
See Notes to Financial Statements
AA-5
<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
AA-6
<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
AA-7
<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
AA-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------- ---------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH ASSET
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ---------- -------- ---------- ------------- ----------- ------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $5,434,055 $393,295 $528,401
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502 33,135
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793 495,266
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520 971,097
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920 423,450
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234 5,368
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154 428,818
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $6,689,446 $965,947 $924,084
========== ====== ======== ========== ========= =========== ======= =========== ========== ======== ========
<CAPTION>
- ----------------------------------------------------------------------------------
TOTAL
- ------------
<S>
$231,072,203
7,755,657
- ------------
223,316,546
194,486,245
203,203,584
- ------------
8,717,339
2,491,649
- ------------
11,208,988
- ------------
$234,525,534
============
</TABLE>
See Notes to Financial Statements
AA-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, 1999
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK MIDCAP
GROWTH INCOME MARKET INDEX MANAGED VALUE
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 232,326,333 $ 5,003,403 $ 4,444,587 $ 3,140,798 $ 9,362,071 $ 129,188
Net realized and
unrealized gain
(loss) on
investments..... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 160,555,842 (703,967) 4,444,587 26,808,579 5,611,160 (402,631)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 142,211,177 13,805,688 214,469,972 29,988,746 10,115,433 7,098,841
Net transfers
(to) from other
sub-accounts.... (3,426,057) 5,993,183 (132,180,032) 28,975,401 3,130,211 (1,928,318)
Net transfers
(to) from New
England Life
Insurance
Company......... (127,342,172) (8,870,541) (35,295,568) (21,960,448) (7,936,560) (3,985,601)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 11,442,948 10,928,330 46,994,372 37,003,699 5,309,084 1,184,922
-------------- ----------- ------------- ------------ ----------- -----------
Net increase
(decrease) in
net assets...... 171,998,790 10,224,363 51,438,959 63,812,278 10,920,244 782,291
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 974,704,592 57,816,044 85,330,924 100,709,791 53,249,987 32,711,062
-------------- ----------- ------------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $1,146,703,382 $68,040,407 $ 136,769,883 $164,522,069 $64,170,231 $33,493,353
============== =========== ============= ============ =========== ===========
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------
GROWTH
AND SMALL U.S.
INCOME CAP GOVERNMENT
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ----------
<S> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 11,596,165 $ (278,252) $ 35,715
Net realized and
unrealized gain
(loss) on
investments..... (5,083,954) 23,952,330 (73,665)
------------- ------------- ----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 6,512,211 23,674,078 (37,950)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 15,769,644 16,994,060 --
Net transfers
(to) from other
sub-accounts.... 14,513,514 (3,433,209) 79,255
Net transfers
(to) from New
England Life
Insurance
Company......... (10,636,850) (11,981,152) 24,393
------------- ------------- ----------
Net Increase in
net assets
resulting from
policy related
transactions... 19,646,308 1,579,699 103,648
------------- ------------- ----------
Net increase
(decrease) in
net assets...... 26,158,519 25,253,777 65,698
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 58,951,793 63,798,887 691,612
------------- ------------- ----------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 85,110,312 $ 89,052,664 $757,310
============= ============= ==========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-10
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INTERNATIONAL
EQUITY MAGNUM VENTURE BOND RESEARCH
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ------------ ------------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 872,246 $ 25,581,608 $ (58,946) $ 2,139,117 $ 66,632 $ 1,388 $ (1,540)
(2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
- ----------- ------------ ----------- ------------ ---------- -------- --------
(1,567,014) 47,035,060 3,387,363 20,487,218 (40,246) 30,728 102,185
4,093,455 31,646,457 3,430,299 32,031,496 -- 75,935 86,667
1,865,860 59,949,102 1,463,742 22,546,367 1,100 684,756 763,549
(1,579,581) (30,858,890) (2,381,414) (23,867,517) 9,526 (98,581) (164,198)
- ----------- ------------ ----------- ------------ ---------- -------- --------
4,379,734 60,736,669 2,512,627 30,710,346 10,626 662,110 686,018
- ----------- ------------ ----------- ------------ ---------- -------- --------
2,812,720 107,771,729 5,899,990 51,197,564 (29,620) 692,838 788,203
12,476,648 90,873,849 10,318,556 95,272,468 1,090,654 -- --
- ----------- ------------ ----------- ------------ ---------- -------- --------
$15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
=========== ============ =========== ============ ========== ======== ========
<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>
$ 6,472,830 $ 3,064,669 $ 1,060,177 $ 638,800 $ 305,596,989
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------- ------------- ------------ ------------ ---------------
8,696,861 39,790,124 800,535 1,145,200 346,329,923
26,649,674 17,254,614 3,727,099 2,393,210 571,842,467
(2,823,843) 1,086,949 1,354,057 1,384,413 --
(19,017,183) (16,067,097) (2,389,723) (1,339,833) (325,738,990)
- ------------- ------------- ------------ ------------ ---------------
4,808,648 2,274,466 2,691,433 2,437,790 246,103,477
- ------------- ------------- ------------ ------------ ---------------
13,505,509 42,064,590 3,491,968 3,582,990 592,433,400
138,553,401 84,273,799 9,988,955 8,187,191 1,879,000,213
- ------------- ------------- ------------ ------------ ---------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============= ============ ============ ===============
</TABLE>
See Notes to Financial Statements
AA-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, 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
AA-12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ----------- ------------ ------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920 $ 7,186,371 $ 5,543,453 $ 996,739
17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076 14,641,919 9,507,956 (558,420)
-- 3,185,034 18,566,913 3,131,225 24,165,947 -- 26,170,240 17,386,996 2,434,923
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788 8,474,098 342,473 2,823,884
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947) (18,064,178) (10,788,946) (1,891,706)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841 16,580,160 6,940,523 3,367,101
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917 31,222,080 16,448,479 2,808,682
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737 107,331,321 67,825,320 7,180,273
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
$ 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>
$ 785,371 $ 176,340,272
280,598 194,717,637
- ------------ ---------------
1,065,969 371,057,909
1,626,307 516,501,076
1,297,121 --
(1,251,084) (277,154,223)
- ------------ ---------------
1,672,344 239,346,853
- ------------ ---------------
2,738,313 610,404,762
5,448,878 1,268,595,450
- ------------ ---------------
$ 8,187,191 $1,879,000,212
============ ===============
</TABLE>
See Notes to Financial Statements
AA-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, 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
AA-14
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ----------- ---------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
- ----------- ---------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
- ----------- ---------------
944,699 147,685,118
- ----------- ---------------
1,868,783 382,210,652
3,580,095 886,384,798
- ----------- ---------------
$5,448,878 $1,268,595,450
=========== ===============
</TABLE>
See Notes to Financial Statements
AA-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. NELICO is an indirect wholly-owned subsidiary of Metropolitan Life
Insurance Company.
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 twenty 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 twenty 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 (the "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% and .60% 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 load, administrative charges, premium tax charges, risk charges,
cost of insurance charges, and charges for rider benefits and special risk
charges.
AA-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. New England Investment Management,
Inc. (formerly, 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 Securities and Exchange Commission 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................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors Bond
Income................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors
Managed................ New England Investment Management, Inc. Back Bay Advisors, L.P. *
Westpeak Stock Index.... New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Westpeak Growth and
Income................. New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Goldman Sachs Midcap
Value.................. New England Investment Management, Inc. Goldman Sachs Asset Management
Loomis Sayles Small Cap. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Loomis Sayles Balanced.. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Morgan Stanley
International Magnum New England Investment Management, Inc. Morgan Stanley Dean Witter
Equity................. Investment Management Inc.
Davis Venture Value..... New England Investment Management, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth..... New England Investment Management, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. New England Investment Management, Inc. Salomon Brothers Asset
Government............. Management Inc
Salomon Brothers
Strategic Bond
Opportunities.......... New England Investment Management, Inc. Salomon Brothers Asset
Management Inc
MFS Investors........... New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research Managers... New England Investment Management, Inc. Massachusetts Financial
Services Company
</TABLE>
*An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and Morgan Stanley Dean
Witter Investment Management Inc. became the sub-adviser of the Series,
succeeding Draycott Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management ("Goldman Sachs") became
the sub-adviser 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.
AA-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, 1999:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series............................. $242,198,370 $241,707,039
Back Bay Advisors Money Market Series............. 327,644,952 277,923,925
Back Bay Advisors Bond Income Series.............. 36,178,905 24,991,981
Back Bay Advisors Managed Series.................. 24,394,855 18,680,924
Westpeak Stock Index Series....................... 81,767,015 38,818,677
Westpeak Growth and Income Series................. 43,834,304 22,733,178
Goldman Sachs Midcap Value Series................. 14,632,125 14,003,124
Loomis Sayles Small Cap Series.................... 32,520,472 28,114,874
Loomis Sayles Balanced Series..................... 11,121,785 7,665,490
Morgan Stanley International Magnum Equity Series. 8,500,269 5,336,590
Davis Venture Value Series........................ 74,752,030 39,161,371
Alger Equity Growth Series........................ 112,530,144 37,977,904
Salomon Bothers U.S. Government Series............ 728,153 711,346
Salomon Bothers Strategic Bond Opportunities
Series........................................... 504,155 619,331
MFS Investors Series *............................ 853,017 92,276
MFS Research Managers Series *.................... 869,163 29,781
VIP Equity-Income Portfolio....................... 48,322,887 44,032,962
VIP Overseas Portfolio............................ 36,474,794 30,947,930
VIP High Income Portfolio......................... 10,500,033 7,853,618
VIP II Asset Manager Portfolio.................... 6,412,123 3,587,782
</TABLE>
*For the period April 30, 1999 (Commencement of Operations) to December 31,
1999.
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.
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 % 15.30 %
Bond Income............. 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 % (0.81)%
Money Market............ 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 % 4.60 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 % 19.96 %
Managed................. 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 % 9.59 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% 0.00 %
Growth and Income.................................. 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 % 8.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.96 %
Overseas........................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 % 42.13 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.45)% 28.40% 30.22% 24.42 % (2.04)% 31.29 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.58)% 20.18% 13.63% 17.26 % (4.66)% 7.78 %
Asset Manager............................................... (4.41)% 16.55% 14.20% 20.23 % 14.65 % 10.70 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.84% 12.78% 25.19 % 47.27 % 33.66 %
Balanced............................................................. 13.75% 16.50% 15.77 % 8.73 % (5.39)%
International Magnum Equity.......................................... 3.85% 6.30% (1.64)% 6.90 % 24.18 %
Venture Value........................................................ 21.64% 25.40% 33.03 % 14.02 % 17.11 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.61 %
Research Managers........................................................................................ 19.52 %
</TABLE>
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 % 15.18 %
Bond Income............. 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 % (0.91)%
Money Market............ 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 % 4.49 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 % 19.84 %
Managed................. 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 % 9.48 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.10)%
Growth and Income.................................. 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 % 8.86 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.85 %
Overseas........................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 % 41.99 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.52)% 28.27% 30.09% 24.29 % (2.14)% 31.16 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.61)% 20.06% 13.52% 17.14 % (4.76)% 7.67 %
Asset Manager............................................... (4.45)% 16.43% 14.09% 20.11 % 14.53 % 10.59 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.76% 12.66% 25.06 % 47.12 % 33.53 %
Balanced............................................................. 13.67% 16.39% 15.66 % 8.62 % (5.49)%
International Magnum Equity.......................................... 3.79% 6.19% (1.74)% 6.79 % 24.05 %
Venture Value........................................................ 21.56% 25.27% 32.90 % 13.90 % 16.99 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.54 %
Research Managers........................................................................................ 19.44 %
</TABLE>
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 % 15.01 %
Bond Income............. 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 % (1.06)%
Money Market............ 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 % 4.34 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 % 19.66 %
Managed................. 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 % 9.31 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.25)%
Growth and Income.................................. 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 % 8.70 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.69 %
Overseas........................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 % 41.77 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.61)% 28.08% 29.90% 24.11 % (2.28)% 30.96 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.66)% 19.88% 13.35% 16.96 % (4.90)% 7.51 %
Asset Manager............................................... (4.49)% 16.26% 13.91% 19.93 % 14.36 % 10.43 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.64% 12.49% 24.88 % 46.90 % 33.33 %
Balanced............................................................. 13.56% 16.21% 15.48 % 8.46 % (5.63)%
International Magnum Equity.......................................... 3.68% 6.03% (1.89)% 6.63 % 23.87 %
Venture Value........................................................ 21.44% 25.08% 32.70 % 13.73 % 16.81 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.44 %
Research Managers........................................................................................ 19.32 %
</TABLE>
AA-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*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 % 14.67 %
Bond Income............. 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 % (1.36)%
Money Market............ 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 % 4.03 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 % 19.30 %
Managed................. 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 % 8.98 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.55)%
Growth and Income.................................. 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 % 8.37 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.38 %
Overseas........................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 % 41.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.80)% 27.69% 29.50% 23.73% (2.58)% 30.57 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.76)% 19.53% 13.00% 16.61% (5.19)% 7.19 %
Asset Manager............................................... (4.59)% 15.91% 13.57% 19.57% 14.02 % 10.10 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.39% 12.15% 24.50 % 46.46 % 32.93 %
Balanced............................................................. 13.33% 15.86% 15.14 % 8.13 % (5.91)%
International Magnum Equity.......................................... 3.48% 5.71% (2.18)% 6.31 % 23.50 %
Venture Value........................................................ 21.20% 24.71% 32.30 % 13.39 % 16.47 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.23 %
Research Managers........................................................................................ 19.08 %
</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%.
AA-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*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 % 14.84 %
Bond Income............. 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 % (1.21)%
Money Market............ 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 % 4.18 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 % 19.48 %
Managed................. 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 % 9.15 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.40)%
Growth and Income.................................. 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 % 8.53 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.54 %
Overseas........................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 % 41.56 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.71)% 27.88% 29.70% 23.92 % (2.43)% 30.77 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.71)% 19.71% 13.17% 16.79 % (5.04)% 7.35 %
Asset Manager............................................... (4.54)% 16.08% 13.74% 19.75 % 14.19 % 10.26 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.51% 12.32% 24.69 % 46.68 % 33.13 %
Balanced............................................................. 13.44% 16.03% 15.31 % 8.29 % (5.77)%
International Magnum Equity.......................................... 3.58% 5.87% (2.04)% 6.47 % 23.68 %
Venture Value........................................................ 21.32% 24.89% 32.50 % 13.56 % 16.64 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.34 %
Research Managers........................................................................................ 19.20 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .75%.
Certain Zenith Flexible Life Policies currently have a mortality and expense
risk charge at an annual rate of .60%.
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 % 15.70 %
Bond Income............. 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 6.33 %
Overseas........................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 % 42.63 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (.37)% 20.79% 13.75% 17.67 % (4.33)% 8.15 %
Asset Manager............................................... (4.65)% 17.68% 14.31% 20.65 % 15.05 % 11.09 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
AA-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
---------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government............................................................... 4.55% 8.47 % 7.61 % 0.17 %
Strategic Bond Opportunities.................................................. 8.46% 11.07 % 2.04 % 1.44 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</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.
AA-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Policyholders of New England Life Insurance
Company:
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company and subsidiaries (the "Company") as of December 31,
1999 and 1998, 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, 1999. These consolidated 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 New England Life Insurance
Company and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
AA-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities, Available for Sale, at Estimated Fair
Value................................................. $ 735,697 $ 769,364
Equity Securities, at Fair Value....................... 22,685 13,240
Policy Loans........................................... 181,995 135,800
Short-Term Investments................................. 62,619 52,285
Other Invested Assets.................................. 16,798 16,372
---------- ----------
Total Investments................................... 1,019,794 987,061
Cash and Cash Equivalents............................... 84,371 43,598
Deferred Policy Acquisition Costs....................... 930,703 710,961
Accrued Investment Income............................... 29,940 21,802
Premiums and Other Receivables.......................... 119,750 145,117
Other Assets............................................ 105,982 111,067
Separate Account Assets................................. 4,840,029 3,258,383
---------- ----------
TOTAL ASSETS........................................ $7,130,569 $5,277,989
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits.................................. $ 614,927 $ 561,746
Policyholder Account Balances........................... 325,385 210,242
Other Policyholder Funds................................ 245,339 186,255
Policyholder Dividends Payable.......................... 977 609
Short and Long-Term Debt................................ 75,053 82,855
Income Taxes Payable:
Current................................................ (77) 10,984
Deferred............................................... 38,669 42,334
Due to Parent........................................... 72,247 789
Other Liabilities....................................... 64,717 78,721
Separate Account Liabilities............................ 4,840,029 3,258,383
---------- ----------
TOTAL LIABILITIES................................... 6,277,266 4,432,918
---------- ----------
Commitments and Contingencies (Notes 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..................................... 647,273 647,273
Retained Earnings....................................... 214,528 177,859
Accumulated Other Comprehensive Income.................. (10,998) 17,439
---------- ----------
TOTAL EQUITY........................................ 853,303 845,071
---------- ----------
TOTAL LIABILITIES AND EQUITY............................ $7,130,569 $5,277,989
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums........................................... $123,638 $100,689 $ 63,616
Universal Life and Investment-Type Product Policy
Fees.............................................. 220,841 173,766 145,157
Net Investment Income.............................. 68,498 49,077 61,059
Investment Gains (Losses), Net..................... 2,922 5,610 890
Commissions, Fees and Other Income................. 265,891 192,411 28,302
-------- -------- --------
TOTAL REVENUES................................... 681,790 521,553 299,024
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.............................. 193,293 149,687 100,180
Interest Credited to Policyholder Account Balances. 10,721 7,735 6,220
Policyholder Dividends............................. 20,827 22,989 21,325
Other Operating Costs and Expenses................. 381,881 316,659 144,342
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS.............. 606,722 497,070 272,067
-------- -------- --------
Income From Operations Before Income Taxes......... 75,068 24,483 26,957
Income Taxes....................................... 29,344 13,046 4,988
-------- -------- --------
NET INCOME......................................... $ 45,724 $ 11,437 $ 21,969
-------- -------- --------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Investment Gains (Losses) (Net of
Related Offsets, Reclassification Adjustments and
Income Taxes, of $45,376, $(299) and $(16,588),
Respectively).................................... (28,437) 92 13,620
-------- -------- --------
COMPREHENSIVE INCOME............................... $ 17,287 $ 11,529 $ 35,589
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-28
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
STOCK & OTHER
CONTRIBUTED RETAINED COMPREHENSIVE
CAPITAL EARNINGS INCOME TOTAL
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
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
Net Income....................... 45,724 45,724
Preferred Stock Dividends........ (9,055) (9,055)
Change in Net Unrealized
Investment Gains (Losses)....... (28,437) (28,437)
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1999.... $649,773 $214,528 $(10,998) $853,303
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-29
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES.......... $(159,314) $(311,296) $(121,838)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 114,478 164,566 145,197
Equity Securities............................ 2,491 39,333 32,806
Other, Net................................... (1) 721 128
Purchases of:
Available for Sale Fixed Maturities.......... (157,761) (184,810) (326,059)
Equity Securities............................ (9,590) (80,066) 0
Real Estate.................................. (3,251) (3,644) 0
Fixed Asset Property and Equipment........... 0 (1,459) (101)
Other Assets................................. (302) (89) 0
Net Change in Short-Term Investments.......... (10,334) (24,341) 128,616
Net Change in Policy Loans.................... (46,195) (31,017) (28,520)
Other, Net.................................... 23,443 1,631 177
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (87,022) (119,175) (47,756)
--------- --------- ---------
Cash Flows from Financing Activities:
Capital Contributions......................... 0 200,000 46,681
Dividends Paid................................ (9,055) 0 0
Repayment of Debt............................. (13,232) (8,670) (3,181)
Policyholder Account Balances:
Deposits..................................... 517,551 358,090 244,338
Withdrawals.................................. (242,388) (149,499) (95,066)
Financial Reinsurance Receivables............. 34,233 0 1,823
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 287,109 399,921 194,595
--------- --------- ---------
Change in Cash and Cash Equivalents............ 40,773 (30,550) 25,001
Cash and Cash Equivalents, Beginning of Year... 43,598 74,148 49,147
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 84,371 $ 43,598 $ 74,148
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................. $ 87 $ 3,830 $ 1,495
========= ========= =========
Income Taxes Paid............................. $ 30,045 $ 14,118 $ 5,470
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-30
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET INCOME................................... $ 45,724 $ 11,437 $ 21,969
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net........................................ (186,467) (145,787) (140,578)
Change in Accrued Investment Income......... (8,138) (3,090) (4,999)
Change in Premiums and Other Receivables.... 25,367 (82,081) (57,095)
Gains from Sales of Investments, Net........ (2,922) (5,610) (890)
Depreciation and Amortization Expenses...... 11,350 13,137 10,085
Interest Credited to Policyholder Account
Balances................................... 10,721 7,735 6,220
Universal Life and Investment-Type Product
Policy Fee Income.......................... (220,841) (173,766) (145,157)
Change in Future Policy Benefits............ 53,181 61,317 35,540
Change in Other Policyholder Funds.......... 59,084 73,814 6,309
Change in Policyholder Dividends Payable.... 368 188 5,701
Change in Income Taxes Payable.............. (26,871) 2,358 1,674
Other, Net.................................. 80,130 (70,948) 139,383
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES........ $(159,314) $(311,296) $(121,838)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-31
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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 and independent brokers located throughout the
United States. The Company also provides participating and non-participating
traditional life insurance, fixed annuity contracts, pension products, as well
as, group life, medical, and 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 New
England Investment Management, 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 New England
Investment Management, 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 acquisition, 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.
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. Effective September 1, 1999, Newbury began
providing errors and omissions coverage to certain of the life insurance
agents of MetLife through a facultative reinsurance agreement with Fireman's
Fund 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.
New England Investment Management, Inc. (NEIM), which changed its name from
TNE Advisers, Inc. in March 1999, was incorporated on August 26, 1994, and is
registered as an investment adviser with the SEC, under the Investment
Advisers Act of 1940. NEIM was organized to serve as an investment adviser to
certain series of the New England Zenith Fund.
AA-32
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
NL Holding Corporation and subsidiaries (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 of NL Holding, is a National
Association of Securities Dealers (NASD) registered broker/dealer. N&L
Associates, a wholly owned subsidiary of NL Holding, is a general insurance
agent which sells insurance policies and other insurance related products
through its licensed brokers and independent agents.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP). The
Commonwealth of Massachusetts Division of Insurance (the "Division")
recognizes only statutory accounting practices for determining and reporting
the financial condition and results of operations of an insurance company for
determining solvency under the Massachusetts Insurance Law. No consideration
is given by the Division to financial statements prepared in accordance with
GAAP in making such determination.
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, but more than a minimal interest, under the equity method of
accounting.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1999 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 accumulated 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.
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.
AA-33
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
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 $36,122, and $24,772 at December 31, 1999 and 1998,
respectively. Related depreciation and amortization expense was $11,350,
$13,137 and $10,085 for the years ended December 31, 1999, 1998 and 1997,
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.
Information regarding deferred policy acquisition costs is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1........................... $710,961 $565,769 $434,636
Capitalized during the year.................... 216,913 182,943 157,670
-------- -------- --------
Total........................................ 927,874 748,712 592,306
Amortization allocated to:
Net realized investment gains................. (616) (5,282) 0
Unrealized investment gains (losses).......... 33,276 (595) (9,446)
Other Expenses................................ (29,831) (31,874) (17,091)
-------- -------- --------
Total amortization........................... 2,829 (37,751) (26,537)
Balance at December 31......................... $930,703 $710,961 $565,769
======== ======== ========
</TABLE>
AA-34
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amortization of deferred policy acquisition costs is allocated to (1) realized
investment gains and losses to provide consolidated statement of income
information regarding the impact of such gains and losses on the amount of the
amortization, (2) unrealized investment gains and losses to provide
information regarding the amount of deferred policy acquisition costs that
would have been amortized if such gains and losses had been realized and (3)
other expenses to provide amounts related to the gross margins or profits
originating from transactions other than investment gains and losses.
Realized investment gains and losses related to certain products have a direct
impact on the amortization of deferred policy acquisition costs. Presenting
realized investment gains and losses net of related amortization of deferred
policy acquisition costs provides information useful in evaluating the
operating performance of the Company. This presentation may not be comparable
to presentations made by other insurers.
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 ending December 31, 2000. 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>
OTHER INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired, which
represents goodwill, and the value of business 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.
Excess of Purchase Price Over Fair Value of Net Assets Acquired
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net Balance, January 1.......................... $ 21,931 $ 0 $ 0
Acquisitions................................... 0 23,498 0
Amortization................................... (2,350) (1,567) 0
--------- --------- -----
Net Balance, December 31........................ $ 19,581 $ 21,931 $ 0
========= ========= =====
December 31
Accumulated Amortization....................... $ (3,917) $ (1,567) $ 0
========= ========= =====
</TABLE>
AA-35
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of (a) net level premium reserves for
death and endowment policy benefits (calculated based upon the nonforfeiture
interest rate, ranging from 4% to 4.5%, and mortality rates guaranteed in
calculating the cash surrender values described in such contracts), (b) the
liability for terminal dividends and (c) premium deficiency reserves, which
are established when the liabilities for future policy benefits plus the
present value of expected future gross premiums are insufficient to provide
for expected future policy benefits and expenses after deferred policy
acquisition costs are written off.
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 6%.
Future policy benefit liabilities for non-medical health insurance are
calculated using the net level premium method and assumptions as to future
morbidity, withdrawals and interest, which provide a margin for adverse
deviation. 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. The interest rates used in
establishing such liabilities range from 3% 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 3.8% to 7.25%, less expense and mortality charges and
withdrawals.
The liability for unpaid claims represents the amount estimated for claims
that have been reported but not settled and claims incurred but not reported.
Liabilities for unpaid claims are estimated based upon the Company's
historical experience and other actuarial assumptions that consider the
effects of current developments, anticipated trends and risk management
programs. Revisions of these estimates are included in operations in the year
such refinements are made.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues 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 operations 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
operations include interest credited to policyholders.
DIVIDENDS TO POLICYHOLDERS
Dividends to policyholders are determined annually by the board of directors.
The aggregate amount of policyholders' 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.
AA-36
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
PARTICIPATING BUSINESS
Participating business represented approximately 3.49% and 3.52% of the
Company's life insurance in force, and 8.30% and 7.96% of the number of life
insurance policies in force at December 31, 1999 and 1998, respectively.
Participating policies represented approximately 56.77%, 95.78% and 68.24% of
gross life insurance premiums, for the years ended December 31, 1999, 1998 and
1997, 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 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.
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 ACCOUNTS
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. See Note 14.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position ("SOP")
98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5
broadly defines start-up activities. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. Adoption of SOP
98-5 did not have a material effect on the Company's consolidated financial
statements.
Effective January 1, 1999, the Company adopted SOP 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 adoption of SOP 98-1 resulted in
the capitalization of $6 million of software costs which would have otherwise
been expensed in 1999.
Effective January 1, 1999, the Company adopted SOP 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. Adoption of SOP 97-3 did not have a material effect on
the Company's consolidated financial statements.
AA-37
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133 ("SFAS 137"). SFAS 137 defers the provisions of SFAS 133 until January 1,
2001. The provisions of SFAS 133 require, 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 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 in the process of
quantifying the impact of SFAS 133 on its consolidated financial statements.
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 statements.
2. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The components of net investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities.............................. $ 54,490 $ 53,467 $ 50,348
Equity securities............................. 13,896 (9,118) 4,915
Real estate................................... 831 4,149 815
Policy loans.................................. 9,157 6,855 5,081
Cash, cash equivalents and short-term
investments.................................. 3,494 861 4,160
Other investment income....................... (7,529) 76 591
-------- -------- --------
Gross investment income....................... 74,339 56,290 65,910
Investment expenses........................... (5,841) (7,213) (4,851)
-------- -------- --------
Net Investment income......................... $ 68,498 $ 49,077 $ 61,059
======== ======== ========
</TABLE>
Realized investment gains (losses), net, including changes in valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---------------- --------
<S> <C> <C> <C>
Fixed maturities................................. $ 850 $ 10,899 $ (774)
Equity securities................................ 0 0 1,040
Other invested assets............................ 2,688 (7) (8)
------- -------- -------
Subtotal....................................... 3,538 10,892 258
Less: Amounts allocable to amortization of
deferred policy acquisition costs............... 616 5,282 (632)
------- -------- -------
Investment gains (losses), net................... $ 2,922 $ 5,610 $ 890
======= ======== =======
</TABLE>
AA-38
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Realized investment gains have been reduced by (1) deferred policy acquisition
amortization to the extent that such amortization results from realized
investment gains and losses, (2) additions to future policy benefits resulting
from the need to establish additional liabilities due to the recognition of
investment gains, and (3) additions to participating contractholder accounts
when amounts equal to such investment gains and losses are credited to the
contractholders' accounts. This presentation may not be comparable to
presentations made by other insurers.
The changes in unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................... $ 17,439 $17,347 $ 3,727
Change in unrealized investment gains
(losses)..................................... (73,813) 391 30,207
Change in unrealized investment gains (losses)
attributable to:
Deferred policy acquisition costs............ 33,276 (595) (9,446)
Deferred income tax (expense) benefit........ 12,100 296 (7,141)
-------- ------- -------
Balance at December 31......................... $(10,998) $17,439 $17,347
======== ======= =======
</TABLE>
The components of unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities........................... $(35,205) $ 40,928 $ 41,706
Equity securities.......................... 3,511 1,191 0
Other...................................... 0 0 22
-------- -------- --------
(31,694) 42,119 41,728
Amounts of unrealized investment gains
(losses)
Attributable to:
Deferred policy acquisition costs.......... 17,478 (15,798) (15,202)
Deferred income tax (expense) benefit...... 3,218 (8,882) (9,179)
-------- -------- --------
Balance, end of year......................... $(10,998) $ 17,439 $ 17,347
======== ======== ========
</TABLE>
AA-39
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed maturities 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, 1999
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. Government
corporations and agencies.............. $ 33,909 $ 20 $ 439 $ 33,490
Foreign governments..................... 20,748 201 581 20,368
Corporate............................... 670,602 5,074 40,237 635,439
Mortgage-backed securities.............. 44,470 934 203 45,201
Other................................... 1,199 0 0 1,199
-------- ------- -------- --------
Total Fixed Maturities................. $770,928 $ 6,229 $ 41,460 $735,697
======== ======= ======== ========
Equity Securities:
Common stocks........................... 19,174 4,191 680 22,685
-------- ------- -------- --------
Total Equity Securities................ $ 19,174 $ 4,191 $ 680 $ 22,685
======== ======= ======== ========
</TABLE>
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>
AA-40
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
The amortized cost and estimated fair value of fixed maturities classified as
available for sale, by contractual maturity, at December 31, 1999 are shown
below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 15,910 $ 15,857
Due after one year through five years................... 92,303 90,635
Due after five years through ten years.................. 131,438 130,492
Due after ten years..................................... 486,807 453,512
-------- --------
Subtotal.............................................. 726,458 690,496
Mortgage-backed securities.............................. 44,470 45,201
-------- --------
Total................................................. $770,928 $735,697
======== ========
</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.
Sales of fixed maturities and equity securities are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Fixed Maturities
Proceeds.......................................... $64,925 $120,416 $110,301
Gross realized gains.............................. $ 1,897 $ 10,901 $ 1,036
Gross realized losses............................. $ 1,047 $ 2 $ 1,810
Equity Securities
Proceeds.......................................... $ 2,491 $ 39,333 $ 32,806
Gross realized gains.............................. $ 0 $ 0 $ 1,344
Gross realized losses............................. $ 0 $ 0 $ 304
</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. The bonds and short-term investments at fair market value held by
the trust were $518,436 and $526,723, at December 31, 1999 and 1998,
respectively.
STATUTORY DEPOSITS
The Company had assets on deposit with regulatory agencies of $6,245 and
$6,245 at December 31, 1999 and 1998, respectively.
AA-41
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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.
Effective July 1, 1999, the Company reinsured the general account liability
for certain group pension variable contracts assumed from Sun Life Assurance
Company of Canada (U.S.). The initial liability assumed included in
Policyholder Account Balances was $53,675 at July 1, 1999, and was $44,431 at
December 31, 1999.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $163,159 $110,768 $ 30,975
Reinsurance assumed............................ 57,479 58,329 62,315
Reinsurance ceded.............................. (97,000) (68,408) (29,674)
-------- -------- --------
Net premiums earned............................ $123,638 $100,689 $ 63,616
======== ======== ========
</TABLE>
Reinsurance recoverables, included in other receivables, were $83,091 and
$103,677 at December 31, 1999 and 1998, respectively.
Reinsurance and ceded commissions payables, included in other liabilities,
were $23,400 and $21,152 at December 31, 1999 and 1998, 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,
------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1............................. $ 1,953 $ 809 $ 0
Less: Reinsurance recoverables.................. 1,565 647 0
-------- -------- ------
Net balance at January 1......................... 388 162 0
-------- -------- ------
Incurred related to:
Current year.................................... 472 303 173
Prior years..................................... (33) (57) (11)
-------- -------- ------
439 246 162
-------- -------- ------
Paid related to:
Current year.................................... 23 2 0
Prior years..................................... 19 18 0
-------- -------- ------
42 20 0
-------- -------- ------
Balance at December 31........................... 785 388 162
Add: Reinsurance recoverables................... 3,147 1,565 647
-------- -------- ------
Balance at December 31........................... $ 3,932 $ 1,953 $ 809
======== ======== ======
</TABLE>
AA-42
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
1999
Federal............................................. $20,910 $ 8,134 $29,044
State and Local..................................... 0 300 300
------- ------- -------
Total............................................. $20,910 $ 8,434 $29,344
======= ======= =======
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
======= ======= =======
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $75,068 $24,483 $26,957
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 26,274 8,569 9,435
Tax effect of:
Tax exempt investment income.................... 0 (100) 0
State and local income taxes.................... 300 100 (1,013)
Tax credits..................................... 0 (100) 0
Prior year taxes................................ 684 0 0
Other, net...................................... 2,086 4,577 (3,434)
------- ------- -------
Income Tax Expense............................... $29,344 $13,046 $ 4,988
======= ======= =======
</TABLE>
AA-43
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................. $ 233,504 $ 177,017
Unrealized investment losses, net.................... 3,218 0
Other, net........................................... 15,035 15,453
--------- ---------
Total gross assets.................................. 251,757 192,470
--------- ---------
Deferred tax liabilities:
Investments.......................................... (216) (1,068)
Deferred policy acquisition costs.................... (267,249) (208,881)
Unrealized investment gains, net..................... 0 (8,882)
Other, net........................................... (22,961) (15,973)
--------- ---------
Total gross liabilities............................. (290,426) (234,804)
--------- ---------
Net deferred tax liability............................ $ (38,669) $ (42,334)
========= =========
</TABLE>
AA-44
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
DECEMBER 31,
--------------------------------------
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at
beginning of year..................... $252,487 $210,590 $ 48,987 $ 46,591
Service cost........................... 8,172 6,927 973 942
Interest cost.......................... 18,488 15,878 3,351 3,267
Actuarial gain......................... (15,914) 14,831 (3,214) 1,256
Divestitures........................... 0 0 0 0
Curtailments........................... 0 0 0 0
Terminations........................... 0 0 0 0
Change in benefits..................... 0 11,935 0 (10)
Benefits paid.......................... (8,444) (7,674) (3,475) (3,059)
-------- -------- -------- --------
Projected benefit obligation at end of
year.................................. $254,789 $252,487 $ 46,622 $ 48,987
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Contract value of plan assets at
beginning of year..................... $184,803 $150,820 $ 0 $ 0
Actual return on plan assets........... 25,300 28,309 0 0
Employer contribution.................. 7,620 12,997 0 0
Benefits paid.......................... (7,500) (7,323) 0 0
-------- -------- -------- --------
Contract value of plan assets at end of
year.................................. $210,223 $184,803 $ 0 $ 0
-------- -------- -------- --------
Over/(Under) funded.................... $(44,566) $(67,684) $(46,622) $(48,987)
Unrecognized net asset at transition... (503) (1,674) 0 0
Unrecognized net actuarial gains....... 7,681 34,350 (20,068) (17,787)
Unrecognized prior service cost........ 15,942 16,854 (8) (9)
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $(66,698) $(66,783)
======== ======== ======== ========
Qualified plan prepaid (accrued)
pension cost.......................... $ (2,675) $ (2,164) $ 0 $ 0
Non-qualified plan prepaid (accrued)
pension cost.......................... (18,771) (15,990) 0 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $ 0 $ 0
======== ======== ======== ========
</TABLE>
AA-45
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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
------------------ ------------------ ------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected
benefit obligation..... $224,653 $226,717 $ 30,136 $ 25,770 $254,789 $252,487
Aggregate contract value
of plan assets
(principally Company
contracts)............. 210,223 184,803 0 0 210,223 184,803
-------- -------- -------- -------- -------- --------
Over/(Under) funded..... $(14,430) $(41,914) $(30,136) $(25,770) $(44,566) $(67,684)
======== ======== ======== ======== ======== ========
</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>
PENSION OTHER
BENEFITS BENEFITS
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31,
Discount rate........................................ 7.00% 7.25% 7.75% 7.00%
Expected return on plan assets....................... 8.50% 8.50% -- --
Rate of compensation increase........................ 5.50% 4.50% -- --
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 7.00% in 1999,
gradually decreasing to 5.00% over five years and generally 7.40% in 1998,
gradually decreasing to 5.00% over five 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... 13% (10%)
Effect on accumulated postretirement benefit obligation... 11% (10%)
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- ---------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 8,172 $ 6,927 $ 5,310 $ 973 $ 942 $ 885
Interest cost........... 18,488 15,878 13,958 3,351 3,267 3,707
Expected return on plan
assets................. (15,698) (12,866) (22,250) 0 0 0
Net amortization and
deferrals.............. 1,322 669 11,092 (934) 167 (871)
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost................... $ 12,284 $ 10,608 $ 8,110 $3,390 $4,376 $3,721
======== ======== ======== ====== ====== ======
</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 $2,187, $2,252 and $1,588 for the years ended
December 31, 1999, 1998 and 1997, respectively.
AA-46
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
GROSS
RENTAL SUB-RENTAL RENTAL
INCOME INCOME EXPENSE
------ ---------- --------
<S> <C> <C> <C>
2000.............................................. $31 $ 7,845 $ 14,738
2001.............................................. 0 7,854 14,042
2002.............................................. 0 7,864 13,413
2003.............................................. 0 8,026 13,822
2004.............................................. 0 8,206 12,836
Thereafter........................................ 0 26,319 117,722
--- ------- --------
Total........................................... $31 $66,114 $186,573
=== ======= ========
</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 loan was collateralized by sales
loads and surrender charges collected on a defined block of variable life
insurance policies issued by the Company. Repayment was structured in a manner
to result in repayment over a term of five years or less. The Company repaid
the entire outstanding balance of the loan in January 1999. Repayments of
principal and interest of $13,310, $8,612 and $3,155 were made during 1999,
1998 and 1997, respectively. The interest rate applied was 6.4%, 6.4% and 5.8%
at January 31, 1999 and December 31, 1998 and 1997, respectively.
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 the 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 $75,053. No repayments were made during 1999,
1998 and 1997, respectively.
9. COMMITMENTS AND 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 for a portion of the Company's
premium taxes. The Company paid guaranty fund assessments of approximately,
$197, $204, and $43 in 1999, 1998, and 1997, respectively, of which $197,
$203, and $33 were to be credited against premium taxes.
AA-47
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Various litigation, claims and assessments against the Company, in addition to
those otherwise provided for in the Company's consolidated financial
statements, have arisen in the course of the Company's business, including,
but not limited to, in connection with its activities as an insurer, employer,
investor, investment advisor and taxpayer. Further, state insurance regulatory
authorities and other Federal and state authorities regularly make inquiries
and conduct investigations concerning the Company's compliance with applicable
insurance and other laws and regulations.
In some of the matters referred to above, large and/or indeterminate amounts,
including punitive damages and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of the Company's management that their outcomes,
after consideration of available insurance and reinsurance and the provisions
made in the Company's consolidated financial statements, are not likely to
have a material adverse effect on the Company's consolidated financial
position. However, given the large and/or indeterminate amounts sought in
certain of these matters and the inherent unpredictability of litigation, it
is possible that an adverse outcome in certain matters could, from time to
time, have a material adverse effect on the Company's operating results or
cash flows in particular annual periods.
10. OTHER EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Compensation................................... $ 96,887 $ 86,822 $ 58,754
Commissions.................................... 205,463 166,218 77,351
Interest and debt expense...................... 5,493 9,374 6,750
Amortization of policy acquisition costs....... 29,831 31,874 17,091
Capitalization of policy acquisition costs..... (216,913) (182,943) (157,670)
Rent expense, net of sub-lease income.......... 5,550 4,252 4,473
Insurance taxes, licenses, and fees............ 21,253 21,802 15,002
Other.......................................... 234,317 179,260 122,591
--------- --------- ---------
Total........................................ $ 381,881 $ 316,659 $ 144,342
========= ========= =========
</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.
AA-48
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amounts related to the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS
Fixed maturities......................................... $735,697 $735,697
Equity securities........................................ 22,685 22,685
Policy loans............................................. 181,995 181,995
Short-term investments................................... 62,619 62,619
Cash and cash equivalents................................ 84,371 84,371
LIABILITIES
Policyholder account balances............................ 84,037 82,765
Other policyholder funds................................. 525 525
Short and long-term debt................................. 75,053 75,053
<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................................. 646 646
Short and long-term debt................................. 82,855 82,855
</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.
AA-49
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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.
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,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 399,864 $ 456,525 $ 307,290
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (435,980) (336,821) (279,510)
Deferred policy acquisition costs........ 930,703 710,961 565,769
Deferred federal income taxes............ (38,669) (42,334) (42,066)
Valuation of investments................. (46,890) 53,514 56,873
Statutory asset valuation reserves....... 13,514 10,636 8,388
Statutory interest maintenance reserve... 462 816 571
Surplus notes............................ (75,053) (69,560) (64,016)
Receivables from reinsurance
transactions............................ 5,049 26,004 27,519
Other, net............................... 100,303 35,330 52,724
--------- --------- ---------
GAAP equity................................ $ 853,303 $ 845,071 $ 633,542
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (40,928) $ (28,043) $ (37,358)
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (295,868) (196,754) (311,588)
Deferred policy acquisition costs........ 186,497 135,788 139,947
Deferred federal income taxes............ (580) 688 3,801
Valuation of investments................. 13,681 (13,490) 0
Statutory interest maintenance reserve... (354) 245 342
Other, net............................... 183,276 113,003 226,825
--------- --------- ---------
GAAP net income............................ $ 45,724 $ 11,437 $ 21,969
========= ========= =========
</TABLE>
AA-50
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
13. RELATED PARTY TRANSACTIONS
MetLife and the Company have 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 $160,792, $193,641 and $186,757 including accruals
for administrative services on NEMLICO administered contracts for 1999, 1998,
and 1997, respectively. In addition, $9,442, $14,123 and $600 for 1999, 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.
During 1999, the Company paid $9,055 of preferred stock dividends to MetLife
Credit Corporation.
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. The Company paid
$2,730 and $6,166 in 1999 and 1998, respectively under these agreements.
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 $4,219, $2,340
and $2,340 in 1999, 1998 and 1997, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1999 were $12,736
and $751, respectively. Included in accrued income at December 31, 1999, were
amounts receivable for sales-based commissions from NEF and SSR totaling $312
and $4, respectively. In 1999, NES earned asset-based income of $11,184 and
$183 on average assets of approximately $4,500,000 and $101,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1999 were amounts receivable for asset-based commissions from NEF
and SSR totaling $307 and $0, respectively.
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
$75,053 and $69,560 at December 31, 1999 and 1998, respectively.
AA-51
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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.
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 $4,840,029
and $3,258,383 at December 31, 1999 and 1998, 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 $36,934, $30,714 and $12,642 in 1999, 1998 and 1997,
respectively.
15. YEAR 2000
The Year 2000 issue was 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 costs associated with additional mainframe capacity necessary to
accommodate a four-digit 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 major system
failures 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 implemented a plan to resolve the issue. There can be
no assurances that the Year 2000 plan of the Company or that of its vendors or
third parties have resolved all Year 2000 issues. Further, there can be no
assurance that there will not be any future system failure or that such
failure, if any, will not have a material impact on the operations of the
Company.
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, medical, and 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,
1999, 1998 and 1997. 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.
AA-52
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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, 1999
-------------------------------------------------------------------
GROUP CORPORATE
INDIVIDUAL INDIVIDUAL GROUP LIFE, AND
LIFE ANNUITY PENSION A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 63,358 $ 0 $ 15 $ 28,652 $ 31,613 $ 123,638
Universal Life and
Investment-Type Product
Policy Fees............ 199,701 16,771 4,369 0 0 220,841
Net Investment Income... (31,181) (108) (13) 167 99,633 68,498
Investment Gains
(Losses), Net.......... 402 1 0 (1) 2,520 2,922
Commissions, Fees and
Other Revenues......... 25,376 6,708 3,005 34,610 196,192 265,891
---------- ---------- -------- -------- -------- ----------
Total Revenues........ 257,656 23,372 7,376 63,428 329,958 681,790
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 124,727 4,624 113 23,814 40,015 193,293
Interest Credited to
Policyholder Account
Balances............... 8,811 1,623 1,220 30 (963) 10,721
Policyholder Dividends.. 1,739 0 0 (32) 19,120 20,827
Other Operating Costs
and Expenses........... 128,466 21,826 6,196 36,326 189,067 381,881
---------- ---------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 263,743 28,073 7,529 60,138 247,239 606,722
Income from Operations
Before Income Taxes.... (6,087) (4,701) (153) 3,290 82,719 75,068
Income Taxes............ 1,357 (1,563) (26) 1,244 28,332 29,344
---------- ---------- -------- -------- -------- ----------
Net Income.............. $ (7,444) $ (3,138) $ (127) $ 2,046 $ 54,387 $ 45,724
========== ========== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 771,879 $ 63,123 $ 10,499 $ 8,539 $ 76,663 $ 930,703
Separate Account Assets. 2,704,767 1,398,993 517,920 218,349 0 4,840,029
Liabilities
Policyholder
Liabilities............ 535,662 43,674 45,407 43,936 517,949 1,186,628
Separate Account
Liabilities............ 2,704,767 1,398,993 517,920 218,349 0 4,840,029
</TABLE>
AA-53
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<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 Revenues......... 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
Liabilities
Policyholder
Liabilities............ 380,586 38,912 768 19,233 519,353 958,852
Separate Account
Liabilities............ 2,073,552 835,648 235,467 113,716 0 3,258,383
</TABLE>
AA-54
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<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 Revenues......... 9,542 3,253 266 4,383 10,858 28,302
---------- -------- -------- ------- -------- ----------
Total Revenues........ 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
Liabilities
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>
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.
AA-55
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Life Plus II Prospectus dated May
1, 2000. This Variable Life Policy is offered by New England Life Insurance
Company.
_____________________________________ _____________________________________
(Date) (Client's Signature)
<PAGE>
NEW ENGLAND LIFE
INSURANCE COMPANY
ZENITH LIFE PLUS II
VARIABLE ORDINARY LIFE INSURANCE POLICIES
SUPPLEMENT DATED MAY 1, 2000 TO
PROSPECTUS DATED APRIL 30, 1999
This supplement updates certain information contained in the prospectus
dated April 30, 1999. You should read and retain this supplement. A complete
prospectus dated May 1, 2000 is available free of charge upon written request
to New England Life Insurance Company ("NELICO").
NELICO is an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife"). MetLife is a wholly-owned subsidiary of
MetLife, Inc., a publicly-traded company. NELICO's Home Office is 501 Boylston
Street, Boston Massachusetts 02116.
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 SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE THAT CONTAINS
THE STATEMENT OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE,
AND OTHER INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE ADDRESS OF THE SITE IS
HTTP://WWW.SEC.GOV.
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.
<PAGE>
POLICY VALUES AND BENEFITS
AGE 100
The Policies endow at age 100 of the insured for the greater of the current
cash value and the Policy face amount (each reduced by any outstanding loans
plus interest). You can elect to continue the Policy beyond age 100 of the
insured instead of taking payment at age 100. Sixty days before the
anniversary when the insured is age 100 we will send you an election form. If
you elect to continue the Policy, the cash value will remain in the sub-
accounts and/or Fixed Account that you have chosen. We will not deduct Policy
charges or accept premium payments after age 100. You can continue to make
loans, surrenders and account transfers. The death benefit after age 100
equals the greater of (1) the Policy's face amount at age 100 (as reduced by
any later surrenders or face amount reductions), and (2) the cash value on the
date of death. The proceeds we pay will be reduced by any outstanding loan
plus interest.
TABULAR CASH VALUE
The Policy's tabular cash value is a hypothetical value. We use it to
determine (1) the Option 2 death benefit, (2) whether you can skip a scheduled
premium payment under the Special Premium Option, and (3) how much cash value
you can withdraw from the Policy. (See "Death Benefit", "Special Premium
Option" and "Partial Surrender and Partial Withdrawal".) We recalculate the
tabular cash value when we recalculate the Policy's scheduled premium.
When we recalculate the scheduled premium (at the Policy anniversary when
the insured is age 70, or after 10 years, if later), the new scheduled premium
and tabular cash value amounts depend on the Policy's actual cash value on the
recalculation date. (See "Premiums--Scheduled Premium Recalculation".)
The tabular cash value increases on the premium recalculation date if the
Policy's actual cash value on that date is higher than the tabular cash value
just before the recalculation. We determine the new scheduled premium amount
based on the new tabular cash value. (See "Premiums--Scheduled Premium
Recalculation".)
After the premium recalculation date, we determine the tabular cash value in
the same manner as before the recalculation, starting with the tabular cash
value on the premium recalculation date and assuming payment of the
recalculated scheduled premium starting at age 71 (or 11 years after the
Policy is issued, if later).
The change in the scheduled premium does not take effect until the next
Policy anniversary, but the new tabular cash value takes effect immediately.
This means that the amount of the Option 2 death benefit, the cash value
available for withdrawal, and your ability to skip scheduled premium payments
under the Special Premium Option may also be affected on the premium
recalculation date. See Appendix F for examples.
Your premium payment schedule (annual vs. quarterly, for example) affects
the amount of the tabular cash value. We calculate the tabular cash value on
any day up to the premium recalculation date as if the current payment
schedule had always been in effect. Thereafter, we calculate it as if the
current payment schedule had been in effect since the premium recalculation
date.
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.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE
ACCOUNT
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds.
A-2
<PAGE>
The following table shows the annual operating expenses for each New England
Zenith Fund series, based on actual 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 BAY BACK BAY WESTPEAK LOOMIS
ADVISORS ADVISORS BACK 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.......... .62% .40% .35% .50% .25% .68% .90%
Other Expenses.......... .04% .08% .05% .08% .10% .06% .10%
---- ---- ---- ---- ---- ---- -----
Total Series Operating
Expenses............. .66% .48% .40% .58% .35% .74% 1.00%
</TABLE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
HARRIS MORGAN
OAKMARK STANLEY DAVIS ALGER MFS
MID CAP 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.......... .13% .07% .40% .06% .05% .15% .15%
---- ---- ----- ---- ---- ---- ----
Total Series Operating
Expenses............. .88% .77% 1.30% .81% .80% .90% .90%
</TABLE>
- --------
* Without the applicable expense cap or expense deferral arrangement
(described below), Total Series Operating Expenses for the year ended
December 31, 1999 would have been: MFS Investors Series, 2.03%; and MFS
Research Managers Series, 2.03%, both on an annualized basis since the
Series' start date of April 30, 1999. In 1999 the management fee for the
Loomis Sayles Small Cap Series was 1.00%, and Total Series Operating
Expenses were capped at 1.00%. Without the expense cap, Total Series
Operating Expenses would have been 1.10%.
Our affiliate, New England Investment Management, Inc., advises the series
of the Zenith Fund except for the Capital Growth Series. New England
Investment Management voluntarily limits the expenses (other than brokerage
costs, interest, taxes or extraordinary expenses) of certain series with
either an expense cap or expense deferral arrangement. Under the expense cap,
New England Investment Management bears expenses of the Loomis Sayles Small
Cap Series that exceed 1.00% of average daily net assets. Under the expense
deferral agreement, New England Investment Management bears expenses of the
Harris Oakmark Mid Cap Value, Morgan Stanley International Magnum Equity, MFS
Investors, and MFS Research Managers Series that exceed .90% of average daily
net assets (1.30% for the Morgan Stanley International Magnum Equity Series)
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.
MetLife is the investment advisor for the Portfolios of the Metropolitan
Series Fund, Inc. The Portfolios pay investment management fees to MetLife and
also bear other expenses. The chart below shows the total operating expenses
of the Portfolios based on the year ended December 31, 1999 and current
expense subsidies (in the case of the Putnam Large Cap Growth Portfolio,
anticipated expenses for 2000) as a percentage of Portfolio net assets.
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Putnam Large Cap Growth....................... .80% .20% 1.00%*
Janus Mid Cap................................. .67% .04% .71%
Russell 2000(R) Index......................... .25% .30% .55%*
</TABLE>
- --------
* MetLife voluntarily pays expenses (other than the management fee, brokerage
commissions, taxes, interest and other loan costs, and any unusual one-time
expenses) of the Putnam Large Cap Growth Portfolio that exceed
A-3
<PAGE>
.20% of net assets until the earlier of (i) July 1, 2002 and (ii) the date
when the Portfolio's net assets reach $100 million. Without this subsidy, the
anticipated total annual expenses of the Putnam Large Cap Growth Portfolio
would be 1.39%. MetLife also paid such expenses that exceeded .20% of net
assets for the Russell 2000 Index Portfolio until December 3, 1999. Without
this subsidy the total annual expenses of the Russell 2000 Index Portfolio
for 1999 would have been .89%. Beginning February 22, 2000, MetLife is paying
such expenses that exceed .30% of the Russell 2000 Index Portfolio's net
assets until the earlier of (i) April 30, 2001 and (ii) the date when the
Portfolio's assets reach $200 million. Total Annual Expenses for the Russell
2000 Index Portfolio are shown as if this subsidy was in effect for the
entire current year. MetLife can terminate these arrangements at any time
upon notice to the Board of Directors and to Fund shareholders.
The investment adviser for VIP and VIP II is Fidelity Management & Research
Company ("FMR"). The Portfolios of VIP and VIP II pay investment management
fees to FMR and also bear certain other expenses. For the year ended December
31, 1999, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
VIP Equity-Income.............................. .48% .09% .57%*
VIP Overseas................................... .73% .18% .91%*
VIP High Income................................ .58% .11% .69%
VIP II Asset Manager........................... .53% .10% .63%*
</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 .56% for
VIP Equity-Income Portfolio, .87% for VIP Overseas Portfolio and .62% for
VIP II Asset Manager Portfolio.
An investment adviser or affiliates thereof may compensate NELICO and/or
certain affiliates for administrative, distribution, or other services
relating to Eligible Funds. This compensation is based on assets of the
Eligible Funds attributable to the Policies and certain other variable
insurance products that we and our affiliates issue. Some advisers and/or
affiliates may pay us more than others. New England Securities may also
receive brokerage commissions on securities transactions initiated by an
investment adviser.
PREMIUMS
SCHEDULED PREMIUM RECALCULATION
We recalculate the initial scheduled premium for the Policy on the
anniversary when the insured is age 70, or 10 years after the Policy is
issued, whichever is later. We recalculate the scheduled premium using the
Policy's current cash value and assuming that guaranteed maximum charges will
apply and that the Policy will earn a 4.5% net rate of return. The
recalculation is done before we credit the premium and deduct the monthly
charges due on that anniversary. The recalculated scheduled premium will not
be less than the initial scheduled premium, and it will not be higher than the
maximum scheduled premium shown on your Policy's schedule page. The
recalculated scheduled premium applies to the Policy starting on the following
Policy anniversary, when the insured has reached age 71 (or 11 years after the
Policy is issued, whichever is later).
If the Policy earned a net return of greater than 4.5%, if you made
unscheduled payments, if less than the guaranteed maximum charges were
deducted or if you made no loans or withdrawals of cash value, the increase in
the scheduled premium could be reduced, or possibly avoided. Generally, the
Policy's scheduled premium will not increase if the Policy's sub-accounts have
earned the daily equivalent of a constant annual net rate of return (after
deduction of the mortality and expense risk charge and Eligible Fund fees and
expenses) of 6% to 8%, depending on the insured's age at issue, sex and
underwriting class, and: you have paid each scheduled premium (and have not
used the Special Premium Option to skip payments); you have made no loans,
partial withdrawals, partial surrenders or unscheduled payments; and all
Policy charges including cost of insurance charges do not increase above their
current levels. However, variations in the rate of return, even if it averages
6% to 8%, could cause a scheduled premium increase.
A-4
<PAGE>
If your scheduled premium increases and you do not wish to pay the higher
amount, you may (i) lapse the Policy to variable paid-up insurance (if
available under your Policy) or to a fixed-benefit lapse option, (ii) take a
partial surrender to reduce the Policy's face amount and cash value and keep
the scheduled premium at its initial level (as long as the remaining face
amount meets our minimum face amount requirement), or (iii) reduce the
Policy's face amount, without reducing the Policy's cash value (except by the
amount of any Surrender Charge that applies).
For a description of how the premium recalculation affects the Policy's
tabular cash value, see "Tabular Cash Value".
OTHER POLICY FEATURES
ACCELERATION OF DEATH BENEFIT RIDER
This feature is not currently offered and is deleted from the prospectus.
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. We currently allow 12 sub-account transfers
per Policy year. 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". You may distribute your Policy's cash
value among no more than ten accounts (including the Fixed Account) at any one
time.
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. In addition, the Metropolitan Series Fund, Inc. may
restrict or refuse purchases or redemptions of shares in its Portfolios as a
result of certain market timing activities. You should read the prospectuses
of these Eligible Funds for more details.
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 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
A-5
<PAGE>
averaging program when you apply for the Policy or at a later date by
contacting our Home Office. 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. There is no extra charge for this
feature.
Ask your registered representative about the availability of this feature.
PAYMENT OF PROCEEDS
The third paragraph of this section is revised as follows:
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 proceeds, which are maintained in our general
account or that of an affiliate, through checkbook privileges with the bank.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
During the first 24 months after the Policy's issue date, you can exchange
it for a fixed-benefit life insurance policy, provided that (1) you repay any
policy loans and (2) the Policy has not lapsed. If you exercise this option,
you will have to make up any investment loss you had under the variable life
insurance policy. We make the exchange without evidence of insurability. The
new policy will have the same face amount, policy date, issue age and risk
classification for the insured 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 exchange. The exchange may result in a cost or credit to you.
For a Policy issued to some group or sponsored arrangements, you may (if
approved in your state) have the additional option of exchanging at any time
during the first 36 months after the Policy's issue date, if the Policy has
not lapsed, to a fixed-benefit term life insurance policy issued by us or an
affiliate. Contact us or your registered representative for more information
about this feature.
THE VARIABLE ACCOUNT
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 the S&P 500 Index.
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.
A-6
<PAGE>
The Zenith Harris Oakmark Mid Cap Value Series (formerly, the 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 Balanced Series (formerly, the Loomis Sayles Balanced Series).
Its investment objective is long-term total return from a combination of
capital appreciation and 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.
The Metropolitan Putnam Large Cap Growth Portfolio.* Its investment
objective is capital appreciation.
The Metropolitan Janus Mid Cap Portfolio.* Its investment objective is long-
term growth of capital.
The Metropolitan Russell 2000 Index Portfolio.* Its investment objective is
to equal the return of the Russell 2000 Index.
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.
- --------
* Availability of these Portfolios is subject to any necessary state insurance
department approvals.
WE INTEND TO SUBSTITUTE SHARES OF THE PUTNAM INTERNATIONAL STOCK PORTFOLIO
OF THE METROPOLITAN SERIES FUND, INC. FOR SHARES OF THE MORGAN STANLEY
INTERNATIONAL MAGNUM EQUITY SERIES OF THE NEW ENGLAND ZENITH FUND ONCE WE
RECEIVE NECESSARY REGULATORY APPROVAL (CURRENTLY ANTICIPATED DURING THE FOURTH
QUARTER OF 2000).
The Zenith Fund and the Metropolitan Series Fund, Inc. are open-end
management investment companies, more commonly known as mutual funds. These
funds are available as investment vehicles for separate investment accounts of
MetLife, NELICO, and other life insurance companies.
VIP and VIP II are 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.
A-7
<PAGE>
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 Capital Growth Management
Growth Limited Partnership ("CGM")*
Back Bay Ad-
visors Money
Market New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay Ad-
visors Bond
Income New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay Ad-
visors Man-
aged New England Investment Management, Inc. Back Bay Advisors, L.P.*
Westpeak
Stock Index New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Westpeak New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Growth and
Income
Loomis Sayles
Small Cap New England Investment Management, Inc. Loomis, Sayles & Company, L.P.*
Balanced New England Investment Management, Inc. Wellington Management Company, LLP
Morgan Stan- New England Investment Management, Inc. Morgan Stanley Dean Witter
ley Interna- Investment Management, Inc.
tional Mag-
num Equity
Harris
Oakmark Mid
Cap Value New England Investment Management, Inc. Harris Associates L.P.*
Davis Venture
Value New England Investment Management, Inc. Davis Selected Advisers, L.P.**
Alger Equity
Growth New England Investment Management, Inc. Fred Alger Management, Inc.
MFS Investors New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research New England Investment Management, Inc. Massachusetts Financial
Managers Services Company
</TABLE>
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
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, Harris Oakmark Mid Cap Value Series
and Loomis Sayles Small Cap Series, New England Investment Management 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 Harris Oakmark Mid Cap Value Series'
sub-adviser was Loomis, Sayles until May 1, 1998, when Goldman Sachs Asset
Management, a separate operating division of Goldman Sachs & Co., became the
sub-adviser. Harris Associates became the sub-adviser on May 1, 2000. The
Balanced Series' sub-adviser was Loomis, Sayles until May 1, 2000, when
Wellington Management Company 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.
A-8
<PAGE>
MetLife is the investment adviser for the Metropolitan Series Fund
Portfolios. Putnam Investment Management, Inc. is the sub-investment manager
of the Putnam Large Cap Growth Portfolio. Janus Capital Corporation is the
sub-investment manager of the Janus Mid Cap Portfolio. For more information
regarding the investment adviser and sub-investment managers of the
Metropolitan Series Fund Portfolios, see the Metropolitan Series Fund
prospectus attached at the end of this prospectus and its Statement of
Additional Information.
Fidelity Management & Research Company ("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 FMR, see
the VIP and VIP II prospectuses attached at the end of this prospectus and
their Statements of Additional Information.
A-9
<PAGE>
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
Policy should satisfy the applicable requirements. There is less guidance,
however, with respect to Policies issued on a substandard risk 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
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to
allocate 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.
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.
A-10
<PAGE>
If there is a reduction in the benefits under the Policy during the first
seven Policy years, for example, as a result of a partial surrender, the 7-pay
test will have to be reapplied as if the Policy had originally been issued at
the reduced face amount. If there is a "material change" in the Policy's
benefits or other terms, even after the first seven Policy years, the Policy
may have to be retested as if it were a newly issued Policy. A material change
can occur, for example, when there is an increase in the death benefit which
is due to the payment of an unnecessary premium. Unnecessary premiums are
premiums paid into the Policy which are not needed in order to provide a death
benefit equal to the lowest death benefit that was payable in the first seven
Policy years.
To prevent your Policy from becoming a Modified Endowment Contract, it may
be necessary to limit premium payments. This may be the case when the insured
reaches very high ages, even if you have not made any unscheduled payments for
the Policy. The point at which you may have to limit your scheduled premium
payments will depend on the issue age, sex and underwriting class of the
insured, investment experience and the amount of any unscheduled payments you
have made. You may be able to limit payment of scheduled premiums by using the
Special Premium Option, when it is available, or by allowing the Policy to
lapse to paid-up insurance. (See "Special Premium Option" and "Default and
Lapse Options".) 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.
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.
If a Policy becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a
modified endowment contract.
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.
If a Policy loan is outstanding when a Policy is canceled or lapses, the
amount of the outstanding indebtedness will be added to the amount
A-11
<PAGE>
distributed and will be taxed accordingly. 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.
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. For a tax-qualified pension plan, the tax
deferred accrual feature is provided by the plan. Therefore, there should be
reasons other than tax deferral for acquiring a life insurance policy within a
tax-qualified pension plan.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy
tax requirements to be treated as nontaxable. Plan loan requirements and
provisions may differ from Policy loan provisions. Failure of plan loans to
comply with the requirements and provisions of the DOL regulations and of tax
law may result in adverse tax consequences and/or adverse consequences under
ERISA. Plan fiduciaries and participants should consult a qualified adviser
before requesting a loan under a Policy held in connection with a retirement
plan.
Businesses can use the Policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the Policy for any arrangement the value of which depends
in part on its tax consequences, you should consult a qualified tax adviser.
In recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a
new Policy or a change in an existing Policy should consult a tax adviser.
We believe that Policies subject to Puerto Rican tax law will generally
receive treatment similar, with certain modifications, to that described
above. Among other differences, Policies governed by Puerto Rican tax law are
not currently subject to the rules described above regarding Modified
Endowment Contracts. You should consult your tax adviser with respect to
Puerto Rican tax law governing the Policies.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or otherwise. Consult a tax adviser with
respect to legislative developments and their effect on the Policy.
NELICO'S INCOME TAXES
Under current Federal income tax law NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for company Federal income taxes, except for the charge for
federal taxes that is deducted from scheduled premiums and unscheduled
payments. 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.
A-12
<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
NAME AND PRINCIPAL DURING THE PAST FIVE
BUSINESS ADDRESS YEARS
------------------------------------ -----------------------------------------
<C> <S>
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
Metropolitan Life Insurance Company Chairman, President and Chief Executive
One Madison Avenue Officer of Metropolitan Life Insurance
New York, NY 10010 Company since 1998; formerly, Director,
President and 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
6 Tarbox Road as Principal of The Vermont Partnership,
Jericho, VT 05465 a business consulting firm located in
Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England
Mutual.
Edward A. Fox Director of NELICO since 1996 and
RR Box 67-15 Chairman of the Board of SLM Holdings
Harborside, ME 04642 since 1997; formerly, Director 1994-1996
of New England Mutual.
George J. Goodman Director of NELICO since 1996 and author,
Adam Smith's Global Television 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
Ten Sterling Place President of Merrimack Higher Education
Bow, NH 03304 Associates, Inc. since 1998; formerly
Executive Director and Chief Executive
Officer 1994-1997 of the California
Academy of Sciences; Director 1987-1996
of New England Mutual.
Philip K. Howard, Esq. Director of NELICO since 1996 and Partner
Covington & Burling of the law firm of Covington & Burling
1330 Avenue of the Americas in New York City.
New York, NY 10019
Bernard A. Leventhal Director of NELICO since 1996; formerly,
Burlington Industries Vice Chairman of the Board of Directors
1345 Avenue of the Americas 1995-1998 of Burlington Industries,
New York, NY 10105 Inc.; Director and Executive Vice
President 1993-1995 of Burlington
Menswear Division.
Thomas J. May Director of NELICO since 1996 and
Boston Edison Company Chairman, President and Chief Executive
800 Boylston Street Officer of Boston Edison Company since
Boston, MA 02199 1994; formerly, Director 1994-1996 of
New England Mutual.
Stewart G. Nagler Director of NELICO since 1996 and Vice
Metropolitan Life Chairman and Chief Financial Officer of
One Madison Avenue Metropolitan Life since 1998; formerly,
New York, NY 10010 Senior Executive Vice President and
Chief Financial Officer 1986-1998 of
Metropolitan Life Insurance Company.
</TABLE>
A-13
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
NAME AND PRINCIPAL DURING THE PAST FIVE
BUSINESS ADDRESS YEARS
----------------------------------- -----------------------------------------
<C> <S>
Catherine A. Rein Director of NELICO since 1998 and
Metropolitan Property and Casualty President and Chief Executive Officer of
Insurance Company Metropolitan Property and Casualty
700 Quaker Lane Insurance Company since 1999; formerly,
Warwick, RI 02887 Senior Executive Vice President 1998-
1999 and Executive Vice President 1989-
1998 of Metropolitan Life Insurance
Company.
Rand N. Stowell Director of NELICO since 1996 and
P.O. Box 60 President of United Timber Corp. and
Weld, ME 04285 President, Randwell Co. since 2000 of
Weld, Maine; formerly, Director 1990-
1996 of New England Mutual.
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
DURING THE PAST FIVE
NAME YEARS
---- -----------------------------------------
<C> <S>
James M. Benson See Directors above.
David W. Allen Senior Vice President of NELICO since
1996; formerly, Senior Vice President
1994-1996 and Vice President 1990-1994
of New England Mutual.
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 Farla 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.
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
EXPERIENCE
DURING THE PAST FIVE
NAME YEARS
---- --------------------------------------------------------
<C> <S>
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.
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.
</TABLE>
The principal business address for each of the directors and officers is the
same as NELICO's except where indicated otherwise.
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.
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 James J.
Reilly, 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-15
<PAGE>
APPENDIX F
EFFECT OF CHANGE IN TABULAR CASH VALUE
When we recalculate the Policy's scheduled premium, we also recalculate the
tabular cash value. The following are examples that demonstrate the effect of
the change in the tabular cash value on a Policy. All examples assume a Policy
issued on a male, issue age 35, nonsmoker. The gross annual premium is $2,000;
the face amount is $184,011. The tabular cash value is recalculated on the
35th Policy anniversary. Examples assume constant hypothetical gross annual
rates of return of 0%, 6% and 12%. These hypothetical rates are illustrative
only and may not reflect the rates of return you would realize under the
Policy.
IMPACT ON PARTIAL WITHDRAWALS
For a Policy with the Option 2 death benefit, the maximum withdrawal
available is the difference between the cash value and the tabular cash value.
The following shows the maximum withdrawal available one month before the 35th
Policy anniversary and at the 35th Policy anniversary, after monthly
processing.
<TABLE>
<CAPTION>
TABULAR
CASH VALUE CASH VALUE WITHDRAWAL
---------- ---------- ----------
<S> <C> <C> <C>
0%Return
Before $ 14,361 $ 55,796 $ 0
After 15,904 57,391 0
6%Return
Before 86,096 55,796 30,300
After 88,109 87,893 221
12%Return
Before 375,083 55,796 319,287
After 379,678 103,413 276,265
</TABLE>
Of course, partial surrenders and Policy loans will be available according
to normal rules.
IMPACT ON OPTION 2 DEATH BENEFIT
The Option 2 death benefit generally is equal to the Policy's face amount,
plus the excess, if any, of the Policy's actual cash value over its tabular
cash value. The following examples illustrate, for the three hypothetical
rates of return, the death benefits one month before the 35th Policy
anniversary and at the 35th Policy anniversary.
(1)0% Return
DEATH BENEFIT BEFORE CHANGE
Face Amount = $184,011
Cash Value = $14,361
Tabular Cash Value = $55,796
Death Benefit = $184,011
DEATH BENEFIT AFTER CHANGE
Face Amount = $184,011
Cash Value = $15,904
Tabular Cash Value = $57,391
Death Benefit = $184,011
The death benefit equals the face amount both before and after the
recalculation date, because the cash value is less than the tabular cash
value.
A-16
<PAGE>
(2)6% Return
DEATH BENEFIT BEFORE CHANGE
Face Amount = $184,011
Cash Value = $86,096
Tabular Cash Value = $55,796
Death Benefit = $214,311 [$184,011+($85,096-55,796)]
DEATH BENEFIT AFTER CHANGE
Face Amount = $184,011
Cash Value = $88,109
Tabular Cash Value = $87,893
Death Benefit = $184,227 [184,011+(88,109-87,893)]
The death benefit decreases after the recalculation date due to the
increase in the tabular cash value.
(3)12% Return
In this situation, the cash value has grown sufficiently so that the
death benefit is equal to the cash value divided by the net single
premium per dollar of death benefit at the insured's attained age. This
calculation is made in order to satisfy Federal tax law requirements.
DEATH BENEFIT BEFORE CHANGE
Cash Value = $375,083
Tabular Cash Value = $55,796
Net Single Premium = .628316
Death Benefit = $596,967 ($375,083/.628316)
DEATH BENEFIT AFTER CHANGE
Cash Value = $379,678
Tabular Cash Value = $103,413
Net Single Premium = .629627
Death Benefit = $603,020 ($379,678/.629627)
The tabular cash value recalculation does not reduce the death benefit
because the death benefit no longer depends on the tabular cash value
amount.
IMPACT ON SPECIAL PREMIUM OPTION
The ability to use the Special Premium Option is affected by the tabular
cash value. (See "Special Premium Option" for information on how the Special
Premium Option works.)
Assuming the 0% and 6% returns on the case described above, and assuming
that the scheduled premium has been paid for the first 15 years, the Policy
Owner will not be able to exercise the Special Premium Option for the entire
remaining lifetime of the Policy.
Assuming the 12% return and payment of scheduled premiums for the first 15
years, the Policy Owner will be able to exercise the Special Premium Option
for the entire remaining lifetime of the Policy.
A-17
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of the following Sub-
Accounts: Capital Growth, Bond Income, Money Market, Stock Index, Managed,
Midcap Value (formerly Avanti Growth), Growth and Income (formerly Value
Growth), Small Cap, U.S. Government, Balanced, Equity Growth, International
Magnum Equity (formerly International Equity), Venture Value, Bond
Opportunities, Investors, Research Managers, Equity-Income, Overseas, High
Income and Asset Manager) of New England Life Insurance Company (the
"Company") as of December 31, 1999, 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, 1999, 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 4, 2000
AA-1
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)..........................
<CAPTION>
SHARES COST
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,831,583 $1,086,202,933
Back Bay
Advisors Bond
Income Series.. 738,049 79,337,797
Back Bay
Advisors Money
Market Series.. 1,481,735 148,173,522
Westpeak Stock
Index Series... 796,217 120,113,367
Back Bay
Advisors
Managed Series. 356,133 60,490,121
Goldman Sachs
Midcap Value
Series......... 303,945 41,326,387
Westpeak Growth
and Income
Series......... 476,840 86,077,139
Loomis Sayles
Small Cap
Series......... 494,133 72,214,392
Salomon Brothers
U.S. Government
Series......... 72,858 844,414
Loomis Sayles
Balanced
Series......... 1,214,912 18,213,928
Alger Equity
Growth Series.. 7,670,932 172,788,088
Morgan Stanley
International
Magnum Equity
Series......... 1,284,810 14,534,170
Davis Venture
Value Series... 6,183,625 126,513,387
Salomon Brothers
Bond
Opportunities
Series......... 104,337 1,267,848
MFS Investors
Series......... 77,411 773,570
MFS Research
Managers
Series......... 78,902 806,954
VIP Equity-
Income
Portfolio...... 6,551,702 126,034,149
VIP Overseas
Portfolio...... 5,064,896 87,116,523
VIP High Income
Portfolio...... 1,322,300 15,875,113
VIP II Asset
Manager
Portfolio...... 707,988 11,460,518
--------------
Total........... $2,270,164,320
==============
Amount due and accrued (payable) from
policy-related transactions, net........
Dividends receivable.....................
Total Assets
LIABILITIES
Due to New England Life Insurance
Company.................................
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................
<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>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2).. $1,230,974,235 $74,838,213 $148,173,522 $183,798,637 $70,090,490 $36,996,243 $94,643,283 $99,681,359
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
Series.........
Back Bay
Advisors Bond
Income Series..
Back Bay
Advisors Money
Market Series..
Westpeak Stock
Index Series...
Back Bay
Advisors
Managed Series.
Goldman Sachs
Midcap Value
Series.........
Westpeak Growth
and Income
Series.........
Loomis Sayles
Small Cap
Series.........
Salomon Brothers
U.S. Government
Series.........
Loomis Sayles
Balanced
Series.........
Alger Equity
Growth Series..
Morgan Stanley
International
Magnum Equity
Series.........
Davis Venture
Value Series...
Salomon Brothers
Bond
Opportunities
Series.........
MFS Investors
Series.........
MFS Research
Managers
Series.........
VIP Equity-
Income
Portfolio......
VIP Overseas
Portfolio......
VIP High Income
Portfolio......
VIP II Asset
Manager
Portfolio......
Total...........
Amount due and accrued (payable) from
policy-related transactions,
net............... (136,071) 21,370 560,723 49,113 (11,519) 39,928 7,685 84,454
Dividends receivable.. -- -- -- -- -- -- -- --
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
Total Assets 1,230,838,164 74,859,583 148,734,245 183,847,750 70,078,971 37,036,171 94,650,968 99,765,813
LIABILITIES
Due to New England Life Insurance
Company........... 84,134,782 6,819,176 11,964,362 19,325,681 5,908,740 3,542,818 9,540,656 10,713,149
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES....... $1,146,703,382 $68,040,407 $136,769,883 $164,522,069 $64,170,231 $33,493,353 $85,110,312 $89,052,664
=============== =========== ============ ============ ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
AA-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS MANAGERS
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ------------ ------------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$787,592 $16,826,533 $225,065,146 $18,180,067 $164,917,275 $1,113,279 $794,240 $945,245
10,965 157,461 236,677 96,973 124,826 5,544 (2,239) (2,139)
-- -- -- -- -- -- -- --
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
798,557 16,983,994 225,301,823 18,277,040 165,042,101 1,118,823 792,001 943,106
41,247 1,694,626 26,656,245 2,058,494 18,572,069 57,789 99,163 154,903
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
$757,310 $15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
======== =========== ============ =========== ============ ========== ======== ========
<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>
$168,444,262 $138,980,751 $14,955,213 $13,218,146 $2,703,423,731
(5,066) 101,197 2,344 592 1,342,818
-- -- -- -- --
- ------------- ------------ ----------- ----------- --------------
168,439,196 139,081,948 14,957,557 13,218,738 2,704,766,549
16,380,286 12,743,559 1,476,634 1,448,557 233,332,936
- ------------- ------------ ----------- ----------- --------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============ =========== =========== ==============
</TABLE>
See Notes to Financial Statements
AA-3
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<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>
INCOME
Dividends.............. $239,049,928 $5,475,221 $5,083,165 $ 4,154,533 $9,783,326 $ 459,624 $12,174,462 $ 260,319
EXPENSE
Mortality and expense
risk charge (Note 3)... 6,723,595 471,818 638,578 1,013,735 421,255 330,436 578,297 538,571
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net investment income
(loss)................. 232,326,333 5,003,403 4,444,587 3,140,798 9,362,071 129,188 11,596,165 (278,252)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695 3,516,783
End of period......... 144,771,302 (4,499,584) -- 63,685,270 9,600,369 (4,330,144) 8,566,144 27,466,967
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net change in
unrealized appreciation
(depreciation)......... (71,198,193) (5,708,857) -- 23,720,103 (3,685,297) (522,617) (5,050,551) 23,950,184
Net realized gain
(loss) on investments.. (572,298) 1,487 -- (52,322) (65,614) (9,202) (33,403) 2,146
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net realized and
unrealized gain (loss)
on investments......... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819) (5,083,954) 23,952,330
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $160,555,842 $ (703,967) $4,444,587 $26,808,579 $5,611,160 $ (402,631) $ 6,512,211 $23,674,078
============ ========== ========== =========== ========== ========== =========== ===========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-4
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ----------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 46,383 $ 998,875 $26,651,028 $ 60,426 $ 3,101,039 $ 90,809 $ 1,921 $ --
10,668 126,629 1,069,420 119,372 961,922 24,177 533 1,540
-------- ----------- ----------- ---------- ----------- -------- ------- --------
35,715 872,246 25,581,608 (58,946) 2,139,117 66,632 1,388 (1,540)
15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) -- --
(56,822) (1,387,395) 52,277,058 3,645,897 38,403,888 (154,569) 20,670 138,291
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(72,031) (2,424,386) 21,569,890 3,450,943 18,395,240 (107,975) 20,670 138,291
(1,634) (14,874) (116,438) (4,634) (47,139) 1,097 8,670 (34,566)
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(73,665) (2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
-------- ----------- ----------- ---------- ----------- -------- ------- --------
$(37,950) $(1,567,014) $47,035,060 $3,387,363 $20,487,218 $(40,246) $30,728 $102,185
======== =========== =========== ========== =========== ======== ======= ========
<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>
$ 7,478,140 $ 3,746,050 $1,147,254 $ 713,060 $320,475,563
1,005,310 681,381 87,077 74,260 14,878,574
- ------------ ------------ ----------- ----------- -------------
6,472,830 3,064,669 1,060,177 638,800 305,596,989
39,593,709 14,768,529 (611,552) 1,247,559 390,670,173
42,410,113 51,864,228 (919,900) 1,757,628 433,259,411
- ------------ ------------ ----------- ----------- -------------
2,816,404 37,095,699 (308,348) 510,069 42,589,238
(592,373) (370,244) 48,706 (3,669) (1,856,304)
- ------------ ------------ ----------- ----------- -------------
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------ ------------ ----------- ----------- -------------
$ 8,696,861 $39,790,124 $ 800,535 $1,145,200 $346,329,923
============ ============ =========== =========== =============
</TABLE>
See Notes to Financial Statements
AA-5
<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
AA-6
<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
AA-7
<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
AA-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------- ---------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH ASSET
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ---------- -------- ---------- ------------- ----------- ------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $5,434,055 $393,295 $528,401
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502 33,135
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793 495,266
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520 971,097
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920 423,450
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234 5,368
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154 428,818
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $6,689,446 $965,947 $924,084
========== ====== ======== ========== ========= =========== ======= =========== ========== ======== ========
<CAPTION>
- ----------------------------------------------------------------------------------
TOTAL
- ------------
<S>
$231,072,203
7,755,657
- ------------
223,316,546
194,486,245
203,203,584
- ------------
8,717,339
2,491,649
- ------------
11,208,988
- ------------
$234,525,534
============
</TABLE>
See Notes to Financial Statements
AA-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, 1999
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK MIDCAP
GROWTH INCOME MARKET INDEX MANAGED VALUE
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 232,326,333 $ 5,003,403 $ 4,444,587 $ 3,140,798 $ 9,362,071 $ 129,188
Net realized and
unrealized gain
(loss) on
investments..... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 160,555,842 (703,967) 4,444,587 26,808,579 5,611,160 (402,631)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 142,211,177 13,805,688 214,469,972 29,988,746 10,115,433 7,098,841
Net transfers
(to) from other
sub-accounts.... (3,426,057) 5,993,183 (132,180,032) 28,975,401 3,130,211 (1,928,318)
Net transfers
(to) from New
England Life
Insurance
Company......... (127,342,172) (8,870,541) (35,295,568) (21,960,448) (7,936,560) (3,985,601)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 11,442,948 10,928,330 46,994,372 37,003,699 5,309,084 1,184,922
-------------- ----------- ------------- ------------ ----------- -----------
Net increase
(decrease) in
net assets...... 171,998,790 10,224,363 51,438,959 63,812,278 10,920,244 782,291
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 974,704,592 57,816,044 85,330,924 100,709,791 53,249,987 32,711,062
-------------- ----------- ------------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $1,146,703,382 $68,040,407 $ 136,769,883 $164,522,069 $64,170,231 $33,493,353
============== =========== ============= ============ =========== ===========
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------
GROWTH
AND SMALL U.S.
INCOME CAP GOVERNMENT
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ----------
<S> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 11,596,165 $ (278,252) $ 35,715
Net realized and
unrealized gain
(loss) on
investments..... (5,083,954) 23,952,330 (73,665)
------------- ------------- ----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 6,512,211 23,674,078 (37,950)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 15,769,644 16,994,060 --
Net transfers
(to) from other
sub-accounts.... 14,513,514 (3,433,209) 79,255
Net transfers
(to) from New
England Life
Insurance
Company......... (10,636,850) (11,981,152) 24,393
------------- ------------- ----------
Net Increase in
net assets
resulting from
policy related
transactions... 19,646,308 1,579,699 103,648
------------- ------------- ----------
Net increase
(decrease) in
net assets...... 26,158,519 25,253,777 65,698
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 58,951,793 63,798,887 691,612
------------- ------------- ----------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 85,110,312 $ 89,052,664 $757,310
============= ============= ==========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-10
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INTERNATIONAL
EQUITY MAGNUM VENTURE BOND RESEARCH
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ------------ ------------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 872,246 $ 25,581,608 $ (58,946) $ 2,139,117 $ 66,632 $ 1,388 $ (1,540)
(2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
- ----------- ------------ ----------- ------------ ---------- -------- --------
(1,567,014) 47,035,060 3,387,363 20,487,218 (40,246) 30,728 102,185
4,093,455 31,646,457 3,430,299 32,031,496 -- 75,935 86,667
1,865,860 59,949,102 1,463,742 22,546,367 1,100 684,756 763,549
(1,579,581) (30,858,890) (2,381,414) (23,867,517) 9,526 (98,581) (164,198)
- ----------- ------------ ----------- ------------ ---------- -------- --------
4,379,734 60,736,669 2,512,627 30,710,346 10,626 662,110 686,018
- ----------- ------------ ----------- ------------ ---------- -------- --------
2,812,720 107,771,729 5,899,990 51,197,564 (29,620) 692,838 788,203
12,476,648 90,873,849 10,318,556 95,272,468 1,090,654 -- --
- ----------- ------------ ----------- ------------ ---------- -------- --------
$15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
=========== ============ =========== ============ ========== ======== ========
<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>
$ 6,472,830 $ 3,064,669 $ 1,060,177 $ 638,800 $ 305,596,989
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------- ------------- ------------ ------------ ---------------
8,696,861 39,790,124 800,535 1,145,200 346,329,923
26,649,674 17,254,614 3,727,099 2,393,210 571,842,467
(2,823,843) 1,086,949 1,354,057 1,384,413 --
(19,017,183) (16,067,097) (2,389,723) (1,339,833) (325,738,990)
- ------------- ------------- ------------ ------------ ---------------
4,808,648 2,274,466 2,691,433 2,437,790 246,103,477
- ------------- ------------- ------------ ------------ ---------------
13,505,509 42,064,590 3,491,968 3,582,990 592,433,400
138,553,401 84,273,799 9,988,955 8,187,191 1,879,000,213
- ------------- ------------- ------------ ------------ ---------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============= ============ ============ ===============
</TABLE>
See Notes to Financial Statements
AA-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, 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
AA-12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ----------- ------------ ------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920 $ 7,186,371 $ 5,543,453 $ 996,739
17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076 14,641,919 9,507,956 (558,420)
-- 3,185,034 18,566,913 3,131,225 24,165,947 -- 26,170,240 17,386,996 2,434,923
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788 8,474,098 342,473 2,823,884
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947) (18,064,178) (10,788,946) (1,891,706)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841 16,580,160 6,940,523 3,367,101
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917 31,222,080 16,448,479 2,808,682
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737 107,331,321 67,825,320 7,180,273
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
$ 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>
$ 785,371 $ 176,340,272
280,598 194,717,637
- ------------ ---------------
1,065,969 371,057,909
1,626,307 516,501,076
1,297,121 --
(1,251,084) (277,154,223)
- ------------ ---------------
1,672,344 239,346,853
- ------------ ---------------
2,738,313 610,404,762
5,448,878 1,268,595,450
- ------------ ---------------
$ 8,187,191 $1,879,000,212
============ ===============
</TABLE>
See Notes to Financial Statements
AA-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, 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
AA-14
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ----------- ---------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
- ----------- ---------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
- ----------- ---------------
944,699 147,685,118
- ----------- ---------------
1,868,783 382,210,652
3,580,095 886,384,798
- ----------- ---------------
$5,448,878 $1,268,595,450
=========== ===============
</TABLE>
See Notes to Financial Statements
AA-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. NELICO is an indirect wholly-owned subsidiary of Metropolitan Life
Insurance Company.
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 twenty 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 twenty 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 (the "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% and .60% 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 load, administrative charges, premium tax charges, risk charges,
cost of insurance charges, and charges for rider benefits and special risk
charges.
AA-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. New England Investment Management,
Inc. (formerly, 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 Securities and Exchange Commission 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................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors Bond
Income................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors
Managed................ New England Investment Management, Inc. Back Bay Advisors, L.P. *
Westpeak Stock Index.... New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Westpeak Growth and
Income................. New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Goldman Sachs Midcap
Value.................. New England Investment Management, Inc. Goldman Sachs Asset Management
Loomis Sayles Small Cap. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Loomis Sayles Balanced.. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Morgan Stanley
International Magnum New England Investment Management, Inc. Morgan Stanley Dean Witter
Equity................. Investment Management Inc.
Davis Venture Value..... New England Investment Management, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth..... New England Investment Management, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. New England Investment Management, Inc. Salomon Brothers Asset
Government............. Management Inc
Salomon Brothers
Strategic Bond
Opportunities.......... New England Investment Management, Inc. Salomon Brothers Asset
Management Inc
MFS Investors........... New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research Managers... New England Investment Management, Inc. Massachusetts Financial
Services Company
</TABLE>
*An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and Morgan Stanley Dean
Witter Investment Management Inc. became the sub-adviser of the Series,
succeeding Draycott Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management ("Goldman Sachs") became
the sub-adviser 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.
AA-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, 1999:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series............................. $242,198,370 $241,707,039
Back Bay Advisors Money Market Series............. 327,644,952 277,923,925
Back Bay Advisors Bond Income Series.............. 36,178,905 24,991,981
Back Bay Advisors Managed Series.................. 24,394,855 18,680,924
Westpeak Stock Index Series....................... 81,767,015 38,818,677
Westpeak Growth and Income Series................. 43,834,304 22,733,178
Goldman Sachs Midcap Value Series................. 14,632,125 14,003,124
Loomis Sayles Small Cap Series.................... 32,520,472 28,114,874
Loomis Sayles Balanced Series..................... 11,121,785 7,665,490
Morgan Stanley International Magnum Equity Series. 8,500,269 5,336,590
Davis Venture Value Series........................ 74,752,030 39,161,371
Alger Equity Growth Series........................ 112,530,144 37,977,904
Salomon Bothers U.S. Government Series............ 728,153 711,346
Salomon Bothers Strategic Bond Opportunities
Series........................................... 504,155 619,331
MFS Investors Series *............................ 853,017 92,276
MFS Research Managers Series *.................... 869,163 29,781
VIP Equity-Income Portfolio....................... 48,322,887 44,032,962
VIP Overseas Portfolio............................ 36,474,794 30,947,930
VIP High Income Portfolio......................... 10,500,033 7,853,618
VIP II Asset Manager Portfolio.................... 6,412,123 3,587,782
</TABLE>
*For the period April 30, 1999 (Commencement of Operations) to December 31,
1999.
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.
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 % 15.30 %
Bond Income............. 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 % (0.81)%
Money Market............ 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 % 4.60 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 % 19.96 %
Managed................. 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 % 9.59 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% 0.00 %
Growth and Income.................................. 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 % 8.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.96 %
Overseas........................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 % 42.13 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.45)% 28.40% 30.22% 24.42 % (2.04)% 31.29 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.58)% 20.18% 13.63% 17.26 % (4.66)% 7.78 %
Asset Manager............................................... (4.41)% 16.55% 14.20% 20.23 % 14.65 % 10.70 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.84% 12.78% 25.19 % 47.27 % 33.66 %
Balanced............................................................. 13.75% 16.50% 15.77 % 8.73 % (5.39)%
International Magnum Equity.......................................... 3.85% 6.30% (1.64)% 6.90 % 24.18 %
Venture Value........................................................ 21.64% 25.40% 33.03 % 14.02 % 17.11 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.61 %
Research Managers........................................................................................ 19.52 %
</TABLE>
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 % 15.18 %
Bond Income............. 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 % (0.91)%
Money Market............ 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 % 4.49 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 % 19.84 %
Managed................. 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 % 9.48 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.10)%
Growth and Income.................................. 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 % 8.86 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.85 %
Overseas........................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 % 41.99 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.52)% 28.27% 30.09% 24.29 % (2.14)% 31.16 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.61)% 20.06% 13.52% 17.14 % (4.76)% 7.67 %
Asset Manager............................................... (4.45)% 16.43% 14.09% 20.11 % 14.53 % 10.59 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.76% 12.66% 25.06 % 47.12 % 33.53 %
Balanced............................................................. 13.67% 16.39% 15.66 % 8.62 % (5.49)%
International Magnum Equity.......................................... 3.79% 6.19% (1.74)% 6.79 % 24.05 %
Venture Value........................................................ 21.56% 25.27% 32.90 % 13.90 % 16.99 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.54 %
Research Managers........................................................................................ 19.44 %
</TABLE>
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 % 15.01 %
Bond Income............. 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 % (1.06)%
Money Market............ 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 % 4.34 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 % 19.66 %
Managed................. 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 % 9.31 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.25)%
Growth and Income.................................. 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 % 8.70 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.69 %
Overseas........................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 % 41.77 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.61)% 28.08% 29.90% 24.11 % (2.28)% 30.96 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.66)% 19.88% 13.35% 16.96 % (4.90)% 7.51 %
Asset Manager............................................... (4.49)% 16.26% 13.91% 19.93 % 14.36 % 10.43 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.64% 12.49% 24.88 % 46.90 % 33.33 %
Balanced............................................................. 13.56% 16.21% 15.48 % 8.46 % (5.63)%
International Magnum Equity.......................................... 3.68% 6.03% (1.89)% 6.63 % 23.87 %
Venture Value........................................................ 21.44% 25.08% 32.70 % 13.73 % 16.81 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.44 %
Research Managers........................................................................................ 19.32 %
</TABLE>
AA-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*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 % 14.67 %
Bond Income............. 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 % (1.36)%
Money Market............ 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 % 4.03 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 % 19.30 %
Managed................. 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 % 8.98 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.55)%
Growth and Income.................................. 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 % 8.37 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.38 %
Overseas........................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 % 41.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.80)% 27.69% 29.50% 23.73% (2.58)% 30.57 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.76)% 19.53% 13.00% 16.61% (5.19)% 7.19 %
Asset Manager............................................... (4.59)% 15.91% 13.57% 19.57% 14.02 % 10.10 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.39% 12.15% 24.50 % 46.46 % 32.93 %
Balanced............................................................. 13.33% 15.86% 15.14 % 8.13 % (5.91)%
International Magnum Equity.......................................... 3.48% 5.71% (2.18)% 6.31 % 23.50 %
Venture Value........................................................ 21.20% 24.71% 32.30 % 13.39 % 16.47 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.23 %
Research Managers........................................................................................ 19.08 %
</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%.
AA-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*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 % 14.84 %
Bond Income............. 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 % (1.21)%
Money Market............ 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 % 4.18 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 % 19.48 %
Managed................. 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 % 9.15 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% (0.40)%
Growth and Income.................................. 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 % 8.53 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 5.54 %
Overseas........................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 % 41.56 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.71)% 27.88% 29.70% 23.92 % (2.43)% 30.77 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.71)% 19.71% 13.17% 16.79 % (5.04)% 7.35 %
Asset Manager............................................... (4.54)% 16.08% 13.74% 19.75 % 14.19 % 10.26 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.51% 12.32% 24.69 % 46.68 % 33.13 %
Balanced............................................................. 13.44% 16.03% 15.31 % 8.29 % (5.77)%
International Magnum Equity.......................................... 3.58% 5.87% (2.04)% 6.47 % 23.68 %
Venture Value........................................................ 21.32% 24.89% 32.50 % 13.56 % 16.64 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.34 %
Research Managers........................................................................................ 19.20 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .75%.
Certain Zenith Flexible Life Policies currently have a mortality and expense
risk charge at an annual rate of .60%.
AA-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
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 % 15.70 %
Bond Income............. 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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 % 6.33 %
Overseas........................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 % 42.63 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (.37)% 20.79% 13.75% 17.67 % (4.33)% 8.15 %
Asset Manager............................................... (4.65)% 17.68% 14.31% 20.65 % 15.05 % 11.09 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
AA-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
---------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
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- 1/1/99-
SUB-ACCOUNT 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 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<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)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government............................................................... 4.55% 8.47 % 7.61 % 0.17 %
Strategic Bond Opportunities.................................................. 8.46% 11.07 % 2.04 % 1.44 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</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.
AA-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Policyholders of New England Life Insurance
Company:
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company and subsidiaries (the "Company") as of December 31,
1999 and 1998, 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, 1999. These consolidated 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 New England Life Insurance
Company and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
AA-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities, Available for Sale, at Estimated Fair
Value................................................. $ 735,697 $ 769,364
Equity Securities, at Fair Value....................... 22,685 13,240
Policy Loans........................................... 181,995 135,800
Short-Term Investments................................. 62,619 52,285
Other Invested Assets.................................. 16,798 16,372
---------- ----------
Total Investments................................... 1,019,794 987,061
Cash and Cash Equivalents............................... 84,371 43,598
Deferred Policy Acquisition Costs....................... 930,703 710,961
Accrued Investment Income............................... 29,940 21,802
Premiums and Other Receivables.......................... 119,750 145,117
Other Assets............................................ 105,982 111,067
Separate Account Assets................................. 4,840,029 3,258,383
---------- ----------
TOTAL ASSETS........................................ $7,130,569 $5,277,989
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits.................................. $ 614,927 $ 561,746
Policyholder Account Balances........................... 325,385 210,242
Other Policyholder Funds................................ 245,339 186,255
Policyholder Dividends Payable.......................... 977 609
Short and Long-Term Debt................................ 75,053 82,855
Income Taxes Payable:
Current................................................ (77) 10,984
Deferred............................................... 38,669 42,334
Due to Parent........................................... 72,247 789
Other Liabilities....................................... 64,717 78,721
Separate Account Liabilities............................ 4,840,029 3,258,383
---------- ----------
TOTAL LIABILITIES................................... 6,277,266 4,432,918
---------- ----------
Commitments and Contingencies (Notes 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..................................... 647,273 647,273
Retained Earnings....................................... 214,528 177,859
Accumulated Other Comprehensive Income.................. (10,998) 17,439
---------- ----------
TOTAL EQUITY........................................ 853,303 845,071
---------- ----------
TOTAL LIABILITIES AND EQUITY............................ $7,130,569 $5,277,989
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums........................................... $123,638 $100,689 $ 63,616
Universal Life and Investment-Type Product Policy
Fees.............................................. 220,841 173,766 145,157
Net Investment Income.............................. 68,498 49,077 61,059
Investment Gains (Losses), Net..................... 2,922 5,610 890
Commissions, Fees and Other Income................. 265,891 192,411 28,302
-------- -------- --------
TOTAL REVENUES................................... 681,790 521,553 299,024
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.............................. 193,293 149,687 100,180
Interest Credited to Policyholder Account Balances. 10,721 7,735 6,220
Policyholder Dividends............................. 20,827 22,989 21,325
Other Operating Costs and Expenses................. 381,881 316,659 144,342
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS.............. 606,722 497,070 272,067
-------- -------- --------
Income From Operations Before Income Taxes......... 75,068 24,483 26,957
Income Taxes....................................... 29,344 13,046 4,988
-------- -------- --------
NET INCOME......................................... $ 45,724 $ 11,437 $ 21,969
-------- -------- --------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Investment Gains (Losses) (Net of
Related Offsets, Reclassification Adjustments and
Income Taxes, of $45,376, $(299) and $(16,588),
Respectively).................................... (28,437) 92 13,620
-------- -------- --------
COMPREHENSIVE INCOME............................... $ 17,287 $ 11,529 $ 35,589
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-28
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
STOCK & OTHER
CONTRIBUTED RETAINED COMPREHENSIVE
CAPITAL EARNINGS INCOME TOTAL
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
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
Net Income....................... 45,724 45,724
Preferred Stock Dividends........ (9,055) (9,055)
Change in Net Unrealized
Investment Gains (Losses)....... (28,437) (28,437)
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1999.... $649,773 $214,528 $(10,998) $853,303
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-29
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES.......... $(159,314) $(311,296) $(121,838)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 114,478 164,566 145,197
Equity Securities............................ 2,491 39,333 32,806
Other, Net................................... (1) 721 128
Purchases of:
Available for Sale Fixed Maturities.......... (157,761) (184,810) (326,059)
Equity Securities............................ (9,590) (80,066) 0
Real Estate.................................. (3,251) (3,644) 0
Fixed Asset Property and Equipment........... 0 (1,459) (101)
Other Assets................................. (302) (89) 0
Net Change in Short-Term Investments.......... (10,334) (24,341) 128,616
Net Change in Policy Loans.................... (46,195) (31,017) (28,520)
Other, Net.................................... 23,443 1,631 177
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (87,022) (119,175) (47,756)
--------- --------- ---------
Cash Flows from Financing Activities:
Capital Contributions......................... 0 200,000 46,681
Dividends Paid................................ (9,055) 0 0
Repayment of Debt............................. (13,232) (8,670) (3,181)
Policyholder Account Balances:
Deposits..................................... 517,551 358,090 244,338
Withdrawals.................................. (242,388) (149,499) (95,066)
Financial Reinsurance Receivables............. 34,233 0 1,823
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 287,109 399,921 194,595
--------- --------- ---------
Change in Cash and Cash Equivalents............ 40,773 (30,550) 25,001
Cash and Cash Equivalents, Beginning of Year... 43,598 74,148 49,147
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 84,371 $ 43,598 $ 74,148
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................. $ 87 $ 3,830 $ 1,495
========= ========= =========
Income Taxes Paid............................. $ 30,045 $ 14,118 $ 5,470
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-30
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET INCOME................................... $ 45,724 $ 11,437 $ 21,969
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net........................................ (186,467) (145,787) (140,578)
Change in Accrued Investment Income......... (8,138) (3,090) (4,999)
Change in Premiums and Other Receivables.... 25,367 (82,081) (57,095)
Gains from Sales of Investments, Net........ (2,922) (5,610) (890)
Depreciation and Amortization Expenses...... 11,350 13,137 10,085
Interest Credited to Policyholder Account
Balances................................... 10,721 7,735 6,220
Universal Life and Investment-Type Product
Policy Fee Income.......................... (220,841) (173,766) (145,157)
Change in Future Policy Benefits............ 53,181 61,317 35,540
Change in Other Policyholder Funds.......... 59,084 73,814 6,309
Change in Policyholder Dividends Payable.... 368 188 5,701
Change in Income Taxes Payable.............. (26,871) 2,358 1,674
Other, Net.................................. 80,130 (70,948) 139,383
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES........ $(159,314) $(311,296) $(121,838)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-31
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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 and independent brokers located throughout the
United States. The Company also provides participating and non-participating
traditional life insurance, fixed annuity contracts, pension products, as well
as, group life, medical, and 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 New
England Investment Management, 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 New England
Investment Management, 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 acquisition, 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.
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. Effective September 1, 1999, Newbury began
providing errors and omissions coverage to certain of the life insurance
agents of MetLife through a facultative reinsurance agreement with Fireman's
Fund 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.
New England Investment Management, Inc. (NEIM), which changed its name from
TNE Advisers, Inc. in March 1999, was incorporated on August 26, 1994, and is
registered as an investment adviser with the SEC, under the Investment
Advisers Act of 1940. NEIM was organized to serve as an investment adviser to
certain series of the New England Zenith Fund.
AA-32
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
NL Holding Corporation and subsidiaries (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 of NL Holding, is a National
Association of Securities Dealers (NASD) registered broker/dealer. N&L
Associates, a wholly owned subsidiary of NL Holding, is a general insurance
agent which sells insurance policies and other insurance related products
through its licensed brokers and independent agents.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP). The
Commonwealth of Massachusetts Division of Insurance (the "Division")
recognizes only statutory accounting practices for determining and reporting
the financial condition and results of operations of an insurance company for
determining solvency under the Massachusetts Insurance Law. No consideration
is given by the Division to financial statements prepared in accordance with
GAAP in making such determination.
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, but more than a minimal interest, under the equity method of
accounting.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1999 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 accumulated 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.
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.
AA-33
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
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 $36,122, and $24,772 at December 31, 1999 and 1998,
respectively. Related depreciation and amortization expense was $11,350,
$13,137 and $10,085 for the years ended December 31, 1999, 1998 and 1997,
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.
Information regarding deferred policy acquisition costs is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1........................... $710,961 $565,769 $434,636
Capitalized during the year.................... 216,913 182,943 157,670
-------- -------- --------
Total........................................ 927,874 748,712 592,306
Amortization allocated to:
Net realized investment gains................. (616) (5,282) 0
Unrealized investment gains (losses).......... 33,276 (595) (9,446)
Other Expenses................................ (29,831) (31,874) (17,091)
-------- -------- --------
Total amortization........................... 2,829 (37,751) (26,537)
Balance at December 31......................... $930,703 $710,961 $565,769
======== ======== ========
</TABLE>
AA-34
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amortization of deferred policy acquisition costs is allocated to (1) realized
investment gains and losses to provide consolidated statement of income
information regarding the impact of such gains and losses on the amount of the
amortization, (2) unrealized investment gains and losses to provide
information regarding the amount of deferred policy acquisition costs that
would have been amortized if such gains and losses had been realized and (3)
other expenses to provide amounts related to the gross margins or profits
originating from transactions other than investment gains and losses.
Realized investment gains and losses related to certain products have a direct
impact on the amortization of deferred policy acquisition costs. Presenting
realized investment gains and losses net of related amortization of deferred
policy acquisition costs provides information useful in evaluating the
operating performance of the Company. This presentation may not be comparable
to presentations made by other insurers.
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 ending December 31, 2000. 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>
OTHER INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired, which
represents goodwill, and the value of business 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.
Excess of Purchase Price Over Fair Value of Net Assets Acquired
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net Balance, January 1.......................... $ 21,931 $ 0 $ 0
Acquisitions................................... 0 23,498 0
Amortization................................... (2,350) (1,567) 0
--------- --------- -----
Net Balance, December 31........................ $ 19,581 $ 21,931 $ 0
========= ========= =====
December 31
Accumulated Amortization....................... $ (3,917) $ (1,567) $ 0
========= ========= =====
</TABLE>
AA-35
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of (a) net level premium reserves for
death and endowment policy benefits (calculated based upon the nonforfeiture
interest rate, ranging from 4% to 4.5%, and mortality rates guaranteed in
calculating the cash surrender values described in such contracts), (b) the
liability for terminal dividends and (c) premium deficiency reserves, which
are established when the liabilities for future policy benefits plus the
present value of expected future gross premiums are insufficient to provide
for expected future policy benefits and expenses after deferred policy
acquisition costs are written off.
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 6%.
Future policy benefit liabilities for non-medical health insurance are
calculated using the net level premium method and assumptions as to future
morbidity, withdrawals and interest, which provide a margin for adverse
deviation. 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. The interest rates used in
establishing such liabilities range from 3% 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 3.8% to 7.25%, less expense and mortality charges and
withdrawals.
The liability for unpaid claims represents the amount estimated for claims
that have been reported but not settled and claims incurred but not reported.
Liabilities for unpaid claims are estimated based upon the Company's
historical experience and other actuarial assumptions that consider the
effects of current developments, anticipated trends and risk management
programs. Revisions of these estimates are included in operations in the year
such refinements are made.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues 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 operations 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
operations include interest credited to policyholders.
DIVIDENDS TO POLICYHOLDERS
Dividends to policyholders are determined annually by the board of directors.
The aggregate amount of policyholders' 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.
AA-36
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
PARTICIPATING BUSINESS
Participating business represented approximately 3.49% and 3.52% of the
Company's life insurance in force, and 8.30% and 7.96% of the number of life
insurance policies in force at December 31, 1999 and 1998, respectively.
Participating policies represented approximately 56.77%, 95.78% and 68.24% of
gross life insurance premiums, for the years ended December 31, 1999, 1998 and
1997, 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 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.
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 ACCOUNTS
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. See Note 14.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position ("SOP")
98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5
broadly defines start-up activities. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. Adoption of SOP
98-5 did not have a material effect on the Company's consolidated financial
statements.
Effective January 1, 1999, the Company adopted SOP 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 adoption of SOP 98-1 resulted in
the capitalization of $6 million of software costs which would have otherwise
been expensed in 1999.
Effective January 1, 1999, the Company adopted SOP 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. Adoption of SOP 97-3 did not have a material effect on
the Company's consolidated financial statements.
AA-37
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133 ("SFAS 137"). SFAS 137 defers the provisions of SFAS 133 until January 1,
2001. The provisions of SFAS 133 require, 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 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 in the process of
quantifying the impact of SFAS 133 on its consolidated financial statements.
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 statements.
2. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The components of net investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities.............................. $ 54,490 $ 53,467 $ 50,348
Equity securities............................. 13,896 (9,118) 4,915
Real estate................................... 831 4,149 815
Policy loans.................................. 9,157 6,855 5,081
Cash, cash equivalents and short-term
investments.................................. 3,494 861 4,160
Other investment income....................... (7,529) 76 591
-------- -------- --------
Gross investment income....................... 74,339 56,290 65,910
Investment expenses........................... (5,841) (7,213) (4,851)
-------- -------- --------
Net Investment income......................... $ 68,498 $ 49,077 $ 61,059
======== ======== ========
</TABLE>
Realized investment gains (losses), net, including changes in valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---------------- --------
<S> <C> <C> <C>
Fixed maturities................................. $ 850 $ 10,899 $ (774)
Equity securities................................ 0 0 1,040
Other invested assets............................ 2,688 (7) (8)
------- -------- -------
Subtotal....................................... 3,538 10,892 258
Less: Amounts allocable to amortization of
deferred policy acquisition costs............... 616 5,282 (632)
------- -------- -------
Investment gains (losses), net................... $ 2,922 $ 5,610 $ 890
======= ======== =======
</TABLE>
AA-38
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Realized investment gains have been reduced by (1) deferred policy acquisition
amortization to the extent that such amortization results from realized
investment gains and losses, (2) additions to future policy benefits resulting
from the need to establish additional liabilities due to the recognition of
investment gains, and (3) additions to participating contractholder accounts
when amounts equal to such investment gains and losses are credited to the
contractholders' accounts. This presentation may not be comparable to
presentations made by other insurers.
The changes in unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................... $ 17,439 $17,347 $ 3,727
Change in unrealized investment gains
(losses)..................................... (73,813) 391 30,207
Change in unrealized investment gains (losses)
attributable to:
Deferred policy acquisition costs............ 33,276 (595) (9,446)
Deferred income tax (expense) benefit........ 12,100 296 (7,141)
-------- ------- -------
Balance at December 31......................... $(10,998) $17,439 $17,347
======== ======= =======
</TABLE>
The components of unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities........................... $(35,205) $ 40,928 $ 41,706
Equity securities.......................... 3,511 1,191 0
Other...................................... 0 0 22
-------- -------- --------
(31,694) 42,119 41,728
Amounts of unrealized investment gains
(losses)
Attributable to:
Deferred policy acquisition costs.......... 17,478 (15,798) (15,202)
Deferred income tax (expense) benefit...... 3,218 (8,882) (9,179)
-------- -------- --------
Balance, end of year......................... $(10,998) $ 17,439 $ 17,347
======== ======== ========
</TABLE>
AA-39
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed maturities 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, 1999
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. Government
corporations and agencies.............. $ 33,909 $ 20 $ 439 $ 33,490
Foreign governments..................... 20,748 201 581 20,368
Corporate............................... 670,602 5,074 40,237 635,439
Mortgage-backed securities.............. 44,470 934 203 45,201
Other................................... 1,199 0 0 1,199
-------- ------- -------- --------
Total Fixed Maturities................. $770,928 $ 6,229 $ 41,460 $735,697
======== ======= ======== ========
Equity Securities:
Common stocks........................... 19,174 4,191 680 22,685
-------- ------- -------- --------
Total Equity Securities................ $ 19,174 $ 4,191 $ 680 $ 22,685
======== ======= ======== ========
</TABLE>
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>
AA-40
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
The amortized cost and estimated fair value of fixed maturities classified as
available for sale, by contractual maturity, at December 31, 1999 are shown
below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 15,910 $ 15,857
Due after one year through five years................... 92,303 90,635
Due after five years through ten years.................. 131,438 130,492
Due after ten years..................................... 486,807 453,512
-------- --------
Subtotal.............................................. 726,458 690,496
Mortgage-backed securities.............................. 44,470 45,201
-------- --------
Total................................................. $770,928 $735,697
======== ========
</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.
Sales of fixed maturities and equity securities are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Fixed Maturities
Proceeds.......................................... $64,925 $120,416 $110,301
Gross realized gains.............................. $ 1,897 $ 10,901 $ 1,036
Gross realized losses............................. $ 1,047 $ 2 $ 1,810
Equity Securities
Proceeds.......................................... $ 2,491 $ 39,333 $ 32,806
Gross realized gains.............................. $ 0 $ 0 $ 1,344
Gross realized losses............................. $ 0 $ 0 $ 304
</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. The bonds and short-term investments at fair market value held by
the trust were $518,436 and $526,723, at December 31, 1999 and 1998,
respectively.
STATUTORY DEPOSITS
The Company had assets on deposit with regulatory agencies of $6,245 and
$6,245 at December 31, 1999 and 1998, respectively.
AA-41
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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.
Effective July 1, 1999, the Company reinsured the general account liability
for certain group pension variable contracts assumed from Sun Life Assurance
Company of Canada (U.S.). The initial liability assumed included in
Policyholder Account Balances was $53,675 at July 1, 1999, and was $44,431 at
December 31, 1999.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $163,159 $110,768 $ 30,975
Reinsurance assumed............................ 57,479 58,329 62,315
Reinsurance ceded.............................. (97,000) (68,408) (29,674)
-------- -------- --------
Net premiums earned............................ $123,638 $100,689 $ 63,616
======== ======== ========
</TABLE>
Reinsurance recoverables, included in other receivables, were $83,091 and
$103,677 at December 31, 1999 and 1998, respectively.
Reinsurance and ceded commissions payables, included in other liabilities,
were $23,400 and $21,152 at December 31, 1999 and 1998, 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,
------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1............................. $ 1,953 $ 809 $ 0
Less: Reinsurance recoverables.................. 1,565 647 0
-------- -------- ------
Net balance at January 1......................... 388 162 0
-------- -------- ------
Incurred related to:
Current year.................................... 472 303 173
Prior years..................................... (33) (57) (11)
-------- -------- ------
439 246 162
-------- -------- ------
Paid related to:
Current year.................................... 23 2 0
Prior years..................................... 19 18 0
-------- -------- ------
42 20 0
-------- -------- ------
Balance at December 31........................... 785 388 162
Add: Reinsurance recoverables................... 3,147 1,565 647
-------- -------- ------
Balance at December 31........................... $ 3,932 $ 1,953 $ 809
======== ======== ======
</TABLE>
AA-42
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
1999
Federal............................................. $20,910 $ 8,134 $29,044
State and Local..................................... 0 300 300
------- ------- -------
Total............................................. $20,910 $ 8,434 $29,344
======= ======= =======
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
======= ======= =======
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $75,068 $24,483 $26,957
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 26,274 8,569 9,435
Tax effect of:
Tax exempt investment income.................... 0 (100) 0
State and local income taxes.................... 300 100 (1,013)
Tax credits..................................... 0 (100) 0
Prior year taxes................................ 684 0 0
Other, net...................................... 2,086 4,577 (3,434)
------- ------- -------
Income Tax Expense............................... $29,344 $13,046 $ 4,988
======= ======= =======
</TABLE>
AA-43
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................. $ 233,504 $ 177,017
Unrealized investment losses, net.................... 3,218 0
Other, net........................................... 15,035 15,453
--------- ---------
Total gross assets.................................. 251,757 192,470
--------- ---------
Deferred tax liabilities:
Investments.......................................... (216) (1,068)
Deferred policy acquisition costs.................... (267,249) (208,881)
Unrealized investment gains, net..................... 0 (8,882)
Other, net........................................... (22,961) (15,973)
--------- ---------
Total gross liabilities............................. (290,426) (234,804)
--------- ---------
Net deferred tax liability............................ $ (38,669) $ (42,334)
========= =========
</TABLE>
AA-44
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
DECEMBER 31,
--------------------------------------
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at
beginning of year..................... $252,487 $210,590 $ 48,987 $ 46,591
Service cost........................... 8,172 6,927 973 942
Interest cost.......................... 18,488 15,878 3,351 3,267
Actuarial gain......................... (15,914) 14,831 (3,214) 1,256
Divestitures........................... 0 0 0 0
Curtailments........................... 0 0 0 0
Terminations........................... 0 0 0 0
Change in benefits..................... 0 11,935 0 (10)
Benefits paid.......................... (8,444) (7,674) (3,475) (3,059)
-------- -------- -------- --------
Projected benefit obligation at end of
year.................................. $254,789 $252,487 $ 46,622 $ 48,987
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Contract value of plan assets at
beginning of year..................... $184,803 $150,820 $ 0 $ 0
Actual return on plan assets........... 25,300 28,309 0 0
Employer contribution.................. 7,620 12,997 0 0
Benefits paid.......................... (7,500) (7,323) 0 0
-------- -------- -------- --------
Contract value of plan assets at end of
year.................................. $210,223 $184,803 $ 0 $ 0
-------- -------- -------- --------
Over/(Under) funded.................... $(44,566) $(67,684) $(46,622) $(48,987)
Unrecognized net asset at transition... (503) (1,674) 0 0
Unrecognized net actuarial gains....... 7,681 34,350 (20,068) (17,787)
Unrecognized prior service cost........ 15,942 16,854 (8) (9)
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $(66,698) $(66,783)
======== ======== ======== ========
Qualified plan prepaid (accrued)
pension cost.......................... $ (2,675) $ (2,164) $ 0 $ 0
Non-qualified plan prepaid (accrued)
pension cost.......................... (18,771) (15,990) 0 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $ 0 $ 0
======== ======== ======== ========
</TABLE>
AA-45
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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
------------------ ------------------ ------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected
benefit obligation..... $224,653 $226,717 $ 30,136 $ 25,770 $254,789 $252,487
Aggregate contract value
of plan assets
(principally Company
contracts)............. 210,223 184,803 0 0 210,223 184,803
-------- -------- -------- -------- -------- --------
Over/(Under) funded..... $(14,430) $(41,914) $(30,136) $(25,770) $(44,566) $(67,684)
======== ======== ======== ======== ======== ========
</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>
PENSION OTHER
BENEFITS BENEFITS
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31,
Discount rate........................................ 7.00% 7.25% 7.75% 7.00%
Expected return on plan assets....................... 8.50% 8.50% -- --
Rate of compensation increase........................ 5.50% 4.50% -- --
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 7.00% in 1999,
gradually decreasing to 5.00% over five years and generally 7.40% in 1998,
gradually decreasing to 5.00% over five 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... 13% (10%)
Effect on accumulated postretirement benefit obligation... 11% (10%)
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- ---------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 8,172 $ 6,927 $ 5,310 $ 973 $ 942 $ 885
Interest cost........... 18,488 15,878 13,958 3,351 3,267 3,707
Expected return on plan
assets................. (15,698) (12,866) (22,250) 0 0 0
Net amortization and
deferrals.............. 1,322 669 11,092 (934) 167 (871)
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost................... $ 12,284 $ 10,608 $ 8,110 $3,390 $4,376 $3,721
======== ======== ======== ====== ====== ======
</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 $2,187, $2,252 and $1,588 for the years ended
December 31, 1999, 1998 and 1997, respectively.
AA-46
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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>
GROSS
RENTAL SUB-RENTAL RENTAL
INCOME INCOME EXPENSE
------ ---------- --------
<S> <C> <C> <C>
2000.............................................. $31 $ 7,845 $ 14,738
2001.............................................. 0 7,854 14,042
2002.............................................. 0 7,864 13,413
2003.............................................. 0 8,026 13,822
2004.............................................. 0 8,206 12,836
Thereafter........................................ 0 26,319 117,722
--- ------- --------
Total........................................... $31 $66,114 $186,573
=== ======= ========
</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 loan was collateralized by sales
loads and surrender charges collected on a defined block of variable life
insurance policies issued by the Company. Repayment was structured in a manner
to result in repayment over a term of five years or less. The Company repaid
the entire outstanding balance of the loan in January 1999. Repayments of
principal and interest of $13,310, $8,612 and $3,155 were made during 1999,
1998 and 1997, respectively. The interest rate applied was 6.4%, 6.4% and 5.8%
at January 31, 1999 and December 31, 1998 and 1997, respectively.
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 the 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 $75,053. No repayments were made during 1999,
1998 and 1997, respectively.
9. COMMITMENTS AND 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 for a portion of the Company's
premium taxes. The Company paid guaranty fund assessments of approximately,
$197, $204, and $43 in 1999, 1998, and 1997, respectively, of which $197,
$203, and $33 were to be credited against premium taxes.
AA-47
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Various litigation, claims and assessments against the Company, in addition to
those otherwise provided for in the Company's consolidated financial
statements, have arisen in the course of the Company's business, including,
but not limited to, in connection with its activities as an insurer, employer,
investor, investment advisor and taxpayer. Further, state insurance regulatory
authorities and other Federal and state authorities regularly make inquiries
and conduct investigations concerning the Company's compliance with applicable
insurance and other laws and regulations.
In some of the matters referred to above, large and/or indeterminate amounts,
including punitive damages and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of the Company's management that their outcomes,
after consideration of available insurance and reinsurance and the provisions
made in the Company's consolidated financial statements, are not likely to
have a material adverse effect on the Company's consolidated financial
position. However, given the large and/or indeterminate amounts sought in
certain of these matters and the inherent unpredictability of litigation, it
is possible that an adverse outcome in certain matters could, from time to
time, have a material adverse effect on the Company's operating results or
cash flows in particular annual periods.
10. OTHER EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Compensation................................... $ 96,887 $ 86,822 $ 58,754
Commissions.................................... 205,463 166,218 77,351
Interest and debt expense...................... 5,493 9,374 6,750
Amortization of policy acquisition costs....... 29,831 31,874 17,091
Capitalization of policy acquisition costs..... (216,913) (182,943) (157,670)
Rent expense, net of sub-lease income.......... 5,550 4,252 4,473
Insurance taxes, licenses, and fees............ 21,253 21,802 15,002
Other.......................................... 234,317 179,260 122,591
--------- --------- ---------
Total........................................ $ 381,881 $ 316,659 $ 144,342
========= ========= =========
</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.
AA-48
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amounts related to the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS
Fixed maturities......................................... $735,697 $735,697
Equity securities........................................ 22,685 22,685
Policy loans............................................. 181,995 181,995
Short-term investments................................... 62,619 62,619
Cash and cash equivalents................................ 84,371 84,371
LIABILITIES
Policyholder account balances............................ 84,037 82,765
Other policyholder funds................................. 525 525
Short and long-term debt................................. 75,053 75,053
<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................................. 646 646
Short and long-term debt................................. 82,855 82,855
</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.
AA-49
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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.
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,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 399,864 $ 456,525 $ 307,290
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (435,980) (336,821) (279,510)
Deferred policy acquisition costs........ 930,703 710,961 565,769
Deferred federal income taxes............ (38,669) (42,334) (42,066)
Valuation of investments................. (46,890) 53,514 56,873
Statutory asset valuation reserves....... 13,514 10,636 8,388
Statutory interest maintenance reserve... 462 816 571
Surplus notes............................ (75,053) (69,560) (64,016)
Receivables from reinsurance
transactions............................ 5,049 26,004 27,519
Other, net............................... 100,303 35,330 52,724
--------- --------- ---------
GAAP equity................................ $ 853,303 $ 845,071 $ 633,542
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (40,928) $ (28,043) $ (37,358)
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (295,868) (196,754) (311,588)
Deferred policy acquisition costs........ 186,497 135,788 139,947
Deferred federal income taxes............ (580) 688 3,801
Valuation of investments................. 13,681 (13,490) 0
Statutory interest maintenance reserve... (354) 245 342
Other, net............................... 183,276 113,003 226,825
--------- --------- ---------
GAAP net income............................ $ 45,724 $ 11,437 $ 21,969
========= ========= =========
</TABLE>
AA-50
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
13. RELATED PARTY TRANSACTIONS
MetLife and the Company have 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 $160,792, $193,641 and $186,757 including accruals
for administrative services on NEMLICO administered contracts for 1999, 1998,
and 1997, respectively. In addition, $9,442, $14,123 and $600 for 1999, 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.
During 1999, the Company paid $9,055 of preferred stock dividends to MetLife
Credit Corporation.
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. The Company paid
$2,730 and $6,166 in 1999 and 1998, respectively under these agreements.
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 $4,219, $2,340
and $2,340 in 1999, 1998 and 1997, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1999 were $12,736
and $751, respectively. Included in accrued income at December 31, 1999, were
amounts receivable for sales-based commissions from NEF and SSR totaling $312
and $4, respectively. In 1999, NES earned asset-based income of $11,184 and
$183 on average assets of approximately $4,500,000 and $101,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1999 were amounts receivable for asset-based commissions from NEF
and SSR totaling $307 and $0, respectively.
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
$75,053 and $69,560 at December 31, 1999 and 1998, respectively.
AA-51
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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.
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 $4,840,029
and $3,258,383 at December 31, 1999 and 1998, 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 $36,934, $30,714 and $12,642 in 1999, 1998 and 1997,
respectively.
15. YEAR 2000
The Year 2000 issue was 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 costs associated with additional mainframe capacity necessary to
accommodate a four-digit 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 major system
failures 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 implemented a plan to resolve the issue. There can be
no assurances that the Year 2000 plan of the Company or that of its vendors or
third parties have resolved all Year 2000 issues. Further, there can be no
assurance that there will not be any future system failure or that such
failure, if any, will not have a material impact on the operations of the
Company.
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, medical, and 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,
1999, 1998 and 1997. 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.
AA-52
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
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, 1999
-------------------------------------------------------------------
GROUP CORPORATE
INDIVIDUAL INDIVIDUAL GROUP LIFE, AND
LIFE ANNUITY PENSION A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 63,358 $ 0 $ 15 $ 28,652 $ 31,613 $ 123,638
Universal Life and
Investment-Type Product
Policy Fees............ 199,701 16,771 4,369 0 0 220,841
Net Investment Income... (31,181) (108) (13) 167 99,633 68,498
Investment Gains
(Losses), Net.......... 402 1 0 (1) 2,520 2,922
Commissions, Fees and
Other Revenues......... 25,376 6,708 3,005 34,610 196,192 265,891
---------- ---------- -------- -------- -------- ----------
Total Revenues........ 257,656 23,372 7,376 63,428 329,958 681,790
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 124,727 4,624 113 23,814 40,015 193,293
Interest Credited to
Policyholder Account
Balances............... 8,811 1,623 1,220 30 (963) 10,721
Policyholder Dividends.. 1,739 0 0 (32) 19,120 20,827
Other Operating Costs
and Expenses........... 128,466 21,826 6,196 36,326 189,067 381,881
---------- ---------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 263,743 28,073 7,529 60,138 247,239 606,722
Income from Operations
Before Income Taxes.... (6,087) (4,701) (153) 3,290 82,719 75,068
Income Taxes............ 1,357 (1,563) (26) 1,244 28,332 29,344
---------- ---------- -------- -------- -------- ----------
Net Income.............. $ (7,444) $ (3,138) $ (127) $ 2,046 $ 54,387 $ 45,724
========== ========== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 771,879 $ 63,123 $ 10,499 $ 8,539 $ 76,663 $ 930,703
Separate Account Assets. 2,704,767 1,398,993 517,920 218,349 0 4,840,029
Liabilities
Policyholder
Liabilities............ 535,662 43,674 45,407 43,936 517,949 1,186,628
Separate Account
Liabilities............ 2,704,767 1,398,993 517,920 218,349 0 4,840,029
</TABLE>
AA-53
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<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 Revenues......... 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
Liabilities
Policyholder
Liabilities............ 380,586 38,912 768 19,233 519,353 958,852
Separate Account
Liabilities............ 2,073,552 835,648 235,467 113,716 0 3,258,383
</TABLE>
AA-54
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<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 Revenues......... 9,542 3,253 266 4,383 10,858 28,302
---------- -------- -------- ------- -------- ----------
Total Revenues........ 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
Liabilities
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>
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.
AA-55
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-1
<PAGE>
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the variable ordinary life insurance policies described
in this registration statement, in the aggregate, are reasonable in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2.
The prospectus consisting of 220 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
Representations.
The signatures.
Written consents of the following persons:
H. James Wilson, Esquire (see Exhibit 3(i) below)
James J. Reilly, Jr., F.S.A., M.A.A.A.
(see Exhibit 3(ii) below)
Sutherland, Asbill & Brennan LLP (see Exhibit 6 below)
Independent Auditor (see Exhibit 11 below)
<TABLE>
<CAPTION>
The following exhibits:
<S> <C> <C> <C>
1.A. (1) January 31, 1983 resolution of the Board of
Directors of NEVLICO **
(2) None
(3) (a) Distribution Agreement between NEVLICO and NELESCO ***
(b)(i) Form of Contract between NELICO and its General Agents **
(ii) Form of contract between NELICO and its Agents ***
(c) Commission Schedule for Policies ***
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
(d) Form of contract among NES, NELICO and
other broker-dealers *
(4) None
(5) (a) Specimen of Policy, including Application ***
(b) Riders to Policy ***
(c) Acceleration of Benefits Rider ###
(d) Additional Form of application ++
(e) Additional Riders and Endorsements ++++
(6) (a) Amended and restated Articles of Organization ##
(b) Amended and restated By-Laws of NELICO *
(c) Amendments to Amended and restated Articles of Organization +++
(7) None
(8) None
(9) None
2. See Exhibit 3(i)
3. (i) Opinion and consent of H. James Wilson, Esquire ***
(ii) Opinion and Consent James J. Reilly, Jr., F.S.A., M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland Asbill & Brennan LLP
7. (i) Powers of Attorney ##
(ii) Power of Attorney for James M. Benson, Robert H. Benmosche
and Catherine A. Rein +
(iii) Power of Attorney for David Y. Rogers
8. Notice of Withdrawal Right for Policies ***
9. Inapplicable
10. Inapplicable
11. Consent of Independent Auditors
12. Schedule for computation of performance quotations ***
13. (i) Consolidated memorandum describing certain procedures, filed pursuant to Rule
6e-2(b)(12)(ii) and Rule 6e-3(T)(b)(12)(iii) ***
(ii) Second Addendum to Consolidated Memorandum ++++
14. (i) Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors Corporation and New England Variable Life
InsuranceCompany ***
(ii) Amendment No. 1 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors
Corporation and New England Variable Life Insurance Company #
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
(iii) Participation Agreement among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and New England Variable
Life Insurance Company #
(iv) Form of Participation Agreement among Metropolitan Series Fund, Inc.,
Metropolitan Life Insurance Company and New England Life
Insurance Company +++++
</TABLE>
___________
# Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed June 22, 1995.
## Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
### Incorporated herein by reference to Post-Effective Amendment No. 8 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 30, 1997.
* Incorporated herein by reference to the Pre-effective Amendment No. 1
to the Variable Account's Form S-6 Registration Statement, File No.
333-21767, filed July 16, 1997.
** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed February 25, 1998.
*** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 24, 1998.
+ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 333-46401,
filed July 9, 1998.
++ Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed January 20, 1999.
+++ Incorporated herein by reference to the Post-Effective Amendment No.4 to
the Variable Account's Form S-6 Registration Statement, File No. 33-65263,
filed February 24, 1999.
++++ Incorporated herein by reference to the Post-Effective Amendment No.10 to
the Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 26, 1999.
+++++ Incorporated herein by reference to Post-Effective Amendment No. 26 to
the Metropolitan Series Fund, Inc. Registration Statement on Form N-1A
(File No. 2-80751) filed April 6, 2000.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
New England Variable Life Separate Account, certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the city of Boston, and the Commonwealth of Massachusetts, on
the 26th day of April, 2000.
New England Variable Life Separate
Account
(Registrant)
By: New England Life Insurance Company
(Depositor)
By: /s/ H. James Wilson
-------------------
H. James Wilson, Esq.
Executive Vice President
and General Counsel
Attest:
/s/ Marie C. Swift
- ------------------
Marie C. Swift
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company certifies that it meets all of the requirements for
effectiveness of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the city of Boston, and the Commonwealth of Massachusetts, on the 26th day of
April, 2000.
New England Life Insurance Company
(Seal)
Attest: /s/ Marie C. Swift By: /s/ H. James Wilson
------------------ -------------------
Marie C. Swift H. James Wilson, Esq.
Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on April 26, 2000.
*
______________________ Chairman, President and
James M. Benson Chief Executive Officer
*
______________________ Director
Robert H. Benmosche
*
______________________ Director
Susan C. Crampton
*
______________________ Director
Edward A. Fox
*
______________________ Director
George J. Goodman
*
______________________ Director
Evelyn E. Handler
*
______________________ Director
Philip K. Howard
*
______________________ Director
Bernard A. Leventhal
*
______________________ Director
Thomas J. May
<PAGE>
*
______________________ Director
Stewart G. Nagler
*
______________________ Director
Catherine A. Rein
*
______________________ Executive Vice President,
David Y. Rogers Chief Financial Officer and Chief
Accounting Officer
*
______________________ Director
Rand N. Stowell
By: /s/Anne M. Goggin
-----------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant
to powers of attorney filed herewith and with the Variable Account's Form
S-6 Registration Statement, File No. 333-21767, on February 13, 1997, Pre-
Effective Amendment No. 1 to the Variable Account's Form S-6 Registration
Statement, File No. 333-46401, on July 9, 1998 and Post-Effective Amendment
No. 4 to the Variable Account's Form S-6 Registration Statement, File No.
33-88082, on January 20, 1999.
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
3. (ii) Opinion and Consent of James J.
Reilly, Jr., F.S.A., M.A.A.A.
6. Consent of Sutherland Asbill &
Brennan LLP
7. (iii) Power of Attorney for David Y. Rogers
11. Consent of the Independent Auditors
_________
* Page numbers inserted on manually-signed copy only.
u:\vl3-2000.ms
<PAGE>
Exhibit 3(ii)
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
April 26, 2000
New England Life Insurance Company
501 Boylston Street
Boston, MA 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 11 to the registration
statement on Form S-6 (File No. 33-52050) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable life
insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated premiums,
internal rates of return on net cash values and internal rates of return on
death benefits shown in Appendix A of the Prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown in
the illustrations, appear to be correspondingly more favorable to
prospective purchasers of Policies for males aged 35 or 45 in the
underwriting class illustrated than to prospective purchasers of Policies
for males at other ages or for females. Insureds in other underwriting
classes may have higher cost of insurance charges and premiums.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the Appendix,
is consistent with the provisions of the Policies.
<PAGE>
3. The illustration of net scheduled premiums and net unscheduled payments
shown under the heading "Charges and Expenses-Deductions from Premiums and
Unscheduled Payments" in the Prospectus contains the net scheduled premium
and net unscheduled payment amounts allocated to the Variable Account for
scheduled premiums and unscheduled payments of $2,000 each under a Policy
with no riders and covering an insured who is not in a substandard risk or
automatic issue classification.
4. The information contained in the example of how the maximum loanable amount
is determined under the heading "Other Policy Features-Loan Provision" in
the Prospectus is consistent with the Provisions of the Policies.
5. The information contained in the examples of how the maximum amount of cash
available for withdrawal is determined, under the heading "Partial
Surrender and Partial Withdrawal" in the Prospectus, is consistent with the
provisions of the Policies.
6. The information contained in the example of how a change in tabular cash
value at the premium recalculation date impacts partial withdrawals, the
Option 2 death benefit and the special premium option, in Appendix F of the
prospectus, and in the Supplement dated May 1, 2000 to the prospectus dated
April 30, 1999, is consistent with the provisions of the Policies.
I hereby consent to the filing of this opinion as an Exhibit to this Post-
Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the Prospectus and in the Supplement dated May 1,
2000 to the prospectus dated April 30, 1999.
Sincerely,
James J. Reilly, Jr., F.S.A.,M.A.A.A.
Second Vice President and Actuary
<PAGE>
Exhibit 6
[Sutherland Asbill & Brennan LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the prospectus included in Post-
Effective Amendment No. 11 to the Registration Statement on Form S-6 for Zenith
Life Plus II, issued through the New England Variable Life Separate Account
(File No. 33-52050). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Kimberly J. Smith
----------------------------
Kimberly J. Smith
Washington, D.C.
April 26, 2000
<PAGE>
Exhibit 7 (iii)
POWER OF ATTORNEY
-----------------
David Y. Rogers
I, an officer of New England Life Insurance Company, a Massachusetts
corporation, hereby constitute and appoint Anne M. Goggin, Rodney J. Chandler,
Michele H. Abate, Marie C. Swift and H. James Wilson, each of them singly, my
true and lawful attorneys, with full power to them and each of them to sign for
me and in my name and in the capacities indicated below, the Registration
Statements filed with the Securities and Exchange Commission for the purpose of
registering New England Variable Life Separate Account established by New
England Life Insurance Company on January 31, 1983 as a unit investment trust
under the Investment Company Act of 1940 and the variable life policies issued
by said separate account under the Securities Act of 1933, and any and all
amendments thereto, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to said Registration Statements and any and all
amendments thereto.
In addition, I, an officer of New England Life Insurance Company, a
Massachusetts corporation, hereby constitute and appoint Anne M. Goggin, Rodney
J. Chandler, Michele H. Abate, Marie C. Swift and H. James Wilson, each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name and in the capacities indicated below, the
Registration Statements filed with the Securities and Exchange Commission for
the purpose of registering New England Variable Annuity Separate Account
established by New England Life Insurance Company on July 1, 1994 as a unit
investment trust under the Investment Company Act of 1940 and the variable
annuity contracts issued by said separate account under the Securities Act of
1933, and any and all amendments thereto, hereby ratifying and confirming my
signature as it may be signed by my said attorneys to said Registration
Statements and any and all amendments thereto.
Witness my hand on the 11th of April, 2000.
/s/ David Y. Rogers
--------------------
David Y. Rogers
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 11 to the
Registration Statement No. 33-52050 of New England Variable Life Separate
Account (the "Separate Account") of New England Life Insurance Company (the
"Company") of our reports dated February 4, 2000 appearing in the Prospectus and
the Supplement, which are part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus and Supplement.
Deloitte & Touche LLP
Boston, Massachusetts
April 26, 2000
