<PAGE>
ZENITH EXECUTIVE ADVANTAGE 2000
Flexible Premium Adjustable
Variable Life Insurance Policies
Issued by
New England Variable
Life Separate Account of
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus offers individual flexible premium adjustable variable life
insurance policies (the "Policies") issued by New England Life Insurance
Company ("NELICO").
The Policy provides premium flexibility and a death benefit. In some cases
you can choose a rider that provides a death benefit guarantee as long as your
total premiums paid meet certain minimum requirements.
You may choose among three death benefit options. One provides a fixed death
benefit equal to the Policy's face amount. One provides a death benefit that
may vary daily with the investment experience of the Eligible Funds. One
provides a death benefit equal to the Policy's face amount plus premiums paid
(less partial surrenders). Cash value allocated to the Eligible Funds is not
guaranteed, and fluctuates daily with the investment results of the Eligible
Funds.
You allocate net premiums among the investment Sub-Accounts of NELICO's
Variable Life Separate Account (the "Variable Account"). Each Sub-Account of
the Variable Account invests in the shares of an Eligible Fund. The Eligible
Funds are:
NEW ENGLAND ZENITH FUND METROPOLITAN SERIES FUND, INC.
Back Bay Advisors Bond Income Series Putnam Large Cap Growth Portfolio*
Back Bay Advisors Managed Series Janus Mid Cap Portfolio*
Back Bay Advisors Money Market Russell 2000(R) Index Portfolio*
Series
Capital Growth Series VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Westpeak Growth and Income Series
Westpeak Stock Index Series Overseas Portfolio
Balanced Series Equity-Income Portfolio
Loomis Sayles Small Cap Series High Income Portfolio
Alger Equity Growth Series VARIABLE INSURANCE PRODUCTS FUND II
Davis Venture Value Series ("VIP II")
Harris Oakmark Mid Cap Value Series
Morgan Stanley International Magnum Asset Manager Portfolio
Equity Series
MFS Investors Series
MFS Research Managers Series
You may also allocate net premiums to a Fixed Account in most states. Limits
apply to transfers to and from the Fixed Account. The first net premium for
the Policy generally is credited with net investment experience equal to that
of the Zenith Money Market Sub-Account until the day that we mail the
confirmation for the initial premium (in some states, until 15 days after the
date we mail the initial premium confirmation). Thereafter, we invest the
Policy's cash value according to your instructions.
You may cancel the Policy during the "Right to Return the Policy" period. In
addition, replacing existing insurance with the Policy might not be to your
advantage.
----------
*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>
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PAGE
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<S> <C>
GLOSSARY................................................................... A-4
INTRODUCTION TO THE POLICIES............................................... A-5
The Policies............................................................. A-5
Availability of the Policy............................................... A-7
Policy Charges........................................................... A-7
How the Policy Works..................................................... A-10
Communications and Payments.............................................. A-11
NELICO................................................................... A-11
POLICY VALUES AND BENEFITS................................................. A-13
Death Benefit............................................................ A-13
Guaranteed Death Benefit Rider........................................... A-14
Death Proceeds Payable................................................... A-15
Change in Death Benefit Option........................................... A-15
Cash Value............................................................... A-15
Allocation of Net Premiums............................................... A-16
Amount Provided for Investment under the Policy.......................... A-16
Right to Return the Policy............................................... A-17
CHARGES AND EXPENSES....................................................... A-17
Deductions from Premiums................................................. A-17
Deductions from Cash Value............................................... A-18
Charges Against the Eligible Funds....................................... A-20
Special Arrangements..................................................... A-20
PREMIUMS................................................................... A-21
Flexible Premiums........................................................ A-21
Lapse and Reinstatement.................................................. A-22
OTHER POLICY FEATURES...................................................... A-22
Increase in Face Amount.................................................. A-22
Loan Provision........................................................... A-23
Surrender................................................................ A-24
Partial Surrender........................................................ A-24
Reduction in Face Amount................................................. A-24
Investment Options....................................................... A-25
Transfer Option.......................................................... A-25
Dollar Cost Averaging.................................................... A-25
Asset Rebalancing........................................................ A-26
Substitution of Insured Person........................................... A-26
Payment of Proceeds...................................................... A-26
24 Month Right........................................................... A-27
Payment Options.......................................................... A-27
Additional Benefits by Rider............................................. A-28
Policy Owner and Beneficiary............................................. A-28
THE VARIABLE ACCOUNT....................................................... A-29
Investments of the Variable Account...................................... A-29
Investment Management.................................................... A-31
THE FIXED ACCOUNT.......................................................... A-32
General Description...................................................... A-32
Values and Benefits...................................................... A-32
Policy Transactions...................................................... A-32
</TABLE>
A-2
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
NELICO'S DISTRIBUTION AGREEMENT............................................ A-33
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY........................... A-34
Misstatement of Age or Sex............................................... A-34
Suicide.................................................................. A-34
TAX CONSIDERATIONS......................................................... A-35
Introduction............................................................. A-35
Tax Status of the Policy................................................. A-35
Tax Treatment of Policy Benefits......................................... A-35
NELICO's Income Taxes.................................................... A-37
MANAGEMENT................................................................. A-38
VOTING RIGHTS.............................................................. A-40
RIGHTS RESERVED BY NELICO.................................................. A-41
TOLL-FREE NUMBERS.......................................................... A-41
REPORTS.................................................................... A-41
ADVERTISING PRACTICES...................................................... A-41
LEGAL MATTERS.............................................................. A-42
REGISTRATION STATEMENT..................................................... A-42
EXPERTS.................................................................... A-42
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
AND ACCUMULATED PREMIUMS.................................................. A-43
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION.............................. A-48
APPENDIX C: LONG TERM MARKET TRENDS........................................ A-62
APPENDIX D: TAX INFORMATION................................................ A-64
APPENDIX E: CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST........ A-65
FINANCIAL STATEMENTS....................................................... AA-1
</TABLE>
A-3
<PAGE>
GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AGE. The age of an insured refers to the insured's age at his or her nearest
birthday.
CASH VALUE. A Policy's cash value includes the amount of its cash value held
in the Variable Account, the amount held in the Fixed Account and, if there is
an outstanding Policy loan, the amount of its cash value held in our general
account as a result of the loan.
EXCESS POLICY LOAN. When Policy loans plus accrued interest exceed the
Policy's cash value less the applicable Surrender Charge.
FIXED ACCOUNT. The Fixed Account is a part of our general account to which
you may allocate net premiums. It provides guarantees of principal and
interest.
INVESTMENT START DATE. This is the latest of the date we first receive a
premium payment for the Policy, the date Part II of the Policy application is
signed (if any is required) and the Policy Date.
NET CASH VALUE. The net cash value is equal to the Policy's cash value
reduced by any outstanding Policy loan and accrued interest on the loan.
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.
PLANNED PREMIUM. The Planned Premium is the premium payment schedule you
choose to help meet your future goals under the Policy. The Planned Premium is
a level amount that is subject to certain limits under the Policy. Payments in
addition to any Planned Premium are called unscheduled payments in the Policy
and can be paid at any time, subject to certain limits.
PREMIUMS. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment. (See "Premiums".)
POLICY DATE. If you make a premium payment with the application, the Policy
Date is generally the later of the date Part II of the application (if any)
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.
TARGET PREMIUM. Currently we use the Target Premium to determine the amount
of Sales Charge deducted from each premium payment, and also sales
commissions. It varies by issue age, sex and underwriting class of the insured
and the Policy's face amount at issue (or as later reduced). The Target
Premium for a standard risk Policy with no riders is equal to the net annual
premium that would be paid if the Policy provided for paid-up benefits after
the payment of seven level net annual premiums, determined under federal
income tax laws. Substandard ratings and certain riders increase the Target
Premium above this amount.
YOU. "You" refers to the Policy Owner.
A-4
<PAGE>
INTRODUCTION TO THE POLICIES
THE POLICIES
The Policies are designed to provide lifetime insurance coverage. They are
not offered primarily as an investment. Policies are issued as part of a
"case", where a number of Policies share a common factor (for example, a
corporate owner).
Here is a summary of the Policy's basic features. You should read the entire
prospectus for more complete information.
--You can make premium payments under the Policy based on a schedule you
determine, subject to some limits. We can limit or prohibit unscheduled
payments in some situations, including cases where the insured is in a
substandard risk class. (See "Premiums".)
--You can allocate net premiums to one or more of the Sub-Accounts of the
Variable Account corresponding to mutual fund portfolios, in some cases
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".)
--The portion of the cash value in the Sub-Accounts is not guaranteed. You
bear the investment risk on this portion of the cash value. (See "Cash
Value".)
--You may choose among three death benefit options under the Policy. The
first option provides a death benefit equal to the Policy's face amount.
The second option provides a death benefit equal to the face amount plus
any cash value, which varies with the net investment experience of your
Policy's Sub-Accounts and the rate of interest credited on your cash value
in the Fixed Account. The third option provides a death benefit equal to
the face amount plus premiums paid, less all partial surrenders. The death
benefit in each case could increase to satisfy tax law requirements if the
cash value reaches certain levels. (See "Death Benefit".)
--After the first Policy year, you may increase in some circumstances or
decrease the Policy's face amount. (See "Increase in Face Amount" and
"Reduction in Face Amount".)
--If it is available to you and you elect the Guaranteed Death Benefit
rider, then regardless of investment experience, the death benefit is
guaranteed not to be less than the Policy's face amount, as long as the
total amount of premiums paid less any partial surrenders and outstanding
Policy loan plus accrued loan interest at least equals certain minimum
amounts. (See "Death Benefit" and "Guaranteed Death Benefit Rider".)
--You may change your allocation of future net premiums at any time. (See
"Allocation of Net Premiums" and "Investment Options".)
--Beginning 15 days after we mail the initial payment confirmation, the
Policy allows you to transfer cash value among the Sub-Accounts and,
generally, to the Fixed Account up to four times in a Policy year (twelve
times in a Policy year for Policies issued in New York) without our
consent. Currently we do not limit the number of sub-account transfers you
may make in a Policy year. Transfers and allocations involving the Fixed
Account are subject to some limits. (See "Transfer Option" and "The Fixed
Account--Policy Transactions".)
A-5
<PAGE>
--A loan privilege and a partial surrender feature are also available. (See
"Loan Provision" and "Partial Surrender".)
--If you surrender the Policy in the first two Policy years, we refund to
you the total sales charges we deducted on premiums paid in the first
Policy year. (See "Charges and Expenses" and "Surrender".)
--Death benefits paid to the beneficiary generally are not subject to
Federal income tax. Under current law, undistributed increases in cash
value generally are not taxable to you. (See "Tax Considerations".)
--Loans, assignments and other pre-death distributions may have tax
consequences depending primarily on the amount which you have paid into
the Policy but also on any "material change" in the terms or benefits of
the Policy or any death benefit reduction. If premium payments, a death
benefit reduction, or a material change cause the Policy to become a
"modified endowment contract", then pre-death distributions (including
loans) will be included in income on an income first basis, and a 10%
penalty tax may be imposed on income distributed before the Policy Owner
attains age 59 1/2. Tax considerations may therefore influence the amount
and timing of premium payments and certain Policy transactions which you
choose to make. (See "Tax Considerations".)
--If the Policy is not a modified endowment contract, we believe that loans
under the Policy during the first 10 Policy years will not be taxable to
you as long as the Policy has not lapsed, been surrendered or terminated.
The tax consequences of a policy loan after the tenth policy year are not
clear. You should consult a tax advisor if you intend to take out or
maintain a policy loan after the tenth policy year. 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".)
--In recent years, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new life
insurance contract or a change in an existing life insurance contract
should consult a tax adviser. (See "Tax Considerations".)
--During the "Right to Return the Policy" period you can return the Policy
for a refund. In some states we are required to refund premiums paid; in
other states, we refund an amount that reflects investment experience and
certain charges. For a limited period you can cancel a requested increase
in the Policy's face amount. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue or the effective date of a
face amount increase, you may exercise the Policy's 24 Month Right. If you
do, we allocate all or part of your Policy's cash value and future
premiums to the Fixed Account. The purpose of the 24 Month Right is to
provide you with fixed Policy values and benefits. (See "24 Month Right"
for a description of this provision generally and for a description of the
variation which applies to Policies issued in Maryland, New Jersey and
Connecticut.)
In many respects the Policies are similar to fixed-benefit universal life
insurance. Like universal life insurance, the Policies offer death benefits
and provide flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit universal life insurance in
that the death benefit may, and the cash value will, vary to reflect the
investment experience of the selected Sub-Accounts.
The Policies are designed to provide insurance protection. Although the
underlying mutual fund portfolios invest in securities similar to those in
which mutual funds available directly to the public invest, in many ways the
Policies differ from mutual fund investments. The main differences are:
--The Policy provides a death benefit based on our assumption of an
actuarially calculated risk.
--If the net cash value is not sufficient to pay a Monthly Deduction, the
Policy may lapse with no value unless you pay additional premiums. If the
Policy lapses when Policy loans are outstanding, adverse tax consequences
may result.
--In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is 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-6
<PAGE>
AVAILABILITY OF THE POLICY
Each Policy is part of a "case," which is a group of one or more Policies
linked by a factor such as a common employer of the insureds. We decide what
Policies constitute a case. Policies in a case usually have a common Policy
owner (for example, the employer of the insureds). In addition, the total
annual premium payment payable on the Policies included in the case must meet
the following minimums: cases of at least five Policies--$100,000; and cases
of fewer than five Policies--$250,000.
The Policies are available for insureds from the age of 20 to 80 on an
underwritten basis and from the age of 20 to 65 on a guaranteed issue basis.
We issue guaranteed issue Policies based on very limited underwriting
information. (Guaranteed issue Policies may not be available in New Jersey.)
All persons must meet our underwriting and other requirements. The minimum
face amount available is $50,000 unless we consent to a lower amount. We allow
you to include Adjustable Term Insurance Rider coverage to meet our minimum
size requirements. The Policies are not available to employee benefit plans
qualified under Section 401 of the Internal Revenue Code ("tax-qualified
pension plans"), except with our consent. For a tax-qualified pension plan,
the tax deferred accrual feature is provided for 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 premiums:
--A sales charge of 8% on each premium payment you make during a Policy
year. Currently we reduce the charge to 3% on each premium payment you
make in excess of a Target Premium during a Policy year; and
--A premium tax charge of 2%.
MONTHLY DEDUCTION FROM CASH VALUE. We deduct certain charges from the cash
value:
--Monthly charge for the cost of insurance; and for any rider benefits you
elect, including the Minimum Guaranteed Death Benefit;
--Monthly mortality and expense risk charge, currently equal to an annual
rate of 0.50% (guaranteed not to exceed 0.75%);
--Monthly policy fee currently equal to $5.50 per month (guaranteed not to
exceed $10.00 per month).
CHARGE FOR FACE AMOUNT INCREASES. If you increase your Policy's face amount
and medical underwriting is required for the increase, we deduct a charge of
$0.80 per $1,000 of the face amount increase (not to exceed $25.00) from your
Policy's cash value on the date that the increase takes effect, and on the
first day of the next eleven Policy months.
CHARGES DEDUCTED FROM THE ELIGIBLE FUNDS. Daily charges against the Eligible
Fund portfolios are deducted for investment advisory services and fund
operating expenses.
Currently, we do not charge the Variable Account for federal income taxes.
We may, however, impose such a charge in the future.
You can designate a Single Source Expense Sub-Account from which we will
take Monthly Deductions and any charges for face amount increases.
The following table shows the annual operating expenses for each New England
Zenith Fund series, based on actual expenses for 1999, after giving effect to
the applicable expense cap or expense deferral arrangement:
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY EXPENSE CAP)
<TABLE>
<CAPTION>
BACK BACK
BAY BAY BACK WESTPEAK LOOMIS
ADVISORS ADVISORS BAY WESTPEAK GROWTH SAYLES
CAPITAL BOND MONEY ADVISORS STOCK AND SMALL
GROWTH INCOME MARKET MANAGED INDEX INCOME CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES*
------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .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-7
<PAGE>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<TABLE>
<CAPTION>
MORGAN
HARRIS 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>
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* 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 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>
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* 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-8
<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>
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* 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.
See "Charges and Expenses" and "Other Policy Features--Increase in Face
Amount".
A-9
<PAGE>
<TABLE>
HOW THE POLICY WORKS
<S> <C> <C>
---------------------------------------------- ---------------------------------------------- ------------------------------------
Premium Payments Cash Values Daily Deductions from Assets
. Flexible . Net premium payments invested in your . Investment advisory fees and
. Planned premium options choice of Eligible Fund investments or the other expenses are deducted from
. Minimum premium (in first three Policy Fixed Account (generally after an initial the Eligible Fund values daily
years) period during which net investment ------------------------------------
. Guaranteed Death Benefit Premium (to experience equal to that of the Zenith
age 100) (available only if Option 1 death Money Market Sub-Account may be credited) ------------------------------------
benefit and cash value accumulation test . The cash value reflects investment Beginning of Month Charge
with Net Single Premium Corridor elected experience, interest, premium payments,
for Policy) policy charges and any distributions from . The cost of insurance charge
---------------------------------------------- the Policy (reflecting any substandard risk
. The cash value invested in mutual funds is or guaranteed issue rating)
---------------------------------------------- not guaranteed . Any Rider Charges
Charges from Premium Payments . Any earnings accumulate free of any current . Policy Fee: $5.50 (not to exceed
income taxes $10.00) per month
. Sales Load: 8% on amount paid up to a . You may change the allocation of future net . Mortality and expense risk
Target Premium in each Policy year and premiums at any time. You may transfer funds charge of .50% (guaranteed not
currently 3% on amount paid above a Target among investment options (and to the Fixed to exceed .75%)
Premium in each Policy year. We refund the Account), beginning 15 days after mailing of . Guaranteed Death Benefit Charge
sales load deducted from premiums paid in the initial premium confirmation. Currently (if rider selected): $.01 per
the first Policy year if you surrender in we do not limit the number of sub-account $1000 face amount monthly
the first two Policy years. transfers you can make in a Policy year. ------------------------------------
. State Premium Tax Charge: 2% Transfers from (and, in certain circum-
---------------------------------------------- stances, to) the Fixed Account are limited ------------------------------------
as to timing, frequency and amount Living Benefits
---------------------------------------------- . You may allocate cash value among a
Loans maximum of ten accounts at any one time. . If policyholder has elected and
---------------------------------------------- qualified for benefits for
. Beginning 15 days after mailing of initial disability and becomes totally
premium confirmation, you may borrow a ---------------------------------------------- disabled, we will waive monthly
portion of your cash value Death Benefit charges during the period of
. Loan interest charge is 4.75%. We transfer disability up to certain limits.
loaned funds out of the Eligible Funds . Three Death Benefit Options . You may surrender the Policy at
into the General Account where they are . We guarantee the Policy will not lapse any time for its cash surrender
credited with not less than 4.0% regardless of net cash value amount if value
interest. (Currently NELICO intends to Guaranteed Death Benefit rider is in effect . Deferred income taxes, including
credit 4.50% interest after 10 Policy (available under certain circumstances) taxes on certain amounts
years.) . Income tax free to named beneficiary borrowed, become payable upon
---------------------------------------------- . Death benefit will not be less than that surrender
required by federal tax law, using tax law . Grace period for lapsing with no
---------------------------------------------- test you select (guideline premium or cash value is 62 days from the first
Retirement Benefits value accumulation) date in which Monthly Deduction
. If you add term insurance coverage, you was not paid due to insufficient
. Fixed settlement options are available for elect whether to include it in the cash value
policy proceeds calculation of the Option 1, Option 2 or . Subject to our rules, you may
---------------------------------------------- Option 3 death benefit reinstate a lapse Policy within
. You may increase the face amount, subject seven years of date of lapse if
to any necessary underwriting and a monthly it has not been surrendered
charge of $0.80 per $1,000 of increase (not ------------------------------------
to exceed $25) for 12 months, if the
increase is underwritten
----------------------------------------------
</TABLE>
A-10
<PAGE>
COMMUNICATIONS AND PAYMENTS
We will treat your request for a Policy transaction, or your submission of a
payment, as received by us, if we receive a request or payment conforming to
our administrative procedures 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.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT
----------------------------------------------------------------------------------------------------------
Premiums <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
and Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith Zenith
Unscheduled Capital Back Back Back West- West- Loomis Bal- Alger Davis Harris Morgan
Payments Fixed Growth Bay Bay Bay peak peak Sayles anced Equity Venture Oakmark Stanley
Account Sub- Bond Money Man- Stock Growth Small Sub- Growth Value Mid Cap Inter-
Account Income Market aged Index and Cap Account Sub- Sub- Value national
Sub- Sub- Sub- Sub- Income Sub- Account Account Sub- Magnum
Account Account Account Account Sub- Account Account Equity
Account Sub-
Account
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zenith Zenith Metro- Metro- Metro- VIP VIP VIP VIP II
Fixed MFS MFS politan politan politan Equity- Over- High Asset
Account Inves- Re- Putnam Janus Russell Income seas Income Man-
tors search Large Mid 2000 Sub- Sub- Sub- ager
Sub- Man- Cap Cap Index Account Account Account Sub-
Account agers Growth Sub- Sub- Account
Sub- Sub- Account Account
Account Account
----------------------------------------------------------------------------------------
</TABLE>
Sub-accounts buy
shares of the
Eligible Funds
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
NEW ENGLAND ZENITH FUND
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Back Bay Back Bay Back Bay Westpeak Westpeak Loomis Balanced Alger Davis Harris
Growth Advisors Advisors Advisors Stock Growth Sayles Series Equity Venture Oakmark
Series Bonds Money Managed Index and Small Growth Value Mid Cap
Income Market Series Series Income Cap Series Series Value
Series Series Series Series Series
----------------------------------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------------------------------------------
METROPOLITAN
SERIES VIP
FUND, INC.* VIP II
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Morgan MFS MFS Putnam Janus Russell Equity- Overseas High Asset
Stanley Inves- Re- Large Mid Cap 2000 Income Portfolio Income Manager
Inter- tors search Cap Portfolio Index Portfolio Portfolio Portfolio
national Series Man- Growth Portfolio
Magnum agers Portfolio
Equity Series
Series
---------------------------------------------------------------------------------------------------------
</TABLE>
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.
A-12
<PAGE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
If the insured dies while the Policy is in force, we pay a death benefit to
the beneficiary.
DEATH BENEFIT OPTIONS. When you apply for a Policy, you choose among three
death benefit options.
The Option 1 (Face Amount) death benefit is equal to the face amount of the
Policy. The Option 1 death benefit is fixed, subject to increases required by
the Internal Revenue Code.
The Option 2 (Face Amount Plus Cash Value) death benefit is equal to the
face amount of the Policy, plus the Policy's cash value, if any. The Option 2
death benefit is also subject to increases required by the Internal Revenue
Code.
The Option 3 (Face Amount Plus Premiums) death benefit is equal to the face
amount, plus premiums paid (less all partial surrenders). The Option 3 death
benefit is also subject to increases required by the Internal Revenue Code.
CHOICE OF TAX TEST. To meet the Internal Revenue Code's definition of life
insurance, the death benefit, which for these purposes includes any coverage
provided under the Adjustable Term Insurance Rider, will not be less than what
is required by either (1) the "cash value accumulation test" under Section
7702(a)(1) of the Internal Revenue Code, or (2) the "guideline premium test"
under Section 7702(a)(2) of the Internal Revenue Code, whichever you select
when the Policy is issued. The test you select at issue is used for the life
of the Policy.
Under the cash value accumulation test, the death benefit is not less than
the Policy's cash value, including the portion of any Monthly Deduction made
for a period beyond the date of death, divided by the applicable net single
premium set by the Internal Revenue Code (the "Net Single Premium Corridor").
Net single premiums are based on the age and sex of the insured at the time of
the calculation, and increase over time. Sample net single premiums appear in
Appendix E.
If you choose the cash value accumulation test, you may choose an "Enhanced
Net Single Premium Corridor". If you do, the death benefit will not be less
than the Policy's cash value, including the portion of any Monthly Deduction
made for a period beyond the date of death, divided by the applicable net
single premium set by the Internal Revenue Code times the Enhanced Net Single
Premium Factor. The Enhanced Net Single Premium Factors vary by the attained
age of the insured. These factors are shown in Appendix E.
Under the guideline premium test, the death benefit is not less than a
certain multiple of the Policy's cash value, including the portion of any
Monthly Deduction made for a period beyond the date of death. This means that,
if the cash value grows to certain levels, the death benefit increases to
satisfy tax law requirements. At that point, any payment you make into the
Policy will increase the death benefit by more than it increases the cash
value. (See "Premiums".)
If you choose the guideline premium test, you must select either the
"Guideline Premium Test with IRS Corridor" or the "Guideline Premium Test with
Enhanced Corridor". Appendix E shows the percentages that are applied to the
cash value under both the IRS Corridor and the Enhanced Corridor.
If you select the cash value accumulation test, you can generally make a
higher amount of premium payments for any given face amount; and a higher
death benefit may result in the long term. If cash value growth in the early
Policy years is your primary objective, the cash value accumulation test may
be the appropriate choice because it allows you to invest more premiums in the
Policy for each dollar of death benefit. If cash value growth in the later
Policy years is your primary objective, the guideline premium test may be the
appropriate choice because it requires a lower death benefit, and therefore
lower mortality charges, once the Policy's death benefit is subject to
increases required by the Internal Revenue Code.
If you select the "Guideline Premium Test with Enhanced Corridor" or "Cash
Value Accumulation Test with Enhanced Net Single Premium Corridor", the death
benefits when the insured is age 76 through 89 could potentially be a greater
percentage of the cash value than with the standard corridor for the chosen
tax test. The death benefit amounts at those ages will only be affected if the
cash values have reached levels that would force the death benefit amounts to
be increased. When the insured's age is under 76 and over 89, the enhanced and
standard corridor factors are equal. If the enhanced factors result in
increased death benefit protection, there will be higher cost of insurance
charges to provide the increased coverage. If the cash values never reach the
required levels, the enhanced and standard options will result in the same
death benefit protection. The maximum limits on premium payments for any given
face amount would not change due to your choice of enhanced corridor or
standard corridor factors. If death benefit protection at ages 76 through 89
is an important factor to you, the enhanced corridor for the tax test chosen
may be the appropriate choice.
A-13
<PAGE>
IF YOU SELECT THE GUIDELINE PREMIUM TEST OR THE CASH VALUE ACCUMULATION TEST
WITH THE ENHANCED NET SINGLE PREMIUM CORRIDOR, YOU WILL NOT BE ABLE TO ADD THE
GUARANTEED DEATH BENEFIT RIDER TO YOUR POLICY. (SEE "GUARANTEED DEATH BENEFIT
RIDER" BELOW.)
TERM RIDER "IN" OR "OUT". If you add an Adjustable Term Insurance Rider to
the Policy, you can have the face amount of the Rider added to the face amount
of the Policy for purposes of calculating the Option 1, Option 2 or Option 3
death benefit. If you include the rider coverage in the calculation of the
death benefit, the Policy may provide greater potential for cash value to grow
relative to the death benefit. If you do not include the rider coverage in the
calculation of the death benefit, the Policy may provide greater potential for
the death benefit to grow relative to cash value.
If you elect the Adjustable Term Insurance Rider, either when or after the
Policy is issued, and your Policy has the Guaranteed Death Benefit Rider, then
you must choose to add the Adjustable Term Insurance Rider coverage to the
Policy's face amount in the calculation of the Policy's Option 1 death
benefit. See "Guaranteed Death Benefit Rider" below.
AGE 100. If death occurs at or after the Policy Anniversary when the insured
reaches attained age 100, the death benefit is equal to the greater of (i) the
cash value on the date of death; or (ii) the face amount, if the Policy had a
Guaranteed Death Benefit rider attached, and the Guaranteed Death Benefit was
in effect on the Policy Anniversary when the Insured reached attained age 100.
If the Policy has an Adjustable Term Insurance Rider as well as a Guaranteed
Death Benefit Rider benefit in effect at the insured's attained age 100, we
exchange the term amount for an increase in the Policy's face amount. We do
not require evidence of insurability or a Face Amount Increase Charge (see
"Charges and Expenses") for the increase.
GUARANTEED DEATH BENEFIT RIDER
Subject to state availability, if you choose the Option 1 death benefit and
the cash value accumulation test with the Net Single Premium Corridor, you may
also elect at issue a rider that provides a Guaranteed Death Benefit. (If you
have elected an Adjustable Term Insurance Rider, you may elect the Guaranteed
Death Benefit Rider only if you have chosen to add the Adjustable Term
Insurance Rider coverage to the Policy's face amount in the calculation of the
Policy's Option 1 death benefit).
If you elect this benefit, we determine whether the Guaranteed Death Benefit
is in effect on the first day of each Policy month until the insured reaches
age 100. If the Guaranteed Death Benefit is in effect, the Policy will not
lapse even if the net cash value is less than the Monthly Deduction for that
month.
On the first day of a Policy month, if the total premiums you have paid,
less all partial surrenders and less any outstanding Policy loan plus accrued
loan interest, are at least equal to: the Guaranteed Death Benefit Premium,
multiplied by the number of completed Policy years, plus 1/12 of that premium
for each Policy month of the current Policy year up to and including the
current Policy month, then the guarantee will apply for that month. The
Guaranteed Death Benefit Premium appears in Section 1 of your Policy.
We recalculate the Guaranteed Death Benefit premium if:
--you reduce or increase the face amount
--you make a partial surrender that reduces the face amount
--you increase or decrease rider coverage.
When testing whether the Guaranteed Death Benefit is in effect, we use the
Policy's original Guaranteed Death Benefit premium for the period of time it
was in effect, and each recalculated Guaranteed Death Benefit premium for the
period of time it was in effect.
If you elect this benefit, the Monthly Deduction will include a charge for
the rider, currently until the Policy anniversary when the insured reaches age
100, unless you request that the rider terminate before then. You cannot add
the rider after issue of the Policy. The rider will terminate if you change
your Policy's death benefit option or the corridor used under your Policy's
tax test.
We can restrict any unplanned premium payment that would increase your
Policy's death benefit by more than it would increase cash value. (See
"Flexible Premiums.") This could prevent you from making unplanned premium
payments that are necessary to keep the Guaranteed Death Benefit rider benefit
in effect.
A-14
<PAGE>
DEATH PROCEEDS PAYABLE
The death proceeds we pay are equal to the death benefit on the date of the
insured's death, reduced by any outstanding loan and accrued loan interest on
that date. If the death occurs during the grace period, we reduce the proceeds
by an amount to cover unpaid Monthly Deductions to the date of death. (See
"Lapse and Reinstatement".) We increase the death proceeds by any rider
benefits payable.
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 within two
years (less in some states) from an increase in the Policy's face amount, or
if a rider limits the death benefit. (See "Limits to NELICO's Right to
Challenge the Policy".)
CHANGE IN DEATH BENEFIT OPTION
After the first Policy year, you may change your death benefit option by
sending your written request to our Administrative Office. The request will be
effective on the date we receive it. A change in death benefit option may have
tax consequences. (See "Tax Considerations".)
If you change from Option 1 (Face Amount) to Option 2 (Face Amount Plus Cash
Value), or from Option 3 (Face Amount Plus Premiums) to Option 2 (Face Amount
Plus Cash Value), we reduce the Policy's face amount if necessary so that the
death benefit is the same immediately before and after the change. The face
amount reduction will apply to the Policy's initial face amount and any prior
increases in face amount on a pro rata basis. A face amount reduction below
$50,000 requires our consent. We may also decrease any rider benefits under
the Policy. If you selected the guideline premium test for the Policy, a
partial surrender of cash value may be necessary to meet Federal tax law
limits on the amount of premiums that you can pay into the Policy.
If you change from Option 1 (Face Amount) to Option 3 (Face Amount Plus
Premiums), we require evidence that the insured is still eligible for the same
underwriting class that currently applies to the Policy. The death benefit,
but not the face amount, will change.
If you change from Option 2 (Face Amount Plus Cash Value) to Option 1 (Face
Amount), we increase the Policy's face amount, if necessary, so that the death
benefit is the same immediately before and after the change. We will apply the
increase to the Policy's initial face amount and any prior increase in face
amount on a pro rata basis.
If you change from Option 2 (Face Amount Plus Cash Value) to Option 3 (Face
Amount Plus Premiums), we require evidence that the insured is still eligible
for the same underwriting class that currently applies to the Policy. We
increase the Policy's face amount, if necessary, so that the death benefit is
the same immediately before and after the change. We will apply the increase
to the Policy's initial face amount and any prior increase in face amount on a
pro rata basis.
If you change from Option 3 (Face Amount Plus Premiums) to Option 1 (Face
Amount), the death benefit, but not the face amount, will change.
AFTER THE POLICY IS ISSUED, YOU CANNOT CHANGE YOUR CHOICE OF TAX TEST (CASH
VALUE ACCUMULATION TEST OR GUIDELINE PREMIUM TEST). IN ADDITION, YOU CANNOT
CHANGE YOUR ELECTION WHETHER TO ADD THE FACE AMOUNT OF AN ADJUSTABLE TERM
INSURANCE RIDER TO THE FACE AMOUNT OF THE BASE POLICY FOR PURPOSES OF
CALCULATING THE OPTION 1, OPTION 2 OR OPTION 3 DEATH BENEFIT. YOU CAN,
HOWEVER, CHANGE THE CORRIDOR USED UNDER THE TAX TEST FOR YOUR POLICY. A CHANGE
TO AN ENHANCED CORRIDOR REQUIRES UNDERWRITING. (SEE "DEATH BENEFIT OPTIONS".)
CASH VALUE
Your Policy's total cash value includes its cash value in the Variable
Account and in the Fixed Account. If you have a Policy loan, the cash value
also includes the amount we hold in our general account as a result of the
loan. The cash value reflects:
--net premium payments
--the net investment experience of the Policy's sub-accounts
--interest credited to cash value in the Fixed Account
--interest credited to amounts held in the general account for a Policy loan
A-15
<PAGE>
--the death benefit option you choose
--Policy charges
--partial surrenders
--transfers among the sub-accounts and Fixed Account
We pay you the NET cash value if you surrender the Policy. It equals the
cash value minus any outstanding Policy loan (plus interest). We add to the
net cash value the cost of insurance charge for the remainder of the month. If
you surrender during the first two Policy years, we also refund the total
sales charges we deducted on premiums paid for the first Policy year. (See
"Charges and Expenses" for more information.) If you surrender in the grace
period, we reduce the net cash value by the Monthly Deduction that applies to
the date of surrender. (See "Loan Provision" and "Monthly Deduction from Cash
Value".)
The Policy's cash value in the Variable Account may increase or decrease
daily depending on net investment experience. Poor investment experience can
reduce the cash value to zero. YOU HAVE THE ENTIRE INVESTMENT RISK FOR THE
CASH VALUE IN THE VARIABLE ACCOUNT.
The Policy's total cash value in the Variable Account equals the number of
units credited in each sub-account multiplied by that sub-account's unit
value. We convert any premium or cash value allocated to a sub-account into
units of the sub-account. Full or partial surrenders, Policy loans, transfers
and charges deducted from the cash value reduce the number of units credited
in a sub-account. We determine the number of units by dividing the dollar
amount of the transaction by the sub-account's unit value next determined
following the transaction. (In the case of an initial premium, we use the unit
value on the Investment Start Date.)
The unit value of a sub-account depends on the net investment experience of
its corresponding Eligible Fund and reflects fees and expenses of the Eligible
Fund. The unit value for each sub-account was set at $100.00 on or about the
time when shares of the corresponding Eligible Fund first became available to
investors. We determine the unit value as of the close of regular trading on
the New York Stock Exchange on each day that the Exchange is open for trading
by multiplying the most recent unit value by the net investment factor ("NIF")
for that day (see below).
The NIF for a sub-account reflects:
--the change in net asset value per share of the corresponding Eligible Fund
(as of the close of regular trading on the Exchange) from its last value,
--the amount of dividends or other distributions from the Eligible Fund
since the last determination of net asset value per share, and
--any deductions for taxes that we make from the Variable Account.
The NIF can be greater or less than one.
ALLOCATION OF NET PREMIUMS
Your cash value is held in the general account of NELICO or an affiliate
until we mail the confirmation for the initial premium. We credit the first
net premium with net investment experience equal to that of the Zenith Back
Bay Money Market Sub-Account from the investment start date until the day that
we mail the confirmation for the initial premium (in states that require a
refund of premiums if you exercise the Right to Return the Policy, until 15
days after we mail the initial premium confirmation). Then, we allocate the
Policy's cash value to the Sub-Accounts and/or the Fixed Account as you
choose. (See "Investment Options" and "Monthly Deduction from Cash Value.")
If you increase the Policy face amount, we allocate the portion of net
premiums attributable to the increase among accounts in accordance with your
current allocation instructions. You can allocate to a maximum of ten accounts
(including the Fixed Account) at any one time.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
INVESTMENT START DATE. The investment start date is the latest of: the date
when we first receive a premium payment for the Policy, the date Part II of
the Policy application is signed (if any is required) 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.)
A-16
<PAGE>
PREMIUM WITH APPLICATION. If you make a premium payment with the
application, the Policy Date is generally the later of the date Part II (if
any) of the application is signed and receipt of the premium payment. In that
case, the Policy Date and investment start date are the same. The amount of
premium paid with the application must be at least 10% of the annual Planned
Premium for the Policy. You may make only one premium payment before the
Policy is issued.
If you make a premium payment with the application, we will cover the
insured under a temporary insurance agreement for a limited period that
generally begins when we receive the premium for the Policy (or, if later, on
the date when Part II of the application is signed). The maximum temporary
coverage is the lesser of the amount of insurance applied for and $500,000 for
standard and preferred risks ($250,000 for substandard risks and $50,000 for
persons who are determined to be uninsurable). These provisions vary in some
states.
If we issue a Policy, Monthly Deductions begin from the Policy Date, even if
we delayed the Policy's issuance for underwriting. The deductions are for the
face amount of the Policy issued, even if the temporary insurance coverage
during underwriting was for a lower amount. If we decline an application, we
refund the premium payment made.
PREMIUM ON DELIVERY. If you pay the initial premium on delivery of the
Policy, the Policy Date is usually five days after issue. The investment start
date is the later of the Policy Date and the date we received the premium.
Monthly Deductions begin on the Policy Date. We credit interest at a 4% net
rate on the net Minimum Premium (see "Premiums") for any period between the
Policy Date and the investment start date. Insurance coverage under the Policy
begins when we receive the number of monthly payments due.
BACKDATING. We may sometimes backdate a Policy, if you request, by assigning
a Policy Date earlier than the date the application is signed. You may wish to
backdate so that you can obtain lower cost of insurance rates, based on a
younger insurance age. For a backdated Policy, you must also pay the Minimum
Premium payable for the period between the Policy Date and the investment
start date. As of the investment start date, we allocate to the Policy those
net premiums, adjusted for monthly Policy charges and interest at a 4% net
rate for that period.
RIGHT TO RETURN THE POLICY
You may cancel the Policy within 10 days (more in some states) after you
receive the Policy. 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 the cash value of the Policy plus any sales and premium tax charges
that were deducted from the premiums you paid, or if required by state
insurance law, any premiums paid.
You may cancel an increase in face amount within 10 days (more in some
states) after you receive the adjusted Policy. You may return the face amount
increase to NELICO or your registered representative. The face amount increase
will be canceled from its beginning and we will return to your cash value any
processing charge and Monthly Deduction made for the face amount increase.
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 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
SALES CHARGE. We deduct a sales charge of 8% from each premium payment you
make during a Policy year. Currently we reduce the charge to 3% for each
premium payment you make above a Target Premium during a Policy year. For this
purpose, we consider premiums we receive during the twenty days prior to a
Policy anniversary as paid in the next Policy year.
We indicated your Target Premium on your personalized illustration.
A-17
<PAGE>
If you surrender the Policy in the first two Policy years, we refund to you
the total sales charges we deducted on premiums paid in the first Policy year
(that is, on premiums we received prior to the twenty days immediately
preceding the first Policy anniversary).
Sales charges for Policies sold to some cases may be reduced. We may reduce
or eliminate the sales charge when you purchase a Policy, on cash value
transferred in the first year from certain life insurance policies that were
issued by New England Mutual, NELICO or NELICO's affiliates. Eligibility
requirements will apply. Your registered representative can advise you
regarding the availability of this feature.
PREMIUM TAX CHARGE. We deduct 2% from each premium payment made to cover
premium taxes. Premium taxes vary from state to state.
DEDUCTIONS FROM CASH VALUE
MONTHLY DEDUCTION. On the first day of each Policy month, starting with the
Policy Date, we deduct the "Monthly Deduction" from your cash value.
--If your Policy is protected against lapse by the Guaranteed Death Benefit
rider or three year Minimum Premium guarantee, we make the Monthly
Deduction unless the net cash value equals zero. (See "Premiums".)
--If you do not have the Guaranteed Death Benefit rider and the three year
Minimum Premium guarantee is not in effect, we make the Monthly Deduction
as long as the net cash value is large enough to cover the entire Monthly
Deduction. If it is not large enough, the Policy will be in default and
may lapse. (See "Lapse and Reinstatement".)
Currently, there is no Monthly Deduction on or after the Policy Anniversary
when the insured reaches age 100. (In some states, it is required to equal
zero on and after the Policy anniversary when the insured reaches age 100.)
The Monthly Deduction reduces the cash value in each Sub-Account of the
Variable Account and in the Fixed Account in proportion to the cash value in
each, unless you choose a "Single Source Expense Sub-Account" on the Policy
application. If you choose a Single Source Expense Sub-Account, we will take
the Monthly Deduction from that Sub-Account until the cash value there is
gone. Then we will take the Monthly Deduction from your remaining Sub-Accounts
and the Fixed Account in proportion to the cash value in each. You cannot
choose the Fixed Account as the Single Source Expense Sub-Account.
The Monthly Deduction includes the following charges:
--POLICY FEE. The Policy fee is currently equal to $5.50 per month. The fee
is guaranteed not to exceed $10.00 per month.
--MORTALITY AND EXPENSE RISK CHARGE. We deduct a charge for the mortality
and expense risks that we assume. This charge is at an annual rate of 0.50%
(guaranteed not to exceed 0.75%). The rate is applied against the entire cash
value, including any cash value held in the general account as collateral for
a Policy loan. 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.
We deduct the mortality and expense risk charge last after all other
components of the Monthly Deduction.
--MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of
providing insurance protection under your Policy. There is no cost of
insurance charge on or after the Policy Anniversary when the insured reaches
age 100. The cost of insurance charge for a Policy month is equal to the
"amount at risk" under the Policy, multiplied by the cost of insurance rate
for that Policy month. We determine the amount at risk on the first day of the
Policy month after we process the Monthly Deduction (except for the mortality
and expense risk charge). The amount at risk is the amount by which the death
benefit (discounted at the monthly equivalent of 4% per year) exceeds the
Policy's cash value. The cost of insurance rate for your Policy changes from
month to month.
The guaranteed cost of insurance rates for a Policy depend on the insured's
--underwriting class
--age on the first day of the Policy year
--sex (if the Policy is sex-based).
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The current cost of the 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"). 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. (For
information regarding a Policy's cost of insurance rates following a face
amount increase, see "Increase in Face Amount".)
The underwriting classes we use are smoker standard, smoker rated, nonsmoker
preferred, nonsmoker standard, nonsmoker rated and guaranteed issue. Rated and
guaranteed issue classes have higher cost of insurance deductions. We base the
guaranteed maximum mortality charges for rated Policies on multiples of the
1980 CSO Tables. (For information regarding a Policy's underwriting
classification following a face amount increase, see "Increase in Face
Amount". See below for a discussion of guaranteed issue Policies.)
The nonsmoker classes are available as follows:
--nonsmoker preferred and nonsmoker standard, for Policies with face amounts
(including any Adjustable Term Insurance Rider coverage) of $100,000 or
more where the issue age is 20 through 75
--nonsmoker standard, for Policies with face amounts below $100,000 and for
all Policies where the issue age is above 75.
The nonsmoker preferred class generally offers better current cost of
insurance rates than the nonsmoker standard class.
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.
Under Policies issued in New Jersey, an insured's underwriting class may not
be improved from smoker to nonsmoker during the first two Policy years.
We may offer Policies on a guaranteed issue basis to certain cases. We issue
these Policies up to predetermined face amount limits. Because we issue these
Policies based on minimal underwriting information, they may present a greater
mortality cost to us than Policies in the standard class. Therefore, we
generally use higher current cost of insurance rates for guaranteed issue
Policies. For some cases, the charge may vary based on the size of the group,
the total premium for the group and certain characteristics of the group
members. The guaranteed maximum monthly cost of insurance charges for
guaranteed issue status will exceed charges based on 100% of the 1980 CSO
Tables.
Guaranteed issue Policies have cost of insurance rates that vary based on
whether the insured is a smoker or nonsmoker, and the preferred nonsmoker
class is not available. The current cost of insurance rates do not vary by
individual Policy face amount but may be lower if the members of the group
have certain characteristics.
Some cases may be eligible to purchase Policies on a simplified underwriting
basis. They may elect simplified underwriting instead of guaranteed issue or
for amounts of insurance above our guaranteed issue limits. However, they may
not choose guaranteed issue for some members of the group and simplified
underwriting for others. Policies issued on a simplified underwriting basis
will have the same cost of insurance rates as fully underwritten Policies;
however, the nonsmoker preferred class is not available to these Policies.
--TERM RIDER. The Adjustable Term Insurance Rider has its own cost of
insurance rates that are different from those of the base Policy. If you elect
to add the Adjustable Term Insurance Rider to the face amount of the base
Policy in the calculation of Death Benefit Option 1, 2 or 3, then once the net
amount at risk of the base Policy is zero, any excess cash value of the base
Policy reduces the net amount at risk under the term insurance rider. If the
Adjustable Term Insurance Rider is not added to the face amount of the base
Policy in the calculation of Death Benefit Option 1, 2 or 3, then the term
rider's net amount at risk will not be reduced by any of the base Policy's
cash value.
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--GUARANTEED DEATH BENEFIT RIDER CHARGE. The charge for the Guaranteed Death
Benefit rider is $0.01 per $1,000 of face amount (including the base Policy
and any Adjustable Term Insurance Rider).
--CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. We charge for the cost of
any additional Rider benefits as described in the rider form. We also may
charge you a nominal fee, which we will bill directly to you, if you request a
Policy re-issue or re-dating.
FACE AMOUNT INCREASE CHARGE. For an underwritten face amount increase, we
deduct a charge of $0.80 per $1,000 of face amount increase (not to exceed
$25.00) when the increase takes effect, and on the first day of the next
eleven Policy months. Currently, there is no Face Amount Increase Charge on or
after the Policy Anniversary when the insured reaches age 100.
CHARGES FOR INCOME TAXES. We currently do not charge for income taxes
against the Variable Account, but in the future we may make such a charge, if
appropriate. We have the right to make a charge for any taxes imposed on the
Policies in the future. (See "Charge for NELICO's Income Taxes".)
CHARGES AGAINST THE ELIGIBLE FUNDS
See the "Policy Charges" section under "Introduction to the Policies".
SPECIAL ARRANGEMENTS
We may waive, reduce or vary any Policy charges under Policies sold to some
cases. We may also raise the interest rate credited to loaned amounts under
these Policies. The amount of the variations and our eligibility rules may
change from time to time. In general, they reflect cost savings over time that
we anticipate for Policies sold to the eligible group or sponsored
arrangements and relate to objective factors such as the size of the group,
its stability, the purpose of the funding arrangement and characteristics of
the group members. These variations of charges do not apply to Policies sold
in New York other than Policies sold to non-tax qualified deferred
compensation plans of various types. Consult your registered representative
for any variations that may be available and appropriate for your case.
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The United States Supreme Court has ruled that insurance policies with
values and benefits that vary with the sex of the insured may not be used to
fund certain employee benefit programs. Therefore, we offer Policies that do
not vary based on the sex of the insured to certain employee benefit programs.
We recommend that employers consult an attorney before offering or purchasing
the Policies in connection with an employee benefit program.
PREMIUMS
FLEXIBLE PREMIUMS
Within limits, you choose the amount and frequency of premium payments. You
select a Planned Premium schedule, which is a level amount. This schedule
appears in your Policy. YOUR PLANNED PREMIUMS WILL NOT NECESSARILY KEEP YOUR
POLICY IN FORCE. You may skip Planned Premium payments or make additional
payments. Additional payments could be subject to underwriting and our
consent. No payment can be less than $25 ($10 for payments made under certain
monthly payment arrangements). We limit the total of Planned Premiums and
other payments to our published maximum.
You can pay Planned Premiums on an annual, semi-annual, quarterly or monthly
schedule. You can change your Planned Premium schedule by sending your request
to us. However, you cannot increase the amount of your Planned Premium unless
we consent, and we may require underwriting.
You may make payments by check or money order. We will send premium notices
for annual, semi-annual, quarterly or monthly Planned Premiums. You may also
make premium payments by wire transfer of federal funds in accordance with our
current procedures.
You may not make premium payments on and after the Policy anniversary on
which the insured reaches age 100, except under the Policy's grace period
provision. (See "Lapse and Reinstatement".)
If you have selected the guideline premium test, Federal tax law limits the
amount of premiums that you can pay under the Policy. In addition, if any
payments under the Policy exceed the "7-pay test" under Federal tax law, your
Policy will become a "modified endowment contract" and you may have more
adverse tax consequences with respect to certain distributions than would
otherwise be the case if premium payments did not exceed the "7-pay test".
(See "Tax Considerations".)
We allocate net payments to your Policy's Sub-Accounts as of the date we
receive the payment. (See "Communications and Payments".)
We treat a payment we receive while a Policy loan is outstanding first as a
Planned Premium, second as payment of loan interest due, third as a repayment
of the Policy loan, and last as an unscheduled payment, unless you instruct us
otherwise in writing. (For Policies issued in New York, unless you instruct us
otherwise in writing, while a Policy loan is outstanding we treat any payment
we receive that is in the exact amount of the Planned Premium as a Planned
Premium. If the payment is not in the exact amount of the Planned Premium,
unless you instruct us otherwise in writing, we treat it first as payment of
Policy loan interest due, second as a repayment of the Policy loan, third as a
Planned Premium, and last as an unscheduled payment.)
If you have a Policy loan, it may be better to repay the loan than to make a
premium payment, because the premium payment is subject to sales and tax
charges, whereas the loan repayment is not subject to any charges. (See "Loan
Provision", "Deductions from Premiums" and "Death Benefit".)
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Two types of premium payment levels can protect your Policy against lapse
(1) for the first three Policy years, and (2) until age 100 of the insured.
First three Policy years--In general, if you pay the three year Minimum
Premium amounts on time, the Policy will not lapse even if the net cash
value is less than the Monthly Deduction in any month. If (a) the total
premiums you have paid, less all partial surrenders and any outstanding
Policy loan balance, at least equal (b) the total monthly Minimum Premiums
for the Policy up to that Policy month, the Policy will not lapse. The
guarantee will not apply if you substitute the insured or reinstate the
Policy, unless on reinstatement you pay all your unpaid Minimum Premiums,
including those for the period of lapse. We recalculate the Minimum Premium
if you (1) reduce the face amount or make a partial surrender that reduces
the face amount, (2) increase or decrease rider coverage, (3) increase the
face amount, or (4) if the rating classification for your Policy is
improved. The Minimum Premium amount (shown in your Policy) is based on your
Policy's face amount, the age, sex (unless unisex rates apply) and
underwriting class of the insured, current Policy charges and any riders to
the Policy.
To age 100 of the insured--If you elect the Guaranteed Death Benefit rider
and pay the Guaranteed Death Benefit premium amounts on time, the Policy
will stay in force until age 100 of the insured. We recalculate the
Guaranteed Death Benefit premium following the same Policy transactions
described above for a recalculation of the three year Minimum Premium
amount. The Guaranteed Death Benefit premium amount (shown in your Policy)
is based on the same factors as the three year Minimum Premium, except that
it is based on the guaranteed level of Policy charges.
Under Policies issued in New Jersey, if you have met the requirements for
the three-year Minimum Premium death benefit guarantee at the end of the
three year guarantee period, the Minimum Premium death benefit guarantee
will continue to apply during the fourth Policy year as long as (a) payments
made during that Policy year, less partial surrenders and loans made in that
year, equal (b) the guaranteed maximum Policy charges for the fourth Policy
year. If you make a Policy transaction that changes the amount of the
guaranteed maximum Policy charges for that year, then the amount needed to
preserve the Minimum Premium death benefit guarantee for an extra Policy
year will change accordingly.
LAPSE AND REINSTATEMENT
LAPSE. Unless your Policy is protected by the Guaranteed Death Benefit or
the Minimum Premium guarantee, any month that your Policy's net cash value is
not large enough to cover a Monthly Deduction, your Policy will be in default.
Your Policy provides a 62 day grace period for payment of a premium large
enough to cover the Monthly Deduction and all deductions from the premium.
(For Policies issued in New Jersey the amount due is the least of: a premium
large enough to cover the Monthly Deduction and all deductions from the
premium; a premium large enough to permit the Guaranteed Death Benefit to be
in effect; and a premium large enough to permit the three year Minimum Premium
death benefit to be in effect.) We will notify you of the amount due. You have
insurance coverage during the grace period, but if the insured dies before you
have paid the premium, we deduct from the death proceeds the unpaid Monthly
Deduction for the period prior to the date of death. If you have not paid the
required premium by the end of the grace period, your Policy will lapse
without value.
REINSTATEMENT. If your Policy has lapsed, you may reinstate it within seven
years after the date of lapse. If more than seven years have passed, or if you
have surrendered the Policy, you need our consent to reinstate. Reinstatement
in all cases requires payment of certain charges described in the Policy and
usually requires evidence of insurability that is satisfactory to us.
OTHER POLICY FEATURES
INCREASE IN FACE AMOUNT
After the first Policy year you may increase the Policy's face amount. Our
underwriting rules and requirements, including proof of insurability, will
apply. (Face amount increases are not available under Policies issued in
Texas.) To have a face amount increase, the insured must still be eligible for
the same underwriting class that currently applies to the Policy. The increase
must be at least $10,000. If the increase requires medical underwriting, we
will deduct a face amount increase charge of $0.80 per $1,000 of the face
amount increase (not to exceed $25.00) when the increase takes effect, and on
the first day of the next eleven Policy months. We will deduct the charge from
the Policy's cash value in the sub-accounts and the Fixed Account, in
proportion to the amount of cash value in each (unless you have elected a
Single Source Expense Sub-Account).
An increase in face amount may have tax consequences. You should consult a
tax advisor before increasing the face amount.
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Sales charge--A face amount increase does not increase the Target Premium
on which we currently base the sales charge. Therefore, after a face amount
increase, we currently deduct 8% from each premium you pay in a Policy year
until you have paid an amount equal to the Policy's Target Premium and 3%
from any premium balance in that year.
Monthly deduction--We adjust the Monthly Deduction starting on the
effective date of a face amount increase to reflect the new face amount and
amount at risk. Cost of insurance rates will not change due to a face amount
increase. (See "Charges and Expenses--Monthly Deduction from Cash Value.")
An increase in face amount will take effect on the first day of the Policy
month following our approval of your application for the increase. You can
contact our Administrative Office or your registered representative for
information on requesting a face amount increase. You have a limited time in
which you may cancel a face amount increase. (See "Right to Return the
Policy".)
If a Policy has an Adjustable Term Insurance Rider, then we may offer
increases in term insurance coverage, including annual term insurance
increases which are related to increases in salary or which are based on a
fixed annual percentage (the "Salary Refresh" program). We may also offer
increases that relate to premium contributions by an employer. We determine
limits on the annual and/or total amount of term insurance increases per
Policy that we will permit on a guaranteed issue basis at issue of the
Policies. Increases that are not pursuant to an annual increase, or which
exceed this limit, will require underwriting. The terms and conditions of the
Salary Refresh program are contained in our published rules which are
furnished at the time of application.
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" beginning fifteen
days after we mail the confirmation for the initial premium. We make the loan
as of the date when we receive a loan request. (See "Communications and
Payments".) You should contact our Home Office or your registered
representative for information on loan procedures.
The Policy's loan value is equal to 90% (or more if required by state law)
of the Policy's cash value. The loan value available is reduced by any
outstanding loan plus interest.
If you purchase a Policy with the proceeds of another life insurance policy
that has an outstanding policy loan (see "Premium Payments"), then any loan
remaining against the new Policy cannot exceed 75% of the Policy's cash value
at issue. It may not be advantageous to replace existing insurance with a
Policy.
When we pay the loan proceeds to you, we transfer cash value in the amount
of the loan from the Sub-Accounts to our general account as collateral for the
loan. When you make a loan repayment, we transfer cash value in the amount of
the repayment and held as collateral from the general account back to the Sub-
Accounts. Unless you request otherwise, we transfer cash value for a Policy
loan from the Sub-Accounts in proportion to the cash value in each. We
allocate all loan repayments, unless you request otherwise, to the Sub-
Accounts in proportion to the cash value in each at the time of repayment.
(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 4.75% per
year. It accrues daily, and is due on the Policy Anniversary. If not paid, we
add the interest accrued to the loan amount, and we deduct an amount equal to
the unpaid interest from the Policy's cash value in the Sub-Accounts in
proportion to the amount in each. Amounts we take as collateral for a loan
earn interest at an effective rate of not less than 4.00% per year. The rate
we currently credit is 4.00% for the first 10 Policy years and 4.50%
thereafter. (You should consult a tax advisor as to the tax consequences
associated with a Policy loan outstanding after the tenth Policy year.) We
credit this interest amount to the Policy's Sub-Accounts on the Policy
Anniversary, in proportion to the cash value in each.
The amount taken from the Policy's Sub-Accounts as a result of a loan does
not participate in the investment experience of the Sub-Accounts. Therefore,
loans can permanently affect the death benefit and cash value of the Policy,
even if repaid. In addition, we reduce any proceeds payable under a Policy by
the amount of any outstanding loan plus accrued interest.
If a Policy loan is outstanding, it may be better to repay the loan than to
pay a premium, because the payment is subject to sales and premium tax
charges, and the loan repayment is not subject to charges. (See "Deductions
from Premiums" and "Death Benefit".)
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If Policy loans plus accrued interest exceed the Policy's cash value at any
time, we will notify you that the Policy is going to terminate. (This is
called an "excess Policy loan".) The Policy will terminate without value 62
days after we mail the notice unless you pay us the excess Policy loan amount
within that time. If the Policy lapses with a loan outstanding, adverse tax
consequences may result. If your Policy is a "modified endowment contract",
loans under your Policy may be treated as taxable distributions. (See "Tax
Considerations" below.)
Department of Labor ("DOL") regulations impose requirements for participant
loans under tax-qualified pension plans. Therefore, plan loan provisions may
differ from Policy loan provisions. (See "Tax Considerations".)
SURRENDER
You may surrender a Policy for its net cash value at any time while the
insured is living. We determine the net cash value of the surrendered Policy
as of the date when we receive a surrender request. The net cash value equals
the cash value reduced by any Policy loan and accrued interest. We add to the
net cash value paid on surrender the portion of any cost of insurance charge
we deducted for the period beyond the date of surrender. If you surrender the
Policy during the first two Policy years, we also refund the total sales
charges we deducted on premiums paid in the first Policy year (that is, on
premiums we received prior to the twenty days immediately preceding the first
Policy anniversary). If you surrender the Policy during the grace period, we
reduce the net cash value you receive by an amount to cover the Monthly
Deduction to the date of surrender. You may apply all or part of the net cash
value to a payment option. (See "Payment Options".) A surrender may result in
adverse tax consequences. (See "Tax Considerations" below.)
PARTIAL SURRENDER
You may make a partial surrender of the Policy beginning fifteen days after
we mail the confirmation of the initial premium payment. A partial surrender
reduces the Policy's death benefit and may reduce the Policy's face amount if
necessary so that the amount at risk under the Policy will not increase. Any
reduction in the face amount causes a proportionate reduction in the Policy's
Target Premium. A partial surrender may also reduce rider benefits. For
purposes of the cost of insurance charge, any face amount reduction will apply
to each face amount segment on a pro rata basis. We reserve the right to
decline a partial surrender request that would reduce the face amount below
the Policy's required minimum.
We have the right to limit partial surrenders in any one Policy year to 20%
of the Policy's net cash value (that is, the cash value reduced by any
outstanding Policy loan balance) on the date of the first partial surrender
for the Policy year or, if less, the Policy's available loan value. Currently,
we permit partial surrenders of up to 90% of the Policy's net cash value per
year, if there is sufficient available loan value.
You may not reinvest cash value paid upon partial surrender in the Policy
except as premium payments, which are subject to the charges described under
"Deductions From Premiums."
A partial surrender first reduces the Policy's cash value in the Sub-
Accounts of the Variable Account, in proportion to the amount of cash value in
each, and then the Fixed Account, unless you request otherwise. (See "The
Fixed Account" below.) We determine the amount of net cash value paid upon
partial surrender as of the date when we receive a request. You can contact
your registered representative or the Administrative Office for information on
partial surrender procedures.
A reduction in the death benefit as a result of a partial surrender may
create a "modified endowment contract" or have other adverse tax consequences.
If you are contemplating a partial surrender, you should consult your tax
advisor regarding the tax consequences. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
After the first Policy year, you may reduce the face amount of your Policy
without receiving a distribution of any Policy cash value. (This feature
differs from a partial surrender, which reduces the Policy's net cash value.)
For purposes of the cost of insurance charge, a face amount reduction will
apply to each face amount segment on a pro rata basis. The face amount
remaining has to meet our minimum face amount requirements, except with our
consent.
If you decrease the face amount of your Policy, we also decrease the Target
Premium. A face amount reduction usually decreases the 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. A reduction in face
amount in this situation is not advisable, because it will not reduce your
death benefit or cost of insurance charges. We also may decrease any rider
benefits attached to the Policy.
If you have selected the guideline premium test, a reduction in face amount
reduces the Federal tax law limits on the amount of premiums that you can pay
under the Policy. In these cases, you may need to have a portion of the
Policy's cash value paid to you to comply with Federal tax law.
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A face amount reduction takes effect as of the first day of the Policy month
on or after the date when we receive a request. You can contact your
registered representative or the Home Office for information on face reduction
procedures.
A reduction in the face amount of a Policy may create a "modified endowment
contract". If you are contemplating a reduction in face amount, you should
consult your tax advisor regarding the tax consequences of the transaction.
(See "Tax Considerations".)
INVESTMENT OPTIONS
You can allocate your Policy's premiums and cash value among the Sub-
Accounts of the Variable Account and the Fixed Account in any combination, as
long as you use no more than ten accounts (including the Fixed Account) at any
one time. You must allocate whole percentages.
You make the initial allocation when you apply for a Policy. You can change
the allocation of future premiums at any time thereafter. The change will be
effective for premiums applied on or after the date when we receive your
request. You may request the change by telephone or by written request. (See
"Communications and Payments".)
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
Beginning fifteen days after we mail the confirmation for the initial
premium, you may transfer your Policy's cash value between Sub-Accounts. We
reserve the right to limit sub-account transfers to four per Policy year
(twelve per Policy year for Policies issued in New York). Currently we do not
limit the number of transfers per Policy year. We reserve the right to make a
charge for transfers in excess of twelve in a Policy year. A transfer is
effective as of the date when we receive the transfer request. (See
"Communications and Payments".) For special rules regarding transfers
involving the Fixed Account, see "The Fixed Account".
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisors or registered representatives acting under power(s) of attorney from
one or more Policy owners. 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 our Home Office or by telephoning
us. To request a transfer or reallocation by telephone, you should contact
your registered representative or contact us at 1-888-458-2654. We use
reasonable procedures to confirm that instructions communicated by telephone
are genuine. Any telephone instructions that we reasonably believe to be
genuine will be 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 month (or if not a day
when the New York Stock Exchange is open, the next such day), from any one
Sub-Account to one or more of the other Sub-Accounts (and/or the Fixed
Account). We limit your allocation of cash value to no more than ten accounts
(including the Fixed Account) at any one time. You must transfer a minimum of
$100 to each Sub-Account that you select under this feature. You can select a
dollar cost averaging program when you apply for the Policy or at a later date
by contacting our Home Office. You may not participate in the dollar cost
averaging program while you are participating in the asset rebalancing
program. (See "Asset Rebalancing" below.) You can cancel your use of the
dollar cost averaging program at any
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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.
ASSET REBALANCING
We plan to offer an asset rebalancing program for cash value. Cash value
allocated to the Sub-Accounts can be expected to increase or decrease at
different rates. An asset rebalancing program automatically reallocates your
cash value among the Sub-Accounts periodically to return the allocation to the
allocation percentages you specify. Asset rebalancing is intended to transfer
cash value from those Sub-Accounts that have increased in value to those that
have declined, or not increased as much, in value. Asset rebalancing does not
guarantee profits, nor does it assure that you will not have losses.
You can select an asset rebalancing program when you apply for the Policy or
at a later date by contacting our Home Office. You specify the percentage
allocations by which your cash value will be reallocated among the Sub-
Accounts, as well as the frequency (using calender month-end, quarter-end or
year-end dates). You may not participate in the asset rebalancing program
while you are participating in the dollar cost averaging program. (See "Dollar
Cost Averaging" above.) On the last day of your chosen period on which the New
York Stock Exchange is open, we will transfer cash value among the Sub-
Accounts as necessary to return the allocation to your specifications. Asset
rebalancing will continue until you notify us in writing or by telephone at
our Home Office. 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. A substitution of the insured person is a taxable exchange. In
addition, a substitution of the insured person could reduce the amount of
premiums you can pay into the Policy under Federal tax law if you selected the
guideline premium test and, therefore, may require a partial surrender of cash
value.
Your registered representative can provide current information on the
availability of the rider. You should consult your tax advisor before
substituting the insured person under your Policy.
PAYMENT OF PROCEEDS
We ordinarily pay any net cash value, loan value or death benefit proceeds
payable 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 "Communications and Payments".) However, we
may delay payment (except when a loan is made to pay a premium to us) or
transfers from the Sub-Accounts: (i) if the New York Stock Exchange is closed
for other than weekends or holidays, or if trading on the New York Stock
Exchange is restricted, (ii) if the SEC determines that a state of emergency
exists that makes payments or Sub-Account transfers impractical, or (iii) at
any other time when the Eligible Funds or the Variable Account have the legal
right to suspend payment.
We may withhold payment of surrender or loan proceeds if those proceeds are
coming from a Policy Owner's check which has not yet cleared. We may also
delay payment while we consider whether to contest the Policy. We pay interest
on the death benefit proceeds from the date they become payable to the date we
pay them.
The beneficiary can elect our Access Plus program for payment of death
proceeds at any time before we pay them. We establish an Access Plus account
at State Street Bank & Trust Company at the time for payment. The Access Plus
account provides convenient access to proceeds, which are maintained in
MetLife's general account, through checkbook privileges with State Street.
Normally we promptly make payments of cash value, or of any loan value
available, from cash value in the Fixed Account. However, we may delay those
payments for up to six months. We pay interest in accordance with state
insurance law requirements on delayed payments.
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<PAGE>
24 MONTH RIGHT
GENERAL RIGHT. Generally, during the first 24 months after the Policy's
issue date, and during the first 24 months after the date of an increase in
face amount, you may convert the Policy, or a portion of it, to fixed benefit
coverage by transferring all or a portion of your Policy's cash value, and
allocating all or a portion of future premiums, to the Fixed Account. The
request to convert to fixed benefit coverage must be in written form
satisfactory to us.
You may exercise this privilege only once within 24 months after issue, and
only once within 24 months after each increase in face amount. Transfers into
the Fixed Account pursuant to this right will not count toward the limit on
the number of cash value transfers permitted under the Policy each year.
Transfers of cash value back to one or more Sub-Accounts of the Variable
Account are subject to the Policy's general limits on transfers from the Fixed
Account (see "The Fixed Account").
The Policy permits us to limit allocations to the Fixed Account under some
circumstances. (See "The Fixed Account.") If we limit such allocations and you
then wish to exercise the 24 Month Right, you may allocate to the Fixed
Account only (i) the Policy's cash value before any face amount increase plus
the portion of future premiums attributable to the Policy's face amount before
any increase, if you exercise the right during the first 24 months after
issue, or (ii) the portion of the Policy's cash value and future premiums
attributable to the face amount increase, if you exercise the right within 24
months after a face amount increase. After exercising the 24 Month Right, you
may continue to allocate to the Fixed Account only the percentage of premiums
that you allocated to the Fixed Account pursuant to your most recent exercise
of the 24 Month Right. In addition, if you have exercised this right, and we
later limit such allocations, then you may continue to allocate to the Fixed
Account only the lowest percentage of premiums that you allocated to the Fixed
Account at any time since your most recent exercise of the 24 Month Right.
FOR POLICIES ISSUED IN MARYLAND, NEW JERSEY AND CONNECTICUT. Under Policies
issued in Maryland, New Jersey and Connecticut, you can exchange the initial
face amount of your Policy, and any increase in face amount of your Policy,
for a fixed benefit whole life or endowment life insurance policy provided
that you repay any policy loans and (1) the Policy has not lapsed and (2) the
exchange is made within 24 months after the Policy's issue date or, if you are
exchanging an increase in face amount, within 24 months after the date of the
increase.
We make the exchange without evidence of insurability. The new policy will
have the same face amount as that being exchanged. For the exchange of the
initial face amount of the variable life policy, the new policy will have the
same issue age, underwriting class and policy date as the variable life policy
had. For the exchange of an increase in face amount, the new policy will have
the same issue age and underwriting class of the insured as on the date of the
increase, and a policy date equal to the effective date of the increase. We
will attach any riders to the original Policy to the new policy if they are
available.
Contact us or your registered representative for more specific information
about the 24 Month Right in these states. The exchange may result in a cost or
credit to you. On the exchange, you may need to make an immediate premium
payment on the new policy in order to keep it in force.
PAYMENT OPTIONS
We pay the Policy's death benefit and net cash value in one sum unless you
or the payee choose a payment option for all or part of the proceeds. You can
choose a combination of payment options. You can make, change or revoke the
selection of payee or payment option before the death of the insured. You can
contact your registered representative or the Administrative Office for the
procedure to follow. The payment options available are fixed benefit options
only and are not affected by the investment experience of the Variable
Account. Once payments under an option begin, withdrawal rights may be
restricted.
The following payment options are available:
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. We pay proceeds in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.5% a year, compounded yearly. Additional interest that we
pay for any year is added to the monthly payments for that year.
(ii) LIFE INCOME. We pay proceeds in equal monthly installments (i) during
the life of the payee, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20
years.
(iii) LIFE INCOME WITH REFUND. We pay proceeds in equal monthly installments
during the life of the payee. At the payee's death, we pay any unpaid
proceeds remaining either in one sum or in equal monthly installments
until we have paid the total proceeds.
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<PAGE>
(iv) INTEREST. We hold proceeds for the life of the payee or another agreed
upon period. We pay interest of at least 3.5% a year monthly or add it
to the principal annually. At the death of the payee, or at the end of
the period agreed to, we pay the balance of principal and any interest
in one sum.
(v) SPECIFIED AMOUNT OF INCOME. We pay proceeds plus accrued interest of at
least 3.5% a year in an amount and at a frequency elected until we have
paid total proceeds. We pay any amounts unpaid at the death of the
payee in one sum.
(vi) LIFE INCOME FOR TWO LIVES. We pay proceeds in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the life of the surviving payee or 10 years, or (iii) while
the two payees are living and, after the death of one payee, we pay
two-thirds of the monthly amount for the life of the surviving payee.
You need our consent to use an option if the installment payments would be
less than $20.
ADDITIONAL BENEFITS BY RIDER
If you elect the Guaranteed Death Benefit at issue, we add it to the Policy
by rider. You can add other additional benefits to the Policy by rider,
subject to our underwriting and issuance standards. These additional benefits
usually require an additional charge as part of the Monthly Deduction from
cash value. The rider benefits available with the Policies provide fixed
benefits that do not vary with the investment experience of the Variable
Account.
It may be to your economic advantage to include a significant portion or
percentage of your insurance coverage under an Adjustable Term Insurance
Rider. However, like the cost of coverage under the Policy, charges deducted
from the Policy's cash value to pay for term coverage no longer participate in
the investment experience of the Variable Account, and generally increase with
the age of the covered individual. Use of a term rider reduces sales
compensation. Your registered representative can provide you more information
on the uses of term rider coverage.
The following riders are available:
ADJUSTABLE TERM RIDER, which provides term insurance. This Rider terminates
no later than the Policy anniversary on which the insured has reached age
100.
WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly Deductions
upon the disability of the insured.
TEMPORARY TERM INSURANCE, which provides for insurance from the date of
issue to the Policy Date.
Not all riders may be available to you and riders in addition to those
listed above may be made available. Restrictions on rider coverage may apply
in some states. You should consult your registered representative regarding
the availability of riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except for rights to payment of benefits) terminate at the
death of the insured.
The beneficiary is also named in the application. You may change the
beneficiary 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 will be 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.)
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<PAGE>
THE VARIABLE ACCOUNT
We established the Variable Account as a separate investment account on
January 31, 1983 under Delaware law. It became subject to Massachusetts law
when we changed our domicile to Massachusetts on August 30, 1996. The Variable
Account is the funding vehicle for the Policies and other NELICO variable life
insurance policies; these other policies impose different costs, and provide
different benefits, from the Policies. The Variable Account meets the
definition of a "separate account" under Federal securities laws, and is
registered with the Securities and Exchange Commission (the "SEC") as a unit
investment trust under the Investment Company Act of 1940. Registration with
the SEC does not involve SEC supervision of the Variable Account's management
or investments. However, the Massachusetts Insurance Commissioner regulates
NELICO and the Variable Account, which are also subject to the insurance laws
and regulations where the Policies are sold.
Although we own the assets of the Variable Account, applicable law provides
that the portion of the Variable Account assets equal to the reserves and
other liabilities of the Variable Account may not be charged with liabilities
that arise out of any other business we may conduct. We believe this means
that the assets of the Variable Account equal to the reserves and other
liabilities of the Variable Account are not available to meet the claims of
our general creditors, and may only be used to support the cash values under
our variable life insurance policies issued by the Variable Account. We may
transfer to our general account assets which exceed the reserves and other
liabilities of the Variable Account. We will consider any possible adverse
impact such a transfer might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of our
other income or capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
Sub-Accounts of the Variable Account that are available in this Policy
invest in the following Eligible Funds:
The Zenith Back Bay Advisors Money Market Series. Its investment objective
is the highest possible level of current income consistent with preservation
of capital. An investment in the Money Market Series is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Money Market Series seeks to maintain a net
asset value of $100 per share, it is possible to lose money by investing in
the Money Market Series.
The Zenith Back Bay Advisors Bond Income Series. Its investment objective is
a high level of current income consistent with protection of capital.
The Zenith Capital Growth Series. Its investment objective is the long-term
growth of capital through investment primarily in equity securities of
companies whose earnings are expected to grow at a faster rate than the United
States economy.
The Zenith Westpeak Stock Index Series. Its investment objective is
investment results that correspond to the composite price and yield
performance of the S&P 500 Index.
The Zenith Back Bay Advisors Managed Series. Its investment objective is a
favorable total investment 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 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 Harris Oakmark Mid Cap Value Series (formerly, the Goldman Sachs
Midcap Value Series). Its investment objective is long-term capital
appreciation.
The Zenith Davis Venture Value Series. Its investment objective is growth of
capital.
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<PAGE>
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 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.
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.
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<PAGE>
INVESTMENT MANAGEMENT
The adviser and sub-adviser for each series of the Zenith Fund are listed in
the chart below. New England Investment Management, which is an indirect,
wholly-owned subsidiary of NELICO, CGM, and each of the sub-advisers are
registered with the SEC as investment advisers under the Investment Advisers
Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Growth Capital Growth Management Limited
Partnership ("CGM")*
Back Bay Advisors Money New England Investment Management, Inc. Back Bay Advisors, L.P.*
Market
Back Bay Advisors Bond New England Investment Management, Inc. Back Bay Advisors, L.P.*
Income
Back Bay Advisors New England Investment Management, Inc. Back Bay Advisors, L.P.*
Managed
Westpeak Stock Index New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
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 Stanley New England Investment Management, Inc. Morgan Stanley Dean Witter
International Investment Management Inc.
Magnum Equity
Harris Oakmark Mid Cap New England Investment Management, Inc. Harris Associates L.P.*
Value
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 Managers New England Investment Management, Inc. Massachusetts Financial 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 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.
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.
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<PAGE>
THE FIXED ACCOUNT
THE POLICY HAS A FIXED ACCOUNT OPTION ONLY IN STATES THAT APPROVE IT. IT IS
NOT AVAILABLE UNDER POLICIES ISSUED IN TEXAS.
You may allocate net premiums and transfer cash value to the Fixed Account,
which is part of NELICO's general account. Because of exemptive and
exclusionary provisions in the Federal securities laws, interests in the Fixed
Account are not registered under the Securities Act of 1933. Neither the Fixed
Account nor the general account is registered as an investment company under
the Investment Company Act of 1940. Therefore, neither the Fixed Account, the
general account nor any interests therein are generally subject to the
provisions of these Acts, and the SEC does not review Fixed Account
disclosure. This disclosure may, however, be subject to certain provisions of
the Federal securities laws on the accuracy and completeness of prospectuses.
GENERAL DESCRIPTION
Our general account includes all of our assets, except assets in the
Variable Account or in our other separate accounts. We decide how to invest
our general account assets. Fixed Account allocations do not share in the
actual investment experience of the Fixed Account. Instead, we guarantee that
the Fixed Account will credit interest at an annual effective rate of at least
4%. We may or may not credit interest at a higher rate. We declare the current
interest rate for the Fixed Account periodically. The Fixed Account earns
interest daily.
We can change our Fixed Account interest crediting procedures. Currently,
all cash value in the Fixed Account on a Policy anniversary earns interest at
the declared annual rate in effect on the anniversary until the next Policy
anniversary, when it is credited with our current rate. (Although our current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with our current annual rate until the next anniversary, we can
select any portion, from 0% to 100%, of your Fixed Account cash value on a
Policy anniversary to earn interest at our current rate until the next Policy
anniversary, unless otherwise required by state law.) Any net premiums
allocated or cash value transferred to the Fixed Account on a date other than
a Policy anniversary earn interest at our current rate until the next Policy
anniversary. Any loan repayment allocated to the Fixed Account is credited
with the lesser of our current interest rate and the effective interest rate
for your Policy's cash value in the Fixed Account on the date of the
repayment. The effective interest rate is a weighted average of all the Fixed
Account rates for your Policy.
VALUES AND BENEFITS
Cash value in the Fixed Account increases from net premiums allocated and
transfers to the Fixed Account and Fixed Account interest, and decreases from
loans, partial surrenders made from the Fixed Account, charges, and transfers
from the Fixed Account. We deduct charges from the Fixed Account and the
Policy's sub-accounts in proportion to the amount of cash value in each. (See
"Monthly Deduction from Cash Value"). A Policy's total cash value includes
cash value in the Variable Account, the Fixed Account, and any cash value held
in our general account (but outside of the Fixed Account) due to a Policy
loan.
Cash value in the Fixed Account is included in the calculation of the
Policy's death benefit in the same manner as the cash value in the Variable
Account. (See "Death Benefit".)
POLICY TRANSACTIONS
We can restrict allocations and transfers to the Fixed Account if the
effective annual rate of interest on the amount would be 4%. Otherwise, the
requirements for Fixed Account and Variable Account allocations are the same.
(See "Allocation of Net Premiums".)
Except as described below, the Fixed Account has the same rights and
limitations about premium allocations, transfers, loans, surrenders and
partial surrenders as the Variable Account. (See "Other Policy Features".) The
following special rules apply to the Fixed Account.
TRANSFERS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT ARE ALLOWED ONLY
ONCE IN EACH POLICY YEAR. WE PROCESS A TRANSFER FROM THE FIXED ACCOUNT IF WE
RECEIVE THE TRANSFER REQUEST WITHIN THE 30 DAY PERIOD AFTER THE POLICY
ANNIVERSARY. WE MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER
REQUEST AT OUR HOME OFFICE.
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<PAGE>
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 (twelve
per Policy year for Policies issued in New York). We currently do not limit
the number of these transfers in a Policy year.
Unless you request otherwise, a Policy loan reduces the Policy's cash value
in the sub-accounts and not the Fixed Account. If there is not enough cash
value in the Policy's sub-accounts for the loan, we take the balance from the
Fixed Account. We allocate all loan repayments first to the outstanding loan
balance attributable to the Fixed Account. The amount removed from the
Policy's sub-accounts and the Fixed Account as a result of a loan earns
interest at an effective rate of at least 4% per year, which we credit
annually to the Policy's cash value in the sub-accounts and the Fixed Account
in proportion to the Policy's cash value in each on the day it is credited.
Unless you request otherwise, we take partial surrenders only from the
Policy's sub-accounts and not the Fixed Account. If there is not enough cash
value in the Policy's sub-accounts for the partial surrender, we take the
balance from the Fixed Account.
We can delay transfers, surrenders, and Policy loans from the Fixed Account
for up to six months (to the extent allowed by state insurance law). We will
not delay loans to pay premiums on policies issued by us.
NELICO'S DISTRIBUTION AGREEMENT
We sell the Policies through licensed insurance agents. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"). New England Securities, a Massachusetts corporation
organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, 399 Boylston Street, Boston, Massachusetts 02116,
also serves as the principal underwriter for the Policies under a Distribution
Agreement with NELICO. Under the Distribution Agreement, we pay the following
sales expenses: general agent and agency manager's compensation, agents'
training allowances, deferred compensation and insurance benefits of agents,
general agents and agency managers and advertising expenses and all other
expenses of distributing the Policies.
The selling agent may select one of two schedules for payment of commissions
and/or service fees: (1) a maximum of 12.5% of the Target Premium paid in the
first Policy year, a maximum of 6.25% of the Target Premium paid in Policy
years two through ten, and a maximum of 2.25% thereafter; with a maximum
commission of 2% of each payment above the Target Premium paid in the first
Policy year (1.8% thereafter); or (2) a maximum of 8% of the Target Premium
paid in the first Policy year, a maximum of 5.4% of the Target Premium paid in
the second through tenth Policy years, and a maximum of .75% thereafter; and,
beginning in the second Policy year, a maximum of .11% of the Policy's cash
value; with a maximum commission of .75% of each payment above the Target
Premium paid in the first Policy year (.60% thereafter). 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,
commissions paid to the broker-dealer on behalf of the registered
representative will not exceed those described above (except for a possible
maximum 7% of the Target Premium and 2.5% of each payment above the Target
Premium paid in the second through tenth Policy years under the first
schedule, and a possible maximum of 6% of the Target Premium and .85% of each
payment above the Target Premium paid in those Policy years under the second
schedule). 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 compensation for the particular Policy year.
We pay commissions through the registered broker-dealer, and may also pay
additional compensation to the broker-dealer and/or reimburse it for portions
of Policy sales expenses. The registered representative may receive a portion
of the expense reimbursement allowance paid to the broker-dealer.
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<PAGE>
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, we can challenge the validity of your Policy or a rider to your
Policy during the insured's lifetime for two years (or less, if required by
state law) from the date of issue, based on misrepresentations made in the
application. We can challenge the portion of the death benefit resulting from
payment of an underwritten premium payment for two years during the insured's
lifetime from receipt of the premium payment and can challenge the portion of
the death benefit resulting from an increase in face amount for two years
during the insured's lifetime from the date of the increase. However, if the
insured dies within two years of the date of issue, we can challenge all or
part of the Policy at any time for misrepresentations in the application. If
the insured dies within two years of an increase in face amount, we can
challenge the portion of the death benefit resulting from the face amount
increase at any time for misrepresentation.
MISSTATEMENT OF AGE OR SEX
If the application misstates the insured's age or sex, the Policy's death
benefit is the amount that the most recent Monthly Deduction which was made
would provide, based on the insured's correct age and, if the Policy is sex-
based, correct sex.
SUICIDE
If the insured commits suicide within two years (or less, if required by
state law) from the date of issue, the death benefit is limited to premiums
paid, less any policy loan balance and partial surrenders. If the insured
commits suicide more than two years from the issue date of the Policy but
within two years from the date of an increase in face amount, the death
benefit for the increase in face amount is limited to the Monthly Deductions
and any Face Amount Increase Administrative Charge made to pay for that
increase. (Where required by state law, we determine the death benefit under
this provision by using the greater of: the reserve of the insurance which is
subject to the provision; and the amounts used to purchase the insurance which
is subject to the provision.)
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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 rated or guaranteed 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.
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
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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. A
material change may also occur if you request an increase in the face amount
of your Policy. To prevent your Policy from becoming a Modified Endowment
Contract, it may be necessary to limit premium payments, to limit increases in
face amount, or to limit reductions in benefits. A current or prospective
Policy Owner should consult a tax advisor to determine whether a Policy
transaction will cause the Policy to be classified as a Modified Endowment
Contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a Modified Endowment Contract will
be treated first as distributions of gain taxable as ordinary income
and as tax-free recovery of the Policy Owner's investment in the Policy
only after all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Policy Owner
has attained age 59 1/2 or is disabled, or where the distribution is
part of a series of substantially equal periodic payments for the life
(or life expectancy) of the Policy Owner or the joint lives (or joint
life expectancies) of the Policy Owner and the Policy Owner's
beneficiary or designated beneficiary.
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.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy
that is not classified as a Modified Endowment Contract are generally treated
first as a recovery of the Policy Owner's investment in the Policy and only
after the recovery of all investment in the Policy as taxable income. However,
certain distributions which must be made in order to enable the Policy to
continue to qualify as a life insurance contract for Federal income tax
purposes if Policy benefits are reduced during the first 15 Policy years may
be treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions. However, the tax consequences
associated with Policy loans that are outstanding after the first 10 Policy
years is less clear and a tax adviser should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate Premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
POLICY LOANS. In general, interest on a Policy loan will not be deductible.
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
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participant in a pension or profit-sharing plan are limited. The current cost
of insurance for the net amount at risk is treated as a "current fringe
benefit" and must be included annually in the plan participant's gross income.
We report this cost (generally referred to as the "P.S. 58" cost) to the
participant annually. If the plan participant dies while covered by the plan
and the Policy proceeds are paid to the participant's beneficiary, then the
excess of the death benefit over the cash value is not taxable. However, the
cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. Policies owned under these types of
plans may be subject to restrictions under the Employee Retirement Income
Security Act of 1974 ("ERISA"). You should consult a qualified adviser
regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy
tax requirements to be treated as nontaxable. Plan loan requirements and
provisions may differ from Policy loan provisions. Failure of plan loans to
comply with the requirements and provisions of the DOL regulations and of tax
law may result in adverse tax consequences and/or adverse consequences under
ERISA. Plan fiduciaries and participants should consult a qualified adviser
before requesting a loan under a Policy held in connection with a retirement
plan.
Businesses can use the Policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the Policy for any arrangement the value of which depends
in part on its tax consequences, you should consult a qualified tax adviser.
In recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a
new Policy or a change in an existing Policy should consult a tax adviser.
We believe that Policies subject to Puerto Rican tax law will generally
receive treatment similar, with certain modifications, to that described
above. Among other differences, Policies governed by Puerto Rican tax law are
not currently subject to the rules described above regarding Modified
Endowment Contracts. You should consult your tax adviser with respect to
Puerto Rican tax law governing the Policies.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or otherwise. Consult a tax adviser with
respect to legislative developments and their effect on the Policy.
NELICO'S INCOME TAXES
Under current Federal income tax law NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for company Federal income taxes. We reserve the right to
charge the Variable Account for any future Federal income taxes we may incur.
Under current laws in several states we may incur state and local taxes (in
addition to premium taxes). These taxes are not now significant, and we are
not currently charging for them. If they increase, we may deduct charges for
such taxes.
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MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
James M. Benson Chairman, President and Chief Executive Officer of
NELICO since 1998 and President, Individual Business
of Metropolitan Life Insurance Company since 1999;
formerly, Director, President and Chief Operating
Officer 1997-1998 of NELICO; President and Chief
Executive Officer 1996-1997 of Equitable Life
Assurance Society; President and Chief Operating
Officer 1996-1997 of Equitable Companies, Inc.;
President and Chief Operating Officer 1994-1996 of
Equitable Life Assurance Society.
Robert H. Benmosche Director of NELICO since 1998 and Chairman, President
Metropolitan Life and Chief Executive Officer of Metropolitan Life
Insurance Co. Insurance Company since 1998; formerly, Director,
One Madison Avenue President and Chief Operating Officer 1997-1998;
New York, NY 10010 Executive Vice President 1995-1997 of Metropolitan
Life; Executive Vice President 1989-1995 of Paine
Webber.
Susan C. Crampton Director of NELICO since 1996 and serves as Principal
6 Tarbox Road of The Vermont Partnership, a business consulting firm
Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England Mutual.
Edward A. Fox Director of NELICO since 1996 and Chairman of the Board
R.R. Box 67-15 of SLM Holdings since 1997; formerly, Director 1994-
Harborside, ME 04642 1996 of New England Mutual.
George J. Goodman Director of NELICO since 1996 and author, television
Adam Smith's Global journalist, and editor.
Television
50th Floor, Craig Drill
Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Evelyn E. Handler Director of NELICO since 1996 and President of
Ten Sterling Place Merrimack Higher Education Associates, Inc. since
Bow, NH 03304 1998; formerly Director 1987-1996 of New England
Mutual and Executive Director and Chief Executive
Officer 1994-1997 of the California Academy of
Sciences.
Philip K. Howard, Esq. Director of NELICO since 1996 and Partner of the law
Covington & Burling firm of Covington & Burling in New York City.
1330 Avenue of the
Americas
New York, NY 10019
Bernard A. Leventhal Director of NELICO since 1996; formerly, Vice Chairman
Burlington Industries of the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc.; Director and Executive Vice
Americas President 1993-1995 of Burlington Menswear Division.
17th Floor
New York, NY 10105
Thomas J. May Director of NELICO since 1996 and Chairman, President
Boston Edison Company and Chief Executive Officer of Boston Edison Company
800 Boylston Street since 1994; formerly, Director 1994-1996 of New
Boston, MA 02199 England Mutual.
Stewart G. Nagler Director of NELICO since 1996 and Vice Chairman and
Metropolitan Life Chief Financial Officer of Metropolitan Life Insurance
Insurance Co. Company since 1998; formerly, Senior Executive Vice
One Madison Avenue President and Chief Financial Officer 1986-1998 of
New York, NY 10010 Metropolitan Life Insurance Company.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<C> <S>
Catherine A. Rein Director of NELICO since 1998 and President and Chief
Metropolitan Property and Executive Officer of
Casualty Insurance Metropolitan Property and Casualty Insurance Company
Company since 1999; formerly, Senior
700 Quaker Lane Executive Vice President 1998-1999; Executive Vice
Warwick, RI 02887 President 1989-1998 of
Metropolitan Life Insurance Company.
Rand N. Stowell Director of NELICO since 1996 and President of United
P.O. Box 60 Timber Corp. and President, Randwell Co. since 2000 of
Weld, ME 04285 Weld, Maine; formerly, Director 1990-1996 of New
England Mutual.
</TABLE>
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
James M. Benson See Directors above.
David W. Allen Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 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 for Swiss
Reinsurance New Markets; President & Chief Executive
Officer 1996-1998 of Atlantic International
Reinsurance Company; Executive Vice President 1996-
1997 of Swiss Re Atrium and Swiss Re Services and
Principal 1987-1996 of Tillinghast/Towers Perrin.
Anthony J. Candito President, NEF Information Services (a business unit of
NELICO) and Chief Information Officer since 1998;
formerly, Senior Vice President 1996-1998 of NELICO;
Senior Vice President 1995-1996 and Vice President
1994-1995 of New England Mutual.
Anne Marie Faria Senior Vice President of NELICO since 1996; formerly,
Vice President 1990-1996 of New England Mutual.
Thom A. Faria President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice President
in 1996, Senior Vice President 1993-1996 of New
England Mutual.
Anne M. Goggin Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and
Counsel of NELICO in 1996, Vice President and Counsel
1994-1996 of New England Mutual.
Daniel D. Jordan Second Vice President, Counsel, Secretary and Clerk
since 1996; formerly, Counsel and Assistant Secretary
1990-1996 of New England Mutual.
Alan C. Leland, Jr. Senior Vice President of NELICO since 1996; formerly,
Vice President 1984-1996 of New England Mutual.
George J. Maloof Senior Vice President of NELICO since 1996; formerly,
Vice President 1991-1996 of New England Mutual.
Kenneth D. Martinelli Senior Vice President of NELICO since 1999; formerly,
Vice President 1997-1999 of NELICO and Vice President
1994-1997 of The Equitable Life Assurance Company.
Thomas W. McConnell Senior Vice President of NELICO since 1996 and
Director, Chief Executive Officer and President of New
England Securities Corporation since 1993.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<C> <S>
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 executive
officers is the same as NELICO's except where indicated otherwise.
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.
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<PAGE>
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 1-888-458-2654.
You may also call our Home Office at 1-888-458-2654 to request current
information about your Policy values, to change or update Policy information
such as your address, billing mode, beneficiary or ownership, or to request
Policy loans of less than $25,000. Requests must be in writing if the Policy
is owned by a corporation or a pension trust.
For all other Policy changes, please contact your registered representative.
REPORTS
We will send you an annual statement showing your Policy's death benefit,
cash value and any outstanding Policy loan principal. We will also confirm
Policy loans, sub-account transfers, lapses, surrenders and other Policy
transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
Professional organizations may endorse the Policies. We may use such
endorsements in Policy sales material. We may pay the professional
organization for the use of its customer or mailing lists to distribute Policy
promotional materials. An endorsement by a third party does not predict the
future performance of the Policies.
Articles discussing the Variable Account's investment performance, rankings
and other characteristics may appear in publications. Some or all of these
publishers or ranking services (including, but not limited to, Lipper
Analytical Services, Inc. and Morningstar, Inc.) may publish their own
rankings or performance reviews of variable contract separate accounts,
including the Variable Account. We may use references to, or reprints of such
articles or rankings as sales material and may include rankings that indicate
the names of other variable contract separate accounts and their investment
experience. 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
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<PAGE>
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.
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.
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<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Policies work. They show how
the death benefit and cash value could vary over an extended period of time
assuming hypothetical gross rates of return (i.e., investment income and
capital gains and losses, realized or unrealized) for the Variable Account
equal to constant after tax annual rates of 0%, 6% and 12%. The insured is
assumed to be in the nonsmoker preferred risk classification. The Tables
assume no rider benefits and assume that no allocations are made to the Fixed
Account. (See "Charges and Expenses.") Illustrations show (1) the Option 1
death benefit using the cash value accumulation test with the Enhanced Net
Single Premium Corridor and (2) the Option 2 death benefit using the guideline
premium test with the IRS Corridor.
The illustrated death benefits and cash values for a Policy would be
different, either higher or lower, from the amounts shown if the actual gross
rates of return averaged 0%, 6% or 12%, but varied above and below that
average during the period, if premiums were paid in other amounts or at other
than annual intervals. They would also be different depending on the
allocation of cash value among the Variable Account's Sub-Accounts, if the
actual gross rate of return for all Sub-Accounts averaged 0%, 6% or 12%, but
varied above or below that average for individual Sub-Accounts. They would
also differ if a Policy loan or partial surrender were made during the period
of time illustrated, if the insured were female or in another risk
classification, or if the Policies were issued at unisex rates. For example,
as a result of variations in actual returns additional premium payments beyond
those illustrated may be necessary to maintain the Policy in force for the
periods shown or to realize the Policy values shown on particular
illustrations even if the average rate of return is achieved.
The death benefits and cash values shown in the tables reflect: (i)
deductions from premiums for the sales charge and premium tax charge; and (ii)
a Monthly Deduction (consisting of a Policy fee, a mortality and expense risk
fee, and a charge for the cost of insurance) from the cash value on the first
day of each Policy month. (See "Charges and Expenses".) The illustrations
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 average investment advisory fee and operating expenses
of the Eligible Funds, the gross annual rates of return of 0%, 6% and 12%
correspond to net investment experience at constant annual rates of -0.75%,
5.21% and 11.16%, respectively.
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the illustrated
premiums could have been invested outside the Policy to arrive at the death
benefit of the Policy. The internal rate of return is compounded annually, and
the premiums are assumed to be paid at the beginning of each Policy year.
If you request, we will furnish a personalized illustration reflecting the
proposed insured's age, sex, underwriting classification, and the face amount
or premium payment schedule requested. Where applicable, we will also furnish
on request an illustration for a Policy which is not affected by the sex of
the insured.
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<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,051,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT WITH ENHANCED NET SINGLE PREMIUM CORRIDOR
CASH VALUE ACCUMULATION TEST
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ------------------------------ ------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,051,000 $1,051,000 $1,051,000 $ 47,575 $ 50,217 $ 52,855 $ 43,575 $ 46,217 $ 48,855
2 107,625 1,051,000 1,051,000 1,051,000 90,525 98,517 106,810 86,525 94,517 102,810
3 165,506 1,051,000 1,051,000 1,051,000 128,821 144,966 162,380 128,821 144,966 162,380
4 226,282 1,051,000 1,051,000 1,051,000 170,449 197,649 228,151 170,449 197,649 228,151
5 290,096 1,051,000 1,051,000 1,051,000 211,442 252,702 300,826 211,442 252,702 300,826
6 357,100 1,051,000 1,051,000 1,065,321 251,816 310,258 381,158 251,816 310,258 381,158
7 427,455 1,051,000 1,051,000 1,273,155 291,619 370,487 469,672 291,619 370,487 469,672
8 448,828 1,051,000 1,051,000 1,361,041 286,339 386,333 517,559 286,339 386,333 517,559
9 471,270 1,051,000 1,051,000 1,455,275 281,004 402,858 570,296 281,004 402,858 570,296
10 494,833 1,051,000 1,051,000 1,556,453 275,628 420,107 628,405 275,628 420,107 628,405
15 631,546 1,051,000 1,112,426 2,191,489 248,590 518,697 1,021,838 248,590 518,697 1,021,838
20 806,031 1,051,000 1,203,589 3,122,783 220,528 641,237 1,663,728 220,528 641,237 1,663,728
25 1,028,722 1,051,000 1,310,665 4,478,641 184,401 789,053 2,696,253 184,401 789,053 2,696,253
30 1,312,940 1,051,000 1,439,989 6,480,278 133,965 966,179 4,348,025 133,965 966,179 4,348,025
35 1,675,681 1,051,000 1,596,395 9,461,083 56,720 1,176,658 6,973,497 56,720 1,176,658 6,973,497
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF
POLICY ---------------------------- -----------------------------
YEAR 0% 6% 12% 0% 6% 12%
------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -4.85% 0.43% 5.71% 2,002.00% 2,002.00% 2,002.00%
2 -6.46 -0.99 4.47 311.19 311.19 311.19
3 -7.42 -1.70 4.02 135.76 135.76 135.76
4 -6.29 -0.47 5.34 79.07 79.07 79.07
5 -5.53 0.36 6.23 52.44 52.44 52.44
6 -4.98 0.96 6.88 37.36 37.36 37.79
7 -4.56 1.42 7.36 27.82 27.82 32.82
8 -4.00 1.98 7.89 22.58 22.58 28.10
9 -3.64 2.35 8.25 18.93 18.93 24.79
10 -3.39 2.62 8.51 16.26 16.26 22.35
15 -2.82 3.31 9.20 9.45 9.95 16.09
20 -2.69 3.61 9.50 6.63 7.47 13.53
25 -2.88 3.75 9.64 5.10 6.15 12.15
30 -3.50 3.82 9.71 4.14 5.36 11.32
35 -5.55 3.85 9.74 3.49 4.84 10.78
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-44
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,051,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST WITH ENHANCED NET SINGLE PREMIUM CORRIDOR
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,051,000 $1,051,000 $1,051,000 $ 45,196 $ 47,761 $ 50,324 $ 41,196 $ 43,761 $ 46,324
2 107,625 1,051,000 1,051,000 1,051,000 85,641 93,330 101,314 81,641 89,330 97,314
3 165,506 1,051,000 1,051,000 1,051,000 121,366 136,819 153,499 121,366 136,819 153,499
4 226,282 1,051,000 1,051,000 1,051,000 160,365 186,310 215,432 160,365 186,310 215,432
5 290,096 1,051,000 1,051,000 1,051,000 198,661 237,922 283,764 198,661 237,922 283,764
6 357,100 1,051,000 1,051,000 1,051,000 236,254 291,763 359,201 236,254 291,763 359,201
7 427,455 1,051,000 1,051,000 1,197,906 273,172 347,973 441,913 273,172 347,973 441,913
8 448,828 1,051,000 1,051,000 1,270,224 264,859 359,450 483,024 264,859 359,450 483,024
9 471,270 1,051,000 1,051,000 1,346,927 256,296 371,202 527,837 256,296 371,202 527,837
10 494,833 1,051,000 1,051,000 1,428,279 247,437 383,220 576,656 247,437 383,220 576,656
15 631,546 1,051,000 1,051,000 1,915,136 196,711 446,777 892,982 196,711 446,777 892,982
20 806,031 1,051,000 1,051,000 2,567,892 127,848 514,285 1,368,098 127,848 514,285 1,368,098
25 1,028,722 1,051,000 1,051,000 3,442,452 26,145 583,718 2,072,441 26,145 583,718 2,072,441
30 1,312,940 1,051,000 4,613,132 649,833 3,095,240 649,833 3,095,240
35 1,675,681 1,051,000 6,178,678 705,089 4,554,129 705,089 4,554,129
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF
POLICY -------------------------- --------------------------
YEAR 0% 6% 12% 0% 6% 12%
------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -9.61% -4.48% 0.65% 2002.00% 2002.00% 2002.00%
2 -9.90 -4.51 0.87 311.19 311.19 311.19
3 -10.22 -4.53 1.16 135.76 135.76 135.76
4 -8.64 -2.82 3.00 79.07 79.07 79.07
5 -7.57 -1.65 4.25 52.44 52.44 52.44
6 -6.79 -0.79 5.17 37.36 37.36 37.36
7 -6.20 -0.15 5.83 27.82 27.82 31.23
8 -5.55 0.53 6.49 22.58 22.58 26.62
9 -5.15 0.98 6.93 18.93 18.93 23.39
10 -4.90 1.30 7.24 16.26 16.26 21.01
15 -4.73 2.05 8.01 9.45 9.45 14.85
20 -5.79 2.28 8.27 6.63 6.63 12.26
25 -11.24 2.35 8.36 5.10 5.10 10.84
30 2.31 8.36 4.14 9.95
35 2.21 8.31 3.49 9.33
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-45
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS FOR
NONSMOKER PREFERRED UNDERWRITING RISK
$1,051,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
GUIDELINE PREMIUM TEST WITH IRS CORRIDOR
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ------------------------------ ------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,094,540 $1,097,180 $1,099,815 $ 47,540 $ 50,180 $ 52,815 $ 43,540 $ 46,180 $ 48,815
2 107,625 1,137,410 1,145,391 1,153,672 90,410 98,391 106,672 86,410 94,391 102,672
3 165,506 1,179,565 1,195,674 1,213,048 128,565 144,674 162,048 128,565 144,674 162,048
4 226,282 1,220,973 1,248,084 1,278,484 169,973 197,084 227,484 169,973 197,084 227,484
5 290,096 1,261,650 1,302,727 1,350,632 210,650 251,727 299,632 210,650 251,727 299,632
6 357,100 1,301,597 1,359,699 1,430,193 250,597 308,699 379,193 250,597 308,699 379,193
7 427,455 1,340,856 1,419,144 1,517,990 289,856 368,144 466,990 289,856 368,144 466,990
8 448,828 1,334,997 1,434,070 1,565,124 283,997 383,070 514,124 283,997 383,070 514,124
9 471,270 1,329,059 1,449,539 1,617,096 278,059 398,539 566,096 278,059 398,539 566,096
10 494,833 1,323,066 1,465,601 1,674,444 272,066 414,601 623,444 272,066 414,601 623,444
15 631,546 1,292,927 1,556,483 2,064,765 241,927 505,483 1,013,765 241,927 505,483 1,013,765
20 806,031 1,261,643 1,667,455 2,707,253 210,643 616,455 1,656,253 210,643 616,455 1,656,253
25 1,028,722 1,220,782 1,793,894 3,755,969 169,782 742,894 2,704,969 169,782 742,894 2,704,969
30 1,312,940 1,164,298 1,932,093 5,468,412 113,298 881,093 4,417,412 113,298 881,093 4,417,412
35 1,675,681 1,081,431 2,071,694 8,264,812 30,431 1,020,694 7,213,812 30,431 1,020,694 7,213,812
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF
POLICY ---------------------------- -----------------------------
YEAR 0% 6% 12% 0% 6% 12%
------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -4.92% 0.36% 5.63% 2,089.08% 2,094.36% 2,099.63%
2 -6.54 -1.08 4.38 329.56 331.23 332.94
3 -7.51 -1.80 3.91 146.80 148.12 149.54
4 -6.40 -0.59 5.22 87.69 88.97 90.39
5 -5.66 0.23 6.10 59.90 61.23 62.74
6 -5.12 0.82 6.73 44.15 45.56 47.20
7 -4.72 1.26 7.22 34.18 35.68 37.46
8 -4.16 1.81 7.75 27.69 29.23 31.13
9 -3.81 2.17 8.12 23.14 24.72 26.72
10 -3.57 2.43 8.40 19.81 21.41 23.50
15 -3.05 3.09 9.13 11.29 12.96 15.54
20 -2.95 3.37 9.47 7.76 9.51 12.60
25 -3.24 3.47 9.66 5.81 7.66 11.28
30 -4.10 3.47 9.77 4.54 6.50 10.63
35 -7.38 3.39 9.86 3.58 5.69 10.32
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-46
<PAGE>
MALE ISSUE AGE 40
$50,000 ANNUAL PREMIUM FOR SEVEN POLICY YEARS
NONSMOKER PREFERRED UNDERWRITING RISK
$1,051,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
GUIDELINE PREMIUM TEST WITH IRS CORRIDOR
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 52,500 $1,092,067 $1,094,624 $1,097,179 $ 45,067 $ 47,624 $ 50,179 $ 41,067 $ 43,624 $ 46,179
2 107,625 1,132,240 1,139,888 1,147,828 85,240 92,888 100,828 81,240 88,888 96,828
3 165,506 1,171,533 1,186,864 1,203,411 120,533 135,864 152,411 120,533 135,864 152,411
4 226,282 1,209,917 1,235,585 1,264,391 158,917 184,585 213,391 158,917 184,585 213,391
5 290,096 1,247,395 1,286,117 1,331,317 196,395 235,117 280,317 196,395 235,117 280,317
6 357,100 1,283,938 1,338,498 1,404,756 232,938 287,498 353,756 232,938 287,498 353,756
7 427,455 1,319,551 1,392,798 1,485,373 268,551 341,798 434,373 268,551 341,798 434,373
8 448,828 1,309,887 1,402,080 1,524,224 258,887 351,080 473,224 258,887 351,080 473,224
9 471,270 1,299,927 1,411,319 1,566,624 248,927 360,319 515,624 248,927 360,319 515,624
10 494,833 1,289,625 1,420,460 1,612,881 238,625 369,460 561,881 238,625 369,460 561,881
15 631,546 1,230,924 1,462,126 1,914,921 179,924 411,126 863,921 179,924 411,126 863,921
20 806,031 1,153,425 1,487,379 2,378,373 102,425 436,379 1,327,373 102,425 436,379 1,327,373
25 1,028,722 1,478,330 3,090,012 427,330 2,039,012 427,330 2,039,012
30 1,312,940 1,400,128 4,177,351 349,128 3,126,351 349,128 3,126,351
35 1,675,681 1,196,077 5,834,850 145,077 4,783,850 145,077 4,783,850
<CAPTION>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON NET CASH VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
GROSS ANNUAL GROSS ANNUAL
END OF RATE OF RETURN OF RATE OF RETURN OF
POLICY -------------------------- -----------------------------
YEAR 0% 6% 12% 0% 6% 12%
------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -9.87% -4.75% 0.36% 2,084.13% 2,089.25% 2,094.36%
2 -10.19 -4.82 0.55 328.49 330.08 331.73
3 -10.54 -4.87 0.80 146.13 147.40 148.76
4 -8.99 -3.18 2.61 87.15 88.38 89.74
5 -7.94 -2.04 3.84 59.43 60.69 62.13
6 -7.19 -1.21 4.73 43.72 45.05 46.61
7 -6.63 -0.59 5.40 33.76 35.18 36.88
8 -6.00 0.06 6.07 27.28 28.75 30.56
9 -5.63 0.48 6.53 22.74 24.23 26.14
10 -5.41 0.77 6.86 19.41 20.92 22.91
15 -5.44 1.35 7.72 10.85 12.40 14.85
20 -7.03 1.30 8.08 7.21 8.79 11.77
25 0.91 8.28 6.73 10.31
30 -0.01 8.40 5.25 9.55
35 -2.72 8.47 3.91 9.14
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS
ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT
VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS
CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-47
<PAGE>
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 August, 1998. The Zenith Fund and the
Variable Account commenced operations on August 26, 1983. The Westpeak Stock
Index and Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Growth and Income Series and Harris
Oakmark Mid Cap Value Series of the Zenith Fund commenced operations on April
30, 1993. The Loomis Sayles Small Cap Series of the Zenith Fund commenced
operations on May 2, 1994 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 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 (net of actual charges and
expenses incurred by the Eligible Funds). The illustrations assume that
premiums are paid at the beginning of each year and that no loans, transfers
or other Policy Owner transactions were made during the periods shown.
Many factors other than investment experience affect Policy values and
benefits. These investment experience figures do not reflect the charges
deducted from Premiums and Monthly Deductions from the cash value. (See
"Charges and Expenses".)
NET RATES OF RETURN
The annual net rate is the effective earnings rate at which the investment
Sub-Accounts increased or decreased over a one-year period, based on the
investment experience of the relevant Eligible Funds. The rate is calculated
by taking the difference between the Sub-Accounts' ending values and beginning
values of the period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the Sub-Accounts increased or decreased since
the inception dates of the Sub-Accounts. For each Sub-Account, we calculate
the rate by taking the difference between the Sub-Account's ending value and
the value on the date of its inception and dividing it by the value on the
date of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
SUB-ACCOUNTS INVESTING IN NEW ENGLAND 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*. 8.87% -0.59% 68.10% 95.21% 52.71% -8.81% 30.76% -3.48% 53.98% -6.05% 14.97% -7.07%
Bond Income..... 3.20 12.61 18.76 14.83 2.27 8.37 12.30 8.09 17.96 8.18 12.61 -3.36
Money Market.... 3.20 10.73 8.26 6.80 6.53 7.52 9.25 8.19 6.21 3.80 2.97 3.97
<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*. 38.03% 21.07% 23.48% 34.09% 15.70% 2,996.30% 23.37%
Bond Income..... 21.20 4.61 10.89 9.04 -0.47 351.72 9.66
Money Market.... 5.70 5.13 5.34 5.26 4.97 173.07 6.34
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
5/1/87- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..... -12.20% 16.34% 30.15% -4.14% 30.43% 7.30% 9.72% 1.12% 36.92% 22.47% 32.50% 27.93%
Managed......... -0.66 9.48 19.08 3.21 20.17 6.70 10.65 -1.11 31.26 15.03 26.56 19.65
<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..... 20.38% 573.77% 16.30%
Managed......... 9.97 371.64 13.02
</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....... 14.24% -1.21% 36.47% 18.10% 33.47% 24.45% 9.35% 230.38% 19.62%
Mid Cap Value***........ 14.74 -.27 30.35 17.61 17.32 -5.46 0.35 95.25 10.55
</TABLE>
A-48
<PAGE>
<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............... -3.23% 28.84% 30.68% 24.85% -1.69% 31.75% 163.49% 18.65%
<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........... -4.20% 48.69% 13.17% 25.63% 47.78% 34.13% 301.47% 30.87%
Balanced****............ -.10 24.79 16.91 16.18 9.11 -5.06 75.41 11.49
Venture Value........... -3.50 39.28 25.84 33.50 14.41 17.52 203.60 23.98
International Magnum Eq-
uity**................. 2.60 6.23 6.67 -1.30 7.27 24.61 53.41 8.64
</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.......................................... 2.85% 2.85% N/A
Research Managers.................................. 19.80 19.80 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 Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Dean Witter
Investment Management became the sub-adviser.
*** 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.
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....................... 28.21% 37.19% 122.92% 292.12% 62.11%
</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.............. 5.48% 22.73% 29.46% 25.38%
</TABLE>
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... .20% -1.13% 21.93% 19.54% -16.31% 31.44% 16.89% 18.29% 6.93% 35.90% 13.75% 28.11%
<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... 11.63% 6.33% 451.97% 13.79%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
--------------------------------------------------------------------------------
1/28/87-
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas.......................... 5.38% 9.63% 23.97% -1.20% 8.00% -10.72% 37.35% 1.21% 11.02% 12.43%
<CAPTION>
1/28/87- 1/28/87-
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>
Overseas........ 11.56% 12.75% 42.63% 281.27% 10.91%
<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..... 6.38% 17.68% 1.22% -1.53% -4.07% -2.23% 35.08% 23.17% 20.40% -1.45% 20.79% 13.75%
<CAPTION>
9/19/85-19/19/85
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..... 17.67% -4.33% 8.15% 337.63% 10.89%
</TABLE>
A-49
<PAGE>
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... 1.32% 6.19% 22.56% 11.71% 21.23% -6.43% 17.68% 14.31% 20.65% 15.05% 11.09% 246.61%
<CAPTION>
9/6/89-
12/31/99
EFFECTIVE
SUB-ACCOUNT ANNUAL
----------- ---------
<S> <C>
Asset Manager... 12.81%
</TABLE>
POLICY PERFORMANCE
The material below assumes a Policy was issued with a $1,051,000 face amount
with premiums paid on August 26 of the years in which they are paid (May 1 in
the case of the Zenith Westpeak Stock Index and Zenith Back Bay Managed Sub-
Accounts; May 2 in the case of the 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 age
40 in the nonsmoker preferred risk category. Values and benefits are shown for
Policies with (1) an Option 1 death benefit, using the cash value accumulation
test with the Enhanced Net Single Premium Corridor, and (2) an Option 2 death
benefit, using the guideline premium test with the IRS Corridor. The death
benefits, cash values and internal rates of return assume in each instance
that the entire Policy value was invested in the particular Sub-Account for
the period shown. These illustrations of policy investment experience reflect
all Policy charges. (See "Charges and Expenses".) (See Appendix A for the
definition of the internal rate of return.)
MALE NONSMOKER PREFERRED RISK, AGE 40
$1,051,000 FACE AMOUNT
OPTION 1 DEATH BENEFIT
CASH VALUE ACCUMULATION TEST WITH ENHANCED NET SINGLE PREMIUM CORRIDOR
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1983....... 50,000 1,051,000 48,545 52,545 15.33% --
December 31, 1984....... 100,000 1,051,000 92,469 96,469 -4.18 784.53%
December 31, 1985....... 150,000 1,051,000 208,292 208,292 25.92 215.32
December 31, 1986....... 200,000 1,377,942 449,045 449,045 47.38 129.46
December 31, 1987....... 250,000 2,129,068 715,957 715,957 47.18 104.38
December 31, 1988....... 300,000 1,998,206 693,209 693,209 29.71 70.21
December 31, 1989....... 350,000 2,642,671 945,515 945,515 29.45 61.33
December 31, 1990....... 350,000 2,437,785 899,309 899,309 22.03 46.63
December 31, 1991....... 350,000 3,610,209 1,372,842 1,372,842 26.53 46.84
December 31, 1992....... 350,000 3,262,702 1,278,595 1,278,595 21.24 37.79
December 31, 1993....... 350,000 3,609,428 1,457,277 1,457,277 20.31 34.27
December 31, 1994....... 350,000 3,205,206 1,332,884 1,332,884 16.71 28.48
December 31, 1995....... 350,000 4,308,245 1,844,689 1,844,689 18.72 29.05
December 31, 1996....... 350,000 5,004,716 2,205,612 2,205,612 18.80 27.85
December 31, 1997....... 350,000 5,956,526 2,700,782 2,700,782 19.09 27.11
December 31, 1998....... 350,000 7,703,835 3,592,111 3,592,111 20.11 27.27
December 31, 1999....... 350,000 8,601,588 4,122,606 4,122,606 19.72 26.11
</TABLE>
A-50
<PAGE>
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1983....... 50,000 1,051,000 45,929 49,929 -0.41% --
December 31, 1984....... 100,000 1,051,000 99,270 103,270 3.85 784.53%
December 31, 1985....... 150,000 1,051,000 164,031 164,031 6.75 215.32
December 31, 1986....... 200,000 1,051,000 232,562 232,562 8.27 107.45
December 31, 1987....... 250,000 1,051,000 281,086 281,086 5.01 66.11
December 31, 1988....... 300,000 1,051,000 347,836 347,836 5.19 45.08
December 31, 1989....... 350,000 1,212,450 433,799 433,799 6.38 36.94
December 31, 1990....... 350,000 1,260,472 464,994 464,994 6.55 30.16
December 31, 1991....... 350,000 1,429,859 543,728 543,728 8.33 27.36
December 31, 1992....... 350,000 1,487,863 583,067 583,067 8.16 23.84
December 31, 1993....... 350,000 1,612,086 650,866 650,866 8.61 21.83
December 31, 1994....... 350,000 1,496,067 622,139 622,139 7.02 18.22
December 31, 1995....... 350,000 1,749,650 749,159 749,159 8.33 18.09
December 31, 1996....... 350,000 1,763,110 777,014 777,014 7.89 16.40
December 31, 1997....... 350,000 1,884,362 854,399 854,399 8.07 15.57
December 31, 1998....... 350,000 1,981,733 924,034 924,034 8.07 14.73
December 31, 1999....... 350,000 1,903,397 912,268 912,268 7.36 13.27
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1983....... 50,000 1,051,000 46,040 50,040 0.23% --
December 31, 1984....... 100,000 1,051,000 96,300 100,300 0.35 784.53%
December 31, 1985....... 150,000 1,051,000 148,844 148,844 -0.57 215.32
December 31, 1986....... 200,000 1,051,000 202,870 202,870 0.77 107.45
December 31, 1987....... 250,000 1,051,000 259,796 259,796 1.64 66.11
December 31, 1988....... 300,000 1,051,000 323,005 323,005 2.59 45.08
December 31, 1989....... 350,000 1,106,523 395,900 395,900 3.67 34.17
December 31, 1990....... 350,000 1,150,603 424,462 424,462 4.45 27.95
December 31, 1991....... 350,000 1,175,238 446,904 446,904 4.60 23.40
December 31, 1992....... 350,000 1,173,348 459,814 459,814 4.33 19.77
December 31, 1993....... 350,000 1,162,458 469,333 469,333 4.03 16.97
December 31, 1994....... 350,000 1,163,688 483,919 483,919 3.92 14.95
December 31, 1995....... 350,000 1,184,075 506,993 506,993 4.01 13.54
December 31, 1996....... 350,000 1,198,713 528,281 528,281 4.03 12.34
December 31, 1997....... 350,000 1,216,976 551,796 551,796 4.06 11.38
December 31, 1998....... 350,000 1,235,453 576,062 576,062 4.09 10.57
December 31, 1999....... 350,000 1,251,316 599,736 599,736 4.09 9.87
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1987....... 50,000 1,051,000 38,893 42,893 -20.49% --
December 31, 1988....... 100,000 1,051,000 92,037 96,037 -3.41 462.50%
December 31, 1989....... 150,000 1,051,000 174,407 174,407 9.28 168.14
December 31, 1990....... 200,000 1,051,000 207,741 207,741 1.76 91.55
December 31, 1991....... 250,000 1,051,000 318,438 318,438 9.18 58.67
December 31, 1992....... 300,000 1,114,967 386,800 386,800 8.05 42.99
December 31, 1993....... 350,000 1,310,319 468,816 468,816 7.95 36.28
December 31, 1994....... 350,000 1,273,243 469,705 469,705 6.33 28.46
December 31, 1995....... 350,000 1,690,266 642,752 642,752 10.90 29.10
December 31, 1996....... 350,000 1,975,958 774,343 774,343 12.20 27.42
December 31, 1997....... 350,000 2,519,069 1,017,054 1,017,054 14.39 27.43
December 31, 1998....... 350,000 3,101,909 1,289,928 1,289,928 15.68 26.98
December 31, 1999....... 350,000 3,595,517 1,539,516 1,539,516 16.03 25.89
</TABLE>
A-51
<PAGE>
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1987....... 50,000 1,051,000 44,013 48,013 -5.89% --
December 31, 1988....... 100,000 1,051,000 94,390 98,390 -1.38 462.50%
December 31, 1989....... 150,000 1,051,000 163,038 163,038 5.07 168.14
December 31, 1990....... 200,000 1,051,000 212,964 212,964 2.91 91.55
December 31, 1991....... 250,000 1,051,000 303,320 303,320 7.31 58.67
December 31, 1992....... 300,000 1,064,907 369,433 369,433 6.59 41.41
December 31, 1993....... 350,000 1,264,973 452,592 452,592 6.99 35.29
December 31, 1994....... 350,000 1,201,879 443,378 443,378 5.09 27.14
December 31, 1995....... 350,000 1,526,352 580,421 580,421 9.05 27.12
December 31, 1996....... 350,000 1,679,794 658,281 658,281 9.66 24.72
December 31, 1997....... 350,000 2,045,579 825,886 825,886 11.50 24.37
December 31, 1998....... 350,000 2,355,809 979,662 979,662 12.26 23.36
December 31, 1999....... 350,000 2,494,492 1,068,083 1,068,083 11.94 21.57
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1993....... 50,000 1,051,000 50,549 54,549 13.85% --
December 31, 1994....... 100,000 1,051,000 94,122 98,122 -1.61 460.75%
December 31, 1995....... 150,000 1,051,000 182,243 182,243 12.07 167.82
December 31, 1996....... 200,000 1,051,000 262,881 262,881 12.94 91.43
December 31, 1997....... 250,000 1,200,602 403,735 403,735 18.39 64.68
December 31, 1998....... 300,000 1,575,752 546,653 546,653 19.15 55.14
December 31, 1999....... 350,000 1,783,903 638,258 638,258 16.33 45.08
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1993....... 50,000 1,051,000 50,772 54,772 14.55% --
December 31, 1994....... 100,000 1,051,000 94,971 98,971 -0.88 460.75%
December 31, 1995....... 150,000 1,051,000 177,354 177,354 10.33 167.82
December 31, 1996....... 200,000 1,051,000 254,208 254,208 11.31 91.43
December 31, 1997....... 250,000 1,051,000 348,480 348,480 12.64 58.62
December 31, 1998....... 300,000 1,051,000 363,661 363,661 6.09 40.93
December 31, 1999....... 350,000 1,128,763 403,857 403,857 3.89 32.06
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1994....... 50,000 1,051,000 42,506 46,506 -10.31% --
December 31, 1995....... 100,000 1,051,000 108,042 112,042 10.14 464.26%
December 31, 1996....... 150,000 1,051,000 190,962 190,962 15.14 168.46
December 31, 1997....... 200,000 1,051,000 292,102 292,102 18.16 91.66
December 31, 1998....... 250,000 1,051,000 324,576 324,576 9.92 58.73
December 31, 1999....... 300,000 1,398,889 485,296 485,296 15.33 50.97
</TABLE>
A-52
<PAGE>
ZENITH BALANCED SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL NET INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1994....... 50,000 1,051,000 44,655 48,655 -15.06% --
December 31, 1995....... 100,000 1,051,000 101,869 105,869 8.78 1,173.86%
December 31, 1996....... 150,000 1,051,000 164,057 164,057 7.80 253.38
December 31, 1997....... 200,000 1,051,000 234,742 234,742 9.73 118.76
December 31, 1998....... 250,000 1,051,000 301,052 301,052 8.61 71.09
December 31, 1999....... 300,000 1,051,000 327,684 327,684 3.31 47.75
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL NET INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1994....... 50,000 1,051,000 45,732 49,732 -3.17% --
December 31, 1995....... 100,000 1,051,000 95,528 99,528 -0.71 1,173.86%
December 31, 1996....... 150,000 1,051,000 146,009 146,009 -2.30 253.38
December 31, 1997....... 200,000 1,051,000 186,442 186,442 -4.19 118.76
December 31, 1998....... 250,000 1,051,000 243,972 243,972 -1.13 71.09
December 31, 1999....... 300,000 1,051,000 350,947 350,947 5.87 47.75
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<CAPTION>
TOTAL NET INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1994....... 50,000 1,051,000 43,308 47,308 -28.19% --
December 31, 1995....... 100,000 1,051,000 106,473 110,473 15.64 1,173.86%
December 31, 1996....... 150,000 1,051,000 179,555 179,555 15.94 253.38
December 31, 1997....... 200,000 1,051,000 283,901 283,901 21.63 118.76
December 31, 1998....... 250,000 1,102,473 370,737 370,737 18.38 73.72
December 31, 1999....... 300,000 1,384,037 480,144 480,144 17.60 58.88
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL NET INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1994....... 50,000 1,051,000 42,276 46,276 -37.07% --
December 31, 1995....... 100,000 1,051,000 106,733 110,733 16.03 1,173.86%
December 31, 1996....... 150,000 1,051,000 165,387 165,387 8.52 253.38
December 31, 1997....... 200,000 1,051,000 251,321 251,321 13.95 118.76
December 31, 1998....... 250,000 1,254,638 421,906 421,906 24.54 80.94
December 31, 1999....... 300,000 1,767,179 613,062 613,062 26.82 69.08
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
TOTAL NET INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 50,000 $1,051,000 $ 44,909 $ 44,909 -- --
December 31, 1999....... 50,000 1,051,000 45,448 45,448 -13.26% --
</TABLE>
A-53
<PAGE>
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 50,000 $1,051,000 $ 44,909 $ 44,909 -- --
December 31, 1999....... 50,000 1,051,000 52,979 52,979 9.01% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1997....... 50,000 1,051,000 56,651 60,651 26.19% --
December 31, 1998....... 100,000 1,051,000 133,438 137,438 26.36 375.80%
December 31, 1999....... 150,000 1,237,684 390,758 390,758 61.88 168.59
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1998....... 50,000 1,051,000 47,294 51,294 19.64% --
December 31, 1999....... 100,000 1,051,000 107,753 107,753 12.04 1,250.67%
VIP EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1986....... 50,000 1,051,000 44,839 48,839 -9.82% --
December 31, 1987....... 100,000 1,051,000 80,475 84,475 -21.49 1,014.80%
December 31, 1988....... 150,000 1,051,000 141,245 141,245 -4.85 239.48
December 31, 1989....... 200,000 1,051,000 209,781 209,781 2.77 114.77
December 31, 1990....... 250,000 1,051,000 221,747 221,747 -5.37 69.36
December 31, 1991....... 300,000 1,051,000 336,911 336,911 4.25 46.83
December 31, 1992....... 350,000 1,230,303 440,187 440,187 7.05 38.58
December 31, 1993....... 350,000 1,399,426 516,254 516,254 9.23 33.57
December 31, 1994....... 350,000 1,439,041 547,219 547,219 8.64 28.09
December 31, 1995....... 350,000 1,881,158 737,193 737,193 12.23 28.46
December 31, 1996....... 350,000 2,058,921 831,272 831,272 12.30 25.96
December 31, 1997....... 350,000 2,538,640 1,055,692 1,055,692 13.89 25.66
December 31, 1998....... 350,000 2,728,554 1,168,303 1,168,303 13.56 23.73
December 31, 1999....... 350,000 2,794,780 1,231,678 1,231,678 12.77 21.62
</TABLE>
A-54
<PAGE>
VIP OVERSEAS SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1987....... 50,000 1,051,000 41,579 45,579 -9.54% --
December 31, 1988....... 100,000 1,051,000 95,012 99,012 -0.70 337.76%
December 31, 1989....... 150,000 1,051,000 169,998 169,998 6.65 142.20
December 31, 1990....... 200,000 1,051,000 210,622 210,622 2.15 81.67
December 31, 1991....... 250,000 1,051,000 273,670 273,670 3.11 53.77
December 31, 1992....... 300,000 1,051,000 281,373 281,373 -1.87 38.14
December 31, 1993....... 350,000 1,198,847 442,260 442,260 5.96 31.80
December 31, 1994....... 350,000 1,166,820 443,703 443,703 4.84 25.17
December 31, 1995....... 350,000 1,245,961 488,270 488,270 5.67 22.26
December 31, 1996....... 350,000 1,347,740 544,139 544,139 6.46 20.32
December 31, 1997....... 350,000 1,446,968 601,721 601,721 6.96 18.74
December 31, 1998....... 350,000 1,570,768 672,566 672,566 7.47 17.63
December 31, 1999....... 350,000 2,157,950 951,023 951,023 10.38 19.37
VIP HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1985....... 50,000 1,051,000 47,507 51,507 11.10% --
December 31, 1986....... 100,000 1,051,000 101,932 105,932 7.55 898.16%
December 31, 1987....... 150,000 1,051,000 146,032 146,032 -2.08 227.94
December 31, 1988....... 200,000 1,051,000 206,764 206,764 1.87 111.34
December 31, 1989....... 250,000 1,051,000 238,928 238,928 -1.98 67.85
December 31, 1990....... 300,000 1,051,000 275,743 275,743 -3.03 46.02
December 31, 1991....... 350,000 1,163,749 416,375 416,375 5.26 36.31
December 31, 1992....... 350,000 1,378,228 508,434 508,434 8.75 32.80
December 31, 1993....... 350,000 1,595,801 606,830 606,830 10.56 29.95
December 31, 1994....... 350,000 1,512,671 592,789 592,789 8.52 24.38
December 31, 1995....... 350,000 1,758,043 709,796 709,796 9.93 23.34
December 31, 1996....... 350,000 1,924,686 800,380 800,380 10.25 21.73
December 31, 1997....... 350,000 2,180,565 933,667 933,667 10.89 20.86
December 31, 1998....... 350,000 2,009,597 885,643 885,643 9.28 17.91
December 31, 1999....... 350,000 2,094,844 949,835 949,835 9.11 16.70
VIP II ASSET MANAGER SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 50,000 $1,051,000 $ 44,909 $ 48,909 -- --
December 31, 1989....... 50,000 1,051,000 45,242 49,242 -4.69% --
December 31, 1990....... 100,000 1,051,000 94,629 98,629 -1.68 833.52%
December 31, 1991....... 150,000 1,051,000 161,192 161,192 5.54 220.95
December 31, 1992....... 200,000 1,051,000 224,735 224,735 6.48 109.20
December 31, 1993....... 250,000 1,051,000 318,007 318,007 10.47 66.90
December 31, 1994....... 300,000 1,051,000 337,933 337,933 4.22 45.51
December 31, 1995....... 350,000 1,232,951 441,134 441,134 6.93 37.74
December 31, 1996....... 350,000 1,355,238 499,953 499,953 8.29 32.14
December 31, 1997....... 350,000 1,572,471 597,958 597,958 10.21 29.45
December 31, 1998....... 350,000 1,740,210 681,957 681,957 10.77 26.69
December 31, 1999....... 350,000 1,860,091 750,997 750,997 10.69 24.08
</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-55
<PAGE>
$1,051,000 FACE AMOUNT
OPTION 2 DEATH BENEFIT
GUIDELINE PREMIUM TEST WITH IRS CORRIDOR
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1983....... 50,000 1,099,528 48,528 52,528 15.23% --
December 31, 1984....... 100,000 1,143,395 92,395 96,395 -4.26 846.24%
December 31, 1985....... 150,000 1,258,990 207,990 207,990 25.80 245.13
December 31, 1986....... 200,000 1,499,153 448,153 448,153 47.25 136.64
December 31, 1987....... 250,000 1,766,087 715,087 715,087 47.12 93.76
December 31, 1988....... 300,000 1,743,802 692,802 692,802 29.69 64.72
December 31, 1989....... 350,000 1,996,984 945,984 945,984 29.46 52.37
December 31, 1990....... 350,000 1,951,822 900,822 900,822 22.07 40.98
December 31, 1991....... 350,000 2,712,928 1,377,121 1,377,121 26.59 40.68
December 31, 1992....... 350,000 2,453,391 1,284,498 1,284,498 21.32 32.63
December 31, 1993....... 350,000 2,712,560 1,466,249 1,466,249 20.41 29.78
December 31, 1994....... 350,000 2,394,198 1,343,198 1,343,198 16.81 24.49
December 31, 1995....... 350,000 3,183,995 1,861,985 1,861,985 18.83 25.30
December 31, 1996....... 350,000 3,657,225 2,230,015 2,230,015 18.91 24.33
December 31, 1997....... 350,000 4,294,437 2,735,310 2,735,310 19.22 23.75
December 31, 1998....... 350,000 5,466,391 3,644,261 3,644,261 20.24 24.01
December 31, 1999....... 350,000 6,117,109 4,189,800 4,189,800 19.86 23.12
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1983....... 50,000 1,096,914 45,914 49,914 -0.49% --
December 31, 1984....... 100,000 1,150,190 99,190 103,190 3.75 850.73%
December 31, 1985....... 150,000 1,214,799 163,799 163,799 6.64 239.06
December 31, 1986....... 200,000 1,283,051 232,051 232,051 8.15 123.51
December 31, 1987....... 250,000 1,331,207 280,207 280,207 4.88 78.38
December 31, 1988....... 300,000 1,397,371 346,371 346,371 5.05 55.98
December 31, 1989....... 350,000 1,482,550 431,550 431,550 6.22 43.08
December 31, 1990....... 350,000 1,512,995 461,995 461,995 6.40 34.64
December 31, 1991....... 350,000 1,590,679 539,679 539,679 8.18 29.53
December 31, 1992....... 350,000 1,629,330 578,330 578,330 8.03 25.41
December 31, 1993....... 350,000 1,696,330 645,330 645,330 8.49 22.59
December 31, 1994....... 350,000 1,667,478 616,478 616,478 6.90 19.65
December 31, 1995....... 350,000 1,793,039 742,039 742,039 8.23 18.38
December 31, 1996....... 350,000 1,820,394 769,394 769,394 7.79 16.74
December 31, 1997....... 350,000 1,896,861 845,861 845,861 7.97 15.63
December 31, 1998....... 350,000 1,965,758 914,758 914,758 7.99 14.65
December 31, 1999....... 350,000 1,953,999 902,999 902,999 7.28 13.48
</TABLE>
A-56
<PAGE>
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1983....... 50,000 1,097,025 46,025 50,025 0.14% --
December 31, 1984....... 100,000 1,147,222 96,222 100,222 0.26 848.77%
December 31, 1985....... 150,000 1,199,637 148,637 148,637 -0.68 236.94
December 31, 1986....... 200,000 1,253,439 202,439 202,439 0.66 121.59
December 31, 1987....... 250,000 1,310,010 259,010 259,010 1.51 77.53
December 31, 1988....... 300,000 1,372,686 321,686 321,686 2.45 55.29
December 31, 1989....... 350,000 1,444,829 393,829 393,829 3.51 42.29
December 31, 1990....... 350,000 1,472,558 421,558 421,558 4.29 33.97
December 31, 1991....... 350,000 1,494,132 443,132 443,132 4.44 28.25
December 31, 1992....... 350,000 1,506,163 455,163 455,163 4.17 24.05
December 31, 1993....... 350,000 1,514,728 463,728 463,728 3.86 20.89
December 31, 1994....... 350,000 1,528,190 477,190 477,190 3.75 18.50
December 31, 1995....... 350,000 1,549,936 498,936 498,936 3.83 16.67
December 31, 1996....... 350,000 1,569,839 518,839 518,839 3.85 15.17
December 31, 1997....... 350,000 1,591,856 540,856 540,856 3.88 13.94
December 31, 1998....... 350,000 1,614,552 563,552 563,552 3.91 12.91
December 31, 1999....... 350,000 1,636,567 585,567 585,567 3.91 12.03
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1987....... 50,000 1,089,872 38,872 42,872 -20.55% --
December 31, 1988....... 100,000 1,142,944 91,944 95,944 -3.49 494.38%
December 31, 1989....... 150,000 1,225,118 174,118 174,118 9.18 187.02
December 31, 1990....... 200,000 1,258,230 207,230 207,230 1.64 103.71
December 31, 1991....... 250,000 1,368,335 317,335 317,335 9.04 70.84
December 31, 1992....... 300,000 1,436,023 385,023 385,023 7.91 51.86
December 31, 1993....... 350,000 1,517,377 466,377 466,377 7.81 40.45
December 31, 1994....... 350,000 1,517,752 466,752 466,752 6.20 32.50
December 31, 1995....... 350,000 1,689,318 638,318 638,318 10.77 29.08
December 31, 1996....... 350,000 1,820,088 769,088 769,088 12.09 26.05
December 31, 1997....... 350,000 2,061,941 1,010,941 1,010,941 14.30 24.48
December 31, 1998....... 350,000 2,334,752 1,283,752 1,283,752 15.62 23.25
December 31, 1999....... 350,000 2,624,019 1,534,514 1,534,514 15.99 22.17
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1987....... 50,000 1,094,989 43,989 47,989 -5.96% --
December 31, 1988....... 100,000 1,145,294 94,294 98,294 -1.46 495.18%
December 31, 1989....... 150,000 1,213,768 162,768 162,768 4.97 185.85
December 31, 1990....... 200,000 1,263,442 212,442 212,442 2.80 103.99
December 31, 1991....... 250,000 1,353,279 302,279 302,279 7.18 70.32
December 31, 1992....... 300,000 1,418,738 367,738 367,738 6.45 51.43
December 31, 1993....... 350,000 1,501,187 450,187 450,187 6.85 40.15
December 31, 1994....... 350,000 1,491,432 440,432 440,432 4.94 32.09
December 31, 1995....... 350,000 1,626,998 575,998 575,998 8.91 28.35
December 31, 1996....... 350,000 1,704,000 653,000 653,000 9.53 24.95
December 31, 1997....... 350,000 1,870,400 819,400 819,400 11.39 23.06
December 31, 1998....... 350,000 2,023,548 972,548 972,548 12.17 21.39
December 31, 1999....... 350,000 2,112,190 1,061,190 1,061,190 11.87 19.64
</TABLE>
A-57
<PAGE>
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1993....... 50,000 1,101,519 50,519 54,519 13.76% --
December 31, 1994....... 100,000 1,145,017 94,017 98,017 -1.70 493.19%
December 31, 1995....... 150,000 1,232,920 181,920 181,920 11.95 187.46
December 31, 1996....... 200,000 1,313,185 262,185 262,185 12.81 106.53
December 31, 1997....... 250,000 1,453,328 402,328 402,328 18.25 73.62
December 31, 1998....... 300,000 1,595,664 544,664 544,664 19.03 55.59
December 31, 1999....... 350,000 1,687,186 636,186 636,186 16.25 43.47
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1993....... 50,000 1,101,741 50,741 54,741 14.45% --
December 31, 1994....... 100,000 1,145,865 94,865 98,865 -0.97 493.47%
December 31, 1995....... 150,000 1,228,040 177,040 177,040 10.22 186.96
December 31, 1996....... 200,000 1,304,535 253,535 253,535 11.18 106.07
December 31, 1997....... 250,000 1,398,201 347,201 347,201 12.50 71.79
December 31, 1998....... 300,000 1,412,951 361,951 361,951 5.94 51.25
December 31, 1999....... 350,000 1,452,590 401,590 401,590 3.74 39.18
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1994....... 50,000 1,093,483 42,483 46,483 -10.38% --
December 31, 1995....... 100,000 1,158,932 107,932 111,932 10.04 501.76%
December 31, 1996....... 150,000 1,241,635 190,635 190,635 15.03 189.10
December 31, 1997....... 200,000 1,342,354 291,354 291,354 18.03 108.35
December 31, 1998....... 250,000 1,374,396 323,396 323,396 9.78 71.12
December 31, 1999....... 300,000 1,534,050 483,050 483,050 15.18 54.26
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1994....... 50,000 1,095,646 44,646 48,646 -15.15% --
December 31, 1995....... 100,000 1,152,801 101,801 105,801 8.68 1,285.86%
December 31, 1996....... 150,000 1,214,852 163,852 163,852 7.69 282.09
December 31, 1997....... 200,000 1,285,273 234,273 234,273 9.61 136.81
December 31, 1998....... 250,000 1,351,179 300,179 300,179 8.48 85.15
December 31, 1999....... 300,000 1,377,395 326,395 326,395 3.16 58.68
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1994....... 50,000 1,096,723 45,723 49,723 -3.28% --
December 31, 1995....... 100,000 1,146,467 95,467 99,467 -0.80 1,278.93%
December 31, 1996....... 150,000 1,196,835 145,835 145,835 -2.40 279.05
December 31, 1997....... 200,000 1,237,093 186,093 186,093 -4.30 133.31
December 31, 1998....... 250,000 1,294,312 243,312 243,312 -1.25 82.70
December 31, 1999....... 300,000 1,400,634 349,634 349,634 5.73 59.37
</TABLE>
A-58
<PAGE>
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1994....... 50,000 1,094,300 43,300 47,300 -28.27% --
December 31, 1995....... 100,000 1,157,400 106,400 110,400 15.54 1,290.88%
December 31, 1996....... 150,000 1,230,324 179,324 179,324 15.82 284.69
December 31, 1997....... 200,000 1,334,306 283,306 283,306 21.50 140.28
December 31, 1998....... 250,000 1,420,609 369,609 369,609 18.24 88.04
December 31, 1999....... 300,000 1,529,403 478,403 478,403 17.46 63.01
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1994....... 50,000 1,093,268 42,268 46,268 -37.14% --
December 31, 1995....... 100,000 1,157,658 106,658 110,658 15.92 1,291.16%
December 31, 1996....... 150,000 1,216,174 165,174 165,174 8.41 282.32
December 31, 1997....... 200,000 1,301,804 250,804 250,804 13.83 137.99
December 31, 1998....... 250,000 1,471,659 420,659 420,659 24.40 90.08
December 31, 1999....... 300,000 1,662,209 611,209 611,209 26.71 66.49
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 50,000 $1,095,906 $ 44,906 $ 44,906 -- --
December 31, 1999....... 50,000 1,096,420 45,420 45,420 -13.33% --
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 50,000 $1,095,906 $ 44,906 $ 44,906 -- --
December 31, 1999....... 50,000 1,103,947 52,947 52,947 8.91% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1997....... 50,000 1,107,613 56,613 60,613 26.10% --
December 31, 1998....... 100,000 1,184,273 133,273 137,273 26.25 411.25%
December 31, 1999....... 150,000 1,440,990 389,990 389,990 61.73 186.06
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1998....... 50,000 1,098,288 47,288 51,288 19.54% --
December 31, 1999....... 100,000 1,158,691 107,691 107,691 11.95 1,378.80%
</TABLE>
A-59
<PAGE>
VIP EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1986....... 50,000 1,095,830 44,830 48,830 -9.89% --
December 31, 1987....... 100,000 1,131,421 80,421 84,421 -21.57 1,088.78%
December 31, 1988....... 150,000 1,192,074 141,074 141,074 -4.94 262.75
December 31, 1989....... 200,000 1,260,371 209,371 209,371 2.66 130.43
December 31, 1990....... 250,000 1,272,151 221,151 221,151 -5.49 79.73
December 31, 1991....... 300,000 1,386,656 335,656 335,656 4.11 57.83
December 31, 1992....... 350,000 1,489,063 438,063 438,063 6.91 44.59
December 31, 1993....... 350,000 1,564,358 513,358 513,358 9.09 36.39
December 31, 1994....... 350,000 1,594,811 543,811 543,811 8.52 30.23
December 31, 1995....... 350,000 1,783,506 732,506 732,506 12.12 27.50
December 31, 1996....... 350,000 1,877,311 826,311 826,311 12.21 24.53
December 31, 1997....... 350,000 2,101,287 1,050,287 1,050,287 13.83 23.07
December 31, 1998....... 350,000 2,214,601 1,163,601 1,163,601 13.51 21.17
December 31, 1999....... 350,000 2,279,231 1,228,231 1,228,231 12.74 19.38
VIP OVERSEAS SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1987....... 50,000 1,092,546 41,546 45,546 -9.61% --
December 31, 1988....... 100,000 1,145,887 94,887 98,887 -0.78 360.04%
December 31, 1989....... 150,000 1,220,657 169,657 169,657 6.54 157.38
December 31, 1990....... 200,000 1,261,011 210,011 210,011 2.03 92.56
December 31, 1991....... 250,000 1,323,598 272,598 272,598 2.97 63.47
December 31, 1992....... 300,000 1,330,932 279,932 279,932 -2.02 45.80
December 31, 1993....... 350,000 1,490,589 439,589 439,589 5.81 37.63
December 31, 1994....... 350,000 1,491,471 440,471 440,471 4.69 30.53
December 31, 1995....... 350,000 1,534,980 483,980 483,980 5.52 26.09
December 31, 1996....... 350,000 1,589,702 538,702 538,702 6.31 22.94
December 31, 1997....... 350,000 1,646,247 595,247 595,247 6.81 20.53
December 31, 1998....... 350,000 1,715,954 664,954 664,954 7.34 18.72
December 31, 1999....... 350,000 1,991,010 940,010 940,010 10.26 18.47
VIP HIGH INCOME SUB-ACCOUNT
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- --------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1985....... 50,000 1,098,494 47,494 51,494 11.00% --
December 31, 1986....... 100,000 1,152,856 101,856 105,856 7.46 978.55%
December 31, 1987....... 150,000 1,196,840 145,840 145,840 -2.18 250.63
December 31, 1988....... 200,000 1,257,342 206,342 206,342 1.76 126.29
December 31, 1989....... 250,000 1,289,233 238,233 238,233 -2.11 78.71
December 31, 1990....... 300,000 1,325,673 274,673 274,673 -3.17 55.06
December 31, 1991....... 350,000 1,465,302 414,302 414,302 5.11 43.45
December 31, 1992....... 350,000 1,556,467 505,467 505,467 8.62 35.83
December 31, 1993....... 350,000 1,654,032 603,032 603,032 10.44 30.69
December 31, 1994....... 350,000 1,639,871 588,871 588,871 8.41 25.79
December 31, 1995....... 350,000 1,755,966 704,966 704,966 9.83 23.32
December 31, 1996....... 350,000 1,846,038 795,038 795,038 10.16 21.17
December 31, 1997....... 350,000 1,978,820 927,820 927,820 10.82 19.69
December 31, 1998....... 350,000 1,931,491 880,491 880,491 9.22 17.48
December 31, 1999....... 350,000 1,995,606 944,606 944,606 9.05 16.22
</TABLE>
A-60
<PAGE>
VIP II ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 50,000 $1,095,906 $ 44,906 $ 48,906 -- --
December 31, 1989....... 50,000 1,096,230 45,230 49,230 -4.76% --
December 31, 1990....... 100,000 1,145,562 94,562 98,562 -1.76 901.59%
December 31, 1991....... 150,000 1,211,980 160,980 160,980 5.43 245.01
December 31, 1992....... 200,000 1,275,271 224,271 224,271 6.36 125.03
December 31, 1993....... 250,000 1,368,050 317,050 317,050 10.33 80.79
December 31, 1994....... 300,000 1,387,548 336,548 336,548 4.08 56.23
December 31, 1995....... 350,000 1,489,872 438,872 438,872 6.78 43.57
December 31, 1996....... 350,000 1,547,881 496,881 496,881 8.15 35.43
December 31, 1997....... 350,000 1,644,978 593,978 593,978 10.08 30.38
December 31, 1998....... 350,000 1,728,297 677,297 677,297 10.66 26.57
December 31, 1999....... 350,000 1,796,903 745,903 745,903 10.59 23.56
</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-61
<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 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 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: HISTORIC S&P STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index with dividends reinvested, over one-year, five-year and
twenty-year periods beginning in 1926 and ending 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-62
<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-63
<PAGE>
APPENDIX D
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distribu-
tions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income
included in First No* Yes Yes Yes
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by
Age 70 1/2 No No Yes Yes
Maximum Annual Distribution
Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
----------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
This appendix is not tax advice. You should consult with your own tax
advisor for more complete information.
A-64
<PAGE>
APPENDIX E
CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit will not be less than what is
required by the "cash value accumulation test" under Section 7702(a)(1) of the
Internal Revenue Code, or the "guideline premium test" under Section
7702(a)(2) of the Internal Revenue Code, as selected by you when the Policy is
issued. The test you choose at issue will be used for the life of the Policy.
(See "Death Benefit".)
For the cash value accumulation test, sample net single premiums for
selected ages of male and female insureds are listed below.
<TABLE>
<CAPTION>
NET SINGLE PREMIUM
--------------------
AGE MALE FEMALE
--- --------- ----------
<S> <C> <C>
30...................................................... 0.2130 0.1818
40...................................................... 0.2961 0.2532
50...................................................... 0.4037 0.3458
60...................................................... 0.5328 0.4627
70...................................................... 0.6710 0.6060
80...................................................... 0.7949 0.7571
90...................................................... 0.8853 0.8760
100...................................................... 1.0000 1.0000
</TABLE>
Listed below are Enhanced Net Single Premium Factors used for the Enhanced
Net Single Premium Corridor.
<TABLE>
<CAPTION>
ENHANCED ENHANCED
NET SINGLE NET SINGLE
AGE PREMIUM FACTOR AGE PREMIUM FACTOR
--- -------------- --------------- --------------
<S> <C> <C> <C>
0 through 75 1.00 83 0.93
76 0.98 84 0.94
77 0.96 85 0.95
78 0.94 86 0.96
79 0.92 87 0.97
80 0.90 88 0.98
81 0.91 89 0.99
82 0.92 90 through 100 1.00
</TABLE>
If you choose the Enhanced Net Single Premium Corridor, the net single
premium is multiplied by the applicable enhanced net single premium factor
listed above. The cash value is divided by that result.
A-65
<PAGE>
For the guideline premium test, Table I and Table II show the percentage of
the Policy's cash value that is used to determine the death benefit.
TABLE I -- IRS CORRIDOR
<TABLE>
<CAPTION>
AGE OF
AGE OF INSURED AT
INSURED AT START OF PERCENTAGE OF START OF PERCENTAGE OF
THE POLICY YEAR CASH VALUE* THE POLICY YEAR CASH VALUE*
------------------- ------------- --------------- -------------
<S> <C> <C> <C>
0 through 40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 through 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 through 99 101
59 134 100+ 100
60 130
</TABLE>
----------
* including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death.
TABLE II -- ENHANCED CORRIDOR
<TABLE>
<CAPTION>
AGE OF AGE OF AGE OF
INSURED AT START OF PERCENTAGE OF INSURED AT START OF PERCENTAGE OF INSURED AT START OF PERCENTAGE OF
THE POLICY YEAR CASH VALUE* THE POLICY YEAR CASH VALUE* THE POLICY YEAR CASH VALUE*
------------------- ------------- ------------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
0 through 40 250 61 128 81 115
41 243 62 126 82 114
42 236 63 124 83 113
43 229 64 122 84 112
44 222 65 120 85 111
45 215 66 119 86 109
46 209 67 118 87 108
47 203 68 117 88 107
48 197 69 116 89 106
49 191 70 115 90 105
50 185 71 113 91 104
51 178 72 111 92 103
52 171 73 109 93 102
53 164 74 107 94 through 99 101
54 157 75 105 100+ 100
55 150 76 107
56 146 77 109
57 142 78 112
58 138 79 114
59 134 80 117
60 130
</TABLE>
--------
*including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death.
A-66
<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 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 Executive Advantage 2000
Prospectus dated May 1, 2000. This Variable Life policy is offered by New
England Life Insurance Company.
------------------------------------- -------------------------------------
(Date) (Client's Signature)
