As filed with Securities and Exchange Commission on
November 19, 2001
Registration No. 333-
- --------------------------------------------------------------------------------
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
Second Vice President and 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
---------------------------
Title of Securities Being Registered: Units of Interest in Flexible Premium
Variable Life Insurance Policies.
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 Distribution of the Policies
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 Conversion Right;
Surrender; Partial Withdrawal; Right to Examine 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; Distribution of the
Policies
13 Charges and Expenses; Distribution of the Policies;
NELICO's Income Taxes; Appendix A
14 Amount Provided for Investment Under the Policy;
Distribution of the Policies
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; Distribution of the Policies
20 Captions referenced under Items 6 and 10(g) above
21 Loan Provision
22 Inapplicable
23 Distribution of the Policies
24 Limits to NELICO's Right to Challenge the Policy
25 NELICO
26 Distribution of the Policies
27 NELICO
28 Management
FORM N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
- ----------- ---------------------
29 NELICO
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 Distribution of the Policies
35 NELICO
36 Inapplicable
37 Inapplicable
38 Distribution of the Policies
39 Distribution of the Policies
40 Distribution of the Policies
41(a) Distribution of the Policies
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
Conversion Right; Payment Options; Policy Owner and
Beneficiary; Premiums; Distribution of the Policies
52 Rights Reserved by NELICO
53 Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
ZENITH FLEXIBLE LIFE 2002
Flexible Premium
Variable Life Insurance Policies
Issued by
New England Variable Life Separate Account of
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus offers individual flexible premium variable life insurance
policies the ("Policies") issued by New England Life Insurance Company
("NELICO").
The Policy provides premium flexibility. You may choose between two death
benefit options. One provides a fixed death benefit equal to the Policy's face
amount. The other provides a death benefit that may vary daily with the
investment experience of the Eligible Funds. Cash value allocated to the
Eligible Funds is not guaranteed, and fluctuates daily with the investment
results of the Eligible Funds.
You allocate net premiums among the investment Sub-Accounts of NELICO's
Variable Life Separate Account (the "Variable Account"). Each Sub-Account of the
Variable Account invests in shares of an Eligible Fund. The Eligible Funds are:
NEW ENGLAND ZENITH FUND
State Street Research Bond Income Series
MFS Total Return Series
State Street Research Money Market Series
Capital Growth Series
Westpeak Growth and Income Series
Balanced Series
Loomis Sayles Small Cap Series
Alger Equity Growth Series
Davis Venture Value Series
Harris Oakmark Mid Cap Value Series
MFS Investors Trust Series
MFS Research Managers Series
METROPOLITAN SERIES FUND, INC.
Putnam Large Cap Growth Portfolio
Janus Mid Cap Portfolio
Russell 2000(R) Index Portfolio
Putnam International Stock Portfolio
MetLife Stock Index Portfolio
MetLife Mid Cap Stock Index Portfolio*
Morgan Stanley EAFE(R) Index Portfolio*
Lehman Brothers(R) Aggregate Bond Index Portfolio*
State Street Research Aurora Small Cap Value Portfolio*
Janus Growth Portfolio*
State Street Research Investment Trust Portfolio*
Franklin Templeton Small Cap Growth Portfolio*
Neuberger Berman Partners Mid Cap Value Portfolio*
MET INVESTORS SERIES TRUST
MFS Mid-Cap Growth Portfolio*
PIMCO Innovation Portfolio*
VARIABLE INSURANCE PRODUCTS FUND ("VIP")
Overseas Portfolio
Equity-Income Portfolio
High Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")
Asset Manager Portfolio
AMERICAN FUNDS INSURANCE SERIES
American Funds Growth Fund*
American Funds Growth-Income Fund*
American Funds Global Small Capitalization Fund*
- ---------------
* Subject to any necessary state insurance department approvals
You receive State Street Research Money Market Sub-Account performance
until 15 days (less in some states) after we apply your initial premium payment
to the Policy. Thereafter, we invest the Policy's cash value according to your
instructions.
You may also allocate net premiums to a Fixed Account in most states.
Special limits apply to Fixed Account transfers and withdrawals.
You may cancel the Policy during the "Right to Examine Policy" period.
Replacing existing insurance with the Policy might not be to your advantage.
Before you buy a Policy, ask your registered representative if changing, or
adding to, current insurance coverage would be advantageous.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
POLICIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE THAT CONTAINS
THE STATEMENTS OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE,
AND OTHER INFORMATION REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE ADDRESS OF THE SITE IS
http://www.sec.gov.
THE ELIGIBLE FUND PROSPECTUSES ARE ATTACHED. PLEASE READ THEM AND KEEP THEM
FOR REFERENCE.
WE DO NOT GUARANTEE HOW ANY OF THE SUB-ACCOUNTS OR ELIGIBLE FUNDS WILL
PERFORM. THE POLICIES AND THE ELIGIBLE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY.
, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
-----
GLOSSARY.................................................... A-4
INTRODUCTION TO THE POLICIES................................ A-5
The Policies........................................... A-5
Availability of the Policy............................. A-6
Policy Charges......................................... A-7
How the Policy Works................................... A-11
Receipt of Communications and Payments at NELICO's
Administrative Office................................. A-12
NELICO................................................. A-12
POLICY VALUES AND BENEFITS.................................. A-14
Death Benefit.......................................... A-14
Death Proceeds Payable................................. A-15
Change in Death Benefit Option......................... A-16
Cash Value............................................. A-16
Allocation of Net Premiums............................. A-17
Amount Provided for Investment under the Policy........ A-17
Right to Examine Policy................................ A-18
CHARGES AND EXPENSES........................................ A-18
Deductions from Premiums............................... A-18
Surrender Charge....................................... A-18
Monthly Deduction from Cash Value...................... A-20
Charges Against the Eligible Funds and the Sub-Accounts
of the Variable Account............................... A-22
Group or Sponsored Arrangements........................ A-22
PREMIUMS.................................................... A-23
Flexible Premiums...................................... A-23
Lapse and Reinstatement................................ A-24
OTHER POLICY FEATURES....................................... A-24
Increase in Face Amount................................ A-24
Loan Provision......................................... A-25
Surrender.............................................. A-26
Partial Withdrawal..................................... A-27
Reduction in Face Amount............................... A-27
Investment Options..................................... A-28
Transfer Option........................................ A-28
Dollar Cost Averaging.................................. A-29
Portfolio Rebalancing.................................. A-29
Change of Insured Person............................... A-30
Payment of Proceeds.................................... A-30
24 Month Conversion Right.............................. A-30
Other Exchange Rights.................................. A-31
Payment Options........................................ A-31
Additional Benefits by Rider........................... A-32
Policy Owner and Beneficiary........................... A-33
</Table>
A-2
<Table>
<Caption>
PAGE
-----
THE VARIABLE ACCOUNT........................................ A-33
Investments of the Variable Account.................... A-33
Investment Management.................................. A-36
Substitution of Investments............................ A-37
Share Classes of the Eligible Funds.................... A-37
THE FIXED ACCOUNT........................................... A-38
General Description.................................... A-38
Values and Benefits.................................... A-38
Policy Transactions.................................... A-38
DISTRIBUTION OF THE POLICIES................................ A-39
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY............ A-40
Misstatement of Age or Sex............................. A-40
Suicide................................................ A-40
TAX CONSIDERATIONS.......................................... A-40
Introduction........................................... A-40
Tax Status of the Policy............................... A-41
Tax Treatment of Policy Benefits....................... A-41
NELICO's Income Taxes.................................. A-43
MANAGEMENT.................................................. A-44
VOTING RIGHTS............................................... A-46
RIGHTS RESERVED BY NELICO................................... A-47
TOLL-FREE NUMBERS........................................... A-47
REPORTS..................................................... A-47
ADVERTISING PRACTICES....................................... A-47
LEGAL MATTERS............................................... A-48
REGISTRATION STATEMENT...................................... A-48
EXPERTS..................................................... A-48
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS............ A-49
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............... A-52
APPENDIX C: LONG TERM MARKET TRENDS......................... A-67
APPENDIX D: USES OF LIFE INSURANCE.......................... A-68
APPENDIX E: TAX INFORMATION................................. A-70
APPENDIX F: GUIDELINE PREMIUM TEST AND CASH VALUE
ACCUMULATION TEST......................................... A-71
FINANCIAL STATEMENTS........................................ AA-1
</Table>
A-3
GLOSSARY
ACCOUNT. A Sub-Account of the Variable Account or the Fixed Account.
AGE. The age of an insured refers to the insured's age at his or her
nearest birthday.
BASE POLICY. The Policy without riders.
CASH SURRENDER VALUE. The amount you receive if you surrender the Policy.
It is equal to the Policy's cash value reduced by any Surrender Charge that
would apply on surrender and by any outstanding Policy loan and accrued
interest.
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 the Loan
Account.
FIXED ACCOUNT. The Fixed Account is a part of our general account to which
you may allocate net premiums. It provides guarantees of principal and interest.
INVESTMENT START DATE. This is the later of the date we first receive a
premium payment for the Policy and the Policy Date.
LOAN ACCOUNT. The account to which cash value from the Variable and/or
Fixed Accounts is transferred when a Policy loan is taken.
PLANNED PREMIUM. The Planned Premium is the premium payment schedule you
choose to help meet your future goals under the Policy. The Planned Premium is a
level amount that is subject to certain limits under the Policy.
PREMIUMS. Premiums include all payments under the Policy, whether a
Planned Premium or an unscheduled payment.
POLICY DATE. If you make a premium payment with the application, the
Policy Date is generally the later of the date Part II of the application (if
any) was signed and receipt of the premium payment. If you choose to pay the
initial premium upon delivery of the Policy, we issue the Policy with a Policy
Date which is generally up to 30 days after issue. When you receive the Policy,
you will have an opportunity to redate it to a current date.
TARGET PREMIUM. We use the Target Premium to determine the amount of
Surrender Charge that may apply on a surrender, lapse, face amount reduction, or
a partial withdrawal or change in death benefit option that results in a face
amount reduction. The Target Premium varies by issue age, sex, smoking status
and any substandard rating of the insured and the Policy's base face amount.
YOU. "You" refers to the Policy Owner.
A-4
INTRODUCTION TO THE POLICIES
THE POLICIES
The Policies are designed to provide lifetime insurance coverage. They are
not offered primarily as an investment.
Here is a summary of the Policy's basic features. You should read the
entire prospectus for more complete information.
-- You can make premium payments under the Policy based on a schedule you
determine, subject to some limits. Your policy also provides
flexibility to change your schedule at any time or make a payment that
does not correspond with your schedule. We can limit or prohibit
payments in some situations. (See "Premiums".)
-- You can allocate net premiums to one or more of the Sub-Accounts of the
Variable Account corresponding to mutual fund portfolios, in some
states after an initial period in the State Street Research Money
Market Sub-Account. (See "Allocation of Net Premiums" and "Investment
Options".)
-- The mutual fund portfolios available under the Policy include several
common stock funds, including funds which invest primarily in foreign
securities, as well as bond funds, balanced funds, and a money market
fund. You may allocate your Policy's cash value to a cumulative maximum
of 49 accounts (including the Fixed Account) over the life of the
Policy. (See "Investments of the Variable Account".) We may limit your
initial selection to 25 accounts.
-- If the Fixed Account is available in your state, you may also allocate
funds to that account. We provide guarantees of Fixed Account principal
and interest. SPECIAL LIMITS APPLY TO TRANSFERS AND WITHDRAWALS OF CASH
---------------------------------------------------------
VALUE FROM THE FIXED ACCOUNT. We have the right to restrict transfers
-----------------------------
of cash value and allocations of premiums into the Fixed Account. (See
"The Fixed Account".)
-- The cash value of the Policy will vary daily based on the net
investment experience of your Policy's Sub-Accounts and the amount of
interest credited to your Policy's cash value in the Fixed Account.
(See "Cash Value", "Charges and Expenses", "Premiums", "Loan Provision"
and "Partial Withdrawal".)
-- The portion of the cash value in the Sub-Accounts is not guaranteed.
You bear the investment risk on this portion of the cash value. (See
"Cash Value".)
-- You may choose between two death benefit options and two definitions of
life insurance under the Policy. The level option death benefit equals
the Policy's face amount. The variable option death benefit equals the
face amount plus any cash value, which varies with the net investment
experience of your Policy's Sub-Accounts and the rate of interest
credited on your cash value in the Fixed Account. The death benefit in
either case could increase to satisfy tax law requirements if the cash
value reaches certain levels. (See "Death Benefit".)
-- You may change your allocation of future net premiums at any time. (See
"Allocation of Net Premiums" and "Investment Options".)
-- A loan privilege and partial withdrawal feature are available. (See
"Loan Provision" and "Partial Withdrawal".)
-- The Policy allows you to withdraw cash value from the Policy or
transfer cash value among the Sub-Accounts and the Fixed Account up to
twelve times in a Policy year without our consent. Currently, we do not
limit the number of Sub-Account transfers or withdrawals you may make
in a Policy year. We reserve the right to impose a charge of $25 for
each transfer or each withdrawal in excess of twelve. Transfers,
withdrawals and allocations involving the Fixed Account are subject to
special limits. (See "Transfer Option" and "The Fixed Account--Policy
Transactions".)
-- Death benefits paid to the beneficiary generally are not subject to
Federal income tax. Under current law, undistributed increases in cash
value generally are not taxable to you. (See "Tax Considerations".)
A-5
-- Loans, assignments and other pre-death distributions may have tax
consequences depending primarily on the amount which you have paid into
the Policy but also on any "material change" in the terms or benefits
of the Policy or any death benefit reduction. If premium payments, a
death benefit reduction, or a material change cause the Policy to
become a "Modified Endowment Contract," then pre-death distributions
(including loans) will be included in income on an income first basis,
and a 10% penalty tax may be imposed on income distributed before the
Policy Owner attains age 59 1/2. Tax considerations may therefore
influence the amount and timing of premium payments and certain Policy
transactions which you choose to make. (See "Tax Considerations".)
-- If the Policy is not a Modified Endowment Contract, we believe that
loans under the Policy will generally not be taxable to you as long as
the Policy has not lapsed, been surrendered or terminated. However, the
tax consequences associated with loans outstanding after the tenth
policy year are uncertain. With some exceptions, other pre-death
distributions under a Policy that is not a Modified Endowment Contract
are includible in income only to the extent they exceed your investment
in the Policy. (See "Tax Considerations".)
-- During the "Right to Examine Policy" period you can return the Policy
for a refund. (See "Right to Examine Policy".)
-- Within 24 months after a Policy's date of issue, you may exercise the
Policy's 24 Month Conversion Right. If you do, we allocate all of your
Policy's cash value and future premiums to the Fixed Account. The
purpose of the 24 Month Conversion Right is to provide you with fixed
Policy values and benefits. (See "24 Month Conversion Right" for a
description of this provision and for a description of the variation
which applies to Policies issued in Maryland, New York and
Connecticut.)
In many respects the Policies are similar to fixed-benefit universal life
insurance. Like universal life insurance, the Policies offer death benefits and
provide flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit universal life insurance in
that the death benefit may, and the cash value will, vary to reflect the
investment experience of the selected Sub-Accounts.
The Policies are designed to provide insurance protection. Although the
underlying mutual fund portfolios invest in securities similar to those in which
mutual funds available directly to the public invest, in many ways the Policies
differ from mutual fund investments. The main differences are:
-- The Policy provides a death benefit based on our assumption of an
actuarially calculated risk.
-- If the cash surrender value is not sufficient to pay a Monthly
Deduction, the Policy may lapse with no value unless you pay additional
premiums. If the Policy lapses when Policy loans are outstanding,
adverse tax consequences may result.
-- In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values
of the Policy. These charges include various insurance, risk,
administrative and premium tax charges. (See "Charges and Expenses".)
-- The Variable Account, not the Policy Owner, owns the mutual fund
shares.
-- Federal income tax liability on any earnings is generally deferred
until you receive a distribution from the Policy. Transfers from one
underlying fund portfolio to another do not incur tax liability under
current law.
-- Dividends and capital gains are automatically reinvested.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Life Insurance".
AVAILABILITY OF THE POLICY
The Policies are available for insureds age 85 or younger on an
underwritten basis and from the age of 20 to 70 on a guaranteed issue basis. (We
issue guaranteed issue Policies based on very limited underwriting information.)
We may consent to issue the Policies on insureds up to age 90. All persons must
meet our underwriting and other requirements.
A-6
The minimum face amount for the base Policy is $50,000 unless we consent to
a lower amount.
We offer other variable life insurance policies that have different death
benefits, policy features, and optional programs. However, these other policies
also have different charges that would affect your Sub-Account performance and
cash values. The Policies may also be available with term riders that provide
death benefit coverage at a lower overall cost than coverage under the base
Policy; however, term riders have no cash value and terminate at the insured's
age 100. To obtain more information about these other policies and term riders,
contact our Administrative Office or your registered representative.
For information concerning compensation paid for the sale of the Policies,
see "Distribution of the Policies".
POLICY CHARGES
PREMIUM-BASED CHARGES. We deduct the following charges from premiums:
-- A maximum sales charge of 5% (currently 2% in Policy year 11 and
thereafter);
-- A state premium tax charge of 2.5%;
-- A charge for federal taxes of 1.25%.
SURRENDER CHARGE. A Surrender Charge applies to a lapse, surrender, face
amount reduction, or a partial withdrawal or change in death benefit option that
results in a face amount reduction during the first ten Policy years, or during
the first ten years following a face amount increase (nine years for issue age
90). For the first partial withdrawal in each Policy year, no Surrender Charge
will apply to 10% of the cash surrender value at the time of the withdrawal. The
maximum Surrender Charge equals 45% of the Target Premium. After the first
Policy year (or after the first year following a face amount increase), the
Surrender Charge declines ratably on a monthly basis over the remaining nine
years of the Surrender Charge period until it reaches $0 in the last month of
the tenth Policy year (or the tenth year following the face amount increase).
We deduct the Surrender Charge from the Policy's available cash value,
regardless of whether that cash value comes from premiums or investment
experience.
MONTHLY DEDUCTION FROM CASH VALUE. We deduct certain charges from the cash
value:
-- Monthly charge for the cost of insurance and for any benefits provided
by rider;
-- Monthly Administration and Issue Expense Charge during the first ten
Policy years (and during the first ten Policy years following a face
amount increase), that varies by issue age, risk class and, except for
unisex Policies, sex of the insured. The monthly charge per $1000 of
base Policy face amount coverage ranges from approximately 3 cents to
38 cents;
-- A Face Amount Increase Administration Charge of $100 that applies to
each underwritten face amount increase and is deducted from the
Policy's cash value on the monthly anniversary when the increase takes
place;
-- Monthly Policy Charge, currently equal to $25.00 per month in the first
Policy year and $6.00 per month thereafter (guaranteed not to exceed
these amounts in any year);
-- Monthly Asset Charge against the cash value in the Variable Account for
our mortality and expense risk, currently equal to an annual rate of
.60% in Policy years 1-10; .25% in Policy years 11-20; and .15%
thereafter (guaranteed not to exceed .70% in Policy years 1-10; .35% in
Policy years 11-20; and .25% thereafter).
A-7
CHARGES DEDUCTED FROM THE ELIGIBLE FUNDS. There are daily charges against
the Eligible Fund assets for investment advisory services and fund operating
expenses.
NEW ENGLAND ZENITH FUND (CLASS A SHARES). The following table shows the
annual operating expenses for each New England Zenith Fund series, based on
actual expenses for 2000, after any applicable expense cap or expense deferral
arrangement:
<Table>
<Caption>
MANAGEMENT OTHER TOTAL ANNUAL
SERIES FEES EXPENSES EXPENSES
------ ---------- -------- ------------
Capital Growth.............................................. .62% .04% .66%**
State Street Research Bond Income........................... .40% .07% .47%
State Street Research Money Market.......................... .35% .06% .41%
MFS Total Return............................................ .50% .08% .58%
Westpeak Growth and Income.................................. .68% .05% .73%**
Loomis Sayles Small Cap..................................... .90% .06% .96%**
Harris Oakmark Mid Cap Value................................ .75% .15% .90%*
Balanced.................................................... .70% .10% .80%
Davis Venture Value......................................... .75% .04% .79%
Alger Equity Growth......................................... .75% .04% .79%
MFS Investors Trust......................................... .75% .15% .90%*
MFS Research Managers....................................... .75% .15% .90%*
</Table>
- ------------
* Without the applicable expense cap or expense deferral arrangement (described
below), Total Series Operating Expenses for the year ended December 31, 2000
would have been: Harris Oakmark Mid Cap Value Series, .96%; MFS Investors
Trust Series, 1.57%; and MFS Research Managers Series, 1.25%.
** Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements. If we included these reductions, total
annual expenses would have been .65% for Capital Growth Series, .70% for
Westpeak Growth and Income, and .95% for Loomis Sayles Small Cap Series.
Our affiliate, MetLife Advisers, LLC (formerly New England Investment
Management, LLC) advises the series of the New England Zenith Fund. MetLife
Advisers voluntarily limits the expenses (other than brokerage costs, interest,
taxes or extraordinary expenses) of certain series with either an expense cap or
expense deferral arrangement. Under the expense cap, MetLife Advisers bears
expenses of the Loomis Sayles Small Cap Series that exceed 1.00% of average
daily net assets. Under the expense deferral agreement, MetLife Advisers bears
expenses of the Harris Oakmark Mid Cap Value, MFS Investors Trust, and MFS
Research Managers Series that exceed .90% of average daily net assets in the
year the series incurs them and charges those expenses to the series in a future
year if actual expenses of the series are below the limit. MetLife Advisers may
end these expense limits at any time.
METROPOLITAN SERIES FUND (CLASS A SHARES). MetLife Advisers is the
investment manager for the Portfolios of the Metropolitan Series Fund, Inc. The
Portfolios pay investment management fees to MetLife Advisers and also bear
other expenses. The chart below shows the total operating expenses of the
Portfolios based on the year ended December 31, 2000 and current expense
subsidies (in the case of the Janus Growth Portfolio and the Franklin Templeton
Small Cap Growth Portfolio, anticipated expenses for 2001) as a percentage of
Portfolio net assets.
A-8
<Table>
<Caption>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
Putnam Large Cap Growth..................................... .80% .20% 1.00%*
Janus Mid Cap............................................... .66% .04% .70%
Russell 2000 Index.......................................... .25% .30% .55%
Putnam International Stock.................................. .90% .24% 1.14%++
MetLife Stock Index......................................... .25% .03% .28%
MetLife Mid Cap Stock Index................................. .25% .20% .45%*
Morgan Stanley EAFE Index................................... .30% .40% .70%*
Lehman Brothers Aggregate Bond Index........................ .25% .12% .37%
State Street Research Aurora Small Cap Value................ .85% .20% 1.05%*
Janus Growth................................................ .80% .15% .95%*
State Street Research Investment Trust...................... .47% .03% .50%**
Franklin Templeton Small Cap Growth......................... .90% .15% 1.05%*
Neuberger Berman Partners Mid Cap Value..................... .70% .19% .89%**
</Table>
- ------------
* Without the applicable expense cap arrangement (described below), Total
Annual Expenses for the year ended December 31, 2000 would have been 1.39%
for the Putnam Large Cap Growth Portfolio, .83% for the MetLife Mid Cap Stock
Index Portfolio, and 1.34% for the State Street Research Aurora Small Cap
Value Portfolio. The Total Annual Expenses for these Portfolios are
annualized since the Portfolios' start dates (May 1, 2000 for the Putnam
Large Cap Growth Portfolio and July 5, 2000 for the MetLife Mid Cap Stock
Index and the State Street Research Aurora Small Cap Value Portfolios).
Without the applicable expense cap arrangement (described below), Total
Annual Expenses for the year ended December 31, 2000 would have been .78% for
the Morgan Stanley EAFE Index Portfolio. Without the applicable expense
deferral arrangement (described below), the anticipated Total Annual Expenses
would be 1.09% for the Janus Growth Portfolio and 1.61% for the Franklin
Templeton Small Cap Growth Portfolio (annualized since their start date of
May 1, 2001).
** Total Annual Expenses do not reflect certain expense reductions due to
directed brokerage arrangements. If we included these reductions, Total
Annual Expenses would have been .49% for the State Street Research Investment
Trust Portfolio and .76% for the Neuberger Berman Partners Mid Cap Value
Portfolio.
++ Until May 1, 2000, the management fee for the Putnam International Stock
Portfolio was .75%.
MetLife Advisers voluntarily pays expenses (other than the management fee,
brokerage commissions, taxes, interest and other loan costs, and any unusual
one-time expenses) of (a) the Putnam Large Cap Growth Portfolio that exceed .20%
of the net assets until the earlier of (i) April 30, 2002 and (ii) the date when
the Portfolio's net assets reach $100 million; (b) the State Street Research
Aurora Small Cap Value Portfolio that exceed .20% of the net assets until April
30, 2002; (c) the MetLife Mid Cap Stock Index Portfolio that exceed .20% of the
net assets until the earlier of (i) June 30, 2002 and (ii) the date when the
Portfolio's net assets reach $100 million, but in no event earlier than April
30, 2002; (d) the Morgan Stanley EAFE Index Portfolio that exceed .40% of the
net assets until the earlier of (i) April 30, 2002 and (ii) the date when the
Portfolio's net assets reach $200 million; and (e) the Russell 2000 Index
Portfolio that exceed .30% of the net assets until the earlier of (i) April 30,
2002 and (ii) the date when the Portfolio's net assets reach $200 million.
MetLife Advisers also voluntarily pays expenses (other than brokerage
commissions, taxes, interest and any extraordinary or nonrecurring expenses)
that exceed .95% of the net assets of the Janus Growth Portfolio and 1.05% of
the net assets of the Franklin Templeton Small Cap Growth Portfolio through
April 30, 2002, in the year the Portfolio incurs them and charges those expenses
to the Portfolio in a future year if the actual expenses of the Portfolio are
below the limit. MetLife Advisers can terminate these arrangements at any time
upon notice to the Board of Directors and to Fund shareholders.
MET INVESTORS SERIES TRUST (CLASS A SHARES). The investment adviser for
Met Investors Series Trust is Met Investors Advisory Corp. ("Met Investors
Advisory") (formerly known as Security First Management Corp.). The Portfolios
of Met Investors Series Trust pay investment management fees to Met Investors
Advisory and also bear
A-9
certain other expenses. The anticipated total operating expenses of the
Portfolios for 2001 after any expense subsidies, as a percentage of Portfolio
average net assets, are:
<Table>
<Caption>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
MFS Mid-Cap Growth.......................................... .62% .18% .80%*
PIMCO Innovation............................................ .69% .41% 1.10%*
</Table>
- ------------
* Met Investors Advisory and Met Investors Series Trust have entered into an
Expense Limitation Agreement whereby for a period of at least one year from
the February 12, 2001 commencement of operations, the Management Fees of the
Portfolios will be limited so that Total Annual Expenses will not exceed .80%
for the MFS Mid-Cap Growth Portfolio and 1.10% for the PIMCO Innovation
Portfolio. Absent this Agreement, Management Fees for the period ending
December 31, 2001 would be .65% for the MFS Mid-Cap Growth Portfolio and 1.05%
for the PIMCO Innovation Portfolio, resulting in anticipated (annualized)
Total Annual Expenses for the two Portfolios of .83% and 1.46% respectively.
Under certain circumstances, any fees waived or expenses reimbursed by Met
Investors Advisory may, with the approval of the Trust's Board of Trustees, be
repaid to Met Investors Advisory.
VIP AND VIP II (INITIAL CLASS SHARES). The investment adviser for VIP and
VIP II is Fidelity Management & Research Company ("FMR"). The Portfolios of VIP
and VIP II pay investment management fees to FMR and also bear other expenses.
For the year ended December 31, 2000, the total operating expenses of the
Portfolios, as a percentage of Portfolio average net assets, were:
<Table>
<Caption>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- --------- ---------- -------- ------------
VIP Equity-Income........................................... .48% .08% .56%*
VIP Overseas................................................ .72% .17% .89%*
VIP High Income............................................. .58% .10% .68%
VIP II Asset Manager........................................ .53% .08% .61%
</Table>
- ------------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. If we included
these reductions, total annual expenses would have been .55% for VIP
Equity-Income Portfolio, and .87% for VIP Overseas Portfolio.
AMERICAN FUNDS INSURANCE SERIES (CLASS 2 SHARES). The investment adviser
for American Funds Insurance Series is Capital Research and Management Company
("Capital Research"). The Funds of American Funds Insurance Series pay
investment management fees to Capital Research and also bear certain other
expenses. For the year ended December 31, 2000, the total operating expenses of
each Fund, as a percentage of Fund average net assets, were:
<Table>
<Caption>
MANAGEMENT 12B-1 OTHER TOTAL ANNUAL
FUND FEES FEES EXPENSES EXPENSES
- ---- ---------- ----- -------- ------------
American Funds Growth................................. .36% .25% .02% .63%
American Funds Growth-Income.......................... .34% .25% .01% .60%
American Funds Global Small Capitalization............ .80% .25% .06% 1.11%
</Table>
An investment adviser or affiliates thereof may compensate NELICO and/or
certain affiliates for administrative, distribution, or other services relating
to Eligible Funds. We (or our affiliates) may also be compensated with 12b-1
fees from Eligible Funds. This compensation is based on assets of the Eligible
Funds attributable to the Policies and certain other variable insurance products
that we and our affiliates issue. Some funds or their advisers (or other
affiliates) may pay us more than others, and the amounts paid may be
significant. New England Securities may also receive brokerage commissions on
securities transactions initiated by an investment adviser.
See "Charges and Expenses".
A-10
HOW THE POLICY WORKS
PREMIUM PAYMENTS [FLOW CHART]
* Flexible
* Planned premium options
* No Lapse Premium (in first five Policy years)
* Secondary Guarantee Premium (to age 100)
CHARGES FROM PREMIUM PAYMENTS
* Sales Load: 5% (currently 2% in Policy years 11 and thereafter)
* State Premium Tax Charge: 2.5%
* Charge for Federal Taxes: 1.25%
LOANS
* You may borrow your cash value
* Loan interest charge is 3.5%. (Currently we intend to charge 3.25% interest in
Policy years 11-20 and 3.00% thereafter.) We transfer loaned funds out of the
Fixed Account and the Eligible Funds into the Loan Account where we credit
them with not less than 3.0% interest.
RETIREMENT BENEFITS
* Fixed settlement options are available for policy proceeds
CASH VALUES
* Net premium payments invested in your choice of Eligible Fund investments or
the Fixed Account (generally after an initial period in the State Street
Research Money Market Sub-Account)
* The cash value reflects investment experience, interest, premium payments,
policy charges and any distributions from the Policy
* We do not guarantee the cash value invested in the Eligible Funds
* Any earnings you accumulate are generally free of any current income taxes
* You may change the allocation of future net premiums at any time. You may
transfer funds among investment options (and to the Fixed Account). Currently
we do not limit the number of Sub-Account transfers you can make in a Policy
year.
* We limit the amount of transfers from (and in some cases to) the Fixed Account
* You may allocate your cash value among a maximum of 49 accounts over the life
of the Policy.
DEATH BENEFIT
* Level or Variable Death Benefit Options
* Guaranteed not to be less than face amount (less any loan and loan interest)
during first five Policy years if the five-year No Lapse Premium guarantee is
in effect, or until age 100 if the Secondary Guarantee Rider is in effect.
* On or after age 100, equal to cash value for insureds over age 80 at issue.
For insureds age 80 or younger at issue, equal to the greater of (1) cash
value and (2) the lesser of the face amount on the Policy anniversary at age
80 and at age 100.
* Income tax free to named beneficiary (generally)
DAILY DEDUCTIONS FROM ASSETS
* Investment advisory fees and other expenses are deducted from the Eligible
Fund values
BEGINNING OF MONTH CHARGES
* We deduct the cost of insurance protection (reflecting any substandard risk or
guaranteed issue rating) from the cash value each month
* Any Rider Charges
* Policy Fee: $25.00 per month (first year) and $6.00 per month thereafter
* Administration and Issue Expense Charge: Monthly charge ranging from
approximately $.03 to $.38 per $1,000 of base Policy face amount that applies
during the first ten Policy years or during the first ten Policy years
following a face amount increase.
* Face Amount Increase Administration Charge: maximum one-time charge of $100
levied on each underwritten increase in the base Policy's face amount.
* Asset Charge applied against the cash value in the Variable Account at an
annual rate of .60% in Policy years 1-10; .25% in Policy years 11-20; and .15%
thereafter (guaranteed not to exceed .70% in Policy years 1-10; .35% in Policy
years 11-20; and .25% thereafter)
SURRENDER CHARGE
* Applies on lapse, surrender, face amount reduction, or partial withdrawal or
change in death benefit option that results in face reduction in first ten
Policy years (or in first ten Policy years following a face amount increase).
Maximum charge is 45% of Target Premium in first Policy year. After first
Policy year, charge reduces ratably on a monthly basis over the remaining nine
years of the surrender period.
LIVING BENEFITS
* If policyholder has elected and qualified for benefits for disability and
becomes totally disabled, we will waive monthly charges during the period of
disability up to certain limits.
* You may surrender the Policy at any time for its cash surrender value
* Deferred income taxes, including taxes on certain amounts borrowed, become
payable upon surrender
* Grace period for lapsing with no value is 62 days from the first date in which
Monthly Deduction was not paid due to insufficient cash value
* Subject to our rules, you may reinstate a lapsed Policy within three years of
date of lapse if it has not been surrendered
A-11
RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S ADMINISTRATIVE OFFICE
We will treat your request for a Policy transaction, or your submission of
a payment, as received by us if we receive a request conforming to our
administrative procedures or a payment at our Administrative Office before the
close of regular trading on the New York Stock Exchange on that day. If we
receive it after that time, or if the New York Stock Exchange is not open that
day, then we will treat it as received on the next day when the New York Stock
Exchange is open.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. Originally, NELICO was a wholly-owned subsidiary of New England
Mutual Life Insurance Company ("New England Mutual"). On August 30, 1996, New
England Mutual merged into Metropolitan Life Insurance Company ("MetLife"), a
life insurance company whose principal office is One Madison Avenue, New York,
NY 10010. MetLife then became the parent of NELICO. MetLife is a wholly-owned
subsidiary of MetLife, Inc., a publicly-traded company. In connection with the
merger, NELICO changed its name from "New England Variable Life Insurance
Company" to "New England Life Insurance Company" and changed its domicile from
the State of Delaware to the Commonwealth of Massachusetts. NELICO's Home Office
is now at 501 Boylston Street, Boston, Massachusetts 02116. NELICO's mailing
address is: P.O. Box 9116, Boston, Massachusetts 02117. NELICO'S Administrative
Office
The chart on the next page illustrates the relationship of NELICO, the
Fixed Account, the Variable Account and the Eligible Funds.
A-12
[FLOW CHART]
NELICO
(Insurance company subsidiary of MetLife)
We deduct charges.
We allocate net premiums and net unscheduled payments to your choice of
sub-accounts in the Variable Account or to the Fixed Account.
Premiums
Fixed Account
VARIABLE ACCOUNT
Zenith Capital Growth Sub-Account
Zenith State Street Research Bond Income Sub-Account
Zenith State Street Research Money Market Sub-Account
Zenith MFS Total Return Sub-Account
Zenith Westpeak Growth and Income Sub-Account
Zenith Loomis Sayles Small Cap Sub-Account
Zenith Balanced Sub-Account
Zenith Alger Equity Growth Sub-Account
Zenith Davis Venture Value Sub-Account
Zenith Harris Oakmark Mid Cap Value Sub-Account
Zenith MFS Investors Trust Sub-Account
Zenith MFS Research Managers Sub-Account
Metropolitan Putnam Large Cap Growth Sub-Account
Metropolitan Janus Mid Cap Sub-Account
Metropolitan Russell 2000 Index Sub-Account
Metropolitan Putnam International Stock Sub-Account
Metropolitan MetLife Stock Index Sub-Account
Metropolitan MetLife Mid Cap Stock Index Sub-Account
Metropolitan Morgan Stanley EAFE Index Sub-Account
Metropolitan Lehman Brothers Aggregate Bond Index Sub-Account
Metropolitan State Street Research Aurora Small Cap Value Sub-Account
Metropolitan Janus Growth Sub-Account
Metropolitan State Street Investment Trust Sub-Account
Metropolitan Franklin Templeton Small Cap Growth Sub-Account
Metropolitan Neuberger Berman Partners Mid Cap Value Sub-Account
Met Investors MFS Mid-Cap Growth Sub-Account
Met Investors PIMCO Innovation Sub-Account
VIP Equity-Income Sub-Account
VIP Overseas Sub-Account
VIP High Income Sub-Account
VIP II Asset Manager Sub-Account
American Funds Growth Sub-Account
American Funds Growth-Income Sub-Account
American Funds Global Small Capitalization Sub-Account
Sub-accounts buy shares of the Eligible Funds.
NEW ENGLAND ZENITH FUND
Capital Growth Series
State Street Research Advisors Bond Income Series
State Street Research Advisors Money Market Series
MFS Total Return Series
Westpeak Growth and Income Series
Loomis Sayles Small Cap Series
Balanced Series
Alger Equity Growth Series
Davis Venture Value Series
Harris Oakmark Mid Cap Value Series
MFS Investors Trust Series
MFS Research Managers Series
METROPOLITAN SERIES FUND, INC.
Putnam Large Cap Growth Portfolio
Janus Mid Cap Portfolio
Russell 2000 Index Portfolio
Putnam International Stock Portfolio
MetLife Stock Index Portfolio
MetLife Mid Cap Stock Index Portfolio*
Morgan Stanley EAFE Index Portfolio*
Lehman Brothers Aggregate Bond Index Portfolio*
State Street Research Aurora Small Cap Value Portfolio*
Janus Growth Portfolio*
State Street Research Investment Trust Portfolio*
Franklin Templeton Small Cap Growth Portfolio*
Neuberger Berman Partners Mid Cap Value Portfolio*
MET INVESTORS SERIES TRUST
MFS Mid-Cap Growth Portfolio*
PIMCO Innovation Portfolio*
VIP
Equity-Income Portfolio
Overseas Portfolio
High Income Portfolio
VIP II
Asset Manager Portfolio
AMERICAN FUNDS INSURANCE SERIES
American Funds Growth Fund*
American Funds Growth-Income Fund*
American Funds Global Small Capitalization Fund*
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
* Availability is subject to any necessary state insurance department approvals.
A-13
THIS PROSPECTUS PROVIDES A GENERAL DESCRIPTION OF THE POLICY. POLICIES
ISSUED IN YOUR STATE MAY PROVIDE DIFFERENT FEATURES AND BENEFITS FROM, AND
IMPOSE DIFFERENT COSTS THAN, THOSE DESCRIBED IN THIS PROSPECTUS. YOUR ACTUAL
POLICY AND ANY ENDORSEMENTS ARE THE CONTROLLING DOCUMENTS. YOU SHOULD READ THE
POLICY CAREFULLY FOR ANY VARIATIONS IN YOUR STATE.
POLICY VALUES AND BENEFITS
DEATH BENEFIT
If the insured dies while the Policy is in force, we pay a death benefit to
the beneficiary.
DEATH BENEFIT OPTIONS--TO AGE 100. When you apply for a Policy, you choose
between two death benefit options.
The Option A (Face Amount) death benefit is equal to the face amount of the
Policy. The Option A death benefit is fixed, subject to increases required by
the Internal Revenue Code of 1986 (the "Code").
The Option B (Face Amount Plus Cash Value) death benefit is equal to the
face amount of the Policy, plus the Policy's cash value, if any. The Option B
death benefit is also subject to increases required by the Internal Revenue
Code.
CHOICE OF TAX TEST. The Internal Revenue Code requires the Policy's death
benefit to be not less than an amount defined in the Code. As a result, if the
cash value grows to certain levels, the death benefit increases to satisfy tax
law requirements.
When you apply for your Policy, you select which tax test will apply to the
death benefit. You will choose between: (1) the guideline premium test, and (2)
the cash value accumulation test. The test you choose at issue cannot be
changed.
Under the GUIDELINE PREMIUM TEST, the death benefit will not be less than
the cash value times the guideline premium factor. See Appendix F.
Under the CASH VALUE ACCUMULATION TEST, the death benefit will not be less
than the cash value times the net single premium factor set by the Code. Net
single premium factors are based on the age, smoking status, underwriting class
and sex of the insured at the time of the calculation. Sample net single premium
factors appear in Appendix F.
If cash value growth in the later Policy years is your main objective, the
guideline premium test may be the appropriate choice because it does not require
as high a death benefit as the cash value accumulation test, and therefore cost
of insurance charges may be lower, once the Policy's death benefit is subject to
increases required by the Code. If you select the cash value accumulation test,
you can generally make a higher amount of premium payments for any given face
amount, and a higher death benefit may result in the long term. If cash value
growth in the early Policy years is your main objective, the cash value
accumulation test may be the appropriate choice because it allows you to invest
more premiums in the Policy for each dollar of death benefit.
TERM RIDER "IN" OR "OUT". If you add a Supplemental Coverage Term Rider to
your Policy at issue, we will add the face amount of the rider to the face
amount of the base Policy when we calculate the Policy death benefit under your
chosen death benefit option ("Inside Term"). If you add a Convertible
Supplemental Coverage Term Rider to your Policy at issue, we will not include
the rider face amount in the calculation of the Policy death benefit but will
simply add the face amount of the rider to the Policy proceeds ("Outside Term").
You may not select both Supplemental Coverage Term and Convertible Supplemental
Coverage Term or change from one to the other.
If you choose Supplemental Coverage Term, the Policy may have greater
potential for the cash value to grow relative to the death benefit. If you
choose Convertible Supplemental Coverage Term, the Policy may have greater
potential for higher Policy proceeds relative to the cash value. Also, you may
be able to convert Convertible Supplemental Coverage Term (but not Supplemental
Coverage Term) to permanent insurance. If you choose Convertible Supplemental
Coverage Term, any death benefit increases required by the Code will be
triggered earlier than would be the case with Supplemental Coverage Term. These
increases lead to higher Monthly Deductions.
A-14
AGE 100. If the death benefit is payable on or after the insured's
attained age 100, the death benefit will be:
-- the cash value on the date of death, if the insured was older than 80
at issue, or
-- the greater of (1) the cash value on the date of death, and (2) the
lesser of the face amount of the Policy on the Policy anniversary when
the insured was 80 and the face amount on the Policy anniversary when
the insured is 100, if the insured was 80 or younger at issue.
For Policies issued in New York, your Policy will mature at age 100 for the
net cash value.
SECONDARY GUARANTEE RIDER. If available in your state, you may choose at
issue the Secondary Guarantee Rider. If you choose this benefit, we determine
whether the Secondary Guarantee is in effect on the first day of each Policy
month until the insured reaches age 100. If the Secondary Guarantee is in
effect, the Policy will not lapse even if the cash surrender value is less than
the Monthly Deduction for that month. However, any shortfall will, in effect,
cause your cash surrender value to have a negative balance. During any period in
which your Policy has negative cash value, no earnings will be credited to the
Policy. If a negative cash surrender value balance is not restored, then upon
termination of the guarantee period, you will have to pay an amount sufficient
to cover the accumulated outstanding Monthly Deductions, in addition the amount
you are required to pay to prevent lapse at the end of the grace period, in
order to keep the Policy in force. (See "Premiums".)
On the first day of a Policy month, if the total premiums you have paid,
less all partial withdrawals and any outstanding Policy loan and loan interest
(and less any cash value paid to you to allow the Policy to continue to qualify
as life insurance), are at least equal to the sum of the Secondary Guarantee
Premiums for each monthly anniversary since the Policy Date, then the guarantee
will apply for that month.
If your total premiums paid do not equal this amount, you will have a grace
period of 62 days from the first day of the Policy month to pay a premium
sufficient to keep the guarantee in force. If we do not receive this amount, the
rider will terminate and the guarantee provided by the rider will no longer
apply.
We will restrict any premium payment that would cause the Policy to fail to
meet the definition of a life insurance contract under the Internal Revenue
Code. This limitation will not cause the Secondary Guarantee Rider to terminate.
When testing whether the guarantee is in effect, we use each Secondary
Guarantee Premium that applied to the Policy for the period of time it was in
effect.
If you choose this rider, the Monthly Deduction will include a charge for
the rider until the insured reaches age 100, unless the rider terminates before
then. The rider will also terminate upon request or in the event of the
following:
-- death of the insured
-- termination of the Policy
-- change of insured
-- addition of a term rider on the life of someone other than the insured,
if you have selected the guideline premium test for the Policy.
DEATH PROCEEDS PAYABLE
The death proceeds we pay are equal to the death benefit on the date of the
insured's death, reduced by any outstanding loan and accrued loan interest on
that date. If the death occurs during the grace period, we reduce the proceeds
by the amount due, to cover unpaid Monthly Deductions to the date of death. (See
"Lapse and Reinstatement".) We increase the death proceeds (1) by any rider
benefits payable and (2) by any cost of insurance charge made for a period
beyond the date of death.
We may adjust the death proceeds if the insured's age or sex was misstated
in the application, if death results from the insured's suicide within two years
(less in some states) from the Policy's date of issue, or if a rider limits the
death benefit. (See "Limits to NELICO's Right to Challenge the Policy").
A-15
CHANGE IN DEATH BENEFIT OPTION
After the first Policy year, you may change your death benefit option by
written request to our Administrative Office. The change will be effective on
the monthly anniversary on or following the date we receive your request. We may
require proof of insurability. A change in death benefit option may have tax
consequences.
If you change from Option A (Face Amount) to Option B (Face Amount Plus
Cash Value), we reduce the Policy's face amount if necessary so that the death
benefit is the same immediately before and after the change. A face amount
reduction below $50,000 requires our consent. If we reduce the face amount, we
will first reduce any prior increases in face amount that you applied for, in
the reverse order in which the increases occurred, then the face amount of any
Supplemental Term Coverage Rider, then the initial face amount (including any
increase in face amount from a prior change in death benefit option), but not
below the Policy minimum, and finally the face amount of any Adjustable Benefit
Term Rider. A partial withdrawal of cash value may be necessary to meet Federal
tax law limits on the amount of premiums that you can pay into the Policy. A
Surrender Charge will apply to a Policy face amount reduction or partial
withdrawal that reduces the face amount on a change from Option A to Option B.
If you change from Option B (Face Amount Plus Cash Value) to Option A (Face
Amount), we increase the Policy's face amount, if necessary, so that the death
benefit is the same immediately before and after the change.
CASH VALUE
Your Policy's total cash value includes its cash value in the Variable
Account and in the Fixed Account. If you have a Policy loan, the cash value also
includes the amount we hold in the Loan Account as a result of the loan. The
cash value reflects:
-- net premium payments
-- the net investment experience of the Policy's Sub-Accounts
-- interest credited to cash value in the Fixed Account
-- interest credited to amounts held in the Loan Account for a Policy loan
-- the death benefit option you choose
-- Policy charges
-- partial withdrawals
-- transfers among the Sub-Accounts and the Fixed Account.
We pay you the cash surrender value if you surrender the Policy. It equals
the cash value minus any outstanding Policy loan (plus interest) and any
Surrender Charge that applies. (See "Loan Provision", "Surrender Charge", and
"Monthly Deduction from Cash Value".)
The Policy's cash value in the Variable Account may increase or decrease
daily depending on net investment experience. Poor investment experience can
reduce the cash value to zero. YOU HAVE THE ENTIRE INVESTMENT RISK FOR THE CASH
VALUE IN THE VARIABLE ACCOUNT.
The Policy's total cash value in the Variable Account equals the number of
accumulation units credited in each Sub-Account multiplied by that Sub-Account's
accumulation unit value. We convert any premium, interest earned on loan cash
value, or cash value allocated to a Sub-Account into accumulation units of the
Sub-Account. Surrenders, partial withdrawals, Policy loans, transfers and
charges deducted from the cash value reduce the number of accumulation units
credited in a Sub-Account. We determine the number of accumulation units by
dividing the dollar amount of the transaction by the Sub-Account's accumulation
unit value next determined following the transaction. (In the case of an initial
premium, we use the accumulation unit value on the investment start date).
The accumulation unit value of a Sub-Account depends on the net investment
experience of its corresponding Eligible Fund and reflects fees and expenses of
the Eligible Fund. We determine the accumulation unit value as of the close of
regular trading on the New York Stock Exchange on each day that the Exchange is
open for trading by multiplying the most recent accumulation unit value by the
net investment factor ("NIF") for that day (see below).
A-16
The NIF for a Sub-Account reflects:
-- the change in net asset value per share of the corresponding Eligible
Fund (as of the close of regular trading on the Exchange) from its last
value,
-- the amount of dividends or other distributions from the Eligible Fund
since the last determination of net asset value per share, and
-- any deductions for taxes that we make from the Variable Account.
The NIF can be greater or less than one.
ALLOCATION OF NET PREMIUMS
Your cash value is held in the general account of NELICO or an affiliate
until we issue the Policy. We credit the first net premium with net investment
experience equal to that of the State Street Research Money Market Sub-Account
from the investment start date until the day we apply the initial premium to the
Policy (in states that require a refund of premiums if you exercise the Right to
Examine Policy provision, until 15 days after we apply the initial premium to
the Policy). (The "investment start date" is defined below.) Then, we allocate
the cash value to the Sub-Accounts and/or the Fixed Account as you choose. You
can allocate to a cumulative maximum of 49 accounts (including the Fixed
Account) over the life of the Policy. We may limit your initial selection to 25
accounts.
AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY
INVESTMENT START DATE. The investment start date is the later of: the date
when we first receive a premium payment for the Policy 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
the earlier of receipt by our Administrative Office or by a NELICO agency.)
PREMIUM WITH APPLICATION. If you make a premium payment with the
application, the Policy Date is generally the later of the date Part II (if any)
of the application is signed and receipt of the premium payment. In that case,
the Policy Date and investment start date are the same. The amount of premium
paid with the application must be at least 10% of the annual Planned Premium for
the Policy. You may only make one premium payment before the Policy is issued.
When the Policy is delivered to you, you will need to pay any remaining monthly
No Lapse Premiums for the period between the Policy Date and the delivery date.
(See "Premiums".)
If you make a premium payment with the application, we will cover the
insured under a temporary insurance agreement for a limited period that usually
begins when we receive the premium for the Policy (or, if later, on the date
when Part II of the application is signed). The maximum temporary coverage is
the lesser of the amount of insurance applied for and $500,000 for standard and
preferred risks ($250,000 for substandard risks and $50,000 for persons who are
determined to be uninsurable). We may increase these limits. These provisions
vary in some states.
If we issue a Policy, Monthly Deductions begin from the Policy Date, even
if we delayed the Policy's issuance for underwriting. The deductions are for the
face amount of the Policy issued, even if the temporary insurance coverage
during underwriting was for a lower amount. If we decline an application, we
refund the premium payment made.
PREMIUM ON DELIVERY. If you pay the initial premium on delivery of the
Policy, the Policy Date is generally up to 30 days after issue. When you receive
the Policy, you will have an opportunity to redate it to a current date. The
investment start date is the later of the Policy Date and the date we received
the premium. Monthly Deductions begin on the Policy Date. Insurance coverage
under the Policy begins when we receive the monthly No Lapse Premiums for the
period since the Policy Date.
BACKDATING. We may sometimes backdate a Policy, if you request, by
assigning a Policy Date earlier than the date the application is signed. You may
wish to backdate so that you can obtain lower cost of insurance rates, based on
a younger insurance age. For a backdated Policy, you must also pay the No Lapse
Premiums due for the period between the Policy Date and the investment start
date. As of the investment start date, we allocate to the Policy those net
premiums, adjusted for monthly Policy charges.
A-17
RIGHT TO EXAMINE POLICY
You may cancel the Policy or an increase in face amount within ten days
(more in some states) after you receive it. You may return the Policy or face
amount increase to us or your registered representative. Insurance coverage ends
as soon as you return the Policy (determined by postmark, if the Policy is
mailed). If you cancel the Policy, we refund any premiums paid (or any other
amount that is required by state insurance law). If you return an increase in
face amount, it is cancelled from its beginning, and we will return to your cash
value the Monthly Deductions for the increase, as well as the Face Amount
Increase Administration Charge.
CHARGES AND EXPENSES
The amount of a charge may not necessarily correspond to the costs of the
services or benefits that are implied by the name of the charge or that are
associated with the particular Policy. For example, the sales charge and
surrender charge may not fully cover all of our sales and distribution expenses,
and we may use proceeds from other charges, including the mortality and expense
risk charge and the cost of insurance charge, to help cover those expenses. We
can profit from certain Policy charges.
DEDUCTIONS FROM PREMIUMS
We deduct a 5% sales charge from premiums.
The sales charge is currently 2% rather than 5% for premiums paid in Policy
year 11 and thereafter.
We may reduce sales charges for Policies sold to some group or sponsored
arrangements. We offer a program under which you may exchange certain
fixed-benefit life insurance policies that New England Mutual issued for the
Policy without a deduction for the sales charge from the amount of cash value
that you transfer to the Policy. We may also offer a similar exchange program
for certain policies issued by our affiliates. Eligibility conditions apply.
Your registered representative can advise you regarding terms and availability
of these programs.
STATE PREMIUM TAX CHARGE. We deduct 2.5% from each premium for state
premium taxes and administrative expenses. Premium taxes vary from state to
state and the 2.5% charge reflects an average. Administrative expenses covered
by this charge include those related to premium tax and certain other state
filings.
FEDERAL PREMIUM TAX CHARGE. We deduct 1.25% from each premium for our
federal income tax liability related to premiums.
EXAMPLE: The following chart shows the net amount that we would allocate
to the Variable Account assuming a premium payment of $2,000 (in the first ten
Policy years).
<Table>
<Caption>
NET
PREMIUM PREMIUM
- ------- -------
$2,000 $2,000
- 175 (8.75% X 2,000 = total sales and premium tax charge)
-------
$1,825 Net Premium
</Table>
SURRENDER CHARGE
If, during the first ten Policy years, or during the first ten years
following a face amount increase, you surrender or lapse your Policy, reduce the
face amount, or make a partial withdrawal or change in death benefit option that
reduces the face amount, then we will deduct a Surrender Charge from the cash
value. (For insureds whose issue age is 90 at issue of the Policy, the Surrender
Charge period is nine years.) The maximum Surrender Charge is shown in your
Policy.
For the first partial withdrawal in each Policy year, no Surrender Charge
will apply to 10% of the cash surrender value at the time of the withdrawal (or,
if less, the amount of the partial withdrawal).
A-18
We base the Surrender Charge on a percentage of the Target Premium. The
Surrender Charge that applies during the first Policy year is equal to 45% of
----------------------------
the Target Premium. After the first Policy year, the Surrender Charge declines
ratably on a monthly basis until it reaches $0 in the last month of the tenth
Policy year.
EXAMPLES -- SURRENDER CHARGES
<Table>
<Caption>
HYPOTHETICAL MAXIMUM SURRENDER
INSURED TARGET PREMIUM CHARGE
------- --------------------------- -----------------
Male, Age 40
Nonsmoker Preferred
Face Amount $500,000
Female, Age 45
Smoker Preferred
Face Amount $100,000
Male, Age 55
Smoker Standard
Face Amount $1,000,000
</Table>
The table below shows the maximum Surrender Charge that applies to the
Policy. The table shows the charge that applies if the lapse, surrender or face
reduction occurs in any month of Policy year one and in the last month of Policy
years two through ten.
<Table>
<Caption>
THE MAXIMUM SURRENDER
FOR POLICIES WHICH ARE CHARGE IS THE FOLLOWING
SURRENDERED, LAPSED OR PERCENTAGE OF ONE
REDUCED DURING TARGET PREMIUM
---------------------- -----------------------
Entire Policy Year 1 45%
Last Month of Policy Years 2 40%
3 35%
4 30%
5 25%
6 20%
7 15%
8 10%
9 5%
10 0%
</Table>
In the case of a face amount reduction or a partial withdrawal or change in
death benefit option that results in a face amount reduction, we deduct any
Surrender Charge that applies from the Policy's remaining cash value in an
amount that is proportional to the amount of the Policy's face amount
surrendered. (See "Reduction in Face Amount," "Partial Withdrawal" and "Change
in Death Benefit Option".) The charge reduces the Policy's cash value in the
Sub-Accounts and the Fixed Account in proportion to the amount of the Policy's
cash value in each. However, if you designate the accounts from which a partial
withdrawal is to be taken, the charge will be deducted proportionately from the
cash value of the designated accounts.
A-19
MONTHLY DEDUCTION FROM CASH VALUE
On the first day of each Policy month, starting with the Policy Date, we
deduct the "Monthly Deduction" from your cash value.
-- If your Policy is protected against lapse by the five year No Lapse
Premium guarantee or the Secondary Guarantee Rider, we make the Monthly
Deduction each month regardless of the amount of your cash surrender
value. If your cash surrender value is insufficient to pay the Monthly
Deduction in any month, your Policy will not lapse, but the shortfall
will, in effect, cause your cash surrender value to have a negative
balance. During any period in which your Policy has negative cash
value, no earnings will be credited to the Policy. If a negative cash
surrender value balance is not restored, then upon termination of the
guarantee period, you will have to pay an amount sufficient to cover
the accumulated outstanding Monthly Deductions, in addition to the
amount you are required to pay to prevent lapse at the end of the grace
period, in order to keep the Policy in force. (See "Premiums".)
-- If the five year No Lapse Premium guarantee or the Secondary Guarantee
Rider is not in effect, and the cash surrender value is not large
enough to cover the entire Monthly Deduction, we will make the
deduction to the extent cash value is available, but the Policy will be
in default, and it may lapse. (See "Lapse and Reinstatement".)
There is no Monthly Deduction on or after the Policy anniversary when the
insured attains age 100.
The Monthly Deduction reduces the cash value in each Sub-Account of the
Variable Account and in the Fixed Account in proportion to the cash value in
each. However, you may request that we charge the Monthly Deduction to a
specific Sub-Account of the Variable Account or to the Fixed Account. If, in any
month, the designated account has insufficient cash surrender value to satisfy
the Monthly Deduction, we will charge the Monthly Deduction to all Sub-Accounts
and, if applicable, the Fixed Account, in proportion to the cash value in each.
The Monthly Deduction includes the following charges:
POLICY CHARGE. The Policy Charge is currently equal to $25.00 per month in
the first Policy year and $6.00 per month thereafter (guaranteed not to exceed
these amounts in any year).
ADMINISTRATION AND ISSUE EXPENSE CHARGE. During the first ten Policy
years, and during the first ten Policy years following a face amount increase,
we impose a monthly charge for the costs of underwriting, issuing (including
sales commissions), and administering the Policy or the face amount increase.
The monthly charge per $1000 of base Policy face amount coverage ranges from
approximately 3 cents to 38 cents, and varies by the insured's issue age and
underwriting class (at the time the Policy or a face amount increase is issued),
and, except for unisex Policies, the insured's sex.
In addition, each time there is an underwritten increase in the face amount
of the base Policy, we deduct a one-time Face Amount Increase Administration
Charge of $100 from the Policy's cash value on the monthly anniversary when the
increase takes place.
MONTHLY CHARGES FOR THE COST OF INSURANCE. This charge covers the cost of
providing insurance protection under your Policy. The cost of insurance charge
for a Policy month is equal to the "amount at risk" under the Policy, multiplied
by the cost of insurance rate for that Policy month. We determine the amount at
risk on the first day of the Policy month after we process the Monthly
Deduction, except for the cost of insurance and Waiver of Monthly Deduction
Rider charges. The amount at risk is the amount by which the death benefit
(generally discounted at the monthly equivalent of 3% per year) exceeds the
Policy's cash value. The cost of insurance rate for your Policy may change from
month to month.
A-20
The guaranteed cost of insurance rates for a Policy depend on the insured's
-- smoking status
-- substandard rating
-- age on the first day of the Policy year
-- sex (if the Policy is sex-based).
The current cost of insurance rates will also depend on
-- underwriting class
-- the insured's age at issue (and at the time of any face amount
increase)
-- the Policy year (and the year of any face amount increase).
We guarantee that the rates for underwritten Policies will not be higher
than rates based on
-- the 1980 Commissioners Standard Ordinary Mortality Tables (the "1980
CSO Tables") with smoker/nonsmoker modifications, for Policies issued
on non-juvenile insureds (age 18 and above at issue)
-- the 1980 Nonsmoker CSO Tables, for Policies issued on juvenile insureds
(below age 18 at issue).
The actual rates we use may be lower than the maximum rates, depending on
our expectations about our future mortality and expense experience, lapse rates,
taxes and investment earnings. We review the adequacy of our cost of insurance
rates and other non-guaranteed charges periodically and may adjust them. Any
change will apply prospectively.
The underwriting classes we use are
-- for Policies issued on non-juvenile insureds: preferred smoker,
standard smoker, substandard smoker, preferred nonsmoker, standard
nonsmoker, substandard nonsmoker, guaranteed issue smoker and
guaranteed issue nonsmoker
-- for Policies issued on juvenile insureds: standard and substandard.
Substandard and guaranteed issue ratings result in higher cost of insurance
deductions. We base the guaranteed maximum mortality charges for substandard
ratings on multiples of the 1980 CSO Tables. (See below for a discussion of
guaranteed issue Policies.)
The following standard or better smoker and non-smoker classes are
available for underwritten Policies:
-- elite nonsmoker for Policies with total face amounts (base Policy plus
Supplemental Coverage or Convertible Supplemental Coverage Term Riders)
of $250,000 or more where the issue age is 18 through 80;
-- preferred smoker and preferred nonsmoker for Policies with total face
amounts (base Policy plus Supplemental Coverage or Convertible
Supplemental Coverage Term Riders) of $100,000 or more where the issue
age is 18 through 80;
-- standard smoker and standard nonsmoker for Policies with total face
amounts (base Policy plus Supplemental Coverage or Convertible
Supplemental Coverage Term Riders) of $50,000 or more where the issue
age is 18 through 90.
The elite nonsmoker class offers the best current cost of insurance rates,
and the preferred classes generally offer better current cost of insurance rates
than the standard classes.
Cost of insurance rates are generally lower for nonsmokers than for smokers
and generally lower for females than for males. Within a given underwriting
class, cost of insurance rates are generally lower for insureds with lower issue
ages. Where required by state law, and for Policies sold in connection with some
employee benefit plans, cost of insurance rates (and Policy values and benefits)
do not vary based on the sex of the insured.
A-21
We may offer Policies on a guaranteed issue basis to certain group or
sponsored arrangements. The classes available are guaranteed issue smoker and
guaranteed issue nonsmoker. We issue these Policies up to predetermined face
amount limits. Because we issue these Policies based on minimal underwriting
information, they may present a greater mortality cost to us than Policies in a
standard class. Therefore, these Policies have their own cost of insurance
rates. The cost of insurance rates are guaranteed not to exceed 100% of the 1980
CSO Tables (with smoker/nonsmoker modifications for non-juvenile insureds).
Generally the current guaranteed issue rates will exceed current cost of
insurance rates for a comparable underwritten Policy.
Some group or sponsored arrangements may be eligible to purchase Policies
on a simplified underwriting basis. They may elect simplified underwriting
instead of guaranteed issue or for amounts of insurance above our guaranteed
issue limits. However, they may not choose guaranteed issue for some members of
the group and simplified underwriting for others. There is no extra insurance
charge for Policies issued on a simplified underwriting basis.
CHARGES FOR ADDITIONAL BENEFITS AND SERVICES. We charge for the cost of
any additional rider benefits as described in the rider form. We also may charge
you a nominal fee, which we will bill directly to you, if you request a Policy
re-issue or re-dating.
ASSET CHARGE. We charge for our mortality and expense risks. Currently,
the charge is made monthly at an annual rate of .60% in Policy years 1 through
10; .25% in Policy years 11 through 20; and .15% thereafter. The charge is
guaranteed not to exceed .70% in Policy years 1 through 10; .35% in Policy years
11 through 20; and .25% thereafter.
The mortality risk we assume is that insureds may live for shorter periods
of time than we estimated. The expense risk is that our costs of issuing and
administering the Policies may be more than we estimated.
CHARGES AGAINST THE ELIGIBLE FUNDS AND THE SUB-ACCOUNTS OF THE VARIABLE ACCOUNT
CHARGES FOR INCOME TAXES. We currently do not charge the Variable Account
for income taxes, but in the future we may make such a charge, if appropriate.
We have the right to make a charge for any taxes imposed on the Policies in the
future. (See "NELICO's Income Taxes".)
ELIGIBLE FUND EXPENSES. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds. (See the "Policy
Charges" section under "Introduction to the Policies.")
GROUP OR SPONSORED ARRANGEMENTS
We may issue the Policies to group or sponsored arrangements, as well as on
an individual basis. A "group arrangement" includes a situation where a trustee,
employer or similar entity purchases individual Policies covering a group of
individuals. Examples of such arrangements are non-tax qualified deferred
compensation plans. A "sponsored arrangement" includes a situation where an
employer or an association permits group solicitation of its employees or
members for the purchase of individual Policies.
We may waive, reduce or vary any Policy charges under Policies sold to a
group or sponsored arrangement. We may also raise the interest rate credited to
loaned amounts under these Policies. The amount of the variations and our
eligibility rules may change from time to time. In general, they reflect cost
savings over time that we anticipate for Policies sold to the eligible group or
sponsored arrangements and relate to objective factors such as the size of the
group, its stability, the purpose of the funding arrangement and characteristics
of the group members. These variations of charges do not apply to Policies sold
in New York other than Policies sold to non-tax qualified deferred compensation
plans of various types. Consult your registered representative for any
variations that may be available and appropriate for your case.
The United States Supreme Court has ruled that insurance policies with
values and benefits that vary with the sex of the insured may not be used to
fund certain employee benefit programs. Therefore, we offer Policies that do not
vary based on the sex of the insured to certain employee benefit programs. We
recommend that employers consult an attorney before offering or purchasing the
Policies in connection with an employee benefit program.
A-22
PREMIUMS
FLEXIBLE PREMIUMS
Within limits, you choose the amount and frequency of premium payments. You
select a Planned Premium schedule, which is a level amount. This schedule
appears in your Policy. YOUR PLANNED PREMIUMS WILL NOT NECESSARILY KEEP YOUR
POLICY IN FORCE. You may skip Planned Premium payments or make additional
payments. Additional payments could be subject to underwriting. No payment can
be less than $10.
You can pay Planned Premiums on an annual, semi-annual or quarterly
schedule or, with our consent, monthly. You can change your Planned Premium
schedule by sending your request to us. However, an increase in the amount of
your Planned Premium may require our consent.
You may make payments by check or money order. We will send premium notices
for annual, semi-annual or quarterly Planned Premiums. You may also choose to
have us withdraw your premium payments from your bank checking account or Nvest
Cash Management Trust account. (This is known as the Master Service Account
arrangement.)
You may not make premium payments on or after the Policy anniversary when
the insured reaches age 100, except for premiums required during the grace
period.
If any payments under the Policy exceed the "7-pay limit" under Federal tax
law, your Policy will become a "Modified Endowment Contract" and you may have
more adverse tax consequences with respect to certain distributions than would
otherwise be the case if premium payments did not exceed the "7-pay limit". (See
"Tax Considerations".) In addition, if you have selected the guideline premium
test, Federal tax law limits the amount of premiums that you can pay under the
Policy. You need our consent if, because of tax law requirements, a payment
would increase the Policy's death benefit by more than it would increase cash
value. We may require evidence of insurability before accepting the payment.
We allocate net payments to your Policy's Sub-Accounts as of the date we
receive the payment. (See "Receipt of Communications and Payments at NELICO's
Administrative Office".)
Under our current processing, unless you instruct us otherwise in writing,
we treat a payment that is greater than the amount billed, first, as a payment
of loan interest due, and second, as a premium payment. If a payment is less
than the amount billed, we treat the entire payment as a premium payment. If the
payment is equal to the amount billed, we apply the payment to premium and loan
interest as set forth in the bill. We do not treat a payment as repayment of a
Policy loan unless you instruct us to.
If you have a Policy loan, it may be better to repay the loan than to make
a premium payment, because the premium payment is subject to sales and tax
charges, whereas the loan repayment is not subject to any charges. (See "Loan
Provision" and "Deductions from Premiums".)
Two types of premium payment levels can protect your Policy against lapse
(1) for the first five Policy years, and (2) until age 100 of the insured.
FIRST FIVE POLICY YEARS. In general, if you pay the five-year No Lapse
Monthly Premium amount on time, the Policy will not lapse even if the cash
surrender value is less than the Monthly Deduction in any month. If (a) the
total premiums you have paid, less all partial withdrawals and any outstanding
Policy loan balance and loan interest (and less any cash value paid to you to
allow the Policy to continue to qualify as life insurance), at least equal (b)
the total No Lapse Monthly Premiums for the Policy up to that Policy month, the
Policy will not lapse. The guarantee will not apply if you reinstate the Policy.
We recalculate the No Lapse Premium if (1) you change the face amount, (2) you
add, delete or change rider coverage, (3) the rating classification for your
Policy is changed, (4) we correct a misstatement of the insured's age or sex, or
(5) you change the insured. The No Lapse Annual Premium is shown in your Policy.
The No Lapse Monthly Premium is one twelfth of the No Lapse Annual Premium.
TO AGE 100. In general, if you choose the Secondary Guarantee Rider and
pay the Secondary Guarantee Premiums on time, the Policy will stay in force
until the insured reaches age 100. Your total premium payments
A-23
(less any partial withdrawals, outstanding Policy loans, loan interest, and cash
value paid to you to allow the Policy to continue to qualify as life insurance)
must meet the requirements of the rider.
We recalculate the Secondary Guarantee Premium if:
-- you change your death benefit option
-- you increase or decrease the face amount
-- you increase or add rider coverage
-- a correction is made in the age or sex of the insured
-- the underwriting class of the Policy is changed.
If your Policy is protected against lapse by the five year No Lapse Premium
guarantee or the Secondary Guarantee Rider, we make the Monthly Deduction
regardless of the amount of your cash surrender value. If your cash surrender
value is insufficient to pay the Monthly Deduction in any month, your Policy
will not lapse, but the shortfall will, in effect, cause your cash surrender
value to have a negative balance. During any period in which your Policy has
negative cash value, no earnings will be credited to the Policy. If a negative
cash surrender value balance is not restored, then upon termination of the
guarantee period, you will have to pay an amount sufficient to cover the
accumulated outstanding Monthly Deductions, in addition to the amount you are
required to pay to prevent lapse at the end of the grace period, in order to
keep the Policy in force.
LAPSE AND REINSTATEMENT
LAPSE. Unless your Policy is protected by the Secondary Guarantee Rider or
by the five-year No Lapse Premium guarantee, any month that your Policy's cash
surrender value is not large enough to cover a Monthly Deduction, your Policy
will be in default. Your Policy provides a 62 day grace period for payment of a
premium large enough to pay the amount due. The amount due is the least of: a
premium large enough to cover the Monthly Deduction and all deductions from the
premium; a premium large enough to satisfy the Secondary Guarantee Rider
requirement, if the Policy has the rider; and a premium large enough to meet the
five-year No Lapse Monthly Premium test. We will tell you the amount due. You
have insurance coverage during the grace period, but if the insured dies before
you have paid the premium, we deduct from the death proceeds the amount due for
the period before the date of death. If you have not paid the required premium
by the end of the grace period, your Policy will lapse without value.
REINSTATEMENT. If your Policy has lapsed, in most states you may reinstate
it within three years after the date of lapse if the insured has not attained
age of 100. If more than three years have passed, you need our consent to
reinstate. Reinstatement in all cases requires payment of certain charges
described in the Policy and usually requires evidence of insurability that is
satisfactory to us.
If we deducted a Surrender Charge on lapse, we credit it back to the
Policy's cash value on reinstatement. The Surrender Charge on the date of
reinstatement is the same as it was on the date of lapse. When we determine the
Surrender Charge and other charges except cost of insurance and the Policy loan
interest rate, we do not count the amount of time that a Policy was lapsed.
Some states may require a different grace period than that described above.
Please read the grace period provision of your Policy for details.
OTHER POLICY FEATURES
INCREASE IN FACE AMOUNT
You may increase the Policy's face amount. We require satisfactory evidence
of insurability, and the insured's attained age must not exceed the maximum age
at which we currently offer new insurance for the amount of the increase. The
minimum amount of increase permitted is $10,000 ($20,000 for Policies issued in
New York or for
A-24
insureds aged 90.). The increase is effective on the monthly anniversary on or
next following our receipt of a completed request.
A Face Amount Increase Administration Charge of $100 applies to each
underwritten face amount increase, and is deducted from the Policy's cash value
on the monthly anniversary when the increase takes effect. The face amount
increase will have its own Target Premium, as well as its own Surrender Charge,
monthly Administration and Issue Expense Charge rates, current cost of insurance
rates, and Right to Examine Policy and suicide and contestability periods as if
it were a new Policy. When calculating the monthly cost of insurance charge, we
attribute the Policy's cash value first to the initial face amount, then to the
Supplemental Coverage Term Rider, then to the Adjustable Benefit Term Rider, and
finally to any face amount increases in the order in which they were issued, for
purposes of determining the net amount at risk.
LOAN PROVISION
You may borrow all or part of the Policy's "loan value". We make the loan
as of the date when we receive a loan request. (See "Receipt of Communications
and Payments at NELICO's Administrative Office".) You should contact our
Administrative Office or your registered representative for information on loan
procedures.
The Policy's loan value equals:
(i) the Policy's cash value; minus
(ii) the Policy's Surrender Charge; minus
(iii) the amount of the most recent Monthly Deduction, times the number of
Policy months to the earlier of the next Planned Premium due date
and the next Policy anniversary; plus
(iv) interest at an annual rate of 3% to the next Policy anniversary;
minus
(v) loan interest to the next Policy anniversary; minus
(vi) any outstanding Policy loans.
EXAMPLE: Using the Policy illustrated on page A- assume that the Policy's
Planned Premiums have been paid and that the Policy's Sub-Accounts have earned a
constant 6% hypothetical gross annual rate of return (equal to a constant net
annual rate of return of %). After the premium payment on the 10th Policy
anniversary, the maximum amount that you could borrow (if there are no
outstanding loans) would be determined as follows under an annual premium
payment schedule:
<Table>
<Caption>
ANNUAL
------ ------
(1) Cash Value after Premium Payment on 10th Policy
Anniversary...............................................
(2) Cash Value Reduced by the Policy's Surrender Charge....
(3) Amount Calculated in (2), Reduced by the Most Recent
Monthly Deduction Times the Number of Policy Months to
the Earlier of the Next Planned Premium Due Date and
the Next Policy Anniversary............................
(4) Amount Calculated in (3), Plus Interest at an Annual
Rate of Return of 3% to the
11th Policy Anniversary...............................
(5) Amount Calculated in (4), Reduced by Loan Interest to
the Next Policy Anniversary............................
</Table>
A Policy loan reduces the Policy's cash value in the Sub-Accounts by the
amount of the loan. A loan repayment increases the cash value in the
Sub-Accounts by the amount of the repayment. Unless you request otherwise, we
attribute Policy loans to the Sub-Accounts of the Variable Account and the Fixed
Account in proportion to the cash value in each. We transfer cash value equal to
the amount of the loan from the Sub-Accounts and the Fixed Account to the
appropriate Loan Sub-Account within the Loan Account (which is part of NELICO's
general account). The Loan Account has a Loan Sub-Account that corresponds to
each Sub-Account of the Variable Account and the Fixed Account.
A-25
When you make a loan repayment, we transfer an amount of cash value equal
to the repayment from the Loan Account to the Sub-Accounts of the Variable
Account and to the Fixed Account in the same proportion that the cash value in
each Loan Sub-Account bears to the total cash value in the Loan Account.
We guarantee that the interest rate charged on Policy loans will not be
more than 3.50% per year. Currently, we charge:
-- 3.5% in Policy years 1-10
-- 3.25% in Policy years 11-20
-- 3.00% in Policy years 21+.
Policy loan interest is due and payable annually on each Policy
anniversary. If not paid when due, we add the interest accrued to the loan
amount, and we transfer an amount of cash value equal to the unpaid interest
from the Sub-Accounts and the Fixed Account to the appropriate Loan Sub-Accounts
in the same manner as a new loan.
Cash value in the Loan Account earns interest at not less than 3% per year
and is transferred on each Policy anniversary to the Sub-Accounts of the
Variable Account and to the Fixed Account in the same proportion that the cash
value in each Loan Sub-Account bears to the total cash value in the Loan
Account. The interest credited will also be transferred: (1) when you take a new
loan; (2) when you make a full or partial loan repayment; and (3) when the
Policy enters the grace period.
The amount taken from the Policy's Sub-Accounts as a result of a loan does
not participate in the investment experience of the Sub-Accounts. Therefore,
loans can permanently affect the death benefit and cash value of the Policy,
even if repaid. In addition, we reduce any proceeds payable under a Policy by
the amount of any outstanding loan plus accrued interest.
If a Policy loan is outstanding, it may be better to repay the loan than to
pay a premium, because the payment is subject to sales and premium tax charges,
and the loan repayment is not subject to charges. (See "Deductions from
Premiums".)
Although the issue is not free from doubt, we believe that a loan from or
secured by a Policy that is not classified as a Modified Endowment Contract
should generally not be treated as a taxable distribution. A tax adviser should
be consulted when considering a loan.
If you surrender your Policy or your Policy lapses while there is an
outstanding loan balance, there will generally be Federal income tax payable on
the amount by which withdrawals and loans exceed the premiums paid to date.
Please be advised that amounts borrowed and withdrawn reduce the Policy's cash
value and any remaining cash value of the Policy may be insufficient to pay the
income tax on your gains.
If Policy loans plus accrued interest exceed the Policy's cash value less
the Surrender Charge, we notify you that the Policy is going to terminate. The
Policy terminates without value unless you make a sufficient payment within the
later of 62 days from the monthly anniversary immediately before the date when
the excess loan occurs or 31 days after we mail the notice. If the Policy lapses
with a loan outstanding, adverse tax consequences may result. If your Policy is
a Modified Endowment Contract, loans under your Policy may be treated as taxable
distributions. (See "Tax Considerations" below.)
SURRENDER
You may surrender a Policy for its cash surrender value at any time while
the insured is living. We determine the cash surrender value as of the date when
we receive the surrender request. The cash surrender value equals the cash value
reduced by any Policy loan and accrued interest and by any applicable Surrender
Charge. (See "Surrender Charge".) You may apply all or part of the cash
surrender value to a payment option. (See "Payment Options".) A surrender may
result in adverse tax consequences. (See "Tax Considerations" below.)
A-26
PARTIAL WITHDRAWAL
After the Right to Examine Policy period you may withdraw a portion of the
Policy's cash surrender value. A partial withdrawal reduces the Policy's death
benefit and may reduce the Policy's face amount if necessary so that the amount
at risk under the Policy will not increase. A partial withdrawal may also reduce
rider benefits. We reserve the right to decline a partial withdrawal request
that would reduce the face amount below the Policy's required minimum. The
minimum amount of a partial withdrawal request must be $500.
We have the right to limit partial withdrawals to no more than 90% of the
cash surrender value. In addition, a partial withdrawal will be limited by any
restriction that we currently impose on withdrawals from the Fixed Account. (See
"The Fixed Account".) Currently, we permit partial withdrawals of up to 100% of
the cash surrender value. We have the right to limit partial withdrawals to
twelve per Policy year. Currently we do not limit the number of partial
withdrawals. We reserve the right to impose a charge of $25 on each partial
withdrawal in excess of twelve per Policy year.
If a partial withdrawal reduces your Policy's face amount, the amount of
the Surrender Charge that will be deducted from your cash value is an amount
that is proportional to the amount of the face reduction. The amount deducted
will reduce the remaining Surrender Charge payable under the Policy.
For the first partial withdrawal in each Policy year, no Surrender Charge
will apply to 10% of the cash surrender value at the time of the withdrawal (or,
if less, the amount of the partial withdrawal).
Any face amount reduction resulting from a partial withdrawal will reduce
the face amount in the following order: the initial face amount (including face
amount increases resulting from a change in death benefit option) down to the
required minimum (excluding riders), the amount of any Supplemental Term
Coverage Rider, the face amount of any Adjustable Benefit Term Rider, and any
face amount increases in the same order in which they were issued.
You may not reinvest cash value paid upon a partial withdrawal in the
Policy except as premium payments, which are subject to the charges described
under "Deductions From Premiums".
Unless you request otherwise, a partial withdrawal reduces the cash value
in the Sub-Accounts of the Variable Account and the Fixed Account in the same
proportion that the cash value in each bears to the Policy's total unloaned cash
value. If current restrictions on the Fixed Account will not permit this
allocation, we will ask you for an acceptable allocation. We determine the
amount of cash surrender value paid upon a partial withdrawal as of the date
when we receive a request. You can contact your registered representative or our
Administrative Office for information on partial withdrawal procedures.
A reduction in the death benefit as a result of a partial withdrawal may
create a Modified Endowment Contract or have other adverse tax consequences. If
you are contemplating a partial withdrawal, you should consult your tax adviser
regarding the tax consequences. (See "Tax Considerations".)
REDUCTION IN FACE AMOUNT
After the first Policy year, you may reduce the face amount of your Policy
without receiving a distribution of any Policy cash value. You may reduce your
Policy's face amount by reducing the face amount of your Supplemental Coverage
Term Rider or your Adjustable Benefit Term Rider, if applicable, or by reducing
the face amount of your base Policy.
If you decrease the face amount of your base Policy, we deduct any
Surrender Charge that applies from the Policy's cash value in proportion to the
amount of the face amount reduction. (A reduction in the face amount of your
Supplemental Coverage Term Rider or Adjustable Benefit Term Rider will not
trigger a Surrender Charge.)
A face amount reduction usually decreases the Policy's death benefit.
(However, if we are increasing the death benefit to satisfy Federal income tax
laws, a face amount reduction will not decrease the death benefit unless we
deduct a Surrender Charge from the cash value. A reduction in face amount in
this situation may not be advisable.) We also may decrease any rider benefits
attached to the Policy. The amount of any face reduction must be at least
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the required minimum shown in your Policy for a face amount reduction, and the
face amount remaining after a reduction must meet our minimum face amount
requirements for issue, except with our consent.
If you choose to reduce your base Policy face amount, we will first
decrease any prior increases in face amount that you applied for, in the reverse
order in which the increases occurred, and then the initial face amount
(including any increase in face amount from a prior change in death benefit
option).
A reduction in face amount reduces the Federal tax law limits on the amount
of premiums that you can pay under the Policy under the guideline premium test.
In these cases, you may need to have a portion of the Policy's cash value paid
to you to comply with Federal tax law.
A face amount reduction takes effect as of the monthly anniversary on or
next following the date when we receive a request. You can contact your
registered representative or the Administrative Office for information on face
reduction procedures.
A reduction in the face amount of a Policy may create a Modified Endowment
Contract or have other adverse tax consequences. If you are contemplating a
reduction in face amount, you should consult your tax adviser regarding the tax
consequences of the transaction. (See "Tax Considerations".)
INVESTMENT OPTIONS
You can allocate your Policy's premiums and cash value among the
Sub-Accounts of the Variable Account and the Fixed Account in any combination,
as long as you choose no more than a cumulative total of 49 accounts (including
the Fixed Account) over the life of the Policy. You may allocate any whole
percentage to a Sub-Account. For special rules regarding allocations to the
Fixed Account, see "The Fixed Account."
You make the initial premium allocation when you apply for a Policy. You
can change the allocation of future premiums at any time thereafter. The change
will be effective for premiums applied on or after the date when we receive your
request. You may request the change by telephone or by written request. (See
"Receipt of Communications and Payments at NELICO's Administrative Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
TRANSFER OPTION
You may transfer your Policy's cash value between Sub-Accounts. (In states
where we refund your premium if you exercise the Right to Examine Policy
provision, your right to transfer begins after the first 15 days following
application of the initial premium to the Policy.) We reserve the right to limit
Sub-Account transfers to twelve per Policy year. Currently we do not limit the
number of Sub-Account transfers per Policy year. We reserve the right to make a
charge of $25 per transfer for transfers in excess of twelve in a Policy year.
We treat all Sub-Account transfer requests made at the same time as a single
request. The transfer is effective as of the date when we receive the transfer
request. (See "Receipt of Communications and Payments at NELICO's Administrative
Office".) For special rules regarding transfers involving the Fixed Account, see
"The Fixed Account".
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisers or registered representatives acting under power(s) of attorney from
one or more Policy owners. In addition, certain Eligible Funds may restrict or
refuse purchases or redemptions of their shares as a result of certain market
timing activities. You should read the prospectuses of the Eligible Funds for
more details.
You may request a Sub-Account transfer or reallocation of future premiums
by written request (which may be telecopied) to us or by telephoning us. To
request a transfer or reallocation by telephone, you should contact your
registered representative or contact us at 1-800-200-2214. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Any telephone instructions that we reasonably believe to be genuine are your
responsibility, including losses arising from any errors in the communication of
instructions.
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We do not currently offer Internet transfer capability to Policy Owners,
but may do so in the future. We will notify you if we begin to offer Internet
transactions.
Telephone, facsimile, and computer systems may not always be available. Any
telephone facsimile, or computer system, whether it is yours, your service
provider's, your registered representative's, or ours, can experience outages or
slowdowns for a variety of reasons. These outages or slowdowns may delay or
prevent our processing of your request. Although we have taken precautions to
help our systems handle heavy use, we cannot promise complete reliability under
all circumstances. If you are experiencing problems, you should make your
request by writing to our Administrative Office.
DOLLAR COST AVERAGING
You may select an automated transfer privilege called dollar cost
averaging. The same dollar amount is transferred from the State Street Research
Money Market Sub-Account to other selected Sub-Accounts on a monthly basis. Over
time, more purchases of Eligible Fund shares are made when the value of those
shares is low, and fewer shares are purchased when the value is high. As a
result, a lower than average cost of purchases may be achieved over the long
term. This plan of investing allows you to take advantage of investment
fluctuations, but does not assure a profit or protect against a loss in
declining markets.
Under this feature, you may request that a certain amount of your cash
value be transferred on any selected business day of each period (or if not a
day when the New York Stock Exchange is open, the next such day), from the State
Street Research Money Market Sub-Account to one or more of the other
Sub-Accounts. You must transfer a minimum of $100 to each account that you
select under this feature, and each selected Sub-Account must receive at least
1% of the total amount of each monthly transfer. Fractional percentages may not
be used. If we exercise our right to limit the number of transfers in the
future, transfers made under the dollar cost averaging program will not count
against the total number of transfers allowed in a Policy year. You can select a
dollar cost averaging program when you apply for the Policy or at a later date
by contacting our Administrative Office. You may not participate in the dollar
cost averaging program while you are participating in the portfolio rebalancing
program. (See "Portfolio Rebalancing" below). You can cancel your use of the
dollar cost averaging program at any time before a transfer date. Transfers will
continue until you notify us to stop or there no longer is sufficient cash value
in the Sub-Account from which you are transferring. There is no extra charge for
this feature. We reserve the right to suspend dollar cost averaging at any time.
PORTFOLIO REBALANCING
You can select a portfolio rebalancing program for your cash value. Cash
value allocated to the Sub-Accounts can be expected to increase or decrease at
different rates. A portfolio rebalancing program automatically reallocates your
cash value among the Sub-Accounts and the Fixed Account periodically to return
the allocation to the allocation percentages you specify. Portfolio rebalancing
is intended to transfer cash value from those accounts that have increased in
value to those that have declined, or not increased as much, in value. Portfolio
rebalancing does not guarantee profits, nor does it assure that you will not
have losses.
There are two methods of rebalancing available--periodic and variance.
PERIODIC REBALANCING. Under this option you elect a frequency (monthly,
quarterly, semi-annually or annually), measured from the Policy anniversary. On
each date elected, we will rebalance the accounts by generating transfers to
reallocate the cash value according to the investment percentages elected.
VARIANCE REBALANCING. Under this option you elect a specific allocation
percentage for the Fixed Account and each Sub-Account of the Variable Account.
For each such account, the allocation percentage (if not zero) must be a whole
percentage. You also elect a maximum variance percentage (5%, 10%, 15%, or 20%
only), and can exclude specific accounts from being rebalanced. On each Monthly
anniversary we will review the current account balances to determine whether any
balance is outside of the variance range (either above or below) as a percentage
of the specified allocation percentage for that fund. If any account is outside
of the variance range, we will generate transfers to rebalance all of the
specified accounts back to the predetermined percentages.
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If we exercise our right to limit the number of transfers in the future,
transfers resulting from portfolio rebalancing will not count against the total
number of transfers allowed in a Policy year.
You may elect either form of portfolio rebalancing by specifying it on the
Policy application, or may elect it later for an in-force Policy, or may cancel
it, by submitting a change form acceptable to us under our administrative rules.
Only one form of portfolio rebalancing may be elected at any one time, and
portfolio rebalancing may not be used in conjunction with dollar cost averaging.
(See "Dollar Cost Averaging".) We reserve the right to suspend portfolio
rebalancing at any time.
CHANGE OF INSURED PERSON
We offer a benefit that permits you to change the insured person under your
Policy, if you provide satisfactory evidence that the person proposed to be
insured is insurable and that you have an insurable interest in that person's
life. The right to change the insured person is subject to some restrictions and
may result in a cost or credit to you. A change of the insured person is a
taxable exchange. In addition, a change of the insured person could reduce the
amount of premiums you can pay into the Policy under Federal tax law and,
therefore, may require a partial withdrawal of cash value. (No Surrender Charge
will apply.)
Your registered representative can provide current information on the
availability of this benefit. You should consult your tax adviser before
changing the insured person under your Policy.
PAYMENT OF PROCEEDS
We ordinarily pay any cash surrender value, loan value or death benefit
proceeds from the Sub-Accounts within seven days after we receive a request, or
satisfactory proof of death of the insured (and any other information we need to
pay the death proceeds). (See "Receipt of Communications and Payments at
NELICO's Administrative Office".) However, we may delay payment (except when a
loan is made to pay a premium to us) or transfers from the Sub-Accounts: (i) if
the New York Stock Exchange is closed for other than weekends or holidays, or if
trading on the New York Stock Exchange is restricted, (ii) if the SEC determines
that an emergency exists that makes payments or Sub-Account transfers
impractical, or (iii) at any other time when the Eligible Funds or the Variable
Account have the legal right to suspend payment.
We may withhold payment of surrender or loan proceeds if those proceeds are
coming from a Policy Owner's check, or from a Master Service Account premium
transaction, which has not yet cleared. We may also delay payment while we
consider whether to contest the Policy. We pay interest on the death benefit
proceeds from the date they become payable to the date we pay them.
Unless otherwise requested, we may apply the Policy's death proceeds to our
Total Control Account. We establish a Total Control Account at a banking
institution at the time for payment. The Total Control Account gives convenient
access to the proceeds, which are maintained in our general account or that of
an affiliate, through checkbook privileges with the bank.
Normally we promptly make payments of cash value, or of any loan value
available, from cash value in the Fixed Account. However, we may delay those
payments for up to six months. We pay interest in accordance with state
insurance law requirements on delayed payments.
24 MONTH CONVERSION RIGHT
GENERAL RIGHT. Generally, during the first 24 months after the Policy's
issue date, you may convert the Policy to fixed benefit coverage by transferring
all of your Policy's cash value to the Fixed Account. The request to convert to
fixed benefit coverage must be in written form satisfactory to us.
You may exercise this privilege only once within 24 months after issue. If
you do so, we will automatically allocate all future net premiums to the Fixed
Account and transfers of cash value to the Variable Account will no longer be
permitted.
The Policy permits us to limit allocations to the Fixed Account under some
circumstances. (See "The Fixed Account.") If we limit such allocations, you may
still exercise the 24 Month Conversion Right.
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FOR POLICIES ISSUED IN MARYLAND, NEW YORK AND CONNECTICUT. Under Policies
issued in Maryland, New York and Connecticut, you can exchange the face amount
of your Policy for a fixed benefit life insurance policy provided that you repay
any policy loans and (1) the Policy has not lapsed and (2) the exchange is made
within 24 months after the Policy's issue date. If you exercise this option, you
will have to make up any investment loss you had under the variable life
insurance policy. We make the exchange without evidence of insurability. The new
policy will have the same face amount as that being exchanged. The new policy
will have the same issue age, underwriting class and policy date as the variable
life policy had. We will attach any riders to the original Policy to the new
policy if they are available.
Contact us or your registered representative for more specific information
about the 24 Month Conversion Right in these states. The exchange may result in
a cost or credit to you. On the exchange, you may need to make an immediate
premium payment on the new policy in order to keep it in force.
OTHER EXCHANGE RIGHTS
FOR POLICIES ISSUED IN NEW YORK. Under policies issued in New York, you
can exchange your Policy while it is in force for a new policy which provides
Paid-Up Insurance. Paid-Up Insurance will be provided by using the cash
surrender value of the Policy as a net single premium at your age on the date of
the exchange. Paid-Up Insurance is permanent insurance with no further premiums
due. The face amount of the new policy of Paid-Up Insurance may be less than the
face amount of this Policy.
GROUP OR SPONSORED ARRANGEMENTS. For a Policy issued in certain business
situations, we offer the additional option of exchanging the Policy at any time
during the first 36 months after the Policy's issue date, if the Policy has not
lapsed, to a fixed-benefit term life insurance policy issued by us or an
affiliate. (Availability of this feature depends on state insurance department
approval.) Contact us or your registered representative for more information
about this feature.
PAYMENT OPTIONS
We pay the Policy's death benefit and cash surrender value in one sum
unless you or the payee choose a payment option for all or part of the proceeds.
You can choose a combination of payment options. You can make, change or revoke
the selection of payee or payment option before the death of the insured. You
can contact your registered representative or our Administrative Office for the
procedure to follow. The payment options available are fixed benefit options
only and are not affected by the investment experience of the Variable Account.
Once payments under an option begin, withdrawal rights may be restricted.
The following payment options are available:
(i) INCOME FOR A SPECIFIED NUMBER OF YEARS. We pay proceeds in equal
monthly installments for up to 30 years, with interest at a rate not
less than 3.0% a year, compounded yearly. Additional interest that we
pay for any year is added to the monthly payments for that year.
(ii) LIFE INCOME. We pay proceeds in equal monthly installments (i) for
the longer of the life of the payee or 10 years, (ii) for the longer
of the life of the payee or 15 years, or (iii) for the longer of the
life of the payee or 20 years.
(iii) LIFE INCOME WITH REFUND. We pay proceeds in equal monthly
installments during the life of the payee. At the payee's death, we
pay any remaining proceeds in one sum.
(iv) INTEREST. We hold proceeds and pay interest of at least 3.0% a year
monthly or add it to the principal annually. Withdrawals of at least
$500 may be made at any time by written request.
(v) LIFE INCOME FOR TWO LIVES. We pay proceeds in equal monthly
installments (i) while either of two payees is living, but for at least
10 years, or (ii) while the two payees are living and, after the death
of one payee, we pay two-thirds of the monthly amount for the life of
the surviving payee.
(vi) SPECIFIED AMOUNT OF INCOME. We make monthly payments of a chosen
amount until the entire proceeds, with interest, are paid.
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You need our consent to use an option if the installment payments would be
less than $50.
ADDITIONAL BENEFITS BY RIDER
You can add additional benefits to the Policy by rider, subject to our
underwriting and issuance standards. These additional benefits usually require
an additional charge as part of the Monthly Deduction from cash value. The rider
benefits available with the Policies provide fixed benefits that do not vary
with the investment experience of the Variable Account.
If you seek to reduce the overall cost of your insurance protection, it is
to your economic advantage to include a significant portion or percentage of
your insurance coverage under a level term insurance rider.
Reductions in or elimination of term rider coverage do not trigger a
Surrender Charge, and use of a term rider generally reduces sales compensation.
However, like the cost of coverage under the Policy, charges deducted from the
Policy's cash value to pay for term rider coverage no longer participate in the
investment experience of the Variable Account, and usually increase with the age
of the covered individual. Term riders have no cash value and provide no growth
potential. Your registered representative can provide you more information on
the uses of term rider coverage.
The following riders and endorsements, some of which have been described
previously, are available:
SUPPLEMENTAL COVERAGE TERM RIDER, which provides term insurance.
CONVERTIBLE SUPPLEMENTAL COVERAGE TERM RIDER, which provides term insurance
that can be converted to permanent coverage.
TEMPORARY TERM RIDER, which provides insurance coverage from the investment
start date to the date of issue.
SECONDARY GUARANTEE RIDER, which provides for a guaranteed death benefit to
age 100.
CHILDREN'S LIFE INSURANCE RIDER, which provides term insurance on the life
of children of the insured.
WAIVER OF MONTHLY DEDUCTION RIDER, which provides for waiver of Monthly
Deductions upon the disability of the insured.
WAIVER OF SPECIFIED PREMIUM RIDER, which provides for waiver of a specified
amount of monthly premium in the event of the disability of the insured.
OPTIONS TO PURCHASE ADDITIONAL LIFE INSURANCE RIDER, which allows the Owner
to purchase additional coverage on the insured without providing evidence of
insurability.
TERM INSURANCE ON COVERED INSURED RIDER, which provides term insurance on
any person in whom the insured has an insurable interest.
OPTION TO PURCHASE LONG-TERM CARE INSURANCE RIDER, which allows the Owner
to purchase long-term care coverage on the insured without providing evidence of
insurability.
ADJUSTABLE BENEFIT TERM RIDER, which provides term insurance coverage on
the insured that allows annual adjustments and which terminates at age 100.
ACCELERATION OF DEATH BENEFIT RIDER, which provides for an accelerated
payment of all or part of the Policy's death benefit, on a discounted basis, if
the insured is terminally ill, as defined in the rider.
EXCHANGE TO TERM INSURANCE ENDORSEMENT, which allows the Policy to be
reissued as term insurance if it is surrendered within the first three Policy
years.
Not all riders may be available to you and riders in addition to those
listed above may be made available. You should consult your registered
representative regarding the availability of riders.
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POLICY OWNER AND BENEFICIARY
The Policy Owner is named in the application but may be changed from time
to time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy Owner's
rights (except for rights to payment of benefits) terminate at the death of the
insured.
The beneficiary is also named in the application. You may change the
beneficiary at any time before the death of the insured, unless the beneficiary
designation is irrevocable. The beneficiary has no rights under the Policy until
the death of the insured and must survive the insured in order to receive the
death proceeds. If no named beneficiary survives the insured, we pay proceeds to
the Policy Owner.
A change of Policy Owner or beneficiary is subject to all payments made and
actions taken by us under the Policy before we receive a signed change form. You
can contact your registered representative or our Administrative Office for the
procedure to follow.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary to
the assignee. A collateral assignment of the Policy does not change the Policy
Owner or beneficiary, but their rights will be subject to the terms of the
assignment. Assignments are subject to all payments made and actions taken by us
under the Policy before we receive a signed copy of the assignment form. We are
not responsible for determining whether or not an assignment is valid. Changing
the Policy Owner or assigning the Policy may have tax consequences. (See "Tax
Considerations" below.)
THE VARIABLE ACCOUNT
We established the Variable Account as a separate investment account on
January 31, 1983 under Delaware law. It became subject to Massachusetts law when
we changed our domicile to Massachusetts on August 30, 1996. The Variable
Account is the funding vehicle for the Policies, and other NELICO variable life
insurance policies; these other policies impose different costs, and provide
different benefits, from the Policies. The Variable Account meets the definition
of a "separate account" under Federal securities laws, and is registered with
the Securities and Exchange Commission (the "SEC") as a unit investment trust
under the Investment Company Act of 1940. Registration with the SEC does not
involve SEC supervision of the Variable Account's management or investments.
However, the Massachusetts Insurance Commissioner regulates NELICO and the
Variable Account, which are also subject to the insurance laws and regulations
where the Policies are sold.
Although we own the assets of the Variable Account, applicable law provides
that the portion of the Variable Account assets equal to the reserves and other
liabilities of the Variable Account may not be charged with liabilities that
arise out of any other business we may conduct. We believe this means that the
assets of the Variable Account equal to the reserves and other liabilities of
the Variable Account are not available to meet the claims of our general
creditors, and may only be used to support the cash values under our variable
life insurance policies issued by the Variable Account. We may transfer to our
general account assets which exceed the reserves and other liabilities of the
Variable Account. We will consider any possible adverse impact such a transfer
might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of our other
income or capital gains and losses.
INVESTMENTS OF THE VARIABLE ACCOUNT
Sub-Accounts of the Variable Account that are available in this Policy
invest in the following Eligible Funds:
The Zenith State Street Research Money Market Series (formerly, the Back
Bay Advisors Money Market Series). Its investment objective is a high level of
current income consistent with preservation of capital. An investment in the
Money Market Series is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Money Market
Series seeks to maintain a net asset value of $100 per share, it is possible to
lose money by investing in the Money Market Series.
A-33
The Zenith State Street Research Bond Income Series (formerly, the Back Bay
Advisors Bond Income Series). Its investment objective is competitive total
return primarily from investing in fixed-income securities.
The Zenith Capital Growth Series. Its investment objective is the long-term
growth of capital through investment primarily in equity securities of companies
whose earnings are expected to grow at a faster rate than the United States
economy.
The Zenith MFS Total Return Series (formerly, Back Bay Advisors Managed
Series). Its investment objective is a favorable total return through investment
in a diversified portfolio.
The Zenith Westpeak Growth and Income Series. Its investment objective is
long-term total return through investment in equity securities.
The Zenith Harris Oakmark Mid Cap Value Series (formerly, the Goldman Sachs
Midcap Value Series). Its investment objective is long-term capital
appreciation.
The Zenith Loomis Sayles Small Cap Series. Its investment objective is
long-term capital growth from investments in common stocks or other equity
securities.
The Zenith Balanced Series (formerly, the Loomis Sayles Balanced Series).
Its investment objective is long-term total return from a combination of capital
appreciation and current income.
The Zenith Davis Venture Value Series. Its investment objective is growth
of capital.
The Zenith Alger Equity Growth Series. Its investment objective is
long-term capital appreciation.
The Zenith MFS Investors Trust Series (formerly, the MFS Investors Series).
Its investment objective is long-term growth of capital with a secondary
objective to seek reasonable current income.
The Zenith MFS Research Managers Series. Its investment objective is
long-term growth of capital.
The Metropolitan Putnam Large Cap Growth Portfolio. Its investment
objective is capital appreciation.
The Metropolitan Janus Mid Cap Portfolio. Its investment objective is
long-term growth of capital.
The Metropolitan Russell 2000 Index Portfolio. Its investment objective is
to equal the return of the Russell 2000 Index.
The Metropolitan Putnam International Stock Portfolio. Its investment
objective is long-term growth of capital.
The Metropolitan MetLife Stock Index Portfolio. Its investment objective is
to equal the performance of the Standard & Poor's 500 Composite Stock Price
Index.
The Metropolitan MetLife Mid Cap Stock Index Portfolio.* Its investment
objective is to equal the performance of the Standard & Poor's MidCap 400
Composite Stock Index.
The Metropolitan Morgan Stanley EAFE Index Portfolio.* Its investment
objective is to equal the performance of the MSCI EAFE Index.
The Metropolitan Lehman Brothers Aggregate Bond Index Portfolio.* Its
investment objective is to equal the performance of the Lehman Brothers
Aggregate Bond Index.
The Metropolitan State Street Research Aurora Small Cap Value Portfolio.*
Its investment objective is high total return, consisting principally of capital
appreciation.
The Metropolitan Janus Growth Portfolio.* Its investment objective is
long-term growth of capital.
The Metropolitan State Street Research Investment Trust Portfolio
(formerly, the State Street Research Growth Portfolio).* Its investment
objective is long-term growth of capital and income and moderate current income.
The Metropolitan Franklin Templeton Small Cap Growth Portfolio.* Its
investment objective is long-term capital growth.
A-34
The Metropolitan Neuberger Berman Partners Mid Cap Value Portfolio.* Its
investment objective is capital growth.
The Met Investors MFS Mid-Cap Growth Portfolio.* Its investment objective
is long-term growth of capital.
The Met Investors PIMCO Innovation Portfolio.* Its investment objective is
to seek capital appreciation; no consideration is given to income.
The VIP Equity-Income Portfolio. It seeks reasonable income. The fund will
also consider the potential for capital appreciation. The fund seeks a yield
which exceeds the composite yield on the securities comprising the S&P 500.
The VIP Overseas Portfolio. It seeks long-term growth of capital. Foreign
markets, particularly emerging markets, can be more volatile than the U.S.
market due to increased risks of adverse issuer, political, regulatory, market
or economic developments and can perform differently than the U.S. market.
The VIP High Income Portfolio. It seeks a high level of current income
while also considering growth of capital. Lower-quality debt securities (those
of less than investment-grade quality) can be more volatile due to increased
sensitivity to adverse issuer, political, regulatory, market or economic
developments.
The VIP II Asset Manager Portfolio. It seeks high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds and
short-term instruments.
The American Funds Insurance Series American Funds Growth Fund.* Its
investment objective is to seek capital appreciation through stocks.
The American Funds Insurance Series American Funds Growth-Income Fund.* Its
investment objective is to seek capital appreciation and income.
The American Funds Insurance Series American Funds Global Small
Capitalization Fund.* Its investment objective is to seek capital appreciation
through stocks.
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* Availability of these Portfolios is subject to any necessary state insurance
department approvals.
The New England Zenith Fund, the Metropolitan Series Fund, Inc. and the Met
Investors Series Trust are open-end management investment companies, more
commonly known as mutual funds. These funds are available as investment vehicles
for separate investment accounts of MetLife, NELICO, and other life insurance
companies.
VIP, VIP II and the American Funds Insurance Series are mutual funds that
serve as the investment vehicles for variable life insurance and variable
annuity separate accounts of various insurance companies.
The Variable Account purchases and sells Eligible Fund shares at their net
asset value (without a deduction for sales load) determined as of the close of
regular trading on the New York Stock Exchange on each day when the exchange is
open for trading.
The Eligible Funds' investment objectives may not be met. More about the
Eligible Funds, including their investments, expenses, and risks, is in the
attached Eligible Fund prospectuses and the Eligible Funds' Statements of
Additional Information.
The investment objectives and policies of certain Eligible Funds are
similar to the investment objectives and policies of other funds that may be
managed by the same sub-adviser. The investment results of the Eligible Funds
may be higher or lower than the results of these funds. There is no assurance,
and no representation is made, that the investment results of any of the
Eligible Funds will be comparable to the investment results of any other fund.
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INVESTMENT MANAGEMENT
MetLife Advisers, LLC (formerly New England Investment Management, LLC) is
the investment adviser for the series of the New England Zenith Fund. The chart
below shows the sub-adviser for each series of the New England Zenith Fund.
MetLife Advisers, which is an affiliate of NELICO, and each of the sub-advisers
are registered with the SEC as investment advisers under the Investment Advisers
Act of 1940.
<Table>
<Caption>
SERIES SUB-ADVISER
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Capital Growth Capital Growth Management Limited Partnership
State Street Research Money Market State Street Research and Management Company
State Street Research Bond Income State Street Research and Management Company
MFS Total Return Massachusetts Financial Services Company
Westpeak Growth and Income Westpeak Investment Advisors, L.P.
Loomis Sayles Small Cap Loomis, Sayles & Company, L.P.
Balanced Wellington Management Company, LLP
Harris Oakmark Mid Cap Value Harris Associates L.P.
Davis Venture Value Davis Selected Advisers, L.P.*
Alger Equity Growth Fred Alger Management, Inc.
MFS Investors Trust Massachusetts Financial Services Company
MFS Research Managers Massachusetts Financial Services Company
</Table>
- ------------
* Davis Selected may also delegate any of its responsibilities to Davis Selected
Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
In the case of the State Street Research Money Market Series, State Street
Research Bond Income Series, MFS Total Return Series, Westpeak Growth and Income
Series, Harris Oakmark Mid Cap Value Series and Loomis Sayles Small Cap Series,
MetLife Advisers became the adviser on May 1, 1995. Effective May 1, 2001,
MetLife Advisers became the investment adviser to the Capital Growth Series and
Capital Growth Management Limited Partnership became the sub-adviser. The State
Street Research Money Market Series', State Street Research Bond Income Series'
and MFS Total Return Series' sub-adviser was Back Bay Advisors, L.P. until July
1, 2001. At that time State Street Research and Management Company became the
sub-adviser to the State Street Research Money Market and Bond Income Series and
Massachusetts Financial Services Company became the sub-adviser to the MFS Total
Return Series. The Harris Oakmark Mid Cap Value Series' sub-adviser was Loomis,
Sayles until May 1, 1998, when Goldman Sachs Asset Management, a separate
operating division of Goldman Sachs & Co., became the sub-adviser. Harris
Associates became the sub-adviser on May 1, 2000. The Balanced Series'
sub-adviser was Loomis, Sayles until May 1, 2000, when Wellington Management
Company became the sub-adviser. For more information about the Series' advisory
agreements, see the New England Zenith Fund prospectus attached at the end of
this prospectus and the New England Zenith Fund's Statement of Additional
Information.
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MetLife Advisers became the investment manager for the Metropolitan Series
Fund Portfolios on May 1, 2001. Prior to that time, MetLife was the investment
manager. For more information regarding the investment manager and
sub-investment managers of the Metropolitan Series Fund Portfolios, see the
Metropolitan Series Fund prospectus attached at the end of this prospectus and
its Statement of Additional Information. The following chart shows the
sub-investment manager for each portfolio of the Metropolitan Series Fund.
<Table>
<Caption>
PORTFOLIO SUB-INVESTMENT MANAGER
--------- ----------------------
Putnam Large Cap Growth Putnam Investment Management, LLC
Janus Mid Cap Janus Capital Corporation
Russell 2000 Index Metropolitan Life Insurance Company*
Putnam International Stock Putnam Investment Management, LLC
MetLife Stock Index Metropolitan Life Insurance Company*
MetLife Mid Cap Stock Index Metropolitan Life Insurance Company*
Morgan Stanley EAFE Index Metropolitan Life Insurance Company*
Lehman Brothers Aggregate Bond Index Metropolitan Life Insurance Company*
State Street Research Aurora Small Cap Value State Street Research and Management Company
Janus Growth Janus Capital Corporation
State Street Research Investment Trust State Street Research and Management Company
Franklin Templeton Small Cap Growth Franklin Advisers, Inc.
Neuberger Berman Partners Mid Cap Value Neuberger Berman Management Inc.
</Table>
- ------------
* Metropolitan Life Insurance Company became the sub-investment manager on May
1, 2001.
Met Investors Advisory Corp. (formerly known as Security First Management
Corp.) is an indirect wholly-owned subsidiary of Metropolitan Life Insurance
Company and is the investment adviser for the Portfolios of the Met Investors
Series Trust. For more information regarding the MFS Mid-Cap Growth Portfolio
and the PIMCO Innovation Portfolio, see the Met Investors Series Trust
prospectuses attached at the end of this prospectus and their Statement of
Additional Information.
Fidelity Management & Research Company ("FMR") is the investment adviser
for VIP and VIP II. For more information regarding the VIP Equity-Income, VIP
Overseas, VIP High Income and VIP II Asset Manager Portfolios and FMR, see the
VIP and VIP II prospectuses attached at the end of this prospectus and their
Statements of Additional Information.
Capital Research and Management Company ("Capital Research") is the
investment adviser for the American Funds Insurance Series. For more information
regarding the American Funds Growth Fund, the American Funds Growth-Income Fund
and the American Funds Global Small Capitalization Fund, see the American Funds
Insurance Series prospectuses attached at the end of this prospectus and their
Statement of Additional Information.
SUBSTITUTION OF INVESTMENTS
If investment in the Eligible Funds or a particular Fund is no longer
possible, in our judgment becomes inappropriate for the purposes of the
Policies, or for any other reason in our sole discretion, we may substitute
another Eligible Fund or Funds without your consent. The substituted fund may
have different fees and expenses. Substitution may be made with respect to
existing investments or the investment of future premium payments, or both.
However, we will not make such substitution without any necessary approval of
the Securities and Exchange Commission. Furthermore, we may make available or
close Sub-Accounts to allocation of premium payments or cash value, or both, for
some or all classes of Policies, at any time in our sole discretion.
SHARE CLASSES OF THE ELIGIBLE FUNDS
The Eligible Funds offer various classes of shares, each of which has a
different level of expenses. Attached prospectuses for the Eligible Funds may
provide information for share classes that are not available through the Policy.
When you consult the attached prospectus for any Eligible Fund, you should be
careful to refer to only the
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information regarding the class of shares that is available through the Policy.
For the New England Zenith Fund, Metropolitan Series Fund and Met Investors
Series Trust, we offer Class A shares only, for VIP and VIP II we offer Initial
Class shares only, and for the American Funds Insurance Series we offer Class 2
shares only.
THE FIXED ACCOUNT
THE POLICY HAS A FIXED ACCOUNT OPTION ONLY IN STATES THAT APPROVE IT.
You may allocate net premiums and transfer cash value to the Fixed Account,
which is part of NELICO's general account. Because of exemptive and exclusionary
provisions in the Federal securities laws, interests in the Fixed Account are
not registered under the Securities Act of 1933. Neither the Fixed Account nor
the general account is registered as an investment company under the Investment
Company Act of 1940. Therefore, neither the Fixed Account, the general account
nor any interests therein are generally subject to the provisions of these Acts,
and the SEC does not review Fixed Account disclosure. This disclosure may,
however, be subject to certain provisions of the Federal securities laws on the
accuracy and completeness of prospectuses.
GENERAL DESCRIPTION
Our general account includes all of our assets except assets in the
Variable Account or in our other separate accounts. We decide how to invest our
general account assets. Fixed Account allocations do not share in the actual
investment experience of the Fixed Account. Instead, we guarantee that the Fixed
Account will credit interest at an annual effective rate of at least 3%. We may
or may not credit interest at a higher rate. We declare the current interest
rate for the Fixed Account periodically. The Fixed Account earns interest daily.
VALUES AND BENEFITS
Cash value in the Fixed Account increases from net premiums allocated and
transfers to the Fixed Account and Fixed Account interest, and decreases from
loans, partial withdrawals made from the Fixed Account, charges and transfers
from the Fixed Account. We deduct charges from the Fixed Account and the
Policy's Sub-Accounts in proportion to the amount of cash value in each. (See
"Monthly Deduction from Cash Value".) A Policy's total cash value includes cash
value in the Variable Account, the Fixed Account, and any cash value held in the
Loan Account due to a Policy loan.
Cash value in the Fixed Account is included in the calculation of the
Policy's death benefit in the same manner as the cash value in the Variable
Account. (See "Death Benefit".)
POLICY TRANSACTIONS
Except as described below, the Fixed Account has the same rights and
limitations regarding premium allocations, transfers, loans, surrenders and
partial withdrawals as the Variable Account. (See "Other Policy Features".) The
following special rules apply to the Fixed Account.
After the Right to Examine Policy period, a portion of the cash value may
be withdrawn from the Fixed Account or transferred from the Fixed Account to the
Variable Account. The amount of any partial withdrawal (net of applicable
Surrender Charges) or any transfer must be at least $500, unless the balance
remaining would be less than $100, in which case you may withdraw or transfer
the entire Fixed Account cash value. No amount may be withdrawn from the Fixed
Account that would result in there being insufficient cash value to meet any
Surrender Charges that would be payable immediately following the withdrawal
upon the surrender of the remaining cash value in the Policy. The total amount
of transfers and withdrawals in a Policy year may not exceed a Maximum Amount
equal to the greater of (a) 25% of the Policy's cash surrender value in the
Fixed Account at the beginning of the Policy year, or (b) the previous Policy
year's Maximum Amount (not to exceed the total cash surrender value of the
Policy).
Transfers and premium allocations to the Fixed Account are limited by the
Maximum Allocation Percentage set forth in your Policy and in effect at the time
a transfer request is made.
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There is no transaction charge for the first twelve partial withdrawals or
twelve transfers in a Policy year. We reserve the right to limit partial
withdrawals and transfers to twelve each in a Policy year and to impose a charge
of $25 for each partial withdrawal or transfer in excess of twelve in a Policy
year. We may revoke or modify the privilege of transferring amounts to or from
the Fixed Account at any time. Partial withdrawals will result in the imposition
of any applicable Surrender Charges.
Unless you request otherwise, a Policy loan reduces the Policy's cash value
in the Sub-Accounts and the Fixed Account proportionately. We allocate all loan
repayments in the same proportion that the cash value in each Loan Sub-Account
bears to the total value of the Loan Account. The amount transferred from the
Policy's Sub-Accounts and the Fixed Account as a result of a loan earns interest
at an effective rate of at least 3% per year, which we credit to the Policy's
cash value in the Sub-Accounts and the Fixed Account in proportion to the
Policy's cash value in each on the day it is credited.
Unless you request otherwise, we take partial withdrawals from the Policy's
Sub-Accounts and the Fixed Account in the same proportion that the cash value in
each account bears to the Policy's total unloaned cash value. If current
restrictions on the Fixed Account will not permit this allocation, we will ask
you for an acceptable allocation.
We can delay transfers, surrenders, withdrawals and Policy loans from the
Fixed Account for up to six months (to the extent allowed by state insurance
law). We will not delay loans to pay premiums on policies issued by us.
DISTRIBUTION OF THE POLICIES
We sell the Policies through licensed insurance agents. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"), and are registered with the National Association of
Securities Dealers, Inc. and with the states in which they do business.
Registered representatives with New England Securities are also licensed as
insurance agents in the states in which they do business and are appointed with
NELICO. 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 as well as with the
securities commissions in the states in which it operates, and is a member of
the National Association of Securities Dealers, Inc. More information about New
England Securities and its registered persons is available at
http://www.nasdr.com or by calling 1-800-289-9999. You also can obtain an
investor brochure from NASD Regulation describing its Public Disclosure Program.
New England Securities, 399 Boylston Street, Boston, Massachusetts 02116,
also serves as the principal underwriter for the Policies under a Distribution
Agreement with NELICO. Under the Distribution Agreement, we pay sales
commissions for sale of the Policies and the following sales expenses: general
agent and agency manager's compensation, agents' training allowances, deferred
compensation and insurance benefits of agents, general agents and agency
managers and advertising expenses and all other expenses of distributing the
Policies.
We pay the following commissions and/or service fees to the selling agent:
a maximum of 50% of the Commission Breakpoint Premium paid in the first Policy
year, a maximum of 5% in Policy years two through ten, and a maximum of 3%
thereafter. Agents receive a maximum commission of 3% of each payment in excess
of the Commission Breakpoint Premium in any year. For Policies sold in
connection with certain executive benefit plans the maximum commissions are: 20%
of the Commission Breakpoint Premium in the first Policy year, 10% in Policy
years two through ten, and 2% thereafter. For these Policies we will pay a
maximum commission of 3.5% of each payment in excess of the Commission
Breakpoint Premium in Policy years one through ten, and 2% of such excess
premiums thereafter. Agents who meet certain NELICO productivity and persistency
standards may be eligible for additional compensation. Agents may receive a
portion of the general agent's expense reimbursement allowance. All or a portion
of commissions may be returned if the Policy is not continued through the first
Policy year. Agents receive less compensation for the sale of Policies that
provide a significant portion of death benefit coverage through the use of term
riders.
New England Securities may enter into selling agreements with other
broker-dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life insurance
policies. Under the agreements with those broker-dealers, commissions paid to
the broker-dealer on behalf of the registered representative will not exceed
those described above. Selling firms may retain a portion of
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commissions. We may pay certain broker-dealers an additional bonus after the
first Policy year on behalf of certain registered representatives, which may be
up to the amount of the basic commission for the particular Policy year. We pay
commissions through the registered broker-dealer, and may pay additional
compensation to the broker-dealer and/or reimburse it for portions of Policy
sales expenses. The registered representative may receive a portion of the
expense reimbursement allowance paid to the broker-dealer.
New England Securities does not retain any override as distributor for the
Policies. However, New England Securities' operating and other expenses are paid
for by NELICO. Also, New England Securities or an affiliate may receive 12b-1
fees from the American Funds Growth Fund, the American Funds Growth-Income Fund,
and the American Funds Global Small Capitalization Fund.
Because registered representatives of New England Securities are also
agents of NELICO, they are eligible for various cash benefits, such as bonuses,
insurance benefits and financing arrangements, and non-cash compensation
programs that NELICO offers, such as conferences, trips, prizes, and awards.
Other payments may be made for other services that do not directly involve the
sale of the Policies. These services may include the recruitment and training of
personnel, production of promotional literature, and similar services.
We intend to recoup commissions and other sales expenses through fees and
charges imposed under the Policy. Commissions paid on the Policy, including
other incentives or payments, are not charged directly to the Policy owners or
the Variable Account.
We offer the Policies to the public on a continuous basis. We anticipate
continuing to offer the Policies, but reserve the right to discontinue the
offering.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, we can challenge the validity of your Policy or a rider during
the insured's lifetime for two years (or less, if required by state law) from
the date of issue, based on misrepresentations made in the application. We can
challenge the portion of the death benefit resulting from an underwritten
premium payment for two years during the insured's lifetime from receipt of the
premium payment. However, if the insured dies within two years of the date of
issue, we can challenge all or part of the Policy at any time based on
misrepresentations in the application. We can challenge an increase in face
amount, with regard to material misstatements concerning such increase, for two
years during the insured's lifetime from its effective date.
MISSTATEMENT OF AGE OR SEX
If the application misstates the insured's age or sex, the Policy's death
benefit is the amount that the most recent Monthly Deduction which was made
would provide, based on the insured's correct age and, if the Policy is
sex-based, correct sex.
SUICIDE
If the insured commits suicide within two years (or less, if required by
state law) from the date of issue, the death benefit is limited to premiums
paid, less any policy loan balance and partial withdrawals. If the insured,
while sane or insane, commits suicide within two years after the effective date
of an increase in face amount, the death benefit for such increase will be
limited to the Monthly Deductions for the increase. (Where required by state
law, we determine the death benefit under this provision by using the greater
of: the reserve of the insurance which is subject to the provision; and the
amounts used to purchase the insurance which is subject to the provision.)
TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisers should be consulted for more
complete information. This discussion is based upon our understanding of the
present Federal income tax laws. No representation is made as to the
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likelihood of continuation of the present Federal income tax laws or as to how
they may be interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
Policies should satisfy the applicable requirements. There is less guidance,
however, with respect to Policies issued on a substandard or guaranteed issue
basis and Policies with term riders added, and it is not clear whether such
Policies will in all cases satisfy the applicable requirements. We may take
appropriate steps to bring the Policy into compliance with applicable
requirements, and we reserve the right to restrict Policy transactions in order
to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts, due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to allocate
premiums and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Policy Owners investment
control over Variable Account assets, we reserve the right to modify the
Policies as necessary to prevent a Policy Owner from being treated as the owner
of the Variable Account assets supporting the Policy.
In addition, the Code requires that the investments of the Variable Account
be "adequately diversified" in order for the Policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through the Eligible Funds, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Policy Owner or beneficiary. A tax adviser
should be consulted on these consequences.
Generally, the Policy Owner will not be deemed to be in constructive
receipt of the Policy cash value until there is a distribution or a deemed
distribution. When distributions from a Policy occur, or when loans are taken
from or secured by a Policy, the tax consequences depend on whether the Policy
is classified as a "Modified Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable income tax treatment than other life insurance contracts. In
general a Policy will be classified as a Modified Endowment Contract if the
amount of premiums paid into the Policy causes the Policy to fail the "7-pay
test." A Policy will fail the 7-pay test if at any time in the first seven
Policy years, the amount paid into the Policy exceeds the sum of the level
premiums that would have been paid at that point under a Policy that provided
for paid-up future benefits after the payment of seven level annual payments.
If there is a reduction in the benefits under the Policy during the first
seven Policy years, for example, as a result of a partial withdrawal, the 7-pay
test will have to be reapplied as if the Policy had originally been issued at
the reduced face amount. If there is a "material change" in the Policy's
benefits or other terms, even after the first seven Policy years, the Policy may
have to be retested as if it were a newly issued Policy. A material change can
occur, for example, when there is an increase in the death benefit which is due
to the payment of an unnecessary premium. Unnecessary premiums are premiums paid
into the Policy which are not needed in order to provide a death benefit equal
to the lowest death benefit that was payable in the first seven Policy years. To
prevent your Policy from
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becoming a Modified Endowment Contract, it may be necessary to limit premium
payments or to limit reductions in benefits. A current or prospective Policy
Owner should consult a tax adviser to determine whether a Policy transaction
will cause the Policy to be classified as a Modified Endowment Contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
(1) All distributions other than death benefits, including
distributions upon surrender and withdrawals, from a Modified Endowment
Contract will be treated first as distributions of gain taxable as ordinary
income and as tax-free recovery of the Policy Owner's investment in the
Policy only after all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount
subject to tax except where the distribution or loan is made when the
Policy Owner has attained age 59 1/2 or is disabled, or where the
distribution is part of a series of substantially equal periodic payments
for the life (or life expectancy) of the Policy Owner or the joint lives
(or joint life expectancies) of the Policy Owner and the Policy Owner's
beneficiary or designated beneficiary.
If a Policy becomes a Modified Endowment Contract, distributions will be
taxed as distributions from a Modified Endowment Contract. In addition,
distributions from a Policy within two years before it becomes a Modified
Endowment Contract will be taxed in this manner. This means that a distribution
made from a Policy that is not a Modified Endowment Contract could later become
taxable as a distribution from a Modified Endowment Contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Policy Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions. However, the tax consequences
associated with Policy loans that are outstanding after the first ten Policy
years are less clear and a tax adviser should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
POLICY LOANS. In general, interest on a Policy loan will not be
deductible. If a Policy loan is outstanding when a Policy is canceled or lapses,
the amount of the outstanding indebtedness will be added to the amount
distributed and will be taxed accordingly. A loan may also be taxed when a
Policy is exchanged. Before taking out a Policy loan, you should consult a tax
adviser as to the tax consequences.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by
NELICO (or its affiliates) to the same Policy Owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Policy Owner's income when a taxable distribution
occurs.
ACCELERATION OF DEATH BENEFIT RIDER. We believe that payments received
under the Acceleration of Death Benefit Rider should be fully excludable from
the gross income of the beneficiary if the beneficiary is the insured under the
Policy. However, you should consult a qualified tax adviser about the
consequences of adding this rider to a Policy or requesting payment under this
rider.
OTHER POLICY OWNER TAX MATTERS. The transfer of the Policy or designation
of a beneficiary may have Federal, state, and/or local transfer and inheritance
tax consequences, including the imposition of gift, estate, and
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generation-skipping transfer taxes. For example, the transfer of the Policy or
the payment of proceeds to a person who is assigned to a generation which is two
or more generations below the generation assignment of the Policy Owner may have
generation-skipping transfer tax consequences under Federal tax law. Federal and
state estate, inheritance, transfer and other tax consequences depend on the
individual circumstances of each Policy Owner or beneficiary.
The tax consequences of continuing the Policy beyond the insured's 100th
year are unclear. You should consult a tax adviser if you intend to keep the
Policy in force beyond the insured's 100th year.
If a trustee under a pension or profit-sharing plan, or similar deferred
compensation arrangement, owns a Policy, the Federal, state and estate tax
consequences could differ. The amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan are limited. The
current cost of insurance for the net amount at risk is treated as a "current
fringe benefit" and must be included annually in the plan participant's gross
income. We report this cost to the participant annually. If the plan participant
dies while covered by the plan and the Policy proceeds are paid to the
participant's beneficiary, then the excess of the death benefit over the cash
value is not income taxable. However, the cash value will generally be taxable
to the extent it exceeds the participant's cost basis in the Policy. Policies
owned under these types of plans may be subject to restrictions under the
Employee Retirement Income Security Act of 1974 ("ERISA"). You should consult a
qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from the Policy loan provisions. Failure of plan loans to comply with
the requirements and provisions of the DOL regulations and of tax law may result
in adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
Businesses can use the Policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If you are
purchasing the Policy for any arrangement the value of which depends in part on
its tax consequences, you should consult a qualified tax adviser. In recent
years, moreover, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new Policy or a
change in an existing Policy should consult a tax adviser.
NEW GUIDANCE ON SPLIT DOLLAR PLANS. The IRS has recently issued guidance
on split dollar insurance plans. A tax adviser should be consulted with respect
to this new guidance if you have purchased or are considering the purchase of a
Policy for a split dollar insurance plan.
ALTERNATIVE MINIMUM TAX. There may also be an indirect tax upon the income
in the Policy or the proceeds of a Policy under the Federal corporate
alternative minimum tax, if the Policyowner is subject to that tax.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or otherwise. Consult a tax adviser with
respect to legislative developments and their effect on the Policy.
NELICO'S INCOME TAXES
Under current Federal income tax law, NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for Federal income taxes. We reserve the right to charge the
Variable Account for any future Federal income taxes we may incur.
Under current laws in several states, we may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, we may deduct charges for
such taxes.
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MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
DIRECTORS OF NELICO
<Table>
<Caption>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
James M. Benson................... Chairman, President and Chief Executive Officer of NELICO
since 1998 and President, Individual Business of
Metropolitan Life Insurance Company since 1999; formerly,
Director, President and Chief Operating Officer 1997-1998
of NELICO; President and Chief Executive Officer 1996-1997
of Equitable Life Assurance Society; President and Chief
Operating Officer 1996-1997 of Equitable Companies, Inc.;
President and Chief Operating Officer 1994-1996 of
Equitable Life Assurance Society.
Susan C. Crampton................. Director of NELICO since 1996 and serves as Principal of The
6 Tarbox Road Vermont Partnership, a business consulting firm located in
Jericho, VT 05465 Jericho, Vermont since 1989; formerly, Director 1989-1996
of New England Mutual.
Edward A. Fox..................... Director of NELICO since 1996 and Chairman of the Board of
R.R. Box 67-15 SLM Holdings since 1997; formerly, Director 1994-1996 of New
Harborside, ME 04642 England Mutual.
George J. Goodman................. Director of NELICO since 1996 and author, television
Adam Smith's Global Television journalist, and editor.
50th Floor, Craig Drill Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Evelyn E. Handler............. Director of NELICO since 1996 and President of Merrimack
Ten Sterling Place Higher Education Associates, Inc. since 1998; formerly,
Bow, NH 03304 Director 1987-1996 of New England Mutual and Executive
Director and Chief Executive Officer 1994-1997 of the
California Academy of Sciences.
Philip K. Howard, Esq............. Director of NELICO since 1996 and Partner of the law firm of
Covington & Burling Covington & Burling in New York City.
1330 Avenue of the Americas
New York, NY 10019
Bernard A. Leventhal.............. Director of NELICO since 1996; formerly, Vice Chairman of
Burlington Industries the Board of Directors 1995-1998 of Burlington Industries,
1345 Avenue of the Americas Inc.
17th Floor
New York, NY 10105
Thomas J. May..................... Director of NELICO since 1996 and Chairman and Chief
NSTAR Executive Officer of NSTAR since 2000; formerly, Chairman,
800 Boylston Street President and Chief Executive Officer of Boston Edison
Boston, MA 02199 Company 1994-2000 and, Director 1994-1996 of New England
Mutual.
Stewart G. Nagler................. Director of NELICO since 1996 and Vice Chairman and Chief
Metropolitan Life Financial Officer of Metropolitan Life Insurance Company
Insurance Co. since 1998; formerly, Senior Executive Vice President and
One Madison Avenue Chief Financial Officer 1986-1998 of Metropolitan Life
New York, NY 10010 Insurance Company.
Catherine A. Rein................. Director of NELICO since 1998 and President and Chief
Metropolitan Property and Executive Officer of Metropolitan Property and Casualty
Casualty Insurance Company since 1999; formerly, Senior Executive Vice President
700 Quaker Lane 1998-1999; Executive Vice President 1989-1998 of
Warwick, RI 02887 Metropolitan Life Insurance Company.
</Table>
A-44
<Table>
<Caption>
NAME AND PRINCIPAL PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------ -----------------------------
Rand N. Stowell................... Director of NELICO since 1996 and President of United Timber
P.O. Box 60 Corp. and President, Randwell Co. since 2000 of Weld, Maine;
Weld, ME 04285 formerly, Director 1990-1996 of New England Mutual.
Lisa M. Weber..................... Director of NELICO since 2000 and Executive Vice President
Metropolitan Life of Metropolitan Life Insurance Company since 1998; formerly,
Insurance Company Director of Diversity Strategies and Development and an
One Madison Avenue Associate Director of Human Resources of Paine Webber.
New York, New York 10010
</Table>
EXECUTIVE OFFICERS OF NELICO
OTHER THAN DIRECTORS
<Table>
<Caption>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
James M. Benson................... See Directors above.
David W. Allen.................... Senior Vice President of NELICO since 1996 and Vice
President of Metropolitan Life Insurance Company since 2000;
formerly, Senior Vice President 1994-1996 and Vice
President 1990-1994 of New England Mutual.
Pauline V. Belisle................ Senior Vice President of NELICO since 1996 and Vice
President of Metropolitan Life Insurance Company since 2000;
formerly, Senior Vice President 1994-1996 of New England
Mutual.
Mary Ann Brown.................... President, New England Products and Services of NELICO since
1998 and Senior Vice President of Metropolitan Life
Insurance Company since 2000; formerly, Director,
Worldwide Life Insurance 1997-1998 of Swiss Reinsurance
New Markets; President & Chief Executive Officer 1996-1998
of Atlantic International Reinsurance Company; Executive
Vice President 1996-1997 of Swiss Re Atrium and Swiss Re
Services and Principal 1987-1996 of Tillinghast/Towers
Perrin.
Anthony J. Candito................ President, NEF Information Services of NELICO and Chief
Information Officer since 1998 and Senior Vice President of
Metropolitan Life Insurance Company since 2000; formerly,
Senior Vice President 1996-1998 of NELICO; Senior Vice
President 1995-1996 and Vice President 1994-1995 of New
England Mutual.
Thom A. Faria..................... President, Career Agency System of NELICO since 1996 and
President - NEF Distribution of Metropolitan Life Insurance
Company since 2000; formerly, Executive Vice President in
1996; Senior Vice President 1993-1996 of New England
Mutual.
Anne M. Goggin.................... Senior Vice President and General Counsel of NELICO since
2000 and Chief Counsel - Individual Business of Metropolitan
Life Insurance Company since 2000; formerly, Senior Vice
President and Associate General Counsel 1997-2000; Vice
President and Counsel of NELICO in 1996; Vice President
and Counsel 1994-1996 of New England Mutual.
Daniel D. Jordan.................. Second Vice President, Counsel, Secretary and Clerk of
NELICO since 1996 and Associate General Counsel of
Metropolitan Life Insurance Company since 2001; formerly,
Counsel and Assistant Secretary 1990-1996 of New England
Mutual.
Alan C. Leland, Jr. .............. Senior Vice President of NELICO since 1996 and Vice
President of Metropolitan Life Insurance Company since 2000;
formerly, Vice President 1984-1996 of New England Mutual.
</Table>
A-45
<Table>
<Caption>
PRINCIPAL BUSINESS EXPERIENCE
NAME DURING THE PAST FIVE YEARS
---- -----------------------------
George J. Maloof.................. Senior Vice President of NELICO since 1996 and Senior Vice
President - NEF Distribution of Metropolitan Life Insurance
Company since 2000; formerly, Vice President 1991-1996 of
New England Mutual.
Kenneth D. Martinelli............. Senior Vice President of NELICO since 1999 and Senior Vice
President - NEF Distribution of Metropolitan Life Insurance
Company since 2000; formerly, Vice President 1997-1999 of
NELICO and Vice President 1994-1997 of The Equitable Life
Assurance Company.
Thomas W. McConnell............... Senior Vice President of NELICO since 1996 and Director,
Chief Executive Officer and President of New England
Securities Corporation since 1993.
Hugh C. McHaffie.................. Senior Vice President of NELICO since 1999 and Senior Vice
President of Metropolitan Life Insurance Company since 2000;
formerly, Vice President 1994-1999 of Manufacturers Life
Insurance Company of North America.
Stephen J. McLaughlin............. Senior Vice President of NELICO since 1999 and Senior Vice
President - NEF Distribution of Metropolitan Life Insurance
Company since 2000; formerly, Vice President 1996-1999 of
NELICO and Vice President 1994-1996 of New England Mutual.
Thomas W. Moore................... Senior Vice President of NELICO since 1996 and Senior Vice
President - NEF Distribution of Metropolitan Life Insurance
Company since 2000; formerly, Vice President 1990-1996 of
New England Mutual.
David Y. Rogers................... Executive Vice President and Chief Financial Officer of
NELICO since 1999 and Senior Vice President of Metropolitan
Life Insurance Company since 2000; formerly, Partner,
Actuarial Consulting 1992-1999 of Price Waterhouse Coopers
LLP.
John G. Small, Jr. ............... President, New England Services of NELICO since 1997 and
Vice President of Metropolitan Life Insurance Company since
2000; formerly, Senior Vice President 1996-1997 of NELICO
and Senior Vice President 1990-1996 of New England Mutual.
</Table>
The principal business address for each of the directors and executive
officers is the same as NELICO's except where indicated.
VOTING RIGHTS
We own Eligible Fund shares held in the Variable Account and vote those
shares at meetings of the Eligible Fund shareholders. Under Federal securities
law, you currently have the right to instruct us how to vote shares that are
attributable to your Policy.
Policy Owners who are entitled to give voting instructions and the number
of shares attributable to their Policies are determined as of the meeting record
date. If we do not receive timely instructions, we will vote shares in the same
proportion as (i) the aggregate cash value of policies giving instructions,
respectively, to vote for, against, or withhold votes on a proposition, bears to
(ii) the total cash value in that Sub-Account for all policies for which we
receive voting instructions. No voting privileges apply to the Fixed Account or
to cash value removed from the Variable Account due to a Policy loan.
We will vote Eligible Fund shares held by our general account (or any
unregistered separate account for which voting privileges were not extended) in
the same proportion as the total of (i) shares for which voting instructions
were received and (ii) shares that are voted in proportion to such voting
instructions.
The Eligible Funds' Boards of Trustees monitor events to identify conflicts
that may arise from the sale of Eligible Fund shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could result from changes in state
insurance law or Federal income tax law, changes in investment management of an
Eligible Fund, or differences in voting instructions given by variable life and
variable annuity contract owners. If there is a material conflict, the Board of
Trustees will determine what action should be taken, including the removal of
the affected Sub-Accounts from the Eligible Fund(s), if necessary. If we believe
any
A-46
Eligible Fund action is insufficient, we will consider taking other action to
protect Policy Owners. There could, however, be unavoidable delays or
interruptions of operations of the Variable Account that we may be unable to
remedy.
We may disregard voting instructions for changes in the investment policy,
investment adviser or principal underwriter of an Eligible Fund portfolio if
required by state insurance law, or if we (i) reasonably disapprove of the
changes and (ii) in the case of a change in investment policy or investment
adviser, make a good faith determination that the proposed change is prohibited
by state authorities or inconsistent with a Sub-Account's investment objectives.
If we do disregard voting instructions, the next annual report to Policy Owners
will include a summary of that action and the reasons for it.
RIGHTS RESERVED BY NELICO
We and our affiliates may change the voting procedures described above, and
vote Eligible Fund shares without Policy Owner instructions, if the securities
laws change. We also reserve the right: (1) to add Sub-Accounts; (2) to combine
Sub-Accounts; (3) to substitute shares of a new fund for shares of an Eligible
Fund (the new fund may have different fees and expenses), to close a Sub-Account
to allocations of premium payments or cash value or both at any time in our sole
discretion, or to transfer assets to our general account as permitted by
applicable law; (4) to operate the Variable Account as a management investment
company under the Investment Company Act of 1940 or in any other form; (5) to
deregister the Variable Account under the Investment Company Act of 1940; (6) to
combine it with other Variable Accounts; and (7) to transfer its assets to other
Variable Accounts. We will exercise these rights in accordance with applicable
law, including approval of Policy Owners if required. We will notify you if
exercise of any of these rights would result in a material change in the
Variable Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account
Sub-Accounts, call 1-800-333-2501.
For Sub-Account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call 1-800-200-2214.
You may also call our Client TeleService Center at 1-800-388-4000 for
current information about your Policy values, to change or update Policy
information such as your address, billing mode, beneficiary or ownership, or for
information about other Policy transactions.
REPORTS
We will send you an annual statement showing your Policy's death benefit,
cash value and any outstanding Policy loan principal. We will also confirm
Policy loans, 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
Professional organizations may endorse the Policies. We may use such
endorsements in Policy sales material. We may pay the professional organization
for the use of its customer or mailing lists to distribute Policy promotional
materials. An endorsement by a third party does not predict the future
performance of the Policies.
Articles discussing the Variable Account's investment performance, rankings
and other characteristics may appear in publications. Some or all of these
publishers or ranking services (including, but not limited to, Lipper Analytical
Services, Inc. and Morningstar, Inc.) may publish their own rankings or
performance reviews of variable contract separate accounts, including the
Variable Account. We may use references to, or reprints of such articles or
rankings as sales material and may include rankings that indicate the names of
other variable contract separate
A-47
accounts and their investment experience. We may also use "unit values" to
provide information about the Variable Account's investment performance in this
prospectus, marketing materials, and historical illustrations.
Publications may use articles and releases, developed by NELICO, the
Eligible Funds and other parties, about the Variable Account or the Eligible
Funds. We may use references to or reprints of such articles in sales material
for the Policies or the Variable Account. Such literature may refer to personnel
of the advisers, who have portfolio management responsibility, and their
investment style, and include excerpts from media articles.
We are a member of the Insurance Marketplace Standards Association
("IMSA"), and may include the IMSA logo and information about IMSA membership in
our advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
Policy sales material may refer to historical, current and prospective
economic trends. In addition, sales material may discuss topics of general
investor interest for the benefit of registered representatives and prospective
Policy Owners. These materials may include, but are not limited to, discussions
of college planning, retirement planning, reasons for investing and historical
examples of the investment performance of various classes of securities,
securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by Anne M. Goggin, 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") and the consolidated financial
statements of NELICO and subsidiaries included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by James
J. Reilly, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-48
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Policies work. They show
how the death benefit, cash surrender value and cash value could vary over an
extended period of time assuming hypothetical gross rates of return (i.e.,
investment income and capital gains and losses, realized or unrealized) for the
Variable Account equal to constant after tax annual rates of 0%, 6% and 12%. The
tables are based on a face amount of $500,000 for a male aged 45. The insured is
assumed to be in the nonsmoker preferred class. The Tables assume no rider
benefits and assume that no allocations are made to the Fixed Account. Values
are first given based on current mortality and other Policy charges and then
based on guaranteed mortality and other Policy charges. Illustrations show the
Option A death benefit with the guideline premium test.
The illustrated death benefits, cash surrender values and cash values for a
Policy would be different, either higher or lower, from the amounts shown if the
actual gross rates of return averaged 0%, 6% or 12%, but varied above and below
that average during the period, if premiums were paid in other amounts or at
other than annual intervals. They would also be different depending on the
allocation of cash value among the Variable Account's Sub-Accounts, if the
actual gross rate of return for all Sub-Accounts averaged 0%, 6% or 12%, but
varied above or below that average for individual Sub-Accounts. They would also
differ if a Policy loan or partial withdrawal were made during the period of
time illustrated, if the insured were female or in another risk classification,
or if the Policies were issued at unisex rates. For example, as a result of
variations in actual returns, additional premium payments beyond those
illustrated may be necessary to maintain the Policy in force for the periods
shown or to realize the Policy values shown on particular illustrations even if
the average rate of return is achieved.
The death benefits, cash surrender values and cash values shown in the
tables reflect: (i) deductions from premiums for the sales charge and state and
federal premium tax charge; and (ii) a Monthly Deduction (consisting of a Policy
charge, an administration and issue expense charge, an asset charge, and a
charge for the cost of insurance) from the cash value on the first day of each
Policy month. The cash surrender values reflect a Surrender Charge deducted from
the cash value upon surrender, face reduction or lapse during the first ten
Policy years. (See "Charges and Expenses".) The illustrations reflect an average
of the investment advisory fees and operating expenses of the Eligible Funds, at
an annual rate of .75% of the average daily net assets of the Eligible Funds.
This average reflects expense subsidies by the investment advisers of certain
Eligible Funds that may be voluntary and of limited duration.
Taking account of the average investment advisory fee and operating
expenses of the Eligible Funds, the gross annual rates of return of 0%, 6% and
12% correspond to net investment experience at constant annual rates of - %,
% and %, respectively.
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
The internal rate of return on cash surrender 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 cash surrender
value of the Policy. The internal rate of return on the death benefit is
equivalent to an interest rate (after taxes) at which an amount equal to the
illustrated premiums could have been invested outside the Policy to arrive at
the death benefit of the Policy. The internal rate of return is compounded
annually, and the premiums are assumed to be paid at the beginning of each
Policy year.
If you request, we will furnish a personalized illustration reflecting the
proposed insured's age, sex, underwriting classification, and the face amount or
premium payment schedule requested. Where applicable, we will also furnish on
request an illustration for a Policy which is not affected by the sex of the
insured.
A-49
MALE ISSUE AGE 45
$6,900 ANNUAL PREMIUM FOR
PREFERRED NONSMOKER UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION A DEATH BENEFIT
GUIDELINE PREMIUM TEST
THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
<Table>
<Caption>
DEATH BENEFIT CASH SURRENDER VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST ------------------------------ ---------------------------- ----------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
1 $ $ $ $ $ $ $ $ $ $
2
3
4
5
6
7
8
9
10
15
20
25
30
35
<Caption>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON CASH SURRENDER VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY --------------------------- ---------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
1 % % % -- -- --
2
3
4
5
6
7
8
9
10
15
20
25
30
35
</Table>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND CASH
SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS,
BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN
BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-50
MALE ISSUE AGE 45
$6,900 ANNUAL PREMIUM FOR
PREFERRED NONSMOKER UNDERWRITING RISK
$500,000 FACE AMOUNT
OPTION A DEATH BENEFIT
GUIDELINE PREMIUM TEST
THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
<Table>
<Caption>
DEATH BENEFIT CASH SURRENDER VALUE CASH VALUE
PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL
ACCUMULATED GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL
END OF AT 5% RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF
POLICY INTEREST ------------------------------ ------------------------- -------------------------
YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
1 $ $ $ $ $ $ $ $ $ $
2
3
4
5
6
7
8
9
10
15
20
25
30
35
<Caption>
INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN
ON CASH SURRENDER VALUE ON DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
POLICY --------------------------- ---------------------------------
YEAR 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
1 % % % -- -- --
2
3
4
5
6
7
8
9
10
15
20
25
30
35
</Table>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT
EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND CASH
SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS,
BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN
BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-51
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
This Appendix gives hypothetical illustrations of the Variable Account's
and the Policy's investment experience based on the historical investment
experience of the Eligible Funds. It does not predict future performance.
The Policies became available in . Except as noted, each
Eligible Fund was made available to the Variable Account when that fund
commenced operations. The Variable Account and the first three series of the
Zenith Fund, the Capital Growth Series, the Back Bay Advisors Bond Income Series
and the Back Bay Advisors Money Market Series, commenced operations on August
26, 1983. The Back Bay Advisors Managed Series of the Zenith Fund commenced
operations on May 1, 1987. The Westpeak Growth and Income Series and Harris
Oakmark Mid Cap Value Series of the Zenith Fund commenced operations on April
30, 1993. The Loomis Sayles Small Cap Series of the Zenith Fund commenced
operations on May 2, 1994 and was made available to the Variable Account on
December 19, 1994. The MFS Investors Trust Series and MFS Research Managers
Series of the Zenith Fund commenced operations on April 30, 1999. The remaining
Zenith Fund Series shown in this Appendix commenced operations on October 31,
1994 and were made available to the Variable Account on May 1, 1995.
The commencement of operations for the following portfolios of the
Metropolitan Series Fund, Inc. was: March 3, 1997 for the Janus Mid Cap
Portfolio; November 9, 1998 for the Russell 2000 Index Portfolio; and May 1,
2000 for the Putnam Large Cap Growth Portfolio. These three Portfolios were made
available to the Variable Account on May 1, 2000. The commencement of operations
for the following Metropolitan Series Fund, Inc. Portfolios was: November 9,
1998 for the Lehman Brothers Aggregate Bond Index Portfolio and the Morgan
Stanley EAFE Index Portfolio; and July 5, 2000 for the MetLife Mid Cap Stock
Index Portfolio and State Street Research Aurora Small Cap Value Portfolio. The
Janus Growth Portfolio commenced operations on May 1, 2001 and is not included
in this Appendix. These Portfolios were made available to the Variable Account
on May 1, 2001. The commencement of operations for the following Metropolitan
Series Fund, Inc. Portfolios was: June 24, 1983 for the State Street Research
Investment Trust Portfolio; and November 9, 1998 for the Neuberger Berman
Partners Mid Cap Value Portfolio. The Franklin Templeton Small Cap Growth
Portfolio commenced operations on May 1, 2001 and is not included in this
Appendix. These Portfolios are scheduled to be made available to the Variable
Account in the fourth quarter of 2001.
On December 1, 2000, the Putnam International Stock Portfolio of the
Metropolitan Series Fund, Inc. (which commenced operations on May 1, 1991)
replaced the Morgan Stanley International Magnum Equity Series of the Zenith
Fund (which commenced operations on October 31, 1994). Performance figures for
dates on or before December 1, 2000 reflect the performance of the Morgan
Stanley International Magnum Equity Series. On April 27, 2001, the MetLife Stock
Index Portfolio of the Metropolitan Series Fund, Inc. (which commenced
operations on May 1, 1990) replaced the Westpeak Stock Index Series of the
Zenith Fund (which commenced operations on May 1, 1987). Performance figures for
dates on or before April 27, 2001 reflect the performance of the Westpeak Stock
Index Series.
The MFS Mid-Cap Growth Portfolio and the PIMCO Innovation Portfolio of the
Met Investors Series Trust commenced operations on February 12, 2001 and are not
included in this Appendix. These Portfolios are scheduled to be added as
investment options of the Variable Account in the fourth quarter of 2001.
The commencement of operations for the following Funds of the American
Funds Insurance Series was: February 8, 1984 for the American Funds Growth Fund
and the American Funds Growth-Income Fund; and April 30, 1998 for the American
Funds Global Small Capitalization Fund. These Funds were added as investment
options of the Variable Account on May 1, 2001.
The VIP Equity-Income Portfolio and VIP Overseas Portfolio commenced
operations on October 9, 1986 and January 28, 1987, respectively, and were added
as investment options of the Variable Account on April 30, 1993. The VIP High
Income Portfolio and the VIP II Asset Manager Portfolio commenced operations on
September 19, 1985 and September 6, 1989, respectively, and were added as
investment options of the Variable Account on December 19, 1994.
A-52
We base the illustrations on the actual investment experience of the
relevant Eligible Funds for the periods shown (net of actual charges and
expenses incurred by the Eligible Funds). The illustrations assume that premiums
are paid at the beginning of each year and that no loans, transfers or other
Policy Owner transactions were made during the periods shown.
Many factors other than investment experience affect Policy values and
benefits. These investment experience figures do not reflect the charges
deducted from Premiums and Monthly Deductions from the cash value. (See "Charges
and Expenses".)
NET RATES OF RETURN
The annual net rate is the effective earnings rate at which the investment
Sub-Accounts increased or decreased over a one-year period, based on the
investment experience of the relevant Eligible Funds. The rate is calculated by
taking the difference between the Sub-Accounts' ending values and beginning
values of the period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the Sub-Accounts increased or decreased since
the inception dates of the Sub-Accounts. For each Sub-Account, we calculate the
rate by taking the difference between the Sub-Account's ending value and the
value on the date of its inception and dividing it by the value on the date of
inception. This result is the total net rate of return since inception ("Total
Return"). The effective annual net rate of return is the rate which, if
compounded annually, would equal the total net rate of return since inception.
A-53
SUB-ACCOUNTS INVESTING IN ZENITH FUND
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 8/26/83- ------------------------------------------------------------------------------------------------
12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Capital Growth*...... 8.77% -0.84% 67.68% 94.72% 52.32% -9.02% 30.43% -3.72% 53.60% -6.29%
Back Bay Advisors
Bond Income......... 2.96 12.32 18.46 14.55 2.01 8.10 12.02 7.82 17.66 7.91
Back Bay Advisors
Money Market........ 3.21 10.45 7.99 6.54 6.26 7.25 8.98 7.92 5.95 3.54
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------- 8/26/83-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00
- ----------- ------------------------------------------------------------------------------------- TOTAL
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN
-------- -------- -------- -------- -------- -------- -------- -------- --------
Capital Growth*...... 14.68% -7.30% 37.68% 20.77% 23.17% 33.76% 15.41% -4.89% 2,726.99%
Back Bay Advisors
Bond Income......... 12.33 -3.60 20.90 4.35 10.61 8.77 -0.71 7.88 367.78
Back Bay Advisors
Money Market........ 2.71 3.71 5.44 4.87 5.08 5.00 4.70 5.96 177.75
<Caption>
8/26/83-
SUB-ACCOUNT 12/31/00
- ----------- EFFECTIVE
ANNUAL
---------
Capital Growth*...... 21.24%
Back Bay Advisors
Bond Income......... 9.30
Back Bay Advisors
Money Market........ 6.06
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 5/1/87- -------------------------------------------------------------------------------------
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
-------- -------- -------- -------- -------- -------- -------- -------- --------
Back Bay Advisors
Managed................... -0.82% 9.21% 18.79% 2.95% 19.87% 6.43% 10.37% -1.36% 30.94%
<Caption>
ANNUAL NET RATE OF RETURN
---------------------------------------------------- 5/1/87- 5/1/87-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- ---------------------------------------------------- TOTAL EFFECTIVE
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- ---------
Back Bay Advisors
Managed................... 14.74% 26.25% 19.36% 9.69% -3.62% 340.39% 11.45%
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 4/30/93 --------------------------------------------------------------------------
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- -------- -------- --------
Westpeak Growth and Income......... 13.49% -1.45% 36.13% 17.80% 33.14% 24.14% 9.08% -5.39%
Harris Oakmark Mid Cap Value**..... 13.33 -0.52 30.03 17.31 17.03 -5.70 0.10 20.13
<Caption>
4/30/93- 4/30/93-
SUB-ACCOUNT 12/31/00 12/31/00
- ----------- TOTAL EFFECTIVE
RETURN ANNUAL
-------- ---------
Westpeak Growth and Income......... 207.41% 15.76%
Harris Oakmark Mid Cap Value**..... 130.68 11.51
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------------- 5/2/94 5/2/94
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- 5/2/94- --------------------------------------------------------------- TOTAL EFFECTIVE
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Loomis Sayles Small Cap..... -4.17% 28.52% 30.36% 24.54% -1.94% 31.42% 4.99% 172.74% 16.24%
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------- 10/31/94- 10/31/94-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- 10/31/94 ---------------------------------------------------------------- TOTAL EFFECTIVE
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- --------- ---------
Alger Equity Growth....... -5.54% 48.33% 12.89% 25.32% 47.41% 33.80% -13.90% 241.24% 22.02%
Balanced***............... -0.24 24.48 16.62 15.89 8.84 -5.30 -2.16 69.42 8.92
Davis Venture Value....... -3.24 38.94 25.52 33.16 14.13 17.22 9.21 227.32 21.20
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN 4/30/99- 4/30/99-
------------------------------- 12/31/00 12/31/00
4/30/99- FOR ONE YEAR ENDING TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/99 12/31/00 RETURN ANNUAL
- ----------- -------- -------- -------- ---------
MFS Investors Trust......................................... 1.08% -0.39% 2.27% 1.35%
MFS Research Managers....................................... 17.90 -3.88 14.96 8.69
</Table>
- ------------
* Rates of return reflect the Capital Growth Series' former investment
advisory fee of .50% of average daily net assets for the period through
December 31, 1987 and its current advisory fee schedule thereafter.
** The Harris Oakmark Mid Cap Value Series' Sub-adviser was Loomis Sayles until
May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
Harris Associates became the sub-adviser on May 1, 2000. Rates of return
reflect the Series' former investment advisory fee of .70% of average daily
net assets for the period through April 30, 1998, and .75% thereafter.
*** The Balanced Series' sub-adviser was Loomis, Sayles until May 1, 2000, when
Wellington Management Company became the sub-adviser.
SUB-ACCOUNTS INVESTING IN METROPOLITAN SERIES FUND, INC.
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-------------------------------------------- 3/3/97- 3/3/97-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- 3/3/97- -------------------------------- TOTAL EFFECTIVE
12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- ---------
Janus Mid Cap............................................. 26.64% 36.85% 122.37% -31.41% 167.06% 29.23%
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-------------------------------- 11/9/98- 11/9/98-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- 11/9/98- -------------------- TOTAL EFFECTIVE
12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- ---------
Russell 2000 Index.......................................... 5.44% 22.43% -4.04% 23.87% 10.50%
</Table>
<Table>
<Caption>
ANNUAL NET
RATE OF RETURN 5/1/00- 5/1/00-
-------------- 12/31/00 12/31/00
5/1/00- TOTAL EFFECTIVE
SUB-ACCOUNT 12/31/00 RETURN ANNUAL
- ----------- -------- -------- ---------
Putnam Large Cap Growth............................................................... -27.12% -27.12% N/A
</Table>
A-54
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
---------------------------------------------------------------------------
FOR ONE YEAR ENDING 10/31/94- 10/31/94-
SUB-ACCOUNT --------------------------------------------------------------- 12/31/00 12/31/00
- ----------- 10/31/94- TOTAL EFFECTIVE
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
--------- -------- -------- -------- -------- -------- -------- --------- ---------
Putnam International
Stock*..................... 2.16% 5.97% 6.41% -1.55% 7.01% 24.30% -10.42% 35.66% 5.07%
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------------------
FOR ONE YEAR ENDING
SUB-ACCOUNT -------------------------------------------------------------------------------------
- ----------- 5/1/87-
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
-------- -------- -------- -------- -------- -------- -------- -------- --------
MetLife Stock Index**...... -12.53% 16.05% 29.83% -4.38% 30.11% 7.03% 9.45% 0.86% 36.58%
<Caption>
ANNUAL NET RATE OF RETURN
----------------------------------------------------
FOR ONE YEAR ENDING 5/1/87- 5/1/87-
SUB-ACCOUNT ---------------------------------------------------- 12/31/00 12/31/00
- ----------- TOTAL EFFECTIVE
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- ---------
MetLife Stock Index**...... 22.16% 32.16% 27.62% 20.08% -9.27% 492.26% 13.90%
</Table>
<Table>
<Caption>
SUB-ACCOUNT
- ----------- ANNUAL NET
RATE OF RETURN 7/5/00- 7/5/00-
-------------- 12/31/00 12/31/00
7/5/00- TOTAL EFFECTIVE
12/31/00 RETURN ANNUAL
-------- -------- ---------
MetLife Mid Cap Stock Index................................. 6.71% 6.71% N/A
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------ 11/9/98- 11/9/98-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- 11/9/98- ------------------- TOTAL EFFECTIVE
12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- ---------
Morgan Stanley EAFE Index................................... 8.07% 24.59% -14.69% 14.46% 6.50%
Lehman Brothers Aggregate Bond Index........................ 1.34 -1.62 11.13 11.70 4.90
Neuberger Berman Partners Mid Cap Value..................... 7.40 17.34 27.93 56.87 25.03
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 6/24/83- --------------------------------------------------------------------------------------------------
12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
State Street Research
Investment
Trust***............ -2.48% 0.28% 34.45% 9.93% 6.92% 11.82% 31.80% -5.64% 32.76% 11.29% 14.11%
<Caption>
ANNUAL NET RATE OF RETURN
-------------------------------------------------------------------- 6/24/83- 6/24/83-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- -------------------------------------------------------------------- TOTAL EFFECTIVE
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- -------- ---------
State Street Research
Investment
Trust***............ -3.50% 32.81% 21.87% 28.04% 28.42% 18.17% -6.41% 911.45% 14.91%
</Table>
<Table>
<Caption>
ANNUAL NET
SUB-ACCOUNT RATE OF RETURN 7/5/00- 7/5/00-
- ----------- -------------- 12/31/00 12/31/00
7/5/00 TOTAL EFFECTIVE
12/31/00 RETURN ANNUAL
-------- -------- ---------
State Street Research Aurora Small Cap Value................ 23.07% 20.05% N/A
</Table>
- ------------
* On December 1, 2000, the Putnam International Stock Portfolio of the
Metropolitan Series Fund, Inc. replaced the Morgan Stanley International
Magnum Equity Series of the Zenith Fund (which commenced operations on
October 31, 1994). Performance figures for dates on or before December 1,
2000 reflect the performance of the Morgan Stanley International Magnum
Equity Series.
** On April 27, 2001, the MetLife Stock Index Portfolio of the Metropolitan
Series Fund, Inc. replaced the Westpeak Stock Index Series of the Zenith
Fund (which commenced operations on May 1, 1987). Performance figures for
dates on or before April 27, 2001 reflect the performance of the Westpeak
Stock Index Series.
*** The State Street Research Investment Trust Portfolio commenced operations on
June 24, 1983. Performance figures for the period from June 24, 1983 through
September 6, 1994 are based on month-end net asset values, as daily net
asset value information is not available.
SUB-ACCOUNTS INVESTING IN VIP
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 10/9/86- ------------------------------------------------------------------------------------------------
12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Equity-Income........ 1.54% -1.38% 22.40% 17.05% -15.50% 31.11% 16.59% 18.00% 6.80% 34.76%
<Caption>
ANNUAL NET RATE OF RETURN
---------------------------------------------------- 10/9/86- 10/9/86-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- ---------------------------------------------------- TOTAL EFFECTIVE
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- ---------
Equity-Income........ 14.00% 27.79% 11.35% 6.06% 8.15% 477.53% 13.12%
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 1/28/87- ------------------------------------------------------------------------------------------------
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Overseas............. -7.11% 7.86% 25.97% -1.91% 7.73% -10.94% 37.01% 1.47% 9.40% 12.93%
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------ 1/28/87- 1/28/87-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- ------------------------------ TOTAL EFFECTIVE
12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- ---------
Overseas............. 11.28% 12.47% 42.27% -19.31% 197.86% 8.15%
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 9/19/85- ------------------------------------------------------------------------------------------------
12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
High Income.......... 6.20% 17.39% 0.96% 11.36% -4.41% -2.48% 34.74% 22.86% 20.10% -1.79%
<Caption>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------- 9/19/85- 9/19/85-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- --------------------------------------------------------------- TOTAL EFFECTIVE
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- ---------
High Income.......... 20.30% 13.75% 17.37% -4.57% 7.89% -22.67% 226.56% 8.05%
</Table>
SUB-ACCOUNT INVESTING IN VIP II
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- 9/6/89- -------------------------------------------------------------------------------------
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- -------- -------- -------- --------
Asset Manager.................. 1.23% 6.45% 22.25% 11.43% 20.93% -6.32% 16.66% 14.32% 20.35%
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------ 9/6/89- 9/6/89-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- ------------------------------ TOTAL EFFECTIVE
12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- ---------
Asset Manager.................. 14.76% 10.81% -4.17% 223.71% 10.94%
</Table>
A-55
SUB-ACCOUNTS INVESTING IN AMERICAN FUNDS INSURANCE SERIES
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
-----------------------------------------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING
- ----------- ------------------------------------------------------------------------------------------------
2/8/84-
12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Growth............... 1.64% 19.46% 29.72% 7.51% 13.99% 30.47% -4.91% 32.57% 10.20% 15.71%
Growth-Income........ 8.71 36.57 21.52 0.05 13.73 24.70 -3.12 23.38 7.35 11.69
<Caption>
ANNUAL NET RATE OF RETURN
--------------------------------------------------------------------------
SUB-ACCOUNT FOR ONE YEAR ENDING 2/8/84- 2/8/84-
- ----------- -------------------------------------------------------------------------- 12/31/00 12/31/00
TOTAL EFFECTIVE
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Growth............... -0.02% 32.57% 12.78% 29.47% 34.90% 56.88% 4.21% 1,627.97% 18.37%
Growth-Income........ 1.53 32.30 18.12 25.22 17.80 10.92 7.68 925.68 14.77
</Table>
<Table>
<Caption>
ANNUAL NET RATE OF RETURN
------------------------------ 4/30/98- 4/30/98-
SUB-ACCOUNT FOR ONE YEAR ENDING 12/31/00 12/31/00
- ----------- 4/30/98- ------------------- TOTAL EFFECTIVE
12/31/98 12/31/99 12/31/00 RETURN ANNUAL
-------- -------- -------- -------- ---------
Global Small Capitalization................................. 2.30% 90.89% -16.73% 59.51% 19.09%
</Table>
A-56
POLICY PERFORMANCE
The material below assumes a Policy was issued with a $500,000 face amount
and Option A death benefit with the guideline premium test, with annual premiums
paid on August 26 of each year (May 1 in the case of the Metropolitan MetLife
Stock Index, Zenith Back Bay Managed and Metropolitan Putnam Large Cap Growth
Sub-Accounts; May 2 in the case of the Zenith Loomis Sayles Small Cap
Sub-Account; October 31 in the case of the Zenith Balanced, Zenith Davis Venture
Value, Zenith Alger Equity Growth and Metropolitan Putnam International Stock
Sub-Accounts; October 9 in the case of the VIP Equity-Income Sub-Account;
January 28 in the case of the VIP Overseas Sub-Account; April 30 in the case of
the Zenith Westpeak Growth and Income, Zenith Harris Oakmark Mid Cap Value,
Zenith MFS Investors Trust and Zenith MFS Research Managers Sub-Accounts;
September 19 in the case of the VIP High Income Sub-Account; September 6 in the
case of the VIP II Asset Manager Sub-Account; March 3 in the case of the
Metropolitan Janus Mid Cap Sub-Account; November 9 in the case of the
Metropolitan Russell 2000 Index Sub-Account; June 24 in the case of the
Metropolitan State Street Research Investment Trust Sub-Account; November 9 in
the case of the Metropolitan Lehman Brothers Aggregate Bond Index, the
Metropolitan Morgan Stanley EAFE Index and the Metropolitan Neuberger Berman
Partners Mid Cap Value Sub-Accounts; July 5 in the case of the Metropolitan
MetLife Mid Cap Stock Index and the Metropolitan State Street Research Aurora
Small Cap Value Sub-Accounts; February 8 in the case of the American Funds
Growth Sub-Account, and the American Funds Growth-Income Sub-Account; and April
30 in the case of the American Funds Global Small Capitalization Sub-Account),
to a male age 45 in the nonsmoker preferred risk category. 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.
The illustrations of Policy investment experience reflect all Policy charges
based on NELICO's current rates.
MALE NON-SMOKER PREFERRED RISK AGE 45
$500,000 FACE AMOUNT
OPTION A DEATH BENEFIT
GUIDELINE PREMIUM TEST
ZENITH CAPITAL GROWTH SUB-ACCOUNT*
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
August 26, 1983.............. $ $ $ $
December 31, 1983............
December 31, 1984............
December 31, 1985............
December 31, 1986............
December 31, 1987............
December 31, 1988............
December 31, 1989............
December 31, 1990............
December 31, 1991............
December 31, 1992............
December 31, 1993............
December 31, 1994............
December 31, 1995............
December 31, 1996............
December 31, 1997............
December 31, 1998............
December 31, 1999............
December 31, 2000............
</Table>
A-57
ZENITH BACK BAY BOND INCOME SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
August 26, 1983.............. $ $ $ $
December 31, 1983............
December 31, 1984............
December 31, 1985............
December 31, 1986............
December 31, 1987............
December 31, 1988............
December 31, 1989............
December 31, 1990............
December 31, 1991............
December 31, 1992............
December 31, 1993............
December 31, 1994............
December 31, 1995............
December 31, 1996............
December 31, 1997............
December 31, 1998............
December 31, 1999............
December 31, 2000............
</Table>
ZENITH BACK BAY MONEY MARKET SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
August 26, 1983.............. $ $ $ $
December 31, 1983............
December 31, 1984............
December 31, 1985............
December 31, 1986............
December 31, 1987............
December 31, 1988............
December 31, 1989............
December 31, 1990............
December 31, 1991............
December 31, 1992............
December 31, 1993............
December 31, 1994............
December 31, 1995............
December 31, 1996............
December 31, 1997............
December 31, 1998............
December 31, 1999............
December 31, 2000............
</Table>
A-58
ZENITH BACK BAY MANAGED SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
May 1, 1987.................... $ $ $ $
December 31, 1987..............
December 31, 1988..............
December 31, 1989..............
December 31, 1990..............
December 31, 1991..............
December 31, 1992..............
December 31, 1993..............
December 31, 1994..............
December 31, 1995..............
December 31, 1996..............
December 31, 1997..............
December 31, 1998..............
December 31, 1999..............
December 31, 2000..............
</Table>
ZENITH WESTPEAK GROWTH AND INCOME SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------- -------- -------------- -------------
April 30, 1993.................... $ $ $ $
December 31, 1993.................
December 31, 1994.................
December 31, 1995.................
December 31, 1996.................
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
ZENITH HARRIS OAKMARK MID CAP VALUE SUB-ACCOUNT**
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------- -------- -------------- -------------
April 30, 1993.................... $ $ $ $
December 31, 1993.................
December 31, 1994.................
December 31, 1995.................
December 31, 1996.................
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
ZENITH LOOMIS SAYLES SMALL CAP SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------- -------- -------------- -------------
May 2, 1994....................... $ $ $ $
December 31, 1994.................
December 31, 1995.................
December 31, 1996.................
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
A-59
ZENITH BALANCED SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------- -------- -------------- -------------
October 31, 1994.................. $ $ $ $
December 31, 1994.................
December 31, 1995.................
December 31, 1996.................
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
ZENITH DAVIS VENTURE VALUE SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------- -------- -------------- -------------
October 31, 1994.................. $ $ $ $
December 31, 1994.................
December 31, 1995.................
December 31, 1996.................
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
ZENITH ALGER EQUITY GROWTH SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------- -------- -------------- -------------
October 31, 1994.................. $ $ $ $
December 31, 1994.................
December 31, 1995.................
December 31, 1996.................
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
ZENITH MFS INVESTORS TRUST SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------ -------- -------------- -------------
April 30, 1999...................... $ $ $ $
December 31, 1999...................
December 31, 2000...................
</Table>
ZENITH MFS RESEARCH MANAGERS SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------ -------- -------------- -------------
April 30, 1999.................... $ $ $ $
December 31, 1999.................
December 31, 2000.................
</Table>
A-60
METROPOLITAN JANUS MID CAP SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------- -------- -------------- -------------
March 3, 1997..................... $ $ $ $
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
METROPOLITAN RUSSELL 2000 INDEX SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------- -------- -------------- -------------
November 9, 1998.................. $ $ $ $
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
<Table>
<Caption>
METROPOLITAN PUTNAM LARGE CAP GROWTH SUB-ACCOUNT
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------ -------- -------------- -------------
May 1, 2000......................... $ $ $ $
December 31, 2000...................
</Table>
<Table>
<Caption>
METROPOLITAN PUTNAM INTERNATIONAL STOCK SUB-ACCOUNT***
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- ------- -------- -------------- -------------
October 31, 1994.................. $ $ $ $
December 31, 1994.................
December 31, 1995.................
December 31, 1996.................
December 31, 1997.................
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
<Table>
<Caption>
METROPOLITAN METLIFE STOCK INDEX SUB-ACCOUNT****
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
May 1, 1987.................... $ $ $ $
December 31, 1987..............
December 31, 1988..............
December 31, 1989..............
December 31, 1990..............
December 31, 1991..............
December 31, 1992..............
December 31, 1993..............
December 31, 1994..............
December 31, 1995..............
December 31, 1996..............
December 31, 1997..............
December 31, 1998..............
December 31, 1999..............
December 31, 2000..............
</Table>
A-61
<Table>
<Caption>
METROPOLITAN METLIFE MID CAP STOCK INDEX SUB-ACCOUNT
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------ -------- -------------- -------------
July 5, 2000........................ $ $ $ $
December 31, 2000................... %
</Table>
<Table>
<Caption>
METROPOLITAN MORGAN STANLEY EAFE INDEX SUB-ACCOUNT
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------ -------- -------------- -------------
November 9, 1998.................... $ $ $ $
December 31, 1998................... %
December 31, 1999................... %
December 31, 2000...................
</Table>
<Table>
<Caption>
METROPOLITAN LEHMAN BROTHERS AGGREGATE BOND INDEX SUB-ACCOUNT
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------- -------- -------------- -------------
November 9, 1998.................. $ $ $ $
December 31, 1998................. %
December 31, 1999................. %
December 31, 2000.................
</Table>
<Table>
<Caption>
METROPOLITAN STATE STREET RESEARCH AURORA SMALL CAP VALUE SUB-ACCOUNT
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------ -------- -------------- -------------
July 5, 2000........................ $ $ $ $
December 31, 2000................... %
</Table>
A-62
METROPOLITAN STATE STREET RESEARCH INVESTMENT TRUST SUB-ACCOUNT*****
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- -------- -------- -------------- -------------
June 24, 1983................... $ $ $ $
December 31, 1983...............
December 31, 1984...............
December 31, 1985...............
December 31, 1986...............
December 31, 1987...............
December 31, 1988...............
December 31, 1989...............
December 31, 1990...............
December 31, 1991...............
December 31, 1992...............
December 31, 1993...............
December 31, 1994...............
December 31, 1995...............
December 31, 1996...............
December 31, 1997...............
December 31, 1998...............
December 31, 1999...............
December 31, 2000...............
</Table>
METROPOLITAN NEUBERGER BERMAN PARTNERS MID CAP VALUE SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- -------- ------- -------- -------------- -------------
November 9, 1998.................. $ $ $ $
December 31, 1998.................
December 31, 1999.................
December 31, 2000.................
</Table>
VIP EQUITY-INCOME SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
October 9, 1986................ $ $ $ $
December 31, 1986..............
December 31, 1987..............
December 31, 1988..............
December 31, 1989..............
December 31, 1990..............
December 31, 1991..............
December 31, 1992..............
December 31, 1993..............
December 31, 1994..............
December 31, 1995..............
December 31, 1996..............
December 31, 1997..............
December 31, 1998..............
December 31, 1999..............
December 31, 2000..............
</Table>
A-63
VIP OVERSEAS SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
January 28, 1987............... $ $ $ $
December 31, 1987..............
December 31, 1988..............
December 31, 1989..............
December 31, 1990..............
December 31, 1991..............
December 31, 1992..............
December 31, 1993..............
December 31, 1994..............
December 31, 1995..............
December 31, 1996..............
December 31, 1997..............
December 31, 1998..............
December 31, 1999..............
December 31, 2000..............
</Table>
VIP HIGH INCOME SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
September 19, 1985............. $ $ $ $
December 31, 1985..............
December 31, 1986..............
December 31, 1987..............
December 31, 1988..............
December 31, 1989..............
December 31, 1990..............
December 31, 1991..............
December 31, 1992..............
December 31, 1993..............
December 31, 1994..............
December 31, 1995..............
December 31, 1996..............
December 31, 1997..............
December 31, 1998..............
December 31, 1999..............
December 31, 2000..............
</Table>
VIP II ASSET MANAGER SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
- ---- -------- -------- -------- -------- -------------- -------------
September 6, 1989............... $ $ $ $
December 31, 1989...............
December 31, 1990...............
December 31, 1991...............
December 31, 1992...............
December 31, 1993...............
December 31, 1994...............
December 31, 1995...............
December 31, 1996...............
December 31, 1997...............
December 31, 1998...............
December 31, 1999...............
December 31, 2000...............
</Table>
A-64
AMERICAN FUNDS GROWTH SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ------- ----- -------- -------------- -------------
February 8, 1984................ $ $ $ $
December 31, 1984...............
December 31, 1985...............
December 31, 1986...............
December 31, 1987...............
December 31, 1988...............
December 31, 1989...............
December 31, 1990...............
December 31, 1991...............
December 31, 1992...............
December 31, 1993...............
December 31, 1994...............
December 31, 1995...............
December 31, 1996...............
December 31, 1997...............
December 31, 1998...............
December 31, 1999...............
December 31, 2000...............
</Table>
AMERICAN FUNDS GROWTH-INCOME SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ------- ----- -------- -------------- -------------
February 8, 1984................ $ $ $ $
December 31, 1984...............
December 31, 1985...............
December 31, 1986...............
December 31, 1987...............
December 31, 1988...............
December 31, 1989...............
December 31, 1990...............
December 31, 1991...............
December 31, 1992...............
December 31, 1993...............
December 31, 1994...............
December 31, 1995...............
December 31, 1996...............
December 31, 1997...............
December 31, 1998...............
December 31, 1999...............
December 31, 2000...............
</Table>
A-65
AMERICAN FUNDS GLOBAL SMALL CAPITALIZATION SUB-ACCOUNT
<Table>
<Caption>
TOTAL INTERNAL RATE INTERNAL RATE
PREMIUMS DEATH CASH NET CASH OF RETURN ON OF RETURN ON
DATE PAID BENEFIT VALUE VALUE NET CASH VALUE DEATH BENEFIT
---- -------- ------- ----- -------- -------------- -------------
April 30, 1998..................... $
December 31, 1998..................
December 31, 1999..................
December 31, 2000..................
</Table>
- ------------
* Rates of return and Policy values and benefits shown reflect the Capital
Growth Series' investment advisory fee of .50% of average daily net
assets for the period through December 31, 1987 and its current advisory
fee schedule thereafter.
** Rates of return and Policy values and benefits shown reflect the Harris
Oakmark Mid Cap Value Series' investment advisory fee of .70% of average
daily net assets for the period through April 30, 1998 and .75%
thereafter.
*** On December 1, 2000, the Putnam International Stock Portfolio of the
Metropolitan Series Fund, Inc. replaced the Morgan Stanley International
Magnum Equity Series of the Zenith Fund. Performance figures for dates on
or before December 1, 2000 reflect the performance of the Morgan Stanley
International Magnum Equity Series.
**** On April 27, 2001, the MetLife Stock Index Portfolio of the Metropolitan
Series Fund, Inc. replaced the Westpeak Stock Index Series of the Zenith
Fund. Performance figures for dates on or before April 27, 2001 reflect
the performance of the Westpeak Stock Index Series.
***** The State Street Research Investment Trust Portfolio commenced operations
on June 24, 1983. Performance figures for the period from June 24, 1983
through September 6, 1994 are based on month-end net asset values, as
daily net asset value information is not available.
A-66
APPENDIX C
LONG TERM MARKET TRENDS
The information below compares the average annual returns of common stock,
high grade corporate bonds and 30-day U.S. Treasury bills over 20-year and
30-year holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and does not
predict future performance. The information does not reflect Policy charges.
The data indicates that, historically, the investment performance of common
stocks over long periods has been positive and generally superior to that of
long-term, high grade debt securities. Common stocks have, however, been subject
to more dramatic market adjustments over short periods.
Over the 56 20-year time periods beginning in 1926 and ending in 2000
(i.e., 1926-1945, 1927-1946, and so on through 1981-2000):
-- The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 53 of the 56 periods.
-- The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 56 periods.
-- Common stock average annual returns exceeded the average annual rate of
inflation in each of the 56 periods.
Over the 46 30-year periods beginning in 1926 and ending in 2000, 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 46 periods.
From 1926 through 2000 the average annual return for common stocks was
11.0%, compared to 5.7% for high grade, long-term corporate bonds, 3.8% for U.S.
Treasury bills and 3.1% for the Consumer Price Index.
- ------------
* Used with permission. (C)2001 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
------------------------
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index with dividends reinvested, over one-year, five-year and
twenty-year periods beginning in 1926 and ending 2000.
The chart does not predict future stock market results. It shows the
historic performance of a broad index of stocks, and not the performance of any
fund or investment.
------------------------
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<Table>
<Caption>
GREATER
0- 5.01- 10.01- 15.01- THAN
HOLDING NEGATIVE 5.00% 10.00% 15.00% 20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
- ------- -------- ------ ------ ------ ------ -------
1 year.................................. 26% 4% 11% 7% 12% 40%
5 years................................. 10% 14% 14% 31% 18% 13%
10 years................................ 3% 10% 33% 24% 28% 2%
20 years................................ 0% 6% 31% 53% 10% 0%
</Table>
- ------------
Used with permission. (C)2001 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
A-67
APPENDIX D
USES OF LIFE INSURANCE
These are examples of ways the Policy can be used to address certain
financial objectives.
FAMILY INCOME PROTECTION
You may purchase life insurance on the lives of family income earners to
provide a death benefit to cover final expenses, and continue current family
income. The amount of insurance you purchase should be an amount which will
provide a death benefit that, when invested outside the policy at a reasonable
interest rate, will generate enough money to replace the individual's income.
ESTATE PROTECTION
A trust may purchase life insurance on the life of the person whose estate
will incur federal estate taxes upon the person's death. The amount of insurance
purchased should equal the amount of the estimated estate tax liability. On the
insured's death, the trustee makes the death proceeds available to the estate
for the payment of estate tax costs.
EDUCATION FUNDING
You may purchase life insurance on the life of the parent(s) or primary
person funding an education. The amount of insurance you purchase should equal
the total education cost projected at a reasonable inflation rate.
In the event of death, the guaranteed death benefit is available to help
pay the education costs. If the insured lives through the education years, cash
value may be accessed to meet education costs. Loans or withdrawals reduce the
Policy's death benefit.
MORTGAGE PROTECTION
You may purchase life insurance on the life of the person responsible for
making mortgage payments. The amount of insurance you purchase should equal the
mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to pay the mortgage balance.
During the insured's lifetime, cash value may be accessed late in the
mortgage term to help make the remaining mortgage payments. Loans or withdrawals
reduce the Policy's death benefit.
KEY PERSON PROTECTION
A business may purchase life insurance on the life of a key person in an
amount equal to the key person's value, considering salary, benefits, and
contribution to the business. On the key person's death, the business uses the
death benefit to ease the interruption of business operations and/or to provide
a replacement fund for hiring a new executive.
BUSINESS CONTINUATION PROTECTION
You can insure each business owner in an amount equal to the value of each
owner's business interest. In the event of death, the guaranteed death benefit
provides funds for the purchase of the deceased's business interest by the
business, or surviving owners, from the deceased owner's heirs.
RETIREMENT INCOME
You may purchase life insurance on the life of a family income earner
during his or her working life. If the insured lives to retirement, cash value
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. Loans or withdrawals reduce the Policy's death benefit.
A-68
Because the Policy provides a death benefit and cash value accumulation,
you can use the Policy for various individual and business planning purposes. If
you purchase the Policy for such purposes, you assume certain risks,
particularly if the Policy's cash value, as opposed to its death benefit, will
be the principal Policy feature used for such planning purposes. If the
investment performance of the Sub-Accounts to which cash value is allocated is
poorer than expected, or if you don't pay sufficient premiums or maintain cash
values, the Policy may lapse or may not accumulate sufficient cash value or cash
surrender value to fund the purpose for which you purchased the Policy. Because
the Policy is designed to provide benefits on a long-term basis, before
purchasing a Policy for a specialized purpose, you should consider whether the
long-term nature of the Policy is consistent with your goals. If you wish to
access your Policy's cash value, through loans or withdrawals, you should
consult your tax adviser about possible tax consequences. (See "Tax
Considerations".)
A-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
<Table>
<Caption>
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 allowed Yes, beyond $50,000
Income Ordering Rules
(Income included in
First Distribution) No* Yes Yes Yes
Early Withdrawal
Penalties No* Yes*** Yes*** Yes***
Minimum Distribution
Rules by Age 70 1/2 No No Yes Yes
Maximum Annual
Distribution Rules No No Yes Yes
Anti-discrimination
Rules No No No Yes
</Table>
- ------------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
This appendix is not tax advice. You should consult with your own tax advisor
for more complete information.
A-70
APPENDIX F
GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit will not be less than what is
required by the "cash value accumulation test" under Section 7702(a)(1) of the
Internal Revenue Code, or the "guideline premium test" under Section 7702(a)(2)
of the Internal Revenue Code, as selected by you when the Policy is issued. The
test you choose at issue will be used for the life of the Policy. (See "Death
Benefit".)
For the cash value accumulation test, sample net single premiums for
selected ages of male and female insureds are listed below.
<Table>
<Caption>
NET SINGLE PREMIUM
-------------------
AGE MALE FEMALE
- --- -------- --------
30..........................................................
40..........................................................
50..........................................................
60..........................................................
70..........................................................
80..........................................................
90..........................................................
100.........................................................
</Table>
For the guideline premium test, the table below shows the percentage of the
Policy's cash value that is used to determine the death benefit.
<Table>
<Caption>
AGE OF AGE OF
INSURED AT START OF PERCENTAGE OF INSURED AT 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
</Table>
A-71
NEW ENGLAND LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Flexible Life 2002 Prospectus dated
May 1, 2002. This Variable Life Policy is offered by New England Life Insurance
Company.
<Table>
- ----------------------------------------------------- -----------------------------------------------------
(Date) (Client's Signature)
</Table>
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 74 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of
1933.
Representations.
The signatures.
Written consents of the following persons:
Anne M. Goggin, Esq. (see Exhibit 3(i) below)(to be filed by
amendment)
James J. Reilly, Jr., F.S.A., M.A.A.A.
(see Exhibit 3(ii) below)(to be filed by amendment)
Sutherland Asbill & Brennan LLP (see Exhibit 6
below)(to be filed by amendment)
Independent Auditor (see Exhibit 11 below)(to be
filed by amendment)
The following exhibits:
1.A.(1) January 31, 1983 resolution of the Board of
Directors of NEVLICO 4
(2) None
(3) (a) Distribution Agreement between NEVLICO and
NELESCO 5
(b)(i) Form of Contract between NELICO and its
General Agents 4
II - 2
(ii) Form of contract between NELICO and its
Agents 5
(c) Commission Schedule for Policies (to be filed by
amendment)
(d) Form of contract among NES, NELICO and other broker
dealers 3
(4) None
(5) (a) Specimen of Policy
(b) Riders to the Policy
(6) (a) Amended and restated Articles of Organization of
NELICO 2
(b) Amended and restated By-Laws of NELICO 3
(c) Amendments to Amended and restated Articles of
Organization 7
(d) Amended and restated By-Laws of NELICO 11
(7) None
(8) None
(9) None
(10) (a) Specimen of Application for Policy 6
(10) (b) Specimen of Application for Riders
2. See Exhibit 3(i)
3.(i) Opinion and Consent of Anne M. Goggin, Esquire (to be
filed by amendment)
(ii) Opinion and Consent of James J. Reilly, Jr., 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. Powers of Attorney 10
8. Notice of Withdrawal Right for Policies (to be filed by
amendment)
9. Inapplicable
10. Inapplicable
11. Consent of Independent Auditors (to be filed by
amendment)
12. Schedule for computation of performance quotations 5
13. (i) Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-2(b)(12)(ii)and Rule
6e-3(T)(b)(12)(iii) 5
II - 3
(ii) Second Addendum to Consolidated Memorandum 8
14. (i) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
New England Variable Life Insurance Company 5
(ii) Amendment No. 1 to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and New England Variable Life Insurance
Company 1
(iii) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation and
New England Variable Life Insurance Company 1
(iv) Participation Agreement among Metropolitan Series Fund,
Inc., Metropolitan Life Insurance Company and New
England Life Insurance Company 9
(v) Participation Agreement among New England Zenith Fund,
New England Investment Management, Inc., New England
Securities Corporation and New England Life Insurance
Company 9
(vi) Amendment No. 2 to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and New England Life Insurance Company 10
(vii) Amendment No. 1 to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and New England Life Insurance
Company 10
(viii) Participation Agreement among Met Investors Series
Trust, Met Investors Advisory Corp., New England
Securities and New England Life Insurance Company
(ix) Participation Agreement among American Funds Insurance
Series, Capital Research and Management Company, New
England Securities and New England Life Insurance
Company 12
1 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.
2 Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
3 Incorporated herein by reference to the Pre-effective Amendment No. 1
to the Variable Account's Form S-6 Registration Statement, File No.
333-21767, filed July 16, 1997.
II - 4
4 Incorporated herein by reference to Post-Effective Amendment No. 9 to
the Variable Account's Form S-6 Registration Statement, File No.
33-66864, filed February 25, 1998.
5 Incorporated herein by reference to Post-Effective Amendment No. 9 to
the Variable Account's Form S-6 Registration Statement, File No.
33-52050, filed April 24, 1998.
6 Incorporated herein by reference to Post-Effective Amendment No. 4 to
the Variable Account's Form S-6 Registration Statement, File No.
33-88082, filed January 20, 1999.
7 Incorporated herein by reference to the Post-Effective Amendment No.4
to the Variable Account's Form S-6 Registration Statement, File No.
33-65263, filed February 24, 1999.
8 Incorporated herein by reference to the Post-Effective Amendment No.10
to the Variable Account's Form S-6 Registration Statement, File No.
33-52050, filed April 26, 1999.
9 Incorporated herein by reference to the Post-Effective Amendment No. 11
to the Variable Account's Form S-6 Registration Statement, File No.
33-88082, filed November 9, 2000.
10 Incorporated herein by reference to the Post-Effective Amendment No.2
to the Variable Account's Form S-6 Registration Statement, File No.
333-89409, filed February 26, 2001.
11 Incorporated herein by reference to the Post-Effective Amendment No.4
to the Variable Account's Form S-6 Registration Statement, File No.
333-21767, filed April 25, 2001.
12 Incorporated herein by reference to the Post-Effective Amendment No. 4
to the Variable Account's Form S-6 Registration Statement, File No.
333-89409, filed July 20, 2001.
II - 5
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 19th day of
November, 2001.
New England Variable Life Separate
Account
(Registrant)
By: New England Life Insurance
Company
(Depositor)
By: /s/ Anne M. Goggin
------------------------------
Anne M. Goggin
Senior Vice President and
General Counsel
Attest:
/s/ John E. Connolly, Jr.
- -------------------------
John E. Connolly, Jr.
Counsel and Assistant
Secretary
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 19th day of November, 2001.
New England Life Insurance Company
(Seal)
Attest: /s/John E. Connolly, Jr. By: /s/ Anne M. Goggin
------------------------ ------------------------
John E. Connolly, Jr. Anne M. Goggin
Counsel and Assistant Senior Vice President
Secretary 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 November 19, 2001.
* Chairman, President and Chief
- ---------------------- Executive Officer
James M. Benson
* Director
- ----------------------
Susan C. Crampton
* Director
- ----------------------
Edward A. Fox
* Director
- ----------------------
George J. Goodman
* Director
- ----------------------
Evelyn E. Handler
* Director
- ----------------------
Philip K. Howard, Esq.
* Director
- ----------------------
Bernard A. Leventhal
* Director
- ----------------------
Thomas J. May
* Director
- ----------------------
Stewart G. Nagler
* Director
- ----------------------
Catherine A. Rein
* Executive Vice President,
- ---------------------- Chief Financial Officer and Chief
David Y. Rogers Accounting Officer
* Director
- ----------------------
Rand N. Stowell
* Director
- ----------------------
Lisa M. Weber
By: /s/ Marie C. Swift
---------------------
Marie C. Swift, Esq.
Attorney-in-fact
* Executed by Marie C. Swift, Esquire on behalf of those indicated
pursuant to powers of attorney filed with Post-Effective Amendment No.
2 to the Variable Account's Form S-6 Registration Statement, File No.
333-89409, on February 26, 2001.
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
1.A. 5(a) Specimen of Policy
1.A. 5(b) Riders to Policy
1.A (10)(b) Specimen of Application for Riders
14 (viii) Participation Agreement among
Met Investors Series Trust,
Met Investors Advisory Corp.,
New England Securities Corporation
and New England Life Insurance Company
- ---------
* Page numbers inserted on manually-signed copy only.