As filed with Securities and Exchange Commission on
February 17, 1998
Registration No.
------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------------
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
NEW ENGLAND LIFE INSURANCE COMPANY
(Name of Depositor)
501 Boylston Street
Boston, Massachusetts 02117
(Address of depositor's principal executive offices)
---------------------
MARIE C. SWIFT
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
---------------------------
Flexible Premium Adjustable Variable Life Insurance Policies
(Title and amount of securities being registered)
As soon as practicable after the effective date of this
Registration Statement
(Approximate date of proposed public offering)
The Registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross-Reference Sheet
Form N-8B-2
Item No. Caption in Prospectus
- ---------- ---------------------
1 Cover Page
2 Cover Page
3 Inapplicable
4 NELICO's Distribution Agreement
5 NELICO
6 The Variable Account
9 Inapplicable
10(a) Other Policy Features
10(b) Policy Values and Benefits
10(c), (d), (e) Death Benefit; Cash Value; 24 Month Right; Surrender; Partial
Surrender; Right to Return the Policy; Loan Provision; Transfer
Option; Premiums
10(f), (g), (h) Voting Rights; Rights Reserved by NELICO
10(i) Limits to NELICO's Right to Challenge the Policy; Payment of
Proceeds; Investment Options
11 The Variable Account
12 Investments of the Variable Account; NELICO's Distribution
Agreement
13 Charges and Expenses; NELICO's Distribution Agreement; Charge
for NELICO's Income Taxes; Appendix A
14 Amount Provided for Investment Under the Policy; NELICO's
Distribution Agreement
15 Premiums
16 Investments of the Variable Account
17 Captions referenced under Items 10(c), (d), (e) and (i) above
18 The Variable Account
19 Reports; NELICO's Distribution Agreement
20 Captions referenced under Items 6 and 10(g) above
21 Loan Provision
22 Inapplicable
23 NELICO's Distribution Agreement
24 Limits to NELICO's Right to Challenge the Policy
25 NELICO
26 NELICO's Distribution Agreement
Form N-8B-2
Item No. Caption in Prospectus
- ----------- ---------------------
27 NELICO
28 Management
29 NELICO
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 NELICO's Distribution Agreement
35 NELICO
36 Inapplicable
37 Inapplicable
38 NELICO's Distribution Agreement
39 NELICO's Distribution Agreement
40 NELICO's Distribution Agreement
41(a) NELICO's Distribution Agreement
42 Inapplicable
43 Inapplicable
44(a) Investments of the Variable Account; Amount Provided for
Investment Under the Policy; Deductions from Premiums; Flexible
Premiums
44(b) Charges and Expenses
44(c) Flexible Premiums; Deductions from Premiums
45 Inapplicable
46 Investments of the Variable Account; Captions referenced under
Items 10(c), (d) and (e) above
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Cover Page; Death Benefit; Lapse and Reinstatement; Charges and
Expenses; Additional Benefits by Rider; 24 Month Right; Payment
Options; Policy Owner and Beneficiary; Premiums; NELICO's
Distribution Agreement
52 Rights Reserved by NELICO
53 Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
NEW ENGLAND LIFE
INSURANCE COMPANY
Flexible Premium Adjustable
Variable Life Insurance Policies
Issued by: Administrative Office:
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus describes individual Flexible Premium Adjustable Variable
Life Insurance Policies (the "Policies") offered by New England Life Insurance
Company ("NELICO"), an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife").
Each Policy provides premium flexibility together with two types of death
benefit guarantees as long as the total amount of premiums paid with interest,
less any partial surrenders with interest, at least equals certain minimum
amounts and there is no policy loan. (Policies issued in New York offer one
death benefit guarantee.)
You may choose between two death benefit options, one of which provides a
fixed death benefit equal to the Policy's face amount and one of which provides
a variable death benefit which may vary daily with the net investment experience
of one or more mutual fund portfolios. Under either of the death benefit
options, a minimum death benefit guarantee is available. The cash value of the
Policy generally will increase with the payment of each premium but will vary
daily with the investment experience of the mutual fund portfolios. There is no
guaranteed minimum cash value for investments in the mutual fund portfolios.
You may cancel the Policy during the "right to return the Policy" period.
In some states, the first net premium for the Policy will be allocated to the
Zenith Money Market Sub-Account until 15 days after NELICO mails the
confirmation for the initial premium. Thereafter, and as of the "investment
start date" in other states, the Policy's cash value will be invested according
to your instructions.
You may, within limits, allocate premiums to one or more of the 16
investment Sub-Accounts of NELICO's Variable Life Separate Account (the
"Variable Account") or to NELICO's Fixed Account, after certain deductions
have been made. Each Sub-Account of the Variable Account invests in the shares
of one of the Eligible Funds. The Eligible Funds are: the Back Bay Advisors
Money Market Series, the Back Bay Advisors Bond Income Series, the Capital
Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors Managed
Series, the Westpeak Growth and Income Series, the Loomis Sayles Small Cap
Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series, the
Goldman Sachs Mid Cap Value Series, the Davis Venture Value Series, and the
Morgan Stanley International Magnum Equity Series of the New England Zenith Fund
(the "Zenith Fund"); the Equity-Income Portfolio, Overseas Portfolio and High
Income Portfolio of the Variable Insurance Products Fund ("VIP Fund"); and the
Asset Manager Portfolio of the Variable Insurance Products Fund II ("VIP Fund
II"). The Series of the Zenith Fund are
advised by affiliates of NELICO. The VIP Fund and VIP Fund II are advised by
Fidelity Management & Research Company.
Special limits apply to transfers of cash value out of the Fixed Account.
-------------------------------------------------------------------------
It may not be advantageous to replace existing insurance with the Policy
described in this prospectus. (See "Charges and Expenses".)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ACCOMPANIED OR PRECEDED BY THE
CURRENT PROSPECTUSES OF THE NEW ENGLAND ZENITH FUND AND OF THE VARIABLE
INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II, WHICH ARE
ATTACHED AT THE END OF THIS PROSPECTUS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
SHARES OF THE ZENITH FUND, THE VIP FUND AND THE VIP FUND II, AND INTERESTS
IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
______________, 1998
2
TABLE OF CONTENTS
PAGE
----
GLOSSARY
INTRODUCTION TO THE POLICIES
The Policies
Availability of the Policy
Policy Charges
How the Policy Works
Communications and Payments
NELICO
POLICY VALUES AND BENEFITS
Death Benefit
Minimum Guaranteed Death Benefit
Adjustments to the Death Proceeds Payable
Change in Death Benefit Option
Cash Value
Allocation of Net Premiums
Amount Provided for Investment under the Policy
Right to Return the Policy
CHARGES AND EXPENSES
Deductions from Premiums
Monthly Deduction from Cash Value
Charges Against the Eligible Funds
Group or Sponsored Arrangements
PREMIUMS
Flexible Premiums
Lapse and Reinstatement
OTHER POLICY FEATURES
Increase in Face Amount
Loan Provision
Surrender
Partial Surrender
Reduction in Face Amount
Acceleration of Death Benefit Rider
Investment Options
Transfer Option
Substitution of Insured Person
Payment of Proceeds
24 Month Right
Payment Options
Additional Benefits by Rider
Policy Owner and Beneficiary
3
THE VARIABLE ACCOUNT
Investments of the Variable Account
Investment Management
THE FIXED ACCOUNT
General Description
Values and Benefits
Policy Transactions
NELICO'S DISTRIBUTION AGREEMENT
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Misstatement of Age or Sex
Suicide
TAX CONSIDERATIONS
Policy Proceeds
Charge for NELICO's Income Taxes
MANAGEMENT
VOTING RIGHTS
RIGHTS RESERVED BY NELICO
TOLL-FREE NUMBERS
REPORTS
ADVERTISING PRACTICES
LEGAL MATTERS
REGISTRATION STATEMENT
EXPERTS
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET
CASH VALUES AND ACCUMULATED PREMIUMS
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION
APPENDIX C: LONG TERM MARKET TRENDS
APPENDIX D: USES OF LIFE INSURANCE
APPENDIX E: TAX INFORMATION
FINANCIAL STATEMENTS
4
GLOSSARY
Account. A sub-account of the Variable Account or the Fixed Account.
Age. For purposes of this prospectus, the age of an insured refers to the
insured's age at his or her nearest birthday.
Cash Value. A Policy's cash value includes the amount of its cash value
held in the Variable Account, the amount held in the Fixed Account and, if there
is an outstanding policy loan, the amount of its cash value held in NELICO's
general account as a result of the loan. (See "Cash Value".)
Cost of Insurance Charge. This charge for providing insurance protection
is deducted on the Policy Date and on the first day of each policy month. The
cost of insurance for a policy month is equal to the amount at risk multiplied
by the cost of insurance rate for that month. Cost of insurance rates vary
monthly. (See "Monthly Deduction from Cash Value".)
Death Benefit Option 1. Death Benefit equals the greater of (i) the face
amount of the Policy and (ii) at your option, either (A) a percentage,
determined in accordance with federal income tax laws, of the Policy's cash
value, including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death; or (B) the Policy's cash value plus the pro rata
portion of any Monthly Deduction made for a period beyond the date of death;
divided by the applicable net single premium specified in federal income tax
laws. (See "Death Benefit".)
Death Benefit Option 2. Death Benefit equals the greater of (i) the face
amount of the Policy plus the Policy's cash value and (ii) at your option,
either (A) a percentage, determined in accordance with federal income tax laws,
of the Policy's cash value, including the pro rata portion of any Monthly
Deduction made for a period beyond the date of death; or (B) the Policy's cash
value divided by the applicable net single premium specified in federal income
tax laws. (See "Death Benefit".)
Eligible Funds. Each Sub-Account of the Variable Account invests in the
shares of one of the Eligible Funds. The Eligible Funds are: the Back Bay
Advisors Money Market Series, the Back Bay Advisors Bond Income Series, the
Capital Growth Series, the Westpeak Stock Index Series, the Back Bay Advisors
Managed Series, the Westpeak Growth and Income Series, the Loomis Sayles Small
Cap Series, the Alger Equity Growth Series, the Loomis Sayles Balanced Series,
the Goldman Sachs Mid Cap Value Series, the Davis Venture Value Series and the
Morgan Stanley International Magnum Equity Series of the Zenith Fund; the
Equity-Income Portfolio, Overseas Portfolio and the High Income Portfolio of the
VIP Fund; and the Asset Manager Portfolio of VIP Fund II. (See "The Variable
Account".)
Excess Policy Loan. The situation when policy loans plus accrued interest
exceed the Policy's cash value less the applicable Surrender Charge. (See
"Loan Provision".)
Fixed Account. The Fixed Account is a part of NELICO's general account to
which net premiums may be allocated. NELICO provides guarantees of principal and
interest with respect to amounts allocated to the Fixed Account. (See "The
Fixed Account".)
Investment Start Date. This is the latest of the date NELICO first
receives a premium payment for the Policy, the date Part II of the Policy
application is signed and the Policy Date. It is the date when an amount is
first provided for investment under the Policy. (See "Amount Provided for
Investment under the Policy".)
Minimum Premium. Generally, the Minimum Premium is that amount which, if
timely paid, guarantees that the Policy will not lapse during the first three
Policy years even if the Policy's net cash value is insufficient to pay the
Monthly Deduction in any month. The Minimum Premium amount may be
5
recalculated following certain Policy transactions. In addition, no three-year
Minimum Premium death benefit guarantee will apply to the Policy following
certain other Policy transactions. (See "Premiums".)
Monthly Deduction. The Monthly Deduction is the amount of charges
deducted from the Policy's cash value each month and includes the monthly cost
of insurance, the monthly cost of any benefits provided by rider (including the
Guaranteed Minimum Death Benefit, if elected), the monthly policy fee and the
monthly mortality and expense risk charge. (See "Monthly Deduction from Cash
Value".)
Net Cash Value. The amount you may obtain upon surrender of the Policy
and which is equal to the Policy's cash value reduced by any outstanding policy
loan and accrued interest on the loan. (See "Cash Value".)
Net Investment Experience. For any period, a Sub-Account's net investment
experience equals the investment experience of the underlying Eligible Fund's
shares for the same period. (See "Net Investment Experience".)
Planned Premium. The Planned Premium is the premium payment schedule you
choose in an effort to meet your future goals under the Policy. The Planned
Premium is a level amount that is subject to certain limits under the Policy.
Payments in addition to any Planned Premium are referred to in the Policy as
unscheduled payments and can be paid at any time, subject to certain limits.
(See "Premiums".)
Premiums. Premiums include all payments under the Policy, whether a
Planned Premium or an unscheduled payment. (See "Premiums".)
Policy Date. If you make a premium payment with the application, the
Policy Date is generally the later of the date Part II of the application was
signed and receipt of the premium payment. If you choose to pay the initial
premium upon delivery of the Policy, the Policy will be issued with a Policy
Date which is generally five days after issue. (See "Amount Provided for
Investment under the Policy".)
Target Premium. The Target Premium is used to determine the amount of
Sales Charge that is imposed on each premium payment. It varies by issue age,
sex and underwriting class of the insured and the Policy's face amount. The
Target Premium is equal to the net annual premium that would be paid assuming
the Policy provides for paid-up benefits after the payment of seven level net
annual premiums determined in accordance with federal income tax laws.
You. When used in this prospectus, "you" refers to the Policy Owner.
6
INTRODUCTION TO THE POLICIES
This prospectus describes Policies under which net premiums are allocated
to the Variable Account. If the Fixed Account is available in your state, you
may choose to allocate or transfer all or part of your funds to that account.
NELICO provides guarantees of principal and interest with respect to the Fixed
Account which is part of NELICO's general account. Amounts in the Fixed Account
are backed by NELICO's general account, rather than the Variable Account. For a
description of the Fixed Account, see "The Fixed Account" which appears later
in this prospectus.
The Policies
The individual Flexible Premium Adjustable Variable Life Insurance Policies
offered by this prospectus are designed to provide lifetime insurance coverage
under Policies (together constituting a "case") linked by a non-arbitrary factor
(such as a common employer of each Insured under the case). They are not
offered primarily as an investment.
The following is a brief listing of the basic features of the Policy.
These and other features of the Policy are explained in detail throughout the
prospectus. You should be sure to read the entire prospectus for more complete
information.
-- You may choose to make premium payments under the Policy based on a
schedule you determine, subject to certain limits. NELICO can limit or
prohibit unscheduled payments in certain situations, including cases
where the insured is in a substandard risk class. (See "Premiums".)
-- After an initial period in the Zenith Back Bay Advisors Money Market
Sub-Account in certain states, net premiums are invested according to
your instructions in one or more of the Sub-Accounts of the Variable
Account corresponding to mutual fund portfolios, or the Fixed Account.
(See "Allocation of Net Premiums" and "Investment Options".)
-- The mutual fund portfolios available to you under the Policy include
several common stock funds, including funds which invest primarily in
foreign securities, two bond funds, two managed funds, a balanced fund,
and a money market fund. Currently, you may allocate your Policy's cash
value to an unlimited number of the available accounts (including the
Fixed Account). (See "Investments of the Variable Account".)
-- If the Fixed Account is available in your state, you may also allocate
funds to that account. NELICO provides guarantees of Fixed Account
principal and interest. Special limits apply to transfers of cash value
from the Fixed Account. NELICO also reserves the right to restrict
transfers of cash value and allocations of premiums into the Fixed
Account. (See "The Fixed Account".)
-- The cash value of the Policy will vary daily based on, among other
things, the net investment experience of the Sub-Accounts to which
amounts have been allocated and the amount of interest credited to any
of the Policy's cash value in the Fixed Account. (See "Cash Value",
"Charges and Expenses", "Premiums", "Loan Provision" and "Partial
Surrender".)
-- The portion of the cash value which you invest in the Sub-Accounts is
not guaranteed. You bear the investment risk on this portion of the cash
value. (See "Cash Value".)
-- You may choose between two death benefit options under the Policy. The
level option provides a death benefit equal to the Policy's face amount.
The variable option provides a death benefit equal to the face amount
plus any cash value, which varies with the net
7
investment experience of the Sub-Accounts to which amounts have been
allocated and the rate of interest credited on any cash value in the
Fixed Account. Under either of these options the death benefit could be
increased to satisfy tax law requirements if the cash value reaches
certain levels. (See "Death Benefit".)
-- After the first Policy year, you may increase or decrease the Policy's
face amount. The increase or decrease will be reflected in the
Policy's charges. (See "Increase in Face Amount" and "Reduction in
Face Amount".)
-- If you elect the Minimum Guaranteed Death Benefit rider, then
regardless of investment experience, each form of death benefit is
guaranteed not to be less than the Policy's face amount, as long as the
total amount of premiums paid less any partial surrenders and
outstanding Policy loan at least equals certain minimum amounts. (See
"Death Benefit" and "Minimum Guaranteed Death Benefit".)
-- You may change your allocation of future net premiums at any time.
(See "Allocation of Net Premiums" and "Investment Options".)
-- Once 15 days have elapsed after the initial payment confirmation is
mailed, the Policy provides that you may transfer portions of the
Policy's cash value among the Sub-Accounts and, generally, to the Fixed
Account up to four times per policy year (twelve times per policy year
for Policies issued in New York) without NELICO's consent. NELICO
currently allows 12 transfers per policy year in all states. Transfers
and allocations involving the Fixed Account are subject to certain
limits. (See "Transfer Option" and "The Fixed Account--Policy
Transactions".)
-- A loan privilege is available under the Policy. A partial surrender
feature is also available. (See "Loan Provision" and "Partial
Surrender".)
-- Death benefits paid to the beneficiary under the Policy generally are
not subject to Federal income tax. Under current law, undistributed
increases in cash value generally are not taxable to you. (See "Tax
Considerations".)
-- Loans, assignments and other pre-death distributions under the Policy
may have tax consequences depending primarily on the amount which you
have paid into the Policy but also on any "material change" in the
terms or benefits of the Policy or any death benefit reduction. If
premium payments, a death benefit reduction, or a material change in
the terms or benefits of the Policy cause it to become a "modified
endowment contract", then pre-death distributions (including loans)
will be included in income on an income first basis, and a 10% penalty
tax may be imposed on income distributed before the Policy Owner
attains age 59-1/2. Tax considerations may therefore influence the
amount and timing of premium payments and certain Policy transactions
which you choose to make. (See "Tax Considerations".)
-- If the Policy is not a modified endowment contract, NELICO believes
that loans under the Policy during the first 10 Policy years will not
be taxable to you as long as the Policy has not lapsed, been
surrendered or terminated. The tax consequences of a policy loan after
the tenth policy year are not clear. You should consult a tax advisor
if you intend to take out a policy loan after the tenth policy year or
allow a policy loan taken out during the first 10 policy years to
remain outstanding after the tenth policy year. With certain
exceptions, other pre-death distributions under a Policy that is not a
modified endowment contract are includible in income only to the extent
they exceed the investment in the Policy. (See "Tax Considerations".)
8
-- You have an opportunity during the "right to return the Policy"
period to return the Policy for a refund. You also have the right for
a limited period to cancel an increase in the Policy's face amount
which you have requested. (See "Right to Return the Policy".)
-- Within 24 months after a Policy's date of issue or the effective date
of a face amount increase, you may exercise the Policy's 24 Month
Right, which will result in the allocation of all or part of your
Policy's cash value and future premiums to the Fixed Account. The
purpose of the 24 Month Right is to provide you with fixed Policy
values and benefits. (See "24 Month Right" for a description of this
provision generally and for a description of the variation which
applies to Policies issued in Maryland and New Jersey.)
In many respects the Policies are similar to fixed-benefit universal life
insurance. Like universal life insurance, the Policies offer death benefits and
provide flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit universal life insurance in
that the death benefit may, and the cash value will, vary to reflect the
investment experience of the selected Sub-Accounts of the Variable Account.
The variable universal life insurance policies offered by NELICO are
designed to provide insurance protection. Although the underlying mutual fund
portfolios invest in securities similar to those in which mutual funds available
directly to the public invest, in many ways the Policies differ from mutual fund
investments. The main differences are:
-- The Policy provides a death benefit based on NELICO's assumption of an
actuarially calculated risk.
-- If the net cash value is not sufficient to pay a Monthly Deduction,
the Policy may lapse with no value unless additional premiums are paid.
If the Policy lapses when Policy loans are outstanding, adverse tax
consequences may result.
-- In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values
of the Policy. These charges include various insurance, risk,
administrative and premium tax charges. (See "Charges and
Expenses".)
-- The Variable Account, not the Policy Owner, owns the mutual fund
shares.
-- Federal income tax liability on any earnings is deferred until you
receive a distribution from the Policy. Transfers from one underlying
fund portfolio to another are accomplished without tax liability under
current law.
-- Dividends and capital gains are automatically reinvested.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Life Insurance".
Availability of the Policy
Each Policy is part of a "case," which is a grouping of one or more
Policies linked together by a non-arbitrary factor such as a common employer of
each Insured under the Policies. The Company in its sole discretion determines
the Policies that constitute a case. Policies in a case generally have a common
Policy owner (for example, the employer of the respective Insureds). In
addition, eligibility to purchase a Policy is contingent on the total annual
premium payment payable on the Policies included in the case meeting the
following minimums: cases of at least five Policies - $100,000; and cases of
fewer than five
9
Policies -- $250,000. The Policies may be issued on the lives of insureds from
the age of 20 to 80 on an underwritten basis, and on the lives of insureds from
the age of 20 to 70 on an automatic issue basis. (Automatic issue Policies may
not be available in New Jersey.) All persons must meet NELICO's underwriting and
other criteria for issuance. Generally, the minimum face amount available is
$50,000 unless NELICO consents to a lower amount. The Policies are not available
to employee benefit plans qualified under Section 401 of the Internal Revenue
Code, except with NELICO's consent.
Policy Charges
Premium-Based Charges. NELICO deducts the following charges from premiums:
-- A maximum sales charge of 8% on each premium payment made during
a Policy year until an amount equal to the Target Premium has
been paid; and 1% on each premium payment made thereafter during
the policy year; and
-- A premium tax charge of 2%.
Monthly Deduction from Cash Value. NELICO deducts certain charges from
the cash value:
-- Monthly charge for the cost of insurance; and for any benefits
provided by rider including the Minimum Guaranteed Death Benefit
(if elected);
-- Monthly mortality and expense risk charge, equal to an annual
rate of 0.75% during the first ten Policy years, and currently,
0.25% thereafter (guaranteed not to exceed 0.75%);
-- Monthly policy fee currently equal to $5.00 per month (guaranteed
not to exceed $10.00 per month).
Charge for Face Amount Increases. If you increase your Policy's face
amount and medical underwriting is required for the increase, a charge of $25.00
will be deducted from your Policy's cash value on the date that the increase
takes effect, and on the first day of the next eleven Policy months.
Charges Deducted from the Eligible Funds. Daily charges against the
Eligible Fund portfolios are deducted for investment advisory services and fund
operating expenses.
Currently, no charge is made to the Variable Account for federal income
taxes that may be attributable to the Variable Account. NELICO may, however,
impose such a charge in the future.
You can designate a Single Source Expense Sub-Account from which Monthly
Deductions and any charges for face amount increases will be taken.
See "Charges and Expenses" and "Other Policy Features--Increase in Face
Amount".
[Chart illustrating "How the Policy Works"]
Communications and Payments
NELICO will treat your request for a Policy transaction, or your submission
of a payment, as received by us, if it is received at our Administrative Office
before the close of regular trading on the New York Stock Exchange on that day.
If it is received after that time, or if the New York Stock Exchange is not open
that day, then it will be treated as received on the next day when the New York
Stock Exchange is open.
10
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. Before August 30, 1996, NELICO was a wholly-owned subsidiary
of New England Mutual Life Insurance Company ("New England Mutual").
Effective August 30, 1996, New England Mutual merged into MetLife, a mutual life
insurance company whose principal office is One Madison Avenue, New York, NY
10010. With the merger, New England Mutual's separate corporate existence
ended, and MetLife became the parent of NELICO. In connection with the merger,
NELICO changed its name from "New England Variable Life Insurance Company" to
"New England Life Insurance Company" and changed its domicile from the State
of Delaware to the Commonwealth of Massachusetts. NELICO's Administrative
Office is now at_________________________; the mailing address is:
________________________.
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
[Chart showing the relationship between NELICO, the Fixed Account, the Variable
Account and the Eligible Funds.]
11
POLICY VALUES AND BENEFITS
Death Benefit
If the insured dies while the Policy is in force, NELICO will pay a death
benefit to the beneficiary.
Death Benefit Options. When you apply for a Policy, you may choose
between two death benefit options.
The Option 1 (Face Amount) death benefit provides a death benefit equal to
the face amount of the Policy. The Option 1 death benefit is fixed, subject to
increases required by the Internal Revenue Code.
The Option 2 (Face Amount Plus Cash Value) death benefit provides a death
benefit equal to the face amount of the Policy plus the amount, if any, of the
Policy's cash value. The Option 2 death benefit is also subject to increases
required by the Internal Revenue Code.
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit, which for these purposes includes
--------
any coverage provided under any Adjustable Term Insurance Rider, will not be
less than that required by the "cash value accumulation test" specified in
Section 7702(a)(1) of the Internal Revenue Code, or the "guideline premium test"
--
specified in Section 7702(a)(2) of the Internal Revenue Code, as selected by you
------------------
when the Policy is issued. Once the Policy is issued with either the cash value
- -------------------------
accumulation test or the guideline premium test, that test will be used for the
life of the Policy.
Under the cash value accumulation test, the death benefit payable on any
day is not less than the Policy's cash value including the pro rata portion of
any Monthly Deduction made for a period beyond the date of death, divided by the
applicable net single premium set by the Internal Revenue Code. Net single
premiums are based on the age, sex and smoker/nonsmoker status of the insured at
the time of the calculation, and decline over time. A table of representative
net single premiums is set forth in Appendix F.
Under the guideline premium test, the death benefit is not less than a
percentage of the Policy's cash value, including the pro rata portion of any
Monthly Deduction made for a period beyond the date of death, as set forth in
Table I in Appendix F. This means that, if the cash value grows to certain
levels, the death benefit will be increased to satisfy the tax law requirements.
At that point, any payment you make into the Policy will increase the death
benefit by more than it increases the cash value. (See "Premiums".)
If you select the cash value accumulation test, a higher amount of premium
payments can generally be made for any given face amount; and a higher death
benefit may result in the long term.
In addition, if an Adjustable Term Insurance Rider has been added to the
Policy, you may choose to have the face amount of the coverage provided under
the Rider added to the face amount of the Policy for purposes of calculating the
Option 1 or Option 2 death benefit. If you elect to include the rider coverage
in the calculation of the death benefit, the Policy may provide an increased
potential for cash value to grow relative to the death benefit than would
otherwise be the case. If you elect not to include the rider coverage in the
calculation of the death benefit, the Policy may provide an increased potential
for the death benefit to grow relative to cash value than would otherwise be the
case.
If death occurs at or after the Policy Anniversary when the insured reaches
attained age 100, the death benefit is equal to the greater of (i) the cash
value on the date of death; or (ii) the face amount, if the Policy had a Minimum
Guaranteed Death Benefit rider attached, and the Minimum Guaranteed Death
Benefit was in effect on the Policy Anniversary when the Insured reached
attained age 100.
12
Guaranteed Death Benefit Rider
Subject to state availability, if you have elected the cash value
accumulation test, you may also elect on your application a rider benefit under
the Policy that provides a Guaranteed Death Benefit. If the Guaranteed Death
Benefit is in effect, as determined on the first day of each Policy month until
the insured attains age 100, the Policy will not lapse even if the net cash
value is insufficient to cover the Monthly Deduction due for that month. The
death benefit will be adjusted as described below before the proceeds are paid.
On the first day of a Policy month, if the total premiums you have paid,
less all partial surrenders you have made and less any outstanding Policy loan,
is at least equal to: the Guaranteed Death Benefit Premium shown in Section 1
of your Policy, multiplied by the number of complete Policy years the Policy has
been in force, plus 1/12 of that premium for each Policy month of the current
policy year up to and including the Policy month in question, then the guarantee
will apply for that month.
If you reduce the Policy's face amount or make a partial surrender which
reduces the face amount, or reduce or delete a rider benefit from your Policy,
or if your Policy's rating classification is improved, the Guaranteed Death
Benefit premium shown in Section 1 of your Policy will be recalculated, as well
as following an increase in the Policy's face amount or in the amount of
coverage provided by riders. (See "Premiums" below.)
If you elect this benefit, a charge will apply to your Policy as part of
the Monthly Deduction, currently until the Policy anniversary when the insured
reaches attained age 100, unless you request that the rider terminate before
that time. The rider cannot be added after issue of the Policy.
Adjustments to the Death Proceeds Payable
The death proceeds actually paid to the beneficiary are equal to the death
benefit in effect on the date of the insured's death reduced by any outstanding
loan and accrued loan interest as of that date and by the portion of any unpaid
Monthly Deduction for the period prior to that date. The death proceeds will be
increased by any rider benefits payable.
The death proceeds may also be adjusted if the insured's age or sex was
misstated in the application, if death results from the insured's suicide within
two years (or less if provided by state law) from the Policy's date of issue or
within two years (or less if provided by state law) from an increase in the
Policy's face amount, or if limits on the death benefit are imposed by rider.
(See "Limits to NELICO's Right to Challenge the Policy".)
Change in Death Benefit Option
At any time after the first Policy year, you may change your death benefit
option by sending your written request for change to NELICO's Administrative
Office. The request will be effective on the date it is received at NELICO's
Administrative Office. A change in death benefit option may result in tax
consequences to you. (See "Tax Considerations".)
If you change from Option 1 (Face Amount) to Option 2 (Face Amount Plus
Cash Value), the Policy's face amount will be reduced by the amount necessary
for the death benefit to be the same immediately before and after the change.
The face amount reduction will apply to the Policy's initial face amount and any
prior increases in face amount on a pro rata basis. A face amount reduction
below $50,000 is permitted only with NELICO's consent. Any rider benefits under
the Policy may also have to be decreased. If you selected the guideline premium
test for the Policy, in some circumstances a partial surrender of cash value may
be necessary in order to comply with Federal tax law limits on the amount of
premiums that can be paid into the Policy.
13
If you change from Option 2 (Face Amount Plus Cash Value) to Option 1 (Face
Amount), the Policy's face amount will be increased, if necessary, for the death
benefit to be the same immediately before and after the change. The resulting
increase in face amount will be applied to the Policy's initial face amount and
any prior increase in face amount on a pro rata basis.
After the Policy is issued, you cannot change (i) your election of the tax
------
test (cash value accumulation test or guideline premium test), or (ii) your
--
election whether to include any Adjustable Term Rider coverage in the
calculation of the Death Benefit Option.
Cash Value
Your Policy's cash value includes its cash value in the Variable Account,
in the Fixed Account and, if you have an outstanding policy loan, in NELICO's
general account as a result of the loan. The cash value reflects net premium
payments, the investment experience of the Policy's Sub-Accounts, interest
credited on its cash value in the Fixed Account and on amounts held in the
general account as a result of a loan, the death benefit option chosen, amounts
deducted for Policy charges, amounts surrendered and transfers among the
Policy's Sub-Accounts and the Fixed Account.
Your Policy's net cash value is the amount you will receive if you
surrender the Policy. The net cash value is the cash value reduced by any
outstanding policy loan (and accrued interest). The net cash value is increased
by the portion of any cost of insurance charge deducted that applies to the
period beyond the date of surrender. If you surrender the Policy during the
grace period, the net cash value you receive is reduced by an amount to cover
the Monthly Deduction to the date of surrender. (See "Loan Provision" and
"Monthly Deduction from Cash Value".)
The Policy's cash value in the Variable Account may increase or decrease
daily depending on the investment experience of the Policy's Sub-Accounts.
Unfavorable investment experience can reduce the net cash value to zero.
Because there is no guaranteed minimum cash value in the Variable Account, you
bear the entire investment risk with respect to the cash value. The premium
payment schedule you choose will also affect the Policy's net cash value.
Cash value attributable to the Variable Account is determined by
multiplying the number of units credited to each sub-account by the appropriate
unit values. That portion of any premium payment or transfer amount allocated
to a sub-account is converted to units of the sub-account(s) selected by
dividing the allocated premium payment or transfer amount by the unit value for
the selected sub-account next determined following (i) for premium payments,
receipt of the premium payment at NELICO's Administrative Office (or, in the
case of the initial premium payment, determined on the Investment Start Date);
(ii) for transfers, receipt of the transfer request at NELICO's Administrative
Office. The number of units in a sub-account will be reduced whenever its value
is reduced due to a full or partial surrender, a Policy loan, a transfer, a
Monthly Deduction, and payment of a face amount increase administrative charge.
The reduction is determined by dividing the dollar amount of the transaction by
the unit value for the affected sub-account next determined following the
transaction.
The unit value of each sub-account depends on the net investment experience
of its corresponding Eligible Fund and reflects fees and expenses borne by the
Eligible Fund. The unit value for each sub-account was set at $100.00 on or
about the date on which shares of the corresponding Eligible Fund first became
available to investors. The unit value is determined as of the close of regular
trading on the New York Stock Exchange on each day that the Exchange is open for
trading by multiplying the most recent unit value by the net investment factor
("NIF") for that day (see below).
The NIF for any sub-account reflects the change in net asset value per
share of the corresponding Eligible Fund as of the close of regular trading on
the Exchange from the net asset value most recently determined, the amount of
dividends or other distributions made by that Eligible Fund since the previous
determination of net asset value per share, and deductions for taxes, if any,
made from the Variable
14
Account. Specifically, a sub-account's NIF for a given day is equal to the net
asset value per share of the Eligible Fund corresponding to the sub-account at
the end of the day, plus the per-share amount of any dividend, capital gain or
other distribution made by the Eligible Fund on such day; divided by the net
asset value per share of that Eligible Fund as of the end of the immediately
preceding day; minus a factor for taxes deducted from the sub-account and
attributable to the Policy, if any. The NIF can be greater or less than one.
Allocation of Net Premiums
The initial net premium is allocated as of the "investment start date." If
the Policy is issued in a state that requires a refund of premium payments upon
exercise of the Right to Return the Policy, then as of the "investment start
date", the net premium will be allocated to the Zenith Money Market Sub-Account
until 15 days after NELICO mails the confirmation for the initial premium.
(See "Right to Return the Policy". For the definition of the "investment
start date", see "Amount Provided for Investment under the Policy".)
Thereafter, the cash value (which will reflect at least one Monthly Deduction)
is allocated to the Sub-Accounts and/or the Fixed Account according to your
instructions. (See "Investment Options" and "Monthly Deduction from Cash
Value".) Therefore, your selection of accounts would not take effect until
after the initial period described above, when the cash value is allocated to
the Zenith Money Market Sub-Account. If the Policy is issued in a state that
permits a refund of cash value upon exercise of the Right to Return the Policy,
then as of the "investment start date," the net premium will be allocated to the
Sub-Accounts and/or the Fixed Account in accordance with your instructions.
If the face amount of the Policy is increased, the portion of net premiums
attributable to the increase will be allocated among accounts in accordance with
your current allocation instructions. Currently, allocations can be made to an
unlimited number of available accounts (including the Fixed Account) at any one
time.
Amount Provided for Investment under the Policy
An amount is first invested under the Policy as of the investment start
date. That is the latest of: the date when NELICO first receives a premium
payment for the Policy, the date Part II of the Policy application is signed and
the Policy Date. (For this purpose, receipt of the premium payment means
receipt by your registered representative, if the payment is made with the
application; otherwise, it means receipt by a NELICO agency or, in the case of a
Policy sold through MetLife Brokerage, receipt by MetLife Brokerage at its
Princeton, New Jersey office.)
If you make a premium payment with the application, the Policy Date is
generally the later of the date Part II of the application is signed and receipt
of the premium payment. In that case, the Policy Date and investment start date
are the same. The amount of premium paid with the application must be at least
10% of the annual Planned Premium for the Policy. Only one premium payment may
be made before the Policy is issued. (A premium payment made before issue will
be maintained by NELICO or an affiliate in the general account, and will not
earn interest until the investment start date.)
If you make a premium payment with the application, the insured will be
covered under a temporary insurance agreement for a limited period that is
described in the temporary insurance agreement form. Generally, coverage under
the temporary insurance agreement begins on the later of the date when NELICO
receives the premium for the Policy and the date when Part II of the application
is signed. The maximum amount of coverage provided is the lesser of the amount
of insurance applied for and $500,000 for standard and preferred risks ($250,000
for substandard risks and $50,000 for persons who are determined to be
uninsurable). There may be variations to these provisions required by state
law.
If a Policy is issued, Monthly Deductions, including cost of insurance
charges, begin as of the Policy Date, even if the Policy's issuance was delayed
due to underwriting requirements; and will be in amounts based on the face
amount of the Policy issued, even if the temporary insurance coverage received
15
during the underwriting period was for a lesser amount. If NELICO declines an
application, it will refund the premium payment made plus interest at the rate
currently in use by NELICO.
If you choose to pay the initial premium upon delivery of the Policy, the
Policy will have a Policy Date which is generally five days after issue. The
investment start date will be the later of the Policy Date and the date the
premium is received. Monthly Deductions will begin on the Policy Date. Interest
at a 4% net rate will be credited on the applicable net Minimum Premium for the
period, if any, between the Policy Date and the investment start date.
Insurance coverage under the Policy will begin upon receipt of the portion of
the Minimum Premium due for the first quarter (or, upon receipt of the number of
monthly payments due under NELICO's Master Service Account arrangement.)
Under limited circumstances, NELICO may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
Backdating may be desirable, for example, so that you can purchase a particular
Policy face amount for lower cost of insurance rates, based on a younger
insurance age. For a backdated Policy, you must also pay the Minimum Premium
payable for the period between the Policy Date and the investment start date.
As of the investment start date, NELICO will allocate to the Policy those net
premiums, adjusted for monthly Policy charges and interest at a 4% net rate, for
the period between the Policy Date and the investment start date.
The amount provided for investment in the Policy is adjusted as of each day
the New York Stock Exchange is open to reflect the investment experience of the
Sub-Accounts for that day.
Right to Return the Policy
You may cancel the Policy within 10 days (or more where required by
applicable state insurance law) after you receive the Policy. The Policy may be
returned to NELICO or its agent. Insurance coverage ends as soon as the Policy
is returned (as determined by its postmark, if the Policy is mailed). If you
choose to cancel the Policy, NELICO will refund the cash value of the Policy, or
if required by state insurance law, any premiums paid with interest at the rate
currently in use by NELICO.
You may cancel an increase in face amount which you have requested within
10 days (or more where required by state law) after you receive the adjusted
Policy. You may return the face amount increase to NELICO or your registered
representative. The face amount increase will be canceled from its beginning
and any Monthly Deduction and charge deducted in connection with the face amount
increase will be returned to your cash value.
CHARGES AND EXPENSES
Deductions from Premiums
Sales Charge. NELICO deducts a sales charge of 8% from each premium
payment made during a Policy year until an amount equal to the Target Premium
has been paid; and 1% from each premium payment made thereafter during a Policy
year.
The sales charges under a Policy in a given Policy year are not necessarily
related to NELICO's actual sales expenses for that year.
Sales charges for Policies sold in certain group or sponsored arrangements
may be reduced. NELICO may reduce or eliminate the sales charge when you
purchase a Policy, on cash value transferred in the first year from life
insurance policies that were issued by New England Mutual, NELICO or NELICO's
affiliates and that meet certain premium, cash value and/or face amount
minimums, as currently published by NELICO. NELICO's normal issuance criteria,
including reinsurance and other limitations, as well as certain other
eligibility requirements, would also apply in these situations. Your registered
representative can advise you regarding the availability of this feature.
16
Premium Tax Charge. NELICO deducts 2% from each premium payment made to
cover premium taxes. Premium taxes vary from state to state.
Monthly Deduction from Cash Value
On the first day of each Policy month, starting with the Policy Date,
NELICO deducts the "Monthly Deduction" from your cash value. If a Guaranteed
Minimum Death Benefit rider is in effect, or if the Policy is protected against
lapse by payment of the Minimum Premium during the first three Policy years, the
Monthly Deduction is made, whether or not premiums are paid, until the cash
value equals zero. Otherwise, the Monthly Deduction is made, whether or not
premiums are paid, as long as the net cash value is sufficient to cover the
entire Monthly Deduction. If the net cash value is insufficient to cover the
entire Monthly Deduction and no Guaranteed Minimum Death Benefit rider or
Minimum Premium guarantee is in effect, the Policy will be in default and may
lapse. (See "Lapse and Reinstatement".) The Monthly Deduction reduces the
cash value in each Sub-Account of the Variable Account and in the Fixed Account
in proportion to the cash value in each, unless you have specified a "Single
Source Expense Sub-Account" on the Policy application. If a Single Source
Expense Sub-Account has been specified, the Monthly Deduction will reduce the
cash value in the sub-account that you have designated until that sub-account's
cash value has been exhausted; and then will reduce the cash value in the sub-
accounts and the Fixed Account on a pro rata basis, as described above. The
Fixed Account cannot be designated as the monthly charge sub-account.
The Monthly Deduction includes the following charges:
Policy Fee. The Policy fee is currently equal to $5.00 per month. The
fee is guaranteed not to exceed $10.00 per month.
Mortality and Expense Risk Charge. NELICO deducts a charge from your cash
value on each Monthly Deduction Date for the mortality and expense risks that
NELICO assumes. This charge is set at an annual rate of 0.75% during the first
ten Policy years, and 0.25% thereafter (guaranteed not to exceed 0.75%). The
mortality risk NELICO assumes is that insureds may live for shorter periods of
time than NELICO estimated. The expense risk is that NELICO's costs of issuing
and administering the Policies may be more than NELICO estimated. If the
proceeds from this charge are not needed to cover mortality and expense risks,
the Company may use proceeds to finance distribution of the Policies. The
mortality and expense risk charge is calculated separately for each segment of
coverage that was underwritten; the actual charge is based on a weighted average
of the mortality and expense risk charge applicable to each underwritten segment
(based on relative Target Premiums associated with each segment).
Monthly Charges for the Cost of Insurance. This charge covers the cost of
providing insurance protection under your Policy. No cost of insurance charge
is deducted on or after the Policy Anniversary when the insured reaches attained
age 100. The cost of insurance charge for a Policy month is equal to the
"amount at risk" under the Policy, multiplied by the cost of insurance rate
for that Policy month. The amount at risk is determined on the first day of the
Policy month after any applicable Monthly Deduction has been processed and is
the amount by which the death benefit (discounted at the monthly equivalent of
4% per year) exceeds the Policy's cash value. (If you elected at issue to
include Adjustable Term Rider coverage in the calculation of the Death Benefit
Option, then "death benefit" for these purposes will also include Adjustable
Term Rider coverage.) The cost of insurance rate for your Policy changes from
month to month.
If a Policy loan is outstanding and your Policy's net cash value is not
large enough to cover the cost of insurance charge for a policy month, the
difference between the net cash value available and the cost of insurance charge
is treated as an excess policy loan and the Policy may terminate. (See "Loan
Provision".)
17
The guaranteed cost of insurance rates for a Policy depend on the insured's
underwriting class, age on the first day of the Policy year and sex (if the
Policy is sex-based). The current cost of insurance rates will also depend on
the insured's age at issue of the Policy and on the duration of the Policy. In
addition, for Policies not sold in a business situation, current cost of
insurance rates will also depend on the face amount; for Policies sold in a
business situation, current cost of insurance rates will also depend on the
average face amount of Policies sold to the group and may also depend on the
number of lives in the group. The rates are guaranteed not to be higher than
rates based on the 1980 Commissioners Standard Ordinary Mortality Tables (the
"1980 CSO Tables"). The rates actually used may be lower than these maximum
rates, depending on NELICO's expectations regarding future mortality and expense
experience, lapse rates and investment earnings. NELICO reviews the adequacy of
its current cost of insurance rates and may adjust their level periodically. Any
change in the current cost of insurance rates will be applied prospectively only
and will be on a non-discriminatory basis. The current cost of insurance rate
for a Policy is set forth in the Policy Owner's annual statement. (For
information regarding a Policy's cost of insurance rates following a face amount
increase, see "Increase in Face Amount".)
The underwriting classes used for determining cost of insurance rates are
smoker standard, smoker substandard, nonsmoker preferred, nonsmoker standard,
nonsmoker aggregate, nonsmoker substandard and automatic issue. Substandard and
automatic issue ratings result in higher cost of insurance deductions. The
guaranteed maximum mortality charges for substandard ratings are based on
multiples of the 1980 CSO Tables. (For information regarding a Policy's
underwriting classification following a face amount increase, see "Increase in
Face Amount".)
Availability of the three nonsmoker classes varies. For fully underwritten
Policies with a face amount of $250,000 or more and where the insured's issue
age is 20 through 75, the standard nonsmoker underwriting classes are nonsmoker
preferred and nonsmoker standard; for Policies with a face amount less than
$250,000 (available only in business situations) and for Policies where the
insured's issue age is above 75 only the nonsmoker aggregate class is used.
Among these three nonsmoker classes, the nonsmoker preferred class generally
offers the most favorable rates on a current basis and the nonsmoker standard
class generally offers the least favorable rates on a current basis.
Cost of insurance rates are generally more favorable for nonsmoker than for
smoker insureds and generally more favorable for female than for male insureds.
Within a given underwriting class, cost of insurance rates are generally more
favorable for insureds with lower issue ages. Where required by state law, and
for Policies sold in connection with certain employee benefit plans, cost of
insurance rates (and Policy values and benefits) do not vary based on the sex of
the insured.
NELICO may offer Policies on an automatic issue basis to certain group or
sponsored arrangements. If an eligible group or sponsored arrangement purchases
Policies on an automatic issue basis, the Policies will be issued up to a
predetermined face amount limit, with only minimum evidence of insurability.
Automatic issue Policies provide substantial benefit to such arrangements in
that minimal time and effort is necessary to qualify an entire group of persons
for coverage without extensive applications or medical examinations. Because
only limited underwriting information is obtained, NELICO has determined that
the issuance of Policies on an automatic issue basis may present additional
mortality cost to NELICO relative to Policies issued to individuals in the
smoker standard class. Therefore, NELICO will generally use higher current cost
of insurance rates for automatic issue Policies. For certain group or sponsored
arrangements, the charge may vary based on the size of the group, the total
premium to be paid by the group and certain characteristics of its members. The
overall guaranteed maximum monthly cost of insurance charges for automatic issue
status will exceed charges based on 100% of the 1980 CSO Tables.
Policies issued on an automatic issue basis will have cost of insurance
rates that vary depending on whether the insured is a smoker or nonsmoker.
Nonsmokers will be treated as a group in that no preferred nonsmoker rates will
be available. The cost of insurance rates for automatic issue Policies will not
vary according to the face amount of an individual Policy; however, currently
the rates
18
may be lower if the Policy is issued to a group or sponsored arrangement where
its members have certain characteristics. Generally the monthly cost of
insurance charges will be higher than they would be for the same insured under a
fully underwritten Policy, if the insured is not a substandard risk.
Eligible group or sponsored arrangements may also elect to purchase
Policies on a simplified underwriting basis, either as an alternative to
automatic issue or for amounts of insurance which exceed NELICO's automatic
issue limits, but may not elect automatic issue for some members of the group
and simplified underwriting for others. Policies issued on a simplified
underwriting basis will have the same cost of insurance rates as fully
underwritten Policies.
Guaranteed Death Benefit Rider Charge. If you have elected the Guaranteed
Death Benefit rider, the guaranteed minimum death benefit rider charge is
_______, and is deducted as part of the Monthly Deduction, currently until the
Policy anniversary when the insured reaches attained age 100. This charge
compensates NELICO for its guarantee that, regardless of the investment
experience of the Policy's Sub-Accounts, the Policy will not lapse, provided
that the total amount of premiums paid, less partial surrenders and loans,
equals or exceeds the applicable multiple of the Guaranteed Death Benefit
premium shown in Section 1 of the Policy. (See "Guaranteed Death Benefit" and
"Adjustments to the Death Proceeds Payable".)
Charges for Additional Benefits and Services. NELICO imposes charges for
the cost of any additional Rider benefits as described in the rider form.
NELICO also reserves the right to charge Policy Owners a nominal fee, which will
be billed directly to the Policy Owner, in the event that a Policy re-issue or
re-dating is requested.
Charges Against the Eligible Funds
Charges for investment advisory fees and other expenses are deducted from
the assets of the Eligible Funds. The Zenith Fund Series incur charges for
advisory fees and certain other expenses. The series (other than the Capital
Growth Series) are advised by TNE Advisers, Inc., an affiliate of NELICO. Under
a voluntary expense cap by TNE Advisers for each of the Back Bay Advisors Bond
Income, Back Bay Advisors Money Market, Back Bay Advisors Managed, Westpeak
Stock Index, and Westpeak Growth and Income Series, TNE Advisers will bear those
expenses (other than the management fee) that exceed 0.15% of average daily net
assets; for the Loomis Sayles Small Cap Series, TNE Advisers will bear all
expenses that exceed 1.00% of average daily net assets. For the remaining Zenith
Fund Series (other than the Capital Growth Series), TNE Advisers, under a
voluntary expense deferral arrangement, will bear those expenses (other than the
management fee) which exceed a certain limit in the year in which they are
incurred and will charge those expenses to the series in a future year when
actual expenses of the series are below the limit up until two years after the
end of the fiscal year in which the expense was incurred. The expense cap and
expense deferral arrangement may be terminated at any time.
The following table shows the annual operating expenses for each series,
based on actual expenses for 1997, after giving effect to the applicable expense
cap or expense deferral arrangement:
Annual Operating Expenses
(as a percentage of average net assets after any expense cap)
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
------ ------ ------ ------ ------ ------ ------
Management Fee .63 .40 .35 .50 .25 .70 1.00
Other Expenses
19
Total Series Operating
Expenses
Annual Operating Expenses
(as a percentage of average net assets after expense deferral)
Goldman Morgan
------- ------
Sachs Loomis Stanley Davis Alger
----- ------ ------- ----- -----
Mid Cap Sayles International Venture Equity
------- ------ ------------- ------- ------
Value Balanced Magnum Value Growth
----- -------- ------ ----- ------
Series* Series Equity Series Series Series
------ ------ ------------- ------ ------
Management Fee .75 .70 .90 .75 .74
Other Expenses
------
------
Total Operating Expenses:
- -----------------------------
* Anticipated annual operating expenses for the Goldman Sachs Mid Cap Value
Series are based on the management fee approved by shareholders of the Series
that became effective on May 1, 1998, and other expenses actually incurred for
the Series for 1997.
The investment adviser for the VIP Fund and VIP Fund II is Fidelity Management
& Research Company, a registered investment adviser under the Investment
Advisers Act of 1940. The Portfolios of the VIP Fund and VIP Fund II, as part
of their operating expenses, pay investment management fees to Fidelity
Management & Research Company. The Portfolios also bear certain other expenses.
For the year ended December 31, 1997, the total operating expenses incurred by
the Portfolios, as a percentage of Portfolio average net assets, were as
follows:
Management Other Total Annual
Portfolio ---------- ----- ------------
- --------- Fees Expenses Expenses
---- -------- --------
Equity-Income
Overseas
High Income
Asset Manager
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. Had these
reductions been included, total annual expenses would have been ___% for
Equity-Income Portfolio, ___% for Overseas Portfolio and ___% for Asset
Manager Portfolio.
Affiliates of Fidelity Management & Research Company may compensate NELICO
or an affiliate for administrative, distribution, or other services relating
to these Portfolios of VIP Fund and VIP Fund II. Such compensation is based on
assets of the Portfolios attributable to the Policies and certain other
variable insurance products issued by NELICO and its affiliates.
Charges for Income Taxes. NELICO currently makes no charge for income
taxes against the Variable Account, but in the future NELICO may impose such a
charge, if appropriate. NELICO reserves the right to make a charge for any
taxes imposed on the Policies by any governmental body in the future. (See
"Charge for NELICO's Income Taxes".)
Group or Sponsored Arrangements
20
The Policies may be issued to group or sponsored arrangements, as well as
on an individual basis. A "group arrangement" includes a program under which a
trustee, employer or similar entity purchases individual Policies covering a
group of individuals. An example of such an arrangement is a non-tax qualified
deferred compensation plan. A "sponsored arrangement" includes a program under
which an employer permits group solicitation of its employees or an association
permits group solicitation of its members for the purchase of the Policies on an
individual basis.
For Policies issued in connection with group or sponsored arrangements,
NELICO may waive or reduce one or more of the following charges: the sales
charge, charges for the cost of insurance including any additional charge for
automatic issue status, mortality and expense risk charge, Policy Fee, face
amount increase charge, and/or premium tax charges described in "Charges and
Expenses". (In addition, the interest rate credited on amounts taken from the
sub-accounts as a result of a Policy loan may be increased for these Policies.)
NELICO will waive or reduce these charges according to its rules in effect when
the Policy application is approved. To qualify for a waiver or reduction, a
group or sponsored arrangement must satisfy certain criteria as to, for example,
size and number of years in existence. Generally, the sales contacts and effort,
administrative costs and mortality cost per Policy vary based on such factors as
the size of the group or sponsored arrangement, its stability, the purposes for
which the Policies are purchased and certain characteristics of its members. The
amount of reduction and the criteria for qualification will reflect the reduced
sales and administrative effort resulting from sales to qualifying group or
sponsored arrangements. NELICO may modify from time to time both the amounts of
reductions and the criteria for qualification. Reductions in or waiver of these
charges will not be unfairly discriminatory against any person, including the
affected Policy Owners and all other Policy Owners of Policies funded by the
Variable Account. The waiver or reduction of Policy charges for group or
sponsored arrangements described above will not apply to Policies issued in the
state of New York, other than Policies issued to non-tax qualified deferred
compensation plans.
The United States Supreme Court has held that certain insurance policies
providing values and benefits that vary with the sex of the insured may not be
used to fund certain employee benefit programs. Therefore, NELICO offers
Policies that do not vary based on the sex of the insured for use in connection
with certain employee benefit programs. NELICO recommends that any employer
proposing to offer the Policies to employees under a group or sponsored
arrangement consult its attorney before doing so.
PREMIUMS
Flexible Premiums
Within the limits described below, you may choose the amount and frequency
of premium payments. You may select a Planned Premium schedule, which is a level
amount. This schedule, which must be within NELICO's minimum and maximum limits,
appears in your Policy. It is not necessarily designed to keep your Policy in
force, and you may skip Planned Premium payments or make additional payments.
Additional payments could be subject to underwriting. No payment can be less
than $25, and the total of Planned Premiums and other payments will be limited
to NELICO's published maximum.
Planned Premiums can be paid on an annual, semi-annual or quarterly
schedule or, with NELICO's consent, monthly. You can change your Planned Premium
schedule by sending your request to NELICO's Administrative Office. However, the
amount of your Planned Premium cannot be increased except with the consent of
NELICO, and underwriting may be required. Cash values and death benefits are
permanently affected by the amount and frequency of premium payments.
21
You may make payments by check or money order. NELICO will send premium
notices for annual, semi-annual or quarterly Planned Premiums. Premium payments
may also be made by wire transfer of federal funds in accordance with our
procedures then in effect.
Premium payments may not be made on and after the Policy anniversary on
which the insured reaches attained age 100.
NELICO offers two types of premium payment levels that can protect your
Policy against lapse over specified time periods.
First, NELICO determines a three-year Minimum Premium amount based on the
Policy's face amount, the age, sex (unless unisex rates apply) and underwriting
class of the insured, the current level of Policy charges and any rider benefit
selected. Generally, during this three-year period, as long as the Minimum
Premium amount is timely paid, the Policy is guaranteed not to lapse even if the
Policy's net cash value is insufficient to pay the Monthly Deduction in any
month. (To determine whether the Policy will lapse, NELICO compares (a) the
total monthly Minimum Premiums for the Policy from the Policy Date to that
Policy month, to (b) the total premiums paid to date, less all partial
surrenders and any outstanding Policy loan balance. If (b) is greater than or
equal to (a), the Policy will not lapse.) However, no three-year Minimum Premium
death benefit guarantee will apply if you increase the Policy face amount,
substitute the insured or reinstate the Policy in the first three Policy years.
The Minimum Premium will be recalculated if you reduce the face amount or make a
partial surrender that reduces the face amount, or add, reduce or delete a rider
benefit, or if the rating classification of your Policy is improved in the first
three Policy years.
Second, if the Minimum Guaranteed Death Benefit premium shown in Section 1
of your Policy is timely paid, then the Policy will stay in force until the
insured reaches age 100. The Minimum Guaranteed Death Benefit premium is based
on the Policy's face amount, the age, sex (unless unisex rates apply) and
underwriting class of the insured, the death benefit option chosen, the
guaranteed level of cost of insurance charges, the current level of other Policy
charges and any rider benefit selected. If you reduce the Policy's face amount
or make a partial surrender which reduces the face amount, or reduce or delete a
rider benefit from your Policy, or if your Policy's rating classification is
improved, the Minimum Guaranteed Death Benefit premium will be recalculated, as
well as following an increase in the Policy's face amount or in the amount of
coverage provided by riders.
If you have selected the guideline premium test, Federal tax law limits the
amount of premiums that can be paid under the Policy. In addition, if any
payments under the Policy exceed the "7-pay test" under Federal tax law, you may
be taxed on certain distributions. (See "Tax Considerations".) NELICO's consent
is required if, in order to satisfy tax law requirements, any payment would
increase the Policy's death benefit by more than it would increase cash value.
NELICO may require evidence of insurability before accepting the payment.
NELICO allocates net payments to your Policy's Sub-Accounts as of the date
the payment is received at NELICO's Administrative Office. (See "Receipt of
Communications and Payments at NELICO's Administrative Office".)
A payment is treated first as a Planned Premium, second as repayment of
Policy loan interest due, third as repayment of a Policy loan, and last as an
unscheduled payment, unless you designate otherwise in writing to NELICO. (For
Policies issued in New York, a payment will be treated as a Planned Premium when
a Policy loan is outstanding only if the payment is in the exact amount of the
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Planned Premium next due; otherwise, it will be treated first as repayment of
Policy loan interest due, second as repayment of a Policy loan, third as a
Planned Premium, and last as an unscheduled payment.) If you have a Policy loan,
it may be more advantageous to repay the loan than to make a premium payment,
because the premium payment is subject to sales and tax charges, whereas the
loan repayment is not subject to any charges; however, repayment of the loan in
place of a premium payment could cause your
22
Policy to lose its eligibility for a death benefit guarantee. (See "Loan
Provision", "Deductions from Premiums" and "Death Benefit".)
Under Policies issued in New Jersey, if you have met the requirements for
the three-year Minimum Premium death benefit guarantee at the end of the three
year guarantee period, the Minimum Premium death benefit guarantee will continue
to apply during the fourth Policy year as long as payments made during that
Policy year, less partial surrenders and loans made in that year, equal the
guaranteed maximum Policy charges for the fourth Policy year. If you make a
Policy transaction that changes the amount of the guaranteed maximum Policy
charges for that year, then the amount you need to pay in order to preserve the
Minimum Premium death benefit guarantee for an extra Policy year will change
accordingly.
Lapse and Reinstatement
Lapse. Unless the Minimum Guaranteed Death Benefit is in effect (or,
during the first three Policy years, unless the Minimum Premium requirements
described under "Premiums" have been met), in any month that there is
insufficient net cash value to pay a Monthly Deduction the Policy will be in
default. The Policy provides a 62 day grace period for payment of a premium
sufficient to permit the Monthly Deduction to be made (as well as applicable
deductions from the premium). (For Policies issued in New Jersey the amount due
is the least of: a premium large enough to permit the Monthly Deduction, as well
as applicable deductions from the premium, to be made; a premium large enough to
permit the Minimum Guaranteed Death Benefit to be in effect; and a premium large
enough to permit the three year Minimum Premium death benefit to be in effect.
NELICO will notify you of the amount due. During the grace period insurance
coverage continues under your Policy, but if the insured dies before the premium
is paid, NELICO will deduct from the death proceeds the portion of the unpaid
Monthly Deduction for the period prior to the date of death. If the required
premium is unpaid at the end of the grace period, the Policy will lapse without
value.
Reinstatement. If your Policy has lapsed, it may be reinstated within
seven years after the date of lapse. If more than 7 years have passed, or if you
have surrendered the Policy, NELICO's consent is required to reinstate.
Reinstatement in all cases is subject to payment of certain charges described in
the Policy and generally requires evidence of insurability that is satisfactory
to NELICO.
OTHER POLICY FEATURES
Increase in Face Amount
After the first Policy year you may increase the face amount of your
Policy. The request for an increase will be subject to NELICO's underwriting
rules and requirements, including proof of insurability. The amount of the
increase must be at least $10,000. If the increase requires medical
underwriting, a face amount increase charge of $25.00 will be deducted on the
date the increase takes effect, and on the first day of the next eleven Policy
months, from the Policy's cash value in the sub-accounts and the Fixed Account,
in proportion to the amount of cash value in each (unless you have elected a
Single Source Expense Sub-Account).
After an underwritten face amount increase, NELICO will attribute a portion
of each premium payment you make to the face amount increase, even if you do not
increase the amount or frequency of your premiums.
Following an underwritten face increase, a new Target Premium will be
established for each segment of coverage under the Policy, based on the
insured's age and underwriting class at the time of the increase and the amount
of the increase. (The insured's age at the time of the increase will be the
insured's age at the start of that Policy year.) For the ten Policy years
following such an increase, sales
23
charges will be deducted from the portion of each premium paid after a face
amount increase by applying premium payments to each segment of coverage based
on the relative Target Premium amount attributable to each segment, determining
whether an amount equal to the Target Premium for each segment has been paid,
and calculating and imposing the applicable sales charge with respect to each
segment. See "Charges and Expenses" for a description of the sales charges that
will apply.
The Monthly Deduction applicable to the Policy will be adjusted beginning
with the effective date of a face amount increase to reflect the new face amount
and amount at risk under the Policy. Cost of insurance charges for the segment
of coverage attributable to the increase will be based on the insured's age at
the time of the increase (if underwritten), or on age at issue (if not
underwritten) and will reflect any change in risk classification of the insured
if the face amount increase was medically underwritten. Future cost of insurance
rates for the entire Policy after an increase will be based on a weighted
average of relative net amount at risk amounts for each segment of coverage.
(See "Charges and Expenses--Monthly Deduction from Cash Value.")
Face amount increases that are not medically underwritten do not require
payment of the face amount increase charge; and do not result in an increase in
the Target Premium.
NELICO determines the net amount at risk associated with a face amount
increase by calculating the face amount increase as a percentage of the Policy's
total net amount at risk immediately following the increase. The resulting
percentage of the Policy's total net amount at risk is applicable to the face
amount increase. The remaining percentage of the Policy's total net amount at
risk is applicable to the initial face amount. (For example, if the Policy's
face amount is increased by $100,000 and the total net amount at risk
immediately following the increase in $250,000, then 40% of the total net amount
at risk applies to the face amount increase. The remaining 60% applies to the
initial face amount.) On each monthly processing day, the net amount at risk
used to determine the cost of insurance charge associated with the face amount
increase is the Policy's total net amount at risk at that time, multiplied by
the percentage calculated as described above. This percentage remains fixed
until there is another face amount increase.
An increase in face amount will take effect on the first day of the Policy
month following NELICO's approval of your application for the increase. You can
contact NELICO's Administrative Office or your registered representative to
determine the procedures for requesting a face amount increase. You have a
limited time in which you may cancel a face amount increase. (See "Right to
Return the Policy".)
If a Policy has been issued with an Adjustable Term Insurance Rider, then
NELICO may offer increases in term insurance coverage, including annual term
insurance increases which are related to increases in salary or which are based
on a fixed annual percentage (the "Salary Refresh" program). Limits on the
annual and/or total amount of term insurance increases per Policy that will be
permitted on an automatic issue basis will be determined at issue of the
Policies. Increases that are not being made pursuant to an annual increase, or
which exceed this limit, will require underwriting. The terms and conditions of
the Salary Refresh program are contained in NELICO's published rules which are
furnished at the time of application.
Loan Provision
You may borrow all or part of the Policy's "loan value" once fifteen days
have elapsed after we mail the confirmation for the initial premium. NELICO will
make the loan as of the date when a loan request is received at NELICO's
Administrative Office. (See "Receipt of Communications and Payments at NELICO's
Administrative Office".) You should contact NELICO's Administrative Office or
your registered representative for information regarding the procedures to
follow for requesting a loan.
24
The Policy's loan value is equal to 90% (or more where required by state
law) of the Policy's cash value. The amount of loan value available to be
borrowed at any time is reduced by the amount of any outstanding Policy loan
plus accrued interest.
When Policy loan proceeds are paid to you, cash value in the amount of the
loan is taken from Sub-Accounts and transferred to NELICO's general account as
collateral for the loan. When you make a loan repayment, cash value held as
collateral is transferred from the general account back to the Sub-Accounts, and
thereby increases the cash value in the Sub-Accounts by the amount of the
repayment. Unless you specify a different allocation, cash value transferred for
a Policy loan is taken from the Sub-Accounts of the Variable Account in
proportion to the cash value in each. All loan repayments are allocated, unless
you request otherwise, to repay the loans made against the Sub-Accounts of the
Variable Account in proportion to the cash value in each at the time of
repayment.
The interest rate charged on Policy loans is 4.75% per year. It accrues
daily, and is due on the Policy Anniversary. If not paid at that time, the
interest accrued on the loan is added to the loan, and an amount equal to the
unpaid interest is deducted from the Policy's cash value in the Sub-Accounts in
proportion to the amount in each. Amounts taken as collateral for a loan earn
interest at not less than a 4.00% rate per year. Currently, the rate credited is
4.00% for the first 10 Policy years and 4.50% thereafter. Interest earned on
amounts held in NELICO's general account as collateral for a Policy loan is
credited to the Policy's Sub-Accounts on the Policy Anniversary, in proportion
to the cash value in each.
The tax consequences of a policy loan after the tenth policy year are not
clear. You should consult a tax advisor if you intend to take out a policy loan
after the tenth policy year or allow a policy loan taken out during the first 10
policy years to remain outstanding after the tenth policy year.
The amount taken from the Policy's Sub-Accounts as a result of a loan does
not participate in the investment experience of the Sub-Accounts. Therefore, the
death benefit and cash value of the Policy can be permanently affected by a
Policy loan, even if it is repaid. In addition, any proceeds payable under a
Policy are reduced by the amount of any outstanding loan plus accrued interest.
Any payment received while a Policy loan is outstanding is treated first as
a Planned Premium, second as repayment of Policy loan interest due, third as
repayment of a Policy loan, and last as an unscheduled payment, unless you
designate otherwise in writing to NELICO. (For Policies issued in New York, a
payment will be treated as a Planned Premium when a Policy loan is outstanding
only if the payment is in the exact amount of the Planned Premium; otherwise, it
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will be treated first as repayment of Policy loan interest due, second as
repayment of a Policy loan, third as a Planned Premium, and last as an
unscheduled payment.) If a Policy loan is outstanding, it may be more
advantageous to repay the loan than to pay a premium, because the payment is
subject to sales and premium tax charges, and the loan repayment is not subject
to charges; however, repayment of the loan in place of a premium payment could
cause your Policy to lose its eligibility for a death benefit guarantee. (See
"Deductions from Premiums" and "Death Benefit".)
If Policy loans plus accrued interest exceed the Policy's cash value at any
time, NELICO will notify you that the Policy is going to terminate. (This
situation is referred to as an "excess policy loan".) The Policy will terminate
without value 62 days after the notice is mailed unless the excess amount is
paid to NELICO within that time. If the Policy lapses with a loan outstanding,
adverse tax consequences may result. (See "Tax Considerations" below.)
If you purchase a Policy with the proceeds of another life insurance policy
that has an outstanding policy loan (see "Premium Payments"), the following
conditions must be met. First, the applicable application forms must be
completed. Second, if the value to be applied from the existing policy to a
Policy is subject to a policy loan, then any loan remaining against the new
Policy cannot exceed 75% of
25
the cash value of the Policy at issue. It may not be advantageous to replace
existing insurance with a Policy.
Department of Labor ("DOL") regulations set forth requirements for
participant loans under retirement plans subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"). Generally, the DOL regulations will apply
to plans that qualify under Section 401 of the Internal Revenue Code (the
"Code"). If the retirement plan is subject to ERISA, the plan fiduciary
authorized to oversee/direct the plan loan program must fulfill the requirements
of the regulations including charging a "commercially reasonable" rate of
interest. The policy loan interest rate may not be considered "commercially
reasonable" within the meaning of the DOL regulations. In addition, the DOL
regulations require that a plan loan be adequately secured but provide that not
more than 50% of the participant's vested account balance (including the Policy
cash value) be used as security for the loan. The DOL regulations and applicable
tax law may also contain other requirements for plan loans. Therefore, plan loan
provisions may differ from Policy loan provisions. If you are a participant in a
retirement plan subject to ERISA, you should consult with the fiduciary
administering the plan loan program. Failure of the plan loan program to comply
with the requirements of the DOL regulations and of tax law may result in tax
penalties under the Code and under ERISA.
Surrender
You may surrender a Policy for its net cash value at any time while the
insured is living by a request conforming to NELICO's administrative procedures.
The net cash value of the surrendered Policy is determined as of the date when a
surrender request is received at NELICO's Administrative Office. The net cash
value equals the cash value reduced by any Policy loan and accrued interest. The
net cash value paid on surrender is increased by the portion of any cost of
insurance charge deducted that applies to the period beyond the date of
surrender. If you surrender the Policy during the grace period (that is, at a
time when the net cash value was not sufficient to cover the Monthly Deduction
and no Minimum Guaranteed Death Benefit or three year Minimum Premium guarantee
applies to the Policy), the net cash value you receive is reduced by an amount
to cover the Monthly Deduction to the date of surrender. You may elect in
writing to have all or part of the net cash value applied to a payment option.
(See "Payment Options".) A surrender may result in adverse tax consequences.
(See "Tax Considerations" below.)
Partial Surrender
You may make a partial surrender of the Policy to receive a portion of its
net cash value once fifteen days have elapsed after we mail the confirmation of
the initial premium payment. A partial surrender will cause a reduction in the
Policy's death benefit and may cause a reduction in the Policy's face amount if
necessary in order that the amount at risk under the Policy not increase. Any
reduction in the face amount causes a proportionate reduction in the Policy's
Target Premium. Rider benefits may also be reduced. For purposes of calculating
any future cost of insurance charges, any face amount reduction will apply to
the initial face amount and to any prior increase in face amount on a pro rata
basis. No partial surrender may reduce the face amount below the Policy's
required minimum except with NELICO's consent.
Partial surrenders in any one Policy year are limited, except with NELICO's
consent, to 20% of the Policy's net cash value as of the date of the first
partial surrender for the Policy year or, if less, the Policy's available loan
value. Currently, NELICO permits partial surrenders of up to 90% of the Policy's
net cash value per year, assuming sufficient available loan value.
You should be aware that cash value paid upon partial surrender may not be
reinvested in the Policy except as premium payments, which are subject to the
charges described under "Deductions From Premiums."
26
A partial surrender first reduces the Policy's cash value in the Sub-
Accounts of the Variable Account, in proportion to the amount of cash value in
each, and then the Fixed Account, unless you request otherwise. (See "The Fixed
Account" below.) The amount of net cash value paid upon partial surrender is
determined as of the date when a request conforming to NELICO's administrative
procedures is received at NELICO's Administrative Office. NELICO's
administrative procedures can be determined by contacting your registered
representative or the Administrative Office.
A reduction in the death benefit as a result of a partial surrender may
cause the Policy to become a "modified endowment contract". If you are
contemplating a partial surrender, you should consult your tax advisor regarding
the tax consequences of the transaction. (See "Tax Considerations".)
Reduction in Face Amount
After the first Policy year, you may reduce the face amount of your Policy
without receiving a distribution of any of the Policy's cash value. (This
feature differs from a partial surrender in that a partial surrender causes part
of the Policy's cash value to be distributed to you.)
For purposes of calculating future cost of insurance charges, a face amount
reduction will apply to the initial face amount and to any prior increase in
face amount on a pro rata basis. The face amount remaining after a reduction has
to meet NELICO's minimum face amount requirements for issue, except with
NELICO's consent.
If you decrease the face amount of your Policy, the Target Premium is also
decreased. Your Policy's actual cash value is not reduced, but generally, the
Policy's death benefit is decreased.
However, if you have selected the guideline premium test, and if the death
benefit is being increased in accordance with federal income tax laws, the death
benefit will not be decreased. A reduction in face amount in this situation is
not advisable, because it will not reduce your death benefit or cost of
insurance charges (although it will reduce your administrative charges). In
addition, any rider benefits attached to the Policy may also have to be
decreased. Finally, a reduction in the face amount of your Policy will reduce
the Federal tax law limitations on the amount of premiums that can be paid under
the Policy. In these cases, a portion of the Policy's cash value will be paid to
you if necessary to allow the Policy to comply with Federal tax law.
A face amount reduction takes effect as of the date when NELICO has
received a request at its Administrative Office meeting NELICO's administrative
requirements. You can determine NELICO's administrative requirements by
contacting your registered representative or the Administrative Office.
A reduction in the face amount of a Policy that causes a death benefit
reduction may cause the Policy to become a "modified endowment contract". If you
are contemplating a reduction in face amount, you should consult your tax
advisor regarding the tax consequences of the transaction. (See "Tax
Considerations".)
Acceleration of Death Benefit Rider
NELICO may offer in the future a rider benefit that will allow you to
receive an accelerated payment of your Policy's death benefit. This advance
payment of the death benefit will be available where certain special needs
exist, as described briefly below. The right to exercise the rider will be
subject to certain conditions contained in the rider.
NELICO will make the accelerated benefits rider available to you only
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if: (1) your state insurance department has approved the rider, and (2)
- ------------------------------------------------------------------------
NELICO believes that the rider will meet the definition of an accelerated death
- -------------------------------------------------------------------------------
benefit for Federal income tax purposes and (3) the
- ---------------------------------------------------
27
availability of the rider will not jeopardize the qualification of the Policy as
- --------------------------------------------------------------------------------
life insurance under federal income tax law.
- --------------------------------------------
If the accelerated benefits rider is offered, it is expected to provide
that if the insured is diagnosed as terminally ill, as defined in the rider, you
may request an accelerated payment of the Policy's death benefit. The payment
may be subject to discounting and charges. Payment will be subject to evidence
satisfactory to NELICO.
See "Tax Considerations", below, for a discussion of the tax consequences
associated with the accelerated benefits rider.
Investment Options
You may allocate your Policy's premiums and cash value among the Sub-
Accounts of the Variable Account and the Fixed Account in any combination.
Currently, allocations can be made to an unlimited number of the available
accounts (including the Fixed Account) at any time; NELICO reserves the right to
limit the number of available accounts to which allocations can be made to ten.
A minimum of 1% of the premium must be allocated to each Sub-Account selected.
Percentages allocated must be in whole numbers.
You make the initial premium allocation when you apply for a Policy. You
may change the allocation of future premiums at any time thereafter. The change
will be effective for premiums applied on or after the date when NELICO receives
your request. You may request the change by telephone or by written request in a
form satisfactory to NELICO. (See "Receipt of Communications and Payments at
NELICO's Administrative Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
Transfer Option
Beginning fifteen days after NELICO mails the confirmation for the initial
premium, you may transfer your Policy's cash value between Sub-Accounts up to
four times in a policy year (twelve times per policy year for Policies issued in
New York) without NELICO's consent. NELICO currently allows 12 Sub-Account
transfers per Policy year under all Policies. Transfers under dollar cost
averaging, and transfers out of the Fixed Account, are not counted against this
limit. All Sub-Account transfer requests made at the same time will be treated
as a single request. The transfer will be effective as of the date when NELICO
receives the transfer request at its Administrative Office. (See "Communications
and Payments".) For special rules regarding transfers involving the Fixed
Account, see "The Fixed Account".
You may request a Sub-Account transfer or reallocation of future premiums
by written request (which may be telecopied) to NELICO's Administrative Office
or by telephoning NELICO. To request a transfer or reallocation by telephone,
you should contact your registered representative or contact NELICO at 1-800-
________. Requests for transfers (up to NELICO's current limit per policy year)
or reallocations by telephone will be automatically permitted. NELICO will use
reasonable procedures, such as requiring certain identifying information from
the caller, tape recording the telephone instructions, and providing written
confirmation of the transaction, in order to confirm that instructions
communicated by telephone are genuine. Any telephone instructions reasonably
believed by NELICO to be genuine will be your responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, you will bear the risk of loss. If NELICO does not employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, it may be liable for any losses due to unauthorized or fraudulent
instructions.
28
Dollar Cost Averaging
NELICO offers an automated transfer privilege referred to here as
dollar cost averaging. The main objective of dollar cost averaging is to
shield investments from short term price fluctuations. Since the same dollar
amount is transferred to selected Sub-Accounts each month, 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 Policy Owners to take advantage of investment
fluctuations, but does not assure a profit or protect against a loss in
declining markets.
Under this feature, you may request that a certain amount of your cash
value be transferred on any selected business day of each month (or if not a
day when the New York Stock Exchange is open, the next such day), from any one
Sub-Account to one or more of the other Sub-Accounts. We reserve the right to
limit allocation of cash value to no more than 10 of the Sub-Accounts at any
one time. A minimum of $100 must be transferred to each Sub-Account that you
select under this feature. Currently, transfers made under the dollar cost
averaging program will not be counted against the 12 transfers that may be made
each year. You may select a dollar cost averaging program when you apply for
the Policy or at a later date by contacting NELICO's Administrative Office. You
may not participate in the dollar cost averaging program while you are
participating in the asset rebalancing program. (See "Asset Rebalancing"
below). You may cancel your use of the dollar cost averaging program at any
time prior to the monthly transfer date. Transfers will continue until you
notify us to stop making transfers or there no longer is sufficient cash value
in the Sub-Account from which you are transferring cash value.
Asset Rebalancing
NELICO offers an asset rebalancing program for cash value. Cash value
allocated to the Sub-Accounts can be expected to increase or decrease at
different rates. An asset rebalancing program automatically reallocates your
cash value among the Sub-Accounts each quarter to return the allocation to the
allocation percentages you specify. Asset rebalancing is intended to transfer
cash value from those Sub-Accounts that have increased in value to those that
have declined, or not increased as much, in value. Over time, this method of
investing may help a Policy Owner "buy low and sell high," although there can
be no assurance that this objective will be achieved. Asset rebalancing does
not guarantee profits, nor does it assure that a Policy Owner will not have
losses.
You may select an asset rebalancing program when you apply for the
Policy or at a later date by contacting NELICO's Administrative Office. You
specify the percentage allocations according to which your cash value will be
reallocated among the Sub-Accounts. You may not participate in the asset
rebalancing program while you are participating in the dollar cost averaging
program. (See "Dollar Cost Averaging" above). On the last day of each
calendar quarter on which the New York Stock Exchange is open, we will transfer
cash value among the Sub-Accounts to the extent necessary to return the
allocation to your specifications. Asset rebalancing will continue until a
written or telephone request to terminate is received at NELICO's
Administrative Office. Currently, transfers made under an asset rebalancing
program are not counted for purposes of the transfer rules described above.
Substitution of Insured Person
Subject to state insurance department approval, NELICO offers a rider
benefit that will allow you to substitute the insured person under your Policy,
if you provide satisfactory evidence that the person proposed to be insured is
insurable. The right to substitute the insured person is subject to certain
restrictions. A substitution of the insured person will result in a taxable
exchange. In addition, a substitution of the insured person could reduce the
amount of premiums allowed to be paid into the Policy under Federal tax law if
you selected the guideline premium test and, as a result, may require a partial
surrender of cash value. This rider may not be approved in every state and
therefore may not be available in every state. Your registered representative
can provide current
29
information on the availability of the rider. Since substituting the insured
person may be a taxable event, you should consult your tax advisor before
substituting the insured person under your Policy.
Payment of Proceeds
NELICO will ordinarily pay any net cash value, loan value or death
benefit proceeds payable from the Sub-Accounts within seven days after receipt
at the Administrative Office of a request, or proof of death of the insured, in
a form satisfactory to NELICO. (See "Receipt of Communications and Payments
at NELICO's Administrative Office".) However, NELICO may delay payment (except
when a loan is made to pay a premium to NELICO) or transfers from the Sub-
Accounts: (i) if the New York Stock Exchange is closed for other than weekends
or holidays, or if trading on the New York Stock Exchange is restricted, (ii)
if the SEC determines that a state of emergency exists that makes payments or
Sub-Account transfers impractical, or (iii) at any other time when the Eligible
Funds or the Variable Account have the legal right to suspend payment. NELICO
may withhold payment of surrender or loan proceeds to the extent that those
proceeds are derived from a Policy Owner's check which has not yet cleared. In
those cases, NELICO will process the surrender or loan to the extent of policy
values for which the Policy Owner has made full payment. The balance of the
surrender or loan proceeds will be paid when the Policy Owner's check has
cleared. NELICO may also delay payment if it considers whether to contest the
Policy. NELICO will pay interest on the death benefit proceeds from the date
they become payable to the date they are paid in one sum or, if a payment
option was selected, to the effective date of the option. (See "Payment
Options".)
Death benefit proceeds may be paid pursuant to NELICO's Access Plus
program. If the Access Plus program is elected, an Access Plus account will be
established at State Street Bank & Trust Company at the time that death benefit
proceeds are payable. The Access Plus account provides convenient access to
proceeds, which are maintained in MetLife's general account, through checkbook
privileges with State Street. A beneficiary may elect to have death benefit
proceeds paid through the Access Plus program at any time prior to the payment
of death benefit proceeds.
Payments of cash value, or of any loan value available, from cash
value in the Fixed Account will normally be paid promptly. However, NELICO has
the right to delay such payments for up to six months from the date of the
request (to the extent allowed by state insurance law). NELICO will pay
interest in accordance with state insurance law requirements on payments that
are delayed.
24 Month Right
General Right. Generally, during the first 24 months after the
Policy's issue date, and during the first 24 months after the effective date of
an increase in face amount, you may convert this Policy, or a portion thereof,
to fixed benefit coverage by transferring all or a portion of your Policy's
cash value, and allocating all or a portion of future premiums, to the Fixed
Account. The request to convert to fixed benefit coverage must be in written
form satisfactory to NELICO.
This privilege may be exercised only once within 24 months after
issue, and only once within 24 months after each increase in face amount.
Transfers into the Fixed Account pursuant to this right will not count toward
the limit on the number of cash value transfers permitted under the Policy each
year. Cash value that is transferred to the Fixed Account, and future premium
amounts allocated to the Fixed Account, may subsequently be transferred back to
one or more Sub-Accounts of the Variable Account, subject to the Policy's
general limits on transfers from the Fixed Account (see "The Fixed Account").
The Policy generally permits NELICO to limit allocations to the Fixed
Account under certain circumstances. (See "The Fixed Account.") If NELICO
limits such allocations and you subsequently wish to exercise the 24 Month
Right, your right will be limited to (i) the Policy's cash value prior to any
face amount increase plus that portion of future premiums attributable to the
Policy's face amount prior
30
to any increase, if the right is exercised during the first 24 months after
issue, or (ii) that portion of the Policy's cash value and future premiums
attributable to the face amount increase, if the right is exercised within 24
months after a face amount increase. After exercising the 24 Month Right, you
may continue to allocate to the Fixed Account only the percentage of premiums
that was allocated to the Fixed Account pursuant to your most recent exercise
of the 24 Month Right. In addition, if you have exercised this right, and
NELICO subsequently limits such allocations, then you may continue to allocate
to the Fixed Account only the lowest percentage of premiums that was allocated
to the Fixed Account at any time since your most recent exercise of the 24
Month Right.
For Policies Issued in Maryland and New Jersey. Under Policies
issued in Maryland and New Jersey, you can exchange the initial face amount of
your Policy, and any increase in face amount of your Policy, for a fixed
benefit whole life or endowment life insurance policy provided that (1) the
Policy has not lapsed and (2) the exchange is made within 24 months after the
Policy's issue date or, if you are exchanging an increase in face amount,
within 24 months after the effective date of the increase. The new policy will
be issued by NELICO or, if no such policy is available for an exchange, by
MetLife. If you exercise this option, you will have to make up any investment
loss you had that is attributable to the portion of the variable life insurance
policy being exchanged.
The exchange will be made without evidence of insurability. The new
policy will have, at the option of the policyholder, either the same death
benefit or the same net amount at risk as that being exchanged. For the
exchange of the initial face amount of the variable life policy, the new policy
will have the same issue age, underwriting class and policy date as the
variable life policy had. For the exchange of an increase in face amount, the
new policy will have the same issue age of the insured as the age of the
insured on the effective date of the increase, the same underwriting class as
the underwriting class on the effective date of the increase, and a policy date
equal to the effective date of the increase. Any riders to the original Policy
will be attached to the new policy if they are available.
The exchange will be effective on the date when NELICO receives
written notice at its Administrative Office in a form satisfactory to NELICO,
the Policy and payment to NELICO of any cost to exchange. (See "Receipt of
Communications and Payments at NELICO's Administrative Office".) The exchange
may result in a cost or credit to you. The cost or credit will reflect any
differences in cash values and charges between the exchanged portion of the
variable life policy and the new policy. Upon the exchange, you may also need
to make an immediate premium payment on the new policy in order to keep it in
force. Any policy loan outstanding must be repaid on or before the effective
date of the exchange.
Payment Options
The Policy's death benefit and net cash value will be paid in one sum
unless the Policy Owner or payee chooses to put all or part of the proceeds
under a payment option. You can choose a combination of payment options. The
selection of a payment option and the naming of a payee must be in written form
satisfactory to NELICO. You can make, change or revoke the selection before
the death of the insured. The payment options available are fixed benefit
options only; therefore, proceeds applied to an option will no longer be
affected by the investment experience of the Variable Account. The guaranteed
mortality assumptions used in determining payment levels under the options will
not vary based on sex. (For Policies issued in New York and Oregon, however,
and which are not issued for use in connection with certain employee benefit
plans and fringe benefit programs, the mortality assumptions will vary based on
sex. See "Group or Sponsored Arrangements".) Once payments under an option
begin, withdrawal rights may be restricted.
The following payment options are available:
(i) Income for a Specified Number of Years. Proceeds are paid in
equal monthly installments for up to 30 years, with interest at
a rate not less than 3.5% a year,
31
compounded yearly. Additional interest paid by NELICO for any year
will be added to the monthly payments for that year.
(ii) Life Income. Proceeds are paid in equal monthly installments
(i) during the life of the payee, (ii) for the longer of the life of
the payee or 10 years, or (iii) for the longer of the life of the
payee or 20 years.
(iii) Life Income with Refund. Proceeds are paid in equal monthly
installments during the life of the payee. At the payee's death, any
unpaid proceeds remaining are paid either in one sum or in equal
monthly installments until the total proceeds have been paid.
(iv) Interest. Proceeds are held for the life of the payee or
another agreed upon period. Interest of at least 3.5% a year is paid
monthly or added to the principal annually. At the death of the
payee, or at the end of the period agreed to, the balance of
principal and any interest will be paid in one sum.
(v) Specified Amount of Income. Proceeds plus accrued interest of
at least 3.5% a year are paid in an amount and at a frequency elected
until total proceeds have been paid. Any amounts unpaid at the death
of the payee will be paid in one sum.
(vi) Life Income for Two Lives. Proceeds will be paid in equal
monthly installments (i) while either of two payees is living, (ii)
for the longer of the surviving payee or 10 years, or (iii) while the
two payees are living and, after the death of one payee, two-thirds
of the monthly amount for the life of the surviving payee will be
paid.
NELICO's consent to use of an option is required if the installment
payments would be less than $20.
Additional Benefits by Rider
The Minimum Death Benefit Guarantee, if elected at issue, is added to the
Policy by rider. A Policy can include additional benefits provided by rider to
the Policy, subject to NELICO's underwriting and issuance standards. These
additional benefits usually require an additional charge as part of the Monthly
Deduction from cash value. The rider benefits available with the Policies
provide fixed benefits that do not vary with the investment experience of the
Variable Account, and rider benefits are subject to different terms, conditions,
and guarantees than is the Policy.
It may be to your economic advantage to include a significant portion or
percentage of your insurance coverage under a term rider. However, like the
cost of coverage under the Policy, charges deducted from the Policy's cash value
to pay for term coverage no longer participate in the investment experience of
the Variable Account, and generally increase with the age of the covered
individual. Use of a term rider generally reduces sales compensation. Your
registered representative can provide you more information on the uses of term
rider coverage.
The following riders are available:
Adjustable Term Rider, which provides term insurance. This Rider
terminates no later than the Policy anniversary on which the insured has
reached attained age 100.
Waiver of Monthly Deduction, which provides for waiver of Monthly
Deductions upon the disability of the insured.
32
Temporary Term Insurance, which provides for insurance from the date of
issue to the Policy Date.
Not all riders may be available to you and riders in addition to those
listed above may be made available. You should consult your registered
representative regarding the availability of particular riders.
Policy Owner and Beneficiary
The Policy Owner is named in the application but may be changed from time
to time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except for rights to payment of benefits) terminate at the
death of the insured.
The beneficiary is also named in the application. The beneficiary of the
Policy may be changed at any time before the death of the insured. The
beneficiary has no rights under the Policy until the death of the insured and
must survive the insured in order to receive the death proceeds. If no named
beneficiary survives the insured, the proceeds will be paid to the Policy
Owner.
A change of Policy Owner or beneficiary must be in written form
satisfactory to NELICO and must be dated and signed by the Policy Owner making
the change. The change will be subject to all payments made and actions taken
by NELICO under the Policy before the signed change form is received by NELICO
at its Administrative Office.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments will be subject to all payments made and actions
taken by NELICO under the Policy before a signed copy of the assignment form
is received at NELICO's Administrative Office. NELICO will not be responsible
for determining whether or not an assignment is valid. Changing the Policy
Owner or assigning the Policy may have tax consequences. (See "Tax
Considerations" below.)
THE VARIABLE ACCOUNT
The Variable Account was established as a separate investment account of
NELICO on January 31, 1983 under Delaware law and became subject to
Massachusetts law when NELICO changed its domicile to Massachusetts on August
30, 1996. The Variable Account is the funding vehicle for other NELICO
variable life insurance policies in addition to the Policies. The Variable
Account meets the definition of a "separate account" under Federal
securities laws. The Variable Account is registered with the Securities and
Exchange Commission (the "SEC") as a unit investment trust under the
Investment Company Act of 1940. Registration with the SEC does not involve
supervision by the SEC of the management or investment practices or policies
of the Variable Account. However, both NELICO and the Variable Account are
subject to regulation by the Massachusetts Insurance Commissioner and to the
insurance laws and regulations in every jurisdiction where the Policies are
sold.
Although the assets of the Variable Account are owned by NELICO, applicable
law provides that the portion of the Variable Account assets equal to the
reserves and other liabilities of the Variable Account may not be charged with
liabilities that arise out of any other business NELICO may conduct. NELICO
believes this means that the assets of the Variable Account equal to the
reserves and other liabilities of the Variable Account are not available to
meet the claims of NELICO's general creditors, and may only be used to support
the cash values under its variable life insurance policies issued by the
Variable Account. But NELICO may transfer to its general account assets which
exceed
33
the reserves and other liabilities of the Variable Account. Before making any
such transfer, NELICO will consider any possible adverse impact the transfer
might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of NELICO's
other income or capital gains and losses.
Investments of the Variable Account
The Variable Account currently has 16 Sub-Accounts, each of which invests
in a series of an Eligible Fund. The Sub-Accounts of the Variable Account are:
-- The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the Zenith Fund
-- The Zenith Bond Income Sub-Account, which invests in the Back Bay
Advisors Bond Income Series of the Zenith Fund
-- The Zenith Capital Growth Sub-Account, which invests in the Capital
Growth Series of the Zenith Fund
-- The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
-- The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
-- The Zenith Growth and Income Sub-Account, which invests in the Westpeak
Growth and Income Series of the Zenith Fund
-- The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles
Small Cap Series of the Zenith Fund
-- The Zenith Balanced Sub-Account, which invests in the Loomis Sayles
Balanced Series of the Zenith Fund
-- The Zenith Equity Growth Sub-Account, which invests in the Alger Equity
Growth Series of the Zenith Fund
-- The Zenith Venture Value Sub-Account, which invests in the Davis
Venture Value Series of the Zenith Fund
-- The Zenith Mid Cap Value Sub-Account, which invests in the Goldman
Sachs Mid Cap Value Series (formerly the Loomis Sayles Avanti Growth
Series) of the Zenith Fund
-- The Zenith International Magnum Equity Sub-Account, which invests in
the Morgan Stanley International Magnum Equity Series of the Zenith
Fund
-- The Equity-Income Sub-Account, which invests in the Equity-Income
Portfolio of the VIP Fund
-- The Overseas Sub-Account, which invests in the Overseas Portfolio of
the VIP Fund
-- The High Income Sub-Account, which invests in the High Income Portfolio
of the VIP Fund
34
-- The Asset Manager Sub-Account, which invests in the Asset Manager
Portfolio of VIP Fund II
The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund was established as an
investment vehicle for separate investment accounts of NELICO and of other life
insurance companies. Currently the Zenith Fund is the funding vehicle for the
Variable Account and for separate accounts of NELICO and MetLife that issue
variable annuity contracts.
The VIP Fund and VIP Fund II are open-end, diversified management
investment companies (mutual funds) that serve as the investment vehicles for
variable life insurance and variable annuity separate accounts of various
insurance companies. The VIP Fund and VIP Fund II were organized by Fidelity
Management & Research Company.
Shares of the Eligible Funds are purchased and sold by the Variable Account
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 investment objectives of the Eligible Funds' portfolios are described
briefly below. There is, of course, no assurance that these objectives will be
met. A full description of the Eligible Funds, including their investment
objectives and policies, expenses, and risks of investing in the Eligible Funds,
is contained in the attached Eligible Fund prospectuses, as well as in the
Zenith Fund's Statement of Additional Information, which is referenced in the
Zenith Fund prospectus, and in the Statement of Additional Information for the
VIP Fund and VIP Fund II, which is referenced in those Funds' prospectus.
The Zenith Back Bay Advisors Money Market Series' investment objective is
the highest possible level of current income consistent with preservation of
capital through investment in a managed portfolio of high quality money market
instruments. Money market funds are neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series will maintain a stable
net asset value of $100 per share.
The Zenith Back Bay Advisors Bond Income Series' investment objective is to
provide a high level of current income consistent with protection of capital and
moderate investment risk through investment primarily in U.S. Government and
corporate bonds.
The Zenith Capital Growth Series' investment objective is 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 U.S. economy.
The Zenith Westpeak Stock Index Series' investment objective is to provide
investment results that correspond to the composite price and yield performance
of United States publicly traded common stocks. The Series currently seeks to
achieve its objective by attempting to duplicate the composite price and yield
performance of the Standard & Poor's 500 Composite Stock Price Index.
The Zenith Back Bay Advisors Managed Series' investment objective is to
provide a favorable total investment return through investment in a diversified
portfolio of common stocks and fixed income securities.
The Zenith Westpeak Growth and Income Series' investment objective is long-
term total return (capital appreciation and dividend income) through investment
in equity securities. Emphasis will be given to both undervalued securities
("value" style) and securities of companies with growth potential ("growth"
style).
35
The Zenith Loomis Sayles Small Cap Series' investment objective is long-
term capital growth from investments in common stocks or their equivalent. The
Series invests primarily in stocks of small cap companies with good earnings
growth potential that Loomis Sayles believes are undervalued by the market.
Typically, such companies have market capitalization of less than $1 billion.
Normally, the Series will invest at least 65% of its assets in companies with
market capitalization in the range of the average market capitalization of those
companies which make up the Russell 2000 Index at the time of investment, and
which have better than average growth rates at below average price/earnings
ratios, and have strong balance sheets and cash flow.
The Zenith Loomis Sayles Balanced Series' investment objective is
reasonable long-term investment return from a combination of long-term capital
appreciation and moderate current income. The Series is "flexibly managed" in
that sometimes it invests more heavily in equity securities and at other times
it invests more heavily in fixed-income securities. The Series invests at least
25% of its assets in fixed income senior securities and, under normal market
conditions, more than 50% of its assets in common stocks.
The Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
international equity securities of non-U.S. issuers, in accordance with the EAFE
country weightings determined by the series' sub-adviser. Under normal
circumstances at least 65% of the total assets of the series will be invested in
equity securities of issuers in at least three countries outside the United
States.
The Zenith Goldman Sachs Mid Cap Value Series' investment objective is
long-term capital appreciation. The Series invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of companies with public stock market
capitalization of between $500 million and $10 billion at the time of
investment.
The Zenith Davis Venture Value Series' investment objective is growth of
capital. The Series will primarily invest in domestic common stocks that the
Series' subadviser believes have capital growth potential due to factors such as
undervalued assets or earnings potential, product development and demand,
favorable operating ratios, resources for expansion, management abilities,
reasonableness of market price, and favorable overall business prospects. The
Series will generally invest predominantly in equity securities of companies
with market capitalizations of at least $250 million.
The Zenith Alger Equity Growth Series' investment objective is to seek
long-term capital appreciation. The Series' assets will be invested primarily
in a diversified, actively managed portfolio of equity securities, primarily of
companies having a total market capitalization of $1 billion or greater.
The VIP Fund Equity-Income Portfolio's investment objective is to seek
reasonable income by investing primarily in income-producing equity securities.
In choosing these securities, the Equity-Income Portfolio will also consider the
potential for capital appreciation.
The VIP Fund Overseas Portfolio's investment objective is long-term growth
of capital primarily through investments in foreign securities. Foreign
investments involve greater risks than U.S. investments, including political and
economic risks and the risks of currency fluctuation.
The VIP Fund High Income Portfolio's investment objective is to obtain a
high level of current income by investing primarily in high-yielding, lower-
rated, fixed-income securities, while also considering growth of capital. High-
yielding, lower-rated debt securities present higher risks of untimely interest
and principal payments, default and price volatility than higher-rated
securities, and may present problems of liquidity and valuation.
36
The VIP Fund II Asset Manager Portfolio's investment objective is to seek
high total return with reduced risk over the long-term by allocating its assets
among domestic and foreign stocks, bonds and short-term fixed-income
instruments.
The basic objective of the Policy is to provide benefits which increase in
value when the investment experience of the Policy's sub-accounts is favorable.
Historically, the investment performance of common stocks over the long term has
generally been superior to that of long or short term debt securities, although
common stocks have been subject to more dramatic changes in value over short
periods of time. The Zenith Capital Growth, Zenith Mid Cap Value, Zenith Equity
Growth, Zenith Venture Value, Zenith Growth and Income, Zenith Stock Index,
Zenith International Magnum Equity or Zenith Small Cap Sub-Accounts, or the
Equity-Income or Overseas Sub-Accounts, or some combination of these sub-
accounts, may, therefore, be a more desirable selection for Policy Owners who
have a long-term time horizon and/or are willing to accept such risks of short
term fluctuations in value. For a demonstration of certain of these market
trends, see Appendix C: Long Term Market Trends. Historically, the investment
performance of "small cap" stocks over the long term has generally been
superior to stocks of large capitalization companies, although "small cap"
stocks have been substantially more volatile than "large cap" stocks.
Historically, having a small percentage of a portfolio invested in overseas
stocks and the rest in domestic stocks has produced a portfolio that has less,
although still substantial, volatility than a completely domestic portfolio.
Equity investors should recognize that overseas and "small cap" funds taken
alone traditionally involve more risk than most domestic stock funds.
The performance of the various financial markets over shorter periods of
time has sometimes differed from their long term historical results. Short term
interest rates were very high in the late 1970's and early 1980's, but are now
lower. Long term bond values continue to fluctuate and could lose value if
interest rates rise. Common stock prices, which have risen substantially at
times, have also had periods of significant negative returns. Policy Owners who
seek somewhat greater protection against loss of principal in the short term
than that afforded by a stock fund may prefer the High Income Sub-Account or the
Zenith Bond Income Sub-Account. However, because the High Income Portfolio
invests in higher yielding, lower rated and unrated fixed income securities
(including bonds commonly referred to as "junk" bonds), it has a higher degree
of risk associated with it relative to more conservative fixed income funds.
Those who seek even greater safety of principal may select the Zenith Money
Market Sub-Account, although it is subject to possible rapid changes in short
term interest rates. Those who primarily seek safety of principal should
consider fixed life insurance as an alternative to variable life insurance.
NELICO guarantees the principal invested in the Fixed Account, although
this guarantee is subject to NELICO's claims paying ability.
You may wish to consider diversifying your investments by allocating the
Policy's cash value among two or more sub-accounts.
Policy Owners may also diversify by selecting the Zenith Managed Sub-
Account, Zenith Balanced Sub-Account or the Asset Manager Sub-Account, since
each generally invests its assets at most times in a combination of bonds,
stocks and short term instruments, in varying proportions depending upon the
investment adviser's evaluation of the economy and financial markets. The Asset
Manager Portfolio has the ability to invest its stock portfolio more
aggressively than the Back Bay Advisors Managed Series. You may also wish to
diversify your cash value by country. The Overseas Sub-Account and Zenith
International Magnum Equity Sub-Account allow you to participate primarily in
companies and economies outside the United States.
The selection of a Policy's sub-accounts is a matter of your own choice and
should depend on your willingness to accept investment risks, the other types of
investments you have and your own assessment of future economic and financial
market conditions.
Investment Management
37
The adviser and sub-adviser for each series of the Zenith Fund are listed
in the chart below. TNE Advisers, 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.
Series Adviser Sub-Adviser
- -------------------------------------- --------------------------------- ------------------------------------
Capital Growth Capital Growth Management Limited
Partnership ("CGM")*
Back Bay Advisors Money Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Bond Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and Income TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley International TNE Advisers, Inc. Morgan Stanley Asset Management Inc.
Magnum Equity
Goldman Sachs Mid Cap Value TNE Advisers, Inc. Goldman Sachs Asset Management
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
* An affiliate of NELICO
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, Loomis Sayles Avanti Growth Series
and Loomis Sayles Small Cap Series, TNE Advisers became the adviser on May 1,
1995. Prior to that date those series were advised by their current sub-
advisers, except as follows. The New England served as investment adviser to
the Back Bay Advisors Money Market and Back Bay Advisors Bond Income Series
until September 10, 1986 when Back Bay Advisors assumed The New England's
responsibilities under the investment advisory agreements with those Series.
Back Bay Advisors served as investment adviser to the Westpeak Stock Index
Series until August 2, 1993, when Westpeak became the investment adviser. The
Capital Growth Series was managed by Loomis Sayles until March 1, 1990, when its
Capital Growth Management Division was reorganized into CGM. The Morgan Stanley
International Magnum Equity Series' sub-adviser was Draycott Partners, Ltd.
until May 1, 1997, when Morgan Stanley Asset Management became the sub-adviser.
The Goldman Sachs Mid Cap Value Series' sub-adviser was Loomis Sayles until May
1, 1998, when Goldman Sachs 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.
Fidelity Management & Research Company, the investment adviser for the VIP
Fund and VIP Fund II, is the original Fidelity company and was founded in 1946.
It provides a number of mutual funds and other clients with investment research
and portfolio management services. It maintains a large staff of experienced
investment personnel and a full complement of related support facilities. For
more information regarding the Equity-Income, Overseas High Income and Asset
Manager Portfolios and Fidelity Management & Research Company, see the VIP Fund
and VIP Fund II prospectus attached at the end of this prospectus and their
Statement of Additional Information.
THE FIXED ACCOUNT
38
A Fixed Account option is available under the Policy in states where it has
been approved by the state insurance department. The Fixed Account may not be
approved by every state insurance department and therefore it may not be
available in every state.
You may allocate net premiums for your Policy, and may transfer your
Policy's cash value, to the Fixed Account, which is part of NELICO's general
account. Because of exemptive and exclusionary provisions in the Federal
securities laws, interests in the Fixed Account have not been registered under
the Securities Act of 1933, and neither the Fixed Account nor the general
account has been registered as an investment company under the Investment
Company Act of 1940. Therefore, neither the Fixed Account, the general account
nor any interests therein are generally subject to the provisions of these Acts,
and NELICO has been advised that the staff of the SEC does not review
disclosures relating to the general account. Disclosures regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
General Description
NELICO's general account includes all the assets owned by NELICO, other
than the assets in the Variable Account or in any other separate accounts that
NELICO may establish. NELICO has sole discretion over the investment of assets
in the general account, including the Fixed Account. Policy Owners who allocate
cash value to the Fixed Account will not share in the actual investment
experience of the Fixed Account. Instead, NELICO guarantees that cash values in
the Fixed Account will earn interest at an annual rate of at least 4%. NELICO
may from time to time credit interest at a higher rate than 4%, but it is under
no obligation to do so. NELICO declares the current interest rate for the Fixed
Account periodically. Your Policy cash values that are in the Fixed Account
will earn interest daily.
NELICO may vary the way in which it credits interest in the Fixed Account
from time to time. The following is a description of NELICO's current method
for crediting interest to cash value in the Fixed Account. All of your Policy's
cash value in the Fixed Account on a Policy anniversary will earn interest at
the declared annual rate in effect on the anniversary. It will earn interest at
this rate until the next Policy anniversary, when it will be credited with the
current rate declared by NELICO. (Although NELICO's current practice is to
credit your entire Fixed Account cash value on a Policy anniversary with the
most recently declared annual rate until the next anniversary, NELICO can select
any portion, from 0% to 100%, of your Fixed Account cash value on a Policy
anniversary to earn interest at the most recently declared rate until the next
Policy anniversary.) Any net premiums allocated or any portion of your Policy's
cash value transferred to the Fixed Account from the Variable Account on a date
other than a Policy anniversary will earn interest at NELICO's most recently
declared rate until the next Policy anniversary. Any loan repayment allocated
to the Fixed Account will be credited with the lesser of the most recently
declared interest rate and the effective interest rate for your Policy's cash
value in the Fixed Account on the date of the repayment. The effective interest
rate credited at any time to your cash value in the Fixed Account will be a
weighted average of all the Fixed Account rates for your Policy.
Values and Benefits
The Policy's cash value in the Fixed Account reflects the net premiums
allocated to the Fixed Account, interest credited to cash value in the Fixed
Account, any loans, partial surrenders made from the Fixed Account cash value,
charges deducted, and any transfers of cash value to or from the Variable
Account. Charges will be deducted from the Policy's cash value in the Fixed
Account and in the Policy's Sub-Accounts in proportion to the amount of the
Policy's cash value in each, unless you have designated a monthly charge sub-
account. (See "Monthly Deduction from Cash Value".) The Fixed Account
cannot be selected as the monthly charge sub-account. A Policy's total cash
value will include its cash value in the Variable Account, its cash value in the
Fixed Account, and any of its cash value held in NELICO's general account (but
outside of the Fixed Account) as a result of a Policy loan.
39
The amount of the Policy's cash value in the Fixed Account will be taken
into account in the calculation of the Policy's death benefit in the same manner
as the cash value in the Variable Account. (See "Death Benefit".)
Policy Transactions
NELICO reserves the right to restrict allocations to the Fixed Account if
the effective annual rate of interest that would apply to the amount allocated
is the minimum 4% rate. Otherwise, allocations of net premiums to the Fixed
Account are subject to the same percentage requirements that apply to the
Variable Account. (See "Allocation of Net Premiums".)
Except as described below, amounts in the Fixed Account are subject to the
same rights and limitations regarding transfers, loans, surrenders and partial
surrenders that apply to amounts in the Variable Account. (See "Other Policy
Features".) The following special rules apply to transactions involving
amounts in the Fixed Account.
Transfers of amounts from the Fixed Account to the Variable Account will be
allowed only once in each Policy year. A transfer of cash value from the Fixed
Account will be processed only if NELICO receives the transfer request within
the 30 day period after the Policy anniversary, and the transfer will be
effected as of the date the transfer request is received at NELICO's
Administrative Office. The amount of cash value which may be transferred from
the Fixed Account is limited to the greater of 25% of the Policy's cash value in
the Fixed Account on the transfer date or the amount of cash value transferred
from the Fixed Account in the preceding Policy year. Regardless of these
limits, if a transfer of cash value from the Fixed Account would reduce the
remaining cash value in the Fixed Account below $100, you may transfer the
entire amount of cash value from the Fixed Account. The total number of
transfers among Sub-Accounts and from the Sub-Accounts to the Fixed Account may
not exceed four in one Policy year without NELICO's consent. NELICO currently
allows 12 such transfers per Policy year. Transfers out of the Fixed Account
will not be counted against this limit. NELICO reserves the right to restrict
transfers of cash value into the Fixed Account, if the effective annual rate of
interest that would apply to the amount transferred is the minimum 4% rate.
Unless you request otherwise, a Policy loan will reduce the Policy's cash
value in the Sub-Accounts and not the cash value in the Fixed Account. If there
is not enough cash value in the Policy's Sub-Accounts to provide the amount of
the loan, however, the balance of the loan will be taken from the cash value in
the Fixed Account. All loan repayments will be allocated first to the
outstanding loan balance attributable to the Fixed Account. The amount removed
from the Policy's Sub-Accounts and the Fixed Account as a result of a loan will
earn interest at not less than 4% per year, which will be credited annually to
the Policy's cash value in the Sub-Accounts and the Fixed Account in proportion
to the Policy's cash value in each on the day it is credited.
Unless you request otherwise, partial surrenders will be taken only from
the Policy's Sub-Accounts and not the Fixed Account. If there is not enough
cash value in the Policy's sub-accounts to provide the full amount requested,
the balance of the partial surrender will be taken from the Fixed Account.
NELICO has the right to delay transfers, surrenders, and Policy loans from
the Fixed Account for up to six months (to the extent allowed by state insurance
law). Loans to pay premiums on policies issued by NELICO will not be delayed.
NELICO'S DISTRIBUTION AGREEMENT
NELICO sells the Policies through agents who are licensed by state
insurance officials to sell NELICO's variable life insurance policies. These
agents are also registered representatives of New
40
England Securities Corporation ("New England Securities"). New England
Securities, a Massachusetts corporation organized in 1968 and an indirect,
wholly-owned subsidiary of NELICO, is registered with the SEC as a broker-dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc.
New England Securities, whose principal business address is 399 Boylston
Street, Boston, Massachusetts 02116, serves as the principal underwriter for the
Policies under a Distribution Agreement between NELICO and New England
Securities.
Under the Distribution Agreement, NELICO pays the following sales expenses:
general agent and agency manager's compensation, agents' training allowances,
deferred compensation and insurance benefits of agents, general agents and
agency managers and advertising expenses and all other expenses of distributing
the Policies.
The selling agent may select one of three alternative schedules for payment
by NELICO of commissions and/or service fees for sales of a Policy: (1) a
maximum of ___% of the Target Premium (plus any additional portion of a premium
which NELICO attributes to certain riders for commission paying purposes) paid
in the first Policy year, and a maximum of __% thereafter; with a maximum
commission of __% of each payment in excess of the Target Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) in any year; (2) __________________; or (3)
______________________. For Policies sold to certain group or sponsored
arrangements the maximum ___% first year commission may be paid in installments
over a period of years rather than all in the first Policy year. Agents who
meet certain productivity and persistency standards in selling policies issued
by NELICO may be eligible for additional compensation. Non-cash forms of
compensation may also be paid in compliance with applicable law. Sales expenses
in any year are not equal to the deduction for sales charges in that year.
New England Securities distributes mutual funds, variable annuity contracts
and variable life insurance policies. It is the principal underwriter for the
Zenith Fund; The New England Variable Account; New England Retirement Investment
Account; New England Variable Annuity Separate Account; and New England Variable
Annuity Fund I. New England Securities also sells interests in various
investment partnerships.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life insurance
policies. Under the agreements with those broker-dealers, the commission paid
to the broker-dealer will not exceed the following, depending upon the
compensation schedule elected by the selling agent: (1) ___% of the Target
Premium (plus any additional portion of a premium which NELICO attributes to
certain riders for commission paying purposes) in the first Policy year, __%
thereafter, and __% of all payments in excess of the Target Premium (plus any
additional portion of a premium which NELICO attributes to certain riders for
commission paying purposes) in any year; (2) _________________________; or (3)
____________________. Commissions will be paid through the registered broker-
dealer, which may also be reimbursed for portions of expenses incurred in
connection with the sale of the Policies.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, NELICO can challenge the validity of your Policy or a rider to
your Policy during the insured's lifetime for two years (or less, if required by
state law) from the date of issue, based on misrepresentations made in the
application. NELICO can challenge the portion of the death benefit resulting
from payment of an underwritten premium payment for two years during the
insured's lifetime from the date the premium payment was received and can
challenge the portion of the death benefit resulting from an increase in face
amount for two years during the insured's lifetime from the effective date
41
of the increase. However, if the insured dies within two years of the date of
issue, NELICO can challenge all or part of the Policy at any time with respect
to misrepresentations in the application. If the insured dies within two years
of the effective date of an increase in face amount, NELICO can challenge the
portion of the death benefit resulting from the face amount increase at any time
with respect to misrepresentation.
Misstatement of Age or Sex
If the insured's age or sex is misstated in the application, the Policy's
death benefit will be the amount that the most recent Monthly Deduction which
was made would have provided, based on the insured's correct age and, if the
Policy is sex-based, on the insured's correct sex.
Suicide
If the insured commits suicide within two years (or less, if required by
state law) from the date of issue set forth in the Policy, the death benefit
will be limited to the amount of the premiums paid, less any policy loan
balance, and less any partial surrenders. If the insured commits suicide more
than two years from the issue date of the Policy but within two years from the
effective date of an increase in face amount, the death benefit for the increase
in face amount will be limited to the Monthly Deductions and any Face Amount
Increase Administrative Charge made to pay for that increase. (Where required
by state law, NELICO will determine the death benefit under this provision by
using the greater of: the reserve of the insurance which is subject to the
provision; and the amounts used to purchase the insurance which is subject to
the provision.)
TAX CONSIDERATIONS
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
of 1986, as amended ("Code") defines a life insurance contract for Federal
income tax purposes.
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 creates 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 excludible 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
42
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.
Taxation of Accelerated Benefits Rider. NELICO believes that payments
received under the accelerated benefits rider it makes available will qualify as
an accelerated death benefit under the Code. (See "Acceleration of Death
Benefit Rider" for more information regarding the rider.) Pursuant to the
recently enacted Health Insurance Portability and Accountability Act of 1996, a
payment that is treated as an accelerated death benefit for federal income tax
purposes should be fully excludable from the gross income of the beneficiary, as
long as the beneficiary is the insured under the Policy. If such payments do
not qualify as an accelerated death benefit, their tax treatment would depend on
whether or not the Policy is a modified endowment contract. You should consult
a qualified tax adviser about the consequences of adding this rider to a Policy
or requesting a payment under this rider.
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 Policy 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 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 cash value is greater than the total
investment in the Policy. In this case, an amount may be taxable even if the
amount of the partial surrender is less than the investment in the Policy.
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 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 applying the 7-pay test. If there is a reduction in the Policy's
death benefit (for example, as a result of a partial surrender or face amount
reduction) at any time during the first seven Policy years or within seven years
of a face amount increase or "material change" (see below), the 7-pay test
will be applied back to issue (or to the date of the most recent face amount
increase or material change, whichever
43
is latest), as if the Policy's coverage were equal to the reduced face amount at
that time. If there is a reduction in rider or other benefits during the first
seven Policy years, the 7-pay test will be applied as if the Policy had
originally been issued at the reduced benefit amount. Any Policy received in
exchange for a modified endowment contract will also be a modified endowment
contract.
Your agent can provide you with information about the maximum amount of
premiums 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-pay test,
after making certain adjustments to reflect the Policy's existing cash value.
Any increase in future benefits under the Policy (for example, an increase
pursuant to the "Salary Refresh" program) may constitute a material change if
the increase is not 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 certain 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). The point at which you may have to
limit the payment of premiums will depend upon the issue age, sex and
underwriting class of the insured, investment experience and the amount of your
previous payments.
If you exchange your policy for another life insurance policy, 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. 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 that accrues 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.
Any taxable distribution will be subject to an additional tax equal to 10%
of the taxable amount of the distribution unless the distribution is:
44
(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) or for the joint lives (or life expectancies) of you
and your beneficiary.
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.
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 advisor if you intend to allow the
Policy to remain 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 plus the cost of insurance protection for
the year. 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 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
45
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.
If the Policy is owned 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, tax exempt and nonexempt welfare benefit plans, retiree
medical benefit plans and others. The tax consequences of such plans may vary
depending on the particular facts and circumstances 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. In recent years, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
life insurance contract or a change in an existing life insurance contract
should consult a tax advisor.
NELICO believes that Policies subject to the provisions of the Puerto Rican
tax law will generally receive the same 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.
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 premiums. 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.
MANAGEMENT
46
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
Directors of NELICO
Name and Principal Principal Business Experience
------------------ -----------------------------
Business Address During The Past Five Years
---------------- --------------------------
Robert A. Shafto Chairman of NELICO since 1998; formerly, Chairman
and Chief Executive Officer 1997-1998 and
Chairman, President and Chief Executive Officer
1996-1997 of NELICO; Chairman, President and Chief
Executive Officer 1993-1996 of The New England.
James M. Benson President and Chief Executive Officer of NELICO
since 1998; formerly, President and Chief
Operating Officer 1997-1998 of NELICO; President
and CEO 1996-1997 of Equitable Life
Assurance Society and COO of Equitable Companies,
Inc.; Senior Vice President 1993-1996
of Equitable Life Assurance Society.
Susan C. Crampton Director of NELICO since 1996 and serves as
127 Tarbox Road Principal of The Vermont Partnership, a
Jericho, VT 05465 business consulting firm located in Jericho,
Vermont since 1989; formerly, Director 1989-1996
of The New England.
Edward A. Fox Director of NELICO since 1996 and Chairman of the
RR Box 67-15 Board of SLM Holdings since 1997;
Harborside, ME 04642 formerly, Director 1994-1996 of The New England
and Dean 1990-1994 of The Amos Tuck
School of Business Administration at Dartmouth
College.
George J. Goodman Director of NELICO since 1996 and author,
Adam Smith's Money World television journalist, and editor.
50th Floor
Craig Drill Capital
General Motors Building
767 Fifth Avenue
New York, NY 10153
Dr. Paul E. Gray Director of NELICO since 1996 and Professor of
MIT Electrical Engineering and Retired Chairman
77 Massachusetts Avenue of the Corporation of the Massachusetts Institute
Cambridge, MA 02139 of Technology (MIT); formerly, Director
1973-1996 of The New England and Chairman of the
Corporation 1990-1997 of MIT.
Dr. Evelyn E. Handler Director of NELICO since 1996 and Executive
California Academy of Director and Chief Executive Officer of the
Sciences California Academy of Sciences since 1994;
Golden Gate Park formerly Director 1987-1996 of The New England
San Francisco, CA 94118 and Research Fellow and an Associate 1991-1994 of
the Graduate School of Education at
Harvard University and a Senior Fellow at The
Carnegie Foundation for the Advancement of
Teaching.
Philip K. Howard, Esq. Director of NELICO since 1996 and Partner of the
Howard, Darby & Levin law firm of Howard, Darby & Levin in New York
1330 Avenue of the Americas City.
New York, NY 10019
Harry P. Kamen Director of NELICO since 1996 and Chairman and
Metropolitan Life Chief Executive Officer of Metropolitan
One Madison Avenue Life Insurance Company since 1997; formerly,
New York, NY 10010 Chairman, President, and Chief Executive Officer
1995-1997 and, Chairman and CEO 1993-1995 of
Metropolitan Life.
Terence Lennon Director of NELICO since 1996 and Senior Vice
Metropolitan Life President of Metropolitan Life Insurance
One Madison Avenue Company since 1994; formerly, Assistant Deputy
New York, NY 10010 Superintendent and Chief Examiner
1984-1994 of the New York Insurance Department.
Bernard A. Leventhal Director of NELICO since 1996 and Vice Chairman of
the Board of Directors of Burlington
47
Burlington Industries Industries, Inc.; formerly, President since 1978
1345 Avenue of the Americas and Corporate Vice President since 1985 and
New York, NY 10105 Director since 1990 of Burlington Menswear
Division.
Thomas J. May Director of NELICO since 1996 and Chairman,
Boston Edison Company President and Chief Executive Officer of
800 Boylston Street Boston Edison Company since 1994; formerly,
Boston, MA 02199 Director 1994-1996 of The New England;
President and Chief Operating Officer 1993-1994 of
Boston Edison Co.
Stewart G. Nagler Director of NELICO since 1996 and Senior Executive
Metropolitan Life Vice President and Chief Financial
One Madison Avenue Officer of Metropolitan Life Insurance Company
New York, NY 10010 since 1986.
Rand N. Stowell Director of NELICO since 1996 and President of
United Timber Corp. United Timber Corp. of Dixfield, Maine;
P.O. Box 650 formerly, Director 1990-1996 of The New England.
Pine Street
Dixfield, ME 04224
Alexander B. Trowbridge Director of NELICO since 1996 and President of
Trowbridge Partners Inc. Trowbridge Partners, Inc. in Washington, D.C.;
1317 F Street, N.W., formerly, Director 1983-1996 of The New England.
Suite 500
Washington, D.C. 20004
Executive Officers of NELICO
Other Than Directors
Name Principal Business Experience
---- During Past Five Years
----------------------
Robert A. Shafto See Directors above.
James M. Benson See Directors above.
David W. Allen Senior Vice President of NELICO since 1996;
formerly, Senior Vice President 1994-1996
and Vice President 1990-1994 of The New England.
Thom A. Faria President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice
President in 1996 and Senior Vice President 1993-
1996 of The New England.
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 and
Second Vice President and Counsel 1988-1994 of The
New England.
Daniel D. Jordan Second Vice President, Counsel and Secretary of
NELICO since 1996; formerly, Counsel
and Assistant Secretary 1985-1996 of The New
England.
Richard D. Keidan Senior Vice President of NELICO since 1996;
formerly, Vice President 1994-1996 of Metropolitan
Life (Chief Marketing Officer of MetLife
Brokerage) and Regional Sales and Marketing
Manager 1989-1994 of Phoenix Home Life.
Alan C. Leland, Jr. Senior Vice President of NELICO since 1996;
formerly, Vice President 1984-1996 of The New
England.
Bruce C. Long President, New England Annuities (a business unit
of NELICO) since 1996; formerly,
48
President 1994-1996 New England Annuities (a
business unit of The New England)
and Senior Vice President in 1994 of New England
Annuities; Vice President 1992-1994
of Keyport Life Insurance.
George J. Maloof Senior Vice President of NELICO since 1996;
formerly, Vice President 1991-1996 of
The New England.
Thomas W. McConnell Senior Vice President of NELICO since 1996 and
Director, Chief Executive Officer and
President of New England Securities Corporation
since 1993; formerly, National Sales
Manager 1993 of Alliance Fund Distributors;
National Sales Manager 1992-1993 of
Equitable Capital Securities.
Thomas W. Moore Senior Vice President of NELICO since 1996;
formerly, Vice President 1990-1996
of The New England.
Robert W. Powell President, Life Brokerage (a business unit of
NELICO) since 1996; formerly, Officer-
In-Charge 1994-1996 of MetLife Brokerage (a
subsidiary of Metropolitan Life
Insurance Company) and Marketing Vice President
1988-1994 of MetLife.
Richard A. Robinson Second Vice President and Chief Accounting Officer
of NELICO since 1997.
Gregory A. Ross Executive Vice President and Chief Information
Officer since 1997 and President, TNE
Information Services (a business unit of NELICO)
since 1996; formerly, President, TNE
Information Services (a business unit of The New
England) and Chief Information Officer
1994-1996 and Senior Vice President and Chief
Information Officer 1993-1994 of The New
England. President of TNE Information Services,
Inc.
Robert E. Schneider Executive Vice President and Chief Financial
Officer of NELICO since 1996; formerly,
Director, Executive Vice President and Chief
Financial Officer 1993 to 1996 and Executive
Vice President and Chief Financial Officer
1990-1993 of The New England.
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 The New England.
Ellen D. Sullivan Senior Vice President and Associate General
Counsel of NELICO since 1997; formerly, Vice
President and Counsel in 1996 of NELICO; Vice
President and Counsel 1994-1996 and Second
Vice President and Counsel 1985-1994 of The New
England.
H. James Wilson Executive Vice President and General Counsel of
NELICO since 1996; formerly, Executive Vice
President and General Counsel 1993-1996, Senior
Vice President and General Counsel 1992-1993 of The
New England.
John W. Wright President, New England Employee Benefits Group (a
business unit of NELICO) since 1996; formerly,
President 1993-1996 New England Employee Benefits
Group (a business unit of The New England) and
Senior Vice President 1989-1993 of New England
Employee Benefits Group of The New England.
Frederick K. Zimmermann Executive Vice President and Chief Investment
Officer of NELICO since 1996; formerly,
Executive Vice President and Chief Investment
Officer 1993-1996 and Senior Vice
President - Investments 1989-1993 of The New
England.
The principal business address for each of the directors and executive
officers is the same as NELICO's except where indicated otherwise.
VOTING RIGHTS
NELICO is the legal owner of the Eligible Fund shares held in the Variable
Account and has the right to vote those shares at meetings of the Eligible Fund
shareholders. However, to the extent required by
49
applicable Federal securities law, NELICO will give you, as Policy Owner, the
right to instruct NELICO how to vote the shares that are attributable to your
Policy.
The Policy Owners who are entitled to give voting instructions and the
number of shares attributable to their Policies will be determined as of the
record date for the meeting. All Eligible Fund shares held in any Sub-Account
of the Variable Account, or in any other registered (or to the extent voting
privileges are granted by the issuing insurance company, unregistered) separate
account of NELICO or an affiliate, and for which timely instructions are not
received, will be voted in the same proportion as (i) the aggregate cash value
of policies giving instructions, respectively, to vote, for, against, or
withhold votes on a proposition, bears to (ii) the total cash value in that Sub-
Account for all policies for which voting instructions are received. No voting
privileges apply with respect to cash value removed from the Variable Account as
a result of a Policy loan.
All Zenith Fund shares held by the general account (or any unregistered
separate account for which voting privileges were not extended) of NELICO or its
affiliates will be voted in the same proportion as the total of (i) shares for
which voting instructions were received and (ii) shares that are voted in
proportion to such voting instructions.
The SEC requires the Eligible Funds' Boards of Trustees to monitor events
to identify conflicts that may arise from the sale of Eligible Fund shares to
variable life and variable annuity separate accounts of affiliated and, if
applicable, unaffiliated insurance companies. Conflicts could arise as a result
of changes in state insurance law or Federal income tax law, changes in
investment management of any portfolio of the Eligible Funds, or differences in
voting instructions given by variable life and variable annuity contract owners,
for example. If there is a material conflict, the Board of Trustees will have
an obligation to determine what action should be taken, including the removal of
the affected Sub-Accounts from the Eligible Fund(s), if necessary. If NELICO
believes any Eligible Fund action is insufficient, NELICO will consider taking
other action to protect Policy Owners. There could, however, be unavoidable
delays or interruptions of operations of the Variable Account that NELICO may be
unable to remedy.
If required by state insurance authorities, NELICO may disregard voting
instructions if they would require that shares be voted to cause a change in the
investment objectives of the portfolios of the Eligible Funds or to approve or
disapprove an investment advisory or underwriting contract for a portfolio. In
addition, NELICO may disregard voting instructions in favor of changes,
initiated by a Policy Owner or an Eligible Fund's Board of Trustees, in the
investment policy, investment adviser or principal underwriter of the Eligible
Fund portfolio if NELICO (i) reasonably disapproves of the changes and (ii) in
the case of a change in investment policy or investment adviser, makes a good
faith determination that the proposed change is contrary to state law or is
prohibited by state regulatory authorities or that the change would be
inconsistent with a Sub-Account's investment objectives or would result in the
purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of
NELICO or of an affiliated life insurance company, which separate accounts have
investment objectives similar to those of the Sub-Account. If NELICO does
disregard voting instructions, a summary of that action and the reasons for it
will be included in the next semiannual report to Policy Owners.
RIGHTS RESERVED BY NELICO
NELICO and its affiliates may change the voting procedures described above,
and may vote Eligible Fund shares in their own right without instructions from
Policy Owners, if the applicable Federal securities laws or regulations or
interpretations of them change. NELICO also reserves the right: (1) to create
new investment accounts; (2) to combine any two or more separate investment
accounts including the Variable Account; (3) to make available additional Sub-
Accounts of the Variable Account investing in additional Eligible Fund
portfolios or in portfolios of other mutual funds; (4) to invest the assets of
the Variable Account in securities other than Eligible Fund shares or in shares
of a different series of the Eligible Funds as a substitute for such shares
already purchased or as the securities to be purchased in the future, to
withdraw the availability of a series of the Eligible Funds as an investment
option under the Policies, or to transfer assets to NELICO's general account as
permitted by applicable law; (5) to operate the Variable Account as a
50
management investment company under the Investment Company Act of 1940 or in any
other form permitted by law; and (6) to deregister the Variable Account under
the Investment Company Act of 1940 if registration is no longer required. NELICO
will exercise these rights in accordance with applicable law, including approval
of Policy Owners if required. NELICO will notify you if exercise of any of these
rights would result in a material change in the Variable Account or its
investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account Sub-Accounts,
call the toll-free number 1-800-___________.
For Sub-Account transfers, premium reallocations, or Statements of Additional
Information for the Eligible Funds, call the toll-free number 1-800-__________.
You may also call our Client TeleService Center toll-free at 1-800-________ 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 types of Policy changes, please contact your registered
representative.
REPORTS
NELICO will send you a statement annually showing your Policy's death benefit,
cash value and any outstanding Policy loan principal. NELICO will also confirm
Policy loans, subaccount transfers, lapses, surrenders and other Policy
transactions when they occur.
You will be sent semiannual reports containing the financial statements of the
Variable Account and the Eligible Funds.
ADVERTISING PRACTICES
NELICO may from time to time receive endorsements of the Policies from
professional organizations. NELICO may refer to or use such endorsements in
advertisements or sales material for the Policies. NELICO may also pay the
professional organization making the endorsement for the use of its customer or
mailing lists in order to distribute promotional materials regarding the
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by persons
who purchase the Policies.
From time to time, articles discussing the Variable Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to Lipper Analytical Services, Inc. and Morningstar,
Inc.) may publish their own rankings or performance reviews of variable contract
separate accounts, including the Variable Account. References to, reprints or
portions of reprints of such articles or rankings may be used by NELICO as sales
literature or advertising material and may include rankings that indicate the
names of other variable contract separate accounts and their investment
experience.
Articles and releases, developed by NELICO, the Eligible Funds and other
parties, about the Variable Account or the Eligible Funds regarding individual
Eligible Funds' and fund groups' asset levels and sales volumes, statistics and
analyses of industry sales volume and asset levels, and other characteristics
may appear in various publications. References to or reprints of such articles
may be used in promotional literature for the
51
Policies or the Variable Account. Such literature may refer to personnel of the
advisers, who have portfolio management responsibility, and their investment
style. The reference may allude to or include excerpts from articles appearing
in the media.
The advertising and sales literature for the Policies and the Variable Account
may refer to historical, current and prospective economic trends.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and prospective
Policy Owners. These materials may include, but are not limited to, discussions
of college planning, retirement planning, reasons for investing and historical
examples of the investment performance of various classes of securities,
securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan LLP, of Washington, D.C., has provided advice on certain
matters relating to federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of New
England Life Insurance Company ("NELICO") (formerly New England Variable Life
Insurance Company) and the consolidated financial statements of NELICO and
subsidiaries as of and for the periods ended December 31, 1997 and 1996 included
in this Prospectus have been audited by __________________, independent
auditors, as stated in their reports appearing herein (whose reports express
unqualified opinions and, with respect to NELICO, includes an explanatory
paragraph referring to the change in the basis of accounting and the change in
corporate organization), and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The adjustments that were applied to restate the 1995 financial statements to
reflect the effects of the changes for adoption of generally accepted accounting
principles and the changes in corporate organization have also been audited by
_______________________.
The statutory balance sheets of New England Variable Life Insurance Company
and New England Pension and Annuity Company as of December 31, 1995, and the
related statutory statements of operations, surplus, and cash flows for the year
ended December 31, 1995 (not included herein), have been incorporated herein in
reliance on the reports (which reports include adverse opinions as to generally
accepted accounting principles and unqualified opinions as to statutory
accounting practices prescribed or permitted by the Insurance Department of the
State of Delaware) of __________________ independent accountants, given on the
authority of that firm as experts in accounting and auditing. The statutory
balance sheet of Exeter Reassurance Company, Ltd. as at December 31, 1995, and
the related statutory statements of income, capital and surplus, and cash flows
for the year then ended (not included herein), have been incorporated herein in
reliance on the report (which report includes an adverse opinion as to generally
accepted accounting principles and an unqualified opinion as to conformity with
The Insurance Act 1978, amendments thereto and related regulations) of
_________________, chartered accountants, given on the authority of that firm as
experts in accounting and auditing.
52
The consolidated statement of financial condition of New England Securities
Corporation as of December 31, 1995, and the related consolidated statements of
operations, shareholder's equity, and cash flows for the year then ended (not
included herein); the balance sheet of TNE Advisers, Inc. as of December 31,
1995, and the related statements of operations, changes in shareholder's equity
(deficit), and cash flows for the year ended December 31, 1995 (not included
herein), have been incorporated herein in reliance on the reports of
_______________________., independent accountants, given on the authority of
that firm as experts in accounting and auditing. The balance sheet of Newbury
Insurance Company, Limited as of December 31, 1995, and the related statements
of earnings and retained earnings, and cash flows for the year ended December
31, 1995 (not included herein), have been incorporated herein in reliance on the
reports of _________________, chartered accountants, given on the authority of
that firm as experts in accounting and auditing.
The statements of operations and changes in net assets of New England Variable
Life Separate Account for the period ended December 31, 1995, have been
incorporated herein in reliance on the reports of ________________________,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney J.
Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
53
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Policies operate. They show
how the death benefit and cash value could vary over an extended period of time
assuming hypothetical gross rates of return (i.e., investment income and capital
gains and losses, realized or unrealized) for the Variable Account equal to
constant after tax annual rates of 0%, 6% and 12%. The insured is assumed to be
in the nonsmoker preferred risk classification. The Tables assume no rider
benefits and assume that no allocations are made to the Fixed Account. (See
"Charges and Expenses.") Each illustration is given for a Policy with an Option
1 and an Option 2 death benefit, and for the cash value accumulation test and
guideline premium test. These tables may assist in the comparison of death
benefits, net cash values and cash values for the Policies with those under
other variable life insurance policies which may be issued by NELICO or other
companies.
Death benefits and cash values for a Policy would be different from the
amounts shown if the actual gross rates of return averaged 0%, 6% or 12%, but
varied above and below that average for the period, if premiums were paid in
other amounts or at other than annual intervals. They would also be different
depending on the allocation of cash value among the Variable Account's Sub-
Accounts, if the actual gross rate of return for all Sub-Accounts averaged 0%,
6% or 12%, but varied above or below that average for individual Sub-Accounts.
They would also differ if any policy loan or partial surrender were made during
the period of time illustrated, if the insured were female or in another risk
classification, or if the Policies were issued at unisex rates.
The death benefits and cash values shown in the tables reflect: (i) deductions
from premiums for the sales charge and premium tax charge; and (ii) a Monthly
Deduction (consisting of a Policy fee, a mortality and expense risk fee, and a
charge for the cost of insurance) from the cash value on the first day of each
Policy month. (See "Charges and Expenses".) The illustrations are based on
an average of the investment advisory fees and operating expenses incurred by
the Eligible Funds, at an annual rate of .__% of the average daily net assets of
the Eligible Funds. This average reflects voluntary expense cap and expense
deferral arrangements between TNE Advisers and the Zenith Fund, under which TNE
Advisers bears operating expenses of the Zenith Fund Series (other than the
Capital Growth Series) that exceed certain amounts. TNE Advisers could terminate
the expense cap and expense deferral arrangements at any time. If TNE Advisers
terminates these arrangements, the values illustrated on the following pages
could be less. (See "Charges Against the Eligible Funds and the Sub-Accounts
of the Variable Account".)
Taking account of the average investment advisory fee and operating expenses
of the Eligible Funds, the gross annual rates of return of 0%, 6% and 12%
correspond to net investment experience at constant annual rates of ____%, ____%
and ____%, respectively.
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are currently
made. If any such charges are imposed in the future, the gross annual rate of
return would have to exceed the rates shown by an amount sufficient to cover the
tax charges, in order to produce the death benefits, net cash values and cash
values illustrated. (See "Charges for NELICO's Income Taxes".)
The second column of each table shows the amount which would accumulate if an
amount equal to the annual premium were invested to earn interest, after taxes,
of 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the illustrated premiums
could have been invested outside the Policy to arrive at
54
the death benefit of the Policy. The internal rate of return is compounded
annually, and the premiums are assumed to be paid at the beginning of each
Policy year.
NELICO will furnish upon request a personalized illustration reflecting the
proposed insured's age, sex, underwriting classification, and the face amount or
premium payment schedule requested. Where applicable, NELICO will also furnish
upon request an illustration for a Policy which is not affected by the sex of
the insured.
55
Male Issue Age 40
$50,000 Annual Premium for Seven Policy Years
Preferred Underwriting Risk for NonSmoker
$1,000,070 Face Amount
Option 1 Death Benefit
Cash Value Accumulation Test
This illustration is based on CURRENT Policy charges.
Premiums
--------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return Internal Rate of Return
----------- ------------- ---------- ----------------------- -----------------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value on Death Benefit
------ ----- --------------------- --------------------- ----------------- ----------------
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross Assuming Hypothetical Gross
------ -------- ------------ ------------ --------------------------- ---------------------------
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of Annual Rate of Return of
---- -------- ----------------- ----------------- ------------------------ ------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ------- -------
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
56
Male Issue Age 40
$50,000 Annual Premium for Seven Policy Years
Preferred Underwriting Risk for NonSmoker
$1,000,070 Face Amount
Option 1 Death Benefit
Cash Value Accumulation Test
This illustration is based on GUARANTEED Policy charges.
Premiums
--------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return Internal Rate of Return
----------- ------------- ---------- ----------------------- -----------------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value on Death Benefit
------ ----- --------------------- --------------------- ----------------- ----------------
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross Assuming Hypothetical Gross
------ -------- ------------ ------------ --------------------------- ---------------------------
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of Annual Rate of Return of
---- -------- ----------------- ----------------- ------------------------ ------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ------- -------
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
57
Male Issue Age 40
$50,000 Annual Premium for Seven Policy Years
Preferred Underwriting Risk for NonSmoker
$1,000,070 Face Amount
Option 2 Death Benefit
Cash Value Accumulation Test
This illustration is based on CURRENT Policy charges.
Premiums
--------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return Internal Rate of Return
----------- ------------- ---------- ----------------------- -----------------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value on Death Benefit
------ ----- --------------------- --------------------- ----------------- ----------------
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross Assuming Hypothetical Gross
------ -------- ------------ ------------ --------------------------- ---------------------------
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of Annual Rate of Return of
---- -------- ----------------- ----------------- ------------------------ ------------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ------- -------
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
58
Male Issue Age 40
$50,000 Annual Premium for Seven Policy Years
Preferred Underwriting Risk for NonSmoker
$1,000,070 Face Amount
Option 2 Death Benefit
Cash Value Accumulation Test
This illustration is based on GUARANTEED Policy charges.
Premiums Internal Rate of Return
-------- -----------------------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return on Death Benefit
----------- ------------- ---------- ----------------------- ----------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value Assuming Hypothetical
------ ----- --------------------- --------------------- ----------------- Gross
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross ---------------------
------ -------- ------------ ------------ --------------------------- Annual Rate of Return
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of of
-------- ----------------- ----------------- ------------------------ ---------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ----- --------
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
59
Male Issue Age 40
$50,000 Annual Premium for Twenty Policy Years
Preferred Underwriting Risk for NonSmoker
$2,900,000 Face Amount
Option 1 Death Benefit
Guideline Premium Test
This illustration is based on CURRENT Policy charges.
Premiums Internal Rate of Return
-------- -----------------------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return on Death Benefit
----------- ------------- ---------- ----------------------- ----------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value Assuming Hypothetical
------ ----- --------------------- --------------------- ----------------- Gross
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross ---------------------
------ -------- ------------ ------------ --------------------------- Annual Rate of Return
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of of
-------- ----------------- ----------------- ------------------------ ---------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ----- --------
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
60
Male Issue Age 40
$50,000 Annual Premium for Twenty Policy Years
Preferred Underwriting Risk for NonSmoker
$2,900,000 Face Amount
Option 1 Death Benefit
Guideline Premium Test
This illustration is based on GUARANTEED Policy charges.
Premiums Internal Rate of Return
-------- -----------------------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return on Death Benefit
----------- ------------- ---------- ----------------------- ----------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value Assuming Hypothetical
------ ----- --------------------- --------------------- ----------------- Gross
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross ---------------------
------ -------- ------------ ------------ --------------------------- Annual Rate of Return
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of of
-------- ----------------- ----------------- ------------------------ ---------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ----- --------
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
61
Male Issue Age 40
$50,000 Annual Premium for Seven Policy Years for
Preferred Underwriting Risk for NonSmoker
$1,000,070 Face Amount
Option 2 Death Benefit
Guideline Premium Test
This illustration is based on CURRENT Policy charges.
Premiums Internal Rate of Return
------------ -----------------------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return on Death Benefit
- --------- ------------ ------------------------ ------------------------ ------------------------------ -----------------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value Assuming Hypothetical
- --------- ------------ ------------------------ ------------------------ ------------------------------ Gross
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross -----------------------
- --------- ------------ ------------------------ ------------------------ ------------------------------ Annual Rate of Return
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of of
------------ ------------------------ ------------------------ ------------------------------ -----------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ------ -------
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
62
Male Issue Age 40
$50,000 Annual Premium for Seven Policy Years
Preferred Underwriting Risk for NonSmoker
$1,000,070 Face Amount
Option 2 Death Benefit
Guideline Premium Test
This illustration is based on GUARANTEED Policy charges.
Premiums Internal Rate of Return
------------ -----------------------
Accumulated DEATH BENEFIT CASH VALUE Internal Rate of Return on Death Benefit
- --------- ------------ ------------------------ ------------------------ ------------------------------ -----------------------
End of at 5% Assuming Hypothetical Assuming Hypothetical on Net Cash Value Assuming Hypothetical
- --------- ------------ ------------------------ ------------------------ ------------------------------ Gross
Policy Interest Gross Annual Gross Annual Assuming Hypothetical Gross -----------------------
- --------- ------------ ------------------------ ------------------------ ------------------------------ Annual Rate of Return
Year Per Year Rate of Return of Rate of Return of Annual Rate of Return of of
------------ ------------------------ ------------------------ ------------------------------ -----------------------
0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
------ ----- ------ ------ ----- ------ ----- ----- ------ ----- ---- -----
1
2
3
4
5
6
7
8
9
10
15
20
25
30
35
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF
RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR
BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR
THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
63
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
The information contained in this Appendix gives hypothetical illustrations
of the Variable Account's and the Policy's investment experience based on the
historical investment experience of the Eligible Funds. It does not represent
what may happen in the future.
The Policies were not available until ____________, 1998. The Zenith Fund
and the Variable Account commenced operations on August 26, 1983. The Westpeak
Stock Index and Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Growth and Income Series and Goldman
Sachs Mid Cap Value Series of the Zenith Fund commenced operations on April 30,
1993. The Loomis Sayles Small Cap Series of the Zenith Fund commenced
operations on May 2, 1994. The remaining Zenith Fund Series commenced
operations on October 31, 1994. The Equity-Income Portfolio and Overseas
Portfolio of the VIP Fund commenced operations on October 9, 1986 and January
28, 1987, respectively. The High Income Portfolio of the VIP Fund and the Asset
Manager Portfolio of the VIP Fund II commenced operations on September 19, 1985
and September 6, 1989, respectively.
The illustrations are based on the actual investment experience of the
relevant Eligible Funds for the periods shown (net of actual charges and
expenses incurred by the Eligible Funds). The illustrations assume that
premiums are paid at the beginning of each year and that no loans, transfers or
other Policy Owner transactions were made during the periods shown.
Variable Account Investment Experience
The Policies are supported by the Variable Account which invests in the
Eligible Funds. The investment experience of the Sub-Account or Sub-Accounts
you choose will affect the values and benefits of your Policy.
Many factors in addition to investment experience will affect the actual
values and benefits of your Policy. For instance, these investment experience
figures do not reflect the charges deducted from Premiums and Monthly Deductions
from the cash value. (See "Charges and Expenses".)
Net Rates of Return
The annual net rate is the effective earnings rate at which the investment
Sub-Accounts increased or decreased over a one-year period, based on the
investment experience of the relevant Eligible Funds. The rate is calculated by
taking the difference between the Sub-Accounts' ending values and beginning
values of the period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the Sub-Accounts increased or decreased since
the inception dates of the Sub-Accounts. For each Sub-Account, the rate is
calculated by taking the difference between the Sub-Account's ending value and
the value on the date of its inception and dividing it by the value on the date
of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
[INSERT PERFORMANCE TABLES]
Policy Performance
The material below assumes a Policy was issued with a $________ face amount
with annual premiums paid on August 26 of each year (May 1 in the case of the
Zenith Stock Index, Zenith Managed and Zenith Small Cap Sub-Accounts; October 31
in the case of the Zenith Balanced, Zenith International Magnum Equity,
64
Zenith Venture Value and Zenith Equity Growth Sub-Accounts; October 9 in the
case of the Equity-Income Sub-Account, January 28 in the case of the Overseas
Sub-Account; April 30 in the case of the Zenith Growth and Income and Zenith Mid
Cap Value Sub-Accounts; September 19 in the case of the High Income Sub-Account;
September 6 in the case of the Asset Manager Sub-Account), to a male age __ in
the [nonsmoker preferred] risk category. Values and benefits are shown first for
Policies with the Option 1 death benefit and then for Policies with the Option 2
death benefit. The death benefits, cash values and internal rates of return
assume in each instance that the entire Policy value was invested in the
particular Sub-Account for the period shown. These illustrations of policy
investment experience reflect all Policy charges. (See "Charges and Expenses".)
(See Appendix A for the definition of the internal rate of return.)
[INSERT POLICY PERFORMANCE]
65
APPENDIX C
LONG TERM MARKET TRENDS
The information below is a comparison of the average annual returns of
common stock, high grade corporate bonds and 30-day U.S. Treasury bills over 20-
year and 30-year holding periods.* The average annual returns assume the
reinvestment of dividends, capital gains and interest. This is an historical
record and is not intended as a projection of future performance. Charges
associated with a variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. These trends indicate the potential advantages of holding a variable life
insurance policy for a long period of time.
Over the 53 20-year time periods beginning in 1926 and ending in 1997
(i.e., 1926-1945, 1927-1946, and so on through 1978-1997):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 50 of the 53 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year periods beginning in 1926 and ending in 1997, the
average annual return of common stocks was superior to that of high grade, long-
term corporate bonds, U.S. Treasury bills and inflation in all 42 periods.
From 1926 through 1997 the average annual return for common stocks was
10.7%, compared to 5.6% for high grade, long-term corporate bonds, 3.7% for U.S.
Treasury bills and 3.1% for the Consumer Price Index.
* Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook TM, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index with dividends reinvested, over one-year, five-year and
twenty-year periods beginning in 1926 and ending 1997.
The chart shows that, historically, the longer that a portfolio matching
the S&P 500 Stock Index was held, the less likely was the chance of a loss.
Conversely, the shorter the holding period of such a portfolio, the more likely
was the chance of a loss. The chart also shows that shorter term results tend
to be more extreme than longer term results.
66
The chart is not a projection or representation of future stock market
results. It cannot be taken as representative of the performance of any one
fund. Rather it shows the historic performance of a broad index of stocks.
Percent of Holding Periods with the Following Returns:
Greater
-------
Than
----
Holding Negative 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
- ------- -------- ------- ----------- ------------ ------------ ------
Period Return Return Return Return Return Return
- ------ ------ ------ ------ ------ ------ ------
1 year 28 4 11 7 11 38
5 years 10 15 15 31 19 9
10 years 3 10 34 24 26 2
20 years 0 6 32 56 6 0
- ------------------
Source: Stocks, Bonds, Bills and Inflation 1998 Yearbook TM, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
DOLLAR COST AVERAGING
Dollar cost averaging allows a person to take advantage of the historical
long-term stock market results, assuming that they continue, although it does
not guarantee a profit or protect against a loss. If an investor follows a
program of dollar cost averaging on a long-term basis, and the stock fund
selected performs at least as well as the S&P 500 has historically, it is likely
although not guaranteed that the price at which shares are surrendered, for
whatever reason, will be higher than the average cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period of
time. Dollar cost averaging keeps an investor from investing too much when the
price of shares is high and too little when the price is low. When the price of
shares is low, the money invested buys more shares. When it is high, the money
invested buys fewer shares. If the investor has the ability and desire to
maintain this program over a long period of time (for example, 20 years), and
the stock fund chosen follows the historical upward market trends, the price at
which the shares are sold should be higher than their average cost. This price
could be lower, however, if the fund chosen does not follow these historical
trends.
Investors contemplating the use of dollar cost averaging should consider
their ability to continue the on-going purchases so that they can take advantage
of periods of low price levels.
67
APPENDIX D
USES OF LIFE INSURANCE
[TO BE REVISED]
The following are examples of ways in which the Policy can be used to
address certain financial objectives.
Family Income Protection
Life insurance may be purchased on the lives of the family income earners
to provide a death benefit to cover final expenses, and continue the current
income to the family. The amount of insurance purchased should be an amount
which will provide a death benefit that when invested outside the policy at a
reasonable interest rate, will generate enough money to replace the individual's
income.
Estate Protection
Life insurance may be purchased by a trust on the life of the person whose
estate will incur federal estate taxes upon the person's death. The amount of
insurance purchased would equal the amount of the estimated estate tax
liability. Upon the insured's death, the trustee could make the death proceeds
available to the estate for the payment of estate tax costs.
Education Funding
Life insurance may be purchased on the life of the parent(s) or primary
person funding an education. The amount of insurance purchased should equal the
total education cost projected at a reasonable inflation rate.
In the event of death, the guaranteed death benefit is available to help
pay the education costs. If the insured lives through the education years, the
cash value accumulations may be accessed to help offset the remaining education
costs. Any cash value loans or surrenders will reduce the policy death benefit.
Mortgage Protection
Life insurance may be purchased on the life of the person responsible for
making mortgage payments. The amount of insurance purchased should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to offset the remaining mortgage balance.
During the insured's lifetime, the cash value accumulations may be accessed
late in the mortgage term to help make the remaining mortgage payments. Any
cash value loans or surrenders will reduce the policy death benefit.
Key Person Protection
Life insurance may be purchased by the business on the life of the key
person in an amount equal to the key person's value, considering salary,
benefits, and contribution to business profits. Upon the key person's
68
death, the business uses the death benefit to ease the interruption of business
operations and/or to provide a replacement fund for hiring a new executive.
Business Continuation Protection
Life insurance may be purchased on the life of each business owner in an
amount equal to the value of each owner's business interest. In the event of
death, the guaranteed death benefit may provide the funds needed to carry out
the purchase of the deceased's business interest by the business, or surviving
owners, from the deceased owner's heirs.
Retirement Income
Life insurance may be purchased on the life of a family income earner
during his or her working life. If the insured lives to retirement, the cash
value accumulations may be accessed to provide retirement payments. In the
event of the insured's death, the proceeds may be used to provide retirement
income to his or her spouse. Any cash value loans or surrenders will reduce the
policy death benefit.
Because the Policy provides a death benefit and for the accumulation of
cash value, the Policy can be used for various individual and business planning
purposes. Purchasing the Policy in part for such purposes entails certain
risks, particularly if the Policy's cash value, as opposed to its death benefit,
will be the principal Policy feature used for such planning purposes. If the
investment performance of the Sub-Accounts to which cash value is allocated is
poorer than expected, or if sufficient premiums are not paid or cash values
maintained, the Policy may lapse or may not accumulate sufficient cash value or
net cash value to fund the purpose for which the Policy was purchased. Because
the Policy is designed to provide benefits on a long-term basis, before
purchasing a Policy for a specialized purpose, a purchaser should consider
whether the long-term nature of the Policy is consistent with the purpose for
which it is being considered. If you wish to access your Policy's cash value,
through loans, surrenders or withdrawals, you should consult your tax advisor
about possible tax consequences. (See "Tax Considerations".)
69
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of these
products and plans, we have reprinted it here, and added footnotes to reflect
exceptions to the general rules.
Table 1.1
Comparison of Tax Treatment of Life Insurance Products and
Other Retirement Savings Plans
Cash-Value
----------
Life Non-Qualified Qualified
---------- ------------- ---------
Insurance Annuities IRA'S Pension
---------- ------------- --------- ---------
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distributions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income included in First No* Yes Yes Yes
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by Age 70-1/2 No No Yes Yes
Maximum Annual Distribution Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You should consult with
your own tax advisor for more complete information.
70
APPENDIX F
CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST
In order to meet the Internal Revenue Code's definition of life insurance, the
Policies provide that the death benefit will not be less than that required by
the "cash value accumulation test" specified in Section 7702(a)(1) of the
Internal Revenue Code, or the "guideline premium test" specified in Section
--
7702(a)(2) of the Internal Revenue Code, as selected by you when the Policy is
-------------------------------------
issued. Once the Policy is issued with either the cash value accumulation test
------
or the guideline premium test, that test will be used for the life of the
Policy. (See "Death Benefit".)
With respect to the cash value accumulation test, representative net single
premiums for selected ages of male and female, nonsmoker insureds are set forth
below.
Net Single Premium
------------------
Age Male Nonsmoker Female Nonsmoker
--- -------------- ----------------
30 . . . . . . . . . . .
40 . . . . . . . . . . .
50 . . . . . . . . . . .
60 . . . . . . . . . . .
70 . . . . . . . . . . .
71
With respect to the guideline premium test, Table I shows the percentage of the
Policy's cash value, including the pro rata portion of any Monthly Deduction
made for a period beyond the date of death, that is used to determine the death
benefit. Table I
Age of
------
Age of Insured at
------ ----------
Insured at Start of Percentage of Start of Percentage of
------------------- ------------- -------- -------------
the Policy Year Cash Value* the Policy Year Cash Value*
--------------- ------------ ---------------- -----------
0 through 40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 through 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 through 99 101
59 134 100 100
60 130
* including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death.
72
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered. NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-1
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the flexible premium adjustable variable life insurance
policies described in this registration statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2.
The prospectus consisting of ____ pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
The signatures.
Written consents of the following persons:
Independent Auditors (to be filed by amendment)
H. James Wilson, Esq. (to be filed by amendment)
Rodney J. Chandler, F.S.A., M.A.A.A.
(to be filed by amendment)
Sutherland, Asbill & Brennan LLP
(to be filed by amendment)
The following exhibits:
1.A. (1) January 31, 1983 resolution of the Board of Directors of
NEVLICO **
(2) None
(3) (a) Distribution Agreement between NEVLICO and NELESCO *
(b)(i) Form of Contract between NEVLICO and its General
Agents +++
(ii) Form of contract between NEVLICO and its Agents +++
(c) Commission Schedule for Policies (to be filed amendment)
II-2
(d) Form of contract among NES, NELICO and other
broker dealers ####
(4) None
(5) (a) Specimen of Policy
(b) Riders and Endorsements (to be filed by
amendment)
(c) Acceleration of Benefits Rider ###
(6) (a) Amended and restated Articles of
Incorporation of NELICO ##
(b) Amended and restated By-Laws of NELICO ####
(7) None
(8) None
(9) None
(10) Specimen of Applications for Policy
2. See Exhibit 3(i)
3. (i) Opinion and Consent of H. James Wilson,
Esquire (to be filed by amendment)
(ii) Opinion and Consent of Rodney J. Chandler,
F.S.A., M.A.A.A.(to be filed by amendment)
4. None
5. Inapplicable
6. Consent of Sutherland, Asbill & Brennan LLP
(to be filed by amendment)
7. (i) Power of Attorney for Richard Robinson
(ii) Powers of Attorney ##
(iii) Power of Attorney for James M. Benson ####
8. Inapplicable
9. Inapplicable
10. Inapplicable
11. Consent of Independent Auditors (to be filed
by amendment)
12. Schedule for computation of performance
quotations+
13. Consolidated memorandum describing certain procedures, filed
pursuant to Rule
6e-2(b)(12)(ii) and
Rule 6e-3(T)(b)(12)(iii)@@
14. (i) Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and New England
Variable Life Insurance Company ++++
(ii) Amendment No. 1 to Participation Agreement
among Variable Insurance Products Fund,
Fidelity Distributors Corporation and New
England Variable Life Insurance Company #
(iii) Participation Agreement among Variable
Insurance Products Fund II, Fidelity
Distributors Corporation and New England
Variable Life Insurance Company #
II-3
* Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 2-82838, filed
July 28, 1983.
** Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 2-82838, filed April 4, 1983.
+ Incorporated herein by reference to Post-Effective Amendment No. 2 to the
Variable Account's Form S-6 Registration Statement, File No. 33-19540,
filed April 28, 1989.
+++ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed January 12, 1993.
++++ Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 33-64170, filed June 9, 1993.
@@ Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 28, 1995.
# Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed June 22, 1995.
## Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
### Incorporated herein by reference to Post-Effective Amendment No. 8 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 30, 1997.
#### Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 333-21767,
filed July 16, 1997.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, New England Variable Life Separate Account, has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in the
city of Boston, and the Commonwealth of Massachusetts, on the 17th day of
February, 1998.
New England Variable Life Separate
Account
(Registrant)
By: New England Life Insurance
Company
(Depositor)
By: /s/ H. James Wilson
---------------------------
H. James Wilson
Executive Vice President
and General Counsel
Attest:
/s/Marie C. Swift
- ----------------------
Marie C. Swift
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company has duly caused this Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the city of Boston, and the Commonwealth
of Massachusetts, on the 17th day of February, 1998.
New England Life Insurance Company
(Seal)
Attest: /s/Marie C. Swift By: H. James Wilson
------------------------ --------------------------
Marie C. Swift H. James Wilson
Executive Vice President
and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on February 17, 1998
President and Chief
* Executive Officer
- -----------------------
James M. Benson
*
- ----------------------- Director
Susan C. Crampton
*
- ----------------------- Director
Edward A. Fox
*
- ----------------------- Director
George J. Goodman
*
- ----------------------- Director
Paul E. Gray
*
- ----------------------- Director
Evelyn E. Handler
*
- ----------------------- Director
Philip K. Howard
*
- ----------------------- Director
Harry P. Kamen
*
- ----------------------- Director
Terence Lennon
*
- ----------------------- Director
Bernard A. Leventhal
*
- ----------------------- Director
Thomas J. May
*
- ----------------------- Director
Stewart G. Nagler
Second Vice President and
* Chief Accounting Officer
- -----------------------
Richard A. Robinson
* Executive Vice President and
- ----------------------- Chief Financial Officer
Robert E. Schneider
*
- ----------------------- Chairman
Robert A. Shafto
*
- ----------------------- Director
Rand N. Stowell
*
- ----------------------- Director
Alexander B. Trowbridge
By: /s/Anne M. Goggin
------------------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant
to powers of attorney filed herewith and filed with the Variable Account's
Form S-6 Registration Statement, File No. 333-21767, on February 13, 1997
and filed with Pre-Effective Amendment No. 1 of the Variable Account's Form
S-6 Registration Statement, File No. 333-21767, on July 16, 1997.
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
1.A.5.A. Specimen of Policy
1.A.10. Specimen of Application for Policy
7. Power of Attorney
- ---------
* Page numbers inserted on manually-signed copy only.