<PAGE>
As filed with Securities and Exchange Commission on
April 27, 2000
Registration No. 33-66864
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 12
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
_________________________
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
NEW ENGLAND LIFE INSURANCE COMPANY
(Name of Depositor)
501 Boylston Street
Boston, Massachusetts 02117
(Address of depositor's principal executive offices)
_________________________
MARIE C. SWIFT
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
_________________________
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Units of Interest in Flexible Premium
Adjustable Variable Survivorship Life Insurance Policies.
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross-Reference Sheet
Form N-8B-2
Item No. Caption in Prospectus
- ----------- ---------------------
1 Cover Page
2 Cover Page
3 Inapplicable
4 NELICO's Distribution Agreement
5 NELICO
6 The Variable Account
9 Inapplicable
10(a) Other Policy Features
10(b) Policy Values and Benefits
10(c), (d), (e) Death Benefit; Cash Value; Exchange of Policy During First 24
Months; Lapse and Reinstatement; Surrender; Partial Surrender;
Right to Return the Policy; Loan Provision; Transfer Option;
Premiums
10(f), (g), (h) Voting Rights; Rights Reserved by NELICO
10(i) Limits to NELICO's Right to Challenge the Policy; Payment of
Proceeds; Investment Options
11 The Variable Account
12 Investments of the Variable Account; NELICO's Distribution
Agreement
13 Charges and Expenses; NELICO's Distribution Agreement; Charge
for NELICO's Income Taxes; Appendix A
14 Amount Provided for Investment Under the Policy; NELICO's
Distribution Agreement
15 Premiums
16 Investments of the Variable Account
17 Captions referenced under Items 10(c), (d), (e) and (i) above
18 The Variable Account; Net Investment Experience
19 Reports; NELICO's Distribution Agreement
20 Captions referenced under Items 6 and 10(g) above
21 Loan Provision
22 Inapplicable
23 NELICO's Distribution Agreement
24 Limits to NELICO's Right to Challenge the Policy
25 NELICO
26 NELICO's Distribution Agreement
<PAGE>
Form N-8B-2
Item No. Caption in Prospectus
- ------------- ---------------------
27 NELICO
28 Management
29 NELICO
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 NELICO's Distribution Agreement
35 NELICO
36 Inapplicable
37 Inapplicable
38 NELICO's Distribution Agreement
39 NELICO's Distribution Agreement
40 NELICO's Distribution Agreement
41(a) NELICO's Distribution Agreement
42 Inapplicable
43 Inapplicable
44(a) Investments of the Variable Account; Amount Provided for
Investment Under the Policy; Deductions from Premiums; Flexible
Premiums
44(b) Charges and Expenses
44(c) Flexible Premiums; Deductions from Premiums
45 Inapplicable
46 Investments of the Variable Account; Captions referenced under
Items 10(c), (d) and (e) above
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Cover Page; Death Benefit; Lapse and Reinstatement; Charges and
Expenses; Additional Benefits by Rider; Exchange of Policy During
First 24 Months; Payment Options; Policy Owner and Beneficiary;
Premiums; NELICO's Distribution Agreement
52 Rights Reserved by NELICO
53 Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
ZENITH SURVIVORSHIP LIFE
Supplement dated May 1, 2000
To Prospectus dated May 1, 2000
We deduct a 9% sales charge from premiums. We currently intend to waive this
charge for your Policy:
- -- on all premiums after the 15th Policy year (after the 17th Policy year if
we issued the Policy in Pennsylvania)
- -- on the amount of premiums you pay in a Policy year that exceed a Benchmark
Premium. Certain Policy riders increase the Benchmark Premium for this
purpose.
(When we determine the sales charge, we consider premiums we receive during
the 20 days prior to a Policy anniversary as paid in the next Policy year.
This rule does not apply, however, to premiums paid through our Master Service
Account arrangement.) The Benchmark Premium is defined in the Glossary section
of the Zenith Survivorship Life prospectus supplement booklet that accompanies
this supplement.
VL-148-00
<PAGE>
ZENITH SURVIVORSHIP LIFE
Flexible Premium Adjustable
Variable Survivorship Life Insurance Policies
Issued by
New England Variable Life Separate Account of
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus offers individual flexible premium adjustable variable
survivorship life insurance policies (the "Policies") issued by New England
Life Insurance Company ("NELICO").
The Policy provides premium flexibility and two types of death benefit
guarantees as long as your total premiums paid meet certain minimum
requirements and no policy loan is outstanding. Insurance coverage is provided
on the lives of two insureds. The death benefit is payable at the death of the
second to die.
You may choose among four death benefit options. Two provide a fixed death
benefit equal to the Policy's face amount. Two provide a death benefit that may
vary daily with the investment experience of the Eligible Funds. Under any of
the death benefit options, the minimum death benefit guarantee(s) are
available. Cash value allocated to the Eligible Funds is not guaranteed, and
fluctuates daily with the investment results of the Eligible Funds.
You allocate net premiums among the investment sub-accounts of NELICO's
Variable Life Separate Account (the "Variable Account"). Each sub-account of
the Variable Account invests in shares of an Eligible Fund. The Eligible Funds
are:
NEW ENGLAND ZENITH FUND MFS Research Managers Series
Back Bay Advisors Bond Income Series METROPOLITAN SERIES FUND, INC.
Back Bay Advisors Managed Series
Back Bay Advisors Money Market Putnam Large Cap Growth Portfolio*
Series Janus Mid Cap Portfolio*
Capital Growth Series Russell 2000(R) Index Portfolio*
Westpeak Growth and Income Series
Westpeak Stock Index Series VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Balanced Series
Loomis Sayles Small Cap Series Overseas Portfolio
Alger Equity Growth Series
Davis Venture Value Series Equity-Income Portfolio
Harris Oakmark Mid Cap Value Series High Income Portfolio
Morgan Stanley International
Magnum Equity Series VARIABLE INSURANCE PRODUCTS FUND II
MFS Investors Series ("VIP II")
Asset Manager Portfolio.
You may also allocate net premiums to a Fixed Account in most states. Limits
apply to transfers to and from the Fixed Account.
You may cancel the Policy during the "Right to Return the Policy" period. 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>
<S> <C>
GLOSSARY................................................................. A-4
INTRODUCTION TO THE POLICIES............................................. A-6
The Policies............................................................ A-6
Availability of the Policy.............................................. A-8
Policy Charges.......................................................... A-8
How the Policy Works.................................................... A-10
Receipt of Communications and Payments at NELICO's Home Office.......... A-11
NELICO.................................................................. A-11
POLICY VALUES AND BENEFITS............................................... A-12
Death Benefit........................................................... A-12
Minimum Guaranteed Death Benefit........................................ A-12
Death Proceeds Payable.................................................. A-14
Change in Death Benefit Option.......................................... A-14
Extending the Maturity Date............................................. A-14
Cash Value.............................................................. A-15
Net Investment Experience............................................... A-15
Allocation of Net Premiums.............................................. A-15
Amount Provided for Investment under the Policy......................... A-15
Right to Return the Policy.............................................. A-16
CHARGES AND EXPENSES..................................................... A-16
Deductions from Premiums................................................ A-17
Surrender Charge........................................................ A-18
Monthly Deduction from Cash Value....................................... A-20
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-21
Group or Sponsored Arrangements......................................... A-23
PREMIUMS................................................................. A-24
Flexible Premiums....................................................... A-24
Lapse and Reinstatement................................................. A-25
OTHER POLICY FEATURES.................................................... A-26
Loan Provision.......................................................... A-26
Surrender............................................................... A-27
Partial Surrender....................................................... A-27
Reduction in Face Amount................................................ A-28
Investment Options...................................................... A-28
Transfer Option......................................................... A-29
Dollar Cost Averaging................................................... A-29
Asset Rebalancing....................................................... A-30
Payment of Proceeds..................................................... A-30
Exchange of Policy During First 24 Months............................... A-30
Policy Split Rider...................................................... A-31
Payment Options......................................................... A-31
Additional Benefits by Rider............................................ A-32
Policy Owner and Beneficiary............................................ A-32
THE VARIABLE ACCOUNT..................................................... A-33
Investments of the Variable Account..................................... A-33
Investment Management................................................... A-35
THE FIXED ACCOUNT........................................................ A-36
General Description..................................................... A-36
Values and Benefits..................................................... A-36
Policy Transactions..................................................... A-37
NELICO'S DISTRIBUTION AGREEMENT.......................................... A-37
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY........................ A-38
Notification of First Death............................................ A-38
Misstatement of Age or Sex............................................. A-38
Suicide................................................................ A-38
TAX CONSIDERATIONS...................................................... A-39
Introduction........................................................... A-39
Tax Status of the Policy............................................... A-39
Tax Treatment of Policy Benefits....................................... A-39
NELICO's Income Taxes.................................................. A-42
MANAGEMENT.............................................................. A-42
VOTING RIGHTS........................................................... A-45
RIGHTS RESERVED BY NELICO............................................... A-45
TOLL-FREE NUMBERS....................................................... A-45
REPORTS................................................................. A-46
ADVERTISING PRACTICES................................................... A-46
LEGAL MATTERS........................................................... A-46
REGISTRATION STATEMENT.................................................. A-46
EXPERTS................................................................. A-47
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH
VALUES AND ACCUMULATED SCHEDULED PREMIUMS ............................. A-48
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION........................... A-56
APPENDIX C: LONG TERM MARKET TRENDS..................................... A-80
APPENDIX D: USES OF SURVIVORSHIP LIFE INSURANCE......................... A-82
APPENDIX E: TAX INFORMATION............................................. A-83
APPENDIX F: TAX LAW AND THE DEATH BENEFIT............................... A-84
APPENDIX G: ENHANCED DEATH BENEFIT LIMITATIONS.......................... A-85
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.
BENCHMARK PREMIUM. We use the Benchmark Premium to determine the amount of
Deferred Sales Charge that may apply on a surrender, partial surrender, lapse
or face amount reduction. It is the level premium necessary to keep a level
death benefit Policy, without riders, in-force until age 80 of the younger
insured (or 20 years after issue, if later, but not later than the Maturity
Date), assuming charges are imposed at the guaranteed levels and a 4% rate of
interest.
CASH VALUE. A Policy's cash value includes the amount of its cash value held in
the Variable Account, the amount held in the Fixed Account and, if there is an
outstanding policy loan, the amount of its cash value held in our general
account as a result of the loan.
EXCESS POLICY LOAN. When Policy loans plus accrued interest exceed the Policy's
cash value less the applicable Surrender Charge.
FIXED ACCOUNT. The Fixed Account is a part of our general account to which you
may allocate net premiums. It provides guarantees of principal and interest.
INVESTMENT START DATE. This is the latest of the date we receive a premium
payment for the Policy, the date each of the insureds has signed his/her Part
II of the Policy application and the Policy Date.
MATURITY DATE. The Policy anniversary on which the younger insured is (or would
have been) age 100. The Policy will not mature on this date if the extended
maturity option has been added to the Policy.
NET CASH VALUE. The amount you receive if you surrender the Policy. It is equal
to the Policy's cash value reduced by any applicable Surrender Charge and by
any outstanding Policy loan and accrued interest.
NET INVESTMENT EXPERIENCE. For any period, a sub-account's net investment
experience equals the investment experience of the underlying Eligible Fund's
shares for the same period, reduced by the amount of charges against the sub-
account for that period.
PLANNED PREMIUM. The Planned Premium is the premium payment schedule you choose
to help meet your future goals under the Policy. The Planned Premium can be a
fixed amount or can vary over time and is subject to certain limits under the
Policy. Payments in addition to any Planned Premium are called unscheduled
payments in the Policy and can be paid at any time, subject to certain limits.
PREMIUMS. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment.
POLICY DATE. If you make a premium payment with the application, the Policy
Date is generally the later of the date each of the insureds has signed his/her
Part II of the application and receipt of the premium payment. If you choose to
pay the initial premium upon delivery of the Policy, we issue the Policy with a
Policy Date which is generally five days after issue.
TARGET PREMIUM. We use the Target Premium to measure the portion of the total
premiums paid in a Policy year that is currently subject to the 9% sales
charge, as well as sales commissions. It equals 110% of the level premium
necessary to keep a level death benefit base Policy in-force until age 80 of
the younger insured, assuming we impose charges at the guaranteed levels and a
4% rate of interest, if both insureds are a standard or better underwriting
risk. If the younger insured's issue age is above 60, this Target Premium may
be
A-4
<PAGE>
calculated using a period of less than 20, but no less than five, years. If we
assign an insured to a class below standard, the Target Premium for the Policy
will be up to 140% of the comparable Target Premium described above, depending
on the underwriting class of each insured. Certain riders increase the Target
Premium for the Policy above these amounts.
YOU. "You" refers to the Policy Owner.
A-5
<PAGE>
INTRODUCTION TO THE POLICIES
THE POLICIES
The Policies are designed to provide lifetime insurance coverage for two
insureds payable at the death of the second to die. They are not offered
primarily as an investment.
Here is a summary of the Policy's basic features. You should read the
prospectus for more complete information.
--You can make premium payments under the Policy based on a schedule you
determine, subject to some limits. We can limit or prohibit unscheduled
payments in some situations, including cases where an insured is in a
substandard risk class. (See "Premiums".)
--You can allocate net premiums, after an initial period in the Zenith Back
Bay Money Market Sub-Account, to one or more of the sub-accounts of the
Variable Account corresponding to mutual fund portfolios. (See
"Allocation of Net Premiums" and "Investment Options".)
--The mutual fund portfolios available under the Policy include several
common stock funds, including a fund which invests primarily in foreign
securities, two bond funds, two managed funds, a balanced fund, and a
money market fund. You may allocate your Policy's cash value to a maximum
of nine accounts (including the Fixed Account) at any one time. (See
"Investments of the Variable Account".)
--If the Fixed Account is available in your state, you may also allocate
funds to that account. We provide guarantees of Fixed Account principal
and Interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE FROM THE
--------------------------------------------------------
FIXED ACCOUNT. We have the right to restrict transfers of cash value and
-------------
allocations of premiums into the Fixed Account. (See "The Fixed
Account".)
--The cash value of the Policy will vary daily based on the net investment
experience of your Policy's sub-accounts and the amount of interest
credited to your Policy's cash value in the Fixed Account. (See "Cash
Value", "Charges and Expenses", "Premiums", "Loan Provision" and "Partial
Surrender".)
--The portion of the cash value in the sub-accounts is not guaranteed. You
bear the investment risk on this portion of the cash value. (See "Cash
Value".)
--You may choose among four forms of death benefit options under the
Policy. The two level options provide a death benefit equal to the
Policy's face amount. The two variable options provide a death benefit
equal to the face amount plus any cash value, which varies with the net
investment experience of your Policy's sub-accounts and the rate of
interest credited on your cash value in the Fixed Account. The death
benefit under each option could increase to satisfy tax law requirements
if the cash value reaches certain levels. One of the level and one of the
variable options provide for an enhanced increase. (See "Death Benefit".)
--Regardless of investment experience, the death benefit is guaranteed
never to be less than the Policy's face amount, as long as the total
amount of premiums paid, with interest, less any partial surrenders, with
interest, at least equals certain minimum amounts and there is no
outstanding Policy loan. (See "Death Benefit" and "Minimum Guaranteed
Death Benefit".)
--You may change your allocation of future net premiums at any time. (See
"Allocation of Net Premiums" and "Investment Options".)
--After the "Right to Return the Policy" period, the Policy allows you to
transfer cash value among the sub-accounts and, generally, to the Fixed
Account up to four times in a policy year (twelve times in a policy year
for Policies issued in New York and New Jersey) 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 loan privilege and a partial surrender feature are available. (See
"Loan Provision" and "Partial Surrender".)
A-6
<PAGE>
--Death benefits paid to the beneficiary generally are not subject to
Federal income tax. Under current law, we believe it is reasonable to
conclude that undistributed increases in cash value should not be 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 generally will not be taxable to you as long as the
Policy has not lapsed, been surrendered or terminated. With some
exceptions, other pre-death distributions under a Policy that is not a
modified endowment contract are includible in income only to the extent
they exceed your investment in the Policy. (See "Tax Considerations".)
--During the "Right to Return the Policy" period you can return the Policy
for a refund. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue, you may exchange the
Policy, without evidence of insurability, for a fixed-benefit
survivorship life insurance policy issued by us or an affiliate on the
joint lives of the insureds. If you exercise this option, you will have
to make up any investment loss. (See "Exchange of Policy During First 24
Months".)
In many respects the Policies are similar to fixed-benefit survivorship
universal life insurance. Like survivorship universal life insurance, the
Policies provide for a death benefit upon the death of the second insured,
flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit survivorship universal life
insurance in that the death benefit may, and the cash value will, vary to
reflect the investment experience of the selected sub-accounts.
The Policies are designed to provide insurance protection. Although the
underlying mutual fund portfolios invest in securities similar to those in
which mutual funds available directly to the public invest, in many ways the
Policies differ from mutual fund investments. The main differences are:
--The Policy provides a death benefit based on our assumption of an
actuarially calculated risk.
--If the net cash value is not sufficient to pay a Monthly Deduction the
Policy may lapse with no value unless you pay additional premiums. If the
Policy lapses when Policy loans are outstanding, adverse tax consequences
may result.
--In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is 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.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses of
Survivorship Life Insurance".
A-7
<PAGE>
AVAILABILITY OF THE POLICY
The Policies are available for insureds from the age of 20 to 85, and, if we
consent, to older or younger insureds. All persons must meet our underwriting
and other requirements. The minimum face amount available is $100,000 unless we
consent to a lower amount. The Policies are not available to employee benefit
plans qualified under Section 401 of the Internal Revenue Code, except with our
consent. (For a tax-qualified pension plan, the tax deferred accrual feature is
provided by the plan. Therefore, there should be reasons other than tax
deferral for acquiring a life insurance policy within a tax-qualified pension
plan.) Policies for which insurance charges do not vary based on the sex of the
insured may not be available; and use of sex-based insurance charges may not
meet requirements that apply to some employee benefit plans.
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 9%. We currently intend to waive this charge on all
premiums paid after the first 15 policy years (17 policy years, for
Policies issued in Pennsylvania). In addition, we currently intend to
deduct this charge in any Policy year (through the first 15 or 17 Policy
years, as applicable) only until you have paid an amount equal to a
Target Premium in that Policy year. Premium payments during a Policy year
above a Target Premium will not incur the sales charge;
--A state premium tax charge of 2.5%;
--A charge for federal taxes of 1%.
SURRENDER CHARGE. The Surrender Charge includes:
--A deferred administrative charge. This charge applies to a lapse,
surrender, face amount reduction or partial surrender that reduces the
face amount during the first 14 Policy years. This charge is $4.00 per
$1,000 of face amount for the first five Policy years, and then reduces
monthly until it reaches $2.00 at the end of the tenth Policy year and 0
at the end of the 14th Policy year. The charge may be less if the average
of the issue ages is greater than 60.
--A deferred sales charge. This charge applies to a lapse, surrender, face
amount reduction or partial surrender that reduces the face amount during
the first 14 Policy years. For Policies covering insureds whose average
issue age is 60 or less at issue, the maximum Deferred Sales Charge
applies in Policy years three through five. The maximum Deferred Sales
Charge in those years equals 41% of one Benchmark Premium plus 41% of a
second Benchmark Premium and 8% of a third Benchmark Premium. The
Deferred Sales Charge will never be more than $30 per $1,000 of face
amount. After the fifth Policy year, the maximum Deferred Sales Charge
declines on a monthly basis until it reaches 0% in the last month of the
fourteenth Policy year. If you lapse or surrender the Policy, reduce its
face amount, or make a partial surrender that reduces the face amount in
the first two Policy years, the maximum Deferred Sales Charge will be 21%
of one Benchmark Premium. The charge may be less if the average of the
issue ages is above 60.
We deduct the Surrender Charge from the Policy's available cash value,
regardless of whether that cash value comes from premiums or investment
experience.
MONTHLY DEDUCTION FROM CASH VALUE. We deduct certain charges from the cash
value:
--Monthly charge for the cost of insurance and for any benefits provided by
rider;
--Monthly administrative charge, equal to: (1) $0.16 per $1,000 of face
amount for the first Policy year; (2) currently, in Policy years two
through ten, $0.05 per $1,000 of face amount for two insureds who are
each in a standard or better underwriting class, $0.075 per $1,000 if
only one insured is in a standard or better class, and $0.10 per $1,000
if neither insured is in a standard or better class
A-8
<PAGE>
(guaranteed not to exceed $0.10 per $1,000 for all Policies); and (3)
currently, in Policy years 11 and after, $0.03 per $1,000 (guaranteed not
to exceed $0.10 per $1,000). Currently, we intend to apply this charge to
no more than $4 million of Policy face amount beginning in the second
Policy year;
--Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of
face amount;
--Monthly policy fee, currently equal to $5.00 per month (guaranteed not to
exceed $7.50 per month).
CHARGES DEDUCTED FROM THE VARIABLE ACCOUNT AND THE ELIGIBLE FUNDS. The
following charges are deducted from the Variable Account and Eligible Fund
assets:
--Daily charge against the sub-account assets for our mortality and expense
risk, currently equal to an annual rate of .75% (guaranteed not to exceed
.90%);
--Daily charges against the Eligible Fund portfolios for investment
advisory services and fund operating expenses.
See "Charges and Expenses".
A-9
<PAGE>
HOW THE POLICY WORKS
[CHART APPEARS HERE]
PREMIUM PAYMENTS
. Flexible
. Planned premium options
-Minimum premium (in first three Policy years)
-Guaranteed Death Benefit 2 Premium (to age 80)
-Guaranteed Death Benefit 1 Premium (to age 100)
CHARGES FROM PREMIUM PAYMENTS
. Sales Load: 9.00% up to Target Premium; currently 0% above Target. We intend
to waive after 15 policy yrs. (17 policy years in PA)
. State Premium Tax Charge: 2.5%
. Charge for Federal Taxes: 1%
LOANS
. After the free look period, you may borrow a portion of your cash value
. Loan interest charge is 5.5%. We transfer loaned funds out of the Eligible
Funds into the General Account where we credit them with not less than 4.0%
interest. (Currently we intend to credit 5.0% interest after 15 policy
years.)
RETIREMENT BENEFITS
. Fixed settlement options are available for policy proceeds
CASH VALUES
. Net premium payments invested in your choice of Eligible Fund investments
(after an initial period in the Zenith Money Market Sub-Account) or the Fixed
Account
. The cash value reflects investment experience, interest, premium payments,
policy charges and any distributions from the Policy
. We do not guarantee the cash value invested in the Eligible Funds
. Any earnings you accumulate are generally free of any current income taxes
. You may change the allocation of future net premiums at any time. You may
currently transfer funds among investment options (and to the Fixed
Account) after the free look period. Currently we do not limit the number of
sub-account transfers you can make in a Policy year.
. We limit the timing, frequency and amount of transfers from (and in some
cases to) the Fixed Account
. You may allocate your cash value among a maximum of nine accounts at any one
time
DEATH BENEFIT
. Paid upon the 2nd death
. Level or Variable Death Benefit Options
. Guaranteed not to be less than initial face amount (less any loan balance) if
Death Benefit Guarantee is in effect
. Income tax free to named beneficiary
DAILY DEDUCTIONS FROM ASSETS
. Mortality and expense risk charges of .75% (guaranteed not to exceed .90%)
on an annual basis are deducted from the cash value
. Investment advisory fees and other expenses are deducted from the Eligible
Fund values
BEGINNING OF MONTH CHARGES
. We deduct the cost of insurance protection (reflecting any substandard risk
rating) from the cash value each month
. Any Rider Charges
. Policy Fee: $5.00 (not to exceed $7.50) per month
. Minimum Death Benefit Guarantee Charge: $.01 per $1000 face amount monthly
. Administrative Charge: $0.16 per $1000 of face amount monthly in the first
year; $0.05 per $1000 monthly for two Standard insureds [$0.075 for
Standard/(Substandard or Uninsurable) or $0.10 for Substandard/(Substandard
or Uninsurable)] in years 2-10; and $0.03 per $1000 monthly in subsequent
years. On a guaranteed basis, the Administration Charge is $0.16 per $1000 of
face amount in the first year and $0.10 per $1000 in subsequent years.
SURRENDER CHARGES
. Deferred Sales Charge and Deferred Administrative Charge (see page A-18)
LIVING BENEFITS
. If policyholder has elected and qualified for benefits for disability of
covered insured who becomes totally disabled, we will provide specified
premium amounts or waive monthly charges, depending on the option selected,
during the period of disability up to certain limits.
. You may surrender the Policy at any time for its cash surrender value
. Deferred income taxes, including taxes on certain amounts borrowed, become
payable upon surrender
. Grace period for lapsing with no value is 62 days from the first date in
which Monthly Deduction was not paid due to insufficient cash value
. Subject to our rules, you may reinstate a lapsed Policy within seven years
of date of lapse if it has not been surrendered
A-10
<PAGE>
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S HOME OFFICE
We will treat your request for a Policy transaction, or your submission of a
payment, as received by us if we receive a request conforming to our
administrative procedures or a payment before the close of regular trading on
the New York Stock Exchange on that day. If we receive it after that time, or
if the New York Stock Exchange is not open that day, then we will treat it as
received on the next day when the New York Stock Exchange is open.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980 and
is licensed to sell life insurance in all states, the District of Columbia and
Puerto Rico. Originally, NELICO was a wholly-owned subsidiary of New England
Mutual Life Insurance Company ("New England Mutual"). On August 30, 1996, New
England Mutual merged into 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.
The following chart illustrates the relationship of NELICO, the Fixed Account,
the Variable Account and the Eligible Funds.
[CHART APPEARS HERE]
NELICO
(Insurance company subsidiary of MetLife)
We deduct charges.
We allocate net premiums and net unscheduled payments to your choice of
sub-accounts in the Variable Account or to the Fixed Account.
Premiums and Unscheduled Payments
Fixed Account
VARIABLE ACCOUNT
Zenith Capital Growth Sub-Account
Zenith Back Bay Bond Income Sub-Account
Zenith Back Bay Money Market Sub-Account
Zenith Back Bay Managed Sub-Account
Zenith Westpeak Stock Index Sub-Account
Zenith Westpeak Growth and Income Sub-Account
Zenith Loomis Sayles Small Cap Sub-Account
Zenith Balanced Sub-Account
Zenith Alger Equity Growth Sub-Account
Zenith Davis Venture Value Sub-Account
Zenith Harris Oakmark Mid Cap Value Sub-Account
Zenith Morgan Stanley International Magnum Equity Sub-Account
Zenith MFS Investors Sub-Account
Zenith MFS Research Managers Sub-Account
Metropolitan Putnam Large Cap Growth Sub-Account
Metropolitan Janus Mid Cap Sub-Account
Metropolitan Russell 2000 Index Sub-Account
VIP Equity-Income Sub-Account
VIP Overseas Sub-Account
VIP High Income Sub-Account
VIP II Asset Manager Sub-Account
Sub-accounts buy shares of the Eligible Funds.
NEW ENGLAND ZENITH FUND
Capital Growth Series
Back Bay Advisors Bond Income Series
Back Bay Advisors Money Market Series
Back Bay Advisors Managed Series
Westpeak Stock Index Series
Westpeak Growth and Income Series
Loomis Sayles Small Cap Series
Balanced Series
Alger Equity Growth Series
Davis Venture Value Series
Harris Oakmark Mid Cap Value Series
Morgan Stanley International Magnum Equity Series
MFS Investors Series
MFS Research Managers Series
METROPOLITAN SERIES FUND, INC.*
Putnam Large Cap Growth Portfolio
Janus Mid Cap Portfolio
Russell 2000 Index Portfolio
VIP
Equity-Income Portfolio
Overseas Portfolio
High Income Portfolio
VIP II
Asset Manager Portfolio
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
- ---------------
* Availability of the Portfolios of the Metropolitan Series Fund, Inc. is
subject to any necessary state insurance department approvals.
A-11
<PAGE>
POLICY VALUES AND BENEFITS
DEATH BENEFIT
DEATH BENEFIT OPTIONS. When you apply for a Policy, you choose among four death
benefit options. The death benefit is payable to the beneficiary at the death
of the second insured to die.
The Option A (Enhanced with Face Amount) death benefit is equal to the face
amount of the Policy. The Option A death benefit is fixed, subject to increases
required by the Internal Revenue Code on an enhanced basis, as described below.
The Option B (Enhanced with Face Amount Plus Cash Value) death benefit is equal
to the face amount of the Policy, plus the Policy's cash value, if any. The
Option B death benefit is also subject to increases required by the Internal
Revenue Code on an enhanced basis, as described below. In general, the Option B
death benefit does not significantly exceed the Option D death benefit.
The Option C (Face Amount) death benefit is equal to the face amount of the
Policy. The Option C death benefit, like the Option A death benefit, is fixed,
subject to increases required by the Internal Revenue Code. For Option C, these
increases are not enhanced.
---
The Option D (Face Amount Plus Cash Value) death benefit is equal to the face
amount of the Policy, plus the Policy's cash value, if any. The Option D death
benefit is also subject to increases required by the Internal Revenue Code. For
Option D, these increases are not enhanced.
---
To meet the Internal Revenue Code's definition of life insurance, the death
benefit will not be less than a certain multiple of the Policy's cash value.
(See Appendix F.) This means that, if the cash value grows to certain levels,
the death benefit increases to satisfy the tax law requirements. At that point,
any payment you make into the Policy will increase the death benefit by more
than it increases the cash value. (See "Premiums".)
In the case of Option A or Option B, the death benefit will be a maximum of
1.45 times the amount required to satisfy tax law requirements, until age 91 of
the younger insured. This results in a higher death benefit than required by
law. After age 91 of the younger insured, the maximum enhancement factor of
1.45 is reduced by .05 each year for nine years, until the factor is 1.00. The
enhanced death benefit is subject to some limits that depend in part on your
Policy's tabular cash value. (Tabular cash value is a hypothetical value that
uses the Guaranteed Death Benefit 1 Premium, maximum guaranteed charges and a
4% interest rate. See Appendix G).
MINIMUM GUARANTEED DEATH BENEFIT
The Policy provides two Minimum Guaranteed Death Benefits. We determine whether
a Minimum Guaranteed Death Benefit is in effect on the first day of each Policy
month. If a Minimum Guaranteed Death Benefit is in effect, the Policy will not
lapse even if the net cash value is less than the Monthly Deduction for that
month. The minimum premiums necessary to maintain either Minimum Guaranteed
Death Benefit are shown in your Policy and also appear in your personalized
illustration.
MINIMUM GUARANTEED DEATH BENEFIT 1. We determine if Minimum Guaranteed Death
Benefit 1 is in effect on the first day of each Policy month the Policy is in
force, until the Maturity Date (age 100 of the younger insured).
This Benefit is in effect if:
(1) the total of all premiums paid for each Policy year, accumulated at a
4% rate as if they were paid on the first day of the Policy year, less
any partial surrender in each Policy year, accumulated at a 4% rate
from the date of surrender, is at least equal to
(2) the Guaranteed Death Benefit 1 Fund
A-12
<PAGE>
and there is no outstanding Policy loan. (Under Policies issued in New Jersey
-----------------------------------
the guarantee may apply while a loan is outstanding. For those Policies, we
subtract the amount of the loan plus accrued interest from premiums paid in the
current Policy year when we apply this test.) For these purposes, we treat
premiums paid within 20 days prior to a Policy anniversary as if paid in the
next Policy year.
During a Policy year, the amount of premiums paid in (1) above includes
- --------------------
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above includes 1/12 of the Guaranteed Death Benefit 1 Premium for
each Policy month of the current Policy year up to and including the current
Policy month.
The Guaranteed Death Benefit 1 Fund assumes that the Guaranteed Death Benefit 1
Premium shown in your Policy is paid on the first day of each Policy year and
accumulates at a 4% rate per year. The Fund values shown in your Policy are for
the end of each Policy year.
If you lose the Guaranteed Minimum Death Benefit 1 due to insufficient premium
payments, it is unlikely because of Federal tax law limitations that you can
pay enough premiums in future years to regain the guarantee. Federal tax law
limitations also may prevent you from paying enough premiums to maintain the
Minimum Guaranteed Death Benefit 1 following: reductions in face amount,
including partial surrenders that reduce the face amount; reduction or deletion
of a rider benefit; or improvement in your Policy's rating classification (see
"Reduction in Face Amount").
Under Policies issued in New York, we call the Minimum Guaranteed Death Benefit
- ---------------------------------
1 the "No Lapse Guarantee Benefit 1", we call the Minimum Guaranteed Death
Benefit 1 Fund the "No Lapse Guarantee Benefit 1 Fund", and we call the Minimum
Guaranteed Death Benefit 1 Premium the "No Lapse Guarantee Benefit 1 Premium".
MINIMUM GUARANTEED DEATH BENEFIT 2. We determine if Minimum Guaranteed Death
Benefit 2 is in effect on the first day of each Policy month the Policy is in
force, until the later of: the date the younger insured reaches age 80 (or
would have attained age 80, if that person died before reaching age 80), or 20
years from the Policy Date, but no later than the Maturity Date (age 100 of the
younger insured) of the Policy.
This Benefit is in effect if:
(1) the total of all premiums paid for each Policy year, accumulated at a
4% rate as if they were paid on the first day of the Policy year, less
any partial surrender in each Policy year, accumulated at a 4% rate
from the date of surrender, is at least equal to
(2) the Guaranteed Death Benefit 2 Fund
and there is no outstanding Policy loan. (Under Policies issued in New Jersey
-----------------------------------
the guarantee may apply while a loan is outstanding. For those Policies, we
subtract the amount of the loan plus accrued interest from premiums paid in the
current Policy year when we apply this test.) For these purposes, we treat
premiums paid within 20 days prior to a Policy anniversary as if paid in the
next Policy year.
During a Policy year, the amount of premiums paid in (1) above includes
- --------------------
premiums paid less partial surrenders in the current Policy year, and the
amount in (2) above includes 1/12 of the Guaranteed Death Benefit 2 Premium for
each Policy month of the current Policy year up to and including the current
Policy month.
The Guaranteed Death Benefit 2 Fund assumes that the Guaranteed Death Benefit 2
Premium shown in your Policy is paid on the first day of each Policy year and
accumulates at a 4% rate per year. The Fund values shown in your Policy are for
the end of each Policy year.
If you lose the Guaranteed Minimum Death Benefit 2 due to insufficient premium
payments, it may be possible to regain the guarantee in future years. Federal
tax law limitations may prevent you from paying enough premiums to maintain the
Minimum Guaranteed Death Benefit 2 following: reductions in face amount,
including partial surrenders that reduce the face amount; reduction or deletion
of a rider benefit; or improvement in your Policy's rating classification (see
"Reduction in Face Amount").
Under Policies issued in New York, we call the Minimum Guaranteed Death Benefit
- ---------------------------------
2 the "No Lapse Guarantee Benefit 2", we call the Minimum Guaranteed Death
Benefit 2 Fund the "No Lapse Guarantee Benefit 2 Fund", and we call the Minimum
Guaranteed Death Benefit 2 Premium the "No Lapse Guarantee Benefit 2 Premium".
A-13
<PAGE>
DEATH PROCEEDS PAYABLE
The death proceeds we pay are equal to the death benefit on the date of the
second insured's death, reduced by any outstanding loan and accrued loan
interest. If the death occurs during the grace period, we reduce the proceeds
by any unpaid Monthly Deduction for the period prior to that date. We increase
the death proceeds (1) by any rider benefits payable and (2) by any Monthly
Deduction made for a period beyond the date of the second insured's death.
We may adjust the death proceeds if either insured's age or sex was misstated
in the application, if death results from either insured's suicide within two
years (less in some states) from the Policy's date of issue, or if a rider
limits the death benefit. (See "Limits to NELICO's Right to Challenge the
Policy".)
CHANGE IN DEATH BENEFIT OPTION
After the first Policy year, you may change your death benefit option by
written request to our Home Office. The request will be effective on the first
day of the Policy month on or after we receive it. A change in death benefit
option may have tax consequences. (See "Tax Considerations".)
If you change from Option A or C (face amount options) to Option B or D (face
amount plus cash value options), we reduce the Policy's face amount if
necessary so that the death benefit is the same immediately before and after
the change. A face amount reduction below $100,000 requires our consent. We may
also decrease any rider benefits under the Policy. A partial surrender of cash
value may be necessary to meet Federal tax law limits on the amount of premiums
that you can pay into the Policy. No Surrender Charge applies in that
situation.
If you change from Option B or D (face amount plus cash value options) to
Option A or C (face amount options), we increase the Policy's face amount, if
necessary, so that the death benefit is the same immediately before and after
the change.
If you change from Option A or B (enhanced) to Option C or D, in most cases we
reduce the Policy's death benefit amount if the Internal Revenue Code increases
are in effect; the death benefit usually remains the same if they are not in
effect.
Changes from Option C or D to Option A or B (enhanced) require underwriting
approval, and both insureds must be living if the amount at risk under the
Policy would increase.
EXTENDING THE MATURITY DATE
If approved in your state, we will issue or amend your Policy with an extended
maturity endorsement. If endorsed, the Policy will not mature until the date of
the second insured's death (the "Extended Maturity Date"). On and after the
original Maturity Date, the death benefit generally equals the cash value on
the date of death. There is an exception if, on the original Maturity Date,
your premiums paid (with interest at 4%), less partial surrenders (with
interest at 4%) are at least equal to the "Age 100 Amount" shown in the Policy.
In this case, the death benefit on and after the original Maturity Date equals
the greater of (1) the cash value on the date of death and (2) the Policy face
-------
amount. We base the Age 100 Amount on the Guaranteed Death Benefit 2 premium
being paid each Policy year until the original Maturity Date (rather than until
age 80 of the younger insured.) Certain Policy transactions--reductions in face
amount, reduction or deletion of a rider benefit, or improvement in rating
class--could prevent you from paying sufficient premiums to reach the Age 100
Amount.
Currently, we do not make Monthly Deduction charges after the original Maturity
Date. You cannot pay premiums after the original Maturity Date unless necessary
to prevent lapse of the Policy. All Policy riders (except the extended maturity
endorsement) terminate on the original Maturity Date.
The tax consequences of the endorsement are unclear, and you should consult a
tax advisor about them. For more information about the extended maturity
option, contact us or your registered representative.
A-14
<PAGE>
CASH VALUE
Your Policy's total cash value includes its cash value in the Variable Account
and in the Fixed Account. If you have a Policy loan, the cash value also
includes the amount we hold in our general account as a result of the loan. The
cash value reflects:
-- net premium payments
-- the net investment experience of the Policy's sub-accounts
-- interest credited to cash value in the Fixed Account
-- interest credited to amounts held in the general account for a Policy
loan
-- the death benefit option you choose
-- Policy charges
-- partial surrenders
-- transfers among the sub-accounts and Fixed Account
We pay you the NET cash value if you surrender the Policy. It equals the cash
value minus any outstanding Policy loan (plus interest) and any Surrender
Charge that applies. (See "Loan Provision", "Surrender Charge" and "Monthly
Deduction from Cash Value".)
The Policy's cash value in the Variable Account may increase or decrease daily
depending on net investment experience. Poor investment experience can reduce
the cash value to zero. YOU HAVE THE ENTIRE INVESTMENT RISK FOR THE CASH VALUE
IN THE VARIABLE ACCOUNT.
NET INVESTMENT EXPERIENCE
The net investment experience of the sub-accounts affects the Policy's cash
value and, in some cases, the death benefit. We determine the net investment
experience of each sub-account as of the close of regular trading on the New
York Stock Exchange on each day when the Exchange is open for trading.
A sub-account's net investment experience for any period is based on the
investment experience of the underlying Eligible Fund shares for the same
period, and is reduced by the charges against the sub-account (currently only
the mortality and expense risk charge) for that period.
The investment experience of the Eligible Fund shares for any period is the
increase or decrease in their net asset value for the period, increased by the
amount of any dividends or capital gains distributions on the shares during the
period. Dividends and capital gains distributions on Eligible Fund shares are
reinvested in additional shares of the Eligible Fund.
ALLOCATION OF NET PREMIUMS
Your cash value is held in the general account of NELICO or an affiliate until
we issue the Policy. We credit the first net premium with net investment
experience equal to that of the Zenith Back Bay Money Market Sub-Account from
the investment start date until the later of 45 days after the date Part I of
the application is signed or 10 days after we mail the Notice of Withdrawal
Right. (The "investment start date" is defined below.) Then, we allocate the
cash value to the sub-accounts as you choose. We allocate the amounts you
allocated to the Fixed Account as of the investment start date. You can
allocate to a maximum of nine accounts (including the Fixed Account) at any one
time.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
INVESTMENT START DATE. The investment start date is the latest of: the date
when we first receive a premium payment for the Policy, the date each of the
insureds has signed his/her Part II of the Policy application and the
A-15
<PAGE>
Policy Date. (For this purpose, receipt of the premium payment means receipt by
your registered representative, if the payment is made with the application;
otherwise, it means receipt by the Home Office, or by a NELICO agency if
earlier.)
PREMIUM WITH APPLICATION. If you make a premium payment with the application,
the Policy Date is generally the later of the date each of the insureds has
signed his/her Part II of the application and receipt of the premium payment.
In that case, the Policy Date and investment start date are the same. (Under
our administrative rules, a Policy which would be dated the 28th day or later
in a month will receive a Policy Date of the 28th.) The amount of premium paid
with the application must be at least 10% of the annual Planned Premium for the
Policy. You may only make one premium payment before the Policy is issued.
If you make a premium payment with the application, we will cover the insureds
under a temporary insurance agreement for a limited period that generally
begins when we receive the premium for the Policy (or, if later, on the date
when each of the insureds has signed his/her Part II of the application). The
maximum temporary coverage is the lesser of the amount of insurance applied for
and $500,000 when both insureds are standard risks ($250,000 for when at least
one insured is not a standard risk and $50,000 when both persons are determined
to be uninsurable). These provisions vary in some states.
If we issue a Policy, Monthly Deductions begin from the Policy Date, even if we
delayed the Policy's issuance for underwriting. The deductions are for the face
amount of the Policy issued, even if the temporary insurance coverage during
underwriting was for a lower amount. If we decline an application, we refund
the premium payment made.
PREMIUM ON DELIVERY. If you pay the initial premium on delivery of the Policy,
the Policy Date is usually five days after issue. The investment start date is
the later of the Policy Date and the date we received the premium. Monthly
Deductions begin on the Policy Date. We credit interest at a 4% net rate to the
Policy for any period between the Policy Date and the investment start date.
Insurance coverage under the Policy begins when we receive the Minimum Premium
(see "Premiums") due for the first quarter (or, on receipt of the number of
monthly payments due under NELICO's Master Service Account arrangement).
BACKDATING. In most states we may sometimes backdate a Policy, if you request,
by assigning a Policy Date earlier than the date the application is signed. You
may wish to backdate so that you can obtain lower cost of insurance rates,
based on a younger insurance age. Backdating in some cases causes a higher
Surrender Charge if it results in the Surrender Charge being based on a lower
age bracket. (See "Surrender Charge".) For a backdated Policy, you must also
pay the minimum premium payable for the period between the Policy Date and the
investment start date. As of the investment start date, we allocate to the
Policy those net premiums, adjusted for monthly Policy charges and interest at
a 4% net rate for that period.
RIGHT TO RETURN THE POLICY
You may cancel the Policy within 45 days after the date Part 1 of the
application is signed, within 10 days (more in some states) after you receive
the Policy or within 10 days after we mail the Notice of Withdrawal Right,
whichever is latest. You may return the Policy to us or your registered
representative. Insurance coverage ends as soon as you return the Policy
(determined by postmark, if the Policy is mailed). If you cancel the Policy, we
refund any premium paid (or any other amount that is required by state
insurance law).
CHARGES AND EXPENSES
THE AMOUNT OF A CHARGE MAY NOT NECESSARILY CORRESPOND TO THE COSTS OF THE
SERVICES OR BENEFITS THAT ARE IMPLIED BY THE NAME OF THE CHARGE OR THAT ARE
ASSOCIATED WITH THE PARTICULAR POLICY. FOR EXAMPLE, THE SALES CHARGE AND
DEFERRED SALES CHARGE MAY NOT FULLY COVER ALL OF OUR SALES AND DISTRIBUTION
EXPENSES, AND WE MAY USE PROCEEDS FROM OTHER CHARGES, INCLUDING THE MORTALITY
AND EXPENSE RISK CHARGE, TO HELP COVER THOSE EXPENSES. WE CAN PROFIT FROM
CERTAIN POLICY CHARGES.
A-16
<PAGE>
Deductions from Premiums
We deduct a 9% sales charge from premiums. We currently intend to waive the
charge:
-- on all premiums after the 15th Policy year (after the 17th Policy year
if we issued the Policy in Pennsylvania
-- on premiums paid in a Policy year that are in excess of a Target
Premium.
For these purposes, we consider premiums we receive during the twenty days
prior to a Policy anniversary as paid in the next Policy year. (This rule does
not apply to premiums paid through our Master Service Account arrangement,
described in "Premiums".)
We have the right not to waive the charge or to resume the charge in either
situation.
We indicated your Target Premium on your personalized illustration.
During the first 14 Policy years (less for insureds with higher average issue
ages), if you surrender or lapse the Policy, make a partial surrender or reduce
the face amount, a Deferred Sales Charge also applies. (See "Surrender Charge"
below.)
We may reduce sales charges for Policies sold to some group or sponsored
arrangements. We may offer a program under which you may exchange certain
fixed-benefit life insurance policies that New England Mutual issued for the
Policies without a deduction for the sales charge from the amount of cash value
that you transfer to the Policy. Eligibility conditions apply. Your registered
representative can advise you regarding terms and availability of the
program.
State Premium Tax Charge. We deduct 2.5% from each premium for state premium
taxes and administrative expenses. These taxes vary from state to state and the
2.5% charge reflects an average. Administrative expenses covered by this charge
include those related to premium tax and certain other state filings.
Federal Premium Tax Charge. We deduct 1% from each premium for our federal
income tax liability related to premiums.
A-17
<PAGE>
EXAMPLE: The following chart shows the net amount that we would currently
allocate to the Variable Account assuming a premium payment of $5,000 and
a Target Premium of $2,000.
<TABLE>
<CAPTION>
NET
PREMIUM PREMIUM
------- -------
<C> <C> <S>
$5,000 $2,000
-250
------
(12.5% X 2,000 = total sales and premium tax charge up to
$1,750 Target Premium)
$3,000
-105
------
$2,895 (3.5% X 3,000 = total sales and premium tax charge on
payments in excess of Target Premium, based on our current
rules)
$1,750
+2,895
------
$4,645 Net Premium
======
</TABLE>
We intend to waive the 9% sales charge on premiums paid after the 15th
Policy year (after the 17th Policy year for Policies issued in
Pennsylvania). In that case, the net premium in this example would be
$5,000 - 175 (3.5% X 5,000), or $4,825.
SURRENDER CHARGE
If, during the first 14 Policy years, you surrender or lapse your Policy,
reduce the face amount, or make a partial surrender that reduces the face
amount, then we will deduct a Surrender Charge from the cash value. (For joint
insureds whose average issue age is 60 1/2 to 70 at issue of the Policy, the
Surrender Charge period is nine years, for insureds whose average issue ages
are 70 1/2 to 80, six years, and above 80, five years.) The Surrender Charge
includes a Deferred Sales Charge and a Deferred Administrative Charge. The
maximum Surrender Charge is shown in your Policy.
Any Surrender Charge deducted on lapse is credited back to the Policy's cash
value on reinstatement. The Surrender Charge on the date of reinstatement is
the same as it was on the date of lapse. For purposes of determining the
Surrender Charge on any date after reinstatement, the period the Policy was
lapsed does not count.
DEFERRED SALES CHARGE. We base the Deferred Sales Charge on a percentage of the
Benchmark Premium, rather than the Target Premium. Generally, the Target
Premium may be up to 110% of the Benchmark Premium for the same base Policy.
Some riders to the Policy increase the Target Premium but do not increase the
Benchmark Premium.
The Deferred Sales Charge during either of the first two Policy years for
-------------------------------------------
insureds whose average issue age is 70 or less is equal to 21% of the premiums
paid in the first Policy year, up to a maximum of 21% of one Benchmark Premium.
----- ---
As described below, after the second Policy year, the maximum Deferred Sales
- ----------------------------------------------------------------------------
Charge increases substantially.
- ------------------------------
For Policies which cover insureds whose average issue age is 60 or less at
issue, the maximum Deferred Sales Charge applies in Policy years three through
------- -----------------------------
five. The Deferred Sales Charge in these years equals 41% of actual premiums
- ----
paid up to one Benchmark Premium, plus 41% of additional premiums paid up to a
second Benchmark Premium, plus 8% of additional premiums paid up to a third
Benchmark Premium. The Deferred Sales Charge will never exceed $30 per $1,000
of face amount. After the fifth Policy year, the maximum Deferred Sales Charge
declines on a monthly basis until it reaches 0% in the last month of the
fourteenth Policy year.
A-18
<PAGE>
The table below shows the maximum Deferred Sales Charge that applies to
Policies covering insureds whose average issue age is 60 or less at issue, and
assumes that one Benchmark Premium per year is paid under the Policy. The table
shows the charge, expressed as a percentage of the Benchmark Premiums paid to
date, if the lapse, surrender or face reduction occurs at the end of each of
the Policy years shown.
<TABLE>
<CAPTION>
THE MAXIMUM DEFERRED SALES
CHARGE IS THE FOLLOWING
PERCENTAGE OF ONE BENCHMARK
FOR POLICIES WHICH ARE PREMIUM PER YEAR TO DATE
SURRENDERED, LAPSED OF SURRENDER, LAPSE OR
OR REDUCED DURING FACE AMOUNT REDUCTION
---------------------- ---------------------------
<S> <C> <C>
Entire Policy year 3 30.00%
4 22.50%
5 18.00%
Last Month of Policy
years 6 13.33%
7 10.00%
8 7.50%
9 5.56%
10 4.00%
11 2.73%
12 1.67%
13 .77%
14 0.00%
</TABLE>
For insureds whose average issue age is above 60 at issue, the Deferred Sales
Charge percentages are less than or equal to those described above, with the
maximum charge occurring in Policy year three, for insureds with an average
issue age up through 70, and in Policy year one, for insureds with an average
issue age above 70.
In the case of a reduction in face amount or partial surrender that reduces the
face amount, we deduct any Deferred Sales Charge that applies from the Policy's
remaining cash value in an amount that is proportional to the amount of the
Policy's face amount surrendered. (See "Partial Surrender".) The charge reduces
the Policy's cash value in the sub-accounts and the Fixed Account in proportion
to the amount of the Policy's cash value in each.
DEFERRED ADMINISTRATIVE CHARGE. The table below shows the Deferred
Administrative Charge deducted if you totally or partially surrender, lapse or
reduce the face amount of the Policy.
<TABLE>
<CAPTION>
FOR POLICIES WHICH ARE
SURRENDERED, LAPSED DEFERRED ADMINISTRATIVE
OR REDUCED DURING THE CHARGE PER $1,000 OF
POLICY YEAR SHOWN FACE AMOUNT
---------------------- -----------------------
<S> <C> <C>
Entire Policy year 1 $4.00
2 4.00
3 4.00
4 4.00
5 4.00
Last Month of Policy year* 6 3.60
7 3.20
8 2.80
9 2.40
10 2.00
11 1.50
12 1.00
13 0.50
14 0.00
</TABLE>
- --------
* The charge declines monthly after the end of the fifth Policy year.
A-19
<PAGE>
For insureds whose average issue age is above 60 at issue, the Deferred
Administrative Charge is less than or equal to that in the table above.
MONTHLY DEDUCTION FROM CASH VALUE
On the first day of each Policy month, starting with the Policy Date, we deduct
the "Monthly Deduction" from your cash value.
-- If your Policy is protected against lapse by a Minimum Death Benefit
Guarantee or the three year Minimum Premium guarantee, we make the
Monthly Deduction each month unless the cash value equals zero. (See
"Premiums".)
-- If you do not have a Minimum Death Benefit Guarantee and the three year
Minimum Premium guarantee is not in effect, we make the Monthly
Deduction as long as the net cash value is large enough to cover the
entire Monthly Deduction. If it is not large enough, the Policy will be
in default and may lapse. (See "Lapse and Reinstatement".)
The Monthly Deduction reduces the cash value in each Sub-Account of the
Variable Account and in the Fixed Account in proportion to the cash value in
each.
The Monthly Deduction includes the following charges:
POLICY FEE. The Policy fee is currently equal to $5.00 per month (guaranteed
not to exceed $7.50 per month).
ADMINISTRATIVE CHARGE. Currently, the Administrative Charge is $0.16 per $1,000
----------------
of Policy face amount in the first Policy year. The Administrative Charge in
-----
the second through tenth Policy years is, on a current basis, $0.05 per $1,000
-------------------- ----------------
of Policy face amount, for two insureds who are each assigned to a standard or
better underwriting class; $0.075 per $1,000 of Policy face amount if only one
-----------------
insured is in a standard or better class; and $0.10 per $1,000 of Policy face
----------------
amount if neither insured is in a standard or better class. In Policy years
eleven and after, currently the Administrative Charge is $0.03 per $1,000 of
- ---------------- ----------------
Policy face amount.
On a current basis, the monthly Administrative Charge does not apply to more
than $4 million of Policy face amount beginning in the second Policy year. As a
result, the maximum monthly charge currently deducted in the second Policy
year, for example, is $200 per month for two insureds who are each a standard
or better risk and $400 per month if neither insured is a standard or better
risk.
The guaranteed maximum monthly Administrative Charge is $0.16 per $1,000 of
------------------
face amount in the first Policy year and $0.10 per $1,000 thereafter.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE. The minimum death benefit guarantee
charge is $0.01 per $1,000 of Policy face amount. (See "Minimum Guaranteed
Death Benefit".)
MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of
providing insurance protection under your Policy. There are no mortality
charges for an insured after he or she reaches age 100 (or would have reached
age 100, if that person dies earlier). The cost of insurance charge for a
Policy month is equal to the "amount at risk" under the Policy, multiplied by
the cost of insurance rate for that Policy month. We determine the amount at
risk on the first day of the Policy month after we process the Monthly
Deduction. The amount at risk is the amount by which the death benefit
(discounted at the monthly equivalent of 4% per year) exceeds the Policy's cash
value. The cost of insurance rate for your Policy changes from month to month.
The guaranteed cost of insurance rates for a Policy depend on each insured's
-- underwriting class
-- age on the first day of the Policy year
-- sex (if the Policy is sex-based).
A-20
<PAGE>
The current cost of insurance rates will also depend on
-- each insured's age at issue
-- the Policy year.
We guarantee that the joint rates will not be higher than rates based on the
1980 Commissioners Standard Ordinary Mortality Tables with smoker/nonsmoker
modifications (the "1980 CSO Tables"). The actual rates we use may be lower
than the maximum rates, depending on our expectations about our future
mortality and expense experience, lapse rates and investment earnings. We
review the adequacy of our cost of insurance rates periodically and may adjust
them. Any change will apply prospectively.
We underwrite each insured person separately. The underwriting classes we use
are smoker standard, smoker substandard, nonsmoker standard, nonsmoker
preferred, nonsmoker residual, and nonsmoker substandard. Substandard ratings
result in higher cost of insurance deductions. We base the guaranteed maximum
mortality charges for substandard ratings on multiples of the 1980 CSO Tables.
The three standard nonsmoker classes are available as follows:
-- nonsmoker preferred and nonsmoker residual, for Policies with face
amounts of $500,000 or more if the insured's issue age is 20 through 75
-- nonsmoker standard, for Policies with face amounts below $500,000 and
for all insureds whose issue age is above 75.
Of the three standard nonsmoker classes, the nonsmoker preferred class
generally offers the best current cost of insurance rates and the nonsmoker
residual class generally offers the least favorable current cost of insurance
rates.
Cost of insurance rates are generally lower for nonsmokers than for smokers and
generally lower for females than for males. Within a given underwriting class,
cost of insurance rates are generally lower for insureds with lower issue ages.
We may offer Policies with cost of insurance rates (and Policy values and
benefits) that do not vary based on the sex of the insured. These Policies
would only be available where required by state law or to some employee benefit
plans.
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.
CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. We charge for the cost of any
additional rider benefits as described in the rider form. We also may charge
you a nominal fee, which we will bill directly to you, if you request a Policy
re-issue or re-dating.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. We charge the sub-accounts of the Variable
Account for our mortality and expense risks. Currently, the charge is made
daily at an annual rate of .75% of the sub-accounts' assets. We have the right
to increase the charge, up to a maximum annual rate of .90%. The mortality risk
we assume is that insureds may live for shorter periods of time than we
estimated. The expense risk is that our costs of issuing and administering the
Policies may be more than we estimated.
CHARGES FOR INCOME TAXES. We currently do not charge the Variable Account for
income taxes, but in the future we may make such a charge, if appropriate. We
have the right to make a charge for any taxes imposed on the Policies in the
future. (See "Charge for NELICO's Income Taxes".)
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other expenses
are deducted from the assets of the Eligible Funds.
A-21
<PAGE>
The following table shows the annual operating expenses for each New England
Zenith Fund series, based on actual expenses for 1999, after any applicable
expense cap or expense deferral arrangement.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER ANY
EXPENSE CAP)
<TABLE>
<CAPTION>
BACK 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>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE
DEFERRAL)
<TABLE>
<CAPTION>
HARRIS
OAKMARK MORGAN STANLEY DAVIS ALGER MFS
MID CAP INTERNATIONAL VENTURE EQUITY MFS RESEARCH
VALUE BALANCED MAGNUM VALUE GROWTH INVESTORS MANAGERS
SERIES SERIES EQUITY SERIES SERIES SERIES SERIES* SERIES*
------- -------- -------------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee .75% .70% .90% .75% .75% .75% .75%
Other Expenses .13% .07% .40% .06% .05% .15% .15%
---- ---- ----- ---- ---- ---- ----
Total Series Operating
Expenses .88% .77% 1.30% .81% .80% .90% .90%
</TABLE>
- --------
* Without the applicable expense cap or expense deferral arrangement (described
below), Total Series Operating Expenses for the year ended December 31, 1999
would have been: MFS Investors Series, 2.03%; and MFS Research Managers
Series, 2.03%, both on an annualized basis since the Series' start date of
April 30, 1999. In 1999 the management fee for the Loomis Sayles Small Cap
Series was 1.00%, and Total Series Operating Expenses were capped at 1.00%.
Without the expense cap, Total Series Operating Expenses would have been
1.10%.
Our affiliate, New England Investment Management, Inc., advises the series of
the Zenith Fund except for the Capital Growth Series. New England Investment
Management voluntarily limits the expenses (other than brokerage costs,
interest, taxes or extraordinary expenses) of certain series with either an
expense cap or expense deferral arrangement. Under the expense cap, New England
Investment Management bears expenses of the Loomis Sayles Small Cap Series,
that exceed 1.00% of average daily net assets. Under the expense deferral
agreement, New England Investment Management bears expenses of the Harris
Oakmark Mid Cap Value, Morgan Stanley International Magnum Equity, MFS
Investors, and MFS Research Managers Series that exceed .90% of average daily
net assets (1.30% for the Morgan Stanley International Magnum Equity Series) in
the year the series incurs them and charges those expenses to the series in a
future year if actual expenses of the series are below the limit. New England
Investment Management may end these expense limits at any time.
MetLife is the investment advisor for the Portfolios of the Metropolitan Series
Fund, Inc. The Portfolios pay investment management fees to MetLife and also
bear other expenses. The chart below shows the total operating expenses of the
Portfolios based on the year ended December 31, 1999 and current expense
subsidies (in the case of the Putnam Large Cap Growth Portfolio, anticipated
expenses for 2000) as a percentage of Portfolio net assets.
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Putnam Large Cap Growth........................ .80% .20% 1.00%*
Janus Mid Cap.................................. .67% .04% .71%
Russell 2000 Index............................. .25% .30% .55%*
</TABLE>
- --------
* MetLife voluntarily pays expenses (other than the management fee, brokerage
commissions, taxes, interest and other loan costs, and any unusual one-time
expenses) of the Putnam Large Cap Growth Portfolio that exceed
A-22
<PAGE>
.20% of net assets until the earlier of (i) July 1, 2002 and (ii) the date
when the Portfolio's net assets reach $100 million. Without this subsidy, the
anticipated total annual expenses of the Putnam Large Cap Growth Portfolio
would be 1.39%. MetLife also paid such expenses that exceeded .20% of net
assets for the Russell 2000 Index Portfolio until December 3, 1999. Without
this subsidy the total annual expenses of the Russell 2000 Index Portfolio for
1999 would have been .89%. Beginning February 22, 2000, MetLife is paying such
expenses that exceed .30% of the Russell 2000 Index Portfolio's net assets
until the earlier of (i) April 30, 2001 and (ii) the date when the Portfolio's
assets reach $200 million. Total Annual Expenses for the Russell 2000 Index
Portfolio are shown as if this subsidy was in effect for the entire current
year. MetLife can terminate these arrangements at any time upon notice to the
Board of Directors and to Fund shareholders.
The investment adviser for VIP and VIP II is Fidelity Management & Research
Company ("FMR"). The Portfolios of VIP and VIP II pay investment management
fees to FMR and also bear certain other expenses. For the year ended December
31, 1999, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
VIP Equity-Income .48% .09% .57%*
VIP Overseas .73% .18% .91%*
VIP High Income .58% .11% .69%
VIP II Asset Manager .53% .10% .63%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. If we
included these reductions, total annual expenses would have been .56% for VIP
Equity-Income Portfolio, .87% for VIP Overseas Portfolio, and .62% for VIP II
Asset Manager Portfolio.
An investment adviser or affiliates thereof may compensate NELICO and/or
certain affiliates for administrative, distribution, or other services relating
to Eligible Funds. This compensation is based on assets of the Eligible Funds
attributable to the Policies and certain other variable insurance products that
we and our affiliates issue. Some advisers and/or affiliates may pay us more
than others. New England Securities may also receive brokerage commissions on
securities transactions initiated by an investment adviser.
GROUP OR SPONSORED ARRANGEMENTS
We may issue the Policies to group or sponsored arrangements, as well as on an
individual basis. A "group arrangement" includes a situation where a trustee,
employer or similar entity purchases individual Policies covering a group of
individuals. An example of such an arrangement is a non-tax qualified deferred
compensation plan. A "sponsored arrangement" includes a situation where an
employer or an association permits group solicitation of its employees or
members for the purchase of individual Policies.
We may waive, reduce or vary any Policy charges under Policies sold to a group
or sponsored arrangement. We may also raise the interest rate credited to
loaned amounts under these Policies. The amount of the variations and our
eligibility rules may change from time to time. In general, they reflect cost
savings over time that we anticipate for Policies sold to the eligible group or
sponsored arrangements and relate to objective factors such as the size of the
group, its stability, the purpose of the funding arrangement and
characteristics of the group members. These variations of charges do not apply
to Policies sold in New York other than Policies sold to non-tax qualified
deferred compensation plans of various types. Consult your registered
representative for any variations that may be available and appropriate for
your case.
The United States Supreme Court has ruled that insurance policies with values
and benefits that vary with the sex of the insured may not be used to fund
certain employee benefit programs. We may offer Policies that do not vary based
on the sex of the insured to certain employee benefit programs. Your registered
representative can advise you as to the availability of such Policies. We
recommend that employers consult an attorney before offering or purchasing the
Policies in connection with an employee benefit program.
A-23
<PAGE>
PREMIUMS
FLEXIBLE PREMIUMS
Within limits, you choose the amount and frequency of premium payments. You
select a Planned Premium schedule, which may be a fixed amount or a varying
amount. This schedule appears in your Policy. YOUR PLANNED PREMIUMS WILL NOT
NECESSARILY KEEP YOUR POLICY IN FORCE. You may skip Planned Premium payments or
make additional payments. You cannot make a Planned Premium or additional
payment that increases the Policy's death benefit by more than it increases the
cash value except with our consent, and we may require underwriting. No payment
can be less than $25 ($10 for payments made through the Master Service Account,
described below, or certain other monthly payment arrangements). We limit the
total of Planned Premiums and other payments to our published maximum.
You can pay Planned Premiums on an annual, semi-annual or quarterly schedule
or, with our consent, monthly. You can change your Planned Premium schedule at
any time by sending your request to our Home Office.
You may make payments by check or money order. We will send premium notices for
annual, semi-annual or quarterly Planned Premiums. You may also choose to have
us withdraw your premium payments from your bank checking account or Nvest Cash
Management Trust account. (This is known as the Master Service Account
arrangement.)
Federal tax law limits the amount of premiums that you can pay under the
Policy. In addition, if any payments under the Policy exceed the "7-pay test"
under Federal tax law, your Policy will become a "modified endowment contract"
and you may have more adverse tax consequences with respect to certain
distributions than would otherwise be the case if premium payments did not
exceed the "7-pay test". (See "Tax Considerations".)
We allocate net payments to your Policy's sub-accounts as of the date we
receive the payment. (See "Receipt of Communications and Payments at NELICO's
Home Office".)
We treat a payment we receive while a Policy loan is outstanding first as a
Planned Premium, second as a repayment of the Policy loan, and third 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. However,
repaying the loan instead of paying a premium could make your Policy ineligible
for a death benefit guarantee. (See "Loan Provision", "Deductions from
Premiums" and "Death Benefit".)
A-24
<PAGE>
Three types of premium payment levels can protect your Policy against
lapse (1) for the first three Policy years, (2) until age 80 of the
younger insured, and (3) until age 100 of the younger insured.
First three Policy years--In general, if you pay the three year Minimum
Premium amount on time and there is no outstanding Policy loan, the Policy
will not lapse even if the net cash value is less than the Monthly
Deduction in any month. The guarantee will not apply if (1) you reinstate
the Policy, (2) you reduce the face amount or make a partial surrender
that reduces the face amount, (3) you increase or decrease rider coverage,
or (4) the rating classification for your Policy is improved. We base the
Minimum Premium on your Policy's face amount, the age, sex (unless unisex
rates apply), and underwriting class of each insured, the current level of
Policy charges and any riders to the Policy.
To Maturity (age 100 of the younger insured)--Payment of the Guaranteed
Death Benefit 1 premium can guarantee that the Policy will stay in force
until age 100 of the younger insured. Insufficient premium payments, a
reduction in the face amount or partial surrender that reduces the face
amount, reduction or deletion of a rider benefit, or improvement in rating
classification of the Policy could terminate this guarantee. See "Minimum
Guaranteed Death Benefit". We base this guaranteed minimum death benefit
premium on the Policy's face amount, the age, sex (unless unisex rates
apply) and underwriting class of each of the insureds, the death benefit
option chosen, the guaranteed level of Policy charges and any rider
benefit selected. We recalculate this premium following the Policy
transactions described above (other than insufficient premiums) as well as
following an increase in rider coverage.
To age 80 of the younger insured--Payment of the Guaranteed Death Benefit
2 premium can guarantee that the Policy will stay in force until the later
of age 80 of the younger insured, or 20 years after issue, but no later
than the Maturity Date (age 100 of the younger insured) of the Policy.
Insufficient premium payments, a reduction in the face amount or a partial
surrender that reduces the face amount, reduction or deletion of a rider
benefit, or improvement in the rating classification of the Policy could
terminate this guarantee, although termination for insufficient premium
payments is less likely here than in the case of the Guaranteed Death
Benefit 1 premium. We base this premium on factors similar to the
Guaranteed Death Benefit 1 premium for coverage to the earlier age. We
recalculate the Guaranteed Death Benefit 2 premium following the same
transactions described above (other than insufficient premiums) as well as
following an increase in rider coverage.
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 three
year guarantee period, the Minimum Premium death benefit guarantee will
continue to apply during the fourth Policy year as long as (a) payments
made during that Policy year, less partial surrenders and loans made in
that year, equal (b) the guaranteed maximum Policy charges plus the
applicable Surrender Charge for the fourth Policy Year. In addition, under
Policies issued in New Jersey, if at the end of the period for Minimum
Guaranteed Death Benefit 2 you have met the requirements for that
guarantee, the guarantee will continue to apply during the next Policy
year as long as (a) payments made during that Policy year, less partial
surrenders and loans made in that year, equal (b) the guaranteed maximum
Policy charges for that Policy year. If you make a Policy transaction that
changes the amount of the guaranteed maximum Policy charges for the year,
then the amount you need to pay in order to preserve the death benefit
guarantee for an extra Policy year may change accordingly.
LAPSE AND REINSTATEMENT
LAPSE. Unless your Policy is protected by a guaranteed death benefit or minimum
premium guarantee, any month that your Policy's net cash value is not large
enough to cover a Monthly Deduction, your Policy will be in default. Your
Policy provides a 62 day grace period for payment of a premium large enough to
cover the amount in default 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 Minimum Guaranteed Death Benefit 1 to be in effect; a
premium large enough to permit Minimum Guaranteed Death Benefit 2 to be in
effect; and a premium large enough to permit the three year
A-25
<PAGE>
Minimum Premium death benefit guarantee to be in effect.) We will notify you of
the amount due. You have insurance coverage during the grace period, but if the
second insured dies before you have paid the premium, we deduct from the death
proceeds the unpaid Monthly Deduction for the period prior to the date of
death. If you have not paid the required premium by the end of the grace
period, your Policy will lapse without value.
REINSTATEMENT. If your Policy has lapsed, you may reinstate it within seven
years after the date of lapse. If more than seven years have passed, or if you
have surrendered the Policy, you need our consent to reinstate. Reinstatement
in all cases requires payment of certain charges described in the Policy and
usually requires evidence of insurability that is satisfactory to us.
If we deducted a Surrender Charge on lapse, we credit it back to the Policy's
cash value on reinstatement. The Surrender Charge on the date of reinstatement
is the same as it was on the date of lapse. When we determine the Surrender
Charge and other charges that vary by duration of the Policy (rather than by
age of the insured), we do not count the amount of time that a Policy was
lapsed.
OTHER POLICY FEATURES
LOAN PROVISION
You may borrow all or part of the Policy's "loan value" at any time after the
Right to Return the Policy period. We make the loan as of the date when we
receive a loan request. (See "Receipt of Communications and Payments at
NELICO's Home Office".) You should contact our Home Office or your registered
representative for information on loan procedures.
The Policy's loan value equals:
(i) 90% (or more if required by state law) of the Policy's "projected cash
value"; minus
(ii) the Policy's Surrender Charge on the next Planned Premium due date or,
if greater, on the date the loan is made; minus
(iii) loan interest to the next loan interest due date.
The "projected cash value" is the cash value projected to the next Policy
anniversary or, if earlier, to the next Planned Premium due date, at a 4% rate
and using current Policy charges. The loan value available is reduced by any
outstanding loan plus interest. We currently intend to base the loan value on
100% of the Policy's projected cash value, rather than 90%, for Policy years 16
and after.
The example below illustrates how the loan value is determined.
EXAMPLE: Using the Policy illustrated on page A-50 assume that the
Policy's Planned Premiums have been paid and that the Policy's sub-
accounts have earned a constant 6% hypothetical gross annual rate of
return (equal to a constant net annual rate of return of 4.42%). After the
premium payment on the 10th Policy anniversary, the maximum amount that
you could borrow would be determined as follows under (i) an annual
premium payment schedule and (ii) a quarterly premium payment schedule:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
-------- ---------
<C> <S> <C> <C>
(1) Cash Value after Premium Payment on 10th Policy
Anniversary..................................... $186,852 $175,887
(2) Cash Value Projected at a Constant Annual Rate of
Return of 4% to the
(a) 11th Policy Anniversary...................... 193,522
(b) Next Planned Premium Due Date................ 177,420
(3) 90% of Amount Calculated in (2).................. 174,170 159,678
(4) Amount Calculated in (3), Reduced by the
Applicable Surrender Charge..................... 168,355 153,863
(5) Amount Calculated in (4), Reduced by Loan
Interest to the Next Interest Due Date.......... 159,578 151,776
</TABLE>
A-26
<PAGE>
A Policy loan reduces the Policy's cash value in the sub-accounts by the amount
of the loan. A loan repayment increases the cash value in the sub-accounts by
the amount of the repayment. Unless you request otherwise, we attribute Policy
loans first to the sub-accounts of the Variable Account in proportion to the
cash value in each, and then the Fixed Account. We allocate loan repayments
first to the outstanding loan balance attributed to the Fixed Account and then
to the sub-accounts of the Variable Account in proportion to the cash value in
each.
The interest rate charged on Policy loans is an effective rate of 5.5% per year
(using simple interest during the year). Interest accrues daily and is due on
the Policy anniversary. If not paid, we add the interest accrued to the loan
amount, and we deduct an amount equal to the unpaid interest from the Policy's
cash value in the sub-accounts and the Fixed Account in proportion to the
amount in each. The amount we take from the Policy's sub-accounts as a result
of the loan earns interest (compounded daily) at an effective rate of not less
than 4% per year. The rate we currently credit is 4% per year for the first 15
Policy years and 5% thereafter. We credit this interest amount to the Policy's
sub-accounts annually, in proportion to the cash value in each.
The amount taken from the Policy's sub-accounts as a result of a loan does not
participate in the investment experience of the sub-accounts. Therefore, loans
can permanently affect the death benefit and cash value of the Policy, even if
repaid. In addition, we reduce any proceeds payable under a Policy by the
amount of any outstanding loan plus accrued interest.
If a Policy loan is outstanding, it may be better to repay the loan than to pay
a premium, because the payment is subject to sales and premium tax charges, and
the loan repayment is not subject to charges. However, repaying the loan
instead of paying a premium could make your Policy ineligible for a death
benefit guarantee. (See "Deductions from Premiums" and "Death Benefits".)
If Policy loans plus accrued interest at any time exceed the Policy's cash
value less the Surrender Charge on the next Policy loan interest due date (or,
if the Surrender Charge would be greater, on the date the calculation is made),
we will notify you that the Policy is going to terminate. (This is called an
"excess Policy loan". We test for an excess Policy loan on each monthly
processing date and in connection with Policy processing transactions.) The
Policy terminates without value 62 days after we mail the notice unless you pay
us the excess Policy loan amount within that time. (See "Lapse and
Reinstatement".) If the Policy lapses with a loan outstanding, adverse tax
consequences may result. If your Policy is a "modified endowment contract",
loans under your Policy may be treated as taxable distributions. (See "Tax
Considerations" below.)
Department of Labor ("DOL") regulations impose requirements for participant
loans under tax-qualified pension plans. Therefore, plan loan provisions may
differ from Policy loan provisions. (See "Tax Considerations".)
SURRENDER
You may surrender a Policy for its net cash value at any time while either
insured is living. We determine the net cash value of the surrendered Policy as
of the date when we receive a surrender request. The net cash value equals the
cash value reduced by any Policy loan and accrued interest and by any
applicable Surrender Charge. (See "Surrender Charge".) You may apply all or
part of the net cash value to a payment option. (See "Payment Options".) A
surrender may result in adverse tax consequences. (See "Tax Considerations"
below.)
PARTIAL SURRENDER
You may make a partial surrender of the Policy on the first day of any Policy
month after the Right to Return the Policy period, to receive a portion of its
net cash value. A partial surrender reduces the Policy's death benefit and may
reduce the Policy's face amount if necessary so that the amount at risk under
the Policy will not increase. Any reduction in the face amount causes a
proportionate reduction in the Policy's Benchmark Premium, on which we base any
future Surrender Charges, and in the Target Premium, on which we currently base
the 9% sales charge. A partial surrender may also reduce rider benefits. We
reserve the right to decline a partial surrender request that would reduce the
face amount below the Policy's required minimum.
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We have the right to limit partial surrenders in any one Policy year to 20% of
the Policy's net cash value on the date of the first partial surrender for the
Policy year or, if less, the Policy's available loan value. Currently, we
permit partial surrenders of up to 75% of the Policy's net cash value per year,
if there is sufficient available loan value.
We deduct any Surrender Charge that applies to the partial surrender from the
Policy's remaining cash value in an amount proportional to the amount of the
Policy's face amount surrendered. The Surrender Charge applied reduces any
remaining Surrender Charge under your Policy.
You may not reinvest cash value paid upon partial surrender in the Policy
except as premium payments, which are subject to the charges described under
"Deductions From Premiums". A partial surrender could terminate your Policy's
Minimum Guaranteed Death Benefit 1 or 2. See "Minimum Guaranteed Death
Benefit".
A partial surrender first reduces the Policy's cash value in the sub-accounts
of the Variable Account, in proportion to the amount of cash value in each, and
then the Fixed Account, unless you request otherwise. We determine the amount
of net cash value paid upon partial surrender as of the first day of the Policy
month on or after the date when we receive a request. You can contact your
registered representative or the Home Office for information on partial
surrender procedures.
A reduction in the death benefit as a result of a partial surrender may create
a "modified endowment contract" or have other adverse tax consequences. If you
are contemplating a partial surrender, you should consult your tax advisor
regarding the tax consequences. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
You may reduce the face amount of your Policy without receiving a distribution
of any Policy cash value. (This feature differs from a partial surrender, which
pays a portion of the Policy's net cash value to you.)
If you decrease the face amount of your Policy, we also decrease the Benchmark
Premium, on which we base any future Surrender Charges, and the Target Premium,
on which we currently base the 9% sales charge. We deduct any Surrender Charge
that applies from the Policy's cash value when you reduce its face amount.
A face amount reduction usually decreases the Policy's death benefit. (However,
if we are increasing the death benefit to satisfy federal income tax laws, a
face amount reduction will not decrease the death benefit unless we deducted a
Surrender Charge from the cash value. A reduction in face amount in this
situation may not be advisable, because it will not reduce your death benefit
or cost of insurance charges and may result in a Surrender Charge.) We also may
decrease any rider benefits attached to the Policy. The face amount remaining
after a reduction must meet our minimum face amount requirements for issue,
except with our consent.
A reduction in face amount reduces the Federal tax law limits on the amount of
premiums that you can pay under the Policy. In these cases, you may need a
partial surrender of cash value to comply with Federal tax law. This could
terminate the Minimum Guaranteed Death Benefit 1 or 2. (See "Minimum Guaranteed
Death Benefit".)
A face amount reduction takes effect as of the first day of the Policy month on
or after the date when we receive a request. You can contact your registered
representative or the Home Office for information on face reduction procedures.
A reduction in the face amount of a Policy may create a "modified endowment
contract". If you are contemplating a reduction in face amount, you should con-
sult your tax advisor regarding the tax consequences of the transac-
tion. (See "Tax Considerations".)
INVESTMENT OPTIONS
You can allocate your Policy's premiums among the sub-accounts of the Variable
Account and the Fixed Account in any combination, as long as you choose no more
than nine accounts (including the Fixed Account) at any one
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time. The Policy provides that you must allocate a minimum of 10% of the
premium to each sub-account selected and that you must allocate whole
percentages; currently, we will permit you to allocate any whole percentage to
a sub-account. You can allocate your Policy's cash value among no more than
nine accounts (including the Fixed Account) at any one time.
You make the initial allocation when you apply for a Policy. You can change the
allocation of future premiums at any time thereafter. The change will be
effective for premiums applied on or after the date when we receive your
request. You may request the change by telephone or by written request. (See
"Receipt of Communications and Payments at NELICO's Home Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
After the Right to Return the Policy period, you may transfer your Policy's
cash value between sub-accounts. We reserve the right to limit sub-account
transfers to four per Policy year (twelve per Policy year for Policies issued
in New York and New Jersey). 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. We treat all sub-account transfer requests made at
the same time as a single request. The transfer is effective as of the date
when we receive the transfer request. (See "Receipt of Communications and
Payments at NELICO's Home Office".) For special rules regarding transfers
involving the Fixed Account, see "The Fixed Account".
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisors or registered representatives acting under power(s) of attorney from
one or more Policy owners. In addition, the Metropolitan Series Fund, Inc. may
restrict or refuse purchases or redemptions of shares in its Portfolios as a
result of certain market timing activities. You should read the prospectuses of
these Eligible Funds for more details.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to us or by telephoning us. To
request a transfer or reallocation by telephone, you should contact your
registered representative or contact us at 1-800-200-2214. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Any telephone instructions that we reasonably believe to be genuine are your
responsibility, including losses arising from any errors in the communication
of instructions.
DOLLAR COST AVERAGING
We plan to offer an automated transfer privilege called dollar cost averaging.
The same dollar amount is transferred to selected Sub-Accounts (and/or the
Fixed Account) periodically. Over time, more purchases of Eligible Fund shares
are made when the value of those shares is low, and fewer shares are purchased
when the value is high. As a result, a lower than average cost of purchases may
be achieved over the long term. This plan of investing allows you to take
advantage of investment fluctuations, but does not assure a profit or protect
against a loss in declining markets.
Under this feature, you may request that a certain amount of your cash value be
transferred on any selected business day of each 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 nine 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
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"Asset Rebalancing" below.) You can cancel your use of the dollar cost
averaging program at any time before a transfer date. Transfers will continue
until you notify us to stop or there no longer is sufficient cash value in the
Sub-Account from which you are transferring. 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 calendar 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.
PAYMENT OF PROCEEDS
We ordinarily pay any net cash value, loan value or death benefit proceeds
coming from the sub-accounts within seven days after we receive a request, or
satisfactory proof of death of an insured (and any other information we need to
pay the death proceeds). (See "Receipt of Communications and Payments at
NELICO's Home Office".) However, we may delay payment (except when a loan is
made to pay a premium to us ) or transfers from the sub-accounts: (i) if the
New York Stock Exchange is closed for other than weekends or holidays, or
trading on the New York Stock Exchange is restricted, (ii) if the SEC
determines that an emergency exists that makes payments or sub-account
transfers impractical, or (iii) at any other time when the Eligible Funds or
the Variable Account have the legal right to suspend payment.
We may withhold payment of surrender or loan proceeds if those proceeds are
coming from a Policy Owner's check, or from a Master Service Account premium
transaction, which has not yet cleared. We may also delay payment while we
consider whether to contest the Policy. We pay interest on the death benefit
proceeds from the date they become payable to the date we pay them.
The beneficiary can elect our Access Plus program for payment of death proceeds
at any time before we pay them. We establish an Access Plus account at a
banking institution at the time for payment. The Access Plus account gives
convenient access to the proceeds, which are maintained in our general account
or that of an affiliate, through checkbook privileges with the bank.
Normally we promptly make payments of net cash value, or of any loan value
available, from cash value in the Fixed Account. However, we may delay those
payments for up to six months. We pay interest in accordance with state
insurance law requirements on delayed payments.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
During the first 24 months after the Policy's issue date, you can exchange it
for a fixed-benefit traditional survivorship life insurance policy, provided
that (1) you repay any policy loans and (2) the Policy has not lapsed.
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This exchange is available to a surviving insured. If you exercise this option,
you will have to make up any investment loss you had under the variable life
insurance policy. We make the exchange without evidence of insurability. The
new policy will have the same face amount as the original Policy on the date of
the exchange, and the same policy date, issue ages and risk classifications as
the original Policy. We will attach any riders to the original Policy to the
new policy if they are available.
Contact us or your registered representative for more specific information
about the exchange. The exchange may result in a cost or credit to you.
For a Policy issued to some group or sponsored arrangements, you may (if
approved in your state) have the additional option of exchanging at any time
during the first 36 months after the Policy's issue date, if the Policy has not
lapsed, to a fixed-benefit term life insurance policy issued by us or an
affiliate. Contact us or your registered representative for more information
about this feature.
POLICY SPLIT RIDER
Subject to state availability and our underwriting guidelines, we may issue or
amend your Policy with a split rider which allows you to "split" the Policy
into two new NELICO individual flexible premium adjustable variable life
insurance policies. The rider permits you to split the Policy in the event of
divorce of the insureds, if certain federal tax law changes occur, or if
certain business circumstances change (each, a "split event"). The rider lists
the requirements for a split event. If you exercise the split rider, this
Policy will be canceled, and we will transfer its cash value (in equal
portions, unless we agree otherwise) to two new individual policies issued on
the effective date of the split. A new Surrender Charge will apply to each
individual policy. We will issue each new policy with either a level or
variable death benefit option in effect, depending on which type of death
benefit option you have under this Policy at the time of the split.
For more information about the Policy split rider you should contact us or your
registered representative. You can request a prospectus and additional
information regarding the individual policies that are issued following a
split. For a discussion of the possible tax consequences of splitting the
Policy, see "Tax Considerations."
PAYMENT OPTIONS
We pay the Policy's death benefit and net cash value in one sum, unless you or
the payee choose a payment option for all or part of the proceeds. You can
choose a combination of payment options. You can make, change or revoke the
selection of payee or payment option before the last death under the Policy.
You can contact your registered representative or the Home Office for the
procedure to follow. The payment options available are fixed benefit options
only and are not affected by the investment experience of the Variable Account.
Once payments under an option begin, withdrawal rights may be restricted.
The following payment options are available:
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. We pay proceeds in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.5% a year, compounded yearly. Additional interest for any
year is added to the monthly payments for that year.
(ii) LIFE INCOME. We pay proceeds in equal monthly installments (i) during
the life of the payee, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20
years.
(iii) LIFE INCOME WITH REFUND. We pay proceeds in equal monthly
installments during the life of the payee. At the payee's death, we
pay any unpaid proceeds remaining either in one sum or in equal
monthly installments until we have paid the total proceeds.
(iv) INTEREST. We hold proceeds for the life of the payee or another agreed
upon period. We pay interest of at least 3.5% a year monthly or add it
to the principal annually. At the death of the payee, or at the end of
the period agreed to, we pay the balance of principal and any interest
in one sum.
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(v) SPECIFIED AMOUNT OF INCOME. We pay proceeds plus accrued interest of at
least 3.5% a year in an amount and at a frequency elected until we have
paid total proceeds. We pay any amounts unpaid at the death of the
payee in one sum.
(vi) LIFE INCOME FOR TWO LIVES. We pay proceeds in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the life of the surviving payee or 10 years, or (iii) while
the two payees are living and, after the death of one payee, we pay
two-thirds of the monthly amount for the life of the surviving payee.
You need our consent to use an option if the installment payments would be less
than $20.
ADDITIONAL BENEFITS BY RIDER
You can add additional benefits to the Policy by rider, subject to our
underwriting and issuance standards. These additional benefits usually require
an additional charge as part of the Monthly Deduction from cash value. The
rider benefits available with the Policies provide fixed benefits that do not
vary with the investment experience of the Variable Account.
It may be to your economic advantage to include a significant portion of your
insurance coverage under a joint life term insurance rider to age 100.
Reductions in or elimination of term rider coverage does not trigger a
surrender charge, and use of a term rider generally reduces sales compensation.
However, like the cost of coverage under the Policy, charges deducted from the
Policy's cash value to pay for term rider coverage no longer participate in the
investment experience of the Variable Account, and usually increase with the
age of the covered individual. Your registered representative can provide you
more information on the uses of term rider coverage.
The following riders are available:
TERM RIDER--JOINT LIFE TERM INSURANCE TO AGE 100, which provides joint life
term insurance.
TERM RIDER--JOINT 4 YEAR TERM INSURANCE, which provides joint life term
insurance for four policy years.
TERM RIDER--LEVEL SINGLE LIFE TERM INSURANCE, which provides additional
term insurance on one of the insureds.
TERM RIDER--DECREASING SINGLE LIFE TERM INSURANCE, which provides
additional term insurance on one of the insureds in an amount that
decreases each year to zero over a coverage period of 10, 15 or 20 years.
WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly
Deductions upon the disability of the insured covered by the waiver.
BENEFITS FOR DISABILITY OF COVERED INSUREDS, which provides for waiver of
the cost of the rider itself and for a premium benefit upon the disability
of an insured covered by the rider.
An extended maturity endorsement and/or a Policy split rider may also be
available. (See "Extending the Maturity Date" and "Policy Split Rider".) Not
all riders may be available to you and riders in addition to those listed above
may be made available. You should consult your registered representative
regarding the availability of riders.
POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy Owner's
rights (except for rights to payment of benefits) terminate at the death of the
second insured.
The beneficiary is also named in the application. You may change the
beneficiary at any time before the death of the second insured. The beneficiary
has no rights under the Policy until the death of the second insured and must
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survive the second insured in order to receive the death proceeds. If no named
beneficiary survives the second insured, we pay proceeds to the Policy Owner.
A change of Policy Owner or beneficiary is subject to all payments made and
actions taken by us under the Policy before we receive a signed change form.
You can contact your registered representative or the Home Office for the
procedure to follow.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments are subject to all payments made and actions taken
by us under the Policy before we receive a signed copy of the assignment form.
We are not responsible for determining whether or not an assignment is valid.
Changing the Policy Owner or assigning the Policy may have tax consequences.
(See "Tax Considerations" below.)
THE VARIABLE ACCOUNT
We established the Variable Account as a separate investment account on January
31, 1983 under Delaware law. It became subject to Massachusetts law when we
changed our domicile to Massachusetts on August 30, 1996. The Variable Account
is the funding vehicle for the Policies and other NELICO variable life
insurance policies; these other policies impose different costs, and provide
different benefits, from the Policies. The Variable Account meets the
definition of a "separate account" under Federal securities laws, and is
registered with the Securities and Exchange Commission (the "SEC") as a unit
investment trust under the Investment Company Act of 1940. Registration with
the SEC does not involve SEC supervision of the Variable Account's management
or investments. However, the Massachusetts Insurance Commissioner regulates
NELICO and the Variable Account, which are also subject to the insurance laws
and regulations where the Policies are sold.
Although we own the assets of the Variable Account, applicable law provides
that the portion of the Variable Account assets equal to the reserves and other
liabilities of the Variable Account may not be charged with liabilities that
arise out of any other business we may conduct. We believe this means that the
assets of the Variable Account equal to the reserves and other liabilities of
the Variable Account are not available to meet the claims of our general
creditors, and may only be used to support the cash values under our variable
life insurance policies issued by the Variable Account. We may transfer to our
general account assets which exceed the reserves and other liabilities of the
Variable Account. We will consider any possible adverse impact such a transfer
might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of our other
income or capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
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.
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The Zenith Westpeak Stock Index Series. Its investment objective is investment
results that correspond to the composite price and yield performance of the S&P
500 Index.
The Zenith Back Bay Advisors Managed Series. Its investment objective is a
favorable total return through investment in a diversified portfolio.
The Zenith Westpeak Growth and Income Series. Its investment objective is long-
term total return through investment in equity securities.
The Zenith Harris Oakmark Mid Cap Value Series (formerly, the Goldman Sachs
Midcap Value Series). Its investment objective is long-term capital
appreciation.
The Zenith Loomis Sayles Small Cap Series. Its investment objective is long-
term capital growth from investments in common stocks or their equivalents.
The Zenith Balanced Series (formerly, the Loomis Sayles Balanced Series). Its
investment objective is long-term total return from a combination of capital
appreciation and current income.
The Zenith Morgan Stanley International Magnum Equity Series. Its investment
objective is long-term capital appreciation through investment primarily in
international equity securities. In addition to the risks associated with
equity securities generally, foreign securities present additional risks.
The Zenith Davis Venture Value Series. Its investment objective is growth of
capital.
The Zenith Alger Equity Growth Series. Its investment objective is long-term
capital appreciation.
The Zenith MFS Investors Series. Its investment objective is reasonable current
income and long-term growth of capital and income.
The Zenith MFS Research Managers Series. Its investment objective is long-term
growth of capital.
The Metropolitan Putnam Large Cap Growth Portfolio.* Its investment objective
is capital appreciation.
The Metropolitan Janus Mid Cap Portfolio.* Its investment objective is long-
term growth of capital.
The Metropolitan Russell 2000 Index Portfolio.* Its investment objective is to
equal the return of the Russell 2000 Index.
The VIP Equity-Income Portfolio. It seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500.
The VIP Overseas Portfolio. It seeks long-term growth of capital. Foreign
markets, particularly emerging markets, can be more volatile than the U.S.
market due to increased risks of adverse issuer, political, regulatory, market
or economic developments and can perform differently than the U.S. market.
The VIP High Income Portfolio. It seeks a high level of current income while
also considering growth of capital. Lower-quality debt securities (those of
less than investment-grade quality) can be more volatile due to increased
sensitivity to adverse issuer, political, regulatory, market or economic
developments.
The VIP II Asset Manager Portfolio. It seeks high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds and short-
term instruments.
- --------
* Availability of these Portfolios is subject to any necessary state insurance
department approvals.
WE INTEND TO SUBSTITUTE SHARES OF THE PUTNAM INTERNATIONAL STOCK PORTFOLIO OF
THE METROPOLITAN SERIES FUND, INC. FOR SHARES OF THE MORGAN STANLEY
INTERNATIONAL MAGNUM EQUITY SERIES OF THE NEW ENGLAND ZENITH FUND ONCE WE
RECEIVE NECESSARY REGULATORY APPROVAL (CURRENTLY ANTICIPATED DURING THE FOURTH
QUARTER OF 2000).
The Zenith Fund and the Metropolitan Series Fund, Inc. are open-end management
investment companies, more commonly known as mutual funds. These funds are
available as investment vehicles for separate investment accounts of MetLife,
NELICO and other life insurance companies.
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VIP and VIP II are mutual funds that serve as the investment vehicles for
variable life insurance and variable annuity separate accounts of various
insurance companies.
The Variable Account purchases and sells Eligible Fund shares at their net
asset value (without a deduction for sales load) determined as of the close of
regular trading on the New York Stock Exchange on each day when the exchange is
open for trading.
The Eligible Funds' investment objectives may not be met. More about the
Eligible Funds, including their investments, expenses, and risks is in the
attached Eligible Fund prospectuses and the Eligible Funds' Statements of
Additional Information.
The investment objectives and policies of certain Eligible Funds are similar to
the investment objectives and policies of other funds that may be managed by
the same sub-adviser. The investment results of the Eligible Funds may be
higher or lower than the results of these funds. There is no assurance, and no
representation is made, that the investment results of any of the Eligible
Funds will be comparable to the investment results of any other fund.
INVESTMENT MANAGEMENT
The chart below shows the adviser and sub-adviser for each series of the Zenith
Fund. New England Investment Management, which is an indirect, wholly-owned
subsidiary of NELICO, CGM, and each of the sub-advisers are registered with the
SEC as investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ---------------------------------- ------------------------------
<S> <C> <C>
Capital Growth Capital Growth Management Limited
Partnership ("CGM")*
Back Bay Advisors Money New England Investment Management, Back Bay Advisors, L.P.*
Market Inc.
Back Bay Advisors Bond New England Investment Management, Back Bay Advisors, L.P.*
Income Inc.
Back Bay Advisors Man- New England Investment Management, Back Bay Advisors, L.P.*
aged Inc.
Westpeak Stock Index New England Investment Management, Westpeak Investment Advisors,
Inc. L.P.*
Westpeak Growth and In- New England Investment Management, Westpeak Investment Advisors,
come Inc. L.P.*
Loomis Sayles Small Cap New England Investment Management, Loomis, Sayles & Company,
Inc. L.P.*
Balanced New England Investment Management, Wellington Management Company,
Inc. LLP
Morgan Stanley New England Investment Management, Morgan Stanley Dean Witter
International Magnum Inc. Investment Management Inc.
Equity
Harris Oakmark Mid Cap New England Investment Management, Harris Associates L.P.*
Value Inc.
Davis Venture Value New England Investment Management, Davis Selected Advisers,
Inc. L.P.**
Alger Equity Growth New England Investment Management, Fred Alger Management, Inc.
Inc.
MFS Investors New England Investment Management, Massachusetts Financial
Inc. Services Company
MFS Research Managers New England Investment Management, Massachusetts Financial
Inc. Services Company
</TABLE>
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* 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 until May 1, 1997, when Morgan
Stanley Dean Witter Investment Management (formerly Morgan Stanley Asset
Management) became the sub-adviser. The Harris Oakmark Mid Cap Value Series'
sub-adviser was Loomis, Sayles until May 1, 1998, when Goldman Sachs Asset
Management, a separate operating division of Goldman Sachs & Co., became the
sub-adviser. Harris Associates became the sub-adviser on May 1, 2000. The
Balanced Series' sub-adviser was Loomis, Sayles until May 1, 2000, when
Wellington Management Company became the sub-adviser. For more information
about the Series' advisory agreements, see the Zenith Fund prospectus attached
at the end of this prospectus and the Zenith Fund's Statement of Additional
Information.
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MetLife is the investment adviser for the Metropolitan Series Fund Portfolios.
Putnam Investment Management, Inc. is the sub-investment manager of the Putnam
Large Cap Growth Portfolio. Janus Capital Corporation is the sub-investment
manager of the Janus Mid Cap Portfolio. For more information regarding the
investment adviser and sub-investment managers of the Metropolitan Series Fund
Portfolios, see the Metropolitan Series Fund prospectus attached at the end of
this prospectus and its Statement of Additional Information.
Fidelity Management & Research Company ("FMR") is the investment adviser for
VIP and VIP II. For more information regarding the VIP Equity-Income, VIP
Overseas, VIP High Income and VIP II Asset Manager Portfolios and FMR, see the
VIP and VIP II prospectuses attached at the end of this prospectus and their
Statements of Additional Information.
THE FIXED ACCOUNT
THE POLICY HAS A FIXED ACCOUNT OPTION ONLY IN STATES THAT APPROVE IT.
You may allocate net premiums and transfer cash value to the Fixed Account,
which is part of NELICO's general account. Because of exemptive and
exclusionary provisions in the Federal securities laws, interests in the Fixed
Account are not registered under the Securities Act of 1933. Neither the Fixed
Account nor the general account is registered as an investment company under
the Investment Company Act of 1940. Therefore, neither the Fixed Account, the
general account nor any interests therein are generally subject to the
provisions of these Acts, and the SEC does not review Fixed Account disclosure.
This disclosure may, however, be subject to certain provisions of the Federal
securities laws on the accuracy and completeness of prospectuses.
GENERAL DESCRIPTION
Our general account includes all of our assets, except assets in the Variable
Account or in our other separate accounts. We decide how to invest our general
account assets. Fixed Account allocations do not share in the actual investment
experience of the Fixed Account. Instead, we guarantee that the Fixed Account
will credit interest at an annual effective rate of at least 4%. We may or may
not credit interest at a higher rate. We declare the current interest rate for
the Fixed Account periodically. The Fixed Account earns interest daily.
We can change our Fixed Account interest crediting procedures. Currently, all
cash value in the Fixed Account on a Policy anniversary earns interest at the
declared annual rate in effect on the anniversary until the next Policy
anniversary, when it is credited with our current rate. (Although our current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with our current annual rate until the next anniversary, we can
select any portion, from 0% to 100%, of your Fixed Account cash value on a
Policy anniversary to earn interest at our current rate until the next Policy
anniversary, unless otherwise required by state law.) Any net premiums
allocated or cash value transferred to the Fixed Account on a date other than a
Policy anniversary earn interest at our current rate until the next Policy
anniversary. The effective interest rate is a weighted average of all the Fixed
Account rates for your Policy.
VALUES AND BENEFITS
Cash value in the Fixed Account increases from net premiums allocated and
transfers to the Fixed Account and Fixed Account interest, and decreases from
loans, partial surrenders made from the Fixed Account, charges, and transfers
from the Fixed Account. We deduct charges from the Fixed Account and the
Policy's sub-accounts in proportion to the amount of cash value in each. (See
"Monthly Deduction from Cash Value".) A Policy's total cash value includes cash
value in the Variable Account, the Fixed Account, and any cash value held in
our general account (but outside of the Fixed Account) due to a Policy loan.
Cash value in the Fixed Account is included in the calculation of the Policy's
death benefit in the same manner as the cash value in the Variable Account.
(See "Death Benefit".)
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<PAGE>
POLICY TRANSACTIONS
We can restrict allocations and transfers to the Fixed Account if the effective
annual rate of interest on the amount would be 4%. Otherwise, the requirements
for Fixed Account and Variable Account allocations are the same. (See
"Allocation of Net Premiums".)
Except as described below, the Fixed Account has the same rights and
limitations about premium allocations, transfers, loans, surrenders and partial
surrenders as the Variable Account. (See "Other Policy Features".) The
following special rules apply to the Fixed Account.
TRANSFERS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT ARE ALLOWED ONLY ONCE
IN EACH POLICY YEAR. WE PROCESS A TRANSFER FROM THE FIXED ACCOUNT IF WE RECEIVE
THE TRANSFER REQUEST NO MORE THAN 30 DAYS BEFORE THE POLICY ANNIVERSARY. WE
MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER REQUEST AT OUR HOME
OFFICE. YOU MAY ALSO REQUEST A TRANSFER FROM THE FIXED ACCOUNT WITHIN 30 DAYS
AFTER A POLICY ANNIVERSARY IF YOU HAVE NOT REQUESTED SUCH A TRANSFER IN THE 30
DAY PERIOD BEFORE THE ANNIVERSARY.
THE AMOUNT OF CASH VALUE YOU MAY TRANSFER FROM THE FIXED ACCOUNT IS LIMITED TO
THE GREATER OF 25% OF THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE
TRANSFER DATE OR THE AMOUNT OF CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT IN
THE PRECEDING POLICY YEAR. Regardless of these limits, if a transfer of cash
value from the Fixed Account would reduce the remaining cash value in the Fixed
Account below $100, you may transfer the entire amount of Fixed Account cash
value. 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 and New Jersey). 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.
We pay the following commissions and/or service fees to the selling agent: a
maximum of 50% of the Target Premium paid in the first Policy year; 5% in
Policy years two through ten; and 4% thereafter. Agents receive a
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<PAGE>
commission of 3% of each payment in excess of the Target Premium in any year.
Agents who meet certain NELICO productivity and persistency standards may be
eligible for additional compensation. 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. We may pay certain broker-dealers an additional
bonus after the first Policy year on behalf of certain registered
representatives, which may be up to the amount of the basic commission for the
particular Policy year. We pay commissions through the registered broker-
dealer, and may also pay additional compensation to the broker dealer and/or
reimburse it for portions of Policy sales expenses. The registered
representative may receive a portion of the expense reimbursement allowance
paid to the broker-dealer.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
NOTIFICATION OF FIRST DEATH
Generally, we can challenge the validity of your Policy or a rider during
either insured's lifetime for two years (or less, if required by state law)
from the date of issue, based on misrepresentations made in the application. We
can challenge the portion of the death benefit resulting from an underwritten
premium payment for two years (during either insured's lifetime) from the
premium payment. However, if either insured dies within two years of the date
of issue, we can challenge all or part of the Policy at any time, based on
misrepresentations relating to that insured.
You should notify us immediately upon the first death of an insured under the
Policy. Even if premiums continue to be paid after the first death, we
generally can contest the Policy or limit benefits under the suicide provision
(described below) and terminate the Policy at any time, even beyond the two-
year period, if we were not notified of a death that occurred during the period
of contestability. Policies issued in New York are not contestable after they
have been in force for two years during the life of either insured.
MISSTATEMENT OF AGE OR SEX
If either insured's age or sex is misstated in the application, the Policy's
death benefit is the amount that the most recent Monthly Deduction which was
made would provide, based on the insureds' correct ages and, if the Policy is
sex-based, correct sexes.
SUICIDE
If either of the insureds dies by suicide within two years (or less, if
required by state law) from the date of issue, the death benefit is limited to
premiums paid, less any policy loan balance and partial surrenders (more in
some states). The Policy will terminate as of the date of the first death by
suicide.
An eligible insured, if age 75 or younger, can request a new single life
variable life insurance policy, with the same face amount as the original
Policy, within 60 days of the date of the suicide. An eligible insured over age
75 may request a single life ordinary (not variable) life policy. (For Policies
issued in New Jersey, we will issue a single life variable life insurance
policy on the surviving insured, regardless of that insured's current age or
insurability. It is not necessary for the insured to request the new policy.)
Contact us or your registered representative for more information.
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<PAGE>
TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income tax
considerations associated with the Policies and does not purport to be complete
or to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete
information. This discussion is based upon our understanding of the present
Federal income tax laws. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied to a survivorship life policy is limited. Thus,
some uncertainty exists regarding the Federal income tax treatment of
survivorship life policies. Nevertheless, we believe that it is reasonable to
conclude that the Policies will satisfy the applicable requirements. If it is
subsequently determined that a Policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the Policy into compliance
with such requirements and we reserve the right to restrict Policy transactions
in order to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the owners of the assets of
the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to allocate
payments and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Policy Owners
investment control over Variable Account assets, we reserve the right to modify
the Policies as necessary to prevent a Policy Owner from being treated as the
owner of the Variable Account assets supporting the Policies.
In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through the Eligible Funds, will satisfy these
diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Policy Owner or beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the Policy Owner will not be deemed to be in constructive receipt of
the Policy cash value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with less
favorable income tax treatment than other life insurance contracts. In general
a Policy will be classified as a Modified Endowment Contract if the amount of
premiums paid into the Policy causes the Policy to fail the "7-pay test." A
Policy will fail the 7-pay test if at any time in the first seven
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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 at any time, 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, the Policy may have to be retested as if it were a newly issued Policy.
A material change can occur, for example, when there is an increase in the
death benefit which is due to the payment of an unnecessary premium.
Unnecessary premiums are premiums paid into the Policy which are not needed in
order to provide a death benefit equal to the lowest death benefit that was
payable in the first seven Policy years. To prevent your Policy from becoming a
Modified Endowment Contract, it may be necessary to limit premium payments or
to limit reductions in benefits. A current or prospective Policy Owner should
consult a tax advisor to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a Modified Endowment Contract will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Policy Owner's investment in the Policy only after
all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Policy Owner has
attained age 59 1/2 or is disabled, or where the distribution is part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the Policy Owner or the joint lives (or joint life
expectancies) of the Policy Owner and the Policy Owner's beneficiary or
designated beneficiary.
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 15 Policy
years is less clear and a tax adviser should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate Premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
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<PAGE>
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.
TAX TREATMENT OF POLICY SPLIT. The policy split rider permits a Policy to be
split into two individual Policies. It is not clear whether exercising the
policy split rider will be treated as a taxable transaction or whether the
individual Policies that result would be classified as Modified Endowment
Contracts. A competent tax advisor should be consulted before exercising the
policy split rider.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance,
transfer, and other tax consequences depend on the individual circumstances of
each Policy Owner or beneficiary.
The tax consequences of continuing the Policy beyond the insured's 100th year
are unclear. You should consult a tax adviser if you intend to keep the Policy
in force beyond the insured's 100th year.
The transfer of the Policy or designation of a beneficiary may have federal,
state, and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate, and generation-skipping transfer taxes. For
example, the transfer of the Policy to, or the designation as a beneficiary of,
or the payment of proceeds to, a person who is assigned to a generation which
is two or more generations below the generation assignment of the Policy Owner
may have generation skipping transfer tax consequences under federal tax law.
The individual situation of each Policy Owner or beneficiary will determine the
extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of Policy proceeds will be
treated for purposes of federal, state and local estate, inheritance,
generation skipping and other taxes.
If a trustee under a pension or profit-sharing plan, or similar deferred
compensation arrangement, owns a Policy, the Federal, state and estate tax
consequences could differ. The amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan are limited. The
current cost of insurance for the net amount at risk is treated as a "current
fringe benefit" and must be included annually in the plan participant's gross
income. We report this cost (generally referred to as the "P.S. 58" cost) to
the participant annually. If the plan participant dies while covered by the
plan and the Policy proceeds are paid to the participant's beneficiary, then
the excess of the death benefit over the cash value is not taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. Policies owned under these types of
plans may be subject to restrictions under the Employee Retirement Income
Security Act of 1974 ("ERISA"). You should consult a qualified adviser
regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with
the requirements and provisions of the DOL regulations and of tax law may
result in adverse tax consequences and/or adverse consequences under ERISA.
Plan fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
Businesses can use the Policies in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, tax exempt and nonexempt welfare benefit plans,
retiree medical benefit plans and others. The tax consequences of such plans
may vary depending on the particular facts and circumstances. If you are
purchasing the Policy for any arrangement the value of which depends in part on
its tax consequences, you should consult a qualified tax adviser. In recent
years, moreover, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new Policy or
a change in an existing Policy should consult a tax adviser.
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<PAGE>
We believe that Policies subject to Puerto Rican tax law will generally receive
treatment similar, with certain modifications, to that described above. Among
other differences, Policies governed by Puerto Rican tax law are not currently
subject to the rules described above regarding Modified Endowment Contracts.
You should consult your tax adviser with respect to Puerto Rican tax law
governing the Policies.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the Policy
could change by legislation or otherwise. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
NELICO'S INCOME TAXES
Under current Federal income tax law NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for company Federal income taxes. (We do deduct a charge for
Federal taxes from premiums.) We reserve the right to charge the Variable
Account for any future Federal income taxes we may incur.
Under current laws we may incur state and local taxes (in addition to premium
taxes). These taxes are not now significant and we are not currently charging
for them. If they increase, we may deduct charges for such taxes.
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
James M. Benson......... Chairman, President and Chief Executive Officer of NELICO
since 1998 and President, Individual Business of
Metropolitan Life Insurance Company since 1999; formerly,
Director, President and Chief Operating Officer 1997-1998
of NELICO; President and Chief Executive Officer 1996-
1997 of Equitable Life Assurance Society; President and
Chief Operating Officer 1996-1997 of Equitable Companies,
Inc.; President and Chief Operating Officer 1994-1996 of
Equitable Life Assurance Society.
Robert H. Benmosche..... Director of NELICO since 1998 and Chairman, President and
Metropolitan Life In- Chief Executive Officer of Metropolitan Life Insurance
surance Company Company since 1998; formerly, Director, President and
One Madison Avenue Chief Operating Officer 1997-1998; Executive Vice
New York, New York President 1995-1997 of Metropolitan Life; Executive Vice
10010 President 1989-1995 of Paine Webber.
Susan C. Crampton....... Director of NELICO since 1996 and serves as Principal of
6 Tarbox Road The Vermont Partnership, a business consulting firm
Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England Mutual.
Edward A. Fox........... Director of NELICO since 1996 and Chairman of the Board of
RR Box 67-15 SLM Holdings since 1997; formerly, Director 1994-1996 of
Harborside, ME 04642 New England Mutual.
George J. Goodman....... Director of NELICO since 1996 and author, television
Adam Smith's Global journalist, and editor.
Television
50th Floor, Craig Drill
Capital
General Motors Building
767 Fifth Street
New York, NY 10153
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Dr. Evelyn E. Handler... Director of NELICO since 1996 and President of Merrimack
Ten Sterling Place Higher Education Associates, Inc. since 1998; formerly
Bow, NH 03304 Director 1987-1996 of New England Mutual and Executive
Director and Chief Executive Officer 1994-1997 of the
California Academy of Sciences and Research Fellow.
Philip K. Howard, Esq... Director of NELICO since 1996 and Partner of the law firm
Covington & Burling 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 of
Burlington Industries the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc.; Director and Executive Vice President
Americas 1993-1995 of Burlington Menswear Division.
New York, NY 10105
Thomas J. May........... Director of NELICO since 1996 and Chairman, President and
Boston Edison Company Chief Executive Officer of Boston Edison Company since
800 Boylston Street 1994; formerly, Director 1994-1996 of New England Mutual.
Boston, MA 02199
Stewart G. Nagler....... Director of NELICO since 1996 and Vice Chairman of Board
Metropolitan Life and Chief Financial Officer of Metropolitan Life
One Madison Avenue Insurance Company since 1998; formerly, Senior Executive
New York, NY 10010 Vice President and Chief Financial Officer 1986-1998 of
Metropolitan Life Insurance Company.
Catherine A. Rein....... Director of NELICO since 1998 and President and Chief
Metropolitan Property & Executive Officer of Metropolitan Property & Casualty
Casualty Insurance Company since 1999; formerly, Senior Executive
Insurance Company Vice President 1998-1999; Executive Vice President 1989-
700 Quaker Lane 1998 of Metropolitan Life Insurance Company.
Warwick, RI 02887
Rand N. Stowell......... Director of NELICO since 1996 and President of United
P.O. Box 60 Timber Corp. 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
---- -----------------------------
<S> <C>
James M. Benson..... See Directors above
David W. Allen...... Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 of New England Mutual.
A. Frank Beaz....... Executive Vice President of NELICO since 1999; formerly,
Senior Vice President 1998-1999 of NELICO; Chief
Administrative Officer and Senior Vice President 1997-
1998 of Equitable Distributors and Senior Vice President
1994-1997 of the Equitable Life Insurance Companies.
Pauline V. Belisle.. Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 of New England Mutual.
Mary Ann Brown...... President, New England Products and Services (a business
unit of NELICO) since 1998; formerly, Director, Worldwide
Life Insurance 1997-1998 of Swiss Reinsurance New
Markets; President & Chief Executive Officer 1996-1998 of
Atlantic International Reinsurance Company; Executive
Vice President 1996-1997 of Swiss Re Atrium and Swiss Re
Services and Principal 1987-1996 of Tillinghast/Towers
Perrin.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
Anthony J. Candito...... President, NEF Information Services (a business unit of
NELICO) and Chief Information Officer since 1998;
formerly, Senior Vice President 1996-1998 of NELICO;
Senior Vice President 1995-1996 and Vice President 1994-
1995 of New England Mutual.
Anne Marie Faria........ Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
Thom A. Faria........... President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice President in
1996, Senior Vice President 1993-1996 of New England
Mutual.
Anne M. Goggin.......... Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and Counsel
of NELICO in 1996, Vice President and Counsel 1994-1996
of New England Mutual.
Daniel D. Jordan........ Second Vice President, Counsel, Secretary and Clerk since
1996; formerly, Counsel and Assistant Secretary 1990-1996
of New England Mutual.
Alan C. Leland, Jr. .... Senior Vice President of NELICO since 1996; formerly, Vice
President 1984-1996 of New England Mutual.
George J. Maloof........ Senior Vice President of NELICO since 1996; formerly, Vice
President 1991-1996 of New England Mutual.
Kenneth D. Martinelli... Senior Vice President of NELICO since 1999; formerly, Vice
President 1997-1999 of NELICO and Vice President 1994-
1997 of The Equitable Life Assurance Company.
Thomas W. McConnell..... Senior Vice President of NELICO since 1996 and Director,
Chief Executive Officer and President of New England
Securities Corporation since 1993.
Hugh C. McHaffie........ Senior Vice President of NELICO since 1999; formerly, Vice
President 1994-1999 of Manufacturers Life Insurance
Company of North America.
Stephen J. McLaughlin... Senior Vice President of NELICO since 1999; formerly, Vice
President 1996-1999 of NELICO and Vice President 1994-
1996 of New England Mutual.
Thomas W. Moore......... Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
David Y. Rogers......... Executive Vice President and Chief Financial Officer of
NELICO since 1999; formerly, Partner, Actuarial
Consulting 1992-1999 of Price Waterhouse Coopers LLP.
John G. Small, Jr....... President, New England Services (a business unit of
NELICO) since 1997; formerly, Senior Vice President 1996-
1997 of NELICO and Senior Vice President 1990-1996 of New
England Mutual.
H. James Wilson......... Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996 of New England Mutual.
</TABLE>
The principal business address for each of the directors and officers is the
same as NELICO's except where indicated.
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.
A-44
<PAGE>
Policy Owners who are entitled to give voting instructions and the number of
shares attributable to their Policies are determined as of the meeting record
date. If we do not receive timely instructions, we will vote shares in the same
proportion as (i) the aggregate cash value of policies giving instructions,
respectively, to vote for, against, or withhold votes on a proposition, bears
to (ii) the total cash value in that sub-account for all policies for which we
receive voting instructions. No voting privileges apply to the Fixed Account or
to cash value removed from the Variable Account due to a Policy loan.
We will vote all Eligible Fund shares held by our general account (or any
unregistered separate account for which voting privileges were not extended) in
the same proportion as the total of (i) shares for which voting instructions
were received and (ii) shares that are voted in proportion to such voting
instructions.
The Eligible Funds' Boards of Trustees monitor events to identify conflicts
that may arise from the sale of Eligible Fund shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could result from changes in state
insurance law or Federal income tax law, changes in investment management of an
Eligible Fund, or differences in voting instructions given by variable life and
variable annuity contract owners. If there is a material conflict, the Board of
Trustees will determine what action should be taken, including the removal of
the affected sub-accounts from the Eligible Fund(s), if necessary. If we
believe any Eligible Fund action is insufficient, we will consider taking other
action to protect Policy Owners. There could, however, be unavoidable delays or
interruptions of operations of the Variable Account that we may be unable to
remedy.
We may disregard voting instructions for changes in the investment policy,
investment adviser or principal underwriter of an Eligible Fund portfolio if
required by state insurance law, or if we (i) reasonably disapprove of the
changes and (ii) in the case of a change in investment policy or investment
adviser, make a good faith determination that the proposed change is prohibited
by state authorities or inconsistent with a sub-account's investment
objectives. If we do disregard voting instructions, the next annual report to
Policy Owners will include a summary of that action and the reasons for it.
RIGHTS RESERVED BY NELICO
We and our affiliates may change the voting procedures described above, and
vote Eligible Fund shares without Policy Owner instructions, if the securities
laws change. We also reserve the right: (1) to add sub-accounts; (2) to combine
sub-accounts; (3) to substitute shares of a new fund for shares of an Eligible
Fund (the new fund may have different fees and expenses), to close a sub-
account to allocations of premium payments or cash value or both at any time in
our sole discretion, or to transfer assets to our general account as permitted
by applicable law; (4) to operate the Variable Account as a management
investment company under the Investment Company Act of 1940 or in any other
form; and (5) to deregister the Variable Account under the Investment Company
Act of 1940. We will exercise these rights in accordance with applicable law,
including approval of Policy Owners if required. We will notify you if exercise
of any of these rights would result in a material change in the Variable
Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-accounts,
call 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of Additional
Information for the Eligible Funds, call 1-800-200-2214.
You may also call our Client TeleService Center at 1-800-388-4000 to request
current information about your Policy values, to change or update Policy
information such as your address, billing mode, beneficiary or ownership, or to
request Policy loans of less than $25,000. Requests must be in writing if the
Policy is owned by a corporation or a pension trust.
For all other Policy changes, please contact your registered representative.
A-45
<PAGE>
REPORTS
We will send you an annual statement showing your Policy's death benefit, cash
value and any outstanding Policy loan principal. We will also confirm Policy
loans, sub-account transfers, lapses, surrenders and other Policy transactions
when they occur.
You will be sent semiannual reports containing the financial statements of the
Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
Professional organizations may endorse the Policies. We may use such
endorsements in Policy sales material. We may pay the professional organization
for the use of its customer or mailing lists to distribute Policy promotional
materials. An endorsement by a third party does not predict the future
performance of the Policies.
Articles discussing the Variable Account's investment performance, rankings and
other characteristics may appear in publications. Some or all of these
publishers or ranking services (including, but not limited to, Lipper
Analytical Services, Inc. and Morningstar, Inc.) may publish their own rankings
or performance reviews of variable contract separate accounts, including the
Variable Account. We may use references to, or reprints of such articles or
rankings as sales material and may include rankings that indicate the names of
other variable contract separate accounts and their investment experience. We
may also use "unit values" to provide information about the Variable Account's
investment performance in this prospectus, marketing materials, and historical
illustrations.
Publications may use articles and releases, developed by NELICO, the Eligible
Funds and other parties, about the Variable Account or the Eligible Funds. We
may use references to or reprints of such articles in sales material for the
Policies or the Variable Account. Such literature may refer to personnel of the
advisers, who have portfolio management responsibility, and their investment
style, and include excerpts from media articles.
We are a member of the Insurance Marketplace Standards Association ("IMSA"),
and may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
Policy sales material may refer to historical, current and prospective economic
trends. In addition, sales material may discuss topics of general investor
interest for the benefit of registered representatives and prospective Policy
Owners. These materials may include, but are not limited to, discussions of
college planning, retirement planning, reasons for investing and historical
examples of the investment performance of various classes of securities,
securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus have
been passed on by H. James Wilson, General Counsel of NELICO. Sutherland Asbill
& Brennan LLP, of Washington, D.C., has provided advice on certain matters
relating to the Federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
A-46
<PAGE>
EXPERTS
The financial statements of New England Variable Life Separate Account of New
England Life Insurance Company ("NELICO") and the consolidated financial
statements of NELICO and subsidiaries included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by James J.
Reilly, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-47
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH VALUES, NET CASH VALUES AND ACCUMULATED SCHEDULED PREMIUMS
The tables in Appendix A illustrate the way the Policies work. They show how
the death benefit, net cash value and cash value could vary over an extended
period of time assuming hypothetical gross rates of return (i.e., investment
income and capital gains and losses, realized or unrealized) for the Variable
Account equal to constant after tax annual rates of 0%, 6% and 12%. The tables
are based on annual premium payments of $16,000 for a male and a female, both
aged 55. The insureds are each assumed to be in the nonsmoker preferred risk
classification. The Tables assume no rider benefits. Values are first given
based on current mortality and other Policy charges and then based on
guaranteed mortality and other Policy charges. Illustrations show Option A,
Option B, and Option C death benefits. A Policy with an Option D death benefit,
under the circumstances illustrated, will have the same values as a Policy with
an Option B death benefit.
The illustrated death benefits, net cash values and cash values for a Policy
would be different, either higher or lower, from the amounts shown if the
actual gross rates of return averaged 0%, 6% or 12%, but varied above and below
that average during the period, if premiums were paid in other amounts or at
other than annual intervals. They would also be different depending on the
allocation of cash value among the Variable Account's sub-accounts, if the
actual gross rate of return for all sub-accounts averaged 0%, 6% or 12%, but
varied above or below that average for individual sub-accounts. They would also
differ if a Policy loan or partial surrender were made during the period of
time illustrated, if either or both insureds were in another risk
classification, or if the Policies were issued at unisex rates. For example, as
a result of variations in actual returns, additional premium payments beyond
those illustrated may be necessary to maintain the Policy in force for the
periods shown or to realize the Policy values shown on particular illustrations
even if the average rate of return is achieved.
The death benefits, net cash values and cash values shown in the tables
reflect: (i) deductions from premiums for the sales charge and state and
federal premium tax charge; and (ii) a Monthly Deduction (consisting of a
Policy fee, an administrative charge, a minimum death benefit guarantee charge,
a charge for the cost of insurance and charges for any additional benefits)
from the cash value on the first day of each Policy month. The net cash values
reflect a Surrender Charge that is deducted from the cash value upon surrender,
face reduction or lapse during the first 14 Policy years. The death benefits,
net cash values and cash values also reflect a daily charge assessed against
the Variable Account for mortality and expense risks equivalent to an annual
charge of .75% (on a current basis) and .90% (on a guaranteed basis) of the
average daily value of the assets in the Variable Account attributable to the
Policies. (See "Charges and Expenses".) The illustrations reflect an average of
the investment advisory fees and operating expenses of the Eligible Funds, at
an annual rate of .75% of the average daily net assets of the Eligible Funds.
This average reflects voluntary expense cap and expense deferral arrangements
between New England Investment Management and the Zenith Fund that New England
Investment Management could terminate at any time, as well as expense subsidies
by MetLife of certain Portfolios of the Metropolitan Series Fund, Inc. that may
be voluntary and of limited duration.
Taking account of the mortality and expense risk charge and the average
investment advisory fee and operating expenses of the Eligible Funds, the gross
annual rates of return of 0%, 6% and 12% correspond to net investment
experience at constant annual rates of -1.49%, 4.42%, and 10.33%, respectively,
based on the current charge for mortality and expense risks, and -1.64%, 4.27%
and 10.17%, respectively, based on the guaranteed maximum charge for mortality
and expense risks. (See "Net Investment Experience".)
The second column of each table shows the amount which would accumulate if an
amount equal to the annual premium were invested to earn interest, after taxes,
of 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest rate
(after taxes) at which an amount equal to the illustrated premiums could have
been invested outside the Policy to arrive at the net cash value of
A-48
<PAGE>
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 insureds' age, sex, underwriting classification, and the face amount
or premium payment schedule requested. Where applicable, we will also furnish
on request an illustration for a Policy which is not affected by the sex of the
insureds.
The illustrations using current Policy charges assume that the 9% sales charge
is waived after the 15th policy year. For Policies issued in Pennsylvania,
NELICO does not intend to waive this charge until after the 17th policy year.
Purchasers in Pennsylvania should refer to a personalized illustration, which
will reflect the longer duration of this sales charge.
A-49
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION A (ENHANCED WITH FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 6,097 $ 6,885 $ 7,674 $ 12,165 $ 12,953 $ 13,742
2 34,440 1,000,000 1,000,000 1,000,000 19,387 21,759 24,225 25,455 27,827 30,293
3 52,962 1,000,000 1,000,000 1,000,000 25,678 30,488 35,684 38,541 43,351 48,547
4 72,410 1,000,000 1,000,000 1,000,000 38,558 46,689 55,813 51,421 59,552 68,676
5 92,831 1,000,000 1,000,000 1,000,000 51,233 63,591 78,007 64,096 76,454 90,870
6 114,272 1,000,000 1,000,000 1,000,000 65,083 82,605 103,859 76,562 94,083 115,337
7 136,786 1,000,000 1,000,000 1,000,000 78,722 102,372 132,212 88,815 112,465 142,306
8 160,425 1,000,000 1,000,000 1,000,000 92,143 122,917 163,319 100,852 131,626 172,027
9 185,246 1,000,000 1,000,000 1,000,000 105,341 144,267 197,455 112,665 151,591 204,779
10 211,309 1,000,000 1,000,000 1,000,000 118,308 166,447 234,928 124,247 172,387 240,868
15 362,520 1,000,000 1,000,000 1,000,000 179,459 291,089 486,117 179,459 291,089 486,117
20 555,508 1,000,000 1,000,000 1,381,084 229,675 439,240 890,160 229,675 439,240 890,160
25 801,815 1,000,000 1,000,000 2,322,313 255,807 610,764 1,525,328 255,807 610,764 1,525,328
30 1,116,173 1,000,000 1,200,493 3,691,943 212,553 788,501 2,424,921 212,553 788,501 2,424,921
35 1,517,381 1,000,000 1,407,095 5,362,474 37,375 924,200 3,522,150 37,375 924,200 3,522,150
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -61.89% -56.97% -52.04% 6,150.00% 6,150.00% 6,150.00%
2 -29.10 -23.12 -17.18 642.15 642.15 642.15
3 -28.17 -21.04 -14.11 258.47 258.47 258.47
4 -19.27 -12.23 -5.40 148.92 148.92 148.92
5 -14.50 -7.56 -0.84 100.39 100.39 100.39
6 -11.01 -4.28 2.25 73.77 73.77 73.77
7 -8.83 -2.25 4.15 57.22 57.22 57.22
8 -7.36 -0.90 5.39 46.06 46.06 46.06
9 -6.33 0.04 6.26 38.07 38.07 38.07
10 -5.57 0.72 6.88 32.11 32.11 32.11
15 -3.73 2.38 8.41 16.46 16.46 16.46
20 -3.28 2.93 8.98 9.93 9.93 12.54
25 -3.64 3.12 9.20 6.48 6.48 11.83
30 -5.96 3.03 9.10 4.39 5.40 11.22
35 -29.98 2.63 8.72 3.02 4.65 10.49
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-50
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION B (ENHANCED WITH FACE AMOUNT PLUS CASH VALUE)--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- -------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- ------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,012,165 $1,012,953 $1,013,742 $ 6,097 $ 6,885 $ 7,674 $ 12,165 $ 12,953 $ 13,742
2 34,440 1,025,455 1,027,827 1,030,293 19,387 21,759 24,225 25,455 27,827 30,293
3 52,962 1,038,540 1,043,350 1,048,546 25,677 30,487 35,683 38,540 43,350 48,546
4 72,410 1,051,419 1,059,550 1,068,674 38,556 46,686 55,811 51,419 59,550 68,674
5 92,831 1,064,092 1,076,449 1,090,864 51,228 63,586 78,001 64,092 76,449 90,864
6 114,272 1,076,553 1,094,072 1,115,324 65,075 82,594 103,845 76,553 94,072 115,324
7 136,786 1,088,799 1,112,444 1,142,278 78,705 102,350 132,184 88,799 112,444 142,278
8 160,425 1,100,822 1,131,586 1,171,974 92,114 122,878 163,265 100,822 131,586 171,974
9 185,246 1,112,615 1,151,522 1,204,683 105,291 144,198 197,359 112,615 151,522 204,683
10 211,309 1,124,167 1,172,271 1,240,702 118,228 166,332 234,763 124,167 172,271 240,702
15 362,520 1,178,915 1,290,157 1,484,495 178,915 290,157 484,495 178,915 290,157 484,495
20 555,508 1,226,924 1,433,651 1,880,163 226,924 433,651 880,163 226,924 433,651 880,163
25 801,815 1,243,397 1,580,249 2,491,638 243,397 580,249 1,491,638 243,397 580,249 1,491,638
30 1,116,173 1,169,412 1,660,991 3,376,947 169,412 660,991 2,376,947 169,412 660,991 2,376,947
35 1,517,381 1,599,614 4,641,259 599,614 3,641,259 599,614 3,641,259
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -61.89% -56.97% -52.04% 6,226.03% 6,230.96% 6,235.89%
2 -29.10 -23.12 -17.18 652.13 653.05 654.01
3 -28.17 -21.04 -14.11 263.56 264.19 264.86
4 -19.27 -12.23 -5.40 152.57 153.14 153.77
5 -14.51 -7.56 -0.84 103.39 103.95 104.60
6 -11.02 -4.28 2.25 76.41 77.00 77.69
7 -8.83 -2.25 4.14 59.64 60.25 61.01
8 -7.37 -0.91 5.39 48.31 48.96 49.79
9 -6.34 0.03 6.25 40.21 40.90 41.81
10 -5.59 0.70 6.87 34.16 34.90 35.90
15 -3.77 2.34 8.37 18.26 19.24 20.77
20 -3.40 2.81 8.89 11.59 12.84 14.98
25 -4.08 2.75 9.06 7.90 9.43 12.26
30 -7.97 1.99 9.00 5.26 7.14 10.77
35 0.38 8.86 5.24 9.89
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-51
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION C (FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ------------------------------ ------------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 6,097 $ 6,885 $ 7,674 $ 12,165 $ 12,953 $ 13,742
2 34,440 1,000,000 1,000,000 1,000,000 19,387 21,759 24,225 25,455 27,827 30,293
3 52,962 1,000,000 1,000,000 1,000,000 25,678 30,488 35,684 38,541 43,351 48,547
4 72,410 1,000,000 1,000,000 1,000,000 38,558 46,689 55,813 51,421 59,552 68,676
5 92,831 1,000,000 1,000,000 1,000,000 51,233 63,591 78,007 64,096 76,454 90,870
6 114,272 1,000,000 1,000,000 1,000,000 65,083 82,605 103,859 76,562 94,083 115,337
7 136,786 1,000,000 1,000,000 1,000,000 78,722 102,372 132,212 88,815 112,465 142,306
8 160,425 1,000,000 1,000,000 1,000,000 92,143 122,917 163,319 100,852 131,626 172,027
9 185,246 1,000,000 1,000,000 1,000,000 105,341 144,267 197,455 112,665 151,591 204,779
10 211,309 1,000,000 1,000,000 1,000,000 118,308 166,447 234,928 124,247 172,387 240,868
15 362,520 1,000,000 1,000,000 1,000,000 179,459 291,089 486,117 179,459 291,089 486,117
20 555,508 1,000,000 1,000,000 1,000,000 229,675 439,240 891,995 229,675 439,240 891,995
25 801,815 1,000,000 1,000,000 1,634,330 255,807 610,764 1,556,505 255,807 610,764 1,556,505
30 1,116,173 1,000,000 1,000,000 2,761,193 212,553 803,768 2,629,708 212,553 803,768 2,629,708
35 1,517,381 1,000,000 1,110,474 4,561,032 37,375 1,057,594 4,343,840 37,375 1,057,594 4,343,840
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -61.89% -56.97% -52.04% 6,150.00% 6,150.00% 6,150.00%
2 -29.10 -23.12 -17.18 642.15 642.15 642.15
3 -28.17 -21.04 -14.11 258.47 258.47 258.47
4 -19.27 -12.23 -5.40 148.92 148.92 148.92
5 -14.50 -7.56 -0.84 100.39 100.39 100.39
6 -11.01 -4.28 2.25 73.77 73.77 73.77
7 -8.83 -2.25 4.15 57.22 57.22 57.22
8 -7.36 -0.90 5.39 46.06 46.06 46.06
9 -6.33 0.04 6.26 38.07 38.07 38.07
10 -5.57 0.72 6.88 32.11 32.11 32.11
15 -3.73 2.38 8.41 16.46 16.46 16.46
20 -3.28 2.93 9.00 9.93 9.93 9.93
25 -3.64 3.12 9.33 6.48 6.48 9.64
30 -5.96 3.14 9.51 4.39 4.39 9.76
35 -29.98 3.29 9.61 3.02 3.53 9.81
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-52
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION A (ENHANCED WITH FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 5,545 $ 6,303 $ 7,060 $ 11,613 $ 12,371 $ 13,129
2 34,440 1,000,000 1,000,000 1,000,000 17,573 19,827 22,170 23,641 25,896 28,238
3 52,962 1,000,000 1,000,000 1,000,000 22,480 27,002 31,885 35,343 39,865 44,748
4 72,410 1,000,000 1,000,000 1,000,000 33,838 41,413 49,916 46,701 54,276 62,779
5 92,831 1,000,000 1,000,000 1,000,000 44,829 56,257 69,596 57,692 69,120 82,459
6 114,272 1,000,000 1,000,000 1,000,000 56,810 72,904 92,449 68,288 84,382 103,927
7 136,786 1,000,000 1,000,000 1,000,000 68,359 89,946 117,234 78,452 100,039 127,328
8 160,425 1,000,000 1,000,000 1,000,000 79,424 107,346 144,103 88,133 116,055 152,811
9 185,246 1,000,000 1,000,000 1,000,000 89,937 125,049 173,208 97,261 132,373 180,532
10 211,309 1,000,000 1,000,000 1,000,000 99,815 142,986 204,713 105,754 148,925 210,652
15 362,520 1,000,000 1,000,000 1,000,000 135,302 232,348 405,031 135,302 232,348 405,031
20 555,508 1,000,000 1,000,000 1,092,550 127,404 303,735 704,189 127,404 303,735 704,189
25 801,815 1,000,000 1,000,000 1,713,716 26,523 319,397 1,125,593 26,523 319,397 1,125,593
30 1,116,173 1,000,000 2,401,020 163,085 1,577,025 163,085 1,577,025
35 1,517,381 2,728,662 1,792,225 1,792,225
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -65.35% -60.61% -55.87% 6,150.00% 6,150.00% 6,150.00%
2 -33.88 -27.97 -22.11 642.15 642.15 642.15
3 -33.40 -26.13 -19.10 258.47 258.47 258.47
4 -23.92 -16.67 -9.70 148.92 148.92 148.92
5 -18.72 -11.52 -4.61 100.39 100.39 100.39
6 -14.83 -7.82 -1.08 73.77 73.77 73.77
7 -12.37 -5.49 1.14 57.22 57.22 57.22
8 -10.73 -3.92 2.63 46.06 46.06 46.06
9 -9.60 -2.84 3.67 38.07 38.07 38.07
10 -8.80 -2.06 4.44 32.11 32.11 32.11
15 -7.58 -0.41 6.30 16.46 16.46 16.46
20 -9.91 -0.50 7.03 9.93 9.93 10.65
25 -37.63 -1.78 7.25 6.48 6.48 9.94
30 -8.33 6.87 4.39 9.05
35 5.76 7.62
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-53
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION B (ENHANCED WITH FACE AMOUNT PLUS CASH VALUE)--VARIABLE DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,011,612 $1,012,370 $1,013,128 $ 5,544 $ 6,302 $ 7,060 $ 11,612 $ 12,370 $ 13,128
2 34,440 1,023,637 1,025,891 1,028,232 17,569 19,823 22,164 23,637 25,891 28,232
3 52,962 1,035,328 1,039,848 1,044,728 22,465 26,985 31,865 35,328 39,848 44,728
4 72,410 1,046,664 1,054,233 1,062,728 33,801 41,370 49,865 46,664 54,233 62,728
5 92,831 1,057,617 1,069,029 1,082,348 44,754 56,166 69,485 57,617 69,029 82,348
6 114,272 1,068,152 1,084,209 1,103,710 56,674 72,731 92,232 68,152 84,209 103,710
7 136,786 1,078,223 1,099,738 1,126,935 68,129 89,645 116,841 78,223 99,738 126,935
8 160,425 1,087,768 1,115,557 1,152,138 79,059 106,849 143,429 87,768 115,557 152,138
9 185,246 1,096,703 1,131,585 1,179,422 89,379 124,261 172,098 96,703 131,585 179,422
10 211,309 1,104,926 1,147,712 1,208,880 98,987 141,773 202,941 104,926 147,712 208,880
15 362,520 1,131,195 1,225,032 1,391,906 131,195 225,032 391,906 131,195 225,032 391,906
20 555,508 1,114,123 1,273,438 1,635,737 114,123 273,438 635,737 114,123 273,438 635,737
25 801,815 1,220,381 1,903,285 220,381 903,285 220,381 903,285
30 1,116,173 2,082,006 1,082,006 1,082,006
35 1,517,381 1,893,662 893,662 893,662
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -65.35% -60.61% -55.88% 6,222.58% 6,227.31% 6,232.05%
2 -33.89 -27.98 -22.12 651.42 652.30 653.21
3 -33.42 -26.15 -19.13 263.14 263.73 264.37
4 -23.96 -16.71 -9.74 152.24 152.77 153.36
5 -18.77 -11.57 -4.66 103.10 103.62 104.22
6 -14.90 -7.88 -1.14 76.13 76.67 77.31
7 -12.46 -5.57 1.06 59.36 59.92 60.62
8 -10.84 -4.03 2.52 48.03 48.63 49.39
9 -9.73 -2.96 3.55 39.92 40.55 41.39
10 -8.96 -2.21 4.28 33.86 34.52 35.44
15 -8.01 -0.81 5.92 17.81 18.68 20.07
20 -11.31 -1.52 6.16 10.81 11.89 13.88
25 -4.97 5.80 7.78 10.59
30 4.83 8.32
35 2.46 6.01
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-54
<PAGE>
MALE AND FEMALE BOTH ISSUE AGE 55
$16,000 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK
$1,000,000 FACE AMOUNT
OPTION C (FACE AMOUNT)--FIXED DEATH BENEFIT
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
END ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST -------------------------------- ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- ---------- ---------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 5,545 $ 6,303 $ 7,060 $ 11,613 $ 12,371 $ 13,129
2 34,440 1,000,000 1,000,000 1,000,000 17,573 19,827 22,170 23,641 25,896 28,238
3 52,962 1,000,000 1,000,000 1,000,000 22,480 27,002 31,885 35,343 39,865 44,748
4 72,410 1,000,000 1,000,000 1,000,000 33,838 41,413 49,916 46,701 54,276 62,779
5 92,831 1,000,000 1,000,000 1,000,000 44,829 56,257 69,596 57,692 69,120 82,459
6 114,272 1,000,000 1,000,000 1,000,000 56,810 72,904 92,449 68,288 84,382 103,927
7 136,786 1,000,000 1,000,000 1,000,000 68,359 89,946 117,234 78,452 100,039 127,328
8 160,425 1,000,000 1,000,000 1,000,000 79,424 107,346 144,103 88,133 116,055 152,811
9 185,246 1,000,000 1,000,000 1,000,000 89,937 125,049 173,208 97,261 132,373 180,532
10 211,309 1,000,000 1,000,000 1,000,000 99,815 142,986 204,713 105,754 148,925 210,652
15 362,520 1,000,000 1,000,000 1,000,000 135,302 232,348 405,031 135,302 232,348 405,031
20 555,508 1,000,000 1,000,000 1,000,000 127,404 303,735 705,090 127,404 303,735 705,090
25 801,815 1,000,000 1,000,000 1,266,286 26,523 319,397 1,205,986 26,523 319,397 1,205,986
30 1,116,173 1,000,000 2,107,945 163,085 2,007,567 163,085 2,007,567
35 1,517,381 3,389,998 3,228,570 3,228,570
<CAPTION>
INTERNAL RATE OF RETURN
ON NET CASH VALUE INTERNAL RATE OF RETURN
ASSUMING ON DEATH BENEFIT
END HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY ----------------------------- --------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 -65.35% -60.61% -55.87% 6,150.00% 6,150.00% 6,150.00%
2 -33.88 -27.97 -22.11 642.15 642.15 642.15
3 -33.40 -26.13 -19.10 258.47 258.47 258.47
4 -23.92 -16.67 -9.70 148.92 148.92 148.92
5 -18.72 -11.52 -4.61 100.39 100.39 100.39
6 -14.83 -7.82 -1.08 73.77 73.77 73.77
7 -12.37 -5.49 1.14 57.22 57.22 57.22
8 -10.73 -3.92 2.63 46.06 46.06 46.06
9 -9.60 -2.84 3.67 38.07 38.07 38.07
10 -8.80 -2.06 4.44 32.11 32.11 32.11
15 -7.58 -0.41 6.30 16.46 16.46 16.46
20 -9.91 -0.50 7.04 9.93 9.93 9.93
25 -37.63 -1.78 7.70 6.48 6.48 8.02
30 -8.33 8.13 4 .39 8.38
35 8.35 8.56
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-55
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
This Appendix gives hypothetical illustrations of the Variable Account's and
the Policy's investment experience based on the historical investment
experience of the Eligible Funds. It does not predict future performance.
The Policies became available in January, 1994. The Zenith Fund and the
Variable Account commenced operations on August 26, 1983. The Westpeak Stock
Index and Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Growth and Income Series and Harris
Oakmark Mid Cap Value Series of the Zenith Fund commenced operations on April
30, 1993. The Loomis Sayles Small Cap Series commenced operations on May 2,
1994 and was made available to the Variable Account on December 19, 1994. The
MFS Investors Series and MFS Research Managers Series of the Zenith Fund
commenced operations on April 30, 1999. The remaining Zenith Fund series shown
in this Appendix commenced operations on October 31, 1994 and were made
available to the Variable Account in May 1996. 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), and reflect a charge for mortality and expense
risks against the Variable Account's assets at the currently applicable annual
rate of .75%. The illustrations assume that premiums are paid at the beginning
of each year and that no loans, transfers or other Policy Owner transactions
were made during the periods shown.
Many factors other than investment experience affect Policy values and
benefits. These investment experience figures do not reflect the charges
deducted from premiums and Monthly Deductions from the cash value. (See
"Charges and Expenses".)
NET RATES OF RETURN
The annual net rate is the effective earnings rate at which the investment sub-
accounts increased or decreased over a one year period, based on the investment
experience of the relevant Eligible Funds. The rate is calculated by taking the
difference between the sub-accounts' ending values and beginning values of the
period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the sub-accounts increased or decreased since
the inception dates of the sub-accounts. For each sub-account, we calculate the
rate by taking the difference between the sub-account's ending value and the
value on the date of its inception and dividing it by the value on the date of
inception. This result is the total net rate of return since inception ("Total
Return"). The effective annual net rate of return is the rate which, if
compounded annually, would equal the total net rate of return since inception.
A-56
<PAGE>
SUB-ACCOUNT INVESTING IN ZENITH FUND
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
8/26/83- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital
Growth*........ 8.58% -1.11% 66.84% 93.75% 51.56% -9.47% 31.88% -5.73% 52.83% -6.75% 14.11% -7.76%
Bond Income..... 2.77 11.93 17.87 13.98 1.50 7.56 11.46 7.28 17.08 7.37 11.77 -4.08
Money Market.... 3.03 9.80 7.45 6.01 5.73 6.71 8.44 7.38 5.42 3.02 2.20 3.20
<CAPTION>
8/26/83- 8/26/83-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital
Growth*........ 37.00% 20.16% 22.56% 33.09% 14.84% 2,638.99% 22.44%
Bond Income..... 20.29 3.82 10.06 8.23 -1.21 299.58 8.84
Money Market.... 4.91 4.34 4.55 4.48 4.18 141.55 5.54
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
5/1/87- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..... -13.06% 15.47% 29.18% -4.86% 29.46% 6.49% 8.90% .36% 35.90% 21.55% 31.51% 26.98%
Managed......... -1.15 8.67 18.20 2.44 19.28 5.90 9.82 -1.85 30.28 14.16 25.62 18.76
<CAPTION>
5/1/87- 5/1/87-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/99 RETURN ANNUAL
- ----------- -------- -------- ---------
<S> <C> <C> <C>
Stock Index..... 19.48% 515.65% 15.43%
Managed......... 9.15 328.84 12.18
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------- 4/30/93- 4/30/93-
FOR ONE YEAR ENDING 12/31/99 12/31/99
4/30/93- ----------------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income....... 13.67% -1.94% 35.45% 17.21% 32.47% 23.52% 8.53% 214.26% 18.73%
Mid Cap Value**......... 14.16 -1.01 29.38 16.72 16.45 -6.17 -0.40 85.72 9.73
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
----------------------------------------------------- 5/2/94- 5/2/94-
FOR ONE YEAR ENDING 12/31/99 12/31/99
5/2/94- -------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............... -3.71% 27.88% 29.70% 23.92% -2.43% 30.77% 152.53% 17.77%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------------------------------ 10/31/94- 10/31/94-
FOR ONE YEAR ENDING 12/31/99 12/31/99
10/31/94- -------------------------------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- --------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........... -4.32% 47.59% 12.32% 24.69% 46.68% 33.13% 286.21% 29.89%
Balanced***............. -.22 23.86 16.03 15.31 8.29 -5.77 68.74 10.66
Venture Value........... -3.62 38.25 24.89 32.50 13.56 16.64 192.06 23.05
International Magnum
Equity****............. 2.48 5.44 5.87 -2.04 6.47 23.68 47.57 7.82
</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............. 2.34% 2.34% N/A
Research Managers..... 19.20 19.20 N/A
</TABLE>
- -------
* Rates of return reflect the Capital Growth Series' former investment
advisory fee of .50% of average daily net assets for the period through
December 31, 1987 and its current advisory fee schedule thereafter.
** The Harris Oakmark Mid Cap Value Series' Sub-adviser was Loomis Sayles until
May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
Harris Associates became the sub-adviser on May 1, 2000. Rates of return
reflect the Series' former investment advisory fee of .70% of average daily
net assets for the period through April 30, 1998, and .75% thereafter.
*** The Balanced Series' sub-adviser was Loomis, Sayles until May 1, 2000, when
Wellington Management Company became the sub-adviser.
**** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Dean Witter
Investment Management became sub-adviser.
A-57
<PAGE>
SUB-ACCOUNTS INVESTING IN METROPOLITAN SERIES FUND, INC.
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
------------------------------ 3/3/97- 3/3/97-
FOR ONE YEAR ENDING 12/31/99 12/31/99
3/3/97- --------------------- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Mid Cap....................... 27.42% 36.17% 121.26% 283.90% 60.90%
</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
SUB-ACCOUNT 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Russell 2000 Index.............. 5.37% 21.82% 28.35% 24.44%
</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... .03% -1.87% 21.79% 16.47% -15.93% 30.46% 16.01% 17.41% 6.27% 34.09% 13.42% 27.15%
<CAPTION>
10/9/86- 10/9/86-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Equity-Income... 10.79% 5.54% 399.83% 12.94%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
1/28/87- --------------------------------------------------------------------------------------------------
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas........ -6.03% 7.32% 25.34% -2.40% 7.19% -11.39% 36.33% .97% 8.86% 12.36% 10.72% 11.91%
<CAPTION>
1/28/87- 1/28/87-
12/31/99 12/31/99
TOTAL EFFECTIVE
12/31/99 RETURN ANNUAL
-------- -------- ---------
<S> <C> <C> <C>
Overseas........ 41.56% 246.04% 10.08%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
9/19/85- --------------------------------------------------------------------------------------------------
SUB-ACCOUNT 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income..... 6.15% 16.80% 0.46% 10.81% -4.89% -2.97% 34.07% 22.24% 19.50% -2.28% 19.71% 13.17%
<CAPTION>
9/19/85- 9/19/85-
12/31/99 12/31/99
TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/97 12/31/98 12/31/99 RETURN ANNUAL
- ----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
High Income..... 16.79% -5.04% 7.35% 293.17% 10.06%
</TABLE>
SUB-ACCOUNT INVESTING IN VIP II
<TABLE>
<CAPTION>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------------------- 9/6/89-
FOR ONE YEAR ENDING 12/31/99
9/6/89- ----------------------------------------------------------------------------------------- TOTAL
SUB-ACCOUNT 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 RETURN
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager... .57% 5.92% 21.64% 10.88% 20.33% -6.79% 16.08% 13.74% 19.75% 14.19% 10.26% 220.80%
<CAPTION>
9/6/89-
12/31/99
EFFECTIVE
SUB-ACCOUNT ANNUAL
- ----------- ---------
<S> <C>
Asset Manager... 11.96%
</TABLE>
A-58
<PAGE>
POLICY PERFORMANCE
The material below assumes a Policy was issued with a $1 million face amount
and annual premiums of $16,000 paid on August 26 of each year (May 1 in the
case of the Zenith Westpeak Stock Index and Back Bay Managed Sub-Accounts; May
2 in the case of the Zenith Loomis Sayles Small Cap Sub-Account; October 31 in
the case of the Zenith Balanced, Zenith Morgan Stanley International Magnum
Equity, Zenith Davis Venture Value and Zenith Alger Equity Growth Sub-Accounts;
October 9 in the case of the VIP Equity-Income Sub-Account, January 28 in the
case of the VIP Overseas Sub-Account; April 30 in the case of the Zenith
Westpeak Growth and Income and Zenith Harris Oakmark Mid Cap Value Sub-
Accounts; September 19 in the case of the VIP High Income Sub-Account;
September 6 in the case of the VIP II Asset Manager Sub-Account; March 3 in the
case of the Metropolitan Janus Mid Cap Sub-Account; November 9 in the case of
the Metropolitan Russell 2000 Index Sub-Account), to a male and a female, both
age 55 in the nonsmoker preferred risk category. The first example shows such a
Policy with an Option A death benefit, the second example shows a policy with
an Option B death benefit and the third example shows a Policy with an Option C
death benefit. The death benefits, cash values and internal rates of return
assume in each instance that the entire policy value was invested in the
particular sub-account for the period shown. These illustrations of policy
investment experience also reflect all Policy charges based on NELICO's current
rates. (See Appendix A for the definition of the internal rate of return.)
OPTION A DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 14,821 8,753 -82.34% --
December 31, 1984....... 32,000 1,000,000 27,505 21,437 -39.98 1,975.63%
December 31, 1985....... 48,000 1,000,000 62,502 49,639 2.51 434.27
December 31, 1986....... 64,000 1,000,000 134,815 121,952 37.12 206.69
December 31, 1987....... 80,000 1,000,000 214,988 202,125 41.23 127.42
December 31, 1988....... 96,000 1,000,000 208,430 196,144 25.27 88.99
December 31, 1989....... 112,000 1,000,000 284,500 273,599 26.44 66.82
December 31, 1990....... 128,000 1,000,000 284,089 274,573 19.39 52.57
December 31, 1991....... 144,000 1,000,000 449,551 441,419 24.77 42.74
December 31, 1992....... 160,000 1,000,000 434,089 427,342 19.33 35.59
December 31, 1993....... 176,000 1,000,000 509,672 504,352 18.58 30.19
December 31, 1994....... 192,000 1,000,000 479,267 475,432 14.62 25.98
December 31, 1995....... 208,000 1,160,323 678,155 675,804 17.21 24.67
December 31, 1996....... 224,000 1,404,320 827,775 826,909 17.48 24.15
December 31, 1997....... 240,000 1,728,529 1,027,663 1,027,663 17.94 23.93
December 31, 1998....... 256,000 2,307,151 1,383,599 1,383,599 19.20 24.63
December 31, 1999....... 272,000 2,628,472 1,604,194 1,604,194 18.83 23.69
</TABLE>
A-59
<PAGE>
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 13,983 7,915 -86.77% --
December 31, 1984....... 32,000 1,000,000 29,594 23,526 -31.92 1,975.63%
December 31, 1985....... 48,000 1,000,000 49,374 36,511 -19.29 434.27
December 31, 1986....... 64,000 1,000,000 70,297 57,434 -5.80 206.69
December 31, 1987....... 80,000 1,000,000 85,192 72,329 -4.28 127.42
December 31, 1988....... 96,000 1,000,000 105,565 93,279 -1.01 88.99
December 31, 1989....... 112,000 1,000,000 131,735 120,834 2.26 66.82
December 31, 1990....... 128,000 1,000,000 155,697 146,181 3.43 52.57
December 31, 1991....... 144,000 1,000,000 197,046 188,915 6.15 42.74
December 31, 1992....... 160,000 1,000,000 225,207 218,460 6.30 35.59
December 31, 1993....... 176,000 1,000,000 265,319 259,998 7.10 30.19
December 31, 1994....... 192,000 1,000,000 267,415 263,579 5.28 25.98
December 31, 1995....... 208,000 1,000,000 336,781 334,430 7.20 22.62
December 31, 1996....... 224,000 1,000,000 363,892 363,026 6.76 19.89
December 31, 1997....... 240,000 1,000,000 414,531 414,531 7.09 17.62
December 31, 1998....... 256,000 1,000,000 463,556 463,556 7.17 15.72
December 31, 1999....... 272,000 1,000,000 472,230 472,230 6.27 14.10
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 14,013 7,945 -86.63% --
December 31, 1984....... 32,000 1,000,000 28,700 22,632 -35.36 1,975.63%
December 31, 1985....... 48,000 1,000,000 44,840 31,977 -27.94 434.27
December 31, 1986....... 64,000 1,000,000 61,434 48,571 -14.59 206.69
December 31, 1987....... 80,000 1,000,000 78,901 66,037 -8.13 127.42
December 31, 1988....... 96,000 1,000,000 98,239 85,953 -3.88 88.99
December 31, 1989....... 112,000 1,000,000 120,481 109,580 -.65 66.82
December 31, 1990....... 128,000 1,000,000 143,243 133,727 1.14 52.57
December 31, 1991....... 144,000 1,000,000 164,775 156,643 1.93 42.74
December 31, 1992....... 160,000 1,000,000 183,374 176,627 2.03 35.59
December 31, 1993....... 176,000 1,000,000 201,078 195,757 1.97 30.19
December 31, 1994....... 192,000 1,000,000 221,421 217,586 2.12 25.98
December 31, 1995....... 208,000 1,000,000 246,045 243,694 2.46 22.62
December 31, 1996....... 224,000 1,000,000 270,328 269,462 2.65 19.89
December 31, 1997....... 240,000 1,000,000 296,184 296,184 2.80 17.62
December 31, 1998....... 256,000 1,000,000 323,831 323,831 2.92 15.72
December 31, 1999....... 272,000 1,000,000 351,582 351,582 2.99 14.10
</TABLE>
A-60
<PAGE>
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 11,424 5,356 -80.55% --
December 31, 1988....... 32,000 1,000,000 27,289 21,221 -30.63 1,033.28%
December 31, 1989....... 48,000 1,000,000 52,355 39,492 -11.29 328.36
December 31, 1990....... 64,000 1,000,000 62,718 49,855 -11.24 174.11
December 31, 1991....... 80,000 1,000,000 96,375 83,512 1.61 112.69
December 31, 1992....... 96,000 1,000,000 117,202 105,262 2.91 80.87
December 31, 1993....... 112,000 1,000,000 142,189 131,634 4.40 61.77
December 31, 1994....... 128,000 1,000,000 156,609 147,438 3.38 49.18
December 31, 1995....... 144,000 1,000,000 231,125 223,340 9.25 40.32
December 31, 1996....... 160,000 1,000,000 294,238 287,837 11.06 33.80
December 31, 1997....... 176,000 1,000,000 403,635 398,686 13.84 28.82
December 31, 1998....... 192,000 1,000,000 527,597 524,132 15.42 24.90
December 31, 1999....... 208,000 1,104,012 645,244 643,264 15.86 23.07
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 12,946 6,878 -71.72% --
December 31, 1988....... 32,000 1,000,000 28,001 21,933 -28.48 1,033.28%
December 31, 1989....... 48,000 1,000,000 48,976 36,113 -16.20 328.36
December 31, 1990....... 64,000 1,000,000 64,356 51,493 -9.82 174.11
December 31, 1991....... 80,000 1,000,000 91,906 79,043 -.45 112.69
December 31, 1992....... 96,000 1,000,000 112,086 100,146 1.34 80.87
December 31, 1993....... 112,000 1,000,000 137,422 126,867 3.39 61.77
December 31, 1994....... 128,000 1,000,000 148,681 139,511 2.06 49.18
December 31, 1995....... 144,000 1,000,000 211,010 203,224 7.28 40.32
December 31, 1996....... 160,000 1,000,000 254,692 248,292 8.32 33.80
December 31, 1997....... 176,000 1,000,000 336,163 331,213 10.78 28.82
December 31, 1998....... 192,000 1,000,000 413,743 410,279 11.77 24.90
December 31, 1999....... 208,000 1,000,000 465,397 463,417 11.41 21.75
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 14,777 8,709 -59.59% --
December 31, 1994....... 32,000 1,000,000 27,939 21,817 -28.61 1,028.55%
December 31, 1995....... 48,000 1,000,000 54,765 41,902 -7.93 327.65
December 31, 1996....... 64,000 1,000,000 79,347 66,484 1.76 173.87
December 31, 1997....... 80,000 1,000,000 122,151 109,288 11.86 112.58
December 31, 1998....... 96,000 1,000,000 165,526 153,701 14.97 80.81
December 31, 1999....... 112,000 1,000,000 193,426 182,987 13.34 61.73
</TABLE>
A-61
<PAGE>
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 14,847 8,779 -59.11% --
December 31, 1994....... 32,000 1,000,000 28,208 22,140 -27.80 1,028.55%
December 31, 1995....... 48,000 1,000,000 53,325 40,462 -9.91 327.65
December 31, 1996....... 64,000 1,000,000 76,758 63,895 -.08 173.87
December 31, 1997....... 80,000 1,000,000 105,505 92,642 5.53 112.58
December 31, 1998....... 96,000 1,000,000 110,110 98,286 0.74 80.81
December 31, 1999....... 112,000 1,000,000 122,368 111,928 -0.02 61.73
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 12,455 6,387 -74.82% --
December 31, 1995....... 32,000 1,000,000 31,978 25,910 -16.87 1,038.05%
December 31, 1996....... 48,000 1,000,000 57,127 44,264 -4.79 329.07
December 31, 1997....... 64,000 1,000,000 87,879 75,016 7.45 174.35
December 31, 1998....... 80,000 1,000,000 97,762 84,899 2.24 112.81
December 31, 1999....... 96,000 1,000,000 146,472 134,533 10.72 80.93
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 13,138 7,070 -99.25% --
December 31, 1995....... 32,000 1,000,000 31,826 25,758 -29.38 3,271.69%
December 31, 1996....... 48,000 1,000,000 49,770 36,907 -21.48 522.96
December 31, 1997....... 64,000 1,000,000 75,888 63,025 -.92 230.16
December 31, 1998....... 80,000 1,000,000 127,577 114,714 16.79 137.32
December 31, 1999....... 96,000 1,000,000 185,525 173,008 22.06 94.25
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 13,891 7,823 -98.62% --
December 31, 1995....... 32,000 1,000,000 30,465 24,397 -35.80 3,271.69%
December 31, 1996....... 48,000 1,000,000 49,478 36,615 -22.10 522.96
December 31, 1997....... 64,000 1,000,000 71,056 58,193 -5.67 230.16
December 31, 1998....... 80,000 1,000,000 91,341 78,478 -0.89 137.32
December 31, 1999....... 96,000 1,000,000 99,574 87,057 -3.67 94.25
</TABLE>
A-62
<PAGE>
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $ 1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 13,463 7,395 -99.01% --
December 31, 1995....... 32,000 1,000,000 31,801 25,733 -29.49 3,271.69%
December 31, 1996....... 48,000 1,000,000 54,051 41,188 -12.75 522.96
December 31, 1997....... 64,000 1,000,000 85,681 72,818 7.82 230.16
December 31, 1998....... 80,000 1,000,000 112,076 99,213 9.98 137.32
December 31, 1999....... 96,000 1,000,000 145,285 132,768 12.12 94.25
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $ 1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 14,232 8,164 -98.22% --
December 31, 1995....... 32,000 1,000,000 28,599 22,531 -44.58 3,271.69%
December 31, 1996....... 48,000 1,000,000 44,142 31,279 -34.00 522.96
December 31, 1997....... 64,000 1,000,000 56,644 43,781 -22.21 230.16
December 31, 1998....... 80,000 1,000,000 74,352 61,488 -12.11 137.32
December 31, 1999....... 96,000 1,000,000 107,054 94,537 -0.58 94.25
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $16,000 $ 1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1999....... 16,000 1,000,000 13,160 7,092 -70.24% --
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $16,000 $ 1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1999....... 16,000 1,000,000 15,427 9,359 -55.02% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1997....... 16,000 1,000,000 16,427 10,359 -40.77% --
December 31, 1998....... 32,000 1,000,000 39,433 33,365 3.18 804.48%
December 31, 1999....... 48,000 1,000,000 116,788 103,925 48.31 290.64
</TABLE>
A-63
<PAGE>
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1998....... 16,000 1,000,000 14,874 8,805 -98.49% --
December 31, 1999....... 32,000 1,000,000 32,274 26,206 -28.27 3,544.55%
VIP EQUITY-INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1986....... 16,000 1,000,000 13,953 7,885 -95.55% --
December 31, 1987....... 32,000 1,000,000 24,098 18,030 -60.67 2,723.89%
December 31, 1988....... 48,000 1,000,000 42,671 29,808 -35.59 490.23
December 31, 1989....... 64,000 1,000,000 63,581 50,718 -13.23 221.84
December 31, 1990....... 80,000 1,000,000 67,546 54,683 -17.00 133.88
December 31, 1991....... 96,000 1,000,000 102,729 90,212 -2.28 92.44
December 31, 1992....... 112,000 1,000,000 134,252 123,120 2.92 68.91
December 31, 1993....... 128,000 1,000,000 171,250 161,503 6.17 53.96
December 31, 1994....... 144,000 1,000,000 195,178 186,815 6.06 43.72
December 31, 1995....... 160,000 1,000,000 277,751 270,773 10.77 36.31
December 31, 1996....... 176,000 1,000,000 327,854 322,286 11.10 30.74
December 31, 1997....... 192,000 1,000,000 430,576 426,493 13.17 26.41
December 31, 1998....... 208,000 1,000,000 493,314 490,716 12.93 22.96
December 31, 1999....... 224,000 1,000,000 534,459 533,346 12.04 20.16
VIP OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 11,648 5,580 -68.05% --
December 31, 1988....... 32,000 1,000,000 28,084 22,016 -23.59 707.99%
December 31, 1989....... 48,000 1,000,000 50,973 38,110 -11.54 272.18
December 31, 1990....... 64,000 1,000,000 63,523 50,660 -9.42 154.15
December 31, 1991....... 80,000 1,000,000 82,844 69,981 -4.54 103.01
December 31, 1992....... 96,000 1,000,000 85,309 73,831 -7.63 75.31
December 31, 1993....... 112,000 1,000,000 134,365 124,272 2.65 58.22
December 31, 1994....... 128,000 1,000,000 148,145 139,437 1.93 46.75
December 31, 1995....... 144,000 1,000,000 178,682 171,358 3.51 38.57
December 31, 1996....... 160,000 1,000,000 214,502 208,563 4.83 32.48
December 31, 1997....... 176,000 1,000,000 252,891 248,437 5.72 27.80
December 31, 1998....... 192,000 1,000,000 297,818 294,848 6.51 24.10
December 31, 1999....... 208,000 1,000,000 440,699 439,214 10.33 21.10
</TABLE>
A-64
<PAGE>
VIP HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1985....... 16,000 1,000,000 14,622 8,554 -89.13% --
December 31, 1986....... 32,000 1,000,000 30,459 24,391 -30.84 2,337.90%
December 31, 1987....... 48,000 1,000,000 44,065 31,202 -31.02 463.37
December 31, 1988....... 64,000 1,000,000 62,671 49,808 -13.79 214.72
December 31, 1989....... 80,000 1,000,000 72,625 59,762 -12.70 130.87
December 31, 1990....... 96,000 1,000,000 83,995 71,593 -10.59 90.84
December 31, 1991....... 112,000 1,000,000 126,861 115,844 1.03 67.95
December 31, 1992....... 128,000 1,000,000 168,743 159,111 5.70 53.32
December 31, 1993....... 144,000 1,000,000 215,883 207,636 8.38 43.27
December 31, 1994....... 160,000 1,000,000 224,476 217,614 6.30 35.98
December 31, 1995....... 176,000 1,000,000 283,070 277,626 8.35 30.49
December 31, 1996....... 192,000 1,000,000 333,670 329,711 8.98 26.21
December 31, 1997....... 208,000 1,000,000 403,545 401,070 9.93 22.81
December 31, 1998....... 224,000 1,000,000 397,512 396,523 8.02 20.04
December 31, 1999....... 240,000 1,000,000 440,535 440,535 7.90 17.74
</TABLE>
VIP II ASSET MANAGER SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1989....... 16,000 1,000,000 13,914 7,846 -89.38% --
December 31, 1990....... 32,000 1,000,000 28,254 22,186 -38.32 2,130.09%
December 31, 1991....... 48,000 1,000,000 48,561 35,698 -21.27 447.21
December 31, 1992....... 64,000 1,000,000 67,997 55,134 -8.10 210.30
December 31, 1993....... 80,000 1,000,000 96,401 83,538 1.87 128.98
December 31, 1994....... 96,000 1,000,000 102,550 90,149 -2.23 89.83
December 31, 1995....... 112,000 1,000,000 133,928 122,912 2.79 67.33
December 31, 1996....... 128,000 1,000,000 166,813 157,182 5.33 52.92
December 31, 1997....... 144,000 1,000,000 213,658 205,411 8.07 42.98
December 31, 1998....... 160,000 1,000,000 259,333 252,471 9.21 35.77
December 31, 1999....... 176,000 1,000,000 300,306 294,862 9.37 30.33
</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-65
<PAGE>
OPTION B DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,014,821 14,821 8,753 -82.34% --
December 31, 1984....... 32,000 1,027,505 27,505 21,437 -39.98 2,019.32%
December 31, 1985....... 48,000 1,062,501 62,501 49,638 2.51 449.61
December 31, 1986....... 64,000 1,134,812 134,812 121,949 37.12 220.26
December 31, 1987....... 80,000 1,214,977 214,977 202,114 41.23 139.81
December 31, 1988....... 96,000 1,208,411 208,411 196,125 25.26 97.32
December 31, 1989....... 112,000 1,284,455 284,455 273,553 26.44 75.20
December 31, 1990....... 128,000 1,284,017 284,017 274,500 19.39 59.30
December 31, 1991....... 144,000 1,449,372 449,372 441,241 24.76 51.12
December 31, 1992....... 160,000 1,433,833 433,833 427,087 19.32 42.58
December 31, 1993....... 176,000 1,509,244 509,244 503,923 18.57 37.20
December 31, 1994....... 192,000 1,478,710 478,710 474,874 14.61 31.93
December 31, 1995....... 208,000 1,677,106 677,106 674,756 17.18 29.72
December 31, 1996....... 224,000 1,826,187 826,187 825,321 17.46 27.43
December 31, 1997....... 240,000 2,025,434 1,025,434 1,025,434 17.91 25.75
December 31, 1998....... 256,000 2,380,417 1,380,417 1,380,417 19.18 24.97
December 31, 1999....... 272,000 2,600,422 1,600,422 1,600,422 18.81 23.59
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,013,983 13,983 7,915 -86.77% --
December 31, 1984....... 32,000 1,029,594 29,594 23,526 -31.92 2,022.63%
December 31, 1985....... 48,000 1,049,374 49,374 36,511 -19.29 446.43
December 31, 1986....... 64,000 1,070,295 70,295 57,432 -5.80 213.92
December 31, 1987....... 80,000 1,085,188 85,188 72,325 -4.28 132.56
December 31, 1988....... 96,000 1,105,556 105,556 93,270 -1.01 93.38
December 31, 1989....... 112,000 1,131,717 131,717 120,815 2.26 70.93
December 31, 1990....... 128,000 1,155,661 155,661 146,145 3.43 56.45
December 31, 1991....... 144,000 1,196,975 196,975 188,844 6.14 46.78
December 31, 1992....... 160,000 1,225,085 225,085 218,338 6.29 39.52
December 31, 1993....... 176,000 1,265,112 265,112 259,792 7.08 34.19
December 31, 1994....... 192,000 1,267,126 267,126 263,291 5.27 29.58
December 31, 1995....... 208,000 1,336,279 336,279 333,928 7.18 26.60
December 31, 1996....... 224,000 1,363,151 363,151 362,285 6.74 23.77
December 31, 1997....... 240,000 1,413,385 413,385 413,385 7.05 21.62
December 31, 1998....... 256,000 1,461,836 461,836 461,836 7.13 19.79
December 31, 1999....... 272,000 1,469,897 469,897 469,897 6.22 17.96
</TABLE>
A-66
<PAGE>
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,014,013 14,013 7,945 -86.63% --
December 31, 1984....... 32,000 1,028,700 28,700 22,632 -35.36 2,021.21%
December 31, 1985....... 48,000 1,044,840 44,840 31,977 -27.94 445.33
December 31, 1986....... 64,000 1,061,432 61,432 48,569 -14.59 213.02
December 31, 1987....... 80,000 1,078,897 78,897 66,034 -8.13 132.19
December 31, 1988....... 96,000 1,098,231 98,231 85,945 -3.89 93.09
December 31, 1989....... 112,000 1,120,464 120,464 109,563 -.66 70.60
December 31, 1990....... 128,000 1,143,210 143,210 133,694 1.13 56.16
December 31, 1991....... 144,000 1,164,716 164,716 156,585 1.92 46.16
December 31, 1992....... 160,000 1,183,276 183,276 176,529 2.01 38.85
December 31, 1993....... 176,000 1,200,926 200,926 195,605 1.96 33.30
December 31, 1994....... 192,000 1,221,190 221,190 217,354 2.10 29.02
December 31, 1995....... 208,000 1,245,691 245,691 243,340 2.44 25.64
December 31, 1996....... 224,000 1,269,796 269,796 268,930 2.62 22.88
December 31, 1997....... 240,000 1,295,393 295,393 295,393 2.77 20.62
December 31, 1998....... 256,000 1,322,671 322,671 322,671 2.88 18.72
December 31, 1999....... 272,000 1,349,904 349,904 349,904 2.94 17.11
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,011,424 11,424 5,356 -80.55% --
December 31, 1988....... 32,000 1,027,289 27,289 21,221 -30.63 1,052.66%
December 31, 1989....... 48,000 1,052,354 52,354 39,491 -11.29 337.55
December 31, 1990....... 64,000 1,062,716 62,716 49,853 -11.24 179.42
December 31, 1991....... 80,000 1,096,370 96,370 83,506 1.61 117.76
December 31, 1992....... 96,000 1,117,190 117,190 105,251 2.91 85.25
December 31, 1993....... 112,000 1,142,166 142,166 131,610 4.39 65.85
December 31, 1994....... 128,000 1,156,567 156,567 147,397 3.37 52.83
December 31, 1995....... 144,000 1,231,031 231,031 223,245 9.24 44.74
December 31, 1996....... 160,000 1,294,058 294,058 287,657 11.05 38.56
December 31, 1997....... 176,000 1,403,285 403,285 398,336 13.83 34.34
December 31, 1998....... 192,000 1,526,955 526,955 523,491 15.40 31.09
December 31, 1999....... 208,000 1,644,162 644,162 642,183 15.84 28.35
</TABLE>
A-67
<PAGE>
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,012,946 12,946 6,878 -71.72% --
December 31, 1988....... 32,000 1,028,001 28,001 21,933 -28.48 1,053.16%
December 31, 1989....... 48,000 1,048,975 48,975 36,112 -16.20 336.96
December 31, 1990....... 64,000 1,064,355 64,355 51,492 -9.82 179.56
December 31, 1991....... 80,000 1,091,901 91,901 79,038 -.45 117.53
December 31, 1992....... 96,000 1,112,075 112,075 100,135 1.33 85.07
December 31, 1993....... 112,000 1,137,400 137,400 126,845 3.39 65.72
December 31, 1994....... 128,000 1,148,642 148,642 139,472 2.05 52.65
December 31, 1995....... 144,000 1,210,924 210,924 203,139 7.27 44.39
December 31, 1996....... 160,000 1,254,538 254,538 248,138 8.31 37.98
December 31, 1997....... 176,000 1,335,874 335,874 330,925 10.77 33.54
December 31, 1998....... 192,000 1,413,247 413,247 409,783 11.76 29.96
December 31, 1999....... 208,000 1,464,624 464,624 462,644 11.39 26.82
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,014,777 14,777 8,709 -59.59% --
December 31, 1994....... 32,000 1,027,938 27,938 21,870 -28.61 1,048.27%
December 31, 1995....... 48,000 1,054,764 54,764 41,901 -7.93 337.23
December 31, 1996....... 64,000 1,079,345 79,345 66,482 1.76 180.54
December 31, 1997....... 80,000 1,122,144 122,144 109,281 11.86 118.93
December 31, 1998....... 96,000 1,165,508 165,508 153,684 14.97 86.88
December 31, 1999....... 112,000 1,193,391 193,391 182,952 13.34 67.17
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,014,847 14,847 8,779 -59.11% --
December 31, 1994....... 32,000 1,028,208 28,208 22,140 -27.80 1,048.46%
December 31, 1995....... 48,000 1,053,325 53,325 40,462 -9.91 336.98
December 31, 1996....... 64,000 1,076,756 76,756 63,893 -.08 180.33
December 31, 1997....... 80,000 1,105,499 105,499 92,636 5.53 118.10
December 31, 1998....... 96,000 1,110,099 110,099 98,274 0.74 84.93
December 31, 1999....... 112,000 1,122,346 122,346 111,906 -0.02 65.27
</TABLE>
A-68
<PAGE>
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $16,000 $1,014,290 $14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,012,455 12,455 6,387 -74.82% --
December 31, 1995....... 32,000 1,013,978 31,978 25,910 -16.87 1,060.86%
December 31, 1996....... 48,000 1,057,127 57,127 44,263 -4.79 339.11
December 31, 1997....... 64,000 1,087,876 87,876 75,013 7.45 181.74
December 31, 1998....... 80,000 1,097,757 97,757 84,894 2.23 117.94
December 31, 1999....... 96,000 1,146,458 146,458 134,518 10.72 86.35
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,014,290 $14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,013,138 13,138 7,070 -99.25% --
December 31, 1995....... 32,000 1,031,826 31,826 25,758 -29.38 3,365.75%
December 31, 1996....... 48,000 1,049,770 49,770 36,907 -21.48 538.34
December 31, 1997....... 64,000 1,075,887 75,887 63,024 -.92 238.98
December 31, 1998....... 80,000 1,127,572 127,572 114,709 16.79 145.55
December 31, 1999....... 96,000 1,185,511 185,511 172,994 22.06 102.18
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,014,290 $14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,013,891 13,891 7,823 -98.62% --
December 31, 1995....... 32,000 1,030,465 30,465 24,397 -35.80 3,361.73%
December 31, 1996....... 48,000 1,049,478 49,478 36,615 -22.10 538.25
December 31, 1997....... 64,000 1,071,055 71,055 58,192 -5.67 238.43
December 31, 1998....... 80,000 1,091,338 91,338 78,475 -.89 143.29
December 31, 1999....... 96,000 1,099,567 99,567 87,050 -3.68 98.65
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,014,290 $14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,013,463 13,463 7,395 -99.01% --
December 31, 1995....... 32,000 1,031,801 31,801 25,733 -29.50 3,365.67%
December 31, 1996....... 48,000 1,054,051 54,051 41,188 -12.76 539.65
December 31, 1997....... 64,000 1,085,679 85,679 72,816 7.82 240.09
December 31, 1998....... 80,000 1,112,072 112,072 99,209 9.98 144.59
December 31, 1999....... 96,000 1,145,274 145,274 132,757 12.12 100.56
</TABLE>
A-69
<PAGE>
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 16,000 $ 1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,014,232 14,232 8,164 -98.22% --
December 31, 1995....... 32,000 1,028,599 28,599 22,531 -44.58 3,356.23%
December 31, 1996....... 48,000 1,044,142 44,142 31,279 -34.00 536.62
December 31, 1997....... 64,000 1,056,643 56,643 43,780 -22.21 236.79
December 31, 1998....... 80,000 1,074,349 74,349 61,486 -12.11 142.21
December 31, 1999....... 96,000 1,107,046 107,046 94,529 -0.58 98.96
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 16,000 $ 1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1999....... 16,000 1,013,160 13,160 7,092 -70.24% --
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $ 16,000 $ 1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1999....... 16,000 1,015,427 15,427 9,359 -55.02% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ----------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1997....... 16,000 1,016,427 16,427 10,359 -40.77% --
December 31, 1998....... 32,000 1,039,432 39,432 33,364 3.18 824.90%
December 31, 1999....... 48,000 1,116,787 116,787 103,924 48.31 307.97
</TABLE>
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $16,000 $1,014,290 $14,290 $8,222 -- --
December 31, 1998....... 16,000 1,014,874 14,874 8,805 -98.49% --
December 31, 1999....... 32,000 1,032,274 32,274 26,206 -28.27 3,649.76%
</TABLE>
A-70
<PAGE>
VIP EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1986....... 16,000 1,013,953 13,953 7,885 -95.55% --
December 31, 1987....... 32,000 1,024,098 24,098 18,030 -60.67 2,780.79%
December 31, 1988....... 48,000 1,042,671 42,671 29,808 -35.59 502.45
December 31, 1989....... 64,000 1,063,580 63,580 50,717 -13.23 228.95
December 31, 1990....... 80,000 1,067,543 67,543 54,680 -17.00 138.21
December 31, 1991....... 96,000 1,102,722 102,722 90,205 -2.28 96.88
December 31, 1992....... 112,000 1,134,235 134,235 123,103 2.92 73.23
December 31, 1993....... 128,000 1,171,215 171,215 161,467 6.16 58.31
December 31, 1994....... 144,000 1,195,113 195,113 186,750 6.05 47.81
December 31, 1995....... 160,000 1,277,610 277,610 270,632 10.76 41.14
December 31, 1996....... 176,000 1,327,612 327,612 322,044 11.09 35.64
December 31, 1997....... 192,000 1,430,129 430,129 426,046 13.15 31.93
December 31, 1998....... 208,000 1,492,605 492,605 490,007 12.90 28.54
December 31, 1999....... 224,000 1,533,402 533,402 532,288 12.01 25.59
VIP OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,101,648 11,648 5,580 -68.05% --
December 31, 1988....... 32,000 1,028,084 28,084 22,016 -23.59 720.42%
December 31, 1989....... 48,000 1,050,972 50,972 38,109 -11.54 279.32
December 31, 1990....... 64,000 1,063,521 63,521 50,658 -9.43 158.82
December 31, 1991....... 80,000 1,082,838 82,838 69,975 -4.55 106.98
December 31, 1992....... 96,000 1,085,299 85,299 73,821 -7.63 78.31
December 31, 1993....... 112,000 1,134,339 134,339 124,246 2.64 61.87
December 31, 1994....... 128,000 1,148,100 148,100 139,391 1.92 50.04
December 31, 1995....... 144,000 1,178,600 178,600 171,276 3.50 41.92
December 31, 1996....... 160,000 1,214,357 214,357 208,418 4.82 35.93
December 31, 1997....... 176,000 1,252,653 252,653 248,198 5.70 31.35
December 31, 1998....... 192,000 1,297,429 297,429 294,459 6.49 27.79
December 31, 1999....... 208,000 1,439,908 439,908 438,423 10.31 25.81
</TABLE>
A-71
<PAGE>
VIP HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1985....... 16,000 1,014,622 14,622 8,554 -89.13% --
December 31, 1986....... 32,000 1,030,459 30,459 24,391 -30.84 2,397.46%
December 31, 1987....... 48,000 1,044,065 44,065 31,202 -31.02 475.14
December 31, 1988....... 64,000 1,062,670 62,670 49,807 -13.79 221.47
December 31, 1989....... 80,000 1,072,622 72,622 59,759 -12.70 135.41
December 31, 1990....... 96,000 1,083,988 83,988 71,587 -10.60 94.44
December 31, 1991....... 112,000 1,126,844 126,844 115,827 1.02 71.98
December 31, 1992....... 128,000 1,168,706 168,706 159,074 5.69 57.56
December 31, 1993....... 144,000 1,215,808 215,808 207,561 8.37 47.71
December 31, 1994....... 160,000 1,224,359 224,359 217,497 6.29 39.94
December 31, 1995....... 176,000 1,282,856 282,856 277,412 8.34 34.76
December 31, 1996....... 192,000 1,333,318 333,318 329,359 8.96 30.62
December 31, 1997....... 208,000 1,402,953 402,953 400,479 9.91 27.49
December 31, 1998....... 224,000 1,396,716 396,716 395,726 7.99 24.26
December 31, 1999....... 240,000 1,439,338 439,338 439,338 7.87 21.98
VIP II ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 16,000 $1,014,290 $ 14,290 $ 8,222 -- --
December 31, 1989....... 16,000 1,013,914 13,914 7,846 -89.38% --
December 31, 1990....... 32,000 1,028,254 28,254 22,186 -38.32 2,179.34%
December 31, 1991....... 48,000 1,048,560 48,560 35,697 -21.27 459.61
December 31, 1992....... 64,000 1,067,996 67,996 55,133 -8.10 217.44
December 31, 1993....... 80,000 1,096,397 96,397 83,533 1.87 134.85
December 31, 1994....... 96,000 1,102,542 102,542 90,140 -2.24 94.14
December 31, 1995....... 112,000 1,133,910 133,910 122,893 2.79 71.54
December 31, 1996....... 128,000 1,166,776 166,776 157,145 5.33 57.08
December 31, 1997....... 144,000 1,213,583 213,583 205,336 8.06 47.35
December 31, 1998....... 160,000 1,259,197 259,197 252,335 9.20 40.25
December 31, 1999....... 176,000 1,300,078 300,078 294,634 9.36 34.81
</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-72
<PAGE>
OPTION C DEATH BENEFIT
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 14,821 8,753 -82.34% --
December 31, 1984....... 32,000 1,000,000 27,505 21,437 -39.98 1,975.63%
December 31, 1985....... 48,000 1,000,000 62,502 49,639 2.51 434.27
December 31, 1986....... 64,000 1,000,000 134,815 121,952 37.12 206.69
December 31, 1987....... 80,000 1,000,000 214,988 202,125 41.23 127.42
December 31, 1988....... 96,000 1,000,000 208,430 196,144 25.27 88.99
December 31, 1989....... 112,000 1,000,000 284,500 273,599 26.44 66.82
December 31, 1990....... 128,000 1,000,000 284,089 274,573 19.39 52.57
December 31, 1991....... 144,000 1,000,000 449,551 441,419 24.77 42.74
December 31, 1992....... 160,000 1,000,000 434,089 427,342 19.33 35.59
December 31, 1993....... 176,000 1,000,000 509,672 504,352 18.58 30.19
December 31, 1994....... 192,000 1,000,000 479,267 475,432 14.62 25.98
December 31, 1995....... 208,000 1,000,000 678,192 675,841 17.21 22.62
December 31, 1996....... 224,000 1,000,000 827,992 827,126 17.49 19.89
December 31, 1997....... 240,000 1,192,900 1,028,362 1,028,362 17.94 19.66
December 31, 1998....... 256,000 1,593,076 1,385,283 1,385,283 19.22 20.71
December 31, 1999....... 272,000 1,816,187 1,607,246 1,607,246 18.85 20.06
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 13,983 7,915 -86.77% --
December 31, 1984....... 32,000 1,000,000 29,594 23,526 -31.92 1,975.63%
December 31, 1985....... 48,000 1,000,000 49,374 36,511 -19.29 434.27
December 31, 1986....... 64,000 1,000,000 70,297 57,434 -5.80 206.69
December 31, 1987....... 80,000 1,000,000 85,192 72,329 -4.28 127.42
December 31, 1988....... 96,000 1,000,000 105,565 93,279 -1.01 88.99
December 31, 1989....... 112,000 1,000,000 131,735 120,834 2.26 66.82
December 31, 1990....... 128,000 1,000,000 155,697 146,181 3.43 52.57
December 31, 1991....... 144,000 1,000,000 197,046 188,915 6.15 42.74
December 31, 1992....... 160,000 1,000,000 225,207 218,460 6.30 35.59
December 31, 1993....... 176,000 1,000,000 265,319 259,998 7.10 30.19
December 31, 1994....... 192,000 1,000,000 267,415 263,579 5.28 25.98
December 31, 1995....... 208,000 1,000,000 336,781 334,430 7.20 22.62
December 31, 1996....... 224,000 1,000,000 363,892 363,026 6.76 19.89
December 31, 1997....... 240,000 1,000,000 414,531 414,531 7.09 17.62
December 31, 1998....... 256,000 1,000,000 463,556 463,556 7.17 15.72
December 31, 1999....... 272,000 1,000,000 472,230 472,230 6.27 14.10
</TABLE>
A-73
<PAGE>
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 16,000 $1,000,000 $14,290 $ 8,222 -- --
December 31, 1983....... 16,000 1,000,000 14,013 7,945 -86.63% --
December 31, 1984....... 32,000 1,000,000 28,700 22,632 -35.36 1,975.63%
December 31, 1985....... 48,000 1,000,000 44,840 31,977 -27.94 434.27
December 31, 1986....... 64,000 1,000,000 61,434 48,571 -14.59 206.69
December 31, 1987....... 80,000 1,000,000 78,901 66,037 -8.13 127.42
December 31, 1988....... 96,000 1,000,000 98,239 85,953 -3.88 88.99
December 31, 1989....... 112,000 1,000,000 120,481 109,580 -.65 66.82
December 31, 1990....... 128,000 1,000,000 143,243 133,727 1.14 52.57
December 31, 1991....... 144,000 1,000,000 164,775 156,643 1.93 42.74
December 31, 1992....... 160,000 1,000,000 183,374 176,627 2.03 35.59
December 31, 1993....... 176,000 1,000,000 201,078 195,757 1.97 30.19
December 31, 1994....... 192,000 1,000,000 221,421 217,586 2.12 25.98
December 31, 1995....... 208,000 1,000,000 246,045 243,694 2.46 22.62
December 31, 1996....... 224,000 1,000,000 270,328 269,462 2.65 19.89
December 31, 1997....... 240,000 1,000,000 296,184 296,184 2.80 17.62
December 31, 1998....... 256,000 1,000,000 323,831 323,831 2.92 15.72
December 31, 1999....... 272,000 1,000,000 351,582 351,582 2.99 14.10
ZENITH WESTPEAK STOCK INDEX SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 11,424 5,356 -80.55% --
December 31, 1988....... 32,000 1,000,000 27,289 21,221 -30.63 1,033.28%
December 31, 1989....... 48,000 1,000,000 52,355 39,492 -11.29 328.36
December 31, 1990....... 64,000 1,000,000 62,718 49,855 -11.24 174.11
December 31, 1991....... 80,000 1,000,000 96,375 83,512 1.61 112.69
December 31, 1992....... 96,000 1,000,000 117,202 105,262 2.91 80.87
December 31, 1993....... 112,000 1,000,000 142,189 131,634 4.40 61.77
December 31, 1994....... 128,000 1,000,000 156,609 147,438 3.38 49.18
December 31, 1995....... 144,000 1,000,000 231,125 223,340 9.25 40.32
December 31, 1996....... 160,000 1,000,000 294,238 287,837 11.06 33.80
December 31, 1997....... 176,000 1,000,000 403,635 398,686 13.84 28.82
December 31, 1998....... 192,000 1,000,000 527,597 524,132 15.42 24.90
December 31, 1999....... 208,000 1,000,000 645,250 643,270 15.86 21.75
</TABLE>
A-74
<PAGE>
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 12,946 6,878 -71.72% --
December 31, 1988....... 32,000 1,000,000 28,001 21,933 -28.48 1,033.28%
December 31, 1989....... 48,000 1,000,000 48,976 36,113 -16.20 328.36
December 31, 1990....... 64,000 1,000,000 64,356 51,493 -9.82 174.11
December 31, 1991....... 80,000 1,000,000 91,906 79,043 -.45 112.69
December 31, 1992....... 96,000 1,000,000 112,086 100,146 1.34 80.87
December 31, 1993....... 112,000 1,000,000 137,422 126,867 3.39 61.77
December 31, 1994....... 128,000 1,000,000 148,681 139,511 2.06 49.18
December 31, 1995....... 144,000 1,000,000 211,010 203,224 7.28 40.32
December 31, 1996....... 160,000 1,000,000 254,692 248,292 8.32 33.80
December 31, 1997....... 176,000 1,000,000 336,163 331,213 10.78 28.82
December 31, 1998....... 192,000 1,000,000 413,743 410,279 11.77 24.90
December 31, 1999....... 208,000 1,000,000 465,397 463,417 11.41 21.75
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 14,777 8,709 -59.59% --
December 31, 1994....... 32,000 1,000,000 27,939 21,871 -28.61 1,028.55%
December 31, 1995....... 48,000 1,000,000 54,765 41,902 -7.93 327.65
December 31, 1996....... 64,000 1,000,000 79,347 66,484 1.76 173.87
December 31, 1997....... 80,000 1,000,000 122,151 109,288 11.86 112.58
December 31, 1998....... 96,000 1,000,000 165,526 153,701 14.97 80.81
December 31, 1999....... 112,000 1,000,000 193,426 182,987 13.34 61.73
</TABLE>
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $16,000 $1,000,000 $14,290 $ 8,222 -- --
December 31, 1993....... 16,000 1,000,000 14,847 8,779 -59.11% --
December 31, 1994....... 32,000 1,000,000 28,208 22,140 -27.80 1,028.55%
December 31, 1995....... 48,000 1,000,000 53,325 40,462 -9.91 327.65
December 31, 1996....... 64,000 1,000,000 76,758 63,895 -.08 173.87
December 31, 1997....... 80,000 1,000,000 105,505 92,642 5.53 112.58
December 31, 1998....... 96,000 1,000,000 110,110 98,286 .74 80.81
December 31, 1999....... 112,000 1,000,000 122,368 111,928 -0.02 61.73
</TABLE>
A-75
<PAGE>
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 2, 1994............. $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 12,455 6,387 -74.82% --
December 31, 1995....... 32,000 1,000,000 31,978 25,910 -16.87 1,038.05%
December 31, 1996....... 48,000 1,000,000 57,127 44,264 -4.79 329.07
December 31, 1997....... 64,000 1,000,000 87,879 75,016 7.45 174.35
December 31, 1998....... 80,000 1,000,000 97,762 84,899 2.24 112.81
December 31, 1999....... 96,000 1,000,000 146,472 134,533 10.72 80.93
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 13,138 7,070 -99.25% --
December 31, 1995....... 32,000 1,000,000 31,826 25,758 -29.38 3,271.69%
December 31, 1996....... 48,000 1,000,000 49,770 36,907 -21.48 522.96
December 31, 1997....... 64,000 1,000,000 75,888 63,025 -.92 230.16
December 31, 1998....... 80,000 1,000,000 127,577 114,714 16.79 137.32
December 31, 1999....... 96,000 1,000,000 185,525 173,008 22.06 94.25
ZENITH BALANCED SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 13,891 7,823 -98.62% --
December 31, 1995....... 32,000 1,000,000 30,465 24,397 -35.80 3,271.69%
December 31, 1996....... 48,000 1,000,000 49,478 36,615 -22.10 522.96
December 31, 1997....... 64,000 1,000,000 71,056 58,193 -5.67 230.16
December 31, 1998....... 80,000 1,000,000 91,341 78,478 -.89 137.32
December 31, 1999....... 96,000 1,000,000 99,574 87,057 -3.67 94.25
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 13,463 7,395 -99.01% --
December 31, 1995....... 32,000 1,000,000 31,801 25,733 -29.49 3,271.69%
December 31, 1996....... 48,000 1,000,000 54,051 41,188 -12.75 522.96
December 31, 1997....... 64,000 1,000,000 85,681 72,818 7.82 230.16
December 31, 1998....... 80,000 1,000,000 112,076 99,213 9.98 137.32
December 31, 1999....... 96,000 1,000,000 145,285 132,768 12.12 94.25
</TABLE>
A-76
<PAGE>
ZENITH MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1994....... 16,000 1,000,000 14,232 8,164 -98.22% --
December 31, 1995....... 32,000 1,000,000 28,599 22,531 -44.58 3,271.69%
December 31, 1996....... 48,000 1,000,000 44,142 31,279 -34.00 522.96
December 31, 1997....... 64,000 1,000,000 56,644 43,781 -22.21 230.16
December 31, 1998....... 80,000 1,000,000 74,352 61,488 -12.11 137.32
December 31, 1999....... 96,000 1,000,000 107,054 94,537 -0.58 94.25
ZENITH MFS INVESTORS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1999....... 16,000 1,000,000 13,160 7,092 -70.24% --
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999.......... $16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1999....... 16,000 1,000,000 15,427 9,359 -55.02% --
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 3, 1997........... $16,000 $1,000,000 $ 14,290 $8,222 -- --
December 31, 1997....... 16,000 1,000,000 16,427 10,359 -40.77% --
December 31, 1998....... 32,000 1,000,000 39,433 33,365 3.18 804.48%
December 31, 1999....... 48,000 1,000,000 116,788 103,925 48.31 290.64
</TABLE>
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
November 9, 1998........ $16,000 $1,000,000 $14,290 $8,222 -- --
December 31, 1998....... 16,000 1,000,000 14,874 8,805 -98.49% --
December 31, 1999....... 32,000 1,000,000 32,274 26,206 -28.27 3,544.55%
</TABLE>
A-77
<PAGE>
VIP EQUITY-INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1986....... 16,000 1,000,000 13,953 7,885 -95.55% --
December 31, 1987....... 32,000 1,000,000 24,098 18,030 -60.67 2,723.89%
December 31, 1988....... 48,000 1,000,000 42,671 29,808 -35.59 490.23
December 31, 1989....... 64,000 1,000,000 63,581 50,718 -13.23 221.84
December 31, 1990....... 80,000 1,000,000 67,546 54,683 -17.00 133.88
December 31, 1991....... 96,000 1,000,000 102,729 90,212 -2.28 92.44
December 31, 1992....... 112,000 1,000,000 134,252 123,120 2.92 68.91
December 31, 1993....... 128,000 1,000,000 171,250 161,503 6.17 53.96
December 31, 1994....... 144,000 1,000,000 195,178 186,815 6.06 43.72
December 31, 1995....... 160,000 1,000,000 277,751 270,773 10.77 36.31
December 31, 1996....... 176,000 1,000,000 327,854 322,286 11.10 30.74
December 31, 1997....... 192,000 1,000,000 430,576 426,493 13.17 26.41
December 31, 1998....... 208,000 1,000,000 493,314 490,716 12.93 22.96
December 31, 1999....... 224,000 1,000,000 534,459 533,346 12.04 20.16
VIP OVERSEAS SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1987....... 16,000 1,000,000 11,648 5,580 -68.05% --
December 31, 1988....... 32,000 1,000,000 28,084 22,016 -23.59 707.99%
December 31, 1989....... 48,000 1,000,000 50,973 38,110 -11.54 272.18
December 31, 1990....... 64,000 1,000,000 63,523 50,660 -9.42 154.15
December 31, 1991....... 80,000 1,000,000 82,844 69,981 -4.54 103.01
December 31, 1992....... 96,000 1,000,000 85,309 73,831 -7.63 75.31
December 31, 1993....... 112,000 1,000,000 134,365 124,272 2.65 58.22
December 31, 1994....... 128,000 1,000,000 148,145 139,437 1.93 46.75
December 31, 1995....... 144,000 1,000,000 178,682 171,358 3.51 38.57
December 31, 1996....... 160,000 1,000,000 214,502 208,563 4.83 32.48
December 31, 1997....... 176,000 1,000,000 252,891 248,437 5.72 27.80
December 31, 1998....... 192,000 1,000,000 297,818 294,848 6.51 24.10
December 31, 1999....... 208,000 1,000,000 440,699 439,214 10.33 21.10
</TABLE>
A-78
<PAGE>
VIP HIGH INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1985....... 16,000 1,000,000 14,622 8,554 -89.13% --
December 31, 1986....... 32,000 1,000,000 30,459 24,391 -30.84 2,337.90%
December 31, 1987....... 48,000 1,000,000 44,065 31,202 -31.02 463.37
December 31, 1988....... 64,000 1,000,000 62,671 49,808 -13.79 214.72
December 31, 1989....... 80,000 1,000,000 72,625 59,762 -12.70 130.87
December 31, 1990....... 96,000 1,000,000 83,995 71,593 -10.59 90.84
December 31, 1991....... 112,000 1,000,000 126,861 115,844 1.03 67.95
December 31, 1992....... 128,000 1,000,000 168,743 159,111 5.70 53.32
December 31, 1993....... 144,000 1,000,000 215,883 207,636 8.38 43.27
December 31, 1994....... 160,000 1,000,000 224,476 217,614 6.30 35.98
December 31, 1995....... 176,000 1,000,000 283,070 277,626 8.35 30.49
December 31, 1996....... 192,000 1,000,000 333,670 329,711 8.98 26.21
December 31, 1997....... 208,000 1,000,000 403,545 401,070 9.93 22.81
December 31, 1998....... 224,000 1,000,000 397,512 396,523 8.02 20.04
December 31, 1999....... 240,000 1,000,000 440,535 440,535 7.90 17.74
VIP II ASSET MANAGER SUB-ACCOUNT
<CAPTION>
INTERNAL RATE
TOTAL OF RETURN ON INTERNAL RATE
PREMIUMS DEATH CASH NET CASH NET CASH OF RETURN ON
DATE PAID BENEFIT VALUE VALUE VALUE DEATH BENEFIT
- ---- -------- ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 16,000 $1,000,000 $ 14,290 $ 8,222 -- --
December 31, 1989....... 16,000 1,000,000 13,914 7,846 -89.38% --
December 31, 1990....... 32,000 1,000,000 28,254 22,186 -38.32 2,130.09%
December 31, 1991....... 48,000 1,000,000 48,561 35,698 -21.27 447.21
December 31, 1992....... 64,000 1,000,000 67,997 55,134 -8.10 210.30
December 31, 1993....... 80,000 1,000,000 96,401 83,538 1.87 128.98
December 31, 1994....... 96,000 1,000,000 102,550 90,149 -2.23 89.83
December 31, 1995....... 112,000 1,000,000 133,928 122,912 2.79 67.33
December 31, 1996....... 128,000 1,000,000 166,813 157,182 5.33 52.92
December 31, 1997....... 144,000 1,000,000 213,658 205,411 8.07 42.98
December 31, 1998....... 160,000 1,000,000 259,333 252,471 9.21 35.77
December 31, 1999....... 176,000 1,000,000 300,306 294,862 9.37 30.33
</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-79
<PAGE>
APPENDIX C
LONG TERM MARKET TRENDS
The information below compares of the average annual returns of common stock,
high grade corporate bonds and 30-day U.S. Treasury bills over 20-year and 30-
year holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and does
not predict future performance. The information does not reflect policy
charges.
The data indicates that, historically, the investment performance of common
stocks over long periods has been positive and generally superior to that of
long-term, high grade debt securities. Common stocks have, however, been
subject to more dramatic market adjustments over short periods.
Over the 55 20-year time periods beginning in 1926 and ending in 1999 (i.e.,
1926-1945, 1927-1946, and so on through 1980-1999):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 52 of the 55 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 55 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 55 periods.
Over the 45 30-year time periods beginning in 1926 and ending in 1999, the
average annual return of common stocks was superior to that of high grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 45 periods.
From 1926 through 1999 the average annual return for common stocks was 11.3%,
compared to 5.6% for high grade, long-term corporate bonds, 3.8% for U.S.
Treasury bills and 3.1% for the Consumer Price Index.
- --------
* Used with permission. (C)2000 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger
G. Ibbotson and Rex Sinquefield.]
A-80
<PAGE>
---------------------
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS
FOR SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard & Poor's
500 Stock Index, with dividends reinvested, over one-year, five-year and
twenty-year periods beginning in 1926 and ending 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
5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 0-5.00% 10.00% 15.00% 20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------- -------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year........................ 27% 4% 11% 7% 11% 40%
5 years....................... 10% 14% 14% 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.]
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-81
<PAGE>
APPENDIX D
USES OF SURVIVORSHIP LIFE INSURANCE
These are examples of ways the Policy can be used to address certain personal,
estate and business planning objectives.
ESTATE TAX PAYMENT
Federal estate taxes may be deferred for a married couple until the second
death. At that time, the estate tax liability may exceed 50% of a family's
estate. Survivorship life is especially suited to fund for this liability at
the second death.
EDUCATION AND SUPPORT OF CHILDREN
Often, parents will have enough insurance to provide for dependent children if
one of the parents dies but not enough to provide for them if both parents die.
Survivorship life can provide protection against extraordinary expenses if both
parents die while the children are dependent.
CHARITABLE GIVING
You can use life insurance to facilitate charitable giving, and survivorship
life is especially well suited for this purpose. Assets left to charity at
death can be deductible from a decedent's taxable estate. An individual may be
reluctant to give assets to charity if a surviving spouse may need support or
if the individual wants the children to receive the value of those assets.
Survivorship life can enable a client to defer the charitable gift until the
spouse dies. At the spouse's death, assets that otherwise would be subject to
estate tax can pass to charity. The policy's death benefit proceeds can pass
directly to the children, free of income and estate taxes, at the same time
that the assets in the spouse's estate pass to charity.
GIFTS TO GRANDCHILDREN
Grandparents can provide substantial gifts to grandchildren using survivorship
life. For very large estates, survivorship life can take advantage of
exceptions to the generation skipping tax to maximize the gifts grandchildren
can receive.
BUSINESS USES
You can use survivorship life in business planning to provide benefits or
funding for replacement of key people, for buy-sell agreements and the like.
The policy can cover two owners, a parent and child active in the business, two
related or unrelated key executives, an executive and the executive's spouse,
etc. The policy can be used to accumulate cash to help fund a living buyout
under a buy-sell agreement or a deferred compensation plan for executives or
for directors.
Because the Policy provides a death benefit and cash value accumulation, you
can use the Policy for various individual and business planning purposes. If
you purchase the Policy for such purposes, you assume certain risks,
particularly if the Policy's cash value, as opposed to its death benefit, will
be the principal Policy feature used for such planning purposes. If the
investment performance of the Sub-Accounts to which cash value is allocated is
poorer than expected, or if you don't pay sufficient premiums or maintain cash
values, the Policy may lapse or may not accumulate sufficient cash value or net
cash value to fund the purpose for which you purchased the Policy. Because the
Policy is designed to provide benefits on a long-term basis, before purchasing
a Policy for a specialized purpose, you should consider whether the long-term
nature of the Policy is consistent with your goals. If you wish to access your
Policy's cash value, through loans, surrenders or withdrawals, you should
consult your tax advisor about possible tax consequences. (See "Tax
Considerations".)
A-82
<PAGE>
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published a
"Report to the Congress on the Taxation of Life Insurance Company Products" in
March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax Treatment
of Life Insurance Products and Other Retirement Savings Plans". Because it is a
convenient summary of the relevant tax characteristics of these products and
plans, we have reprinted it here, and added footnotes to reflect exceptions to
the general rules.
---------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE NON-
LIFE QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
---------- --------- ------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distributions No* Yes Loans Yes,
not beyond
allowed $50,000
Income Ordering Rules (Income in- No* Yes Yes Yes
cluded in First Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by Age 70 No No Yes Yes
1/2
Maximum Annual Distribution Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
- --------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
This appendix is not tax advice. You should consult with your own tax advisor
for more complete information.
A-83
<PAGE>
APPENDIX F
TAX LAW AND THE DEATH BENEFIT
In order to meet the Internal Revenue Code's definition of life insurance, the
Policies provide that the death benefit will not be less than a percentage of
the Policy's cash value. These percentages are set forth below.
TABLE I
<TABLE>
<CAPTION>
AGE OF YOUNGER AGE OF YOUNGER
INSURED AT START OF PERCENTAGE OF INSURED AT START OF PERCENTAGE OF
THE POLICY YEAR CASH VALUE THE POLICY YEAR CASH VALUE
------------------- ------------- ------------------- -------------
<S> <C> <C> <C>
20 through 40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 through 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 through 99 101
59 134 100 100
60 130
</TABLE>
A-84
<PAGE>
APPENDIX G
ENHANCED DEATH BENEFIT LIMITATIONS
As noted under "Policy Values and Benefits" in the Prospectus, the enhancement
factor that applies to the Option A and B death benefits is subject to certain
limits in order to contain cost of insurance charges against the Policy.
The maximum death benefit under Option A is the lesser of (i) the percent of
the cash value at the age of the younger insured at the start of the Policy
year as shown in Table II below and (ii) the cash value of the Policy times:
the face amount divided by the Tabular Cash Value of the Policy at the start of
the Policy month.
The maximum death benefit under Option B is the lesser of (i) the percent of
the cash value at the age of the younger insured at the start of the Policy
year as shown in Table II below and (ii) the cash value of the Policy times:
the sum of the face amount plus the Tabular Cash Value, divided by the Tabular
Cash Value.
In no event will the death benefit be less than the amount required to satisfy
tax law requirements.
The Tabular Cash Value at the start of each Policy month assumes: the
Guaranteed Death Benefit 1 Premium, as shown in the Policy, is paid on the
first day of each Policy year; maximum charges are charged; and the Actual
Investment Return is equivalent to an annual rate of 4% in all policy years.
---------------------
TABLE II
<TABLE>
<CAPTION>
AGE PERCENT AGE PERCENT
--- ------- --- -------
<S> <C> <C> <C>
20 through 40 362.50 63 179.80
41 352.35 64 176.90
42 342.20 65 174.00
43 332.05 66 172.55
44 321.90 67 171.10
45 311.75 68 169.65
46 303.05 69 168.20
47 294.35 70 166.75
48 285.65 71 163.85
49 276.95 72 160.95
50 268.25 73 158.05
51 258.10 74 155.15
52 247.95 75 through 90 152.25
53 237.80 91 150.80
54 227.65 92 144.20
55 217.50 93 137.70
56 211.70 94 131.30
57 205.90 95 126.25
58 200.10 96 121.20
59 194.30 97 116.15
60 188.50 98 111.10
61 185.60 99 106.05
62 182.70 100 100.00
</TABLE>
A-85
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of the following Sub-
Accounts: Capital Growth, Bond Income, Money Market, Stock Index, Managed,
Midcap Value (formerly Avanti Growth), Growth and Income (formerly Value
Growth), Small Cap, U.S. Government, Balanced, Equity Growth, International
Magnum Equity (formerly International Equity), Venture Value, Bond
Opportunities, Investors, Research Managers, Equity-Income, Overseas, High
Income and Asset Manager) of New England Life Insurance Company (the
"Company") as of December 31, 1999, and the related statements of operations
and changes in net assets for each of the three years in the period then ended
for all Sub-Accounts. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
Sub-Accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1999, and the results of
their operations and the changes in their net assets for each of the three
years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
AA-1
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)..........................
<CAPTION>
SHARES COST
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,831,583 $1,086,202,933
Back Bay
Advisors Bond
Income Series.. 738,049 79,337,797
Back Bay
Advisors Money
Market Series.. 1,481,735 148,173,522
Westpeak Stock
Index Series... 796,217 120,113,367
Back Bay
Advisors
Managed Series. 356,133 60,490,121
Goldman Sachs
Midcap Value
Series......... 303,945 41,326,387
Westpeak Growth
and Income
Series......... 476,840 86,077,139
Loomis Sayles
Small Cap
Series......... 494,133 72,214,392
Salomon Brothers
U.S. Government
Series......... 72,858 844,414
Loomis Sayles
Balanced
Series......... 1,214,912 18,213,928
Alger Equity
Growth Series.. 7,670,932 172,788,088
Morgan Stanley
International
Magnum Equity
Series......... 1,284,810 14,534,170
Davis Venture
Value Series... 6,183,625 126,513,387
Salomon Brothers
Bond
Opportunities
Series......... 104,337 1,267,848
MFS Investors
Series......... 77,411 773,570
MFS Research
Managers
Series......... 78,902 806,954
VIP Equity-
Income
Portfolio...... 6,551,702 126,034,149
VIP Overseas
Portfolio...... 5,064,896 87,116,523
VIP High Income
Portfolio...... 1,322,300 15,875,113
VIP II Asset
Manager
Portfolio...... 707,988 11,460,518
--------------
Total........... $2,270,164,320
==============
Amount due and accrued (payable) from
policy-related transactions, net........
Dividends receivable.....................
Total Assets
LIABILITIES
Due to New England Life Insurance
Company.................................
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2).. $1,230,974,235 $74,838,213 $148,173,522 $183,798,637 $70,090,490 $36,996,243 $94,643,283 $99,681,359
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
Series.........
Back Bay
Advisors Bond
Income Series..
Back Bay
Advisors Money
Market Series..
Westpeak Stock
Index Series...
Back Bay
Advisors
Managed Series.
Goldman Sachs
Midcap Value
Series.........
Westpeak Growth
and Income
Series.........
Loomis Sayles
Small Cap
Series.........
Salomon Brothers
U.S. Government
Series.........
Loomis Sayles
Balanced
Series.........
Alger Equity
Growth Series..
Morgan Stanley
International
Magnum Equity
Series.........
Davis Venture
Value Series...
Salomon Brothers
Bond
Opportunities
Series.........
MFS Investors
Series.........
MFS Research
Managers
Series.........
VIP Equity-
Income
Portfolio......
VIP Overseas
Portfolio......
VIP High Income
Portfolio......
VIP II Asset
Manager
Portfolio......
Total...........
Amount due and accrued (payable) from
policy-related transactions,
net............... (136,071) 21,370 560,723 49,113 (11,519) 39,928 7,685 84,454
Dividends receivable.. -- -- -- -- -- -- -- --
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
Total Assets 1,230,838,164 74,859,583 148,734,245 183,847,750 70,078,971 37,036,171 94,650,968 99,765,813
LIABILITIES
Due to New England Life Insurance
Company........... 84,134,782 6,819,176 11,964,362 19,325,681 5,908,740 3,542,818 9,540,656 10,713,149
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES....... $1,146,703,382 $68,040,407 $136,769,883 $164,522,069 $64,170,231 $33,493,353 $85,110,312 $89,052,664
=============== =========== ============ ============ ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
AA-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS MANAGERS
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ------------ ------------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$787,592 $16,826,533 $225,065,146 $18,180,067 $164,917,275 $1,113,279 $794,240 $945,245
10,965 157,461 236,677 96,973 124,826 5,544 (2,239) (2,139)
-- -- -- -- -- -- -- --
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
798,557 16,983,994 225,301,823 18,277,040 165,042,101 1,118,823 792,001 943,106
41,247 1,694,626 26,656,245 2,058,494 18,572,069 57,789 99,163 154,903
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
$757,310 $15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
======== =========== ============ =========== ============ ========== ======== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- -----------------------------------------------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
$168,444,262 $138,980,751 $14,955,213 $13,218,146 $2,703,423,731
(5,066) 101,197 2,344 592 1,342,818
-- -- -- -- --
- ------------- ------------ ----------- ----------- --------------
168,439,196 139,081,948 14,957,557 13,218,738 2,704,766,549
16,380,286 12,743,559 1,476,634 1,448,557 233,332,936
- ------------- ------------ ----------- ----------- --------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============ =========== =========== ==============
</TABLE>
See Notes to Financial Statements
AA-3
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $239,049,928 $5,475,221 $5,083,165 $ 4,154,533 $9,783,326 $ 459,624 $12,174,462 $ 260,319
EXPENSE
Mortality and expense
risk charge (Note 3)... 6,723,595 471,818 638,578 1,013,735 421,255 330,436 578,297 538,571
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net investment income
(loss)................. 232,326,333 5,003,403 4,444,587 3,140,798 9,362,071 129,188 11,596,165 (278,252)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695 3,516,783
End of period......... 144,771,302 (4,499,584) -- 63,685,270 9,600,369 (4,330,144) 8,566,144 27,466,967
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net change in
unrealized appreciation
(depreciation)......... (71,198,193) (5,708,857) -- 23,720,103 (3,685,297) (522,617) (5,050,551) 23,950,184
Net realized gain
(loss) on investments.. (572,298) 1,487 -- (52,322) (65,614) (9,202) (33,403) 2,146
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net realized and
unrealized gain (loss)
on investments......... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819) (5,083,954) 23,952,330
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $160,555,842 $ (703,967) $4,444,587 $26,808,579 $5,611,160 $ (402,631) $ 6,512,211 $23,674,078
============ ========== ========== =========== ========== ========== =========== ===========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-4
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ----------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 46,383 $ 998,875 $26,651,028 $ 60,426 $ 3,101,039 $ 90,809 $ 1,921 $ --
10,668 126,629 1,069,420 119,372 961,922 24,177 533 1,540
-------- ----------- ----------- ---------- ----------- -------- ------- --------
35,715 872,246 25,581,608 (58,946) 2,139,117 66,632 1,388 (1,540)
15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) -- --
(56,822) (1,387,395) 52,277,058 3,645,897 38,403,888 (154,569) 20,670 138,291
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(72,031) (2,424,386) 21,569,890 3,450,943 18,395,240 (107,975) 20,670 138,291
(1,634) (14,874) (116,438) (4,634) (47,139) 1,097 8,670 (34,566)
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(73,665) (2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
-------- ----------- ----------- ---------- ----------- -------- ------- --------
$(37,950) $(1,567,014) $47,035,060 $3,387,363 $20,487,218 $(40,246) $30,728 $102,185
======== =========== =========== ========== =========== ======== ======= ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
$ 7,478,140 $ 3,746,050 $1,147,254 $ 713,060 $320,475,563
1,005,310 681,381 87,077 74,260 14,878,574
- ------------ ------------ ----------- ----------- -------------
6,472,830 3,064,669 1,060,177 638,800 305,596,989
39,593,709 14,768,529 (611,552) 1,247,559 390,670,173
42,410,113 51,864,228 (919,900) 1,757,628 433,259,411
- ------------ ------------ ----------- ----------- -------------
2,816,404 37,095,699 (308,348) 510,069 42,589,238
(592,373) (370,244) 48,706 (3,669) (1,856,304)
- ------------ ------------ ----------- ----------- -------------
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------ ------------ ----------- ----------- -------------
$ 8,696,861 $39,790,124 $ 800,535 $1,145,200 $346,329,923
============ ============ =========== =========== =============
</TABLE>
See Notes to Financial Statements
AA-5
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $136,031,595 $4,500,888 $2,243,738 $ 1,665,717 $ 4,920,327 $ 8,522,091 $ 4,438,526
EXPENSE
Mortality and expense
risk charge (Note 3).. 5,675,180 329,452 281,233 574,859 295,717 213,136 321,673
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net investment income
(loss)................ 130,356,415 4,171,436 1,962,505 1,090,858 4,624,610 8,308,955 4,116,853
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.... 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665
End of period.......... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation)........ 124,603,132 317,214 -- 20,076,109 3,838,229 (10,771,908) 6,758,031
Net realized gain on
investments........... 5,610,899 1,800 -- 190,803 163,910 236,891 14,655
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net realized and
unrealized gain (loss)
on investments........ 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686
------------ ---------- ---------- ----------- ----------- ------------ -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $260,570,446 $4,490,449 $1,962,505 $21,357,770 $ 8,626,750 $ (2,226,063) $10,889,538
============ ========== ========== =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
AA-6
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- --------------------------------------------------------------------------------------- ----------------------------------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,148,975 $32,331 $ 607,129 $ 3,598,904 $ 251,292 $ 2,912,129 $ 81,480 $ 8,088,940 $6,093,523 $ 1,064,286
380,727 (2,318) 52,939 452,661 48,632 512,333 (9,440) 902,569 550,070 67,547
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
768,248 34,649 554,190 3,146,243 202,660 2,399,796 90,920 7,186,371 5,543,453 996,739
5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
3,516,783 15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) 39,593,709 14,768,529 (611,552)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,905,274) 17,125 394,379 25,315,901 349,959 9,291,865 (44,337) 6,894,545 3,631,231 (1,576,072)
20,862 11 6,840 56,142 5,897 22,521 493 561,003 333,272 20,913
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,884,412) 17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
$(1,116,164) $51,785 $ 955,409 $28,518,286 $ 558,517 $11,714,181 $ 47,076 $14,641,919 $9,507,956 $ (558,420)
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ---------- ------------
<S> <C>
$ 835,511 $187,037,382
50,140 10,697,110
- ---------- ------------
785,371 176,340,272
971,097 203,203,584
1,247,559 390,670,172
- ---------- ------------
276,461 187,466,588
4,137 7,251,049
- ---------- ------------
280,598 194,717,637
- ---------- ------------
$1,065,969 $371,057,909
======= ========== =========== ========= =========== ======== =========== ========== ===========
========== ============
</TABLE>
See Notes to Financial Statements
AA-7
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553
EXPENSE
Mortality and expense
risk charge (Note 3).. 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net investment income
(loss)................ 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net change in
unrealized
appreciation
(depreciation)........ (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574
Net realized gain on
investments........... 1,699,829 15,488 -- 35,165 242,079 87,159 17,721
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments........ (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295
------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584
============ ========== ========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
AA-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------- ---------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH ASSET
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ---------- -------- ---------- ------------- ----------- ------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $5,434,055 $393,295 $528,401
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502 33,135
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793 495,266
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520 971,097
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920 423,450
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234 5,368
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154 428,818
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $6,689,446 $965,947 $924,084
========== ====== ======== ========== ========= =========== ======= =========== ========== ======== ========
<CAPTION>
- ----------------------------------------------------------------------------------
TOTAL
- ------------
<S>
$231,072,203
7,755,657
- ------------
223,316,546
194,486,245
203,203,584
- ------------
8,717,339
2,491,649
- ------------
11,208,988
- ------------
$234,525,534
============
</TABLE>
See Notes to Financial Statements
AA-9
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK MIDCAP
GROWTH INCOME MARKET INDEX MANAGED VALUE
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 232,326,333 $ 5,003,403 $ 4,444,587 $ 3,140,798 $ 9,362,071 $ 129,188
Net realized and
unrealized gain
(loss) on
investments..... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 160,555,842 (703,967) 4,444,587 26,808,579 5,611,160 (402,631)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 142,211,177 13,805,688 214,469,972 29,988,746 10,115,433 7,098,841
Net transfers
(to) from other
sub-accounts.... (3,426,057) 5,993,183 (132,180,032) 28,975,401 3,130,211 (1,928,318)
Net transfers
(to) from New
England Life
Insurance
Company......... (127,342,172) (8,870,541) (35,295,568) (21,960,448) (7,936,560) (3,985,601)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 11,442,948 10,928,330 46,994,372 37,003,699 5,309,084 1,184,922
-------------- ----------- ------------- ------------ ----------- -----------
Net increase
(decrease) in
net assets...... 171,998,790 10,224,363 51,438,959 63,812,278 10,920,244 782,291
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 974,704,592 57,816,044 85,330,924 100,709,791 53,249,987 32,711,062
-------------- ----------- ------------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $1,146,703,382 $68,040,407 $ 136,769,883 $164,522,069 $64,170,231 $33,493,353
============== =========== ============= ============ =========== ===========
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------
GROWTH
AND SMALL U.S.
INCOME CAP GOVERNMENT
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ----------
<S> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 11,596,165 $ (278,252) $ 35,715
Net realized and
unrealized gain
(loss) on
investments..... (5,083,954) 23,952,330 (73,665)
------------- ------------- ----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 6,512,211 23,674,078 (37,950)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 15,769,644 16,994,060 --
Net transfers
(to) from other
sub-accounts.... 14,513,514 (3,433,209) 79,255
Net transfers
(to) from New
England Life
Insurance
Company......... (10,636,850) (11,981,152) 24,393
------------- ------------- ----------
Net Increase in
net assets
resulting from
policy related
transactions... 19,646,308 1,579,699 103,648
------------- ------------- ----------
Net increase
(decrease) in
net assets...... 26,158,519 25,253,777 65,698
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 58,951,793 63,798,887 691,612
------------- ------------- ----------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 85,110,312 $ 89,052,664 $757,310
============= ============= ==========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-10
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INTERNATIONAL
EQUITY MAGNUM VENTURE BOND RESEARCH
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ------------ ------------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 872,246 $ 25,581,608 $ (58,946) $ 2,139,117 $ 66,632 $ 1,388 $ (1,540)
(2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
- ----------- ------------ ----------- ------------ ---------- -------- --------
(1,567,014) 47,035,060 3,387,363 20,487,218 (40,246) 30,728 102,185
4,093,455 31,646,457 3,430,299 32,031,496 -- 75,935 86,667
1,865,860 59,949,102 1,463,742 22,546,367 1,100 684,756 763,549
(1,579,581) (30,858,890) (2,381,414) (23,867,517) 9,526 (98,581) (164,198)
- ----------- ------------ ----------- ------------ ---------- -------- --------
4,379,734 60,736,669 2,512,627 30,710,346 10,626 662,110 686,018
- ----------- ------------ ----------- ------------ ---------- -------- --------
2,812,720 107,771,729 5,899,990 51,197,564 (29,620) 692,838 788,203
12,476,648 90,873,849 10,318,556 95,272,468 1,090,654 -- --
- ----------- ------------ ----------- ------------ ---------- -------- --------
$15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
=========== ============ =========== ============ ========== ======== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- -----------------------------------------------------------------------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------- ------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
$ 6,472,830 $ 3,064,669 $ 1,060,177 $ 638,800 $ 305,596,989
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------- ------------- ------------ ------------ ---------------
8,696,861 39,790,124 800,535 1,145,200 346,329,923
26,649,674 17,254,614 3,727,099 2,393,210 571,842,467
(2,823,843) 1,086,949 1,354,057 1,384,413 --
(19,017,183) (16,067,097) (2,389,723) (1,339,833) (325,738,990)
- ------------- ------------- ------------ ------------ ---------------
4,808,648 2,274,466 2,691,433 2,437,790 246,103,477
- ------------- ------------- ------------ ------------ ---------------
13,505,509 42,064,590 3,491,968 3,582,990 592,433,400
138,553,401 84,273,799 9,988,955 8,187,191 1,879,000,213
- ------------- ------------- ------------ ------------ ---------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============= ============ ============ ===============
</TABLE>
See Notes to Financial Statements
AA-11
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss).. $ 130,356,415 $ 4,171,436 $ 1,962,505 $ 1,090,858 $ 4,624,610 $ 8,308,955 $ 4,116,853 $ 768,248
Net realized and
unrealized gain
(loss) on
investments.... 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686 (1,884,412)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 260,570,446 4,490,449 1,962,505 21,357,770 8,626,750 (2,226,063) 10,889,538 (1,116,164)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 130,346,621 10,522,040 221,378,611 15,997,005 6,508,238 8,067,127 10,034,046 16,979,803
Net transfers
(to) from other
sub-accounts... 28,412,166 9,220,311 (149,270,654) 22,094,429 6,317,021 (102,089) 15,004,643 9,499,585
Net transfers to
New England
Life Insurance
Company........ (136,266,249) (7,932,456) (21,844,962) (16,290,249) (6,742,406) (4,094,516) (8,744,105) (9,074,771)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 22,492,538 11,809,895 50,262,995 21,801,185 6,082,853 3,870,522 16,294,584 17,404,617
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net increase in
net assets..... 283,062,984 16,300,344 52,225,500 43,158,955 14,709,603 1,644,459 27,184,123 16,288,452
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670 47,510,435
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 974,704,592 $57,816,044 $ 85,330,924 $100,709,791 $53,249,987 $ 32,711,062 $58,951,793 $63,798,887
============= =========== ============= ============ =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
AA-12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ----------- ------------ ------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920 $ 7,186,371 $ 5,543,453 $ 996,739
17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076 14,641,919 9,507,956 (558,420)
-- 3,185,034 18,566,913 3,131,225 24,165,947 -- 26,170,240 17,386,996 2,434,923
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788 8,474,098 342,473 2,823,884
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947) (18,064,178) (10,788,946) (1,891,706)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841 16,580,160 6,940,523 3,367,101
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917 31,222,080 16,448,479 2,808,682
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737 107,331,321 67,825,320 7,180,273
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
$ 691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654 $138,553,401 $ 84,273,799 $ 9,988,955
========= =========== ============ =========== ============ ========== ============ ============ ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ------------ ---------------
<S> <C>
$ 785,371 $ 176,340,272
280,598 194,717,637
- ------------ ---------------
1,065,969 371,057,909
1,626,307 516,501,076
1,297,121 --
(1,251,084) (277,154,223)
- ------------ ---------------
1,672,344 239,346,853
- ------------ ---------------
2,738,313 610,404,762
5,448,878 1,268,595,450
- ------------ ---------------
$ 8,187,191 $1,879,000,212
============ ===============
</TABLE>
See Notes to Financial Statements
AA-13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK MIDCAP SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE GROWTH AND CAP
SUB- SUB- SUB- SUB- SUB- SUB- INCOME SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss).. $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065
Net realized and
unrealized gain
(loss) on
investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase
(decrease) in
net assets
resulting from
operations..... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007
Net transfers
(to) from other
sub-
accounts....... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252
Net transfers to
New England
Life Insurance
Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069)
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets
resulting from
policy related
transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704
NET ASSETS, AT
BEGINNING OF THE
YEAR............ 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT
END OF THE YEAR. $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435
============= =========== ============= ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
AA-14
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ----------- ---------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
- ----------- ---------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
- ----------- ---------------
944,699 147,685,118
- ----------- ---------------
1,868,783 382,210,652
3,580,095 886,384,798
- ----------- ---------------
$5,448,878 $1,268,595,450
=========== ===============
</TABLE>
See Notes to Financial Statements
AA-15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS. New England Variable Life Separate Account (the
"Account") of New England Life Insurance Company ("NELICO") was established by
NELICO's Board of Directors on January 31, 1983 in accordance with the
regulations of the Delaware Insurance Department and is now operating in
accordance with the regulations of the Commonwealth of Massachusetts Division
of Insurance. The Account is registered as a unit investment trust under the
Investment Company Act of 1940. The assets of the Account are owned by NELICO.
The net assets of the Account are restricted from use in the ordinary business
of NELICO. NELICO is an indirect wholly-owned subsidiary of Metropolitan Life
Insurance Company.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUB-ACCOUNTS. The Account has twenty investment sub-accounts each of which
invest in the shares of one portfolio of the New England Zenith Fund ("Zenith
Fund"), the Variable Insurance Products Fund or the Variable Insurance
Products Fund II. The portfolios of the Zenith Fund, the Variable Insurance
Products Fund and the Variable Insurance Products Fund II in which the sub-
accounts invest are referred to herein as the "Eligible Funds". The Zenith
Fund, the Variable Insurance Products Fund and the Variable Insurance Products
Fund II are diversified, open-end management investment companies. The Account
purchases or redeems shares of the twenty Eligible Funds based on the amount
of net premiums invested in the Account, transfers among the sub-accounts,
policy loans, surrender payments, and death benefit payments. The values of
the shares of the Eligible Funds are determined as of the close of the New
York Stock Exchange (the "Exchange") (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISK CHARGES. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus" , "Zenith Life Plus II" and "Zenith Variable Whole Life")
life policies and limited payment ("Zenith Life Executive 65") variable life
policies, .90% and .75% of the Account assets attributable to variable
survivorship ("Zenith Survivorship Life") life policies, and .75% and .60% of
the Account assets attributable to flexible premium ("Zenith Flexible Life")
variable life policies. For the modified single premium ("American Gateway")
and flexible premium ("Zenith Executive Advantage Plus") variable life
policies mortality and expense risk charges are not charged daily against the
sub-account assets but are deducted from the policy cash values monthly at an
annual rate of .90% and a maximum annual rate of .75%, respectively
4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
value in the sub-accounts. These deductions, depending on the policy, could
include sales load, administrative charges, premium tax charges, risk charges,
cost of insurance charges, and charges for rider benefits and special risk
charges.
AA-16
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FEDERAL INCOME TAXES. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make
appropriate charges against the Account in the future if and when tax
liabilities arise.
6. INVESTMENT ADVISERS. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. New England Investment Management,
Inc. (formerly, TNE Advisers, Inc.), which is an indirect subsidiary of
NELICO, Capital Growth Management Limited Partnership ("CGM"), and each of the
sub-advisers are registered with the Securities and Exchange Commission as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ --------------------------------------- ------------------------------------
<S> <C> <C>
Capital Growth.......... CGM* --
Back Bay Advisors Money
Market................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors Bond
Income................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors
Managed................ New England Investment Management, Inc. Back Bay Advisors, L.P. *
Westpeak Stock Index.... New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Westpeak Growth and
Income................. New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Goldman Sachs Midcap
Value.................. New England Investment Management, Inc. Goldman Sachs Asset Management
Loomis Sayles Small Cap. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Loomis Sayles Balanced.. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Morgan Stanley
International Magnum New England Investment Management, Inc. Morgan Stanley Dean Witter
Equity................. Investment Management Inc.
Davis Venture Value..... New England Investment Management, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth..... New England Investment Management, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. New England Investment Management, Inc. Salomon Brothers Asset
Government............. Management Inc
Salomon Brothers
Strategic Bond
Opportunities.......... New England Investment Management, Inc. Salomon Brothers Asset
Management Inc
MFS Investors........... New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research Managers... New England Investment Management, Inc. Massachusetts Financial
Services Company
</TABLE>
*An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and Morgan Stanley Dean
Witter Investment Management Inc. became the sub-adviser of the Series,
succeeding Draycott Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management ("Goldman Sachs") became
the sub-adviser of the Loomis Sayles Avanti Growth Series, succeeding Loomis
Sayles & Company, L.P., and the name of the Series was changed to the "Goldman
Sachs Midcap Value Series". Goldman Sachs is a separate operating division of
Goldman, Sachs & Co., a privately-owned global financial services company.
AA-17
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENT PURCHASES AND SALES. The following table shows the aggregate
cost of Eligible Fund shares purchased and proceeds from the sales of Eligible
Fund shares for each sub-account for the year ended December 31, 1999:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series............................. $242,198,370 $241,707,039
Back Bay Advisors Money Market Series............. 327,644,952 277,923,925
Back Bay Advisors Bond Income Series.............. 36,178,905 24,991,981
Back Bay Advisors Managed Series.................. 24,394,855 18,680,924
Westpeak Stock Index Series....................... 81,767,015 38,818,677
Westpeak Growth and Income Series................. 43,834,304 22,733,178
Goldman Sachs Midcap Value Series................. 14,632,125 14,003,124
Loomis Sayles Small Cap Series.................... 32,520,472 28,114,874
Loomis Sayles Balanced Series..................... 11,121,785 7,665,490
Morgan Stanley International Magnum Equity Series. 8,500,269 5,336,590
Davis Venture Value Series........................ 74,752,030 39,161,371
Alger Equity Growth Series........................ 112,530,144 37,977,904
Salomon Bothers U.S. Government Series............ 728,153 711,346
Salomon Bothers Strategic Bond Opportunities
Series........................................... 504,155 619,331
MFS Investors Series *............................ 853,017 92,276
MFS Research Managers Series *.................... 869,163 29,781
VIP Equity-Income Portfolio....................... 48,322,887 44,032,962
VIP Overseas Portfolio............................ 36,474,794 30,947,930
VIP High Income Portfolio......................... 10,500,033 7,853,618
VIP II Asset Manager Portfolio.................... 6,412,123 3,587,782
</TABLE>
*For the period April 30, 1999 (Commencement of Operations) to December 31,
1999.
8. NET INVESTMENT RETURNS. The following table shows the net investment return
of the Sub-Account for each type of variable life insurance policy investing
in the Account. The net investment return reflects the appropriate mortality
and expense risk charge against sub-account assets, where applicable, for each
type of variable life insurance policy shown (in the case of American Gateway
Series, and Zenith Executive Advantage Plus, the mortality and expense risk
charge is deducted monthly from the cash values rather than daily from sub-
account assets and, therefore, does not impact sub-account net investment
returns). These figures do not reflect charges deducted from premiums and the
cash values of the policies. Such charges will affect the actual cash values
and benefits of the policies. Certain amounts have been restated to conform
with the current calculation of net investment return to provide greater
comparability with industry convention.
AA-18
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 % 15.30 %
Bond Income............. 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 % (0.81)%
Money Market............ 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 % 4.60 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 % 19.96 %
Managed................. 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 % 9.59 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.47% (0.62)% 29.90% 17.20% 16.91 % (5.79)% 0.00 %
Growth and Income.................................. 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 % 8.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.29% 6.69 % 34.62% 13.88% 27.66 % 11.24 % 5.96 %
Overseas........................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 % 42.13 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.45)% 28.40% 30.22% 24.42 % (2.04)% 31.29 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.58)% 20.18% 13.63% 17.26 % (4.66)% 7.78 %
Asset Manager............................................... (4.41)% 16.55% 14.20% 20.23 % 14.65 % 10.70 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.84% 12.78% 25.19 % 47.27 % 33.66 %
Balanced............................................................. 13.75% 16.50% 15.77 % 8.73 % (5.39)%
International Magnum Equity.......................................... 3.85% 6.30% (1.64)% 6.90 % 24.18 %
Venture Value........................................................ 21.64% 25.40% 33.03 % 14.02 % 17.11 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.61 %
Research Managers........................................................................................ 19.52 %
</TABLE>
AA-19
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 % 15.18 %
Bond Income............. 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 % (0.91)%
Money Market............ 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 % 4.49 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 % 19.84 %
Managed................. 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 % 9.48 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.39% (0.72)% 29.77% 17.08% 16.80 % (5.88)% (0.10)%
Growth and Income.................................. 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 % 8.86 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income...................................... 9.22% 6.59 % 34.49% 13.77% 27.53 % 11.13 % 5.85 %
Overseas........................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 % 41.99 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.52)% 28.27% 30.09% 24.29 % (2.14)% 31.16 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.61)% 20.06% 13.52% 17.14 % (4.76)% 7.67 %
Asset Manager............................................... (4.45)% 16.43% 14.09% 20.11 % 14.53 % 10.59 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.76% 12.66% 25.06 % 47.12 % 33.53 %
Balanced............................................................. 13.67% 16.39% 15.66 % 8.62 % (5.49)%
International Magnum Equity.......................................... 3.79% 6.19% (1.74)% 6.79 % 24.05 %
Venture Value........................................................ 21.56% 25.27% 32.90 % 13.90 % 16.99 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.54 %
Research Managers........................................................................................ 19.44 %
</TABLE>
AA-20
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
VARIABLE ORDINARY ("ZENITH LIFE PLUS", "ZENITH LIFE PLUS II" AND "ZENITH
VARIABLE WHOLE LIFE") AND LIMITED PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 % 15.01 %
Bond Income............. 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 % (1.06)%
Money Market............ 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 % 4.34 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 % 19.66 %
Managed................. 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 % 9.31 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.28% (0.87)% 29.57% 16.90% 16.62 % (6.03)% (0.25)%
Growth and Income.................................. 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 % 8.70 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.11% 6.43 % 34.29% 13.59% 27.34 % 10.96 % 5.69 %
Overseas........................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 % 41.77 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.61)% 28.08% 29.90% 24.11 % (2.28)% 30.96 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.66)% 19.88% 13.35% 16.96 % (4.90)% 7.51 %
Asset Manager............................................... (4.49)% 16.26% 13.91% 19.93 % 14.36 % 10.43 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.64% 12.49% 24.88 % 46.90 % 33.33 %
Balanced............................................................. 13.56% 16.21% 15.48 % 8.46 % (5.63)%
International Magnum Equity.......................................... 3.68% 6.03% (1.89)% 6.63 % 23.87 %
Venture Value........................................................ 21.44% 25.08% 32.70 % 13.73 % 16.81 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.44 %
Research Managers........................................................................................ 19.32 %
</TABLE>
AA-21
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 % 14.67 %
Bond Income............. 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 % (1.36)%
Money Market............ 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 % 4.03 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 % 19.30 %
Managed................. 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 % 8.98 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.05% (1.16)% 29.19% 16.55% 16.27% (6.31)% (0.55)%
Growth and Income.................................. 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 % 8.37 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 8.89% 6.11 % 33.89% 13.25% 26.96% 10.63 % 5.38 %
Overseas........................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 % 41.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.80)% 27.69% 29.50% 23.73% (2.58)% 30.57 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.76)% 19.53% 13.00% 16.61% (5.19)% 7.19 %
Asset Manager............................................... (4.59)% 15.91% 13.57% 19.57% 14.02 % 10.10 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.39% 12.15% 24.50 % 46.46 % 32.93 %
Balanced............................................................. 13.33% 15.86% 15.14 % 8.13 % (5.91)%
International Magnum Equity.......................................... 3.48% 5.71% (2.18)% 6.31 % 23.50 %
Venture Value........................................................ 21.20% 24.71% 32.30 % 13.39 % 16.47 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.23 %
Research Managers........................................................................................ 19.08 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .90%.
Certain Zenith Survivorship Life Policies currently have a mortality and
expense risk charge at an annual rate of .75%.
AA-22
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 % 14.84 %
Bond Income............. 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 % (1.21)%
Money Market............ 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 % 4.18 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 % 19.48 %
Managed................. 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 % 9.15 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.16% (1.01)% 29.38% 16.72% 16.45 % (6.17)% (0.40)%
Growth and Income.................................. 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 % 8.53 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.00% 6.27 % 34.09% 13.42% 27.15 % 10.79 % 5.54 %
Overseas........................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 % 41.56 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.71)% 27.88% 29.70% 23.92 % (2.43)% 30.77 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.71)% 19.71% 13.17% 16.79 % (5.04)% 7.35 %
Asset Manager............................................... (4.54)% 16.08% 13.74% 19.75 % 14.19 % 10.26 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.51% 12.32% 24.69 % 46.68 % 33.13 %
Balanced............................................................. 13.44% 16.03% 15.31 % 8.29 % (5.77)%
International Magnum Equity.......................................... 3.58% 5.87% (2.04)% 6.47 % 23.68 %
Venture Value........................................................ 21.32% 24.89% 32.50 % 13.56 % 16.64 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.34 %
Research Managers........................................................................................ 19.20 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .75%.
Certain Zenith Flexible Life Policies currently have a mortality and expense
risk charge at an annual rate of .60%.
AA-23
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FLEXIBLE PREMIUM ("ZENITH EXECUTIVE ADVANTAGE PLUS") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 % 15.70 %
Bond Income............. 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.55% 6.93 % 35.90% 13.75% 28.11 % 11.63 % 6.33 %
Overseas........................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 % 42.63 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (.37)% 20.79% 13.75% 17.67 % (4.33)% 8.15 %
Asset Manager............................................... (4.65)% 17.68% 14.31% 20.65 % 15.05 % 11.09 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
AA-24
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government............................................................... 4.55% 8.47 % 7.61 % 0.17 %
Strategic Bond Opportunities.................................................. 8.46% 11.07 % 2.04 % 1.44 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and the beginning value for
the period and dividing it by the beginning value for the period.
AA-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Policyholders of New England Life Insurance
Company:
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company and subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of income and
comprehensive income, equity and cash flows for each of the three years in the
period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of New England Life Insurance
Company and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
AA-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities, Available for Sale, at Estimated Fair
Value................................................. $ 735,697 $ 769,364
Equity Securities, at Fair Value....................... 22,685 13,240
Policy Loans........................................... 181,995 135,800
Short-Term Investments................................. 62,619 52,285
Other Invested Assets.................................. 16,798 16,372
---------- ----------
Total Investments................................... 1,019,794 987,061
Cash and Cash Equivalents............................... 84,371 43,598
Deferred Policy Acquisition Costs....................... 930,703 710,961
Accrued Investment Income............................... 29,940 21,802
Premiums and Other Receivables.......................... 119,750 145,117
Other Assets............................................ 105,982 111,067
Separate Account Assets................................. 4,840,029 3,258,383
---------- ----------
TOTAL ASSETS........................................ $7,130,569 $5,277,989
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits.................................. $ 614,927 $ 561,746
Policyholder Account Balances........................... 325,385 210,242
Other Policyholder Funds................................ 245,339 186,255
Policyholder Dividends Payable.......................... 977 609
Short and Long-Term Debt................................ 75,053 82,855
Income Taxes Payable:
Current................................................ (77) 10,984
Deferred............................................... 38,669 42,334
Due to Parent........................................... 72,247 789
Other Liabilities....................................... 64,717 78,721
Separate Account Liabilities............................ 4,840,029 3,258,383
---------- ----------
TOTAL LIABILITIES................................... 6,277,266 4,432,918
---------- ----------
Commitments and Contingencies (Notes 4, 8 and 9)
EQUITY
Common Stock, $125.00 par value; 50,000 shares
authorized, 20,000 shares issued and outstanding....... 2,500 2,500
Preferred Stock, $0.00 par value; 1,000,000 shares
authorized, 200,000 shares issued and outstanding...... 0 0
Contributed Capital..................................... 647,273 647,273
Retained Earnings....................................... 214,528 177,859
Accumulated Other Comprehensive Income.................. (10,998) 17,439
---------- ----------
TOTAL EQUITY........................................ 853,303 845,071
---------- ----------
TOTAL LIABILITIES AND EQUITY............................ $7,130,569 $5,277,989
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums........................................... $123,638 $100,689 $ 63,616
Universal Life and Investment-Type Product Policy
Fees.............................................. 220,841 173,766 145,157
Net Investment Income.............................. 68,498 49,077 61,059
Investment Gains (Losses), Net..................... 2,922 5,610 890
Commissions, Fees and Other Income................. 265,891 192,411 28,302
-------- -------- --------
TOTAL REVENUES................................... 681,790 521,553 299,024
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.............................. 193,293 149,687 100,180
Interest Credited to Policyholder Account Balances. 10,721 7,735 6,220
Policyholder Dividends............................. 20,827 22,989 21,325
Other Operating Costs and Expenses................. 381,881 316,659 144,342
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS.............. 606,722 497,070 272,067
-------- -------- --------
Income From Operations Before Income Taxes......... 75,068 24,483 26,957
Income Taxes....................................... 29,344 13,046 4,988
-------- -------- --------
NET INCOME......................................... $ 45,724 $ 11,437 $ 21,969
-------- -------- --------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Investment Gains (Losses) (Net of
Related Offsets, Reclassification Adjustments and
Income Taxes, of $45,376, $(299) and $(16,588),
Respectively).................................... (28,437) 92 13,620
-------- -------- --------
COMPREHENSIVE INCOME............................... $ 17,287 $ 11,529 $ 35,589
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-28
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
STOCK & OTHER
CONTRIBUTED RETAINED COMPREHENSIVE
CAPITAL EARNINGS INCOME TOTAL
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996.... $402,242 $144,453 $ 3,727 $550,422
Net Income....................... 21,969 21,969
Change in Net Unrealized
Investment Gains (Losses)....... 13,620 13,620
Contributed Capital.............. 47,531 47,531
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1997.... 449,773 166,422 17,347 633,542
Net Income....................... 11,437 11,437
Change in Net Unrealized
Investment Gains (Losses)....... 92 92
Contributed Capital.............. 200,000 200,000
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1998.... 649,773 177,859 17,439 845,071
Net Income....................... 45,724 45,724
Preferred Stock Dividends........ (9,055) (9,055)
Change in Net Unrealized
Investment Gains (Losses)....... (28,437) (28,437)
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1999.... $649,773 $214,528 $(10,998) $853,303
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-29
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES.......... $(159,314) $(311,296) $(121,838)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 114,478 164,566 145,197
Equity Securities............................ 2,491 39,333 32,806
Other, Net................................... (1) 721 128
Purchases of:
Available for Sale Fixed Maturities.......... (157,761) (184,810) (326,059)
Equity Securities............................ (9,590) (80,066) 0
Real Estate.................................. (3,251) (3,644) 0
Fixed Asset Property and Equipment........... 0 (1,459) (101)
Other Assets................................. (302) (89) 0
Net Change in Short-Term Investments.......... (10,334) (24,341) 128,616
Net Change in Policy Loans.................... (46,195) (31,017) (28,520)
Other, Net.................................... 23,443 1,631 177
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (87,022) (119,175) (47,756)
--------- --------- ---------
Cash Flows from Financing Activities:
Capital Contributions......................... 0 200,000 46,681
Dividends Paid................................ (9,055) 0 0
Repayment of Debt............................. (13,232) (8,670) (3,181)
Policyholder Account Balances:
Deposits..................................... 517,551 358,090 244,338
Withdrawals.................................. (242,388) (149,499) (95,066)
Financial Reinsurance Receivables............. 34,233 0 1,823
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 287,109 399,921 194,595
--------- --------- ---------
Change in Cash and Cash Equivalents............ 40,773 (30,550) 25,001
Cash and Cash Equivalents, Beginning of Year... 43,598 74,148 49,147
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 84,371 $ 43,598 $ 74,148
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................. $ 87 $ 3,830 $ 1,495
========= ========= =========
Income Taxes Paid............................. $ 30,045 $ 14,118 $ 5,470
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-30
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET INCOME................................... $ 45,724 $ 11,437 $ 21,969
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net........................................ (186,467) (145,787) (140,578)
Change in Accrued Investment Income......... (8,138) (3,090) (4,999)
Change in Premiums and Other Receivables.... 25,367 (82,081) (57,095)
Gains from Sales of Investments, Net........ (2,922) (5,610) (890)
Depreciation and Amortization Expenses...... 11,350 13,137 10,085
Interest Credited to Policyholder Account
Balances................................... 10,721 7,735 6,220
Universal Life and Investment-Type Product
Policy Fee Income.......................... (220,841) (173,766) (145,157)
Change in Future Policy Benefits............ 53,181 61,317 35,540
Change in Other Policyholder Funds.......... 59,084 73,814 6,309
Change in Policyholder Dividends Payable.... 368 188 5,701
Change in Income Taxes Payable.............. (26,871) 2,358 1,674
Other, Net.................................. 80,130 (70,948) 139,383
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES........ $(159,314) $(311,296) $(121,838)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-31
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
New England Life Insurance Company and its subsidiaries (the Company or
NELICO) is a wholly-owned stock life insurance subsidiary of Metropolitan Life
Insurance Company (MetLife). The Company is headquartered in Boston,
Massachusetts as a Massachusetts chartered company. The Company principally
provides variable life insurance and variable annuity contracts through a
network of general agencies and independent brokers located throughout the
United States. The Company also provides participating and non-participating
traditional life insurance, fixed annuity contracts, pension products, as well
as, group life, medical, and disability coverage.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 30, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO) was a
subsidiary of NEMLICO. As a result of the merger, NEMLICO ceased to exist as a
separate mutual life insurance company, and NELICO became a subsidiary of
MetLife. NELICO has continued after the merger to conduct its existing
business as well as administer the business activities of the former parent
NEMLICO. (Note 13)
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100%
of the outstanding common stock are: Exeter Reassurance Company, Ltd., New
England Pension and Annuity Company, and Newbury Insurance Company, Limited,
for insurance operations and New England Securities Corporation and New
England Investment Management, Inc. for other operations. On February 28,
1997, NELICO created and became the sole owner of New England Life Holdings,
Inc. which was established as a holding company for the non-insurance
operations of the Company, principally, New England Securities and New England
Investment Management, Inc. On April 30, 1998, the Company acquired all of the
outstanding stock of NL Holding Corporation and its wholly owned subsidiaries,
Nathan and Lewis Securities, Inc., and Nathan and Lewis Associates, Inc.
Subsequent to the acquisition, NL Holding Corporation was transferred to New
England Life Holdings, Inc. The principal business activities of the
subsidiaries are disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and
annuity policies.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses to sell
annuity contracts in 22 states, but is currently not actively engaged in the
sale or distribution of insurance products.
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act
1978 (Bermuda). Newbury provides professional liability and personal injury
coverage to the agents of NELICO through a facultative reinsurance agreement
with Lexington Insurance Company. Effective September 1, 1999, Newbury began
providing errors and omissions coverage to certain of the life insurance
agents of MetLife through a facultative reinsurance agreement with Fireman's
Fund Insurance Company.
New England Securities Corporation (NES), a National Association of Securities
Dealers (NASD) registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including
mutual funds, investment partnerships, and individual securities. In 1994, NES
became a Registered Investment Advisor with the Securities and Exchange
Commission (SEC) and now offers individually managed portfolios. NES is the
national distributor for variable annuity and variable life products issued by
NELICO.
New England Investment Management, Inc. (NEIM), which changed its name from
TNE Advisers, Inc. in March 1999, was incorporated on August 26, 1994, and is
registered as an investment adviser with the SEC, under the Investment
Advisers Act of 1940. NEIM was organized to serve as an investment adviser to
certain series of the New England Zenith Fund.
AA-32
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
NL Holding Corporation and subsidiaries (NL Holding) engages in securities
brokerage, dealer trading in fixed income securities, over the counter stock,
unit investment trusts, and the sale of insurance related products and
annuities, sold through licensed brokers and independent agents. Nathan and
Lewis Securities, Inc., a wholly owned subsidiary of NL Holding, is a National
Association of Securities Dealers (NASD) registered broker/dealer. N&L
Associates, a wholly owned subsidiary of NL Holding, is a general insurance
agent which sells insurance policies and other insurance related products
through its licensed brokers and independent agents.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP). The
Commonwealth of Massachusetts Division of Insurance (the "Division")
recognizes only statutory accounting practices for determining and reporting
the financial condition and results of operations of an insurance company for
determining solvency under the Massachusetts Insurance Law. No consideration
is given by the Division to financial statements prepared in accordance with
GAAP in making such determination.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates include those used in
determining deferred policy acquisition costs, investment allowances and the
liability for future policyholder benefits. Actual results could differ from
those estimates.
Effective July 1, 1997, management realigned its fixed maturity investment
classifications and transferred all securities classified as held to maturity
to available for sale. As a result, consolidated equity at July 1, 1997
increased by $798, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of New
England Life Insurance and its subsidiaries, partnerships and joint ventures
in which NELICO has a controlling interest. All material intercompany accounts
and transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which it does not have a controlling
interest, but more than a minimal interest, under the equity method of
accounting.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1999 presentation.
INVESTMENTS
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of accumulated other comprehensive income, net of policyholder related amounts
and deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Short-term investments are stated at amortized cost, which approximates fair
value.
Other invested assets are reported at their estimated fair value.
AA-33
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using the straight line method over the estimated
useful lives of the assets which generally range from 4 to 15 years or the
term of the lease, if shorter. Amortization of leasehold improvements is
provided using the straight-line method over the lesser of the term of the
leases or the estimated useful life of the improvements.
Accumulated depreciation on property and equipment and amortization of
leasehold improvements was $36,122, and $24,772 at December 31, 1999 and 1998,
respectively. Related depreciation and amortization expense was $11,350,
$13,137 and $10,085 for the years ended December 31, 1999, 1998 and 1997,
respectively.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business that vary with, and are primarily related
to, the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over the expected life of the contract for participating traditional life,
variable life, universal life, investment-type products, and variable
annuities. Generally, deferred policy acquisition costs are amortized in
proportion to the present value of estimated gross margins or profits from
investments, mortality, expense margins and surrender charges. Actual gross
profits can vary from management's estimates resulting in increases and
decreases in the rate of amortization. Management periodically updates these
estimates and evaluates the recoverability of deferred policy acquisition
costs. When appropriate, management revises its assumptions of the estimated
gross margins or profits of these contracts, and the cumulative amortization
is reestimated and adjusted by a cumulative charge or credit to current
operations.
Deferred policy acquisition costs for nonmedical health policies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Information regarding deferred policy acquisition costs is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1........................... $710,961 $565,769 $434,636
Capitalized during the year.................... 216,913 182,943 157,670
-------- -------- --------
Total........................................ 927,874 748,712 592,306
Amortization allocated to:
Net realized investment gains................. (616) (5,282) 0
Unrealized investment gains (losses).......... 33,276 (595) (9,446)
Other Expenses................................ (29,831) (31,874) (17,091)
-------- -------- --------
Total amortization........................... 2,829 (37,751) (26,537)
Balance at December 31......................... $930,703 $710,961 $565,769
======== ======== ========
</TABLE>
AA-34
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amortization of deferred policy acquisition costs is allocated to (1) realized
investment gains and losses to provide consolidated statement of income
information regarding the impact of such gains and losses on the amount of the
amortization, (2) unrealized investment gains and losses to provide
information regarding the amount of deferred policy acquisition costs that
would have been amortized if such gains and losses had been realized and (3)
other expenses to provide amounts related to the gross margins or profits
originating from transactions other than investment gains and losses.
Realized investment gains and losses related to certain products have a direct
impact on the amortization of deferred policy acquisition costs. Presenting
realized investment gains and losses net of related amortization of deferred
policy acquisition costs provides information useful in evaluating the
operating performance of the Company. This presentation may not be comparable
to presentations made by other insurers.
ACQUISITIONS
The Company acquired certain assets and assumed certain liabilities of NL
Holding Corporation effective April 30, 1998. The acquisition was accounted
for under the purchase method of accounting and is included in the financial
statements as of the effective date of the transaction. The cost of the
acquisition was $35,082, which represents an initial cash settlement and
payment of direct acquisition costs of $27,873, as well as, accrued contingent
payment arrangements of $7,209 anticipated to be paid to the sellers over a
three year period ending December 31, 2000. Goodwill of $23,498 was recorded,
to be amortized on a straight-line basis over a ten year period.
The 1998 and 1997 pro forma, unaudited financial data shown as follows
presents the effect of the acquisition as if it had occurred at the beginning
of the respective reporting periods. The pro forma financial data does not
necessarily reflect the results of operations that would have been obtained
had the acquisition occurred on the assumed date, nor is the financial data
necessarily indicative of the results of the combined entities that may be
achieved for any future period.
Pro forma Impact of Acquisition
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue............................................ $ 557,229 $ 381,691
============ ============
Net Income......................................... $ 10,311 $ 25,049
============ ============
</TABLE>
OTHER INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired, which
represents goodwill, and the value of business acquired are included in other
assets. Goodwill is amortized on a straight-line basis over 10 years. The
Company reviews goodwill to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results
if a permanent diminution in value is deemed to have occurred.
Excess of Purchase Price Over Fair Value of Net Assets Acquired
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net Balance, January 1.......................... $ 21,931 $ 0 $ 0
Acquisitions................................... 0 23,498 0
Amortization................................... (2,350) (1,567) 0
--------- --------- -----
Net Balance, December 31........................ $ 19,581 $ 21,931 $ 0
========= ========= =====
December 31
Accumulated Amortization....................... $ (3,917) $ (1,567) $ 0
========= ========= =====
</TABLE>
AA-35
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of (a) net level premium reserves for
death and endowment policy benefits (calculated based upon the nonforfeiture
interest rate, ranging from 4% to 4.5%, and mortality rates guaranteed in
calculating the cash surrender values described in such contracts), (b) the
liability for terminal dividends and (c) premium deficiency reserves, which
are established when the liabilities for future policy benefits plus the
present value of expected future gross premiums are insufficient to provide
for expected future policy benefits and expenses after deferred policy
acquisition costs are written off.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 5.5% to 6%.
Future policy benefit liabilities for non-medical health insurance are
calculated using the net level premium method and assumptions as to future
morbidity, withdrawals and interest, which provide a margin for adverse
deviation. Future policy benefit liabilities for disabled lives are estimated
using the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest. The interest rates used in
establishing such liabilities range from 3% to 6.5%.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values, which
consist of an accumulation of gross premium payments plus credited interest
ranging from 3.8% to 7.25%, less expense and mortality charges and
withdrawals.
The liability for unpaid claims represents the amount estimated for claims
that have been reported but not settled and claims incurred but not reported.
Liabilities for unpaid claims are estimated based upon the Company's
historical experience and other actuarial assumptions that consider the
effects of current developments, anticipated trends and risk management
programs. Revisions of these estimates are included in operations in the year
such refinements are made.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated life of
the policies.
Premiums related to non-medical health contracts are recognized as income when
due.
Premiums related to variable life and universal life contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality recognized
ratably over the policy period, policy administration charges recognized as
services are provided and surrender charges recognized as earned. Amounts that
are charged to operations include interest credited to policyholders and
benefit claims incurred in excess of related policyholder account balances.
Premiums related to investment-type contracts are credited to policyholder
account balances. Revenues from such contracts consist of amounts assessed
against policyholder account balances for contract administration charges
recognized ratably over the policy period. Amounts that are charged to
operations include interest credited to policyholders.
DIVIDENDS TO POLICYHOLDERS
Dividends to policyholders are determined annually by the board of directors.
The aggregate amount of policyholders' dividends is related to actual
interest, mortality, morbidity and expense experience for the year, as well as
management's judgment as to the appropriate level of statutory surplus to be
retained by the Company.
AA-36
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
PARTICIPATING BUSINESS
Participating business represented approximately 3.49% and 3.52% of the
Company's life insurance in force, and 8.30% and 7.96% of the number of life
insurance policies in force at December 31, 1999 and 1998, respectively.
Participating policies represented approximately 56.77%, 95.78% and 68.24% of
gross life insurance premiums, for the years ended December 31, 1999, 1998 and
1997, respectively.
INCOME TAXES
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., file a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and non-life
insurance direct subsidiaries. Income tax expense has been calculated in
accordance with the provisions of the Internal Revenue Code, as amended. The
Company uses the liability method of accounting for income taxes. Income tax
provisions are based on income reported for financial statement purposes. The
future tax consequences of temporary differences between financial reporting
and tax basis of assets and liabilities are measured as of the balance sheet
dates and are recorded as deferred income tax assets or liabilities.
REINSURANCE
The Company has reinsured certain of its life insurance contracts with other
insurance companies under various agreements. Amounts due from reinsurers are
estimated based upon assumptions consistent with those used in establishing
the liabilities related to the underlying reinsured contracts. Policy and
contract liabilities are reported gross of reinsurance credits.
SEPARATE ACCOUNTS
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general
account claims only to the extent the value of such assets exceed the Separate
Account liabilities. Investments held in the Separate Accounts (stated at
estimated fair market value) and liabilities of the Separate Accounts
(including participants' corresponding equity in the Separate Accounts) are
reported separately as assets and liabilities. Deposits to Separate Accounts,
investment income, and realized and unrealized gains and losses on the
investments of the Separate Account accrue directly to contractholders and,
accordingly, are not reflected in the Company's financial statements.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues. See Note 14.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position ("SOP")
98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5
broadly defines start-up activities. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. Adoption of SOP
98-5 did not have a material effect on the Company's consolidated financial
statements.
Effective January 1, 1999, the Company adopted SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-
1"). SOP 98-1 provides guidance for determining when an entity should
capitalize or expense external and internal costs of computer software
developed or obtained for internal use. The adoption of SOP 98-1 resulted in
the capitalization of $6 million of software costs which would have otherwise
been expensed in 1999.
Effective January 1, 1999, the Company adopted SOP 97-3, Accounting for
Insurance and Other Enterprises for Insurance Related Assessments ("SOP 97-
3"). SOP 97-3 provides guidance on accounting by insurance and other
enterprises for assessments related to insurance activities including
recognition, measurement and disclosure of guaranty fund and other insurance
related assessments. Adoption of SOP 97-3 did not have a material effect on
the Company's consolidated financial statements.
AA-37
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133 ("SFAS 137"). SFAS 137 defers the provisions of SFAS 133 until January 1,
2001. The provisions of SFAS 133 require, among other things, that all
derivatives be recognized in the consolidated balance sheets as either assets
or liabilities and measured at fair value. The corresponding derivative gains
and losses should be reported based upon the hedge relationship, if such a
relationship exists. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in SFAS
133 are required to be reported in income. The Company is in the process of
quantifying the impact of SFAS 133 on its consolidated financial statements.
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance
and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7").
SOP 98-7 provides guidance on the method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, defined in the SOP
as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts
for which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial statements.
2. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The components of net investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities.............................. $ 54,490 $ 53,467 $ 50,348
Equity securities............................. 13,896 (9,118) 4,915
Real estate................................... 831 4,149 815
Policy loans.................................. 9,157 6,855 5,081
Cash, cash equivalents and short-term
investments.................................. 3,494 861 4,160
Other investment income....................... (7,529) 76 591
-------- -------- --------
Gross investment income....................... 74,339 56,290 65,910
Investment expenses........................... (5,841) (7,213) (4,851)
-------- -------- --------
Net Investment income......................... $ 68,498 $ 49,077 $ 61,059
======== ======== ========
</TABLE>
Realized investment gains (losses), net, including changes in valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---------------- --------
<S> <C> <C> <C>
Fixed maturities................................. $ 850 $ 10,899 $ (774)
Equity securities................................ 0 0 1,040
Other invested assets............................ 2,688 (7) (8)
------- -------- -------
Subtotal....................................... 3,538 10,892 258
Less: Amounts allocable to amortization of
deferred policy acquisition costs............... 616 5,282 (632)
------- -------- -------
Investment gains (losses), net................... $ 2,922 $ 5,610 $ 890
======= ======== =======
</TABLE>
AA-38
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Realized investment gains have been reduced by (1) deferred policy acquisition
amortization to the extent that such amortization results from realized
investment gains and losses, (2) additions to future policy benefits resulting
from the need to establish additional liabilities due to the recognition of
investment gains, and (3) additions to participating contractholder accounts
when amounts equal to such investment gains and losses are credited to the
contractholders' accounts. This presentation may not be comparable to
presentations made by other insurers.
The changes in unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................... $ 17,439 $17,347 $ 3,727
Change in unrealized investment gains
(losses)..................................... (73,813) 391 30,207
Change in unrealized investment gains (losses)
attributable to:
Deferred policy acquisition costs............ 33,276 (595) (9,446)
Deferred income tax (expense) benefit........ 12,100 296 (7,141)
-------- ------- -------
Balance at December 31......................... $(10,998) $17,439 $17,347
======== ======= =======
</TABLE>
The components of unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities........................... $(35,205) $ 40,928 $ 41,706
Equity securities.......................... 3,511 1,191 0
Other...................................... 0 0 22
-------- -------- --------
(31,694) 42,119 41,728
Amounts of unrealized investment gains
(losses)
Attributable to:
Deferred policy acquisition costs.......... 17,478 (15,798) (15,202)
Deferred income tax (expense) benefit...... 3,218 (8,882) (9,179)
-------- -------- --------
Balance, end of year......................... $(10,998) $ 17,439 $ 17,347
======== ======== ========
</TABLE>
AA-39
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed maturities and equity securities, by category, are shown below.
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---------------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. Government
corporations and agencies.............. $ 33,909 $ 20 $ 439 $ 33,490
Foreign governments..................... 20,748 201 581 20,368
Corporate............................... 670,602 5,074 40,237 635,439
Mortgage-backed securities.............. 44,470 934 203 45,201
Other................................... 1,199 0 0 1,199
-------- ------- -------- --------
Total Fixed Maturities................. $770,928 $ 6,229 $ 41,460 $735,697
======== ======= ======== ========
Equity Securities:
Common stocks........................... 19,174 4,191 680 22,685
-------- ------- -------- --------
Total Equity Securities................ $ 19,174 $ 4,191 $ 680 $ 22,685
======== ======= ======== ========
</TABLE>
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -----------------ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies.............. $ 27,260 $ 91 $ 47 $ 27,304
Foreign governments..................... 1,679 0 0 1,679
Corporate............................... 644,636 43,036 5,139 682,533
Mortgage-backed securities.............. 55,027 2,821 0 57,848
-------- -------- ------- --------
Total Fixed Maturities................. $728,602 $ 45,948 $ 5,186 $769,364
======== ======== ======= ========
Equity Securities:
Common stocks........................... 12,075 1,645 480 13,240
-------- -------- ------- --------
Total Equity Securities................ $ 12,075 $ 1,645 $ 480 $ 13,240
======== ======== ======= ========
</TABLE>
AA-40
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
The amortized cost and estimated fair value of fixed maturities classified as
available for sale, by contractual maturity, at December 31, 1999 are shown
below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 15,910 $ 15,857
Due after one year through five years................... 92,303 90,635
Due after five years through ten years.................. 131,438 130,492
Due after ten years..................................... 486,807 453,512
-------- --------
Subtotal.............................................. 726,458 690,496
Mortgage-backed securities.............................. 44,470 45,201
-------- --------
Total................................................. $770,928 $735,697
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above tables in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Sales of fixed maturities and equity securities are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Fixed Maturities
Proceeds.......................................... $64,925 $120,416 $110,301
Gross realized gains.............................. $ 1,897 $ 10,901 $ 1,036
Gross realized losses............................. $ 1,047 $ 2 $ 1,810
Equity Securities
Proceeds.......................................... $ 2,491 $ 39,333 $ 32,806
Gross realized gains.............................. $ 0 $ 0 $ 1,344
Gross realized losses............................. $ 0 $ 0 $ 304
</TABLE>
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
ASSETS HELD IN TRUST FOR THE BENEFIT OF OTHER PARTIES
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment
of policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits
the types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of
U.S. companies having a National Association of Insurance Commissioners (NAIC)
rating of 1. The bonds and short-term investments at fair market value held by
the trust were $518,436 and $526,723, at December 31, 1999 and 1998,
respectively.
STATUTORY DEPOSITS
The Company had assets on deposit with regulatory agencies of $6,245 and
$6,245 at December 31, 1999 and 1998, respectively.
AA-41
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The Company assumes and cedes reinsurance with other insurance companies. The
company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The consolidated statements of
income are presented net of reinsurance ceded.
Effective July 1, 1999, the Company reinsured the general account liability
for certain group pension variable contracts assumed from Sun Life Assurance
Company of Canada (U.S.). The initial liability assumed included in
Policyholder Account Balances was $53,675 at July 1, 1999, and was $44,431 at
December 31, 1999.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $163,159 $110,768 $ 30,975
Reinsurance assumed............................ 57,479 58,329 62,315
Reinsurance ceded.............................. (97,000) (68,408) (29,674)
-------- -------- --------
Net premiums earned............................ $123,638 $100,689 $ 63,616
======== ======== ========
</TABLE>
Reinsurance recoverables, included in other receivables, were $83,091 and
$103,677 at December 31, 1999 and 1998, respectively.
Reinsurance and ceded commissions payables, included in other liabilities,
were $23,400 and $21,152 at December 31, 1999 and 1998, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to group accident and nonmedical health policies and
contracts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1............................. $ 1,953 $ 809 $ 0
Less: Reinsurance recoverables.................. 1,565 647 0
-------- -------- ------
Net balance at January 1......................... 388 162 0
-------- -------- ------
Incurred related to:
Current year.................................... 472 303 173
Prior years..................................... (33) (57) (11)
-------- -------- ------
439 246 162
-------- -------- ------
Paid related to:
Current year.................................... 23 2 0
Prior years..................................... 19 18 0
-------- -------- ------
42 20 0
-------- -------- ------
Balance at December 31........................... 785 388 162
Add: Reinsurance recoverables................... 3,147 1,565 647
-------- -------- ------
Balance at December 31........................... $ 3,932 $ 1,953 $ 809
======== ======== ======
</TABLE>
AA-42
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
5. INCOME TAXES
The provision for income tax expense (benefit) in the consolidated statements
of income is shown below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
1999
Federal............................................. $20,910 $ 8,134 $29,044
State and Local..................................... 0 300 300
------- ------- -------
Total............................................. $20,910 $ 8,434 $29,344
======= ======= =======
1998
Federal............................................. $13,734 $ (788) $12,946
State and Local..................................... 0 100 100
------- ------- -------
Total............................................. $13,734 $ (688) $13,046
======= ======= =======
1997
Federal............................................. $ 8,473 $(3,772) $ 4,701
State and Local..................................... 316 (29) 287
------- ------- -------
Total............................................. $ 8,789 $(3,801) $ 4,988
======= ======= =======
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $75,068 $24,483 $26,957
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 26,274 8,569 9,435
Tax effect of:
Tax exempt investment income.................... 0 (100) 0
State and local income taxes.................... 300 100 (1,013)
Tax credits..................................... 0 (100) 0
Prior year taxes................................ 684 0 0
Other, net...................................... 2,086 4,577 (3,434)
------- ------- -------
Income Tax Expense............................... $29,344 $13,046 $ 4,988
======= ======= =======
</TABLE>
AA-43
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Deferred income taxes represent the tax effect of the differences between the
book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................. $ 233,504 $ 177,017
Unrealized investment losses, net.................... 3,218 0
Other, net........................................... 15,035 15,453
--------- ---------
Total gross assets.................................. 251,757 192,470
--------- ---------
Deferred tax liabilities:
Investments.......................................... (216) (1,068)
Deferred policy acquisition costs.................... (267,249) (208,881)
Unrealized investment gains, net..................... 0 (8,882)
Other, net........................................... (22,961) (15,973)
--------- ---------
Total gross liabilities............................. (290,426) (234,804)
--------- ---------
Net deferred tax liability............................ $ (38,669) $ (42,334)
========= =========
</TABLE>
AA-44
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
6. EMPLOYEE BENEFIT PLANS
Prior to the merger, substantially all employees were employed by NEMLICO and
were covered under the Home Office Retirement Plan and related Select
Employees' Supplemental Retirement Plan (collectively referred to as the
Plans). Subsequent to the merger substantially all of the employees became
employees of the Company and continued to be covered by the Plans, which
became the Plans of the Company. Under the Plans retirement benefits are based
primarily on years of service and the employee's average salary. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting purposes.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at
beginning of year..................... $252,487 $210,590 $ 48,987 $ 46,591
Service cost........................... 8,172 6,927 973 942
Interest cost.......................... 18,488 15,878 3,351 3,267
Actuarial gain......................... (15,914) 14,831 (3,214) 1,256
Divestitures........................... 0 0 0 0
Curtailments........................... 0 0 0 0
Terminations........................... 0 0 0 0
Change in benefits..................... 0 11,935 0 (10)
Benefits paid.......................... (8,444) (7,674) (3,475) (3,059)
-------- -------- -------- --------
Projected benefit obligation at end of
year.................................. $254,789 $252,487 $ 46,622 $ 48,987
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Contract value of plan assets at
beginning of year..................... $184,803 $150,820 $ 0 $ 0
Actual return on plan assets........... 25,300 28,309 0 0
Employer contribution.................. 7,620 12,997 0 0
Benefits paid.......................... (7,500) (7,323) 0 0
-------- -------- -------- --------
Contract value of plan assets at end of
year.................................. $210,223 $184,803 $ 0 $ 0
-------- -------- -------- --------
Over/(Under) funded.................... $(44,566) $(67,684) $(46,622) $(48,987)
Unrecognized net asset at transition... (503) (1,674) 0 0
Unrecognized net actuarial gains....... 7,681 34,350 (20,068) (17,787)
Unrecognized prior service cost........ 15,942 16,854 (8) (9)
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $(66,698) $(66,783)
======== ======== ======== ========
Qualified plan prepaid (accrued)
pension cost.......................... $ (2,675) $ (2,164) $ 0 $ 0
Non-qualified plan prepaid (accrued)
pension cost.......................... (18,771) (15,990) 0 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $ 0 $ 0
======== ======== ======== ========
</TABLE>
AA-45
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED
QUALIFIED PLAN PLAN TOTAL
------------------ ------------------ ------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected
benefit obligation..... $224,653 $226,717 $ 30,136 $ 25,770 $254,789 $252,487
Aggregate contract value
of plan assets
(principally Company
contracts)............. 210,223 184,803 0 0 210,223 184,803
-------- -------- -------- -------- -------- --------
Over/(Under) funded..... $(14,430) $(41,914) $(30,136) $(25,770) $(44,566) $(67,684)
======== ======== ======== ======== ======== ========
</TABLE>
The assumptions used in determining the aggregate projected benefit obligation
and aggregate contract value for the pension and other benefits were as
follows:
<TABLE>
<CAPTION>
PENSION OTHER
BENEFITS BENEFITS
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31,
Discount rate........................................ 7.00% 7.25% 7.75% 7.00%
Expected return on plan assets....................... 8.50% 8.50% -- --
Rate of compensation increase........................ 5.50% 4.50% -- --
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 7.00% in 1999,
gradually decreasing to 5.00% over five years and generally 7.40% in 1998,
gradually decreasing to 5.00% over five years.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE % ONE %
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components... 13% (10%)
Effect on accumulated postretirement benefit obligation... 11% (10%)
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- ---------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 8,172 $ 6,927 $ 5,310 $ 973 $ 942 $ 885
Interest cost........... 18,488 15,878 13,958 3,351 3,267 3,707
Expected return on plan
assets................. (15,698) (12,866) (22,250) 0 0 0
Net amortization and
deferrals.............. 1,322 669 11,092 (934) 167 (871)
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost................... $ 12,284 $ 10,608 $ 8,110 $3,390 $4,376 $3,721
======== ======== ======== ====== ====== ======
</TABLE>
SAVINGS AND INVESTMENT PLANS
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $2,187, $2,252 and $1,588 for the years ended
December 31, 1999, 1998 and 1997, respectively.
AA-46
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenue. Additionally, the Company, as lessee, has entered into
various lease and sublease agreements for office space, data processing and
other equipment. Future minimum rental and sub-rental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
GROSS
RENTAL SUB-RENTAL RENTAL
INCOME INCOME EXPENSE
------ ---------- --------
<S> <C> <C> <C>
2000.............................................. $31 $ 7,845 $ 14,738
2001.............................................. 0 7,854 14,042
2002.............................................. 0 7,864 13,413
2003.............................................. 0 8,026 13,822
2004.............................................. 0 8,206 12,836
Thereafter........................................ 0 26,319 117,722
--- ------- --------
Total........................................... $31 $66,114 $186,573
=== ======= ========
</TABLE>
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest, payable
monthly, at a variable rate equal to the greater of the bank's base rate or
money market rates plus 0.6% per annum. The loan was collateralized by sales
loads and surrender charges collected on a defined block of variable life
insurance policies issued by the Company. Repayment was structured in a manner
to result in repayment over a term of five years or less. The Company repaid
the entire outstanding balance of the loan in January 1999. Repayments of
principal and interest of $13,310, $8,612 and $3,155 were made during 1999,
1998 and 1997, respectively. The interest rate applied was 6.4%, 6.4% and 5.8%
at January 31, 1999 and December 31, 1998 and 1997, respectively.
Exeter privately placed $75,118 aggregate principal amount, subordinated notes
payable (the Notes), on December 30, 1994 which are due December 30, 2004,
with no interest payments for the first five years and semiannual interest
payments thereafter. The Notes have been discounted to yield 8.45% for the
first five years and pay interest at 8.845% thereafter. The Notes are
expressly subordinated in right of payment to the insurance liabilities of
Exeter. The Notes are not subject to redemption by Exeter or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes, net of discount, amounted to $50,000. The issue costs of the Notes of
$130 were deducted from Notes, net of discount, to arrive at the subordinated
notes payable of $49,870. The issue cost will be amortized over the life of
the Notes. The Notes are held by MetLife, and the carrying value of the loan
approximates its fair value of $75,053. No repayments were made during 1999,
1998 and 1997, respectively.
9. COMMITMENTS AND CONTINGENCIES
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company's insurance subsidiaries
pursuant to these laws may be used as credits for a portion of the Company's
premium taxes. The Company paid guaranty fund assessments of approximately,
$197, $204, and $43 in 1999, 1998, and 1997, respectively, of which $197,
$203, and $33 were to be credited against premium taxes.
AA-47
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Various litigation, claims and assessments against the Company, in addition to
those otherwise provided for in the Company's consolidated financial
statements, have arisen in the course of the Company's business, including,
but not limited to, in connection with its activities as an insurer, employer,
investor, investment advisor and taxpayer. Further, state insurance regulatory
authorities and other Federal and state authorities regularly make inquiries
and conduct investigations concerning the Company's compliance with applicable
insurance and other laws and regulations.
In some of the matters referred to above, large and/or indeterminate amounts,
including punitive damages and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of the Company's management that their outcomes,
after consideration of available insurance and reinsurance and the provisions
made in the Company's consolidated financial statements, are not likely to
have a material adverse effect on the Company's consolidated financial
position. However, given the large and/or indeterminate amounts sought in
certain of these matters and the inherent unpredictability of litigation, it
is possible that an adverse outcome in certain matters could, from time to
time, have a material adverse effect on the Company's operating results or
cash flows in particular annual periods.
10. OTHER EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Compensation................................... $ 96,887 $ 86,822 $ 58,754
Commissions.................................... 205,463 166,218 77,351
Interest and debt expense...................... 5,493 9,374 6,750
Amortization of policy acquisition costs....... 29,831 31,874 17,091
Capitalization of policy acquisition costs..... (216,913) (182,943) (157,670)
Rent expense, net of sub-lease income.......... 5,550 4,252 4,473
Insurance taxes, licenses, and fees............ 21,253 21,802 15,002
Other.......................................... 234,317 179,260 122,591
--------- --------- ---------
Total........................................ $ 381,881 $ 316,659 $ 144,342
========= ========= =========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments have been determined
by using available market information and the valuation methodologies
described below. Considerable judgment is often required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein may not necessarily be indicative of amounts that could be
realized in a current market exchange. The use of different assumptions or
valuation methodologies may have a material effect on the estimated fair value
amounts.
AA-48
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amounts related to the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS
Fixed maturities......................................... $735,697 $735,697
Equity securities........................................ 22,685 22,685
Policy loans............................................. 181,995 181,995
Short-term investments................................... 62,619 62,619
Cash and cash equivalents................................ 84,371 84,371
LIABILITIES
Policyholder account balances............................ 84,037 82,765
Other policyholder funds................................. 525 525
Short and long-term debt................................. 75,053 75,053
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1998:
ASSETS
Fixed maturities......................................... $769,364 $769,364
Equity securities........................................ 13,240 13,240
Policy loans............................................. 135,800 135,800
Short-term investments................................... 52,285 52,285
Cash and cash equivalents................................ 43,598 43,598
LIABILITIES
Policyholder account balances............................ 23,365 22,524
Other policyholder funds................................. 646 646
Short and long-term debt................................. 82,855 82,855
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
FIXED MATURITIES AND EQUITY SECURITIES
The fair value of fixed maturities and equity securities that are publicly
traded are based upon quotations obtained from an independent market pricing
service or published by applicable stock exchanges. For securities for which
the market values were not readily available, fair values were estimated by
management, based primarily on interest rates, maturity, credit quality and
average life.
POLICY LOANS
Policy loans are stated at unpaid principal balances, which approximates fair
value.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
AA-49
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
POLICYHOLDER ACCOUNT BALANCES
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based on interest rates currently being offered
for similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt are stated at unpaid principal balances, which
approximates fair value.
12. STATUTORY FINANCIAL INFORMATION
The reconciliation of statutory surplus and statutory net income, determined
in accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with such amounts determined in conformity with
generally accepted accounting principles were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 399,864 $ 456,525 $ 307,290
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (435,980) (336,821) (279,510)
Deferred policy acquisition costs........ 930,703 710,961 565,769
Deferred federal income taxes............ (38,669) (42,334) (42,066)
Valuation of investments................. (46,890) 53,514 56,873
Statutory asset valuation reserves....... 13,514 10,636 8,388
Statutory interest maintenance reserve... 462 816 571
Surplus notes............................ (75,053) (69,560) (64,016)
Receivables from reinsurance
transactions............................ 5,049 26,004 27,519
Other, net............................... 100,303 35,330 52,724
--------- --------- ---------
GAAP equity................................ $ 853,303 $ 845,071 $ 633,542
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (40,928) $ (28,043) $ (37,358)
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (295,868) (196,754) (311,588)
Deferred policy acquisition costs........ 186,497 135,788 139,947
Deferred federal income taxes............ (580) 688 3,801
Valuation of investments................. 13,681 (13,490) 0
Statutory interest maintenance reserve... (354) 245 342
Other, net............................... 183,276 113,003 226,825
--------- --------- ---------
GAAP net income............................ $ 45,724 $ 11,437 $ 21,969
========= ========= =========
</TABLE>
AA-50
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
13. RELATED PARTY TRANSACTIONS
MetLife and the Company have entered into an Administrative Services Agreement
to provide all administrative, accounting, legal and similar services to
MetLife for certain administered contracts, which are life insurance and
annuity contracts issued by NEMLICO prior to the merger, and those policies
and contracts defined in the Administrative Services Agreement as Transition
Policies which were sold by the Company's field force post-merger.
The Company charged MetLife $160,792, $193,641 and $186,757 including accruals
for administrative services on NEMLICO administered contracts for 1999, 1998,
and 1997, respectively. In addition, $9,442, $14,123 and $600 for 1999, 1998
and 1997, respectively, was paid or payable by MetLife to the Company for
varied and miscellaneous other services. These services were charged based
upon direct costs incurred. Service fees are recorded by NELICO as a reduction
in operating expenses.
On December 30, 1998 the Company sold to MetLife Credit Corporation shares of
preferred stock for $200,000. In 1997, MetLife made a capital contribution to
the Company of $50,000 in cash.
During 1999, the Company paid $9,055 of preferred stock dividends to MetLife
Credit Corporation.
On April 30, 1998 the Company acquired all the outstanding stock of N.L.
Holding Corporation and its subsidiaries, and concurrently contributed such
stock to the Company's downstream holding company, New England Life Holding
Inc. In conjunction with the acquisition, the Company entered into employment
agreements with key individuals of N.L. Holding Corporation. The Company paid
$2,730 and $6,166 in 1999 and 1998, respectively under these agreements.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building that it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $4,219, $2,340
and $2,340 in 1999, 1998 and 1997, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1999 were $12,736
and $751, respectively. Included in accrued income at December 31, 1999, were
amounts receivable for sales-based commissions from NEF and SSR totaling $312
and $4, respectively. In 1999, NES earned asset-based income of $11,184 and
$183 on average assets of approximately $4,500,000 and $101,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1999 were amounts receivable for asset-based commissions from NEF
and SSR totaling $307 and $0, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1998 were $15,204
and $1,159, respectively. Included in accrued income at December 31, 1998,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$385 and $14, respectively. In 1998, NES earned asset-based income of $9,193
and $139 on average assets of approximately $4,300,000 and $77,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1998 were amounts receivable for asset-based commissions from NEF
and SSR totaling $593 and $13, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1997 were $16,799
and $1,127, respectively. Included in accrued income at December 31, 1997,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$233 and $13, respectively. In 1997, NES earned asset-based income of $8,777
and $61 on average assets of approximately $3,900,000 and $33,000 under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$75,053 and $69,560 at December 31, 1999 and 1998, respectively.
AA-51
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions
made within the preceding 12 months, exceeds the greater of (1) 10% of
NELICO's statutory surplus as regards policyholders as of the previous
December 31, or (2) NELICO's statutory net gain from operations for the 12
month period ending the previous December 31.
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's
stockholder shall not exceed the larger of (1) 10% of such statutory profits,
or (2) fifty cents per year per thousand dollars of participating life
insurance other than group term insurance in force at the end of the year.
14. SEPARATE ACCOUNTS
Separate accounts reflect non-guaranteed separate accounts totaling $4,840,029
and $3,258,383 at December 31, 1999 and 1998, respectively, wherein the
policyholder assumes the investment risk.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees totaling $36,934, $30,714 and $12,642 in 1999, 1998 and 1997,
respectively.
15. YEAR 2000
The Year 2000 issue was the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant costs associated with additional mainframe capacity necessary to
accommodate a four-digit field. As a result, any of the Company's computer
systems that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major system
failures or miscalculations. The Company has conducted a comprehensive review
of its computer systems to identify the systems that could be affected by the
Year 2000 issue and has implemented a plan to resolve the issue. There can be
no assurances that the Year 2000 plan of the Company or that of its vendors or
third parties have resolved all Year 2000 issues. Further, there can be no
assurance that there will not be any future system failure or that such
failure, if any, will not have a material impact on the operations of the
Company.
16. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers primarily
in the United States. The Company's core businesses are divided into five
segments: Individual Life, Individual Annuity, Group Pension, Group Accident
and Health, and Corporate. These segments are managed separately because they
either provide different products and services, require different strategies,
or have different technology requirements.
Individual Life sells primarily variable life as well as traditional life
policies. Individual Annuity sells a variety of fixed annuity and variable
annuity contracts. Group Pension sells a variety of group annuity and pension
contracts to corporations and other institutions. Group Accident and Health
provides group life, medical, and disability contracts to corporations and
small businesses. Through its Corporate segment, the Company reports the
operating results of subsidiaries as well as items that are not allocated to
any of the business segments.
Set forth in the following tables is certain financial information with
respect to the Company's operating segments for the years ended December 31,
1999, 1998 and 1997. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates the performance of each operating segment based on profit or loss
from operations after income taxes. The Company does not allocate non-
recurring items to the segments.
AA-52
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Allocation of net investment income and investment gains (losses), net were
based on the amount of assets allocated to each segment. Other costs and
operating costs were allocated to each of the segments based on: (i) a review
of the nature of such costs, (ii) time studies analyzing the amount of
employee compensation costs incurred by each segment, and (iii) cost estimates
included in the Company's product pricing.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------------
GROUP CORPORATE
INDIVIDUAL INDIVIDUAL GROUP LIFE, AND
LIFE ANNUITY PENSION A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 63,358 $ 0 $ 15 $ 28,652 $ 31,613 $ 123,638
Universal Life and
Investment-Type Product
Policy Fees............ 199,701 16,771 4,369 0 0 220,841
Net Investment Income... (31,181) (108) (13) 167 99,633 68,498
Investment Gains
(Losses), Net.......... 402 1 0 (1) 2,520 2,922
Commissions, Fees and
Other Revenues......... 25,376 6,708 3,005 34,610 196,192 265,891
---------- ---------- -------- -------- -------- ----------
Total Revenues........ 257,656 23,372 7,376 63,428 329,958 681,790
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 124,727 4,624 113 23,814 40,015 193,293
Interest Credited to
Policyholder Account
Balances............... 8,811 1,623 1,220 30 (963) 10,721
Policyholder Dividends.. 1,739 0 0 (32) 19,120 20,827
Other Operating Costs
and Expenses........... 128,466 21,826 6,196 36,326 189,067 381,881
---------- ---------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 263,743 28,073 7,529 60,138 247,239 606,722
Income from Operations
Before Income Taxes.... (6,087) (4,701) (153) 3,290 82,719 75,068
Income Taxes............ 1,357 (1,563) (26) 1,244 28,332 29,344
---------- ---------- -------- -------- -------- ----------
Net Income.............. $ (7,444) $ (3,138) $ (127) $ 2,046 $ 54,387 $ 45,724
========== ========== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 771,879 $ 63,123 $ 10,499 $ 8,539 $ 76,663 $ 930,703
Separate Account Assets. 2,704,767 1,398,993 517,920 218,349 0 4,840,029
Liabilities
Policyholder
Liabilities............ 535,662 43,674 45,407 43,936 517,949 1,186,628
Separate Account
Liabilities............ 2,704,767 1,398,993 517,920 218,349 0 4,840,029
</TABLE>
AA-53
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------------------
CORPORATE
INDIVIDUAL INDIVIDUAL GROUP GROUP AND
LIFE ANNUITY PENSION LIFE A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 48,733 $ 31 $ 417 $ 21,394 $ 30,114 $ 100,689
Universal Life and
Investment-Type Product
Policy Fees............ 161,936 9,332 2,788 (290) 0 173,766
Net Investment Income... (22,496) (1,752) (405) 651 73,079 49,077
Investment Gains
(Losses), Net.......... (182) (7) (4) 17 5,786 5,610
Commissions, Fees and
Other Revenues......... 9,408 6,042 1,118 20,430 155,413 192,411
---------- -------- -------- -------- -------- ----------
Total Revenues........ 197,399 13,646 3,914 42,202 264,392 521,553
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 84,709 3,943 874 13,561 46,600 149,687
Interest Credited to
Policyholder Account
Balances............... 6,337 1,264 83 0 51 7,735
Policyholder Dividends.. 1,135 4 0 3 21,847 22,989
Other Operating Costs
and Expenses........... 103,284 14,324 3,617 15,731 179,703 316,659
---------- -------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 195,465 19,535 4,574 29,295 248,201 497,070
Income from Operations
Before Income Taxes.... 1,934 (5,889) (660) 12,907 16,191 24,483
Income Taxes............ 9,968 (402) (423) 3,986 (83) 13,046
---------- -------- -------- -------- -------- ----------
Net Income.............. $ (8,034) $ (5,487) $ (237) $ 8,921 $ 16,274 $ 11,437
========== ======== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 616,959 $ 42,524 $ 2,359 $ 2,511 $ 46,608 $ 710,961
Separate Account Assets. 2,073,552 835,648 235,467 113,716 0 3,258,383
Liabilities
Policyholder
Liabilities............ 380,586 38,912 768 19,233 519,353 958,852
Separate Account
Liabilities............ 2,073,552 835,648 235,467 113,716 0 3,258,383
</TABLE>
AA-54
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------
CORPORATE
INDIVIDUAL INDIVIDUAL GROUP GROUP AND
LIFE ANNUITY PENSION LIFE A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 27,200 $ 31 $ 0 $ 3,743 $ 32,642 $ 63,616
Universal Life and
Investment-Type Product
Policy Fees............ 139,235 4,732 486 704 0 145,157
Net Investment Income... 31,905 (270) (20) (118) 29,562 61,059
Investment Gains
(Losses), Net.......... 523 0 0 0 367 890
Commissions, Fees and
Other Revenues......... 9,542 3,253 266 4,383 10,858 28,302
---------- -------- -------- ------- -------- ----------
Total Revenues........ 208,405 7,746 732 8,712 73,429 299,024
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 71,010 3,431 0 3,827 21,912 100,180
Interest Credited to
Policyholder Account
Balances............... 5,371 664 149 0 36 6,220
Policyholder Dividends.. 507 1 0 0 20,817 21,325
Other Operating Costs
and Expenses........... 98,664 10,777 2,092 6,745 26,064 144,342
---------- -------- -------- ------- -------- ----------
Total Benefits and
Other Deductions..... 175,552 14,873 2,241 10,572 68,829 272,067
Income from Operations
Before Income Taxes.... 32,853 (7,127) (1,509) (1,860) 4,600 26,957
Income Taxes............ 2,701 (1,203) (504) (447) 4,441 4,988
---------- -------- -------- ------- -------- ----------
Net Income.............. $ 30,152 $ (5,924) $ (1,005) $(1,413) $ 159 $ 21,969
========== ======== ======== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 498,208 $ 24,226 $ 1,347 $ 877 $ 41,111 $ 565,769
Separate Account Assets. 1,426,347 450,441 111,437 0 0 1,988,225
Liabilities
Policyholder
Liabilities............ 258,880 20,476 197 6,398 463,269 749,220
Separate Account
Liabilities............ 1,426,347 450,441 111,437 0 0 1,988,225
</TABLE>
Revenues derived from any single customer do not exceed 10% of the total
consolidated revenues for the years presented. Revenues were predominantly
generated from United States activity. Activity from other geographic
locations did not exceed 10% for any geographic location.
AA-55
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Survivorship Life Prospectus dated
May 1, 2000. This Variable Life Policy is offered by New England Life Insurance
Company.
- ------------------------------------- -------------------------------------
(Date) (Client's Signature)
<PAGE>
NEW ENGLAND LIFE
INSURANCE COMPANY
Zenith Survivorship Life
Flexible Premium Adjustable
Variable Survivorship Life Insurance Policies
Supplement Dated May 1, 2000 to
Prospectus Dated April 30, 1999
This supplement updates certain information contained in the prospectus
dated April 30, 1999. You should read and retain this supplement. A complete
prospectus dated May 1, 2000 is available free of charge upon written request
to New England Life Insurance Company ("NELICO"). The May 1, 2000 prospectus
describes the Policies as they may have been modified since the date you
purchased your Policy; accordingly, certain benefits and charges discussed
therein may differ from the benefits and charges of your Policy.
NELICO is an indirect wholly-owned subsidiary of Metropolitan Life Insurance
Company ("MetLife"). MetLife is a wholly-owned subsidiary of MetLife, Inc., a
publicly-traded company. NELICO's Home Office is 501 Boylston Street, Boston,
Massachusetts 02116.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
POLICIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE THAT CONTAINS
THE STATEMENT OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE,
AND OTHER INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE ADDRESS OF THE SITE IS
HTTP://WWW.SEC.GOV.
THE ELIGIBLE FUND PROSPECTUSES ARE ATTACHED. PLEASE READ THEM AND KEEP THEM
FOR REFERENCE.
WE DO NOT GUARANTEE HOW ANY OF THE SUB-ACCOUNTS OR ELIGIBLE FUNDS WILL
PERFORM.
<PAGE>
GLOSSARY
ACCOUNT. A sub-account of the Variable Account or the Fixed Account.
AGE. The age of an insured refers to the insured's age at his or her nearest
birthday.
BENCHMARK PREMIUM. We use the Benchmark Premium to determine the amount of
Deferred Sales Charge that may apply on a surrender, partial surrender, lapse
or face amount reduction. It is the level premium necessary to keep a level
death benefit Policy, without riders, in-force until age 80 of the younger
insured (or 20 years after issue, if later, but not later than the Maturity
Date), assuming charges are imposed at the guaranteed levels and a 4% rate of
interest.
CASH VALUE. A Policy's cash value includes the amount of its cash value held in
the Variable Account, the amount held in the Fixed Account and, if there is an
outstanding policy loan, the amount of its cash value held in our general
account as a result of the loan.
EXCESS POLICY LOAN. When Policy loans plus accrued interest exceed the Policy's
cash value less the applicable Surrender Charge.
FIXED ACCOUNT. The Fixed Account is a part of our general account to which you
may allocate net premiums. It provides guarantees of principal and interest.
INVESTMENT START DATE. This is the latest of the date we receive a premium
payment for the Policy, the date each of the insureds has signed his/her Part
II of the Policy application and the Policy Date.
MATURITY DATE. The Policy anniversary on which the younger insured is (or would
have been) age 100. The Policy will not mature on this date if the extended
maturity option has been added to the Policy.
NET CASH VALUE. The amount you receive if you surrender the Policy. It is equal
to the Policy's cash value reduced by any applicable Surrender Charge and by
any outstanding Policy loan and accrued interest.
NET INVESTMENT EXPERIENCE. For any period, a sub-account's net investment
experience equals the investment experience of the underlying Eligible Fund's
shares for the same period, reduced by the amount of charges against the sub-
account for that period.
PLANNED PREMIUM. The Planned Premium is the premium payment schedule you choose
to help meet your future goals under the Policy. The Planned Premium can be a
fixed amount or can vary over time and is subject to certain limits under the
Policy. Payments in addition to any Planned Premium are called unscheduled
payments in the Policy and can be paid at any time, subject to certain limits.
PREMIUMS. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment.
POLICY DATE. If you make a premium payment with the application, the Policy
Date is generally the later of the date each of the insureds has signed his/her
Part II of the application and receipt of the premium payment. If you choose to
pay the initial premium upon delivery of the Policy, we issue the Policy with a
Policy Date which is generally five days after issue.
TARGET PREMIUM. We use the Target Premium to measure the portion of the total
premiums paid in a Policy year that is currently subject to the 9% sales
charge, as well as sales commissions. It equals 110% of the level premium
necessary to keep a level death benefit base Policy in-force until age 80 of
the younger insured, assuming we impose charges at the guaranteed levels and a
4% rate of interest, if both insureds are a standard or better underwriting
risk. If the younger insured's issue age is above 60, this Target Premium may
be
A-2
<PAGE>
calculated using a period of less than 20, but no less than five, years. If we
assign an insured to a class below standard, the Target Premium for the Policy
will be up to 140% of the comparable Target Premium described above, depending
on the underwriting class of each insured. Certain riders increase the Target
Premium for the Policy above these amounts.
YOU. "You" refers to the Policy Owner.
CHARGES AND EXPENSES
The amount of a charge may not necessarily correspond to the costs of the
services or benefits that are implied by the name of the charge or that are
associated with the particular Policy. For example, the sales charge and
Deferred Sales Charge may not fully cover all of our sales and distribution
expenses, and we may use proceeds from other charges, including the mortality
and expense risk charge, to help cover those expenses. We can profit from
certain Policy charges.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE ACCOUNT
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other expenses
are deducted from the assets of the Eligible Funds.
The following table shows the annual operating expenses for each New England
Zenith Fund series, based on actual expenses for 1999, after any applicable
expense cap or expense deferral arrangement.
Annual Operating Expenses (as a percentage of average net assets after any
expense cap)
<TABLE>
<CAPTION>
BACK 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>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE
DEFERRAL)
<TABLE>
<CAPTION>
HARRIS
OAKMARK MORGAN STANLEY DAVIS ALGER MFS
MID CAP INTERNATIONAL VENTURE EQUITY MFS RESEARCH
VALUE BALANCED MAGNUM VALUE GROWTH INVESTORS MANAGERS
SERIES SERIES EQUITY SERIES SERIES SERIES SERIES* SERIES*
------- -------- -------------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee .75% .70% .90% .75% .75% .75% .75%
Other Expenses .13% .07% .40% .06% .05% .15% .15%
---- ---- ----- ---- ---- ---- ----
Total Series Operating
Expenses .88% .77% 1.30% .81% .80% .90% .90%
</TABLE>
- --------
* Without the applicable expense cap or expense deferral arrangement (described
below), Total Series Operating Expenses for the year ended December 31, 1999
would have been: MFS Investors Series, 2.03%; and MFS Research Managers
Series, 2.03%, both on an annualized basis since the Series' start date of
April 30, 1999. In 1999 the management fee for the Loomis Sayles Small Cap
Series was 1.00%, and Total Series Operating Expenses were capped at 1.00%.
Without the expense cap, Total Series Operating Expenses would have been
1.10%.
A-3
<PAGE>
Our affiliate, New England Investment Management, Inc., advises the series of
the Zenith Fund except for the Capital Growth Series. New England Investment
Management voluntarily limits the expenses (other than brokerage costs,
interest, taxes or extraordinary expenses) of certain series with either an
expense cap or expense deferral arrangement. Under the expense cap, New England
Investment Management bears expenses of the Loomis Sayles Small Cap Series,
that exceed 1.00% of average daily net assets. Under the expense deferral
agreement, New England Investment Management bears expenses of the Harris
Oakmark Mid Cap Value, Morgan Stanley International Magnum Equity, MFS
Investors, and MFS Research Managers Series that exceed .90% of average daily
net assets (1.30% for the Morgan Stanley International Magnum Equity Series) in
the year the series incurs them and charges those expenses to the series in a
future year if actual expenses of the series are below the limit. New England
Investment Management may end these expense limits at any time.
MetLife is the investment advisor for the Portfolios of the Metropolitan Series
Fund, Inc. The Portfolios pay investment management fees to MetLife and also
bear other expenses. The chart below shows the total operating expenses of the
Portfolios based on the year ended December 31, 1999 and current expense
subsidies (in the case of the Putnam Large Cap Growth Portfolio, anticipated
expenses for 2000) as a percentage of Portfolio net assets.
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
Putnam Large Cap Growth........................ .80% .20% 1.00%*
Janus Mid Cap.................................. .67% .04% .71%
Russell 2000(R) Index.......................... .25% .30% .55%*
</TABLE>
- --------
* MetLife voluntarily pays expenses (other than the management fee, brokerage
commissions, taxes, interest and other loan costs, and any unusual one-time
expenses) of the Putnam Large Cap Growth Portfolio that exceed .20% of net
assets until the earlier of (i) July 1, 2002 and (ii) the date when the
Portfolio's net assets reach $100 million. Without this subsidy, the
anticipated total annual expenses of the Putnam Large Cap Growth Portfolio
would be 1.39%. MetLife also paid such expenses that exceeded .20% of net
assets for the Russell 2000 Index Portfolio until December 3, 1999. Without
this subsidy the total annual expenses of the Russell 2000 Index Portfolio
for 1999 would have been .89%. Beginning February 22, 2000, MetLife is paying
such expenses that exceed .30% of the Russell 2000 Index Portfolio's net
assets until the earlier of (i) April 30, 2001 and (ii) the date when the
Portfolio's assets reach $200 million. Total Annual Expenses for the Russell
2000 Index Portfolio are shown as if this subsidy was in effect for the
entire current year. MetLife can terminate these arrangements at any time
upon notice to the Board of Directors and to Fund shareholders.
The investment adviser for VIP and VIP II is Fidelity Management & Research
Company ("FMR"). The Portfolios of VIP and VIP II pay investment management
fees to FMR and also bear certain other expenses. For the year ended December
31, 1999, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
<S> <C> <C> <C>
VIP Equity-Income .48% .09% .57%*
VIP Overseas .73% .18% .91%*
VIP High Income .58% .11% .69%
VIP II Asset Manager .53% .10% .63%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. If we
included these reductions, total annual expenses would have been .56% for VIP
Equity-Income Portfolio, .87% for VIP Overseas Portfolio, and .62% for VIP II
Asset Manager Portfolio.
An investment adviser or affiliates thereof may compensate NELICO and/or
certain affiliates for administrative, distribution, or other services relating
to Eligible Funds. This compensation is based on assets of the Eligible Funds
attributable to the Policies and certain other variable insurance products that
we and our affiliates issue. Some advisers and/or affiliates may pay us more
than others. New England Securities may also receive brokerage commissions on
securities transactions initiated by an investment adviser.
A-4
<PAGE>
PREMIUMS
FLEXIBLE PREMIUMS
The sixth paragraph of this section is modified as follows:
We treat a payment we receive while a Policy loan is outstanding first as a
Planned Premium, second as a repayment of the Policy loan, and third 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.)
OTHER POLICY FEATURES
TRANSFER OPTION
After the Right to Return the Policy period, you may transfer your Policy's
cash value between sub-accounts. We reserve the right to limit sub-account
transfers to four per Policy year (twelve per Policy year for Policies issued
in New York and New Jersey). 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. We treat all sub-account transfer requests made at
the same time as a single request. The transfer is effective as of the date
when we receive the transfer request. (See "Receipt of Communications and
Payments at NELICO's Home Office".) For special rules regarding transfers
involving the Fixed Account, see "The Fixed Account".
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisors or registered representatives acting under power(s) of attorney from
one or more Policy owners. In addition, the Metropolitan Series Fund, Inc. may
restrict or refuse purchases or redemptions of shares in its Portfolios as a
result of certain market timing activities. You should read the prospectuses of
these Eligible Funds for more details.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to us or by telephoning us. To
request a transfer or reallocation by telephone, you should contact your
registered representative or contact us at 1-800-200-2214. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Any telephone instructions that we reasonably believe to be genuine are your
responsibility, including losses arising from any errors in the communication
of instructions.
DOLLAR COST AVERAGING
We plan to offer an automated transfer privilege called dollar cost averaging.
The same dollar amount is transferred to selected Sub-Accounts (and/or the
Fixed Account) periodically. Over time, more purchases of Eligible Fund shares
are made when the value of those shares is low, and fewer shares are purchased
when the value is high. As a result, a lower than average cost of purchases may
be achieved over the long term. This plan of investing allows you to take
advantage of investment fluctuations, but does not assure a profit or protect
against a loss in declining markets.
Under this feature, you may request that a certain amount of your cash value be
transferred on any selected business day of each 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 nine 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
A-5
<PAGE>
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 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 calendar 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.
PAYMENT OF PROCEEDS
The third paragraph of this section is revised as follows:
The beneficiary can elect our Access Plus program for payment of death proceeds
at any time before we pay them. We establish an Access Plus account at a
banking institution at the time for payment. The Access Plus account gives
convenient access to the proceeds, which are maintained in our general account
or that of an affiliate, through checkbook privileges with the bank.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
During the first 24 months after the Policy's issue date, you can exchange it
for a fixed-benefit traditional survivorship life insurance policy, provided
that (1) you repay any policy loans and (2) the Policy has not lapsed. This
exchange is available to a surviving insured. If you exercise this option, you
will have to make up any investment loss you had under the variable life
insurance policy. We make the exchange without evidence of insurability. The
new policy will have the same face amount as the original Policy on the date of
the exchange, and the same policy date, issue ages and risk classifications as
the original Policy. We will attach any riders to the original Policy to the
new policy if they are available.
Contact us or your registered representative for more specific information
about the exchange. The exchange may result in a cost or credit to you.
For a Policy issued to some group or sponsored arrangements, you may (if
approved in your state) have the additional option of exchanging at any time
during the first 36 months after the Policy's issue date, if the Policy has not
lapsed, to a fixed-benefit term life insurance policy issued by us or an
affiliate. Contact us or your registered representative for more information
about this feature.
A-6
<PAGE>
THE VARIABLE ACCOUNT
INVESTMENTS OF THE VARIABLE ACCOUNT
Sub-Accounts of the Variable Account that are available in this Policy invest
in the following Eligible Funds:
The Zenith Back Bay Advisors Money Market Series. Its investment objective is
the highest possible level of current income consistent with preservation of
capital. An investment in the Money Market Series is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Series seeks to maintain a net asset value of $100
per share, it is possible to lose money by investing in the Money Market
Series.
The Zenith Back Bay Advisors Bond Income Series. Its investment objective is a
high level of current income consistent with protection of capital.
The Zenith Capital Growth Series. Its investment objective is the long-term
growth of capital through investment primarily in equity securities of
companies whose earnings are expected to grow at a faster rate than the United
States economy.
The Zenith Westpeak Stock Index Series. Its investment objective is investment
results that correspond to the composite price and yield performance of the S&P
500 Index.
The Zenith Back Bay Advisors Managed Series. Its investment objective is a
favorable total return through investment in a diversified portfolio.
The Zenith Westpeak Growth and Income Series. Its investment objective is long-
term total return through investment in equity securities.
The Zenith Harris Oakmark Mid Cap Value Series (formerly, the Goldman Sachs
Midcap Value Series). Its investment objective is long-term capital
appreciation.
The Zenith Loomis Sayles Small Cap Series. Its investment objective is long-
term capital growth from investments in common stocks or their equivalents.
The Zenith Balanced Series (formerly, the Loomis Sayles Balanced Series). Its
investment objective is long-term total return from a combination of capital
appreciation and current income.
The Zenith Morgan Stanley International Magnum Equity Series. Its investment
objective is long-term capital appreciation through investment primarily in
international equity securities. In addition to the risks associated with
equity securities generally, foreign securities present additional risks.
The Zenith Davis Venture Value Series. Its investment objective is growth of
capital.
The Zenith Alger Equity Growth Series. Its investment objective is long-term
capital appreciation.
The Zenith MFS Investors Series. Its investment objective is reasonable current
income and long-term growth of capital and income.
The Zenith MFS Research Managers Series. Its investment objective is long-term
growth of capital.
The Metropolitan Putnam Large Cap Growth Portfolio.* Its investment objective
is capital appreciation.
The Metropolitan Janus Mid Cap Portfolio.* Its investment objective is long-
term growth of capital.
The Metropolitan Russell 2000 Index Portfolio.* Its investment objective is to
equal the return of the Russell 2000 Index.
- --------
* Availability of these Portfolios is subject to any necessary state insurance
department approvals.
A-7
<PAGE>
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.
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.
A-8
<PAGE>
INVESTMENT MANAGEMENT
The chart below shows the adviser and sub-adviser for each series of the Zenith
Fund. New England Investment Management, which is an indirect, wholly-owned
subsidiary of NELICO, CGM, and each of the sub-advisers are registered with the
SEC as investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ---------------------------------- ------------------------------
<S> <C> <C>
Capital Growth Capital Growth Management Limited
Partnership ("CGM")*
Back Bay Advisors Money New England Investment Management, Back Bay Advisors, L.P.*
Market Inc.
Back Bay Advisors Bond New England Investment Management, Back Bay Advisors, L.P.*
Income Inc.
Back Bay Advisors Man- New England Investment Management, Back Bay Advisors, L.P.*
aged Inc.
Westpeak Stock Index New England Investment Management, Westpeak Investment Advisors,
Inc. L.P.*
Westpeak Growth and New England Investment Management, Westpeak Investment Advisors,
Income Inc. L.P.*
Loomis Sayles Small Cap New England Investment Management, Loomis, Sayles & Company,
Inc. L.P.*
Balanced New England Investment Management, Wellington Management Company,
Inc. LLP
Morgan Stanley New England Investment Management, Morgan Stanley Dean Witter
International Magnum Inc. Investment Management Inc.
Equity
Harris Oakmark Mid Cap New England Investment Management, Harris Associates L.P.*
Value Inc.
Davis Venture Value New England Investment Management, Davis Selected Advisers,
Inc. L.P.**
Alger Equity Growth New England Investment Management, Fred Alger Management, Inc.
Inc.
MFS Investors New England Investment Management, Massachusetts Financial
Inc. Services Company
MFS Research Managers New England Investment Management, Massachusetts Financial
Inc. Services Company
</TABLE>
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 until May 1, 1997, when Morgan
Stanley Dean Witter Investment Management (formerly Morgan Stanley Asset
Management) became the sub-adviser. The Harris Oakmark Mid Cap Value Series'
sub-adviser was Loomis, Sayles until May 1, 1998, when Goldman Sachs Asset
Management, a separate operating division of Goldman Sachs & Co., became the
sub-adviser. Harris Associates became the sub-adviser on May 1, 2000. The
Balanced Series' sub-adviser was Loomis, Sayles until May 1, 2000, when
Wellington Management Company became the sub-adviser. For more information
about the Series' advisory agreements, see the Zenith Fund prospectus attached
at the end of this prospectus and the Zenith Fund's Statement of Additional
Information.
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.
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
A-9
<PAGE>
TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income tax
considerations associated with the Policies and does not purport to be complete
or to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete
information. This discussion is based upon our understanding of the present
Federal income tax laws. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied to a survivorship life policy is limited. Thus,
some uncertainty exists regarding the Federal income tax treatment of
survivorship life policies. Nevertheless, we believe that it is reasonable to
conclude that the Policies will satisfy the applicable requirements. If it is
subsequently determined that a Policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the Policy into compliance
with such requirements and we reserve the right to restrict Policy transactions
in order to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the owners of the assets of
the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to allocate
payments and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Policy Owners
investment control over Variable Account assets, we reserve the right to modify
the Policies as necessary to prevent a Policy Owner from being treated as the
owner of the Variable Account assets supporting the Policies.
In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through the Eligible Funds, will satisfy these
diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Policy Owner or beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the Policy Owner will not be deemed to be in constructive receipt of
the Policy cash value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with less
favorable income tax treatment than other life insurance contracts. In general
a Policy will be classified as a Modified Endowment Contract if the amount of
premiums paid into the Policy causes the Policy to fail the "7-pay test." A
Policy will fail the 7-pay test if at any time in the first seven Policy years,
the amount paid into the Policy exceeds the sum of the level premiums that
would have been paid at that point under a Policy that provided for paid-up
future benefits after the payment of seven level annual payments.
A-10
<PAGE>
If there is a reduction in the benefits under the Policy at any time, 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, the Policy may have to be retested as if it were a newly issued Policy.
A material change can occur, for example, when there is an increase in the
death benefit which is due to the payment of an unnecessary premium.
Unnecessary premiums are premiums paid into the Policy which are not needed in
order to provide a death benefit equal to the lowest death benefit that was
payable in the first seven Policy years. To prevent your Policy from becoming a
Modified Endowment Contract, it may be necessary to limit premium payments or
to limit reductions in benefits. A current or prospective Policy Owner should
consult a tax advisor to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a Modified Endowment Contract will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Policy Owner's investment in the Policy only after
all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Policy Owner has
attained age 59 1/2 or is disabled, or where the distribution is part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the Policy Owner or the joint lives (or joint life
expectancies) of the Policy Owner and the Policy Owner's beneficiary or
designated beneficiary.
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 15 Policy
years is less clear and a tax adviser should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate Premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
POLICY LOANS. In general, interest on a Policy loan will not be deductible. 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.
A-11
<PAGE>
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by NELICO
(or its affiliates) to the same Policy Owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Policy Owner's income when a taxable distribution
occurs.
TAX TREATMENT OF POLICY SPLIT. The policy split rider permits a Policy to be
split into two individual Policies. It is not clear whether exercising the
policy split rider will be treated as a taxable transaction or whether the
individual Policies that result would be classified as Modified Endowment
Contracts. A competent tax advisor should be consulted before exercising the
policy split rider.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance,
transfer, and other tax consequences depend on the individual circumstances of
each Policy Owner or beneficiary.
The tax consequences of continuing the Policy beyond the insured's 100th year
are unclear. You should consult a tax adviser if you intend to keep the Policy
in force beyond the insured's 100th year.
The transfer of the Policy or designation of a beneficiary may have federal,
state, and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate, and generation-skipping transfer taxes. For
example, the transfer of the Policy to, or the designation as a beneficiary of,
or the payment of proceeds to, a person who is assigned to a generation which
is two or more generations below the generation assignment of the Policy Owner
may have generation skipping transfer tax consequences under federal tax law.
The individual situation of each Policy Owner or beneficiary will determine the
extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of Policy proceeds will be
treated for purposes of federal, state and local estate, inheritance,
generation skipping and other taxes.
If a trustee under a pension or profit-sharing plan, or similar deferred
compensation arrangement, owns a Policy, the Federal, state and estate tax
consequences could differ. The amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan are limited. The
current cost of insurance for the net amount at risk is treated as a "current
fringe benefit" and must be included annually in the plan participant's gross
income. We report this cost (generally referred to as the "P.S. 58" cost) to
the participant annually. If the plan participant dies while covered by the
plan and the Policy proceeds are paid to the participant's beneficiary, then
the excess of the death benefit over the cash value is not taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. Policies owned under these types of
plans may be subject to restrictions under the Employee Retirement Income
Security Act of 1974 ("ERISA"). You should consult a qualified adviser
regarding ERISA. For a tax-qualified pension plan, the tax deferred accrual
feature is provided by the plan. Therefore, there should be reasons other than
tax deferral for acquiring a life insurance policy within a tax-qualified
pension plan.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with
the requirements and provisions of the DOL regulations and of tax law may
result in adverse tax consequences and/or adverse consequences under ERISA.
Plan fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
Businesses can use the Policies in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, tax exempt and nonexempt welfare benefit plans,
retiree medical benefit plans and others. The tax consequences of such plans
may vary depending on the particular facts and circumstances. If you are
purchasing the Policy for any arrangement the value of which depends in part on
its tax consequences, you should consult a qualified tax adviser. In recent
years, moreover, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new Policy or
a change in an existing Policy should consult a tax adviser.
We believe that Policies subject to Puerto Rican tax law will generally receive
treatment similar, with certain modifications, to that described above. Among
other differences, Policies governed by Puerto Rican tax law are not currently
subject to the rules described above regarding Modified Endowment Contracts.
You should consult your tax adviser with respect to Puerto Rican tax law
governing the Policies.
A-12
<PAGE>
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the Policy
could change by legislation or otherwise. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
NELICO'S INCOME TAXES
Under current Federal income tax law NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for company Federal income taxes. (We do deduct a charge for
Federal taxes from premiums.) We reserve the right to charge the Variable
Account for any future Federal income taxes we may incur.
Under current laws we may incur state and local taxes (in addition to premium
taxes). These taxes are not now significant and we are not currently charging
for them. If they increase, we may deduct charges for such taxes.
A-13
<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
James M. Benson......... Chairman, President and Chief Executive Officer of NELICO
since 1998 and President, Individual Business of
Metropolitan Life Insurance Company since 1999; formerly,
Director, President and Chief Operating Officer 1997-1998
of NELICO; President and Chief Executive Officer 1996-
1997 of Equitable Life Assurance Society; President and
Chief Operating Officer 1996-1997 of Equitable Companies,
Inc.; President and Chief Operating Officer 1994-1996 of
Equitable Life Assurance Society.
Robert H. Benmosche..... Director of NELICO since 1998 and Chairman, President and
Metropolitan Life In- Chief Executive Officer of Metropolitan Life Insurance
surance Company Company since 1998; formerly, Director, President and
One Madison Avenue Chief Operating Officer 1997-1998; Executive Vice
New York, New York President 1995-1997 of Metropolitan Life; Executive Vice
10010 President 1989-1995 of Paine Webber.
Susan C. Crampton....... Director of NELICO since 1996 and serves as Principal of
6 Tarbox Road The Vermont Partnership, a business consulting firm
Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England Mutual.
Edward A. Fox........... Director of NELICO since 1996 and Chairman of the Board of
RR Box 67-15 SLM Holdings since 1997; formerly, Director 1994-1996 of
Harborside, ME 04642 New England Mutual.
George J. Goodman....... Director of NELICO since 1996 and author, television
Adam Smith's 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 Merrimack
Ten Sterling Place Higher Education Associates, Inc. since 1998; formerly
Bow, NH 03304 Director 1987-1996 of New England Mutual and Executive
Director and Chief Executive Officer 1994-1997 of the
California Academy of Sciences and Research Fellow.
Philip K. Howard, Esq... Director of NELICO since 1996 and Partner of the law firm
Covington & Burling 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 of
Burlington Industries the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc.; Director and Executive Vice President
Americas 1993-1995 of Burlington Menswear Division.
New York, NY 10105
Thomas J. May........... Director of NELICO since 1996 and Chairman, President and
Boston Edison Company Chief Executive Officer of Boston Edison Company since
800 Boylston Street 1994; formerly, Director 1994-1996 of New England Mutual.
Boston, MA 02199
Stewart G. Nagler....... Director of NELICO since 1996 and Vice Chairman of Board
Metropolitan Life and Chief Financial Officer of Metropolitan Life
One Madison Avenue Insurance Company since 1998; formerly, Senior Executive
New York, NY 10010 Vice President and Chief Financial Officer 1986-1998 of
Metropolitan Life Insurance Company.
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Catherine A. Rein....... Director of NELICO since 1998 and President and Chief
Metropolitan Property Executive Officer of Metropolitan Property and Casualty
and Casualty Insurance Company since 1999; formerly, Senior Executive
Insurance Company Vice President 1998-1999; Executive Vice President 1989-
700 Quaker Lane 1998 of Metropolitan Life Insurance Company.
Warwick, RI 02887
Rand N. Stowell......... Director of NELICO since 1996 and President of United
P.O. Box 60 Timber Corp. 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
---- -----------------------------
<S> <C>
James M. Benson......... See Directors above
David W. Allen.......... Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 of New England Mutual.
A. Frank Beaz........... Executive Vice President of NELICO since 1999; formerly,
Senior Vice President 1998-1999 of NELICO; Chief
Administrative Officer and Senior Vice President 1997-
1998 of Equitable Distributors and Senior Vice President
1994-1997 of the Equitable Life Insurance Companies.
Pauline V. Belisle...... Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 of New England Mutual.
Mary Ann Brown.......... President, New England Products and Services (a business
unit of NELICO) since 1998; formerly, Director, Worldwide
Life Insurance 1997-1998 of Swiss Reinsurance New
Markets; President & Chief Executive Officer 1996-1998 of
Atlantic International Reinsurance Company; Executive
Vice President 1996-1997 of Swiss Re Atrium and Swiss Re
Services and Principal 1987-1996 of Tillinghast/Towers
Perrin.
Anthony J. Candito...... President, NEF Information Services (a business unit of
NELICO) and Chief Information Officer since 1998;
formerly, Senior Vice President 1996-1998 of NELICO;
Senior Vice President 1995-1996 and Vice President 1994-
1995 of New England Mutual.
Anne Marie Faria........ Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
Thom A. Faria........... President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice President in
1996, Senior Vice President 1993-1996 of New England
Mutual.
Anne M. Goggin.......... Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and Counsel
of NELICO in 1996, Vice President and Counsel 1994-1996
of New England Mutual.
Daniel D. Jordan........ Second Vice President, Counsel, Secretary and Clerk since
1996; formerly, Counsel and Assistant Secretary 1990-1996
of New England Mutual.
Alan C. Leland, Jr. .... Senior Vice President of NELICO since 1996; formerly, Vice
President 1984-1996 of New England Mutual.
George J. Maloof........ Senior Vice President of NELICO since 1996; formerly, Vice
President 1991-1996 of New England Mutual.
Kenneth D. Martinelli... Senior Vice President of NELICO since 1999; formerly, Vice
President 1997-1999 of NELICO and Vice President 1994-
1997 of The Equitable Life Assurance Company.
</TABLE>
A-15
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
Thomas W. McConnell..... Senior Vice President of NELICO since 1996 and Director,
Chief Executive Officer and President of New England
Securities Corporation since 1993.
Hugh C. McHaffie........ Senior Vice President of NELICO since 1999; formerly, Vice
President 1994-1999 of Manufacturers Life Insurance
Company of North America.
Stephen J. McLaughlin... Senior Vice President of NELICO since 1999; formerly, Vice
President 1996-1999 of NELICO and Vice President 1994-
1996 of New England Mutual.
Thomas W. Moore......... Senior Vice President of NELICO since 1996; formerly, Vice
President 1990-1996 of New England Mutual.
David Y. Rogers......... Executive Vice President and Chief Financial Officer of
NELICO since 1999; formerly, Partner, Actuarial
Consulting 1992-1999 of Price Waterhouse Coopers LLP.
John G. Small, Jr....... President, New England Services (a business unit of
NELICO) since 1997; formerly, Senior Vice President 1996-
1997 of NELICO and Senior Vice President 1990-1996 of New
England Mutual.
H. James Wilson......... Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996 of New England Mutual.
</TABLE>
The principal business address for each of the directors and officers is the
same as NELICO's except where indicated.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-accounts,
call 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of Additional
Information for the Eligible Funds, call 1-800-200-2214.
You may also call our Client TeleService Center at 1-800-388-4000 to request
current information about your Policy values, to change or update Policy
information such as your address, billing mode, beneficiary or ownership, or to
request Policy loans of less than $25,000. Requests must be in writing if the
Policy is owned by a corporation or a pension trust.
For all other Policy changes, please contact your registered representative.
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.
A-16
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
REPORT OF INDEPENDENT AUDITORS
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of the following Sub-
Accounts: Capital Growth, Bond Income, Money Market, Stock Index, Managed,
Midcap Value (formerly Avanti Growth), Growth and Income (formerly Value
Growth), Small Cap, U.S. Government, Balanced, Equity Growth, International
Magnum Equity (formerly International Equity), Venture Value, Bond
Opportunities, Investors, Research Managers, Equity-Income, Overseas, High
Income and Asset Manager) of New England Life Insurance Company (the
"Company") as of December 31, 1999, and the related statements of operations
and changes in net assets for each of the three years in the period then ended
for all Sub-Accounts. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
Sub-Accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1999, and the results of
their operations and the changes in their net assets for each of the three
years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
AA-1
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2)..........................
<CAPTION>
SHARES COST
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,831,583 $1,086,202,933
Back Bay
Advisors Bond
Income Series.. 738,049 79,337,797
Back Bay
Advisors Money
Market Series.. 1,481,735 148,173,522
Westpeak Stock
Index Series... 796,217 120,113,367
Back Bay
Advisors
Managed Series. 356,133 60,490,121
Goldman Sachs
Midcap Value
Series......... 303,945 41,326,387
Westpeak Growth
and Income
Series......... 476,840 86,077,139
Loomis Sayles
Small Cap
Series......... 494,133 72,214,392
Salomon Brothers
U.S. Government
Series......... 72,858 844,414
Loomis Sayles
Balanced
Series......... 1,214,912 18,213,928
Alger Equity
Growth Series.. 7,670,932 172,788,088
Morgan Stanley
International
Magnum Equity
Series......... 1,284,810 14,534,170
Davis Venture
Value Series... 6,183,625 126,513,387
Salomon Brothers
Bond
Opportunities
Series......... 104,337 1,267,848
MFS Investors
Series......... 77,411 773,570
MFS Research
Managers
Series......... 78,902 806,954
VIP Equity-
Income
Portfolio...... 6,551,702 126,034,149
VIP Overseas
Portfolio...... 5,064,896 87,116,523
VIP High Income
Portfolio...... 1,322,300 15,875,113
VIP II Asset
Manager
Portfolio...... 707,988 11,460,518
--------------
Total........... $2,270,164,320
==============
Amount due and accrued (payable) from
policy-related transactions, net........
Dividends receivable.....................
Total Assets
LIABILITIES
Due to New England Life Insurance
Company.................................
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES................................
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in New England Zenith Fund,
Variable Insurance Products Fund, and
Variable Insurance Products Fund II at
value (Note 2).. $1,230,974,235 $74,838,213 $148,173,522 $183,798,637 $70,090,490 $36,996,243 $94,643,283 $99,681,359
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth
Series.........
Back Bay
Advisors Bond
Income Series..
Back Bay
Advisors Money
Market Series..
Westpeak Stock
Index Series...
Back Bay
Advisors
Managed Series.
Goldman Sachs
Midcap Value
Series.........
Westpeak Growth
and Income
Series.........
Loomis Sayles
Small Cap
Series.........
Salomon Brothers
U.S. Government
Series.........
Loomis Sayles
Balanced
Series.........
Alger Equity
Growth Series..
Morgan Stanley
International
Magnum Equity
Series.........
Davis Venture
Value Series...
Salomon Brothers
Bond
Opportunities
Series.........
MFS Investors
Series.........
MFS Research
Managers
Series.........
VIP Equity-
Income
Portfolio......
VIP Overseas
Portfolio......
VIP High Income
Portfolio......
VIP II Asset
Manager
Portfolio......
Total...........
Amount due and accrued (payable) from
policy-related transactions,
net............... (136,071) 21,370 560,723 49,113 (11,519) 39,928 7,685 84,454
Dividends receivable.. -- -- -- -- -- -- -- --
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
Total Assets 1,230,838,164 74,859,583 148,734,245 183,847,750 70,078,971 37,036,171 94,650,968 99,765,813
LIABILITIES
Due to New England Life Insurance
Company........... 84,134,782 6,819,176 11,964,362 19,325,681 5,908,740 3,542,818 9,540,656 10,713,149
--------------- ----------- ------------ ------------ ------------ ----------- ----------- -----------
NET ASSETS FOR VARIABLE LIFE INSURANCE
POLICIES....... $1,146,703,382 $68,040,407 $136,769,883 $164,522,069 $64,170,231 $33,493,353 $85,110,312 $89,052,664
=============== =========== ============ ============ ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
AA-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS MANAGERS
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ------------ ------------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$787,592 $16,826,533 $225,065,146 $18,180,067 $164,917,275 $1,113,279 $794,240 $945,245
10,965 157,461 236,677 96,973 124,826 5,544 (2,239) (2,139)
-- -- -- -- -- -- -- --
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
798,557 16,983,994 225,301,823 18,277,040 165,042,101 1,118,823 792,001 943,106
41,247 1,694,626 26,656,245 2,058,494 18,572,069 57,789 99,163 154,903
-------- ----------- ------------ ----------- ------------ ---------- -------- --------
$757,310 $15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
======== =========== ============ =========== ============ ========== ======== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- -----------------------------------------------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
$168,444,262 $138,980,751 $14,955,213 $13,218,146 $2,703,423,731
(5,066) 101,197 2,344 592 1,342,818
-- -- -- -- --
- ------------- ------------ ----------- ----------- --------------
168,439,196 139,081,948 14,957,557 13,218,738 2,704,766,549
16,380,286 12,743,559 1,476,634 1,448,557 233,332,936
- ------------- ------------ ----------- ----------- --------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============ =========== =========== ==============
</TABLE>
See Notes to Financial Statements
AA-3
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $239,049,928 $5,475,221 $5,083,165 $ 4,154,533 $9,783,326 $ 459,624 $12,174,462 $ 260,319
EXPENSE
Mortality and expense
risk charge (Note 3)... 6,723,595 471,818 638,578 1,013,735 421,255 330,436 578,297 538,571
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net investment income
(loss)................. 232,326,333 5,003,403 4,444,587 3,140,798 9,362,071 129,188 11,596,165 (278,252)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695 3,516,783
End of period......... 144,771,302 (4,499,584) -- 63,685,270 9,600,369 (4,330,144) 8,566,144 27,466,967
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net change in
unrealized appreciation
(depreciation)......... (71,198,193) (5,708,857) -- 23,720,103 (3,685,297) (522,617) (5,050,551) 23,950,184
Net realized gain
(loss) on investments.. (572,298) 1,487 -- (52,322) (65,614) (9,202) (33,403) 2,146
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
Net realized and
unrealized gain (loss)
on investments......... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819) (5,083,954) 23,952,330
------------ ---------- ---------- ----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $160,555,842 $ (703,967) $4,444,587 $26,808,579 $5,611,160 $ (402,631) $ 6,512,211 $23,674,078
============ ========== ========== =========== ========== ========== =========== ===========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-4
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND RESEARCH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ----------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 46,383 $ 998,875 $26,651,028 $ 60,426 $ 3,101,039 $ 90,809 $ 1,921 $ --
10,668 126,629 1,069,420 119,372 961,922 24,177 533 1,540
-------- ----------- ----------- ---------- ----------- -------- ------- --------
35,715 872,246 25,581,608 (58,946) 2,139,117 66,632 1,388 (1,540)
15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) -- --
(56,822) (1,387,395) 52,277,058 3,645,897 38,403,888 (154,569) 20,670 138,291
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(72,031) (2,424,386) 21,569,890 3,450,943 18,395,240 (107,975) 20,670 138,291
(1,634) (14,874) (116,438) (4,634) (47,139) 1,097 8,670 (34,566)
-------- ----------- ----------- ---------- ----------- -------- ------- --------
(73,665) (2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
-------- ----------- ----------- ---------- ----------- -------- ------- --------
$(37,950) $(1,567,014) $47,035,060 $3,387,363 $20,487,218 $(40,246) $30,728 $102,185
======== =========== =========== ========== =========== ======== ======= ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
$ 7,478,140 $ 3,746,050 $1,147,254 $ 713,060 $320,475,563
1,005,310 681,381 87,077 74,260 14,878,574
- ------------ ------------ ----------- ----------- -------------
6,472,830 3,064,669 1,060,177 638,800 305,596,989
39,593,709 14,768,529 (611,552) 1,247,559 390,670,173
42,410,113 51,864,228 (919,900) 1,757,628 433,259,411
- ------------ ------------ ----------- ----------- -------------
2,816,404 37,095,699 (308,348) 510,069 42,589,238
(592,373) (370,244) 48,706 (3,669) (1,856,304)
- ------------ ------------ ----------- ----------- -------------
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------ ------------ ----------- ----------- -------------
$ 8,696,861 $39,790,124 $ 800,535 $1,145,200 $346,329,923
============ ============ =========== =========== =============
</TABLE>
See Notes to Financial Statements
AA-5
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $136,031,595 $4,500,888 $2,243,738 $ 1,665,717 $ 4,920,327 $ 8,522,091 $ 4,438,526
EXPENSE
Mortality and expense
risk charge (Note 3).. 5,675,180 329,452 281,233 574,859 295,717 213,136 321,673
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net investment income
(loss)................ 130,356,415 4,171,436 1,962,505 1,090,858 4,624,610 8,308,955 4,116,853
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.... 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665
End of period.......... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation)........ 124,603,132 317,214 -- 20,076,109 3,838,229 (10,771,908) 6,758,031
Net realized gain on
investments........... 5,610,899 1,800 -- 190,803 163,910 236,891 14,655
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net realized and
unrealized gain (loss)
on investments........ 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686
------------ ---------- ---------- ----------- ----------- ------------ -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $260,570,446 $4,490,449 $1,962,505 $21,357,770 $ 8,626,750 $ (2,226,063) $10,889,538
============ ========== ========== =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
AA-6
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- --------------------------------------------------------------------------------------- ----------------------------------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,148,975 $32,331 $ 607,129 $ 3,598,904 $ 251,292 $ 2,912,129 $ 81,480 $ 8,088,940 $6,093,523 $ 1,064,286
380,727 (2,318) 52,939 452,661 48,632 512,333 (9,440) 902,569 550,070 67,547
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
768,248 34,649 554,190 3,146,243 202,660 2,399,796 90,920 7,186,371 5,543,453 996,739
5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
3,516,783 15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) 39,593,709 14,768,529 (611,552)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,905,274) 17,125 394,379 25,315,901 349,959 9,291,865 (44,337) 6,894,545 3,631,231 (1,576,072)
20,862 11 6,840 56,142 5,897 22,521 493 561,003 333,272 20,913
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,884,412) 17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
$(1,116,164) $51,785 $ 955,409 $28,518,286 $ 558,517 $11,714,181 $ 47,076 $14,641,919 $9,507,956 $ (558,420)
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ---------- ------------
<S> <C>
$ 835,511 $187,037,382
50,140 10,697,110
- ---------- ------------
785,371 176,340,272
971,097 203,203,584
1,247,559 390,670,172
- ---------- ------------
276,461 187,466,588
4,137 7,251,049
- ---------- ------------
280,598 194,717,637
- ---------- ------------
$1,065,969 $371,057,909
======= ========== =========== ========= =========== ======== =========== ========== ===========
========== ============
</TABLE>
See Notes to Financial Statements
AA-7
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Dividends.............. $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553
EXPENSE
Mortality and expense
risk charge (Note 3).. 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net investment income
(loss)................ 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net change in
unrealized
appreciation
(depreciation)........ (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574
Net realized gain on
investments........... 1,699,829 15,488 -- 35,165 242,079 87,159 17,721
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments........ (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295
------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584
============ ========== ========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
AA-8
<PAGE>
<TABLE>
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- ---------------------------------------------------------------------------------- ------------------------------- ---------
INTERNATIONAL
SMALL U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH ASSET
CAP GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ---------- -------- ---------- ------------- ----------- ------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $ 1,822,395 $43,914 $ 8,872,794 $5,434,055 $393,295 $528,401
275,141 2,290 50,941 265,599 51,702 276,055 9,400 676,059 447,597 41,502 33,135
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514 8,196,735 4,986,458 351,793 495,266
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153) 16,409,989 9,502,216 362,600 547,647
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256) 32,699,163 11,137,299 964,520 971,097
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103) 16,289,174 1,635,083 601,920 423,450
20,956 1 55,231 75,802 8,303 21,718 201 126,489 67,905 12,234 5,368
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154 428,818
- ---------- ------ -------- ---------- --------- ----------- ------- ----------- ---------- -------- --------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $ 9,886,818 $33,612 $24,612,398 $6,689,446 $965,947 $924,084
========== ====== ======== ========== ========= =========== ======= =========== ========== ======== ========
<CAPTION>
- ----------------------------------------------------------------------------------
TOTAL
- ------------
<S>
$231,072,203
7,755,657
- ------------
223,316,546
194,486,245
203,203,584
- ------------
8,717,339
2,491,649
- ------------
11,208,988
- ------------
$234,525,534
============
</TABLE>
See Notes to Financial Statements
AA-9
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CAPITAL BOND MONEY STOCK MIDCAP
GROWTH INCOME MARKET INDEX MANAGED VALUE
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 232,326,333 $ 5,003,403 $ 4,444,587 $ 3,140,798 $ 9,362,071 $ 129,188
Net realized and
unrealized gain
(loss) on
investments..... (71,770,491) (5,707,370) -- 23,667,781 (3,750,911) (531,819)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 160,555,842 (703,967) 4,444,587 26,808,579 5,611,160 (402,631)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 142,211,177 13,805,688 214,469,972 29,988,746 10,115,433 7,098,841
Net transfers
(to) from other
sub-accounts.... (3,426,057) 5,993,183 (132,180,032) 28,975,401 3,130,211 (1,928,318)
Net transfers
(to) from New
England Life
Insurance
Company......... (127,342,172) (8,870,541) (35,295,568) (21,960,448) (7,936,560) (3,985,601)
-------------- ----------- ------------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 11,442,948 10,928,330 46,994,372 37,003,699 5,309,084 1,184,922
-------------- ----------- ------------- ------------ ----------- -----------
Net increase
(decrease) in
net assets...... 171,998,790 10,224,363 51,438,959 63,812,278 10,920,244 782,291
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 974,704,592 57,816,044 85,330,924 100,709,791 53,249,987 32,711,062
-------------- ----------- ------------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $1,146,703,382 $68,040,407 $ 136,769,883 $164,522,069 $64,170,231 $33,493,353
============== =========== ============= ============ =========== ===========
<CAPTION>
NEW ENGLAND ZENITH FUND
--------------------------------------
GROWTH
AND SMALL U.S.
INCOME CAP GOVERNMENT
SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT
------------- ------------- ----------
<S> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss)... $ 11,596,165 $ (278,252) $ 35,715
Net realized and
unrealized gain
(loss) on
investments..... (5,083,954) 23,952,330 (73,665)
------------- ------------- ----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 6,512,211 23,674,078 (37,950)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred from
New England Life
Insurance
Company (Note
4).............. 15,769,644 16,994,060 --
Net transfers
(to) from other
sub-accounts.... 14,513,514 (3,433,209) 79,255
Net transfers
(to) from New
England Life
Insurance
Company......... (10,636,850) (11,981,152) 24,393
------------- ------------- ----------
Net Increase in
net assets
resulting from
policy related
transactions... 19,646,308 1,579,699 103,648
------------- ------------- ----------
Net increase
(decrease) in
net assets...... 26,158,519 25,253,777 65,698
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 58,951,793 63,798,887 691,612
------------- ------------- ----------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 85,110,312 $ 89,052,664 $757,310
============= ============= ==========
</TABLE>
* For the period April 30, 1999 (Commencement of Operations) through December
31, 1999.
See Notes to Financial Statements
AA-10
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INTERNATIONAL
EQUITY MAGNUM VENTURE BOND RESEARCH
BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INVESTORS* MANAGERS*
SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------- ------------ ------------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 872,246 $ 25,581,608 $ (58,946) $ 2,139,117 $ 66,632 $ 1,388 $ (1,540)
(2,439,260) 21,453,452 3,446,309 18,348,101 (106,878) 29,340 103,725
- ----------- ------------ ----------- ------------ ---------- -------- --------
(1,567,014) 47,035,060 3,387,363 20,487,218 (40,246) 30,728 102,185
4,093,455 31,646,457 3,430,299 32,031,496 -- 75,935 86,667
1,865,860 59,949,102 1,463,742 22,546,367 1,100 684,756 763,549
(1,579,581) (30,858,890) (2,381,414) (23,867,517) 9,526 (98,581) (164,198)
- ----------- ------------ ----------- ------------ ---------- -------- --------
4,379,734 60,736,669 2,512,627 30,710,346 10,626 662,110 686,018
- ----------- ------------ ----------- ------------ ---------- -------- --------
2,812,720 107,771,729 5,899,990 51,197,564 (29,620) 692,838 788,203
12,476,648 90,873,849 10,318,556 95,272,468 1,090,654 -- --
- ----------- ------------ ----------- ------------ ---------- -------- --------
$15,289,368 $198,645,578 $16,218,546 $146,470,032 $1,061,034 $692,838 $788,203
=========== ============ =========== ============ ========== ======== ========
<CAPTION>
VARIABLE
INSURANCE
VARIABLE INSURANCE PRODUCTS
PRODUCTS FUND FUND II
- -----------------------------------------------------------------------------------------
EQUITY- HIGH ASSET
INCOME OVERSEAS INCOME MANAGER
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT TOTAL
- ------------- ------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
$ 6,472,830 $ 3,064,669 $ 1,060,177 $ 638,800 $ 305,596,989
2,224,031 36,725,455 (259,642) 506,400 40,732,934
- ------------- ------------- ------------ ------------ ---------------
8,696,861 39,790,124 800,535 1,145,200 346,329,923
26,649,674 17,254,614 3,727,099 2,393,210 571,842,467
(2,823,843) 1,086,949 1,354,057 1,384,413 --
(19,017,183) (16,067,097) (2,389,723) (1,339,833) (325,738,990)
- ------------- ------------- ------------ ------------ ---------------
4,808,648 2,274,466 2,691,433 2,437,790 246,103,477
- ------------- ------------- ------------ ------------ ---------------
13,505,509 42,064,590 3,491,968 3,582,990 592,433,400
138,553,401 84,273,799 9,988,955 8,187,191 1,879,000,213
- ------------- ------------- ------------ ------------ ---------------
$152,058,910 $126,338,389 $13,480,923 $11,770,181 $2,471,433,613
============= ============= ============ ============ ===============
</TABLE>
See Notes to Financial Statements
AA-11
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
------------------------------------------------------------------------------------------------------------
GROWTH
CAPITAL BOND MONEY STOCK MIDCAP AND SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE INCOME CAP
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss).. $ 130,356,415 $ 4,171,436 $ 1,962,505 $ 1,090,858 $ 4,624,610 $ 8,308,955 $ 4,116,853 $ 768,248
Net realized and
unrealized gain
(loss) on
investments.... 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686 (1,884,412)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 260,570,446 4,490,449 1,962,505 21,357,770 8,626,750 (2,226,063) 10,889,538 (1,116,164)
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 130,346,621 10,522,040 221,378,611 15,997,005 6,508,238 8,067,127 10,034,046 16,979,803
Net transfers
(to) from other
sub-accounts... 28,412,166 9,220,311 (149,270,654) 22,094,429 6,317,021 (102,089) 15,004,643 9,499,585
Net transfers to
New England
Life Insurance
Company........ (136,266,249) (7,932,456) (21,844,962) (16,290,249) (6,742,406) (4,094,516) (8,744,105) (9,074,771)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 22,492,538 11,809,895 50,262,995 21,801,185 6,082,853 3,870,522 16,294,584 17,404,617
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net increase in
net assets..... 283,062,984 16,300,344 52,225,500 43,158,955 14,709,603 1,644,459 27,184,123 16,288,452
NET ASSETS, AT
BEGINNING OF THE
PERIOD.......... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670 47,510,435
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
NET ASSETS, AT
END OF THE
PERIOD.......... $ 974,704,592 $57,816,044 $ 85,330,924 $100,709,791 $53,249,987 $ 32,711,062 $58,951,793 $63,798,887
============= =========== ============= ============ =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
AA-12
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
-------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
---------- ----------- ------------ ------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920 $ 7,186,371 $ 5,543,453 $ 996,739
17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076 14,641,919 9,507,956 (558,420)
-- 3,185,034 18,566,913 3,131,225 24,165,947 -- 26,170,240 17,386,996 2,434,923
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788 8,474,098 342,473 2,823,884
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947) (18,064,178) (10,788,946) (1,891,706)
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841 16,580,160 6,940,523 3,367,101
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917 31,222,080 16,448,479 2,808,682
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737 107,331,321 67,825,320 7,180,273
--------- ----------- ------------ ----------- ------------ ---------- ------------ ------------ -----------
$ 691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654 $138,553,401 $ 84,273,799 $ 9,988,955
========= =========== ============ =========== ============ ========== ============ ============ ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- ----------------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ------------ ---------------
<S> <C>
$ 785,371 $ 176,340,272
280,598 194,717,637
- ------------ ---------------
1,065,969 371,057,909
1,626,307 516,501,076
1,297,121 --
(1,251,084) (277,154,223)
- ------------ ---------------
1,672,344 239,346,853
- ------------ ---------------
2,738,313 610,404,762
5,448,878 1,268,595,450
- ------------ ---------------
$ 8,187,191 $1,879,000,212
============ ===============
</TABLE>
See Notes to Financial Statements
AA-13
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW ENGLAND ZENITH FUND
-----------------------------------------------------------------------------------------------------------
CAPITAL BOND MONEY STOCK MIDCAP SMALL
GROWTH INCOME MARKET INDEX MANAGED VALUE GROWTH AND CAP
SUB- SUB- SUB- SUB- SUB- SUB- INCOME SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATING
ACTIVITIES
Net investment
income (loss).. $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065
Net realized and
unrealized gain
(loss) on
investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase
(decrease) in
net assets
resulting from
operations..... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514
FROM POLICY-
RELATED
TRANSACTIONS
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007
Net transfers
(to) from other
sub-
accounts....... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252
Net transfers to
New England
Life Insurance
Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069)
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets
resulting from
policy related
transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704
NET ASSETS, AT
BEGINNING OF THE
YEAR............ 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
NET ASSETS, AT
END OF THE YEAR. $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435
============= =========== ============= ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
AA-14
<PAGE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND
- ------------------------------------------------------------------------------- --------------------------------------
INTERNATIONAL
U.S. EQUITY MAGNUM VENTURE BOND EQUITY- HIGH
GOVERNMENT BALANCED GROWTH EQUITY VALUE OPPORTUNITIES INCOME OVERSEAS INCOME
SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------- ----------- ----------- ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514 $ 8,196,735 $ 4,986,458 $ 351,793
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902) 16,415,663 1,702,988 614,154
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612 24,612,398 6,689,446 965,947
-- 2,146,406 14,606,449 3,056,999 13,157,429 -- 23,866,781 17,551,475 2,042,291
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357 5,377,892 1,724,137 1,829,771
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000) (18,885,322) (9,549,079) (1,756,377)
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357 10,359,351 9,726,533 2,115,685
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969 34,971,749 16,415,979 3,081,632
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768 72,359,572 51,409,341 4,098,641
-------- ----------- ----------- ----------- ------------ -------- ------------ ----------- -----------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737 $107,331,321 $67,825,320 $ 7,180,273
======== =========== =========== =========== ============ ======== ============ =========== ===========
<CAPTION>
VARIABLE
INSURANCE
PRODUCTS
FUND II
- -------------------------------------------------------------------------------
ASSET
MANAGER
SUB-
ACCOUNT TOTAL
- ----------- ---------------
<S> <C>
$ 495,266 $ 223,316,546
428,818 11,208,988
- ----------- ---------------
924,084 234,525,534
1,403,144 360,665,925
422,784 --
(881,229) (212,980,807)
- ----------- ---------------
944,699 147,685,118
- ----------- ---------------
1,868,783 382,210,652
3,580,095 886,384,798
- ----------- ---------------
$5,448,878 $1,268,595,450
=========== ===============
</TABLE>
See Notes to Financial Statements
AA-15
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS. New England Variable Life Separate Account (the
"Account") of New England Life Insurance Company ("NELICO") was established by
NELICO's Board of Directors on January 31, 1983 in accordance with the
regulations of the Delaware Insurance Department and is now operating in
accordance with the regulations of the Commonwealth of Massachusetts Division
of Insurance. The Account is registered as a unit investment trust under the
Investment Company Act of 1940. The assets of the Account are owned by NELICO.
The net assets of the Account are restricted from use in the ordinary business
of NELICO. NELICO is an indirect wholly-owned subsidiary of Metropolitan Life
Insurance Company.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUB-ACCOUNTS. The Account has twenty investment sub-accounts each of which
invest in the shares of one portfolio of the New England Zenith Fund ("Zenith
Fund"), the Variable Insurance Products Fund or the Variable Insurance
Products Fund II. The portfolios of the Zenith Fund, the Variable Insurance
Products Fund and the Variable Insurance Products Fund II in which the sub-
accounts invest are referred to herein as the "Eligible Funds". The Zenith
Fund, the Variable Insurance Products Fund and the Variable Insurance Products
Fund II are diversified, open-end management investment companies. The Account
purchases or redeems shares of the twenty Eligible Funds based on the amount
of net premiums invested in the Account, transfers among the sub-accounts,
policy loans, surrender payments, and death benefit payments. The values of
the shares of the Eligible Funds are determined as of the close of the New
York Stock Exchange (the "Exchange") (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. MORTALITY AND EXPENSE RISK CHARGES. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus" , "Zenith Life Plus II" and "Zenith Variable Whole Life")
life policies and limited payment ("Zenith Life Executive 65") variable life
policies, .90% and .75% of the Account assets attributable to variable
survivorship ("Zenith Survivorship Life") life policies, and .75% and .60% of
the Account assets attributable to flexible premium ("Zenith Flexible Life")
variable life policies. For the modified single premium ("American Gateway")
and flexible premium ("Zenith Executive Advantage Plus") variable life
policies mortality and expense risk charges are not charged daily against the
sub-account assets but are deducted from the policy cash values monthly at an
annual rate of .90% and a maximum annual rate of .75%, respectively
4. NET PREMIUM TRANSFERS AND DEDUCTIONS FROM CASH VALUE. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
value in the sub-accounts. These deductions, depending on the policy, could
include sales load, administrative charges, premium tax charges, risk charges,
cost of insurance charges, and charges for rider benefits and special risk
charges.
AA-16
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FEDERAL INCOME TAXES. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make
appropriate charges against the Account in the future if and when tax
liabilities arise.
6. INVESTMENT ADVISERS. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. New England Investment Management,
Inc. (formerly, TNE Advisers, Inc.), which is an indirect subsidiary of
NELICO, Capital Growth Management Limited Partnership ("CGM"), and each of the
sub-advisers are registered with the Securities and Exchange Commission as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ --------------------------------------- ------------------------------------
<S> <C> <C>
Capital Growth.......... CGM* --
Back Bay Advisors Money
Market................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors Bond
Income................. New England Investment Management, Inc. Back Bay Advisors, L.P. *
Back Bay Advisors
Managed................ New England Investment Management, Inc. Back Bay Advisors, L.P. *
Westpeak Stock Index.... New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Westpeak Growth and
Income................. New England Investment Management, Inc. Westpeak Investment Advisors, L.P. *
Goldman Sachs Midcap
Value.................. New England Investment Management, Inc. Goldman Sachs Asset Management
Loomis Sayles Small Cap. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Loomis Sayles Balanced.. New England Investment Management, Inc. Loomis, Sayles & Company, L.P. *
Morgan Stanley
International Magnum New England Investment Management, Inc. Morgan Stanley Dean Witter
Equity................. Investment Management Inc.
Davis Venture Value..... New England Investment Management, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth..... New England Investment Management, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. New England Investment Management, Inc. Salomon Brothers Asset
Government............. Management Inc
Salomon Brothers
Strategic Bond
Opportunities.......... New England Investment Management, Inc. Salomon Brothers Asset
Management Inc
MFS Investors........... New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research Managers... New England Investment Management, Inc. Massachusetts Financial
Services Company
</TABLE>
*An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and Morgan Stanley Dean
Witter Investment Management Inc. became the sub-adviser of the Series,
succeeding Draycott Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management ("Goldman Sachs") became
the sub-adviser of the Loomis Sayles Avanti Growth Series, succeeding Loomis
Sayles & Company, L.P., and the name of the Series was changed to the "Goldman
Sachs Midcap Value Series". Goldman Sachs is a separate operating division of
Goldman, Sachs & Co., a privately-owned global financial services company.
AA-17
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENT PURCHASES AND SALES. The following table shows the aggregate
cost of Eligible Fund shares purchased and proceeds from the sales of Eligible
Fund shares for each sub-account for the year ended December 31, 1999:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth Series............................. $242,198,370 $241,707,039
Back Bay Advisors Money Market Series............. 327,644,952 277,923,925
Back Bay Advisors Bond Income Series.............. 36,178,905 24,991,981
Back Bay Advisors Managed Series.................. 24,394,855 18,680,924
Westpeak Stock Index Series....................... 81,767,015 38,818,677
Westpeak Growth and Income Series................. 43,834,304 22,733,178
Goldman Sachs Midcap Value Series................. 14,632,125 14,003,124
Loomis Sayles Small Cap Series.................... 32,520,472 28,114,874
Loomis Sayles Balanced Series..................... 11,121,785 7,665,490
Morgan Stanley International Magnum Equity Series. 8,500,269 5,336,590
Davis Venture Value Series........................ 74,752,030 39,161,371
Alger Equity Growth Series........................ 112,530,144 37,977,904
Salomon Bothers U.S. Government Series............ 728,153 711,346
Salomon Bothers Strategic Bond Opportunities
Series........................................... 504,155 619,331
MFS Investors Series *............................ 853,017 92,276
MFS Research Managers Series *.................... 869,163 29,781
VIP Equity-Income Portfolio....................... 48,322,887 44,032,962
VIP Overseas Portfolio............................ 36,474,794 30,947,930
VIP High Income Portfolio......................... 10,500,033 7,853,618
VIP II Asset Manager Portfolio.................... 6,412,123 3,587,782
</TABLE>
*For the period April 30, 1999 (Commencement of Operations) to December 31,
1999.
8. NET INVESTMENT RETURNS. The following table shows the net investment return
of the Sub-Account for each type of variable life insurance policy investing
in the Account. The net investment return reflects the appropriate mortality
and expense risk charge against sub-account assets, where applicable, for each
type of variable life insurance policy shown (in the case of American Gateway
Series, and Zenith Executive Advantage Plus, the mortality and expense risk
charge is deducted monthly from the cash values rather than daily from sub-
account assets and, therefore, does not impact sub-account net investment
returns). These figures do not reflect charges deducted from premiums and the
cash values of the policies. Such charges will affect the actual cash values
and benefits of the policies. Certain amounts have been restated to conform
with the current calculation of net investment return to provide greater
comparability with industry convention.
AA-18
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FIXED PREMIUM ("ZENITH LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 % 15.30 %
Bond Income............. 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 % (0.81)%
Money Market............ 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 % 4.60 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 % 19.96 %
Managed................. 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 % 9.59 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.47% (0.62)% 29.90% 17.20% 16.91 % (5.79)% 0.00 %
Growth and Income.................................. 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 % 8.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.29% 6.69 % 34.62% 13.88% 27.66 % 11.24 % 5.96 %
Overseas........................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 % 42.13 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.45)% 28.40% 30.22% 24.42 % (2.04)% 31.29 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.58)% 20.18% 13.63% 17.26 % (4.66)% 7.78 %
Asset Manager............................................... (4.41)% 16.55% 14.20% 20.23 % 14.65 % 10.70 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.84% 12.78% 25.19 % 47.27 % 33.66 %
Balanced............................................................. 13.75% 16.50% 15.77 % 8.73 % (5.39)%
International Magnum Equity.......................................... 3.85% 6.30% (1.64)% 6.90 % 24.18 %
Venture Value........................................................ 21.64% 25.40% 33.03 % 14.02 % 17.11 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.61 %
Research Managers........................................................................................ 19.52 %
</TABLE>
AA-19
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SINGLE PREMIUM ("ZENITH LIFE ONE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 % 15.18 %
Bond Income............. 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 % (0.91)%
Money Market............ 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 % 4.49 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 % 19.84 %
Managed................. 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 % 9.48 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.39% (0.72)% 29.77% 17.08% 16.80 % (5.88)% (0.10)%
Growth and Income.................................. 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 % 8.86 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income...................................... 9.22% 6.59 % 34.49% 13.77% 27.53 % 11.13 % 5.85 %
Overseas........................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 % 41.99 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.52)% 28.27% 30.09% 24.29 % (2.14)% 31.16 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.61)% 20.06% 13.52% 17.14 % (4.76)% 7.67 %
Asset Manager............................................... (4.45)% 16.43% 14.09% 20.11 % 14.53 % 10.59 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.76% 12.66% 25.06 % 47.12 % 33.53 %
Balanced............................................................. 13.67% 16.39% 15.66 % 8.62 % (5.49)%
International Magnum Equity.......................................... 3.79% 6.19% (1.74)% 6.79 % 24.05 %
Venture Value........................................................ 21.56% 25.27% 32.90 % 13.90 % 16.99 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.54 %
Research Managers........................................................................................ 19.44 %
</TABLE>
AA-20
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
VARIABLE ORDINARY ("ZENITH LIFE PLUS", "ZENITH LIFE PLUS II" AND "ZENITH
VARIABLE WHOLE LIFE") AND LIMITED PAYMENT ("ZENITH LIFE EXECUTIVE 65") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 % 15.01 %
Bond Income............. 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 % (1.06)%
Money Market............ 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 % 4.34 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 % 19.66 %
Managed................. 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 % 9.31 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.28% (0.87)% 29.57% 16.90% 16.62 % (6.03)% (0.25)%
Growth and Income.................................. 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 % 8.70 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.11% 6.43 % 34.29% 13.59% 27.34 % 10.96 % 5.69 %
Overseas........................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 % 41.77 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.61)% 28.08% 29.90% 24.11 % (2.28)% 30.96 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.66)% 19.88% 13.35% 16.96 % (4.90)% 7.51 %
Asset Manager............................................... (4.49)% 16.26% 13.91% 19.93 % 14.36 % 10.43 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.64% 12.49% 24.88 % 46.90 % 33.33 %
Balanced............................................................. 13.56% 16.21% 15.48 % 8.46 % (5.63)%
International Magnum Equity.......................................... 3.68% 6.03% (1.89)% 6.63 % 23.87 %
Venture Value........................................................ 21.44% 25.08% 32.70 % 13.73 % 16.81 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.44 %
Research Managers........................................................................................ 19.32 %
</TABLE>
AA-21
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
VARIABLE SURVIVORSHIP ("ZENITH SURVIVORSHIP LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 % 14.67 %
Bond Income............. 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 % (1.36)%
Money Market............ 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 % 4.03 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 % 19.30 %
Managed................. 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 % 8.98 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.05% (1.16)% 29.19% 16.55% 16.27% (6.31)% (0.55)%
Growth and Income.................................. 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 % 8.37 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 8.89% 6.11 % 33.89% 13.25% 26.96% 10.63 % 5.38 %
Overseas........................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 % 41.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.80)% 27.69% 29.50% 23.73% (2.58)% 30.57 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.76)% 19.53% 13.00% 16.61% (5.19)% 7.19 %
Asset Manager............................................... (4.59)% 15.91% 13.57% 19.57% 14.02 % 10.10 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.39% 12.15% 24.50 % 46.46 % 32.93 %
Balanced............................................................. 13.33% 15.86% 15.14 % 8.13 % (5.91)%
International Magnum Equity.......................................... 3.48% 5.71% (2.18)% 6.31 % 23.50 %
Venture Value........................................................ 21.20% 24.71% 32.30 % 13.39 % 16.47 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.23 %
Research Managers........................................................................................ 19.08 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .90%.
Certain Zenith Survivorship Life Policies currently have a mortality and
expense risk charge at an annual rate of .75%.
AA-22
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FLEXIBLE PREMIUM ("ZENITH FLEXIBLE LIFE") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS*
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 % 14.84 %
Bond Income............. 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 % (1.21)%
Money Market............ 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 % 4.18 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 % 19.48 %
Managed................. 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 % 9.15 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.16% (1.01)% 29.38% 16.72% 16.45 % (6.17)% (0.40)%
Growth and Income.................................. 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 % 8.53 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.00% 6.27 % 34.09% 13.42% 27.15 % 10.79 % 5.54 %
Overseas........................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 % 41.56 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.71)% 27.88% 29.70% 23.92 % (2.43)% 30.77 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (0.71)% 19.71% 13.17% 16.79 % (5.04)% 7.35 %
Asset Manager............................................... (4.54)% 16.08% 13.74% 19.75 % 14.19 % 10.26 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 24.51% 12.32% 24.69 % 46.68 % 33.13 %
Balanced............................................................. 13.44% 16.03% 15.31 % 8.29 % (5.77)%
International Magnum Equity.......................................... 3.58% 5.87% (2.04)% 6.47 % 23.68 %
Venture Value........................................................ 21.32% 24.89% 32.50 % 13.56 % 16.64 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.34 %
Research Managers........................................................................................ 19.20 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .75%.
Certain Zenith Flexible Life Policies currently have a mortality and expense
risk charge at an annual rate of .60%.
AA-23
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FLEXIBLE PREMIUM ("ZENITH EXECUTIVE ADVANTAGE PLUS") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 % 15.70 %
Bond Income............. 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income...................................... 9.55% 6.93 % 35.90% 13.75% 28.11 % 11.63 % 6.33 %
Overseas........................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 % 42.63 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income................................................. (.37)% 20.79% 13.75% 17.67 % (4.33)% 8.15 %
Asset Manager............................................... (4.65)% 17.68% 14.31% 20.65 % 15.05 % 11.09 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
AA-24
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MODIFIED SINGLE PREMIUM ("AMERICAN GATEWAY") POLICIES
<TABLE>
<CAPTION>
NET INVESTMENT RETURN OF THE SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 % (0.47)%
Money Market............ 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 % 4.97 %
<CAPTION>
1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 % 20.38 %
Managed................. 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 % 9.97 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value....................................... 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)% 0.35 %
Growth and Income.................................. 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 % 9.35 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap................................................... (3.23)% 28.84% 30.68% 24.85 % (1.69)% 31.75 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........................................................ 25.13% 13.17% 25.63 % 47.78 % 34.13 %
Balanced............................................................. 14.01% 16.91% 16.18 % 9.11 % (5.06)%
International Magnum Equity.......................................... 4.01% 6.67% (1.30)% 7.27 % 24.61 %
Venture Value........................................................ 21.92% 25.84% 33.50 % 14.41 % 17.52 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98- 1/1/99-
SUB-ACCOUNT 12/31/96 12/31/97 12/31/98 12/31/99
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government............................................................... 4.55% 8.47 % 7.61 % 0.17 %
Strategic Bond Opportunities.................................................. 8.46% 11.07 % 2.04 % 1.44 %
<CAPTION>
4/30/99-
SUB-ACCOUNT 12/31/99
- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investors................................................................................................ 2.85 %
Research Managers........................................................................................ 19.80 %
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and the beginning value for
the period and dividing it by the beginning value for the period.
AA-25
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Policyholders of New England Life Insurance
Company:
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company and subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of income and
comprehensive income, equity and cash flows for each of the three years in the
period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of New England Life Insurance
Company and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
AA-26
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities, Available for Sale, at Estimated Fair
Value................................................. $ 735,697 $ 769,364
Equity Securities, at Fair Value....................... 22,685 13,240
Policy Loans........................................... 181,995 135,800
Short-Term Investments................................. 62,619 52,285
Other Invested Assets.................................. 16,798 16,372
---------- ----------
Total Investments................................... 1,019,794 987,061
Cash and Cash Equivalents............................... 84,371 43,598
Deferred Policy Acquisition Costs....................... 930,703 710,961
Accrued Investment Income............................... 29,940 21,802
Premiums and Other Receivables.......................... 119,750 145,117
Other Assets............................................ 105,982 111,067
Separate Account Assets................................. 4,840,029 3,258,383
---------- ----------
TOTAL ASSETS........................................ $7,130,569 $5,277,989
========== ==========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits.................................. $ 614,927 $ 561,746
Policyholder Account Balances........................... 325,385 210,242
Other Policyholder Funds................................ 245,339 186,255
Policyholder Dividends Payable.......................... 977 609
Short and Long-Term Debt................................ 75,053 82,855
Income Taxes Payable:
Current................................................ (77) 10,984
Deferred............................................... 38,669 42,334
Due to Parent........................................... 72,247 789
Other Liabilities....................................... 64,717 78,721
Separate Account Liabilities............................ 4,840,029 3,258,383
---------- ----------
TOTAL LIABILITIES................................... 6,277,266 4,432,918
---------- ----------
Commitments and Contingencies (Notes 4, 8 and 9)
EQUITY
Common Stock, $125.00 par value; 50,000 shares
authorized, 20,000 shares issued and outstanding....... 2,500 2,500
Preferred Stock, $0.00 par value; 1,000,000 shares
authorized, 200,000 shares issued and outstanding...... 0 0
Contributed Capital..................................... 647,273 647,273
Retained Earnings....................................... 214,528 177,859
Accumulated Other Comprehensive Income.................. (10,998) 17,439
---------- ----------
TOTAL EQUITY........................................ 853,303 845,071
---------- ----------
TOTAL LIABILITIES AND EQUITY............................ $7,130,569 $5,277,989
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-27
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums........................................... $123,638 $100,689 $ 63,616
Universal Life and Investment-Type Product Policy
Fees.............................................. 220,841 173,766 145,157
Net Investment Income.............................. 68,498 49,077 61,059
Investment Gains (Losses), Net..................... 2,922 5,610 890
Commissions, Fees and Other Income................. 265,891 192,411 28,302
-------- -------- --------
TOTAL REVENUES................................... 681,790 521,553 299,024
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.............................. 193,293 149,687 100,180
Interest Credited to Policyholder Account Balances. 10,721 7,735 6,220
Policyholder Dividends............................. 20,827 22,989 21,325
Other Operating Costs and Expenses................. 381,881 316,659 144,342
-------- -------- --------
TOTAL BENEFITS AND OTHER DEDUCTIONS.............. 606,722 497,070 272,067
-------- -------- --------
Income From Operations Before Income Taxes......... 75,068 24,483 26,957
Income Taxes....................................... 29,344 13,046 4,988
-------- -------- --------
NET INCOME......................................... $ 45,724 $ 11,437 $ 21,969
-------- -------- --------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Investment Gains (Losses) (Net of
Related Offsets, Reclassification Adjustments and
Income Taxes, of $45,376, $(299) and $(16,588),
Respectively).................................... (28,437) 92 13,620
-------- -------- --------
COMPREHENSIVE INCOME............................... $ 17,287 $ 11,529 $ 35,589
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-28
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
STOCK & OTHER
CONTRIBUTED RETAINED COMPREHENSIVE
CAPITAL EARNINGS INCOME TOTAL
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996.... $402,242 $144,453 $ 3,727 $550,422
Net Income....................... 21,969 21,969
Change in Net Unrealized
Investment Gains (Losses)....... 13,620 13,620
Contributed Capital.............. 47,531 47,531
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1997.... 449,773 166,422 17,347 633,542
Net Income....................... 11,437 11,437
Change in Net Unrealized
Investment Gains (Losses)....... 92 92
Contributed Capital.............. 200,000 200,000
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1998.... 649,773 177,859 17,439 845,071
Net Income....................... 45,724 45,724
Preferred Stock Dividends........ (9,055) (9,055)
Change in Net Unrealized
Investment Gains (Losses)....... (28,437) (28,437)
-------- -------- -------- --------
BALANCES AT DECEMBER 31, 1999.... $649,773 $214,528 $(10,998) $853,303
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-29
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES.......... $(159,314) $(311,296) $(121,838)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities.......... 114,478 164,566 145,197
Equity Securities............................ 2,491 39,333 32,806
Other, Net................................... (1) 721 128
Purchases of:
Available for Sale Fixed Maturities.......... (157,761) (184,810) (326,059)
Equity Securities............................ (9,590) (80,066) 0
Real Estate.................................. (3,251) (3,644) 0
Fixed Asset Property and Equipment........... 0 (1,459) (101)
Other Assets................................. (302) (89) 0
Net Change in Short-Term Investments.......... (10,334) (24,341) 128,616
Net Change in Policy Loans.................... (46,195) (31,017) (28,520)
Other, Net.................................... 23,443 1,631 177
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (87,022) (119,175) (47,756)
--------- --------- ---------
Cash Flows from Financing Activities:
Capital Contributions......................... 0 200,000 46,681
Dividends Paid................................ (9,055) 0 0
Repayment of Debt............................. (13,232) (8,670) (3,181)
Policyholder Account Balances:
Deposits..................................... 517,551 358,090 244,338
Withdrawals.................................. (242,388) (149,499) (95,066)
Financial Reinsurance Receivables............. 34,233 0 1,823
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 287,109 399,921 194,595
--------- --------- ---------
Change in Cash and Cash Equivalents............ 40,773 (30,550) 25,001
Cash and Cash Equivalents, Beginning of Year... 43,598 74,148 49,147
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 84,371 $ 43,598 $ 74,148
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid................................. $ 87 $ 3,830 $ 1,495
========= ========= =========
Income Taxes Paid............................. $ 30,045 $ 14,118 $ 5,470
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-30
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET INCOME................................... $ 45,724 $ 11,437 $ 21,969
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net........................................ (186,467) (145,787) (140,578)
Change in Accrued Investment Income......... (8,138) (3,090) (4,999)
Change in Premiums and Other Receivables.... 25,367 (82,081) (57,095)
Gains from Sales of Investments, Net........ (2,922) (5,610) (890)
Depreciation and Amortization Expenses...... 11,350 13,137 10,085
Interest Credited to Policyholder Account
Balances................................... 10,721 7,735 6,220
Universal Life and Investment-Type Product
Policy Fee Income.......................... (220,841) (173,766) (145,157)
Change in Future Policy Benefits............ 53,181 61,317 35,540
Change in Other Policyholder Funds.......... 59,084 73,814 6,309
Change in Policyholder Dividends Payable.... 368 188 5,701
Change in Income Taxes Payable.............. (26,871) 2,358 1,674
Other, Net.................................. 80,130 (70,948) 139,383
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES........ $(159,314) $(311,296) $(121,838)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
AA-31
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
New England Life Insurance Company and its subsidiaries (the Company or
NELICO) is a wholly-owned stock life insurance subsidiary of Metropolitan Life
Insurance Company (MetLife). The Company is headquartered in Boston,
Massachusetts as a Massachusetts chartered company. The Company principally
provides variable life insurance and variable annuity contracts through a
network of general agencies and independent brokers located throughout the
United States. The Company also provides participating and non-participating
traditional life insurance, fixed annuity contracts, pension products, as well
as, group life, medical, and disability coverage.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 30, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO) was a
subsidiary of NEMLICO. As a result of the merger, NEMLICO ceased to exist as a
separate mutual life insurance company, and NELICO became a subsidiary of
MetLife. NELICO has continued after the merger to conduct its existing
business as well as administer the business activities of the former parent
NEMLICO. (Note 13)
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100%
of the outstanding common stock are: Exeter Reassurance Company, Ltd., New
England Pension and Annuity Company, and Newbury Insurance Company, Limited,
for insurance operations and New England Securities Corporation and New
England Investment Management, Inc. for other operations. On February 28,
1997, NELICO created and became the sole owner of New England Life Holdings,
Inc. which was established as a holding company for the non-insurance
operations of the Company, principally, New England Securities and New England
Investment Management, Inc. On April 30, 1998, the Company acquired all of the
outstanding stock of NL Holding Corporation and its wholly owned subsidiaries,
Nathan and Lewis Securities, Inc., and Nathan and Lewis Associates, Inc.
Subsequent to the acquisition, NL Holding Corporation was transferred to New
England Life Holdings, Inc. The principal business activities of the
subsidiaries are disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and
annuity policies.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses to sell
annuity contracts in 22 states, but is currently not actively engaged in the
sale or distribution of insurance products.
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act
1978 (Bermuda). Newbury provides professional liability and personal injury
coverage to the agents of NELICO through a facultative reinsurance agreement
with Lexington Insurance Company. Effective September 1, 1999, Newbury began
providing errors and omissions coverage to certain of the life insurance
agents of MetLife through a facultative reinsurance agreement with Fireman's
Fund Insurance Company.
New England Securities Corporation (NES), a National Association of Securities
Dealers (NASD) registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including
mutual funds, investment partnerships, and individual securities. In 1994, NES
became a Registered Investment Advisor with the Securities and Exchange
Commission (SEC) and now offers individually managed portfolios. NES is the
national distributor for variable annuity and variable life products issued by
NELICO.
New England Investment Management, Inc. (NEIM), which changed its name from
TNE Advisers, Inc. in March 1999, was incorporated on August 26, 1994, and is
registered as an investment adviser with the SEC, under the Investment
Advisers Act of 1940. NEIM was organized to serve as an investment adviser to
certain series of the New England Zenith Fund.
AA-32
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
NL Holding Corporation and subsidiaries (NL Holding) engages in securities
brokerage, dealer trading in fixed income securities, over the counter stock,
unit investment trusts, and the sale of insurance related products and
annuities, sold through licensed brokers and independent agents. Nathan and
Lewis Securities, Inc., a wholly owned subsidiary of NL Holding, is a National
Association of Securities Dealers (NASD) registered broker/dealer. N&L
Associates, a wholly owned subsidiary of NL Holding, is a general insurance
agent which sells insurance policies and other insurance related products
through its licensed brokers and independent agents.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP). The
Commonwealth of Massachusetts Division of Insurance (the "Division")
recognizes only statutory accounting practices for determining and reporting
the financial condition and results of operations of an insurance company for
determining solvency under the Massachusetts Insurance Law. No consideration
is given by the Division to financial statements prepared in accordance with
GAAP in making such determination.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates include those used in
determining deferred policy acquisition costs, investment allowances and the
liability for future policyholder benefits. Actual results could differ from
those estimates.
Effective July 1, 1997, management realigned its fixed maturity investment
classifications and transferred all securities classified as held to maturity
to available for sale. As a result, consolidated equity at July 1, 1997
increased by $798, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of New
England Life Insurance and its subsidiaries, partnerships and joint ventures
in which NELICO has a controlling interest. All material intercompany accounts
and transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which it does not have a controlling
interest, but more than a minimal interest, under the equity method of
accounting.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1999 presentation.
INVESTMENTS
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of accumulated other comprehensive income, net of policyholder related amounts
and deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Short-term investments are stated at amortized cost, which approximates fair
value.
Other invested assets are reported at their estimated fair value.
AA-33
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using the straight line method over the estimated
useful lives of the assets which generally range from 4 to 15 years or the
term of the lease, if shorter. Amortization of leasehold improvements is
provided using the straight-line method over the lesser of the term of the
leases or the estimated useful life of the improvements.
Accumulated depreciation on property and equipment and amortization of
leasehold improvements was $36,122, and $24,772 at December 31, 1999 and 1998,
respectively. Related depreciation and amortization expense was $11,350,
$13,137 and $10,085 for the years ended December 31, 1999, 1998 and 1997,
respectively.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business that vary with, and are primarily related
to, the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over the expected life of the contract for participating traditional life,
variable life, universal life, investment-type products, and variable
annuities. Generally, deferred policy acquisition costs are amortized in
proportion to the present value of estimated gross margins or profits from
investments, mortality, expense margins and surrender charges. Actual gross
profits can vary from management's estimates resulting in increases and
decreases in the rate of amortization. Management periodically updates these
estimates and evaluates the recoverability of deferred policy acquisition
costs. When appropriate, management revises its assumptions of the estimated
gross margins or profits of these contracts, and the cumulative amortization
is reestimated and adjusted by a cumulative charge or credit to current
operations.
Deferred policy acquisition costs for nonmedical health policies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Information regarding deferred policy acquisition costs is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1........................... $710,961 $565,769 $434,636
Capitalized during the year.................... 216,913 182,943 157,670
-------- -------- --------
Total........................................ 927,874 748,712 592,306
Amortization allocated to:
Net realized investment gains................. (616) (5,282) 0
Unrealized investment gains (losses).......... 33,276 (595) (9,446)
Other Expenses................................ (29,831) (31,874) (17,091)
-------- -------- --------
Total amortization........................... 2,829 (37,751) (26,537)
Balance at December 31......................... $930,703 $710,961 $565,769
======== ======== ========
</TABLE>
AA-34
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amortization of deferred policy acquisition costs is allocated to (1) realized
investment gains and losses to provide consolidated statement of income
information regarding the impact of such gains and losses on the amount of the
amortization, (2) unrealized investment gains and losses to provide
information regarding the amount of deferred policy acquisition costs that
would have been amortized if such gains and losses had been realized and (3)
other expenses to provide amounts related to the gross margins or profits
originating from transactions other than investment gains and losses.
Realized investment gains and losses related to certain products have a direct
impact on the amortization of deferred policy acquisition costs. Presenting
realized investment gains and losses net of related amortization of deferred
policy acquisition costs provides information useful in evaluating the
operating performance of the Company. This presentation may not be comparable
to presentations made by other insurers.
ACQUISITIONS
The Company acquired certain assets and assumed certain liabilities of NL
Holding Corporation effective April 30, 1998. The acquisition was accounted
for under the purchase method of accounting and is included in the financial
statements as of the effective date of the transaction. The cost of the
acquisition was $35,082, which represents an initial cash settlement and
payment of direct acquisition costs of $27,873, as well as, accrued contingent
payment arrangements of $7,209 anticipated to be paid to the sellers over a
three year period ending December 31, 2000. Goodwill of $23,498 was recorded,
to be amortized on a straight-line basis over a ten year period.
The 1998 and 1997 pro forma, unaudited financial data shown as follows
presents the effect of the acquisition as if it had occurred at the beginning
of the respective reporting periods. The pro forma financial data does not
necessarily reflect the results of operations that would have been obtained
had the acquisition occurred on the assumed date, nor is the financial data
necessarily indicative of the results of the combined entities that may be
achieved for any future period.
Pro forma Impact of Acquisition
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue............................................ $ 557,229 $ 381,691
============ ============
Net Income......................................... $ 10,311 $ 25,049
============ ============
</TABLE>
OTHER INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired, which
represents goodwill, and the value of business acquired are included in other
assets. Goodwill is amortized on a straight-line basis over 10 years. The
Company reviews goodwill to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results
if a permanent diminution in value is deemed to have occurred.
Excess of Purchase Price Over Fair Value of Net Assets Acquired
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net Balance, January 1.......................... $ 21,931 $ 0 $ 0
Acquisitions................................... 0 23,498 0
Amortization................................... (2,350) (1,567) 0
--------- --------- -----
Net Balance, December 31........................ $ 19,581 $ 21,931 $ 0
========= ========= =====
December 31
Accumulated Amortization....................... $ (3,917) $ (1,567) $ 0
========= ========= =====
</TABLE>
AA-35
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of (a) net level premium reserves for
death and endowment policy benefits (calculated based upon the nonforfeiture
interest rate, ranging from 4% to 4.5%, and mortality rates guaranteed in
calculating the cash surrender values described in such contracts), (b) the
liability for terminal dividends and (c) premium deficiency reserves, which
are established when the liabilities for future policy benefits plus the
present value of expected future gross premiums are insufficient to provide
for expected future policy benefits and expenses after deferred policy
acquisition costs are written off.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 5.5% to 6%.
Future policy benefit liabilities for non-medical health insurance are
calculated using the net level premium method and assumptions as to future
morbidity, withdrawals and interest, which provide a margin for adverse
deviation. Future policy benefit liabilities for disabled lives are estimated
using the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest. The interest rates used in
establishing such liabilities range from 3% to 6.5%.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values, which
consist of an accumulation of gross premium payments plus credited interest
ranging from 3.8% to 7.25%, less expense and mortality charges and
withdrawals.
The liability for unpaid claims represents the amount estimated for claims
that have been reported but not settled and claims incurred but not reported.
Liabilities for unpaid claims are estimated based upon the Company's
historical experience and other actuarial assumptions that consider the
effects of current developments, anticipated trends and risk management
programs. Revisions of these estimates are included in operations in the year
such refinements are made.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated life of
the policies.
Premiums related to non-medical health contracts are recognized as income when
due.
Premiums related to variable life and universal life contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality recognized
ratably over the policy period, policy administration charges recognized as
services are provided and surrender charges recognized as earned. Amounts that
are charged to operations include interest credited to policyholders and
benefit claims incurred in excess of related policyholder account balances.
Premiums related to investment-type contracts are credited to policyholder
account balances. Revenues from such contracts consist of amounts assessed
against policyholder account balances for contract administration charges
recognized ratably over the policy period. Amounts that are charged to
operations include interest credited to policyholders.
DIVIDENDS TO POLICYHOLDERS
Dividends to policyholders are determined annually by the board of directors.
The aggregate amount of policyholders' dividends is related to actual
interest, mortality, morbidity and expense experience for the year, as well as
management's judgment as to the appropriate level of statutory surplus to be
retained by the Company.
AA-36
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
PARTICIPATING BUSINESS
Participating business represented approximately 3.49% and 3.52% of the
Company's life insurance in force, and 8.30% and 7.96% of the number of life
insurance policies in force at December 31, 1999 and 1998, respectively.
Participating policies represented approximately 56.77%, 95.78% and 68.24% of
gross life insurance premiums, for the years ended December 31, 1999, 1998 and
1997, respectively.
INCOME TAXES
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., file a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and non-life
insurance direct subsidiaries. Income tax expense has been calculated in
accordance with the provisions of the Internal Revenue Code, as amended. The
Company uses the liability method of accounting for income taxes. Income tax
provisions are based on income reported for financial statement purposes. The
future tax consequences of temporary differences between financial reporting
and tax basis of assets and liabilities are measured as of the balance sheet
dates and are recorded as deferred income tax assets or liabilities.
REINSURANCE
The Company has reinsured certain of its life insurance contracts with other
insurance companies under various agreements. Amounts due from reinsurers are
estimated based upon assumptions consistent with those used in establishing
the liabilities related to the underlying reinsured contracts. Policy and
contract liabilities are reported gross of reinsurance credits.
SEPARATE ACCOUNTS
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general
account claims only to the extent the value of such assets exceed the Separate
Account liabilities. Investments held in the Separate Accounts (stated at
estimated fair market value) and liabilities of the Separate Accounts
(including participants' corresponding equity in the Separate Accounts) are
reported separately as assets and liabilities. Deposits to Separate Accounts,
investment income, and realized and unrealized gains and losses on the
investments of the Separate Account accrue directly to contractholders and,
accordingly, are not reflected in the Company's financial statements.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues. See Note 14.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position ("SOP")
98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5
broadly defines start-up activities. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. Adoption of SOP
98-5 did not have a material effect on the Company's consolidated financial
statements.
Effective January 1, 1999, the Company adopted SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-
1"). SOP 98-1 provides guidance for determining when an entity should
capitalize or expense external and internal costs of computer software
developed or obtained for internal use. The adoption of SOP 98-1 resulted in
the capitalization of $6 million of software costs which would have otherwise
been expensed in 1999.
Effective January 1, 1999, the Company adopted SOP 97-3, Accounting for
Insurance and Other Enterprises for Insurance Related Assessments ("SOP 97-
3"). SOP 97-3 provides guidance on accounting by insurance and other
enterprises for assessments related to insurance activities including
recognition, measurement and disclosure of guaranty fund and other insurance
related assessments. Adoption of SOP 97-3 did not have a material effect on
the Company's consolidated financial statements.
AA-37
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133 ("SFAS 137"). SFAS 137 defers the provisions of SFAS 133 until January 1,
2001. The provisions of SFAS 133 require, among other things, that all
derivatives be recognized in the consolidated balance sheets as either assets
or liabilities and measured at fair value. The corresponding derivative gains
and losses should be reported based upon the hedge relationship, if such a
relationship exists. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in SFAS
133 are required to be reported in income. The Company is in the process of
quantifying the impact of SFAS 133 on its consolidated financial statements.
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance
and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7").
SOP 98-7 provides guidance on the method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, defined in the SOP
as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts
for which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial statements.
2. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The components of net investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities.............................. $ 54,490 $ 53,467 $ 50,348
Equity securities............................. 13,896 (9,118) 4,915
Real estate................................... 831 4,149 815
Policy loans.................................. 9,157 6,855 5,081
Cash, cash equivalents and short-term
investments.................................. 3,494 861 4,160
Other investment income....................... (7,529) 76 591
-------- -------- --------
Gross investment income....................... 74,339 56,290 65,910
Investment expenses........................... (5,841) (7,213) (4,851)
-------- -------- --------
Net Investment income......................... $ 68,498 $ 49,077 $ 61,059
======== ======== ========
</TABLE>
Realized investment gains (losses), net, including changes in valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---------------- --------
<S> <C> <C> <C>
Fixed maturities................................. $ 850 $ 10,899 $ (774)
Equity securities................................ 0 0 1,040
Other invested assets............................ 2,688 (7) (8)
------- -------- -------
Subtotal....................................... 3,538 10,892 258
Less: Amounts allocable to amortization of
deferred policy acquisition costs............... 616 5,282 (632)
------- -------- -------
Investment gains (losses), net................... $ 2,922 $ 5,610 $ 890
======= ======== =======
</TABLE>
AA-38
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Realized investment gains have been reduced by (1) deferred policy acquisition
amortization to the extent that such amortization results from realized
investment gains and losses, (2) additions to future policy benefits resulting
from the need to establish additional liabilities due to the recognition of
investment gains, and (3) additions to participating contractholder accounts
when amounts equal to such investment gains and losses are credited to the
contractholders' accounts. This presentation may not be comparable to
presentations made by other insurers.
The changes in unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................... $ 17,439 $17,347 $ 3,727
Change in unrealized investment gains
(losses)..................................... (73,813) 391 30,207
Change in unrealized investment gains (losses)
attributable to:
Deferred policy acquisition costs............ 33,276 (595) (9,446)
Deferred income tax (expense) benefit........ 12,100 296 (7,141)
-------- ------- -------
Balance at December 31......................... $(10,998) $17,439 $17,347
======== ======= =======
</TABLE>
The components of unrealized investment gains (losses), net, included in
accumulated other comprehensive income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities........................... $(35,205) $ 40,928 $ 41,706
Equity securities.......................... 3,511 1,191 0
Other...................................... 0 0 22
-------- -------- --------
(31,694) 42,119 41,728
Amounts of unrealized investment gains
(losses)
Attributable to:
Deferred policy acquisition costs.......... 17,478 (15,798) (15,202)
Deferred income tax (expense) benefit...... 3,218 (8,882) (9,179)
-------- -------- --------
Balance, end of year......................... $(10,998) $ 17,439 $ 17,347
======== ======== ========
</TABLE>
AA-39
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed maturities and equity securities, by category, are shown below.
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---------------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. Government
corporations and agencies.............. $ 33,909 $ 20 $ 439 $ 33,490
Foreign governments..................... 20,748 201 581 20,368
Corporate............................... 670,602 5,074 40,237 635,439
Mortgage-backed securities.............. 44,470 934 203 45,201
Other................................... 1,199 0 0 1,199
-------- ------- -------- --------
Total Fixed Maturities................. $770,928 $ 6,229 $ 41,460 $735,697
======== ======= ======== ========
Equity Securities:
Common stocks........................... 19,174 4,191 680 22,685
-------- ------- -------- --------
Total Equity Securities................ $ 19,174 $ 4,191 $ 680 $ 22,685
======== ======= ======== ========
</TABLE>
AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -----------------ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- ------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies.............. $ 27,260 $ 91 $ 47 $ 27,304
Foreign governments..................... 1,679 0 0 1,679
Corporate............................... 644,636 43,036 5,139 682,533
Mortgage-backed securities.............. 55,027 2,821 0 57,848
-------- -------- ------- --------
Total Fixed Maturities................. $728,602 $ 45,948 $ 5,186 $769,364
======== ======== ======= ========
Equity Securities:
Common stocks........................... 12,075 1,645 480 13,240
-------- -------- ------- --------
Total Equity Securities................ $ 12,075 $ 1,645 $ 480 $ 13,240
======== ======== ======= ========
</TABLE>
AA-40
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
The amortized cost and estimated fair value of fixed maturities classified as
available for sale, by contractual maturity, at December 31, 1999 are shown
below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 15,910 $ 15,857
Due after one year through five years................... 92,303 90,635
Due after five years through ten years.................. 131,438 130,492
Due after ten years..................................... 486,807 453,512
-------- --------
Subtotal.............................................. 726,458 690,496
Mortgage-backed securities.............................. 44,470 45,201
-------- --------
Total................................................. $770,928 $735,697
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above tables in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Sales of fixed maturities and equity securities are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Fixed Maturities
Proceeds.......................................... $64,925 $120,416 $110,301
Gross realized gains.............................. $ 1,897 $ 10,901 $ 1,036
Gross realized losses............................. $ 1,047 $ 2 $ 1,810
Equity Securities
Proceeds.......................................... $ 2,491 $ 39,333 $ 32,806
Gross realized gains.............................. $ 0 $ 0 $ 1,344
Gross realized losses............................. $ 0 $ 0 $ 304
</TABLE>
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
ASSETS HELD IN TRUST FOR THE BENEFIT OF OTHER PARTIES
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment
of policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits
the types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of
U.S. companies having a National Association of Insurance Commissioners (NAIC)
rating of 1. The bonds and short-term investments at fair market value held by
the trust were $518,436 and $526,723, at December 31, 1999 and 1998,
respectively.
STATUTORY DEPOSITS
The Company had assets on deposit with regulatory agencies of $6,245 and
$6,245 at December 31, 1999 and 1998, respectively.
AA-41
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The Company assumes and cedes reinsurance with other insurance companies. The
company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The consolidated statements of
income are presented net of reinsurance ceded.
Effective July 1, 1999, the Company reinsured the general account liability
for certain group pension variable contracts assumed from Sun Life Assurance
Company of Canada (U.S.). The initial liability assumed included in
Policyholder Account Balances was $53,675 at July 1, 1999, and was $44,431 at
December 31, 1999.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $163,159 $110,768 $ 30,975
Reinsurance assumed............................ 57,479 58,329 62,315
Reinsurance ceded.............................. (97,000) (68,408) (29,674)
-------- -------- --------
Net premiums earned............................ $123,638 $100,689 $ 63,616
======== ======== ========
</TABLE>
Reinsurance recoverables, included in other receivables, were $83,091 and
$103,677 at December 31, 1999 and 1998, respectively.
Reinsurance and ceded commissions payables, included in other liabilities,
were $23,400 and $21,152 at December 31, 1999 and 1998, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to group accident and nonmedical health policies and
contracts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1............................. $ 1,953 $ 809 $ 0
Less: Reinsurance recoverables.................. 1,565 647 0
-------- -------- ------
Net balance at January 1......................... 388 162 0
-------- -------- ------
Incurred related to:
Current year.................................... 472 303 173
Prior years..................................... (33) (57) (11)
-------- -------- ------
439 246 162
-------- -------- ------
Paid related to:
Current year.................................... 23 2 0
Prior years..................................... 19 18 0
-------- -------- ------
42 20 0
-------- -------- ------
Balance at December 31........................... 785 388 162
Add: Reinsurance recoverables................... 3,147 1,565 647
-------- -------- ------
Balance at December 31........................... $ 3,932 $ 1,953 $ 809
======== ======== ======
</TABLE>
AA-42
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
5. INCOME TAXES
The provision for income tax expense (benefit) in the consolidated statements
of income is shown below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
1999
Federal............................................. $20,910 $ 8,134 $29,044
State and Local..................................... 0 300 300
------- ------- -------
Total............................................. $20,910 $ 8,434 $29,344
======= ======= =======
1998
Federal............................................. $13,734 $ (788) $12,946
State and Local..................................... 0 100 100
------- ------- -------
Total............................................. $13,734 $ (688) $13,046
======= ======= =======
1997
Federal............................................. $ 8,473 $(3,772) $ 4,701
State and Local..................................... 316 (29) 287
------- ------- -------
Total............................................. $ 8,789 $(3,801) $ 4,988
======= ======= =======
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $75,068 $24,483 $26,957
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 26,274 8,569 9,435
Tax effect of:
Tax exempt investment income.................... 0 (100) 0
State and local income taxes.................... 300 100 (1,013)
Tax credits..................................... 0 (100) 0
Prior year taxes................................ 684 0 0
Other, net...................................... 2,086 4,577 (3,434)
------- ------- -------
Income Tax Expense............................... $29,344 $13,046 $ 4,988
======= ======= =======
</TABLE>
AA-43
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Deferred income taxes represent the tax effect of the differences between the
book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................. $ 233,504 $ 177,017
Unrealized investment losses, net.................... 3,218 0
Other, net........................................... 15,035 15,453
--------- ---------
Total gross assets.................................. 251,757 192,470
--------- ---------
Deferred tax liabilities:
Investments.......................................... (216) (1,068)
Deferred policy acquisition costs.................... (267,249) (208,881)
Unrealized investment gains, net..................... 0 (8,882)
Other, net........................................... (22,961) (15,973)
--------- ---------
Total gross liabilities............................. (290,426) (234,804)
--------- ---------
Net deferred tax liability............................ $ (38,669) $ (42,334)
========= =========
</TABLE>
AA-44
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
6. EMPLOYEE BENEFIT PLANS
Prior to the merger, substantially all employees were employed by NEMLICO and
were covered under the Home Office Retirement Plan and related Select
Employees' Supplemental Retirement Plan (collectively referred to as the
Plans). Subsequent to the merger substantially all of the employees became
employees of the Company and continued to be covered by the Plans, which
became the Plans of the Company. Under the Plans retirement benefits are based
primarily on years of service and the employee's average salary. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting purposes.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at
beginning of year..................... $252,487 $210,590 $ 48,987 $ 46,591
Service cost........................... 8,172 6,927 973 942
Interest cost.......................... 18,488 15,878 3,351 3,267
Actuarial gain......................... (15,914) 14,831 (3,214) 1,256
Divestitures........................... 0 0 0 0
Curtailments........................... 0 0 0 0
Terminations........................... 0 0 0 0
Change in benefits..................... 0 11,935 0 (10)
Benefits paid.......................... (8,444) (7,674) (3,475) (3,059)
-------- -------- -------- --------
Projected benefit obligation at end of
year.................................. $254,789 $252,487 $ 46,622 $ 48,987
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Contract value of plan assets at
beginning of year..................... $184,803 $150,820 $ 0 $ 0
Actual return on plan assets........... 25,300 28,309 0 0
Employer contribution.................. 7,620 12,997 0 0
Benefits paid.......................... (7,500) (7,323) 0 0
-------- -------- -------- --------
Contract value of plan assets at end of
year.................................. $210,223 $184,803 $ 0 $ 0
-------- -------- -------- --------
Over/(Under) funded.................... $(44,566) $(67,684) $(46,622) $(48,987)
Unrecognized net asset at transition... (503) (1,674) 0 0
Unrecognized net actuarial gains....... 7,681 34,350 (20,068) (17,787)
Unrecognized prior service cost........ 15,942 16,854 (8) (9)
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $(66,698) $(66,783)
======== ======== ======== ========
Qualified plan prepaid (accrued)
pension cost.......................... $ (2,675) $ (2,164) $ 0 $ 0
Non-qualified plan prepaid (accrued)
pension cost.......................... (18,771) (15,990) 0 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost......... $(21,446) $(18,154) $ 0 $ 0
======== ======== ======== ========
</TABLE>
AA-45
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED
QUALIFIED PLAN PLAN TOTAL
------------------ ------------------ ------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected
benefit obligation..... $224,653 $226,717 $ 30,136 $ 25,770 $254,789 $252,487
Aggregate contract value
of plan assets
(principally Company
contracts)............. 210,223 184,803 0 0 210,223 184,803
-------- -------- -------- -------- -------- --------
Over/(Under) funded..... $(14,430) $(41,914) $(30,136) $(25,770) $(44,566) $(67,684)
======== ======== ======== ======== ======== ========
</TABLE>
The assumptions used in determining the aggregate projected benefit obligation
and aggregate contract value for the pension and other benefits were as
follows:
<TABLE>
<CAPTION>
PENSION OTHER
BENEFITS BENEFITS
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31,
Discount rate........................................ 7.00% 7.25% 7.75% 7.00%
Expected return on plan assets....................... 8.50% 8.50% -- --
Rate of compensation increase........................ 5.50% 4.50% -- --
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 7.00% in 1999,
gradually decreasing to 5.00% over five years and generally 7.40% in 1998,
gradually decreasing to 5.00% over five years.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE % ONE %
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components... 13% (10%)
Effect on accumulated postretirement benefit obligation... 11% (10%)
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- ---------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 8,172 $ 6,927 $ 5,310 $ 973 $ 942 $ 885
Interest cost........... 18,488 15,878 13,958 3,351 3,267 3,707
Expected return on plan
assets................. (15,698) (12,866) (22,250) 0 0 0
Net amortization and
deferrals.............. 1,322 669 11,092 (934) 167 (871)
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost................... $ 12,284 $ 10,608 $ 8,110 $3,390 $4,376 $3,721
======== ======== ======== ====== ====== ======
</TABLE>
SAVINGS AND INVESTMENT PLANS
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $2,187, $2,252 and $1,588 for the years ended
December 31, 1999, 1998 and 1997, respectively.
AA-46
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenue. Additionally, the Company, as lessee, has entered into
various lease and sublease agreements for office space, data processing and
other equipment. Future minimum rental and sub-rental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
GROSS
RENTAL SUB-RENTAL RENTAL
INCOME INCOME EXPENSE
------ ---------- --------
<S> <C> <C> <C>
2000.............................................. $31 $ 7,845 $ 14,738
2001.............................................. 0 7,854 14,042
2002.............................................. 0 7,864 13,413
2003.............................................. 0 8,026 13,822
2004.............................................. 0 8,206 12,836
Thereafter........................................ 0 26,319 117,722
--- ------- --------
Total........................................... $31 $66,114 $186,573
=== ======= ========
</TABLE>
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest, payable
monthly, at a variable rate equal to the greater of the bank's base rate or
money market rates plus 0.6% per annum. The loan was collateralized by sales
loads and surrender charges collected on a defined block of variable life
insurance policies issued by the Company. Repayment was structured in a manner
to result in repayment over a term of five years or less. The Company repaid
the entire outstanding balance of the loan in January 1999. Repayments of
principal and interest of $13,310, $8,612 and $3,155 were made during 1999,
1998 and 1997, respectively. The interest rate applied was 6.4%, 6.4% and 5.8%
at January 31, 1999 and December 31, 1998 and 1997, respectively.
Exeter privately placed $75,118 aggregate principal amount, subordinated notes
payable (the Notes), on December 30, 1994 which are due December 30, 2004,
with no interest payments for the first five years and semiannual interest
payments thereafter. The Notes have been discounted to yield 8.45% for the
first five years and pay interest at 8.845% thereafter. The Notes are
expressly subordinated in right of payment to the insurance liabilities of
Exeter. The Notes are not subject to redemption by Exeter or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes, net of discount, amounted to $50,000. The issue costs of the Notes of
$130 were deducted from Notes, net of discount, to arrive at the subordinated
notes payable of $49,870. The issue cost will be amortized over the life of
the Notes. The Notes are held by MetLife, and the carrying value of the loan
approximates its fair value of $75,053. No repayments were made during 1999,
1998 and 1997, respectively.
9. COMMITMENTS AND CONTINGENCIES
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company's insurance subsidiaries
pursuant to these laws may be used as credits for a portion of the Company's
premium taxes. The Company paid guaranty fund assessments of approximately,
$197, $204, and $43 in 1999, 1998, and 1997, respectively, of which $197,
$203, and $33 were to be credited against premium taxes.
AA-47
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Various litigation, claims and assessments against the Company, in addition to
those otherwise provided for in the Company's consolidated financial
statements, have arisen in the course of the Company's business, including,
but not limited to, in connection with its activities as an insurer, employer,
investor, investment advisor and taxpayer. Further, state insurance regulatory
authorities and other Federal and state authorities regularly make inquiries
and conduct investigations concerning the Company's compliance with applicable
insurance and other laws and regulations.
In some of the matters referred to above, large and/or indeterminate amounts,
including punitive damages and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of the Company's management that their outcomes,
after consideration of available insurance and reinsurance and the provisions
made in the Company's consolidated financial statements, are not likely to
have a material adverse effect on the Company's consolidated financial
position. However, given the large and/or indeterminate amounts sought in
certain of these matters and the inherent unpredictability of litigation, it
is possible that an adverse outcome in certain matters could, from time to
time, have a material adverse effect on the Company's operating results or
cash flows in particular annual periods.
10. OTHER EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Compensation................................... $ 96,887 $ 86,822 $ 58,754
Commissions.................................... 205,463 166,218 77,351
Interest and debt expense...................... 5,493 9,374 6,750
Amortization of policy acquisition costs....... 29,831 31,874 17,091
Capitalization of policy acquisition costs..... (216,913) (182,943) (157,670)
Rent expense, net of sub-lease income.......... 5,550 4,252 4,473
Insurance taxes, licenses, and fees............ 21,253 21,802 15,002
Other.......................................... 234,317 179,260 122,591
--------- --------- ---------
Total........................................ $ 381,881 $ 316,659 $ 144,342
========= ========= =========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments have been determined
by using available market information and the valuation methodologies
described below. Considerable judgment is often required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein may not necessarily be indicative of amounts that could be
realized in a current market exchange. The use of different assumptions or
valuation methodologies may have a material effect on the estimated fair value
amounts.
AA-48
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Amounts related to the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS
Fixed maturities......................................... $735,697 $735,697
Equity securities........................................ 22,685 22,685
Policy loans............................................. 181,995 181,995
Short-term investments................................... 62,619 62,619
Cash and cash equivalents................................ 84,371 84,371
LIABILITIES
Policyholder account balances............................ 84,037 82,765
Other policyholder funds................................. 525 525
Short and long-term debt................................. 75,053 75,053
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
<S> <C> <C>
DECEMBER 31, 1998:
ASSETS
Fixed maturities......................................... $769,364 $769,364
Equity securities........................................ 13,240 13,240
Policy loans............................................. 135,800 135,800
Short-term investments................................... 52,285 52,285
Cash and cash equivalents................................ 43,598 43,598
LIABILITIES
Policyholder account balances............................ 23,365 22,524
Other policyholder funds................................. 646 646
Short and long-term debt................................. 82,855 82,855
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
FIXED MATURITIES AND EQUITY SECURITIES
The fair value of fixed maturities and equity securities that are publicly
traded are based upon quotations obtained from an independent market pricing
service or published by applicable stock exchanges. For securities for which
the market values were not readily available, fair values were estimated by
management, based primarily on interest rates, maturity, credit quality and
average life.
POLICY LOANS
Policy loans are stated at unpaid principal balances, which approximates fair
value.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
AA-49
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
POLICYHOLDER ACCOUNT BALANCES
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based on interest rates currently being offered
for similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt are stated at unpaid principal balances, which
approximates fair value.
12. STATUTORY FINANCIAL INFORMATION
The reconciliation of statutory surplus and statutory net income, determined
in accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with such amounts determined in conformity with
generally accepted accounting principles were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus.......................... $ 399,864 $ 456,525 $ 307,290
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (435,980) (336,821) (279,510)
Deferred policy acquisition costs........ 930,703 710,961 565,769
Deferred federal income taxes............ (38,669) (42,334) (42,066)
Valuation of investments................. (46,890) 53,514 56,873
Statutory asset valuation reserves....... 13,514 10,636 8,388
Statutory interest maintenance reserve... 462 816 571
Surplus notes............................ (75,053) (69,560) (64,016)
Receivables from reinsurance
transactions............................ 5,049 26,004 27,519
Other, net............................... 100,303 35,330 52,724
--------- --------- ---------
GAAP equity................................ $ 853,303 $ 845,071 $ 633,542
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................ $ (40,928) $ (28,043) $ (37,358)
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................ (295,868) (196,754) (311,588)
Deferred policy acquisition costs........ 186,497 135,788 139,947
Deferred federal income taxes............ (580) 688 3,801
Valuation of investments................. 13,681 (13,490) 0
Statutory interest maintenance reserve... (354) 245 342
Other, net............................... 183,276 113,003 226,825
--------- --------- ---------
GAAP net income............................ $ 45,724 $ 11,437 $ 21,969
========= ========= =========
</TABLE>
AA-50
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
13. RELATED PARTY TRANSACTIONS
MetLife and the Company have entered into an Administrative Services Agreement
to provide all administrative, accounting, legal and similar services to
MetLife for certain administered contracts, which are life insurance and
annuity contracts issued by NEMLICO prior to the merger, and those policies
and contracts defined in the Administrative Services Agreement as Transition
Policies which were sold by the Company's field force post-merger.
The Company charged MetLife $160,792, $193,641 and $186,757 including accruals
for administrative services on NEMLICO administered contracts for 1999, 1998,
and 1997, respectively. In addition, $9,442, $14,123 and $600 for 1999, 1998
and 1997, respectively, was paid or payable by MetLife to the Company for
varied and miscellaneous other services. These services were charged based
upon direct costs incurred. Service fees are recorded by NELICO as a reduction
in operating expenses.
On December 30, 1998 the Company sold to MetLife Credit Corporation shares of
preferred stock for $200,000. In 1997, MetLife made a capital contribution to
the Company of $50,000 in cash.
During 1999, the Company paid $9,055 of preferred stock dividends to MetLife
Credit Corporation.
On April 30, 1998 the Company acquired all the outstanding stock of N.L.
Holding Corporation and its subsidiaries, and concurrently contributed such
stock to the Company's downstream holding company, New England Life Holding
Inc. In conjunction with the acquisition, the Company entered into employment
agreements with key individuals of N.L. Holding Corporation. The Company paid
$2,730 and $6,166 in 1999 and 1998, respectively under these agreements.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building that it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $4,219, $2,340
and $2,340 in 1999, 1998 and 1997, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1999 were $12,736
and $751, respectively. Included in accrued income at December 31, 1999, were
amounts receivable for sales-based commissions from NEF and SSR totaling $312
and $4, respectively. In 1999, NES earned asset-based income of $11,184 and
$183 on average assets of approximately $4,500,000 and $101,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1999 were amounts receivable for asset-based commissions from NEF
and SSR totaling $307 and $0, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1998 were $15,204
and $1,159, respectively. Included in accrued income at December 31, 1998,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$385 and $14, respectively. In 1998, NES earned asset-based income of $9,193
and $139 on average assets of approximately $4,300,000 and $77,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1998 were amounts receivable for asset-based commissions from NEF
and SSR totaling $593 and $13, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1997 were $16,799
and $1,127, respectively. Included in accrued income at December 31, 1997,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$233 and $13, respectively. In 1997, NES earned asset-based income of $8,777
and $61 on average assets of approximately $3,900,000 and $33,000 under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$75,053 and $69,560 at December 31, 1999 and 1998, respectively.
AA-51
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions
made within the preceding 12 months, exceeds the greater of (1) 10% of
NELICO's statutory surplus as regards policyholders as of the previous
December 31, or (2) NELICO's statutory net gain from operations for the 12
month period ending the previous December 31.
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's
stockholder shall not exceed the larger of (1) 10% of such statutory profits,
or (2) fifty cents per year per thousand dollars of participating life
insurance other than group term insurance in force at the end of the year.
14. SEPARATE ACCOUNTS
Separate accounts reflect non-guaranteed separate accounts totaling $4,840,029
and $3,258,383 at December 31, 1999 and 1998, respectively, wherein the
policyholder assumes the investment risk.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees totaling $36,934, $30,714 and $12,642 in 1999, 1998 and 1997,
respectively.
15. YEAR 2000
The Year 2000 issue was the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant costs associated with additional mainframe capacity necessary to
accommodate a four-digit field. As a result, any of the Company's computer
systems that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major system
failures or miscalculations. The Company has conducted a comprehensive review
of its computer systems to identify the systems that could be affected by the
Year 2000 issue and has implemented a plan to resolve the issue. There can be
no assurances that the Year 2000 plan of the Company or that of its vendors or
third parties have resolved all Year 2000 issues. Further, there can be no
assurance that there will not be any future system failure or that such
failure, if any, will not have a material impact on the operations of the
Company.
16. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers primarily
in the United States. The Company's core businesses are divided into five
segments: Individual Life, Individual Annuity, Group Pension, Group Accident
and Health, and Corporate. These segments are managed separately because they
either provide different products and services, require different strategies,
or have different technology requirements.
Individual Life sells primarily variable life as well as traditional life
policies. Individual Annuity sells a variety of fixed annuity and variable
annuity contracts. Group Pension sells a variety of group annuity and pension
contracts to corporations and other institutions. Group Accident and Health
provides group life, medical, and disability contracts to corporations and
small businesses. Through its Corporate segment, the Company reports the
operating results of subsidiaries as well as items that are not allocated to
any of the business segments.
Set forth in the following tables is certain financial information with
respect to the Company's operating segments for the years ended December 31,
1999, 1998 and 1997. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates the performance of each operating segment based on profit or loss
from operations after income taxes. The Company does not allocate non-
recurring items to the segments.
AA-52
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
Allocation of net investment income and investment gains (losses), net were
based on the amount of assets allocated to each segment. Other costs and
operating costs were allocated to each of the segments based on: (i) a review
of the nature of such costs, (ii) time studies analyzing the amount of
employee compensation costs incurred by each segment, and (iii) cost estimates
included in the Company's product pricing.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------------
GROUP CORPORATE
INDIVIDUAL INDIVIDUAL GROUP LIFE, AND
LIFE ANNUITY PENSION A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 63,358 $ 0 $ 15 $ 28,652 $ 31,613 $ 123,638
Universal Life and
Investment-Type Product
Policy Fees............ 199,701 16,771 4,369 0 0 220,841
Net Investment Income... (31,181) (108) (13) 167 99,633 68,498
Investment Gains
(Losses), Net.......... 402 1 0 (1) 2,520 2,922
Commissions, Fees and
Other Revenues......... 25,376 6,708 3,005 34,610 196,192 265,891
---------- ---------- -------- -------- -------- ----------
Total Revenues........ 257,656 23,372 7,376 63,428 329,958 681,790
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 124,727 4,624 113 23,814 40,015 193,293
Interest Credited to
Policyholder Account
Balances............... 8,811 1,623 1,220 30 (963) 10,721
Policyholder Dividends.. 1,739 0 0 (32) 19,120 20,827
Other Operating Costs
and Expenses........... 128,466 21,826 6,196 36,326 189,067 381,881
---------- ---------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 263,743 28,073 7,529 60,138 247,239 606,722
Income from Operations
Before Income Taxes.... (6,087) (4,701) (153) 3,290 82,719 75,068
Income Taxes............ 1,357 (1,563) (26) 1,244 28,332 29,344
---------- ---------- -------- -------- -------- ----------
Net Income.............. $ (7,444) $ (3,138) $ (127) $ 2,046 $ 54,387 $ 45,724
========== ========== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 771,879 $ 63,123 $ 10,499 $ 8,539 $ 76,663 $ 930,703
Separate Account Assets. 2,704,767 1,398,993 517,920 218,349 0 4,840,029
Liabilities
Policyholder
Liabilities............ 535,662 43,674 45,407 43,936 517,949 1,186,628
Separate Account
Liabilities............ 2,704,767 1,398,993 517,920 218,349 0 4,840,029
</TABLE>
AA-53
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------------------
CORPORATE
INDIVIDUAL INDIVIDUAL GROUP GROUP AND
LIFE ANNUITY PENSION LIFE A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 48,733 $ 31 $ 417 $ 21,394 $ 30,114 $ 100,689
Universal Life and
Investment-Type Product
Policy Fees............ 161,936 9,332 2,788 (290) 0 173,766
Net Investment Income... (22,496) (1,752) (405) 651 73,079 49,077
Investment Gains
(Losses), Net.......... (182) (7) (4) 17 5,786 5,610
Commissions, Fees and
Other Revenues......... 9,408 6,042 1,118 20,430 155,413 192,411
---------- -------- -------- -------- -------- ----------
Total Revenues........ 197,399 13,646 3,914 42,202 264,392 521,553
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 84,709 3,943 874 13,561 46,600 149,687
Interest Credited to
Policyholder Account
Balances............... 6,337 1,264 83 0 51 7,735
Policyholder Dividends.. 1,135 4 0 3 21,847 22,989
Other Operating Costs
and Expenses........... 103,284 14,324 3,617 15,731 179,703 316,659
---------- -------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 195,465 19,535 4,574 29,295 248,201 497,070
Income from Operations
Before Income Taxes.... 1,934 (5,889) (660) 12,907 16,191 24,483
Income Taxes............ 9,968 (402) (423) 3,986 (83) 13,046
---------- -------- -------- -------- -------- ----------
Net Income.............. $ (8,034) $ (5,487) $ (237) $ 8,921 $ 16,274 $ 11,437
========== ======== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 616,959 $ 42,524 $ 2,359 $ 2,511 $ 46,608 $ 710,961
Separate Account Assets. 2,073,552 835,648 235,467 113,716 0 3,258,383
Liabilities
Policyholder
Liabilities............ 380,586 38,912 768 19,233 519,353 958,852
Separate Account
Liabilities............ 2,073,552 835,648 235,467 113,716 0 3,258,383
</TABLE>
AA-54
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE STATED.)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------
CORPORATE
INDIVIDUAL INDIVIDUAL GROUP GROUP AND
LIFE ANNUITY PENSION LIFE A&H SUBSIDIARIES TOTAL
---------- ---------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 27,200 $ 31 $ 0 $ 3,743 $ 32,642 $ 63,616
Universal Life and
Investment-Type Product
Policy Fees............ 139,235 4,732 486 704 0 145,157
Net Investment Income... 31,905 (270) (20) (118) 29,562 61,059
Investment Gains
(Losses), Net.......... 523 0 0 0 367 890
Commissions, Fees and
Other Revenues......... 9,542 3,253 266 4,383 10,858 28,302
---------- -------- -------- ------- -------- ----------
Total Revenues........ 208,405 7,746 732 8,712 73,429 299,024
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 71,010 3,431 0 3,827 21,912 100,180
Interest Credited to
Policyholder Account
Balances............... 5,371 664 149 0 36 6,220
Policyholder Dividends.. 507 1 0 0 20,817 21,325
Other Operating Costs
and Expenses........... 98,664 10,777 2,092 6,745 26,064 144,342
---------- -------- -------- ------- -------- ----------
Total Benefits and
Other Deductions..... 175,552 14,873 2,241 10,572 68,829 272,067
Income from Operations
Before Income Taxes.... 32,853 (7,127) (1,509) (1,860) 4,600 26,957
Income Taxes............ 2,701 (1,203) (504) (447) 4,441 4,988
---------- -------- -------- ------- -------- ----------
Net Income.............. $ 30,152 $ (5,924) $ (1,005) $(1,413) $ 159 $ 21,969
========== ======== ======== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... $ 498,208 $ 24,226 $ 1,347 $ 877 $ 41,111 $ 565,769
Separate Account Assets. 1,426,347 450,441 111,437 0 0 1,988,225
Liabilities
Policyholder
Liabilities............ 258,880 20,476 197 6,398 463,269 749,220
Separate Account
Liabilities............ 1,426,347 450,441 111,437 0 0 1,988,225
</TABLE>
Revenues derived from any single customer do not exceed 10% of the total
consolidated revenues for the years presented. Revenues were predominantly
generated from United States activity. Activity from other geographic
locations did not exceed 10% for any geographic location.
AA-55
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of NELICO
pursuant to the foregoing provisions, or otherwise, NELICO has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
may be against public policy as expressed in the Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(vsl)
II - 1
<PAGE>
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and charges
deducted under the flexible premium adjustable variable survivorship life
insurance policies described in this registration statement, in the aggregate,
are reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2.
The prospectus consisting of 211 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
Representations.
The signatures.
Written consents of the following persons:
H. James Wilson, Esq. (see Exhibit 3(i) below)
James J. Reilly, Jr., F.S.A., M.A.A.A.
(see Exhibit 3(ii) below)
Sutherland, Asbill & Brennan LLP
(see Exhibit 6 below)
Independent Auditor (see Exhibit 11 below)
The following exhibits:
1.A. (1) January 31, 1983 resolution of the Board of
Directors of NEVLICO *
(2) None
(3) (a) Distribution Agreement between NEVLICO and NELESCO **
(b) (i) Form of Contract between NELICO and its
General Agents *
II - 2
<PAGE>
(ii) Form of contract between NELICO and its
Agents **
(c) Commission Schedule for Policies ***
(d) Form of contract among NES, NELICO and other
broker dealers ####
(4) None
(5) (a) Specimen of Policy, including
Applications *
(b) Riders to Policy *
(c) Split- Option Rider ***
(d) Extended Maturity Rider ***
(e) Additional Application @
(6) (a) Amended and restated Articles of
Organization of NELICO ###
(b) Amended and restated By-Laws of NELICO ####
(c) Amendments to the Amended and restated Articles of
Organization +++
(7) None
(8) None
(9) None
2. See Exhibit 3(i)
3. (i) Opinion and Consent of H. James Wilson,
Esquire *
(ii) Opinion and Consent of James J. Reilly, Jr., F.S.A., M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland Asbill & Brennan LLP
7. (i) Powers of Attorney ###
(ii) Power of Attorney for James M. Benson, Robert H. Benmosche and
Catherine A. Rein +
(iii) Power of Attorney for David Y. Rogers @@
8. Notice of Withdrawal Right for Policies *
9. Inapplicable
10. Computation of basis for exchange right pursuant to Rule 6e-
3(T) (b) (13) (v) under the Investment Company Act of 1940 *
11. Consent of Independent Auditors
12. Schedule for computation of performance quotations **
13. (i) Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-2(b)(12)(ii) and
Rule 6e-3(T)(b)(12)(iii) **
(ii) Addendum to Consolidated memorandum describing certain
procedures, filed pursuant to Rule 6e-3(T)(b)(12)(iii) ##
(iii) Second Addendum to Consolidated Memorandum ++++
II - 3
<PAGE>
14. (i) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
New England Variable Life Insurance Company **
(ii) Amendment No. 1 to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and New England Variable Life Insurance
Company #
(iii) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and New England
Variable Life Insurance Company #
(iv) Form of Participation Agreement among Metropolitan Series
Fund, Inc., Metropolitan Life Insurance Company and New
England Life Insurance Company. @@@
- -----------
# Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed June 22, 1995.
## Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed April 26, 1996.
### Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
#### Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 333-21767,
filed July 16, 1997.
* Incorporated herein by reference to Post Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed February 25, 1998.
** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 24, 1998.
*** Incorporated herein by reference to Post Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed April 30, 1998.
+ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 333-46401,
filed July 9, 1998.
II - 4
<PAGE>
++ Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed January 20, 1999.
+++ Incorporated herein by reference to the Post-Effective Amendment No.4 to
the Variable Account's Form S-6 Registration Statement, File No. 33-65263,
filed February 24, 1999.
++++ Incorporated herein by reference to the Post-Effective Amendment No.10 to
the Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 26, 1999.
@ Incorporated herein be reference to the Variable Account's Form S-6
Registration Statement, File No. 333-89409, filed October 20, 1999.
@@ Incorporated herein be reference to the Post-Effective Amendment No.11 to
the Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 26, 2000.
@@@ Incorporated herein by reference to Post-Effective Amendment No. 26 to the
Metropolitan Series Fund, Inc. Registration Statement on Form N-1A (File
No. 2-80751) filed April 6, 2000.
II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
New England Variable Life Separate Account, certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the city of Boston, and the Commonwealth of Massachusetts, on
the 26th day of April, 2000.
New England Variable Life Separate Account
(Registrant)
By: New England Life Insurance Company
(Depositor)
By: /s/ H. James Wilson
-------------------
H. James Wilson
Executive Vice President and
General Counsel
Attest:
/s/ Marie C. Swift
- ------------------
Marie C. Swift
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company certifies that it meets all of the requirements for
effectiveness of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the city of Boston, and the Commonwealth of Massachusetts, on the 26th day of
April, 2000.
New England Life Insurance Company
(Seal)
Attest: /s/ Marie C. Swift By: /s/ H. James Wilson
------------------ -------------------
Marie C. Swift H. James Wilson
Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on April 26, 2000.
* Chairman, President and
- ------------------------- Chief Executive Officer
James M. Benson
* Director
- -------------------------
Robert H. Benmosche
* Director
- -------------------------
Susan C. Crampton
* Director
- -------------------------
Edward A. Fox
* Director
- -------------------------
George J. Goodman
* Director
- -------------------------
Evelyn E. Handler
* Director
- -------------------------
Philip K. Howard, Esq.
* Director
- -------------------------
Bernard A. Leventhal
* Director
- -------------------------
Thomas J. May
<PAGE>
* Director
- -------------------------
Stewart G. Nagler
* Director
- -------------------------
Catherine A. Rein
* Executive Vice President,
- ------------------------- Chief Financial Officer and
David Y. Rogers Chief Accounting Officer
* Director
- -------------------------
Rand N. Stowell
By: /s/ Anne M. Goggin
--------------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant
to powers of attorney filed with the Variable Account's Form S-6
Registration Statement, File No. 333-21767, on February 13, 1997, Pre-
Effective Amendment No. 1 to the Variable Account's Form S-6 Registration
Statement, File No. 333-46401, on July 9, 1998, Post-Effective Amendment
No. 4 to the Variable Account's Form S-6 Registration Statement, File No.
33-88082, on January 20, 1999 and Post-Effective Amendment No. 11 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050, on
April 26, 2000.
(vsl)
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
3. (ii) Opinion and Consent of James J.
Reilly, Jr., F.S.A., M.A.A.A.
6. Consent of Sutherland, Asbill &
Brennan LLP
11. Consent of the Independent Auditors
_________
* Page numbers inserted on manually-signed copy only.
u:VSL2000.ms
<PAGE>
Exhibit 3(ii)
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
April 26, 2000
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 12 to the registration
statement on Form S-6 (File No. 33-66864) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable life
insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated premiums,
internal rates of return on net cash values and internal rates of return on
death benefits shown in Appendix A of the Prospectus based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown in
the illustrations, appear to be correspondingly more favorable to
prospective purchasers of Policies for male and female joint insureds, both
aged 55 in the underwriting class illustrated than to prospective
purchasers of Policies for joint insureds of other sexes or ages. Insureds
in other underwriting classes may have higher cost of insurance charges and
premiums.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the Appendix,
is consistent with the provisions of the Policies.
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3. The illustration of net premiums shown under the heading "Charges and
Expenses-Deductions from Premiums" in the Prospectus contains the net
premium amounts allocated to the Variable Account for a $5,000 premium
under a Policy with a $2,000 Target Premium.
4. The information contained in the example of how the maximum loanable amount
is determined under the heading "Other Policy Features-Loan Provision" in
the Prospectus is consistent with the provisions of the Policies.
I hereby consent to the filing of this opinion as an Exhibit to this Post-
Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the Prospectus.
Sincerely,
James J. Reilly, Jr., F.S.A., M.A.A.A.
Second Vice President and Actuary
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Exhibit 6
[Sutherland Asbill & Brennan LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the prospectus included in Post-
Effective Amendment No. 12 to the Registration Statement on Form S-6 for
Survivorship Life, issued through the New England Variable Life Separate Account
(File No. 33-66864). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Kimberly J. Smith
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Kimberly J. Smith
Washington, D.C.
April 26, 2000
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Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 12 to the
Registration Statement No. 33-66864 of New England Variable Life Separate
Account (the "Separate Account") of New England Life Insurance Company (the
"Company") of our reports dated February 4, 2000 appearing in the Prospectus and
the Supplement, which are part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus and Supplement.
Deloitte & Touche LLP
Boston, Massachusetts
April 26, 2000
