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NEW ENGLAND LIFE
INSURANCE COMPANY
ZENITH LIFE--VARIABLE LIFE INSURANCE POLICIES
ZENITH LIFE ONE--SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
SUPPLEMENT DATED MAY 1, 2000 TO
PROSPECTUS DATED MAY 1, 1988
INTRODUCTION
This supplement updates certain information contained in the prospectus
dated May 1, 1988, as supplemented February 1, 1989, May 1 of each of the
years 1991-1998, and April 30, 1999. You should read and retain this
supplement with your Policy. We will send you an additional copy of the
prospectus as supplemented, without charge, on written request. The Zenith
Life and Zenith Life One Policies are no longer available for sale.
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.
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POLICY VALUES AND BENEFITS
Age 100
The Policies endow at age 100 of the insured for the greater of the current
cash value and the Policy face amount (each reduced by any outstanding loans
plus interest). You can elect to continue the Policy beyond age 100 of the
insured instead of taking payment at age 100. Sixty days before the
anniversary when the insured is age 100 we will send you an election form. If
you elect to continue the Policy, the cash value will remain in the sub-
accounts and/or Fixed Account that you have chosen. We will not deduct Policy
charges or accept premium payments after age 100. You can continue to make
loans, surrenders and account transfers. The death benefit after age 100
equals the greater of (1) the Policy's face amount at age 100 (as reduced by
any later surrenders), and (2) the cash value on the date of death. The
proceeds we pay will be reduced by any outstanding loan plus interest.
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 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%
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER EXPENSE DEFERRAL)
<CAPTION>
MORGAN
HARRIS STANLEY
OAKMARK INTERNATIONAL DAVIS ALGER MFS
MID CAP MAGNUM VENTURE EQUITY MFS RESEARCH
VALUE BALANCED EQUITY VALUE GROWTH INVESTORS MANAGERS
SERIES SERIES SERIES SERIES SERIES SERIES* SERIES*
------- -------- ------------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .75% .70% .90% .75% .75% .75% .75%
Other Expenses.......... .13% .07% .40% .06% .05% .15% .15%
---- ---- ----- ---- ---- ---- -----
Total Series Operating
Expenses.............. .88% .77% 1.30% .81% .80% .90% .90%
</TABLE>
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* Without the applicable expense cap or expense deferral arrangement
(described below), Total Series Operating Expenses for the year ended
December 31, 1999 would have been: MFS Investors Series, 2.03%; and MFS
Research Managers Series, 2.03%, both on 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%.
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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>
TOTAL
PORTFOLIO MANAGEMENT FEES OTHER EXPENSES ANNUAL 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>
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* MetLife voluntarily pays expenses (other than the management fee, brokerage
commissions, taxes, interest and other loan costs, and any unusual one-time
expenses) of the Putnam Large Cap Growth Portfolio that exceed .20% of net
assets until the earlier of (i) July 1, 2002 and (ii) the date when the
Portfolio's net assets reach $100 million. Without this subsidy, the
anticipated total annual expenses of the Putnam Large Cap Growth Portfolio
would be 1.39%. MetLife also paid such expenses that exceeded .20% of net
assets for the Russell 2000 Index Portfolio until December 3, 1999. Without
this subsidy the total annual expenses of the Russell 2000 Index Portfolio
for 1999 would have been .89%. Beginning February 22, 2000, MetLife is
paying such expenses that exceed .30% of the Russell 2000 Index Portfolio's
net assets until the earlier of (i) April 30, 2001 and (ii) the date when
the Portfolio's assets reach $200 million. Total Annual Expenses for the
Russell 2000 Index Portfolio are shown as if this subsidy was in effect for
the entire current year. MetLife can terminate these arrangements at any
time upon notice to the Board of Directors and to Fund shareholders.
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>
TOTAL
PORTFOLIO MANAGEMENT FEES OTHER EXPENSES ANNUAL EXPENSES
--------- --------------- -------------- ---------------
<S> <C> <C> <C>
VIP Equity-Income .48% .09% .57%*
VIP Overseas .73% .18% .91%*
VIP High Income .58% .11% .69%
VIP II Asset Manager .53% .10% .63%*
</TABLE>
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* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. If we
included these reductions, total annual expenses would have been .56% for
VIP Equity-Income Portfolio, .87% for VIP Overseas Portfolio and .62% for
VIP II Asset Manager Portfolio.
An investment adviser or affiliates thereof may compensate NELICO and/or
certain affiliates for administrative, distribution, or other services
relating to Eligible Funds. This compensation is based on assets of the
Eligible Funds attributable to the Policies and certain other variable
insurance products that we and our affiliates issue. Some advisers and/or
affiliates may pay us more than others. New England Securities may also
receive brokerage commissions on securities transactions initiated by an
investment adviser.
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OTHER POLICY FEATURES
ACCELERATION OF DEATH BENEFIT RIDER
This feature is not currently offered and is deleted from the prospectus.
TRANSFER OPTION
After the "free look" period, you may transfer your Policy's cash value
between sub-accounts. We reserve the right to limit sub-account transfers to
four per Policy year. We currently allow 12 sub-account transfers per Policy
year. We treat all sub-account transfer requests made at the same time as a
single request. The transfer is effective as of the date when we receive the
transfer request. (See "Receipt of Communications and Payments at NELICO's
Home Office." For special rules regarding transfers involving the Fixed
Account, see "The Fixed Account".) You may distribute your Policy's cash value
among no more than ten accounts (including the Fixed Account) at any one time.
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisors or registered representatives acting under power(s) of attorney from
one or more Policy owners. In addition, the Metropolitan Series Fund, Inc. may
restrict or refuse purchases or redemptions of shares in its Portfolios as a
result of certain market timing activities. You should read the prospectuses
of these Eligible Funds for more details.
You may request a sub-account transfer or reallocation of future premiums by
written request (which may be telecopied) to us or by telephoning us. To
request a transfer or reallocation by telephone, you should contact your
registered representative or contact us at 1-800-200-2214. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Any telephone instructions that we reasonably believe to be genuine are your
responsibility, including losses arising from any errors in the communication
of instructions.
DOLLAR COST AVERAGING
We plan to offer an automated transfer privilege called dollar cost
averaging. The same dollar amount is transferred to selected Sub-Accounts
(and/or the Fixed Account) periodically. Over time, more purchases of Eligible
Fund shares are made when the value of those shares is low, and fewer shares
are purchased when the value is high. As a result, a lower than average cost
of purchases may be achieved over the long term. This plan of investing allows
you to take advantage of investment fluctuations, but does not assure a profit
or protect against a loss in declining markets.
Under this feature, you may request that a certain amount of your cash value
be transferred on any selected business day of each period (or if not a day
when the New York Stock Exchange is open, the next such day), from any one
Sub-Account to one or more of the other Sub-Accounts (and/or the Fixed
Account). We limit your allocation of cash value to no more than 10 accounts
(including the Fixed Account) at any one time. You must transfer a minimum of
$100 to each account that you select under this feature. Transfers made under
the dollar cost averaging program count against the 12 transfers allowed in a
Policy year. You can select a dollar cost averaging program when you apply for
the Policy or at a later date by contacting our Home Office. You can cancel
your use of the dollar cost averaging program at any time before a transfer
date. Transfers will continue until you notify us to stop or there no longer
is sufficient cash value in the Sub-Account from which you are transferring.
There is no extra charge for this feature.
Ask your registered representative about the availability of this feature.
PAYMENT OF PROCEEDS
The third paragraph of this section is revised as follows:
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The beneficiary can elect our Access Plus program for payment of death
proceeds at any time before we pay them. We establish an Access Plus account
at a banking institution at the time for payment. The Access Plus account
gives convenient access to proceeds, which are maintained in our general
account or that of an affiliate, through checkbook privileges with the bank.
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.
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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.
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* 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 New England 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.
INVESTMENT MANAGEMENT
The chart below shows the adviser and sub-adviser for each series of the
Zenith Fund. New England Investment Management, which is an indirect, wholly-
owned subsidiary of NELICO, CGM, and each of the sub-advisers are registered
with the SEC as investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Capital Growth Management
Growth Limited Partnership ("CGM")*
Back Bay
Advisors
Money
Market New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay
Advisors
Bond
Income New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay
Advisors
Managed New England Investment Management, Inc. Back Bay Advisors, L.P.*
Westpeak
Stock
Index New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Westpeak New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Growth
and
Income
</TABLE>
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<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Loomis Sayles
Small Cap New England Investment Management, Inc. Loomis, Sayles & Company, L.P.*
Balanced New England Investment Management, Inc. Wellington Management Company, LLP
Morgan New England Investment Management, Inc.
Stanley
International
Magnum Morgan Stanley Dean Witter
Equity Investment Management, Inc.
Harris
Oakmark Mid
Cap Value New England Investment Management, Inc. Harris Associates L.P.*
Davis Venture
Value New England Investment Management, Inc. Davis Selected Advisers, L.P.**
Alger Equity
Growth New England Investment Management, Inc. Fred Alger Management, Inc.
MFS Investors New England Investment Management, Inc. Massachusetts Financial
Services Company
MFS Research New England Investment Management, Inc. Massachusetts Financial
Managers Services Company
</TABLE>
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* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis Se-
lected Advisers-NY, Inc., a wholly-owned subsidiary of Davis Selected.
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, Harris Oakmark Mid Cap Value Series
and Loomis Sayles Small Cap Series, New England Investment Management became
the adviser on May 1, 1995. The Morgan Stanley International Magnum Equity
Series' sub-adviser was Draycott Partners, Ltd. until May 1, 1997, when Morgan
Stanley Dean Witter Investment Management (formerly Morgan Stanley Asset
Management) became the sub-adviser. The Harris Oakmark Mid Cap Value Series'
sub-adviser was Loomis, Sayles until May 1, 1998, when Goldman Sachs Asset
Management, a separate operating division of Goldman Sachs & Co., became the
sub-adviser. Harris Associates became the sub-adviser on May 1, 2000. The
Balanced Series' sub-adviser was Loomis, Sayles until May 1, 2000, when
Wellington Management Company became the sub-adviser. For more information
about the Series' advisory agreements, see the Zenith Fund prospectus attached
at the end of this prospectus and the Zenith Fund's Statement of Additional
Information.
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 Statement of Additional Information.
TAX CONSIDERATIONS
POLICY PROCEEDS
The following discussion of Federal income tax issues relating to the
Policies is general in nature and is not intended as tax advice. It describes
what NELICO believes is the Federal income tax treatment of the Policies in
the most commonly occurring circumstances and does not reflect the effect of
Federal income taxes in all situations. In addition, there is no guarantee
that the Federal income tax laws and regulations or interpretation of them
will not change. Therefore, NELICO recommends that you consult your own tax
advisor for more complete information and advice.
DEFINITION OF LIFE INSURANCE. Section 7702 of the Internal Revenue Code
defines a life insurance contract for Federal income tax purposes.
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The Section 7702 definition can be met if a life insurance contract
satisfies either one of two tests set forth in that section. The manner in
which these tests should be applied to certain features of the Policy is not
directly addressed by Section 7702 or proposed regulations issued under that
section. The presence of these Policy features, the absence of final
regulations, and the lack of other pertinent interpretations of Section 7702,
thus create some uncertainty about the application of Section 7702 to the
Policy.
Nevertheless, NELICO believes that the Policy qualifies as a life insurance
contract for federal income tax purposes. This means that:
. the death benefit should be fully excludable from the gross income of
the beneficiary under Section 101(a)(1) of the Code; and
. the Policy Owner should not be considered in constructive receipt of the
cash surrender value, including any increases, unless and until they are
distributed from the Policy.
Because of the absence of final regulations or any other pertinent
interpretations, it, however, is unclear whether substandard risk and
automatic issue Policies or Policies with term riders added will, in all
cases, meet the statutory life insurance contract definition. If a Policy were
determined not to be a life insurance contract for purposes of Section 7702,
such Policy would not provide most of the tax advantages normally provided by
a life insurance contract.
NELICO thus reserves the right to make changes in the Policy if such changes
are deemed necessary to attempt to assure its qualification as a life
insurance contract for tax purposes.
TAX LAW EFFECTS ON CERTAIN PRE-DEATH DISTRIBUTIONS. Section 7702A of the
Code contains provisions affecting the tax treatment of any loan, assignment
or other pre-death distribution from a life insurance policy which is also a
"modified endowment contract" (defined below under "Modified Endowment
Contracts"). Whether a Policy will be classified as a modified endowment
contract will depend upon the amount and timing of payments made under the
Policy.
NON-MODIFIED ENDOWMENT CONTRACTS. For Policies not classified as modified
endowment contracts NELICO believes any Policy loans received under such
Policies will be treated as indebtedness of the owner and will not be treated
as taxable income to you. This assumes that the Policy has not lapsed, been
surrendered or terminated. As a general rule, Policy loan interest is not
deductible under current Federal income tax law.
You may be subject to Federal income tax upon surrender of your Policy if
the net cash surrender value of the Policy is greater than the investment in
the Policy less prior distributions from the Policy that were not taxed. If a
Policy has a Policy loan and is surrendered or lapses, the Policy loan is
treated as a distribution and would be taxable if there is a gain in the
Policy. In that case, the gain in the Policy would be taxable even if the
Policy has no net cash surrender value. If you incur a loss upon the surrender
it is not likely to be deductible for Federal income tax purposes.
Generally, a partial surrender of the Policy will not be taxable to you
unless it is greater than the investment in the Policy less the untaxed
portions of any prior distributions. The Internal Revenue Code does provide,
however, that in certain situations in the first 15 years of the Policy
partial surrenders may be taxable, in whole or in part, if the net cash
surrender value is greater than the total investment in the Policy less the
previous untaxed distributions. This may be the case even if the amount of the
partial surrender is less than the investment in the Policy. The exercise of
an accelerated benefits rider, in whole or in part, may be treated as a
surrender or partial surrender.
MODIFIED ENDOWMENT CONTRACTS. A modified endowment contract is a life
insurance contract which fails to satisfy a "7-pay test". In general, a Policy
will fail to satisfy the 7-pay test if the total amount (both scheduled
premiums and unscheduled payments) paid under the Policy at any time during
the first seven Policy years exceeds the sum of the net level premiums that
would have been paid on or before such time if the Policy provided for paid up
future benefits after the payment of seven level annual premiums. The amount
of premiums payable under the 7-pay test are calculated based upon certain
assumptions regarding the Policy's earnings and the use of a reasonable
mortality charge. Variable Account investment experience does not affect
whether or not a Policy will become a modified endowment contract. Riders to
the Policy are considered part of the Policy for purposes of
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applying the 7-pay test. A term rider on the insured issued in New York could
cause the Policy to be treated less favorably for purposes of the 7-pay test.
If there is a reduction in the Policy's future benefits (for example, as a
result of a partial surrender, face amount reduction or partial exercise of
the accelerated benefits rider, or because you allow the Policy to lapse to
Paid-Up Insurance) during the first seven Policy years the 7-pay test will be
applied as if the Policy had originally been issued at the reduced face
amount. Any Policy received in exchange for a modified endowment contract will
also be a modified endowment contract.
Your registered representative can provide you with information about the
maximum amount of scheduled premiums and unscheduled payments which you can
make under your Policy during the first seven policy years and still satisfy
the 7-pay test. This information will be based upon NELICO's current
understanding of the Federal tax law. As is the case with any provision of the
Internal Revenue Code, there is no assurance that the Internal Revenue Service
will agree with NELICO's interpretation. NELICO will monitor any IRS
announcements or rulings concerning compliance with the 7-pay test.
MATERIAL CHANGES. If a "material change" in the benefits or other Policy
terms occurs under a Policy which has satisfied the 7-pay test, the Policy may
be treated as a new Policy entered into on the day on which the material
change occurred. The Policy will be retested under the 7-day test, after
making certain adjustments to reflect the Policy's existing cash value. Any
increase in future benefits under the Policy may constitute a material change
unless the increase is due to the payment of premiums necessary to fund the
Policy's lowest death benefit payable in the first seven Policy years, or the
crediting of interest or other earnings with respect to such premiums. A
material change would also occur if there were a substitution of the insured
person or if certain other Policy changes occurred.
If you do not wish to have the Policy become a modified endowment contract,
you may be required to limit the payment of premiums under the Policy at some
point (or limit your reduction of benefits). This may be the case, when the
insured reaches very high ages, even if no unscheduled payments have been made
for the Policy. The point at which you may have to limit the payment of
scheduled premiums will depend upon the issue age, sex and underwriting class
of the insured, investment experience and the amount of your previous
unscheduled payments. You may limit payment of scheduled premiums by use of
the Special Premium Option, in those situations where it is applicable, or by
allowing the Policy to lapse to paid-up insurance. (See "Special Premium
Option" and "Default and Lapse Options".)
If you exchange your Policy for another life insurance policy, including a
fixed-benefit policy pursuant to the 24 month exchange right, the new
insurance policy should be reviewed to determine how the rules regarding
modified endowment contracts may apply to the new policy. (See "Exchange of
Policy During First 24 Months".)
DISTRIBUTIONS UNDER MODIFIED ENDOWMENT CONTRACTS. If a Policy is a modified
endowment contract, then the following rules will apply to distributions under
such contract:
(a) Distributions will be includible in your gross income to the extent the
cash value of the Policy exceeds your investment in the Policy (i.e.
will be treated as income first).
(b) Loans (including any unpaid interest) are considered distributions even
if the amount borrowed is retained by NELICO as a premium. Your
investment in the Policy will be increased by the amount of any prior
loan that was included in your gross income.
(c) A policy assignment is treated as a distribution. For example, in a
split dollar insurance plan involving a collateral assignment of the
Policy, the collateral assignment is a distribution which will subject
any gain in the Policy to taxation.
(d) For purposes of determining the amount of the distribution which is
includible in gross income, all modified endowment contracts issued by
NELICO or its affiliates to the same Policy Owner during any calendar
year must be treated as one modified endowment contract.
(e) Payments under the accelerated benefits rider may be treated as
distributions that are subject to taxation under these rules if the
payments are from a Policy that is a modified endowment contract.
A-9
<PAGE>
Any taxable distribution will be subject to an additional tax equal to 10%
of the taxable amount of the distribution unless the distribution is:
(a) made on or after the date when you attain age 59 1/2;
(b) is attributable to your becoming disabled; or
(c) is part of a series of substantially equal periodic payments made no
less frequently than annually for your life (or life expectancy).
If a Policy becomes a modified endowment contract, distributions made during
the policy year in which it becomes a modified endowment contract,
distributions in any subsequent policy year and distributions within two years
before the Policy becomes a modified endowment contract will be subject to the
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment contract. In addition, regulations or
other interpretations may be issued which will apply similar tax treatment to
other distributions made in anticipation of a Policy becoming a modified
endowment contract.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including a loan, partial surrender, collateral assignment or
full surrender) from a Policy that is treated as a modified endowment
contract, a special aggregation requirement may apply for purposes of
determining the amount of the income on the Policy. Specifically, if NELICO or
any of its affiliates issues to the same Policy Owner more than one modified
endowment contract within a calendar year, then for purposes of measuring the
income on the Policy with respect to a distribution from any of those
policies, the income on the policy for all those policies will be aggregated
and attributed to that distribution.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance and
other tax consequences of ownership or receipt of proceeds under the Policy
depend upon 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.
Section 817(h) of the Code requires the investments of the Variable Account
to be "adequately diversified" in accordance with Treasury Regulations for the
Policy to qualify as a life insurance contract under Section 7702 of the Code.
Failure to comply with the diversification requirements may result in not
treating the Policy as life insurance. If the Policy does not qualify as life
insurance, you may be subjected to immediate taxation on the incremental
increases in cash value of the Policy. Regulations specifying the
diversification requirements have been issued by the Department of Treasury,
and NELICO believes it complies fully with such requirements.
In connection with the issuance of the diversification regulations, the
Treasury Department stated that it anticipates the issuance of additional
guidance prescribing the circumstances in which an owner's control of the
investments of a separate account may cause a Policy Owner, rather than the
insurance company, to be treated as the owner of the assets in the separate
account. If a Policy Owner is considered the owner of the assets of the
Separate Account, income and gains from the Account would be included in the
Owner's gross income.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it determined that the owners were not owners of separate
account assets. For example, a Policy Owner has additional flexibility in
allocating payments and cash values. These differences could result in the
owner being treated as the owner of a pro rata share of the assets of the
Separate Account. In addition, NELICO does not know what standards will be set
forth in the additional guidance which the Treasury has stated it expects to
be issued. NELICO therefore reserves the right to modify the Policy as
necessary to attempt to prevent the Policy Owner from being considered the
owner of the assets of the Separate Account.
In the event that a Policy is owned by the trustee under a pension or profit
sharing plan, or similar deferred compensation arrangement, the Federal, state
and estate tax consequences of ownership or receipt of proceeds under the
Policy could differ from the principles stated herein. However, if ownership
of such Policy is transferred
A-10
<PAGE>
from the plan to a plan participant (upon termination of employment, for
example), the Policy will be subject to all of the rules described above
relating to Federal tax treatment, including the rules regarding modified
endowment contracts. Policies owned by the trustee under the plans described
above may be subject to restrictions under ERISA. You should consult a
qualified tax advisor regarding any applicable requirements of 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.
If the Policy is purchased as part of a pension or profit-sharing plan
qualified under Section 401 of the Code, the current cost of insurance for the
net amount at risk is treated as a "current fringe benefit" and is required to
be included annually in the plan participant's gross income. This cost
(generally referred to as the "P.S. 58" cost) is reported 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 will not be subject to Federal income
tax. However, the cash value will generally be taxable to the extent it
exceeds the participant's cost basis in the Policy. The participant's cost
basis will generally include the costs of insurance previously reported as
income to the participant. Special rules may apply if the participant had
borrowed from his cash value or was an owner-employee under the plan.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The
tax consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of the Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement and the suitability of this product for the arrangement. Moreover,
in recent years, Congress has adopted new rules relating to corporate owned
life insurance. Any business contemplating the purchase of a new life
insurance contract or a change in an existing contract should consult a tax
advisor.
NELICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive similar tax treatment, with certain
modifications, as that described above for Policies subject to the Internal
Revenue Code. You should note that Policies governed by the Puerto Rican tax
law are not currently subject to the above-described rules regarding modified
endowment contracts. If such a Policy becomes subject to the Internal Revenue
Code, however, the rules regarding modified endowment contracts will apply,
and they may apply retroactively. You should consult your tax advisor if a
Policy governed by the Puerto Rican tax law subsequently becomes subject to
the Internal Revenue Code.
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 other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted,
would adversely modify the federal taxation of this Policy. It is possible
that any legislative change could be retroactive (that is, effective prior to
the date of the change). A tax adviser should be consulted with respect to
legislative developments and their effect on the Policy.
CHARGE FOR NELICO'S INCOME TAXES
Under current Federal income tax law no tax is imposed on NELICO as a result
of the operations of the Variable Account. Thus, no charge is being made
currently to the Variable Account for company Federal income taxes, except for
the charge for federal taxes that is deducted from scheduled premiums and
unscheduled payments. NELICO reserves its rights to charge the Variable
Account for company Federal income taxes in the future.
Under current laws NELICO may incur state and local taxes (in addition to
premium taxes) in several states. At present these taxes are not significant
and, accordingly, NELICO is not currently making a charge for them. If they
increase, however, charges for such taxes attributable to the Variable Account
may be made.
A-11
<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 Chief
One Madison Avenue Operating Officer 1997-1998; Executive Vice President 1995-
New York, NY 10010 1997 of Metropolitan Life; Executive Vice President 1989-
1995 of Paine Webber.
Susan C. Crampton Director of NELICO since 1996 and serves as Principal of The
6 Tarbox Road Vermont Partnership, a business consulting firm located in
Jericho, VT 05465 Jericho, Vermont since 1989; formerly, Director 1989-1996
of New England Mutual.
Edward A. Fox Director of NELICO since 1996 and Chairman of the Board of
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.
Philip K. Howard, Esq. Director of NELICO since 1996 and Partner of the law firm of
Covington & Burling 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 Industries,
1345 Avenue of the Inc.; Director and Executive Vice President 1993-1995 of
Americas 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
</TABLE>
A-12
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
<S> <C>
Stewart G. Nagler Director of NELICO since 1996 and Vice Chairman and Chief
Metropolitan Life Financial Officer of Metropolitan Life since 1998;
One Madison Avenue formerly, Senior Executive Vice President and Chief
New York, NY 10010 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 and Casualty
and Insurance Company since 1999; formerly, Senior Executive
Casualty Insurance Vice President 1998-1999 and Executive Vice President 1989-
Company 1998 of Metropolitan Life Insurance Company.
700 Quaker Lane
Warwick, RI 02887
Rand N. Stowell Director of NELICO since 1996 and President of United Timber
P.O. Box 60 Corp. and President, Randwell Co. since 2000 of Weld,
Weld, ME 04285 Maine; formerly, Director 1990-1996 of New England Mutual.
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<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.
</TABLE>
A-13
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
<S> <C>
Daniel D. Jordan Second Vice President, Counsel, Secretary and Clerk since
1996; formerly, Counsel and Assistant Secretary 1990-1996
of New England Mutual.
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 executive
officers is the same as NELICO's except where indicated otherwise.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account sub-
accounts, call 1-800-333-2501.
For sub-account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call 1-800-200-2214.
You may also call our Client TeleService Center at 1-800-388-4000 to request
current information about your Policy values, to change or update Policy
information such as your address, billing mode, beneficiary or ownership, or
to request Policy loans of less than $25,000. Requests must be in writing if
the Policy is owned by a corporation or a pension trust.
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-14
<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
