485BPOS 1 b44149sue485bpos.txt ZENITH SURVIVORSHIP LIFE 2002 As filed with the Securities and Exchange Commission on April 29, 2003 Registration Nos. 333-89409 811-03713 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 7 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 10 [X] (Check appropriate box or boxes) New England Variable Life Separate Account (Exact Name of Registrant) New England Life Insurance Company (Name of Depositor) 501 Boylston Street, Boston, Massachusetts 02117 (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number: 617-578-2000 (Name and Address of Agent for Service): Marie C. Swift, Esquire Vice President and Counsel New England Life Insurance Company 501 Boylston Street Boston, Massachusetts 02116 Copy to: Stephen E. Roth, Esquire Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2415 --------------------------- It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [X] on May 1, 2003 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment Title of Securities Being Registered: Units of Interest in Flexible Premium Variable Survivorship Life Insurance Policies. ZENITH SURVIVORSHIP LIFE 2002 Flexible Premium Adjustable Variable Survivorship Life Insurance Policies Issued by New England Variable Life Separate Account of New England Life Insurance Company 501 Boylston Street Boston, Massachusetts 02116 (617) 578-2000 This prospectus offers individual flexible premium adjustable variable survivorship life insurance policies (the "Policies") issued by New England Life Insurance Company ("NELICO"). The Policy provides premium flexibility and a death benefit that is payable at the death of the second to die. In some cases you can choose a rider that provides a death benefit guarantee as long as your total premiums paid meet certain minimum requirements. You 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: METROPOLITAN SERIES FUND, INC. Alger Equity Growth Portfolio Balanced Portfolio Davis Venture Value Portfolio FI Mid Cap Opportunities Portfolio FI Structured Equity Portfolio Franklin Templeton Small Cap Growth Portfolio Harris Oakmark Focused Value Portfolio Harris Oakmark Large Cap Value Portfolio Janus Mid Cap Portfolio Lehman Brothers(R) Aggregate Bond Index Portfolio Loomis Sayles Small Cap Portfolio Met/Putnam Voyager Portfolio MetLife Mid Cap Stock Index Portfolio MetLife Stock Index Portfolio MFS Investors Trust Portfolio MFS Research Managers Portfolio MFS Total Return Portfolio Morgan Stanley EAFE(R) Index Portfolio Neuberger Berman Partners Mid Cap Value Portfolio Putnam International Stock Portfolio Russell 2000(R) Index Portfolio State Street Research Aurora Portfolio State Street Research Bond Income Portfolio State Street Research Investment Trust Portfolio State Street Research Large Cap Value Portfolio State Street Research Money Market Portfolio Zenith Equity Portfolio MET INVESTORS SERIES TRUST Harris Oakmark International Portfolio Janus Aggressive Growth Portfolio Met/AIM Mid Cap Core Equity Portfolio Met/AIM Small Cap Growth Portfolio PIMCO Innovation Portfolio PIMCO Total Return Portfolio T. Rowe Price Mid-Cap Growth Portfolio FIDELITY(R) VARIABLE INSURANCE PRODUCTS VIP Asset Manager Portfolio VIP Equity-Income Portfolio VIP High Income Portfolio VIP Overseas Portfolio AMERICAN FUNDS INSURANCE SERIES American Funds Global Small Capitalization Fund American Funds Growth Fund American Funds Growth-Income Fund You receive State Street Research Money Market Sub-Account performance until the day that we mail the confirmation for the initial premium (in some states, until 15 days after the date we mail the initial premium confirmation). Thereafter, we invest the Policy's cash value according to your instructions. You may also allocate net premiums to our Fixed Account in most states. Limits apply to transfers to and from the Fixed Account. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE POLICIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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. 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. MAY 1, 2003 TABLE OF CONTENTS
PAGE ----- SUMMARY OF BENEFITS AND RISKS............................... A-4 Benefits of the Policy................................. A-4 Risks of the Policy.................................... A-5 Risks of the Eligible Funds............................ A-7 FEE TABLES.................................................. A-7 Transaction Fees....................................... A-7 Periodic Charges Other Than Eligible Fund Operating Expenses.............................................. A-8 Annual Eligible Fund Operating Expenses................ A-11 HOW THE POLICY WORKS........................................ A-15 THE COMPANY, THE VARIABLE ACCOUNT AND THE ELIGIBLE FUNDS.... A-16 The Company............................................ A-16 The Variable Account................................... A-16 The Eligible Funds..................................... A-16 Share Classes of the Eligible Funds.................... A-19 Voting Rights.......................................... A-19 Rights Reserved by NELICO.............................. A-20 THE POLICIES................................................ A-20 Purchasing a Policy.................................... A-20 Replacing Existing Insurance........................... A-21 Policy Owner and Beneficiary........................... A-21 Conversion Rights...................................... A-21 PREMIUMS.................................................... A-22 Flexible Premiums...................................... A-22 Amount Provided for Investment under the Policy........ A-23 Right to Return the Policy............................. A-24 Allocation of Net Premiums............................. A-24 RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S DESIGNATED OFFICE......................................... A-24 Payment of Proceeds.................................... A-25 CASH VALUE.................................................. A-25 DEATH BENEFITS.............................................. A-25 Expanded Death Benefit Rider........................... A-27 Change in Death Benefit Option......................... A-27 Death Proceeds Payable................................. A-28 Reduction in Face Amount............................... A-28 SURRENDERS AND PARTIAL SURRENDERS........................... A-29 Surrender.............................................. A-29 Partial Surrender...................................... A-29 TRANSFERS................................................... A-30 Transfer Option........................................ A-30 Dollar Cost Averaging/Asset Rebalancing................ A-30 LOANS....................................................... A-31 LAPSE AND REINSTATEMENT..................................... A-32 Lapse.................................................. A-32 Reinstatement.......................................... A-33 ADDITIONAL BENEFITS BY RIDER................................ A-33 THE FIXED ACCOUNT........................................... A-34 General Description.................................... A-35 Values and Benefits.................................... A-35 Policy Transactions.................................... A-35
A-2
PAGE ----- CHARGES..................................................... A-36 Deductions from Premiums............................... A-37 Surrender Charge....................................... A-38 Transfer Charge........................................ A-39 Monthly Deduction from Cash Value...................... A-39 Loan Interest Spread................................... A-41 Charges Against the Eligible Funds and the Sub-Accounts of the Variable Account............................... A-41 TAX CONSIDERATIONS.......................................... A-41 Introduction........................................... A-41 Tax Status of the Policy............................... A-41 Tax Treatment of Policy Benefits....................... A-42 NELICO's Income Taxes.................................. A-45 DISTRIBUTION OF THE POLICIES................................ A-45 LEGAL PROCEEDINGS........................................... A-46 RESTRICTIONS ON FINANCIAL TRANSACTIONS...................... A-46 EXPERTS..................................................... A-46 FINANCIAL STATEMENTS........................................ A-46 GLOSSARY.................................................... A-47 APPENDIX A: CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST ............................................. A-48
A-3 SUMMARY OF BENEFITS AND RISKS This summary describes the Policy's important benefits and risks. The sections in the prospectus following this summary discuss the Policy in more detail. THE GLOSSARY AT THE END OF THE PROSPECTUS DEFINES CERTAIN WORDS AND PHRASES USED IN THIS PROSPECTUS. BENEFITS OF THE POLICY DEATH PROCEEDS. The Policies are designed to provide insurance protection on the lives of two insureds. Upon receipt of satisfactory proof of the death of the second insured to die, we pay death proceeds to the beneficiary of the Policy. Death proceeds generally equal the death benefit on the date of death of the second insured to die, plus any additional insurance provided by rider, less any outstanding loan and accrued loan interest. CHOICE OF DEATH BENEFIT OPTION. You may choose among five death benefit options. Three of the death benefit options provide a level death benefit that is equal to the Policy's face amount. The other two death benefit options provide a variable death benefit that is equal to the Policy's face amount plus the Policy's cash value. The death benefit under all five options could increase to satisfy tax law requirements if the cash value reaches certain levels. After the first Policy year and before the younger insured's age 100, you may change your death benefit option. A change in death benefit option may have tax consequences. PREMIUM FLEXIBILITY. You can make premium payments based on a schedule you determine, subject to some limits. You can change your payment schedule at any time, you can skip premium payments, or make additional payments. We can limit or prohibit payments in some situations, including cases where an insured is in a substandard risk class. RIGHT TO RETURN THE POLICY. During the first ten days (more in some states) following your receipt of the Policy, you have the right to return the Policy to us. Depending on state law, we will refund either the cash value of the Policy, plus any sales and premium tax charges that we deducted from the premiums you paid, or the premiums you paid. INVESTMENT OPTIONS. You can allocate your net premiums and cash value among your choice of forty-one investment sub-accounts in the Variable Account, each of which corresponds to a mutual fund portfolio, or "Eligible Fund." The Eligible Funds 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. In most states you may also allocate premiums and cash value to our Fixed Account which provides guarantees of interest and principal. You may allocate your Policy's cash value to a maximum of nine accounts (including the Fixed Account) at any one time. You may change your allocation of future net premiums at any time. PARTIAL SURRENDERS. You may withdraw up to 90% of your Policy's net cash value through partial surrenders. Net cash value equals the Policy's cash value reduced by any applicable Surrender Charge and by any outstanding Policy loan and accrued interest. We reserve the right to limit partial surrenders in any year to 20% of the Policy's net cash value on the date of the first partial surrender in that year, or if less, the Policy's available loan value. Partial surrenders may have tax consequences. TRANSFERS OF CASH VALUE. You may transfer your Policy's cash value among the sub-accounts or between the sub-accounts and the Fixed Account, although special limits apply to transfers from the Fixed Account. We reserve the right to limit transfers to four per Policy year (12 per year in New York) and to impose a processing charge of $25 for transfers in excess of 12 per Policy year. We may offer the following automated transfer privileges: -- DOLLAR COST AVERAGING. Under the dollar cost averaging program, you may authorize us to make automatic transfers of your Policy's cash value from any one sub-account to one or more other sub-accounts and/or the Fixed Account on a periodic basis. -- ASSET REBALANCING. Under the asset rebalancing program, we automatically reallocate your Policy's cash value among the sub-accounts periodically to return the allocation to the percentages you specify. A-4 LOANS. You may borrow from the cash value of your Policy. The maximum amount you may borrow is an amount equal to 90% (or more if required by state law) of the cash value of the Policy, net of the Surrender Charge. We charge you a maximum annual interest rate of 4.35% on your loan. However, we credit interest at an annual rate of at least 4% on the amount we hold in our general account as security for the loan. Loans may have tax consequences. SURRENDERS. You may surrender the Policy for its net cash value at any time while either insured is living. Net cash value equals the cash value reduced by any Policy loan and accrued loan interest and by any applicable Surrender Charge. A surrender may have tax consequences. TAX BENEFITS. We anticipate that the Policy should be deemed to be a life insurance contract under Federal tax law. Accordingly, undistributed increases in the cash value of your Policy should not be taxable to you. As long as your Policy is not a modified endowment contract (MEC), partial surrenders should be non-taxable until you have withdrawn an amount equal to your total investment in the Policy. Death benefits paid to your beneficiary should be free of Federal income tax. CONVERSION PRIVILEGE. During the first two Policy years, you have a one-time right to convert the Policy, or a portion of it, to fixed benefit coverage by electing to transfer all or part of your cash value, and to allocate all or a portion of future premiums, to the Fixed Account. The purpose of the conversion is to provide you with fixed Policy values and benefits. The transfer will not be subject to any transfer charge and will have no effect on the Policy's death benefit, face amount or net amount at risk. In some states you may be able to exchange the Policy for a fixed benefit life insurance policy. SUPPLEMENTAL BENEFITS AND RIDERS. We offer several riders that provide additional insurance benefits under the Policy, such as the Single Life Level Term and the Survivorship Level Term Insurance Riders, which provide additional death benefits payable on the death of one or both of the insureds. We generally deduct any monthly charges for these riders as part of the monthly deduction. Your registered representative can help you determine whether any of these riders are suitable for you. These riders may not be available in all states. PERSONALIZED ILLUSTRATIONS. You will receive personalized illustrations in connection with the purchase of this Policy that reflect your own particular circumstances. These hypothetical illustrations may help you to understand the long-term effects of different levels of investment performance, the possibility of lapse, and the charges and deductions under the Policy. They will also help you to compare this Policy to other life insurance policies. The personalized illustrations are based on hypothetical rates of return and are not a representation or guarantee of investment returns or cash value. RISKS OF THE POLICY INVESTMENT RISK. If you invest your Policy's cash value in one or more sub-accounts, then you will be subject to the risk that investment performance will be unfavorable and that your cash value will decrease. In addition, we deduct Policy fees and charges from your Policy's cash value, which can significantly reduce your Policy's cash value. During times of poor investment performance, this deduction will have an even greater impact on your Policy's cash value. It is possible to lose your full investment and your Policy could lapse without value unless you pay additional premium. If you allocate cash value to the Fixed Account, then we credit such cash value with a declared rate of interest. You assume the risk that the rate may decrease, although it will never be lower than the guaranteed minimum annual effective rate of 4%. SURRENDER AND PARTIAL SURRENDER RISKS. The Policy is designed to provide lifetime insurance protection for two lives. The Policy is not offered primarily as an investment and should not be used as a short-term savings vehicle. If you surrender the Policy within the first 15 Policy years (and before the younger insured attains age 100), you will be subject to a Surrender Charge as well as to income tax on any gain that is distributed or deemed to be distributed from the Policy. You will also be subject to the Surrender Charge if, within the first 15 years (and before the younger insured attains age 100), you make a partial surrender that reduces the face amount of the Policy. You should purchase the Policy only if you have the financial ability to keep it in force for a substantial period of time. You should not purchase the Policy if you intend to surrender all or part of the Policy's cash value in the near future. Even if you do not ask to surrender your Policy, Surrender Charges may play a role in determining A-5 whether your Policy will lapse (terminate without value), because Surrender Charges determine the net cash value, which is a measure we use to determine whether your Policy will enter the grace period (and possibly lapse). RISK OF LAPSE. Your Policy may lapse if you have not paid a sufficient amount of premiums or if the investment performance of the sub-accounts is poor. If your net cash value is insufficient to pay the monthly deduction, your Policy may enter a 62-day grace period. We will notify you that the Policy will lapse unless you make a sufficient payment of additional premium during the grace period. Regardless of your net cash value, however, your Policy generally will not lapse: (1) during the first five Policy years, if you pay certain required premium amounts; or (2) prior to age 100 of the younger insured, if you are protected by the Guaranteed Death Benefit Rider. If your Policy does lapse, your insurance coverage will terminate, although you will be given an opportunity to reinstate it. Lapse of a Policy on which there is an outstanding loan may have adverse tax consequences. TAX RISKS. We anticipate that the Policy should be deemed to be a life insurance contract under Federal tax law, although there is some uncertainty regarding the Federal tax treatment of survivorship life insurance policies. Moreover, if either or both insureds are in a substandard underwriting class, or if a term rider is added, there is some risk that the Policy will not be treated as a life insurance contract under Federal tax law, particularly if you pay the full amount of premiums permitted under the Policy. If your Policy is not treated as a life insurance contract under Federal tax law, increases in the Policy's cash value will be taxed currently. Even if your Policy is treated as a life insurance contract for Federal tax purposes, it may become a modified endowment contract, or MEC, due to the payment of excess premiums or unnecessary premiums, due to a material change, or due to a reduction in your death benefit. If your Policy becomes a MEC, surrenders, partial surrenders and loans will be treated as a distribution of the earnings in the Policy and will be taxable as ordinary income to the extent thereof. In addition, if the Policy Owner is under age 59 1/2 at the time of the surrender, partial surrender or loan, the amount that is included in income will generally be subject to a 10% penalty tax. If the Policy is not a MEC, distributions will generally be treated first as a return of basis, or investment in the contract, and then as taxable income. Moreover, loans will generally not be treated as distributions. Finally, neither distributions nor loans from a Policy that is not a MEC are subject to the 10% penalty tax. See "Tax Considerations." You should consult a qualified tax adviser for assistance in all Policy-related tax matters. LOAN RISKS. A Policy loan, whether or not repaid, will affect the cash value of your Policy over time because we subtract the amount of the loan from the sub-accounts and/or the Fixed Account as collateral, and hold it in our general account. This loan collateral does not participate in the investment experience of the sub-accounts or receive any higher current interest rate credited to the Fixed Account. We also reduce the amount we pay on the death of the second insured to die by the amount of any outstanding loan and accrued loan interest. Your Policy may lapse if your outstanding loan and accrued loan interest reduces the net cash value to zero. If you surrender your Policy or your Policy lapses while there is an outstanding loan, there will generally be Federal income tax payable on the amount by which loans and partial surrenders you have made exceed the premiums you have paid. Since loans and partial surrenders reduce your Policy's cash value, any remaining cash value may be insufficient to pay the income tax due. LIMITATIONS ON CASH VALUE IN THE FIXED ACCOUNT. We can restrict allocations and transfers to the Fixed Account if the effective annual rate of interest on the amount would be 4%. Transfers from the Fixed Account are only allowed once per Policy year and may only be requested within 30 days after the Policy Anniversary. Except with our consent, the maximum amount you may transfer from the Fixed Account in any Policy year is the greater of 25% of the cash value in the Fixed Account on the transfer date and the amount of cash value transferred from the Fixed Account in the preceding Policy year. TAX LAW CHANGES. Tax laws, regulations, and interpretations have often been changed in the past and such changes continue to be proposed. To the extent that you purchase a Policy based on expected tax benefits relative A-6 to other financial or investment products or strategies, there is no certainty that such advantages will always continue to exist. RISKS OF THE ELIGIBLE FUNDS A comprehensive discussion of the risks associated with each of the Eligible Funds can be found in the prospectuses for the Eligible Funds. THERE IS NO ASSURANCE THAT ANY OF THE ELIGIBLE FUNDS WILL ACHIEVE ITS STATED INVESTMENT OBJECTIVE. FEE TABLES The following tables describe the fees and expenses that a Policy Owner will pay when buying, owning and surrendering the Policy. The first table describes the fees and expenses that a Policy Owner will pay at the time he or she buys the Policy, surrenders the Policy or transfers cash value among accounts. If the amount of a charge varies depending on the Policy Owner's or the insureds' individual characteristics (such as age, gender, or underwriting class), the tables below show the minimum and maximum charges we assess under the Policy across the range of all possible individual characteristics, as well as the charges for a specified typical Policy Owner or insureds. THESE CHARGES MAY NOT BE REPRESENTATIVE OF THE CHARGES YOU WILL ACTUALLY PAY UNDER THE POLICY. Your Policy's specifications page will indicate these charges as applicable to your Policy, and more detailed information concerning your charges is available on request from our Designated Office. Also, before you purchase the Policy, we will provide you personalized illustrations of your future benefits under the Policy based on the insureds' age and underwriting class, the death benefit option, face amount, planned periodic premiums and riders requested. TRANSACTION FEES
--------------------------------------------------------------------------------------------------- CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED MAXIMUM AMOUNT DEDUCTIBLE --------------------------------------------------------------------------------------------------- Sales Charge Imposed On payment of premium In Policy year 1, 26.5% In Policy year 1, 26.5% on Premiums of premiums paid up to of premiums paid up to the Target Premium, 4% the Target Premium, 4% of of premiums paid above premiums paid above the the Target Premium(1) Target Premium(1) In Policy years 2-10, In Policy years 2-10, 11.5% of premiums paid 11.5% of premiums paid each year up to the each year up to the Target Premium (9% for Target Premium (9% for Policies with an Policies with an initial initial face amount of face amount of at least at least $1 million), $1 million), and 4% of and 4% of premiums paid premiums paid above the above the Target Target Premium Premium In Policy years 11+, 4% In Policy years 11+, 4% of premiums paid of premiums paid ---------------------------------------------------------------------------------------------------
------------ (1) The Target Premium varies based on face amount, sex, underwriting class, age and the riders selected. We indicate your Target Premium in Section 1 of your Policy and on your personalized illustration. A-7
--------------------------------------------------------------------------------------------------- CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED MAXIMUM AMOUNT DEDUCTIBLE --------------------------------------------------------------------------------------------------- Premium Tax Imposed On payment of premium 2.5% in all Policy 2.5% in all Policy years on Premiums years --------------------------------------------------------------------------------------------------- Federal Tax Imposed On payment of premium 1% in all Policy years 1% in all Policy years on Premiums --------------------------------------------------------------------------------------------------- Surrender Charge On surrender, lapse, or In Policy year 1, 90% In Policy year 1, 90% of face amount reduction of the lesser of the lesser of premiums in the first 15 Policy premiums paid or the paid or the Benchmark years (and before the Benchmark Premium (less Premium (less in other younger insured attains in other Policy Policy years--see age 100)(1) years--see footnote)(2) footnote)(2) --------------------------------------------------------------------------------------------------- Transfer Charge On transfer of cash Not currently charged $25 for each transfer in value between excess of 12 per Policy sub-accounts and to the year Fixed Account ---------------------------------------------------------------------------------------------------
------------ (1) A pro rata portion of the Surrender Charge applies to a requested face amount reduction, as well as to a face amount reduction resulting from a partial surrender or a change in death benefit option. (2) The Benchmark Premium is equal to the base Policy's Target Premium, which varies based on face amount, sex, underwriting class and age. If the insureds' average issue age is over 52, the Surrender Charge percentage would be less than 90%. The applicable percentage decreases from 90% for insureds with an average issue age of 52, to 52% for insureds with an average issue age 90. In New York, the Surrender Charge in the first Policy year is based only on the Benchmark Premium. In Policy years 2-15, the Surrender Charge is a declining percentage of the first Policy year's Surrender Charge that reaches 0% in the last month of Policy year 15. The next table describes the fees and expenses that a Policy Owner will pay periodically during the time that he or she owns the Policy, not including Eligible Fund fees and expenses. PERIODIC CHARGES OTHER THAN ELIGIBLE FUND OPERATING EXPENSES
--------------------------------------------------------------------------------------------------- CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED MAXIMUM AMOUNT DEDUCTIBLE --------------------------------------------------------------------------------------------------- Cost of Insurance(1) Minimum and Maximum Monthly $.00007 to $500.00 per $.00009 to $500.00 per Charge $1,000 of net amount at $1,000 of net amount at risk(2) risk(2) Charge in the first Monthly $.004 per $1,000 of net $.004 per $1,000 of net Policy year for a amount at risk amount at risk male and a female insured, both issue age 55, in the nonsmoker standard underwriting class with a base Policy face amount of $1,900,000 --------------------------------------------------------------------------------------------------- Policy Fee Monthly $12.50 in Policy $12.50 in Policy years 1-3 years 1-3 $5.50 in Policy years $5.50 in Policy years 4+ 4+ ($12.50 in New Jersey) --------------------------------------------------------------------------------------------------- Mortality and Expense Monthly .90% in Policy years .90% in Policy years 1-10 Risk Charge (annual 1-10 .45% in Policy .45% in Policy years 11+ rate imposed on cash years 11+ value in the Variable Account and in the general account due to a Policy loan) ---------------------------------------------------------------------------------------------------
A-8
--------------------------------------------------------------------------------------------------- CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED MAXIMUM AMOUNT DEDUCTIBLE --------------------------------------------------------------------------------------------------- Administrative Monthly $.08 per $1,000 of base $.08 per $1,000 of base Charge(3) Policy face amount and Policy face amount and Survivorship Level Term Survivorship Level Term Insurance Rider face Insurance Rider face amount in Policy years amount in Policy years 1-3 1-3 $.06 per $1,000 of base $.06 per $1,000 of base Policy face amount in Policy face amount in Policy years 4+ ($.035 Policy years 4+ ($.08 in if initial face amount New Jersey) is $1 million or more) --------------------------------------------------------------------------------------------------- Loan Interest Annually (or on loan .35% of loan collateral .35% of loan collateral Spread(4) termination, if earlier) ---------------------------------------------------------------------------------------------------
------------ (1) The cost of insurance charge varies based on individual characteristics, including age, risk class and except for unisex policies, sex. The cost of insurance charge may not be representative of the charge that a particular Policy Owner would pay. You can obtain more information about the cost of insurance or other charges that would apply for particular insureds by contacting your registered representative. (2) The net amount at risk is the difference between the death benefit (generally discounted at the monthly equivalent of 4% per year) and the Policy's cash value. (3) Currently we intend to apply the Administrative Charge to no more than $4,000,000 of total Policy face amount (base Policy plus Survivorship Level Term Insurance Rider) after the first Policy year. (4) We charge interest on Policy loans at an effective rate of 4.35% per year. Cash value we hold as security for the loan ("loan collateral") earns interest at an effective rate of not less than 4% per year. The loan interest spread is the difference between these interest rates. Charges for Optional Features (Riders):
--------------------------------------------------------------------------------------------------- CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED MAXIMUM AMOUNT DEDUCTIBLE --------------------------------------------------------------------------------------------------- Survivorship Level Term Insurance Rider Minimum and Maximum Monthly $.00004 to $500.00 per $.00009 to $500.00 per Charge $1,000 of net amount at $1,000 of net amount at risk risk Charge in the first Monthly $.003 per $1,000 of net $.006 per $1,000 of net Policy year for a amount at risk amount at risk male insured, issue age 60, and a female insured, issue age 55, in the nonsmoker preferred underwriting class with a rider face amount of $1,600,000. ---------------------------------------------------------------------------------------------------
A-9
--------------------------------------------------------------------------------------------------- CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED MAXIMUM AMOUNT DEDUCTIBLE --------------------------------------------------------------------------------------------------- Survivorship 4 Year Level Term Insurance Rider Minimum and Maximum Monthly $.00009 to $500.00 per $.00009 to $500.00 per Charge $1,000 of rider face $1,000 of rider face amount amount Charge in the first Monthly $.004 per $1,000 of $.004 per $1,000 of rider Policy year for a rider face amount face amount male insured in the nonsmoker standard underwriting class, and a female insured, in the nonsmoker preferred underwriting class, both issue age 55, with a rider face amount of $1,800,000 --------------------------------------------------------------------------------------------------- Single Life Level Term Insurance Rider Minimum and Maximum Monthly $.02 to $500.00 per $.08 to $500.00 per Charge $1,000 of rider face $1,000 of rider face amount amount Charge in the first Monthly $.13 per $1,000 of $.41 per $1,000 of rider Policy year for a rider face amount face amount male insured, age 50, in the nonsmoker preferred underwriting class with a rider face amount of $400,000 --------------------------------------------------------------------------------------------------- Single Life Decreasing Term Insurance Rider Minimum and Maximum Monthly $.02 to $500.00 per $.08 to $500.00 per Charge $1,000 of rider face $1,000 of rider face amount amount Charge in the first Monthly $.10 per $1,000 of $.28 per $1,000 of rider Policy year for a rider face amount face amount male insured, issue age 45, in the nonsmoker preferred underwriting class with a rider face amount of $300,000. --------------------------------------------------------------------------------------------------- Waiver of Monthly Deduction Rider Minimum and Maximum Monthly $1.08 to $67.77 per $1.08 to $67.77 per $100 Charge $100 of Monthly of Monthly Deduction Deduction Charge in the first Monthly $12.66 per $100 of $12.66 per $100 of Policy year for a Monthly Deduction Monthly Deduction male insured, issue age 55, in the nonsmoker standard underwriting class ---------------------------------------------------------------------------------------------------
A-10
--------------------------------------------------------------------------------------------------- CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED MAXIMUM AMOUNT DEDUCTIBLE --------------------------------------------------------------------------------------------------- Waiver of Specified Premium Rider Minimum and Maximum Monthly $1.08 to $67.77 per $1.08 to $67.77 per $100 Charge $100 of Specified of Specified Premium Premium Charge in the first Monthly $2.44 per $100 of $2.44 per $100 of Policy year for a Specified Premium Specified Premium male insured, issue age 40, in the nonsmoker preferred underwriting class --------------------------------------------------------------------------------------------------- Guaranteed Death Monthly $.01 per $1,000 of face $.01 per $1,000 of face Benefit Rider amount (base Policy amount (base Policy plus plus any joint or any joint or single life single life term term insurance rider) insurance rider) --------------------------------------------------------------------------------------------------- Expanded Death Benefit Rider Minimum and Maximum Monthly $.02 to $4.39 per $.02 to $4.39 per $1,000 Charge $1,000 of base Policy of base Policy face face amount amount Charge for a male Monthly $.06 per $1,000 of base $.06 per $1,000 of base and a female Policy face amount Policy face amount insured, both issue age 55, in the nonsmoker standard underwriting class with a base Policy face amount of $1,900,000 ---------------------------------------------------------------------------------------------------
ANNUAL ELIGIBLE FUND OPERATING EXPENSES The next table describes the Eligible Fund fees and expenses that a Policy Owner may pay periodically during the time that he or she owns the Policy. The table shows the minimum and maximum total operating expenses charged by the Eligible Funds for the fiscal year ended December 31, 2002, before and after any contractual fee waivers and expense reimbursements. Expenses of the Eligible Funds may be higher or lower in the future. More detail concerning each Eligible Fund's fees and expenses is contained in the table that follows and in the prospectus for each Eligible Fund.
MINIMUM MAXIMUM ------- ------- Total Annual Eligible Fund Operating Expenses (expenses that are deducted from Eligible Fund assets, including management fees, distribution (12b-1) fees and other expenses)......................................... .31% 4.42% Net Total Annual Eligible Fund Operating Expenses (net of any contractual fee waivers and expense reimbursements)*........................................ .31% 1.20%
------------ * The range of Net Total Annual Eligible Fund Operating Expenses takes into account contractual arrangements for certain Eligible Funds that require the investment adviser to reimburse or waive Eligible Fund operating expenses until April 30, 2004, as described in more detail below. A-11 The following table describes the annual operating expenses for each Eligible Fund for the year ended December 31, 2002, before and after any applicable contractual fee waivers and expense reimbursements: ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
GROSS FEE WAIVERS NET TOTAL MANAGEMENT OTHER 12B-1 TOTAL ANNUAL AND EXPENSE ANNUAL FEES EXPENSES FEES EXPENSES REIMBURSEMENTS EXPENSES ---------- -------- ----- ------------ -------------- --------- METROPOLITAN SERIES FUND, INC. (CLASS A SHARES) Alger Equity Growth Portfolio.... .75% .04% .00% .79% .00% .79% Balanced Portfolio............... .70% .15% .00% .85% .00% .85%(1) Davis Venture Value Portfolio.... .75% .05% .00% .80% .00% .80%(1) FI Mid Cap Opportunities Portfolio...................... .80% 3.62% .00% 4.42% 3.37% 1.05%(2) FI Structured Equity Portfolio... .67% .05% .00% .72% .00% .72%(1) Franklin Templeton Small Cap Growth Portfolio............... .90% .61% .00% 1.51% .36% 1.15%(2) Harris Oakmark Focused Value Portfolio...................... .75% .07% .00% .82% .00% .82% Harris Oakmark Large Cap Value Portfolio...................... .75% .08% .00% .83% .00% .83%(1) Janus Mid Cap Portfolio.......... .69% .06% 00% .75% .00% .75% Lehman Brothers Aggregate Bond Index Portfolio................ .25% .09% .00% .34% .00% .34% Loomis Sayles Small Cap Portfolio...................... .90% .07% .00% .97% .00% .97% Met/Putnam Voyager Portfolio..... .80% .27% .00% 1.07% .07% 1.00%(2) MetLife Mid Cap Stock Index Portfolio...................... .25% .18% .00% .43% .00% .43% MetLife Stock Index Portfolio.... .25% .06% .00% .31% .00% .31% MFS Investors Trust Portfolio.... .75% .59% .00% 1.34% .34% 1.00%(1,2) MFS Research Managers Portfolio...................... .75% .39% .00% 1.14% .14% 1.00%(1,2) MFS Total Return Portfolio....... .50% .16% .00% .66% .00% .66% Morgan Stanley EAFE Index Portfolio...................... .30% .49% .00% .79% .04% .75%(2) Neuberger Berman Partners Mid Cap Value Portfolio................ .69% .11% .00% .80% .00% .80%(1) Putnam International Stock Portfolio...................... .90% .22% .00% 1.12% .00% 1.12% Russell 2000 Index Portfolio..... .25% .24% .00% .49% .00% .49% State Street Research Aurora Portfolio...................... .85% .10% .00% .95% .00% .95% State Street Research Bond Income Portfolio...................... .40% .11% .00% .51% .00% .51% State Street Research Investment Trust Portfolio................ .49% .05% .00% .54% .00% .54%(1) State Street Research Large Cap Value Portfolio................ .70% 1.63% .00% 2.33% 1.38% .95%(2) State Street Research Money Market Portfolio............... .35% .08% .00% .43% .00% .43% Zenith Equity Portfolio.......... .68% .07% .00% .75% .00% .75%(1,3)
A-12
GROSS FEE WAIVERS NET TOTAL MANAGEMENT OTHER 12B-1 TOTAL ANNUAL AND EXPENSE ANNUAL FEES EXPENSES FEES EXPENSES REIMBURSEMENTS EXPENSES ---------- -------- ----- ------------ -------------- --------- MET INVESTORS SERIES TRUST (CLASS A SHARES) Harris Oakmark International Portfolio...................... .85% 1.64% .00% 2.49% 1.29% 1.20%(4,5) Janus Aggressive Growth Portfolio...................... .80% .62% .00% 1.42% .52% .90%(4,5) Met/AIM Mid Cap Core Equity Portfolio...................... .75% .89% .00% 1.64% .69% .95%(4,5) Met/AIM Small Cap Growth Portfolio...................... .90% 1.20% .00% 2.10% 1.05% 1.05%(4,5) PIMCO Innovation Portfolio....... .95% .78% .00% 1.73% .63% 1.10%(4,5) PIMCO Total Return Portfolio..... .50% .15% .00% .65% .00% .65% T. Rowe Price Mid-Cap Growth Portfolio...................... .75% .45% .00% 1.20% .25% .95%(4,5) FIDELITY VARIABLE INSURANCE PRODUCTS (INITIAL CLASS SHARES) VIP Asset Manager Portfolio...... .53% .10% .00% .63% .00% .63% VIP Equity-Income Portfolio...... .48% .09% .00% .57% .00% .57% VIP High Income Portfolio........ .58% .12% .00% .70% .00% .70% VIP Overseas Portfolio........... .73% .17% 00% .90% .00% .90% AMERICAN FUNDS INSURANCE SERIES (CLASS 2 SHARES) American Funds Global Small Capitalization Fund............ .80% .04% .25% 1.09% .00% 1.09% American Funds Growth Fund....... .38% .02% .25% .65% .00% .65% American Funds Growth-Income Fund........................... .34% .01% .25% .60% .00% .60%
--------------- (1) Net Total Annual Expenses do not reflect certain expense reductions due to directed brokerage arrangements. If we included these reductions, Net Total Annual Expenses would have been: .83% for the Balanced Portfolio; .78% for the Davis Venture Value Portfolio; .71% for the FI Structured Equity Portfolio; .82% for the Harris Oakmark Large Cap Value Portfolio; .98% for the MFS Investors Trust Portfolio; .93% for the MFS Research Managers Portfolio; .77% for the Neuberger Berman Partners Mid Cap Value Portfolio; .52% for the State Street Research Investment Trust Portfolio; and .68% for the Zenith Equity Portfolio. (2) Our affiliate, MetLife Advisers, LLC ("MetLife Advisers"), and the Metropolitan Series Fund, Inc. ("Met Series Fund") have entered into an Expense Agreement under which MetLife Advisers will waive management fees and/or pay expenses (other than brokerage costs, interest, taxes or extraordinary expenses) ("Expenses") attributable to the Class A shares of certain Portfolios of the Met Series Fund, so that Net Total Annual Expenses of these Portfolios will not exceed, at any time prior to April 30, 2004, the percentages shown in the table. Under the agreement, if certain conditions are met, MetLife Advisers may be reimbursed for fees waived and Expenses paid with respect to the FI Mid Cap Opportunities Portfolio, the Franklin Templeton Small Cap Growth Portfolio, the MFS Investors Trust Portfolio, the MFS Research Managers Portfolio and the State Street Research Large Cap Value Portfolio if, in the future, actual Expenses of these Portfolios are less than these expense limits. Net Total Annual Expenses for these five Portfolios have been restated to reflect the terms of the Expense Agreement. (3) The Zenith Equity Portfolio is a "fund of funds" that invests equally in three other Portfolios of the Metropolitan Series Fund, Inc.: the FI Structured Equity Portfolio, the Jennison Growth Portfolio and the Capital Guardian U.S. Equity Portfolio (together, the "Underlying Portfolios"). The Zenith Equity Portfolio does not have a management fee, but has its own operating expenses, and will also bear indirectly the management fees and other expenses of the Underlying Portfolios. Investing in a fund of funds involves some duplication of expenses, and may be more expensive than investing in a Portfolio that is not a fund of funds. MetLife Advisers maintains the equal division of assets among the Underlying Portfolios by rebalancing the Zenith Equity Portfolio's assets each fiscal quarter, however, expenses will fluctuate slightly during the course of each quarter. The Management Fee shown represents the Portfolio's combined pro rata share of the management fees of each of the Underlying Portfolios (annualized, in the case of the Jennison Growth Portfolio and the Capital Guardian U.S. Equity Portfolio, from the May 1, 2002 start date for these Portfolios). The Other Expenses shown consist of .02% attributable to the Zenith A-13 Equity Portfolio's other expenses (annualized from the Portfolio's May 1, 2002 start date) and .05% attributable to the Portfolio's pro rata share of the other expenses of the Underlying Portfolios (annualized, in the case of the Jennison Growth Portfolio and the Capital Guardian U.S. Equity Portfolio, from the May 1, 2002 start date for these Portfolios). (4) Net Total Annual Expenses do not reflect certain expense reductions due to directed brokerage arrangements. If we included these reductions, Net Total Annual Expenses would have been: 1.18% for the Harris Oakmark International Portfolio; .82% for the Janus Aggressive Growth Portfolio; .91% for the Met/AIM Mid Cap Core Equity Portfolio; 1.03% for the Met/AIM Small Cap Growth Portfolio; 1.04% for the PIMCO Innovation Portfolio; and .88% for the T. Rowe Price Mid-Cap Growth Portfolio. (5) Our affiliate, Met Investors Advisory LLC ("Met Investors Advisory"), and Met Investors Series Trust have entered into an Expense Limitation Agreement under which Met Investors Advisory has agreed to waive or limit its fees and to assume other expenses so that Net Total Annual Expenses of each Portfolio (other than interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles and other extraordinary expenses not incurred in the ordinary course of each Portfolio's business) will not exceed, at any time prior to April 30, 2004, the percentages shown in the table. 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. Net Total Annual Expenses for the Harris Oakmark International Portfolio, the Janus Aggressive Growth Portfolio, the Met/AIM Mid Cap Core Equity Portfolio and the T. Rowe Price Mid-Cap Growth Portfolio have been restated to reflect the terms of the Expense Limitation Agreement. The fee and expense information regarding the Eligible Funds was provided by those Eligible Funds. Fidelity Variable Insurance Products Fund and the American Funds Insurance Series are not affiliated with NELICO. An investment adviser or affiliates thereof may compensate NELICO and/or certain affiliates for administrative, distribution, or other services relating to the Eligible Funds. We (or our affiliates) may also be compensated with 12b-1 fees from the 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. Our affiliate, New England Securities Corporation, may also receive brokerage commissions on securities transactions initiated by an investment adviser. For information concerning compensation paid for the sale of the Policies, see "Distribution of the Policies." A-14 HOW THE POLICY WORKS [FLOW CHART] PREMIUM PAYMENTS -Flexible -Planned premium options -Minimum premium (in first five Policy years) -Guaranteed Death Benefit Premium (to age 100 of younger insured) (a rider benefit that is available only if you choose death benefit Option 4; not available if you choose "Outside Term") CHARGES FROM PREMIUM PAYMENTS -Sales Load: - yr. 1: 26.5% up to Target Premium and 4% above Target - yrs. 2-10: 11.5% (9% initial face amount (base Policy Plus Survivorship Level Term Insurance Rider) is at least $1 million) up to Target Premium and 4% above Target - yrs. 11+: 4% of premiums -State Premium Tax Charge: 2.5% -Charge for Federal Taxes: 1% LOANS -After we mail the initial premium confirmation, you may borrow a portion of your cash value -Loan interest charge is 4.35%. We transfer loaned funds out of the Eligible Funds into the General Account where we credit them with 4.0% interest. RETIREMENT BENEFIT -Fixed settlement options are available for policy proceeds CASH VALUES -Net premium payments invested in your choice of Eligible Fund investments (generally after an initial period during which net investment experience equal to that of the Zenith State Street Research Money Market Sub-Account may be credited) or the Fixed Account -The cash value reflects investment experience, interest, premium payments, policy charges and any distributions from the Policy -We do not guarantee the cash value invested in the Eligible Funds -Any earnings you accumulate are generally free of any current income taxes -You may change the allocation of future net premiums at any time. -You may currently transfer funds among investment options (and to the Fixed Account) once we mail the initial premium confirmation (in some states, 15 days after that). Currently we do not limit the number of sub-account transfers you can make in a Policy year. We limit the timing, frequency and amount of transfers from (and in some cases to) the Fixed Account -You may allocate your cash value among a maximum of nine accounts at any one time DEATH BENEFIT -Paid upon the 2nd death -Level or Variable Death Benefit Options apply until age 100 of the younger insured -Guaranteed not to be less than face amount (less any loan balance) if Guaranteed Death Benefit rider is in effect (available in certain circumstances) -Income tax free to named beneficiary -Death benefit will not be less than that required by federal tax law, using tax law test you select (guideline premium or cash value accumulation). Only the cash value accumulation test is available in Florida. -If you add Survivorship Level Term Insurance coverage, you elect whether to include it in the calculation of the base Policy death benefit or simply add the term proceeds to the base Policy proceeds. In New York any term proceeds must be added to the base Policy proceeds ("Outside Term"). -Death benefit on or after age 100 of the younger insured equals the cash value, unless the Policy has an Expanded Death Benefit rider, or a Guaranteed Death Benefit rider that was in effect at age 100 of the younger insured. In New York the Policy matures for the net cash value at age 100 of the younger insured. DAILY DEDUCTIONS FROM ASSETS OF THE VARIABLE ACCOUNT -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 rated classification) from the cash value each month -Any Rider Charges -Policy Fee: currently $12.50 (maximum) per month in years 1-3 and $5.50 (maximum, not to exceed $12.50 in New Jersey) per month thereafter -Mortality and Expense Risk Charge at an annual rate of .90% in the first 10 Policy years and .45% thereafter (applied against cash value in the Variable Account and any cash value in the general account that represents a Policy loan) -Administrative Charge: currently $0.08 per $1,000 of face amount (base Policy and Survivorship Level Term Insurance Rider) monthly in the first three Policy years, $0.06 per $1000 of base Policy Face amount thereafter. If initial face amount (base Policy plus Survivorship Level Term Insurance Rider) is $1 million or greater, $0.035 per $1,000 of base Policy face amount in years four and later. Current rates are guaranteed maximum rates except in New Jersey where maximum rate is $0.08 per $1,000 in all Policy years. -Guaranteed Death Benefit Rider Charge (if rider selected): $.01 per $1000 of face amount (base Policy and any joint or single life term rider) monthly. SURRENDER CHARGE -Applies on lapse, surrender, face reduction or partial surrender that causes a face reduction in the first 15 Policy years (or until age 100 of younger insured, if earlier). Maximum charge occurs in first Policy year and equals 90% of the lesser of: premiums paid and Benchmark Premium (90% of Benchmark Premium in New York). (Percentage is lower for insureds with average issue age above 52.) Charge reduces monthly over remainder of surrender charge period. LIVING BENEFITS -If policyholder has elected and qualified for benefits for disability of covered insured who becomes totally disabled, we will provide specified premium amounts or waive monthly charges, depending on the option selected, during the period of disability up to certain limits -You may surrender the Policy at any time for its cash surrender value -Deferred income taxes, including taxes on certain amounts borrowed, become payable upon surrender -Grace period for lapsing with no value is 62 days from the first date in which Monthly Deduction was not paid due to insufficient cash value -Subject to our rules, you may reinstate a lapsed Policy within seven years of date of lapse if it has not been surrendered A-15 THE COMPANY, THE VARIABLE ACCOUNT AND THE ELIGIBLE FUNDS THE COMPANY New England Life Insurance Company is a wholly-owned subsidiary of Metropolitan Life Insurance Company ("MetLife"), whose principal office is located at One Madison Avenue, New York, New York 10010. NELICO is licensed to sell life insurance in all states and the District of Columbia. NELICO's Home Office is located at 501 Boylston Street, Boston, Massachusetts 02116. We are obligated to pay all benefits under the Policies. THE VARIABLE ACCOUNT The New England Variable Life Separate Account is the funding vehicle for the Policies and other NELICO variable life insurance policies. 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 or losses. 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 conduct. This means that the assets 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 of the variable life insurance policies issued by the Variable Account. THE ELIGIBLE FUNDS Each Sub-Account of the Variable Account invests in a corresponding Eligible Fund. Each Eligible Fund is part of an open-end management investment company, more commonly known as a mutual fund, that serves as an investment vehicle for variable life insurance and variable annuity separate accounts of various insurance companies. The mutual funds that offer the Eligible Funds are the Metropolitan Series Fund Inc., the Met Investors Series Trust, the Variable Insurance Products Fund, the Variable Insurance Products Fund II and the American Funds Insurance Series. Each of these mutual funds has an investment adviser responsible for overall management of the fund. Some investment advisers have contracted with sub-advisers to make the day-to-day investment decisions for the Eligible Funds. The adviser, sub-adviser and investment objective of each Eligible Fund are as follows: METROPOLITAN SERIES FUND, INC. ADVISER: METLIFE ADVISERS, LLC(1)
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE ------------- ----------- -------------------- Alger Equity Growth Fred Alger Management, Inc. Long-term capital Portfolio(2) appreciation. Balanced Portfolio(2) Wellington Management Long-term total return from a Company, LLP combination of capital appreciation and current income. Davis Venture Value Davis Selected Advisers, Growth of capital. Portfolio(2) L.P.(3) FI Mid Cap Opportunities Fidelity Management & Long-term growth of capital. Portfolio(2) Research Company FI Structured Equity Fidelity Management & Long-term growth of capital. Portfolio(2) Research Company Franklin Templeton Small Cap Franklin Advisers, Inc. Long-term growth of capital. Growth Portfolio Harris Oakmark Focused Value Harris Associates L.P. Long-term capital Portfolio(2) appreciation. Harris Oakmark Large Cap Harris Associates L.P. Long-term capital Value Portfolio appreciation.
A-16
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE ------------- ----------- -------------------- Janus Mid Cap Portfolio Janus Capital Management LLC Long-term growth of capital. Lehman Brothers Aggregate Metropolitan Life Insurance To equal the performance of Bond Index Portfolio Company the Lehman Brothers Aggregate Bond Index. Loomis Sayles Small Cap Loomis, Sayles & Company, Long-term capital growth from Portfolio(2) L.P. investments in common stocks or other equity securities. Met/Putnam Voyager Portfolio Putnam Investment Management, Capital appreciation. (formerly, Putnam Large Cap LLC Growth Portfolio) MetLife Mid Cap Stock Index Metropolitan Life Insurance To equal the performance of Portfolio Company the Standard & Poor's Mid Cap 400 Composite Stock Price Index ("S&P MidCap 400 Index"). MetLife Stock Index Portfolio Metropolitan Life Insurance To equal the performance of Company the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). MFS Investors Trust Massachusetts Financial Long-term growth of capital Portfolio(2) Services Company with a secondary objective to seek reasonable current income. MFS Research Managers Massachusetts Financial Long-term growth of capital. Portfolio(2) Services Company MFS Total Return Portfolio(2) Massachusetts Financial Favorable total return Services Company through investment in a diversified portfolio. Morgan Stanley EAFE Index Metropolitan Life Insurance To equal the performance of Portfolio Company the MSCI EAFE Index. Neuberger Berman Partners Mid Neuberger Berman Management Capital growth. Cap Value Portfolio Inc. Putnam International Stock Putnam Investment Management, Long-term growth of capital. Portfolio LLC Russell 2000 Index Portfolio Metropolitan Life Insurance To equal the return of the Company Russell 2000 Index. State Street Research Aurora State Street Research & High total return, consisting Portfolio Management Company principally of capital appreciation. State Street Research Bond State Street Research & A competitive total return Income Portfolio(2) Management Company primarily from investing in fixed-income securities. State Street Research State Street Research & Long-term growth of capital Investment Trust Portfolio Management Company and income. State Street Research Large State Street Research & Long-term growth of capital. Cap Value Portfolio Management Company
A-17
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE ------------- ----------- -------------------- State Street Research Money State Street Research & A high level of current Market Portfolio(2,4) Management Company income consistent with preservation of capital. Zenith Equity Portfolio(2,5) N/A Long-term capital appreciation.
MET INVESTORS SERIES TRUST ADVISER: MET INVESTORS ADVISORY LLC
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE ------------- ----------- -------------------- Harris Oakmark International Harris Associates L.P.(6) Long-term growth of capital. Portfolio (formerly, State Street Research Concentrated International Portfolio) Janus Aggressive Growth Janus Capital Management LLC Long-term growth of capital. Portfolio Met/AIM Mid Cap Core Equity AIM Capital Management, Inc. Long-term growth of capital. Portfolio Met/AIM Small Cap Growth AIM Capital Management, Inc. Long-term growth of capital. Portfolio PIMCO Innovation Portfolio PIMCO Equity Advisors Capital appreciation; no consideration is given to income. PIMCO Total Return Portfolio Pacific Investment Management Maximum total return, Company LLC consistent with the preservation of capital and prudent investment management. T. Rowe Price Mid-Cap Growth T. Rowe Price Associates, To provide long-term growth Portfolio (formerly, MFS Mid Inc.(7) of capital. Cap Growth Portfolio)
FIDELITY VARIABLE INSURANCE PRODUCTS ADVISER: FIDELITY MANAGEMENT & RESEARCH COMPANY
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE ------------- ----------- -------------------- VIP Asset Manager Portfolio FMR Co., Inc. To obtain high total return with reduced risk over the long term by allocating its assets among stocks, bonds and short-term instruments. VIP Equity-Income Portfolio FMR Co., Inc. Reasonable income. The fund will also consider the potential for capital appreciation. The fund's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard and Poor's 500(SM) Index (S&P 500(R)). VIP High Income Portfolio FMR Co., Inc. A high level of current income, while also considering growth of capital. VIP Overseas Portfolio FMR Co., Inc. Long-term growth of capital.
A-18 AMERICAN FUNDS INSURANCE SERIES ADVISER: CAPITAL RESEARCH AND MANAGEMENT COMPANY
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE ------------- ----------- -------------------- American Funds Global Small N/A Capital appreciation through Capitalization Fund stocks. American Funds Growth Fund N/A Capital appreciation through stocks. American Funds Growth-Income N/A Capital appreciation and Fund income.
--------------- (1) Prior to May 1, 2001, Metropolitan Life Insurance Company was the adviser to the Metropolitan Series Fund, Inc. (2) Prior to May 1, 2003, this Portfolio was a Series of the New England Zenith Fund. On that date, all Series of the New England Zenith Fund became newly organized Portfolios of the Metropolitan Series Fund, Inc. The reorganizations had no effect on the investment objectives, policies or advisory fees of any Series, nor was there any change in investment adviser or subadviser for any Series. (3) Davis Selected Advisers, L.P. may also delegate any of its responsibilities to Davis Selected Advisers -- NY, Inc., a wholly-owned subsidiary. (4) An investment in the State Street Research Money Market Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to maintain a net asset value of $100 per share, it is possible to lose money by investing in the Portfolio. During extended periods of low interest rates, the yields of the Sub-Account investing in the Money Market Portfolio may become extremely low and possibly negative. (5) The Zenith Equity Portfolio is a "fund of funds" that invests equally in three other Portfolios of the Metropolitan Series Fund, Inc.: the FI Structured Equity Portfolio, the Jennison Growth Portfolio and the Capital Guardian U.S. Equity Portfolio. The sub-advisers to these Portfolios are Fidelity Management & Research Company, Jennison Associates LLC and Capital Guardian Trust Company, respectively. (6) Prior to January 1, 2003, State Street Research & Management Company was the sub-adviser to this Portfolio. (7) Prior to January 1, 2003, Massachusetts Financial Services Company was the sub-adviser to this Portfolio. FOR MORE INFORMATION REGARDING THE ELIGIBLE FUNDS AND THEIR INVESTMENT ADVISERS AND SUB-ADVISERS, SEE THE ELIGIBLE FUND PROSPECTUSES ATTACHED AT THE END OF THIS PROSPECTUS AND THEIR STATEMENTS OF ADDITIONAL INFORMATION. The Eligible Funds' investment objectives may not be met. 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. 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 information regarding the class of shares that is available through the Policy. For the Metropolitan Series Fund, Inc. and the Met Investors Series Trust, we offer Class A shares only, for Fidelity Variable Insurance Products we offer Initial Class shares only, and for the American Funds Insurance Series we offer Class 2 shares only. VOTING RIGHTS We own the Eligible Fund shares held in the Variable Account and have the right to vote those shares at meetings of the Eligible Fund shareholders. However, to the extent required by Federal securities law, we will give you, as Policy Owner, the right to instruct us how to vote the shares that are attributable to your Policy. We will determine, as of the record date, if you are entitled to give voting instructions and the number of shares to which you have a right of instruction. If we do not receive timely instructions from you, we will vote your A-19 shares for, against, or withhold from voting on, any proposition in the same proportion as the shares held in that Sub-Account for all policies for which we have received voting instructions. 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. 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 semi-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 and vote Eligible Fund shares without Policy Owner instructions if the securities laws change. We also reserve the right in our discretion: (1) to add Sub-Accounts; (2) to combine Sub-Accounts; (3) to substitute shares of another registered open-end management investment company, which may have different fees and expenses, for shares of an Eligible Fund; (4) to substitute or close a Sub-Account to allocations of premium payments or cash value, or both, and to existing investments or the investment of future premiums, or both, for any class of Policy or Policy Owner at any time in our sole discretion; (5) to operate the Variable Account as a management investment company under the Investment Company Act of 1940 or in any other form; (6) to deregister the Variable Account under the Investment Company Act of 1940; (7) to combine it with other Variable Accounts; and (8) to transfer assets supporting the Policies from one Sub-Account to another or from the Variable Account to other Variable Accounts, or to transfer assets to our general account as permitted by applicable law. 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. We will not make any changes without receiving any necessary approval of the SEC and applicable state insurance departments. We will notify you of any changes. THE POLICIES PURCHASING A POLICY To purchase a Policy, you must submit a completed application and an initial premium to us at our Designated Office. The minimum face amount for the base Policy is $100,000 unless we consent to a lower amount. The Policies are available for insureds from the age of 20 to 85, and, if we consent, to older or younger insureds. All persons must meet our underwriting and other requirements. The Policies are not available to employee benefit plans qualified under Section 401 of the Internal Revenue Code, except with our consent. For a tax-qualified pension plan, the tax deferred accrual feature is provided by the plan. Therefore, there should be reasons other than tax deferral for acquiring a life insurance policy within a tax-qualified pension plan. We can provide you with details as to our underwriting standards when you apply for a Policy. We reserve the right to modify our minimum face amount and underwriting requirements at any time. We must receive evidence of insurability that satisfies our underwriting standards before we will issue a Policy. We reserve the right to reject an application for any reason permitted by law. 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 surrenderable A-20 cash value and terminate at the younger insured's age 100. (See "Additional Benefits by Rider".) To obtain more information about these other policies and term riders, contact our Home Office or your registered representative. REPLACING EXISTING INSURANCE It may not be in your best interest to surrender, lapse, change, or borrow from existing life insurance policies or annuity contracts in connection with the purchase of the Policy. You should compare your existing insurance and the Policy carefully. You should replace your existing insurance only when you determine that the Policy is better for you. You may have to pay a surrender charge on your existing insurance, and the Policy will impose a new surrender charge period. You should talk to your financial professional or tax adviser to make sure the exchange will be tax-free. If you surrender your existing policy for cash and then buy the Policy, you may have to pay a tax, including possibly a penalty tax, on the surrender. Because we will not issue the Policy until we have received an initial premium from your existing insurance company, the issuance of the Policy may be delayed. POLICY OWNER AND BENEFICIARY The Policy Owner is named in the application but may be changed from time to time. While either of the insureds is living and the Policy is in force, the Policy Owner may exercise all the rights and options described in the Policy, subject to the terms of any beneficiary designation or assignment of the Policy. These rights include selecting and changing the beneficiary, changing the owner, changing the face amount of the Policy and assigning the Policy. At the death of the Policy Owner (who is not the second insured to die), his or her estate will become the Policy Owner unless a successor Policy Owner has been named. The Policy Owner's rights (except for rights to payment of benefits) terminate at the death of the second insured. The beneficiary is also named in the application. You may change the beneficiary at any time before the death of the second insured. The beneficiary has no rights under the Policy until the death of the second insured and must survive the second insured in order to receive the death proceeds. If no named beneficiary survives the second insured, we pay proceeds to the Policy Owner. A change of Policy Owner or beneficiary is subject to all payments made and actions taken by us under the Policy before we receive a signed change form. You can contact your registered representative or the Designated Office for the procedure to follow. (See "Receipt of Communications and Payments at NELICO's Designated Office".) You may assign (transfer) your rights in the Policy to someone else. An absolute assignment of the Policy is a change of Policy Owner and beneficiary to the assignee. A collateral assignment of the Policy does not change the Policy Owner or beneficiary, but their rights will be subject to the terms of the assignment. Assignments 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.) CONVERSION RIGHTS GENERAL 24 MONTHS RIGHT. Generally, during the first 24 months after the Policy's issue date, you may convert the Policy, or a portion of it, to fixed benefit coverage by transferring all or a portion of your Policy's cash value, and allocating all or a portion of future premiums, to the Fixed Account. The request to convert to fixed benefit coverage must be in written form satisfactory to us. You may exercise this privilege only once within 24 months after issue. If we exercise our right to limit the number of transfers in the future, transfers into the Fixed Account pursuant to this right will not count toward the limit on the number of cash value transfers permitted under the Policy each year. Transfers of cash value back to one or more Sub-Accounts of the Variable Account are subject to the Policy's general limits on transfers from the Fixed Account (see "The Fixed Account"). The Policy permits us to limit allocations to the Fixed Account under some circumstances. (See "The Fixed Account.") If we limit such allocations and you then wish to exercise the 24 Months Conversion Right, you may continue to allocate to the Fixed Account only the percentage of premiums that you allocated to the Fixed Account A-21 pursuant to your exercise of the 24 Months Conversion Right. In addition, if you have exercised this right, and we later limit such allocations, then you may continue to allocate to the Fixed Account only the lowest percentage of premiums that you allocated to the Fixed Account at any time since your exercise of the 24 Months Conversion Right. FOR POLICIES ISSUED IN MARYLAND, CONNECTICUT AND NEW YORK. Under Policies issued in Maryland, Connecticut and New York, you can exchange the face amount of your Policy for a fixed benefit survivorship life insurance policy issued by us or an affiliate 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 at our Designated Office (see "Receipt of Communications and Payments at NELICO's Designated Office") or your registered representative for more specific information about the 24 Months 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. FOR POLICIES ISSUED IN NEW YORK AND FLORIDA. Under Policies issued in New York and Florida, you can exchange your Policy, while it is in force and before the younger insured's age 100, for a new policy issued by us or an affiliate which provides Survivorship Paid-Up Insurance. Survivorship Paid-Up Insurance will be provided by using the net cash value of the Policy as a net single premium at the age of the younger insured on the date of the exchange. Survivorship Paid-Up Insurance is permanent life insurance with no further premiums due. The face amount of the new policy of Survivorship Paid-Up Insurance may be less than the face amount of this Policy. GROUP OR SPONSORED ARRANGEMENTS. For a Policy issued to some group or sponsored arrangements, you may (if approved in your state) have the additional option of exchanging the face amount of your 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. Contact your registered representative for more information about this feature. PREMIUMS FLEXIBLE PREMIUMS Subject to the limits described below, you choose the amount and frequency of premium payments. You select a Planned Premium schedule, which may be a fixed amount or a varying amount. This schedule appears in your Policy. YOUR PLANNED PREMIUMS WILL NOT NECESSARILY KEEP YOUR POLICY IN FORCE. You may skip Planned Premium payments or make additional payments. You need our consent to increase your Planned Premium. You cannot make an additional payment that increases the Policy's death benefit by more than it increases the cash value except with our consent, and we may require underwriting. No payment can be less than $25 ($10 for payments made through the Master Service Account, described below, or certain other monthly payment arrangements). We limit the total of Planned Premiums and other payments to our published maximum. You cannot make any payments at and after age 100 of the younger insured, except if the Policy is in the grace period. You can pay Planned Premiums on an annual, semi-annual or quarterly schedule or, with our consent, monthly. You need our consent to change your Planned Premium schedule. 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 CDC Nvest Cash Management Trust account. (This is known as the Master Service Account arrangement.) 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 A-22 distributions than would otherwise be the case if premium payments did not exceed the "7-pay limit". 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. (See "Tax Considerations".) We allocate net payments to your Policy's sub-accounts as of the date we receive the payment at our Designated Office (or at our Administrative Office in Tampa, Florida). (See "Receipt of Communications and Payments at NELICO's Designated Office".) Unless you tell us otherwise in writing, we treat any payment that we receive in response to an anniversary bill, and any payment we receive within 45 days after an anniversary while you have an outstanding Policy loan, first as a Planned Premium, second as payment of loan interest, and third as an unscheduled payment. Otherwise, we treat the payment first as a Planned Premium and second as an unscheduled payment. If you have a Policy loan, it may be better to repay the loan than to make a premium payment, because the premium payment is subject to sales and tax charges, whereas the loan repayment is not subject to any charges. (See "Loans" and "Deductions from Premiums".) AMOUNT PROVIDED FOR INVESTMENT UNDER THE POLICY INVESTMENT START DATE. The investment start date is the latest of: the date when we first receive a premium payment for the Policy, the date each of the insureds has signed his/her Part II of the Policy application (if any is required) and the Policy Date. (For this purpose, receipt of the premium payment means receipt by your registered representative, if the payment is made with the application; otherwise, it means the earlier of receipt by a NELICO agency or by our Designated Office (see "Receipt of Communications and Payments at NELICO's Designated Office".)) PREMIUM WITH APPLICATION. If you make a premium payment with the application, the Policy Date is generally the later of the date each of the insureds has signed his/her Part II of the application (if any) and receipt of the premium payment. In that case, the Policy Date and investment start date are the same. (Under our administrative rules, a Policy which would be dated the 28th day or later in a month will receive a Policy Date of the 28th.) The amount of premium paid with the application must be at least 10% of the annual Planned Premium for the Policy. You may only make one premium payment before the Policy is issued. If we issue a Policy, Monthly Deductions begin on 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, unless you request otherwise, the Policy Date is generally the date which the Policy is delivered to you. The investment start date is the earlier of the date on which your initial premium payment is received at a NELICO agency, or at our Designated Office. Monthly Deductions begin on the Policy Date. We credit interest to the Policy at a 4% annual net rate for any period by which the Policy Date precedes the investment start date. Insurance coverage under the Policy begins when we receive the Minimum Premium (see "Lapse") due for the first quarter (or, on receipt of the number of monthly payments due under NELICO's Master Service Account arrangement). 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. Backdating in some cases causes a higher Surrender Charge if it results in the Surrender Charge being based on a lower age bracket. (See "Surrender Charge".) For a backdated Policy, you must also pay the minimum premium payable for the period between the Policy Date and the investment start date. As of the investment start date, we allocate to the Policy those net premiums, adjusted for monthly Policy charges and interest at a 4% annual net rate for that period. A-23 RIGHT TO RETURN THE POLICY You may cancel the Policy within 10 days (more in some states) after you receive the Policy. You may return the Policy to our Designated Office or to your registered representative (see "Receipt of Communications and Payments at NELICO's Designated Office"). Insurance coverage ends as soon as you return the Policy (determined by postmark, if the Policy is mailed). If you cancel the Policy, we refund the cash value of the Policy plus any sales and premium tax charges that were deducted from the premiums you paid, or if required by state insurance law, any premiums paid. 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 that we mail the confirmation for the initial premium (in states that require a refund of premiums if you exercise the Right to Return the Policy, until 15 days after we mail the initial premium confirmation). Then, we allocate the cash value to the sub-accounts as you choose. We allocate the amounts you allocated to the Fixed Account as of the investment start date. You can allocate 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 nine accounts (including the Fixed Account) at any one time. You may allocate any whole percentage of each premium to a sub-account. For special rules regarding allocations to the Fixed Account, see "The Fixed Account". You make the initial allocation when you apply for a Policy. You can change the allocation of future premiums at any time thereafter. The change will be effective for premiums applied on or after the date when we receive your request. You may request the change by telephone or by written request. (See "Receipt of Communications and Payments at NELICO's Designated Office.") When we allocate net premiums to your Policy's Sub-Accounts, we convert them into accumulation units of the Sub-Accounts. We determine the number of accumulation units by dividing the dollar amount of the net premium by the accumulation unit value. For your initial premium, we use the accumulation unit value on the investment start date. For subsequent premiums, we use the accumulation unit value next determined after receipt of the payment. (See "Cash Value".) RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S DESIGNATED 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 Designated 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. The Designated Office for various Policy transactions is as follows: Premium Payments New England Financial P.O. Box 4332 Carol Stream, IL 60197-4332 Payment Inquiries and New England Financial/MetLife Correspondence P.O. Box 30440 Tampa, FL 33630-3440 (800) 388-4000 Surrenders, Loans, Withdrawals, New England Financial/MetLife Sub-Account Transfers and all P.O. Box 543 Other Transactions and Warwick, RI 02887-0543 Inquiries (800) 388-4000
A-24 PAYMENT OF PROCEEDS We ordinarily pay any net cash value, loan value or death benefit proceeds coming from the sub-accounts within seven days after we receive a request, or satisfactory proof of death of an insured (and any other information we need to pay the death proceeds). However, we may delay payment (except when a loan is made to pay a premium to us ) or transfers from the sub-accounts: (i) if the New York Stock Exchange is closed for other than weekends or holidays, or trading on the New York Stock Exchange is restricted, (ii) if the SEC determines that an emergency exists that makes payments or sub-account transfers impractical, or (iii) at any other time when the Eligible Funds or the Variable Account have the legal right to suspend payment. CASH VALUE Your Policy's total cash value includes its cash value in the Variable Account and in the Fixed Account. If you have a Policy loan, the cash value also includes the amount we hold in our general account as a result of the loan. The cash value reflects: -- net premium payments -- the net investment experience of the Policy's sub-accounts -- interest credited to cash value in the Fixed Account -- interest credited to amounts held in the general account for a Policy loan -- the death benefit option you choose -- Policy charges -- partial surrenders -- transfers among the sub-accounts and Fixed Account We pay you the NET cash value if you surrender the Policy. It equals the cash value minus any outstanding Policy loan (plus interest) and any Surrender Charge that applies. If you surrender during the grace period, we also deduct the Amount Due to cover the Monthly Deduction to the date of surrender. (See "Loans", "Surrender Charge", "Deductions from Cash Value" and "Lapse and Reinstatement".) The Policy's cash value in the Variable Account may increase or decrease daily depending on net investment experience. Poor investment experience can reduce the cash value to zero. YOU HAVE THE ENTIRE INVESTMENT RISK FOR THE CASH VALUE IN THE VARIABLE ACCOUNT. NET INVESTMENT EXPERIENCE. The net investment experience of the sub-accounts affects the Policy's cash value and, in some cases, the death benefit. We determine the net investment experience of each sub-account as of the close of regular trading on the New York Stock Exchange on each day when the Exchange is open for trading. A sub-account's net investment experience for any period is based on the investment experience of the underlying Eligible Fund shares for the same period. The investment experience of the Eligible Fund shares for any period is the increase or decrease in their net asset value for the period, increased by the amount of any dividends or capital gains distributions on the shares during the period. Dividends and capital gains distributions on Eligible Fund shares are reinvested in additional shares of the Eligible Fund. DEATH BENEFITS The death benefit is payable to the beneficiary at the death of the second insured to die. Coverage generally begins with payment of the initial premium. If you make a premium payment with the application, we will cover the insureds under a temporary insurance agreement for a limited period that generally begins when we receive the premium for the Policy (or, if later, on the date when each of the insureds has signed his/her Part II of the A-25 application). The maximum temporary coverage is the lesser of the amount of insurance applied for and $500,000 when both insureds are standard risks ($250,000 when at least one insured is not a standard risk and $50,000 when both persons are determined to be uninsurable). We may increase these limits. These provisions vary in some states. CHOICE OF TAX TEST. The Internal Revenue Code requires that the Policy's death benefit (including any Survivorship Level Term Insurance rider) not be less than certain amounts defined in the Code. When you apply for your Policy, you select which tax law test will apply to the death benefit. You will choose between: (1) the cash value accumulation test, and (2) the guideline premium test. For Policies issued in Florida, you may select only the cash value accumulation test as the tax law test that will apply to the death benefit under your Policy. The test you select is used for the life of the Policy and cannot be changed. Under the CASH VALUE ACCUMULATION TEST, the death benefit will not be less than the cash value (plus the portion of any Monthly Deduction made for a period beyond the date of death), times the net single premium factor set by the Internal Revenue Code. The net single premium factors are shown in the Policy based on the age of the younger insured at the start of the Policy year. Net single premium factors vary based on each insured's sex, underwriting class and age at issue, and the Policy year. Sample net single premium factors appear in Appendix A. If you select the guideline premium test, one of two death benefit "corridors" will apply. Under the basic IRS GUIDELINE PREMIUM TEST, the death benefit will not be less than the cash value (plus the portion of any Monthly Deduction made for a period beyond the date of death), times the corridor factor set by the Internal Revenue Code. The corridor factors vary by and are shown based on the age of the younger insured at the start of the Policy year. See Appendix A. Under the GUIDELINE PREMIUM TEST WITH ENHANCED CORRIDOR, the death benefit will not be less than the cash value (plus the portion of any Monthly Deduction made for a period beyond the date of death), times a corridor factor. Until age 81 of the younger insured, these corridor factors are the same as under the basic guideline premium test. Beginning at age 81 of the younger insured, until age 100 of that insured, we use an enhanced corridor factor. The enhanced corridor is greater than under the basic IRS guideline premium test, resulting in a potentially larger death benefit than required by tax law. See Appendix A. If you select the cash value accumulation test, you can generally make a higher amount of premium payments for any given face amount and a higher death benefit may result in the long term. If cash value growth in the early Policy years is your primary objective, the cash value accumulation test may be the appropriate choice because it allows you to invest more premiums in the Policy for each dollar of death benefit. If cash value growth in the later Policy years is your primary objective, the guideline premium test may be the appropriate choice because it requires a lower death benefit, and therefore lower mortality charges, once the Policy's death benefit is subject to increases required by the Internal Revenue Code. DEATH BENEFIT OPTIONS--TO AGE 100. When you apply for a Policy you must select among five death benefit options. If you fail to select a death benefit option in the application, we will seek the required information from you. These options apply until age 100 of the younger insured. The OPTION 1 death benefit equals the greater of the FACE AMOUNT and the death benefit required by the GUIDELINE PREMIUM TEST WITH THE ENHANCED CORRIDOR. The OPTION 2 death benefit equals the greater of the FACE AMOUNT and the death benefit required by the GUIDELINE PREMIUM TEST. The OPTION 3 death benefit equals the greater of the FACE AMOUNT PLUS THE CASH VALUE, and the death benefit required by the GUIDELINE PREMIUM TEST WITH THE ENHANCED CORRIDOR. The OPTION 4 death benefit equals the greater of the FACE AMOUNT and the death benefit required by the CASH VALUE ACCUMULATION TEST. The OPTION 5 death benefit equals the greater of the FACE AMOUNT PLUS THE CASH VALUE, and the death benefit required by the CASH VALUE ACCUMULATION TEST. A-26 THE GUARANTEED DEATH BENEFIT RIDER IS ONLY AVAILABLE IF YOU SELECT OPTION 4. (SEE "LAPSE" FOR A DESCRIPTION OF THE GUARANTEED DEATH BENEFIT RIDER.) TERM RIDER "IN" OR "OUT". If you add a Survivorship Level Term Insurance Rider to your Policy, you can have the face amount of the rider added to the face amount of the base Policy for purposes of calculating the base Policy death benefit under your chosen death benefit option. If you do not choose to do this, then the face amount of the rider will simply be added to the Policy proceeds. If you include the rider coverage in the calculation of the death benefit ("Inside Term"), the Policy may provide greater potential for the cash value to grow relative to the death benefit. If you do not include the rider coverage in the calculation of the death benefit ("Outside Term"), the Policy may provide greater potential for a higher death benefit relative to the cash value (as described above); also, you may be able to convert "Outside Term" (but not "Inside Term") coverage to permanent insurance. If you choose "Outside Term," any death benefit increases required by the Internal Revenue Code will be triggered earlier than would be the case with "Inside Term." These increases lead to a higher death benefit and higher cost of insurance charges. For more information on the term riders, see "Additional Benefits by Rider." With our consent, you may change your choice at any time. However, to change from Inside Term to Outside Term, we require satisfactory evidence of insurability. To have both the Guaranteed Death Benefit Rider and the Survivorship Level Term Insurance Rider, you must elect "Inside Term". See "Lapse" for a description of the Guaranteed Death Benefit Rider. For Policies issued in New York, the Survivorship Level Term Insurance Rider is available only as "Outside Term." You cannot choose to have both the Guaranteed Death Benefit Rider and the Survivorship Level Term Insurance Rider in New York. AGE 100. If the death benefit is payable on or after age 100 of the younger insured, it equals the cash value on the date of death. However, if at age 100 of the younger insured, the Policy has a Guaranteed Death Benefit Rider and that benefit is in effect, the death benefit will equal the face amount if it exceeds the cash value. In addition, if the Policy has an Expanded Death Benefit Rider, the death benefit will equal the smallest face amount that was in effect since age 80 of the younger insured (or since the Policy Date if the younger insured was older than 80 on that date), if this amount is greater than the death benefit that would otherwise be payable. For Policies issued in New York, your Policy will mature at age 100 of the younger insured for the net cash value. EXPANDED DEATH BENEFIT RIDER Subject to state availability, you can purchase the Expanded Death Benefit Rider. You may add the rider to your Policy at issue or at any time until the insureds' average age reaches 90. (See "Surrender Charge" for the rules we use when calculating an average age.) If you choose this rider, then the death benefit on and after age 100 of the younger insured will be equal to the greater of the cash value on the date of death or the lowest face amount that was in effect since age 80 of the younger insured (or since the Policy Date, if the younger insured was older than 80 on that date). See "Age 100" above for how we determine the death benefit on and after age 100 of the younger insured. If you elect this rider, the Monthly Deduction will include a charge for the rider until the Policy anniversary when the younger insured reaches age 100, unless you request that the rider terminate before then. The tax consequences associated with keeping your Policy in force after age 100 of the younger insured are unclear. A tax adviser should be consulted about such tax consequences. CHANGE IN DEATH BENEFIT OPTION After the first Policy year and before the younger insured's age 100, you may change your death benefit option by written request to our Designated Office. (See "Receipt of Communications and Payments at NELICO's Designated Office".) The request will be effective on the first day of the Policy month on or after we receive it. A change in death benefit option may have tax consequences. (See "Tax Considerations".) For Policies issued in New York, we will not allow changes in the death benefit option during the grace period. A-27 You can change among the three options that use the guideline premium test or between the two that use the cash value accumulation test, but not between a guideline premium test option and a cash value accumulation test option. If you change from Option 1 or 2 (face amount options) to Option 3 (face amount plus cash value option), or from Option 4 (face amount option) to Option 5 (face amount plus cash value option), we reduce the Policy's face amount if necessary so that the death benefit is the same immediately before and after the change. A face amount reduction below $100,000 requires our consent. We may also decrease any rider benefits under the Policy. A partial surrender of cash value may be necessary to meet Federal tax law limits on the amount of premiums that you can pay into the Policy. No Surrender Charge applies in that situation. If you change from Option 3 (face amount plus cash value option) to Option 1 or 2 (face amount options), or from Option 5 (face amount plus cash value option) to Option 4 (face amount option), we increase the Policy's face amount, if necessary, so that the death benefit is the same immediately before and after the change. If we increase the face amount pursuant to this provision, any charges assessed under the Policy after the increase that are based on face amount would be based on the new increased face amount of the Policy. If you change from Option 1 or 3 (enhanced corridor options) to Option 2, in most cases we reduce the Policy's death benefit amount if the enhanced corridor increases are in effect; the death benefit usually remains the same if they are not in effect. Changes from Option 2 to Option 1 or 3 (enhanced corridor options) require underwriting approval, and both insureds must be living if the amount at risk under the Policy would increase. DEATH PROCEEDS PAYABLE The death proceeds we pay are equal to the death benefit on the date of the second insured's death, reduced by any outstanding loan and accrued loan interest 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 that are not already included in the base Policy's death benefit and (2) by any Monthly Deduction made for a period beyond the date of the second insured's death. Under Policies issued in New York, the death benefit payable during the grace period will equal the death benefit in effect immediately prior to the start of the grace period, or if greater, the death benefit on the date of death, less the unpaid Monthly Deductions to the date of death. We may adjust the death proceeds if either insured's age or sex was misstated in the application, if death results from either insured's suicide within two years (less in some states) from the Policy's date of issue, or if a rider limits the death benefit. SUICIDE. If either of the insureds dies by suicide within two years (or less, if required by state law) from the date of issue, the death benefit is limited to premiums paid, less any policy loan balance and partial surrenders (more in some states). The Policy will terminate as of the date of the first death by suicide. An insured age 75 or younger who meets our underwriting requirements can request a new single life variable life insurance policy, with the same face amount as the original Policy, within 60 days of the date of the suicide. An insured over age 75 who meets our underwriting requirements may request a single life ordinary (not variable) life policy. REDUCTION IN FACE AMOUNT After the first Policy year, you may reduce the face amount of your Policy without receiving a distribution of any Policy cash value. (This feature differs from a partial surrender, which pays a portion of the Policy's net cash value to you.) For Policies issued in New York, we will not allow a reduction in the face amount of your Policy during the grace period. We do not permit any increases in face amount. If you decrease the face amount of your Policy, we also decrease the Benchmark Premium, on which we base any future Surrender Charges, and the Target Premium, on which we base the level of the sales charge. We deduct A-28 any Surrender Charge that applies from the Policy's cash value in an amount proportional to the amount of the face reduction. A face amount reduction usually decreases the Policy's death benefit. (However, if we are increasing the death benefit to satisfy federal income tax laws, a face amount reduction will not decrease the death benefit unless we deducted a Surrender Charge from the cash value. A reduction in face amount in this situation may not be advisable, because it will not reduce your death benefit or cost of insurance charges and may result in a Surrender Charge.) We also may decrease any rider benefits attached to the Policy. The face amount remaining after a reduction must meet our minimum face amount requirements for issue, except with our consent. A reduction in face amount reduces the Federal tax law limits on the amount of premiums that you can pay under the Policy 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 first day of the Policy month on or after the date when we receive a request. You can contact your registered representative or our Designated Office for information on face amount reduction procedures. (See "Receipt of Communications and Payments at NELICO's Designated Office".) A reduction in the face amount of a Policy may create a "modified endowment contract". If you are contemplating a reduction in face amount, you should consult your tax adviser regarding the tax consequences of the transaction. (See "Tax Considerations".) SURRENDERS AND PARTIAL SURRENDERS SURRENDER You may surrender a Policy for its net cash value at any time while either insured is living. We determine the net cash value of the surrendered Policy as of the date when we receive a surrender request. (See "Receipt of Communications and Payments at NELICO's Designated Office.") The net cash value equals the cash value reduced by any Policy loan and accrued interest and by any applicable Surrender Charge. (See "Surrender Charge".) We increase the net cash value paid to you by the portion of any Monthly Deduction made for the period beyond the date of surrender. If you surrender the Policy during the grace period, we deduct the Amount Due from your proceeds to cover the Monthly Deduction to the date of surrender. (See "Lapse and Reinstatement".) You may apply all or part of the net cash value to a payment option. Once a Policy is surrendered, all coverage and benefits cease and cannot be reinstated. A surrender may result in adverse tax consequences. (See "Tax Considerations" below.) PARTIAL SURRENDER You may make a partial surrender of the Policy at any time after we mail the confirmation for the initial premium, to receive a portion of its net cash value. A partial surrender reduces the Policy's death benefit and may reduce the Policy's face amount if necessary so that the amount at risk under the Policy will not increase. Any reduction in the face amount causes a proportionate reduction in the Policy's Benchmark Premium, on which we base any future Surrender Charges, and in the Target Premium, on which we base the level of the sales charge. A partial surrender may also reduce rider benefits. We can decline a partial surrender request that would reduce the face amount below the Policy's required minimum. We have the right to limit partial surrenders in any one Policy year to 20% of the Policy's net cash value on the date of the first partial surrender for the Policy year or, if less, the Policy's available loan value. Currently, we permit partial surrenders of up to 90% of the Policy's net cash value per year. We deduct any Surrender Charge that applies to the partial surrender from the Policy's remaining cash value in an amount proportional to the amount of the Policy's face amount surrendered. The Surrender Charge applied reduces any remaining Surrender Charge under your Policy. You may not reinvest cash value paid upon partial surrender in the Policy except as premium payments, which are subject to the charges described under "Deductions From Premiums". A-29 A partial surrender first reduces the Policy's cash value in the sub-accounts of the Variable Account, in proportion to the amount of cash value in each, and then the Fixed Account, unless you request otherwise. We determine the amount of net cash value paid upon partial surrender as of the date when we receive a request. You can contact your registered representative or the Designated Office for information on partial surrender procedures. (See "Receipt of Communications and Payments at NELICO's Designated Office".) A reduction in the death benefit as a result of a partial surrender may create a "modified endowment contract" or have other adverse tax consequences. If you are contemplating a partial surrender, you should consult your tax adviser regarding the tax consequences. (See "Tax Considerations".) TRANSFERS TRANSFER OPTION Once we mail the confirmation for the initial premium (in some states, 15 days after that) you may transfer your Policy's cash value between accounts. We reserve the right to limit account transfers to four per Policy year (twelve per Policy year for Policies issued in New York). Currently we do not limit the number of transfers per Policy year. We reserve the right to make a charge for transfers in excess of twelve in a Policy year. A transfer is effective as of the date when we receive the transfer request. (See "Receipt of Communications and Payments at NELICO's Designated 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. We will notify any affected Policy Owner in a timely manner of any actions we take to restrict his or her ability to make transfers. You may request an 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. 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 be 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 Designated Office. (See "Receipt of Communications and Payments at NELICO's Designated Office".) DOLLAR COST AVERAGING/ASSET REBALANCING The Policy may offer two automated transfer privileges: dollar cost averaging and asset rebalancing. With dollar cost averaging, your cash value will be transferred periodically from any one Sub-Account to one or more other Sub-Accounts (and/or the Fixed Account) that you select. With asset rebalancing, your cash value will be automatically reallocated among the Sub-Accounts periodically to return the allocation to the percentages you specify. These transfer privileges allow you to take advantage of investment fluctuations, but neither assures a A-30 profit nor protects against a loss in declining markets. Dollar cost averaging involves continuous investment in securities regardless of fluctuating price levels of such securities. You should consider your financial ability to continue purchases through periods of fluctuating price levels. You may not participate in both dollar cost averaging and asset rebalancing at the same time. If we exercise our right to limit transfers to four per Policy year, or to impose a $25 charge for transfers in excess of 12 per Policy year, we reserve the right to count transfers under these programs toward these totals. For more information about these features, please contact your registered representative or see the Statement of Additional Information. LOANS You may borrow all or part of the Policy's "loan value" at any time after we mail the confirmation for the initial premium (unless we consent to an earlier date). We make the loan as of the date when we receive a loan request at our Designated Office. You should contact our Designated Office or your registered representative for information on loan procedures. (See "Receipt of Communications and Payments at NELICO's Designated Office".) The Policy's loan value equals 90% (or more if required by state law) of: the Policy's cash value minus the Surrender Charge. The loan value available is the loan value reduced by any outstanding loan plus interest. A loan that is taken from, or secured by, a Policy may have tax consequences. A Policy loan reduces the Policy's cash value in the sub-accounts by the amount of the loan. You may repay all or part of your loan at any time while either insured is still alive. A loan repayment increases the cash value in the sub-accounts by the amount of the repayment. Unless you request otherwise, we attribute Policy loans first to the sub-accounts of the Variable Account in proportion to the cash value in each, and then the Fixed Account. We allocate loan repayments first to the outstanding loan balance attributed to the Fixed Account and then, unless you request otherwise, to the sub-accounts of the Variable Account in proportion to the cash value in each. (See "Receipt of Communications and Payments at NELICO's Designated Office".) The interest rate charged on Policy loans is an effective rate of 4.35% per year, compounded daily. Interest accrues daily and is due on the Policy anniversary. If not paid, we add the interest accrued to the loan amount, and we deduct an amount equal to the unpaid interest from the Policy's cash value in the sub-accounts and the Fixed Account in proportion to the amount in each. The amount we take from the Policy's sub-accounts as a result of the loan earns interest (compounded daily) at an effective rate of not less than 4% per year. We credit this interest amount to the Policy's sub-accounts annually, in proportion to the cash value in each. The amount taken from the Policy's sub-accounts as a result of a loan does not participate in the investment experience of the sub-accounts. Therefore, loans can permanently affect the death benefit and cash value of the Policy, even if repaid. In addition, we reduce any proceeds payable under a Policy by the amount of any outstanding loan plus accrued interest. You may increase your risk of lapse if you take a loan. If a Policy loan is outstanding, it may be better to repay the loan than to pay a premium, because the premium payment is subject to sales and premium tax charges, and the loan repayment is not subject to charges. (See "Deductions from Premiums".) If your Policy is a "modified endowment contract", loans under your Policy may be treated as taxable distributions. 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 about such loans. (See "Tax Considerations".) 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 may be insufficient to pay the income tax on your gains. Department of Labor ("DOL") regulations impose requirements for participant loans under tax-qualified pension plans. Therefore, plan loan provisions may differ from Policy loan provisions. (See "Tax Considerations".) A-31 LAPSE AND REINSTATEMENT LAPSE In general, in any month that your Policy's net cash value is not large enough to cover a Monthly Deduction, your Policy will be in default and may lapse. 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 younger insured. FIRST FIVE POLICY YEARS--In general, if you pay the five year Minimum Premium amount on time, the Policy will not lapse even if the net cash value is less than the Monthly Deduction in any month. If (a) the total premiums you have paid, less all partial surrenders and any outstanding Policy loan balance (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 monthly Minimum Premiums for the Policy up to that Policy month, the Policy will not lapse. We recalculate the five year Minimum Premium if (1) you reduce the face amount or make a partial surrender that reduces the face amount, (2) you increase or decrease rider coverage, (3) the rating classification for your Policy is improved, or (4) a correction is made in the insurance age or sex of either insured. We base the Minimum Premium on your Policy's face amount, the age, sex (unless unisex rates apply), and underwriting class of each insured, the current level of Policy charges and any riders to the Policy. TO AGE 100 OF THE YOUNGER INSURED--In general, if you elect the Guaranteed Death Benefit rider and pay the Guaranteed Death Benefit Premium amounts on time, the Policy will stay in force until age 100 of the younger insured, even if the net cash value is less than the Monthly Deduction in any month. We determine if the No Lapse Guarantee Benefit is in effect as follows. On the first day of a Policy month, if the total premiums you have paid, less all partial surrenders, less any Policy loan balance, and less any cash value paid to you to allow the Policy to continue to qualify as life insurance under the tax law, are at least equal to: the Guaranteed Death Benefit Fund value for the prior year (shown in the rider), plus 1/12 of the Guaranteed Death Benefit premium (shown in Section 1 of your Policy) for each completed Policy month of the current Policy year, then the No Lapse Guarantee Benefit will apply for that month. We recalculate the Guaranteed Death Benefit premium following the same Policy transactions described above for a recalculation of the five year Minimum Premium amount. The Guaranteed Death Benefit premium amount (shown in your Policy) is based on the same factors as the five year Minimum Premium, except that it is based on the guaranteed maximum level of Policy charges. When testing whether the No Lapse Guarantee Benefit is in effect, we use the Policy's original Guaranteed Death Benefit premium for the period of time it was in effect, and each recalculated Guaranteed Death Benefit premium for the period of time it was in effect. You may choose the Guaranteed Death Benefit Rider at issue if it is available in your state and if you choose death benefit Option 4. (If you elect a Survivorship Level Term Insurance Rider, you must elect "Inside Term" in order to choose or keep the Guaranteed Death Benefit Rider.) If you elect this rider, the Monthly Deduction will include a charge for the rider, even if the No Lapse Guarantee Benefit is not effective, until the Policy anniversary when the younger insured reaches age 100, unless you request that the rider terminate before then. A change in death benefit option, addition of a Survivorship Level Term Insurance Rider as "Outside Term", or a change under that rider from "Inside Term" to "Outside Term", will terminate the Guaranteed Death Benefit Rider. For Policies issued in New York, the guaranteed Death Benefit Rider will terminate upon a change in death benefit option, the addition of a Survivorship Level Term Insurance Rider and at age 100 of the younger insured. We can restrict any unplanned premium payment that would increase your Policy's death benefit by more than it would increase cash value. (See "Flexible Premiums".) This could prevent you from making unplanned premium payments that are necessary to keep the No Lapse Guarantee Benefit in effect. If your Policy is not protected by the No Lapse Guarantee Benefit under the Guaranteed Death Benefit rider or by the five year Minimum Premium guarantee, any month that your Policy's net cash value is not large enough to cover a Monthly Deduction, your Policy will be in default. Your Policy provides a 62 day grace period for payment of the Amount Due. The Amount Due is the least of: a premium large enough to cover the Monthly Deductions due A-32 and all deductions from the premium; a premium large enough to permit the No Lapse Guarantee Benefit to be in effect, if the Policy has the Guaranteed Death Benefit rider; and a premium large enough to meet the monthly five year Minimum Premium test. We will tell you the Amount Due. You have insurance coverage during the grace period, but if the second insured dies before you have paid the premium, we deduct from the death proceeds the Amount Due for the period before the date of death. If you have not paid the Amount Due by the end of the grace period, your Policy will lapse without value. Your policy may also lapse if Policy loans plus accrued interest at any time exceed the Policy's cash value less the Surrender Charge on the next Policy loan interest due date (or, if the Surrender Charge would be greater, on the date the calculation is made). Under these circumstances, we will notify you that the Policy is going to terminate. (This is called an "excess Policy loan". We test for an excess Policy loan on each monthly processing date and in connection with Policy processing transactions.) The Policy terminates without value 62 days after we mail the notice unless you pay us the excess Policy loan amount within that time. If the Policy lapses with a loan outstanding, adverse tax consequences may result. Some states may require a different grace period than that described above. Please read the grace period provision of your Policy for details. REINSTATEMENT. If your Policy has lapsed, you may reinstate it within seven years after the date of lapse. If more than seven years have passed, or if you have surrendered the Policy, you need our consent to reinstate. Reinstatement in all cases requires payment of certain charges described in the Policy and usually requires evidence of insurability of each living insured 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, Policy fee, mortality and expense risk charge, administrative charge, sales charge and rider charges, we do not count the amount of time that a Policy was lapsed. 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. The term riders discussed below permit you, by purchasing term insurance, to increase your insurance coverage. Term riders have no surrenderable cash value. If you seek to reduce the overall cost of your insurance protection, it is generally in your economic advantage to include a significant portion or percentage of your insurance coverage under an Inside Term Survivorship Level Term Insurance Rider. Both current and guaranteed charges for the Inside Term Survivorship Level Term Insurance Rider are lower than those of the base Policy. (Inside Term is not available in New York.) The Outside Term Survivorship Level Term Insurance Rider can also provide less expensive insurance protection than the base Policy for a period of time. However, because no portion of the Policy's cash value is attributable to the Outside Term rider, the cost of insurance for the Outside Term rider applies to the entire face amount of the rider and is not offset by any increases in the Policy's cash value. Therefore, the cost of coverage under the Outside Term Survivorship Level Term Insurance Rider can become expensive relative to the base Policy cost, particularly at higher attained ages. In addition, the benefit provided by the Guaranteed Death Benefit Rider is not available if you elect coverage under the Outside Term Survivorship Level Term Insurance Rider. For both Inside and Outside Term, the same Administrative Charge applies to the Survivorship Level Term Insurance Rider and the base Policy for the first three Policy years. After that, however, the Administrative Charge no longer applies to the Survivorship Level Term Insurance Rider. Regardless of any extended maturity endorsement, the Survivorship Level Term Insurance Rider terminates at age 100 of the younger insured. Reductions in or elimination of term rider coverage does not trigger a surrender charge, and use of a term rider generally reduces sales compensation. Because the term insurance riders don't have surrender charges, a A-33 Policy providing insurance coverage with a combination of base Policy and term rider will have a lower maximum surrender charge than a Policy with the same amount of insurance coverage provided solely by the base Policy. However, like the cost of coverage under the Policy, charges deducted from the Policy's cash value to pay for term rider coverage no longer participate in the investment experience of the Variable Account, and usually increase with the age of the covered individual. Your determination as to how to purchase a desired level of insurance coverage should be based on your specific insurance needs. Your registered representative can provide you more information on the uses of term rider coverage. The following riders are available: TERM RIDER--SURVIVORSHIP LEVEL TERM INSURANCE, which provides joint life term insurance. TERM RIDER--SURVIVORSHIP 4 YEAR LEVEL TERM INSURANCE, which provides joint life term insurance for four policy years. TERM RIDER--SINGLE LIFE LEVEL TERM INSURANCE, which provides additional term insurance on one of the insureds. TERM RIDER--SINGLE LIFE DECREASING TERM INSURANCE, which provides additional term insurance on one of the insureds in an amount that decreases each year to zero over a coverage period of 10, 15 or 20 years. WAIVER OF MONTHLY DEDUCTION, which provides for waiver of Monthly Deductions upon the disability of the insured covered by the waiver. WAIVER OF SPECIFIED PREMIUMS, which provides for waiver of the cost of the rider itself and for a premium benefit upon the disability of an insured covered by the rider. POLICY SPLIT RIDER. Subject to state availability and our underwriting guidelines, we may issue or amend your Policy with a split rider which allows you to "split" the Policy into two new NELICO individual flexible premium adjustable variable life insurance policies. The rider permits you to split the Policy in the event of divorce of the insureds, if certain federal tax law changes occur, or if certain business circumstances change (each, a "split event"). The rider lists the requirements for a split event. If you exercise the split rider, this Policy will be canceled, and we will transfer its cash value (in equal portions, unless we agree otherwise) to two new individual policies issued on the effective date of the split. A new Surrender Charge will apply to each individual policy. We will issue each new policy with either a level or variable death benefit option in effect, depending on which type of death benefit option you have under this Policy at the time of the split. Additional conditions apply. For more information about the Policy split rider you should contact your registered representative. You can request a prospectus and additional information regarding the individual policies that are issued following a split. For a discussion of the possible tax consequences of splitting the Policy, see "Tax Considerations." EXPANDED DEATH BENEFIT RIDER, which provides a death benefit on and after age 100 of the younger insured equal to the greater of the cash value on the date of death or the lowest face amount that was in effect since age 80 of the younger insured. For a discussion of the tax consequences of continuing the Policy after the younger insured's age 100, see "Tax Considerations." GUARANTEED DEATH BENEFIT RIDER, which provides for a guaranteed death benefit until age 100 of the younger insured. 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. 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 A-34 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 general account. Instead, we guarantee that the Fixed Account will credit interest at an annual effective rate of at least 4%. We may or may not credit interest at a higher rate. We declare the current interest rate for the Fixed Account periodically. The Fixed Account earns interest daily. We can change our Fixed Account interest crediting procedures. Currently, all cash value in the Fixed Account on a Policy anniversary earns interest at the declared annual rate in effect on the anniversary until the next Policy anniversary, when it is credited with our current rate. (Although our current practice is to credit your entire Fixed Account cash value on a Policy anniversary with our current annual rate until the next anniversary, we can select any portion, from 0% to 100%, of your Fixed Account cash value on a Policy anniversary to earn interest at our current rate until the next Policy anniversary, unless otherwise required by state law.) Any net premiums allocated or cash value transferred to the Fixed Account on a date other than a Policy anniversary earn interest at our current rate until the next Policy anniversary. The effective interest rate is a weighted average of all the Fixed Account rates for your Policy. After the Policy has been in force for ten years, if we set an interest rate for the Fixed Account that is higher than 4%, that rate will be increased for the Policy by at least 0.45%. For Policies issued in New Jersey, and that have been in force for ten years, additional interest at a rate of not more than .45% may be credited to the Policy, even if the interest rate set for the Fixed Account is not higher than 4%. VALUES AND BENEFITS Cash value in the Fixed Account increases from net premiums allocated and transfers to the Fixed Account and Fixed Account interest, and decreases from loans, partial surrenders made from the Fixed Account, charges, and transfers from the Fixed Account. We deduct charges from the Fixed Account and the Policy's sub-accounts in proportion to the amount of cash value in each. (See "Deductions from Cash Value".) A Policy's total cash value includes cash value in the Variable Account, the Fixed Account, and any cash value held in our general account (but outside of the Fixed Account) due to a Policy loan. Cash value in the Fixed Account is included in the calculation of the Policy's death benefit in the same manner as the cash value in the Variable Account. (See "Death Benefits".) POLICY TRANSACTIONS We can restrict allocations and transfers to the Fixed Account if the effective annual rate of interest on the amount would be 4%. Otherwise, the requirements for Fixed Account and Variable Account allocations are the same. (See "Allocation of Net Premiums".) Except as described below, the Fixed Account has the same rights and limitations with respect to premium allocations, transfers, loans, surrenders and partial surrenders as the Variable Account. The following special rules apply to the Fixed Account. TRANSFERS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT ARE ALLOWED ONLY ONCE IN EACH POLICY YEAR. WE PROCESS A TRANSFER FROM THE FIXED ACCOUNT IF WE RECEIVE THE TRANSFER REQUEST WITHIN 30 DAYS AFTER THE POLICY ANNIVERSARY. WE MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER REQUEST AT OUR DESIGNATED OFFICE. EXCEPT WITH OUR CONSENT, THE AMOUNT OF CASH VALUE YOU MAY TRANSFER FROM THE FIXED ACCOUNT IS LIMITED TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE TRANSFER DATE OR THE AMOUNT OF CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT IN THE PRECEDING POLICY YEAR. Regardless of these limits, if a transfer of A-35 cash value from the Fixed Account would reduce the remaining cash value in the Fixed Account below $100, you may transfer the entire amount of Fixed Account cash value. We may limit the total number of transfers among sub-accounts and from the sub-accounts to the Fixed Account to four in one Policy year (twelve per Policy year for Policies issued in New York). We currently do not limit the number of these transfers in a Policy year. Unless you request otherwise, a Policy loan reduces the Policy's cash value in the sub-accounts and not the Fixed Account. If there is not enough cash value in the Policy's sub-accounts for the loan, we take the balance from the Fixed Account. We allocate all loan repayments first to the outstanding loan balance attributable to the Fixed Account. The amount removed from the Policy's sub-accounts and the Fixed Account as a result of a loan earns interest at an effective rate of at least 4% per year, which we credit annually to the Policy's cash value in the sub-accounts and the Fixed Account in proportion to the Policy's cash value in each on the day it is credited. Unless you request otherwise, we take partial surrenders only from the Policy's sub-accounts and not the Fixed Account. If there is not enough cash value in the Policy's sub-accounts for the partial surrender, we take the balance from the Fixed Account. We can delay transfers, surrenders, and Policy loans from the Fixed Account for up to six months (to the extent allowed by state insurance law). We will not delay loans to pay premiums on policies issued by us. CHARGES We make certain charges and deductions under the Policy. These charges and deductions compensate us for: (1) services and benefits we provide; (2) costs and expenses we incur; and (3) risks we assume. Services and benefits we provide: -- the death benefit, cash, and loan benefits under the Policy -- investment options, including premium allocations -- administration of elective options -- the distribution of reports to Policy Owners Costs and expenses we incur: -- costs associated with processing and underwriting applications, and with issuing and administering the Policy (including any riders) -- overhead and other expenses for providing services and benefits -- sales and marketing expenses -- other costs of doing business, such as collecting premiums, maintaining records, processing claims, effecting transactions, and paying federal, state, and local premium and other taxes and fees Risks we assume: -- that the cost of insurance charges we may deduct are insufficient to meet our actual claims because the insureds die sooner that we estimate -- that the cost of providing the services and benefits under the Policies exceed the charges we deduct The amount of a charge may not necessarily correspond to the costs of the services or benefits that are implied by the name of the charge or that are associated with the particular Policy. For example, the sales charge may not fully cover all of our sales and distribution expenses, and we may use proceeds from other charges, including the mortality and expense risk charge and the cost of insurance charge, to help cover those expenses. We may profit from certain Policy charges. A-36 DEDUCTIONS FROM PREMIUMS Prior to the allocation of a premium, we deduct a percentage of your premium payment. We credit the remaining amount (the net premium) to your cash value according to your allocation instructions. The deductions we make from each premium payment are the sales charge, the premium tax charge, and the federal tax charge. SALES CHARGE. We deduct a sales charge from premiums. The sales charge is: -- In Policy year 1: 26.5% of premiums paid up to the Target Premium, and 4% of premiums paid above the Target Premium -- In Policy years 2-10: 11.5% (9% for Policies with an initial face amount (base Policy plus Survivorship Level Term Insurance Rider) of at least $1 million) of premiums paid in each year up to the Target Premium, and 4% of premiums paid above the Target Premium in each year -- In Policy years 11 and after: 4% of premiums paid When we calculate the sales charge, we consider premiums we receive during the twenty days prior to a Policy anniversary as paid in the next Policy year. (This rule does not apply to premiums paid through our Master Service Account arrangement, described in "Premiums".) We indicate your Target Premium in Section 1 of your Policy and on your personalized illustration. We may reduce sales charges for Policies sold to some group or sponsored arrangements. STATE PREMIUM TAX CHARGE. We deduct 2.5% from each premium for state premium taxes and administrative expenses. These taxes vary from state to state, but we deduct a flat 2.5%, which is based on an average of such taxes. Administrative expenses covered by this charge include those related to premium tax and certain other state filings. FEDERAL PREMIUM TAX CHARGE. We deduct 1% from each premium for our federal income tax liability related to premiums. EXAMPLE: The following chart shows the net amount of premium that we would allocate to the Variable Account assuming a premium payment of $3,000 and a Target Premium of $2,000, for a Policy with a base face amount below $1 million. POLICY YEAR 1
PREMIUM NET PREMIUM ------- ----------- $3,000 $2,000 - 600 (30% X 2,000 = total sales and premium tax charge up to --------- Target Premium) $1,400 $1,000 - 75 (7.5% X 1,000 = total sales and premium tax charge on --------- payments above Target Premium) $ 925 $1,400 +925 --------- $2,325 Net Premium ======
A-37 POLICY YEAR 2
PREMIUM NET PREMIUM ------- ----------- $3,000 $2,000 - 300 (15% X 2,000 = total sales and premium tax charge up to --------- Target Premium) $1,700 $1,000 - 75 (7.5% X 1,000 = total sales and premium tax charge on --------- payments above Target Premium) $ 925 $1,700 +925 --------- $2,625 Net Premium ======
SURRENDER CHARGE We deduct a Surrender Charge from the cash value if you lapse, surrender, reduce the face amount, or make a partial surrender of your Policy that reduces the face amount during the first 15 Policy years (or until age 100 of the younger insured, if earlier). For insureds with an average issue age of 52 or less, the Surrender Charge in the first Policy year is 90% of the lesser of: (1) premiums paid and (2) the Benchmark Premium. When we calculate this amount, we do not count premiums that we receive within 20 days before the first Policy anniversary, unless they are paid through the Master Service Account arrangement. For policies issued in New York, the Surrender Charge in the first Policy year, for insureds with an average issue age of 52 or less, is 90% of the Benchmark Premium. The Surrender Charge is greatest in the first Policy year. After that, the charge reduces monthly. To determine the Surrender Charge after the first Policy year, we take the dollar amount of the charge that applied at the end of the first Policy year and multiply it by a fraction. The fraction is based on the number of months remaining in the Surrender Charge period at the end of the first Policy year (168 months over the next 14 years, for a 15 year Surrender Charge period) and the number of full months remaining in the Surrender Charge period at the time of the surrender, lapse or face amount reduction. For example, if the Surrender Charge was $1000 at the end of the first Policy year, then in the first month of the second Policy year the Surrender Charge is $1000 times 167/168, or $994.05. For insureds with an average issue age above 52, the Surrender Charge percentage applied to premiums paid in the first Policy year will be less than 90%. Your Policy's schedule page shows the maximum dollar amount of the Surrender Charge that will apply in the first Policy year and for the last Policy month of each remaining year in the Surrender Charge period. (When we calculate the average issue age for this purpose, we round down and limit the average to the age of the younger insured plus five years.) Any Surrender Charge that we deduct on lapse is credited back to the Policy's cash value on reinstatement. The Surrender Charge on the date of reinstatement is the same as it was on the date of lapse. When we determine the Surrender Charge on any date after reinstatement, we do not count the period that the Policy was lapsed. In the case of a reduction in face amount or partial surrender that reduces the face amount, 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. 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. IF THE SURRENDER CHARGE EXCEEDS THE AVAILABLE CASH VALUE, THERE WILL BE NO PROCEEDS PAID TO YOU ON SURRENDER. A-38 TRANSFER CHARGE We reserve the right to impose a processing charge of $25 on each transfer between Sub-Accounts or between a Sub-Account and the Fixed Account in excess of 12 per Policy year to compensate us for the costs of processing these transfers. We reserve the right to count transfers due to dollar cost averaging or asset rebalancing as transfers for the purpose of assessing this charge. 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 No Lapse Guarantee Benefit under the Guaranteed Death Benefit rider or the five year Minimum Premium guarantee, we make the Monthly Deduction each month unless the cash value equals zero. (See "Lapse".) -- Otherwise, we make the Monthly Deduction as long as the net cash value is large enough to cover the entire Monthly Deduction. If it is not large enough, the Policy will be in default and may lapse. (See "Lapse and Reinstatement".) There is no Monthly Deduction on or after the Policy anniversary when the younger insured reaches age 100 (or would have reached age 100, if that person dies earlier). The Monthly Deduction reduces the cash value in each Sub-Account of the Variable Account and in the Fixed Account in proportion to the cash value in each, unless you choose a "Single Source Expense Fund". If you choose a Single Source Expense Fund, we will take the Monthly Deduction from the Account that you choose until the cash value there is gone. Then we will take the Monthly Deduction from your remaining Accounts in proportion to the cash value in each. You may choose a Sub-Account or the Fixed Account as your Single Source Expense Fund. The Monthly Deduction includes the following charges: POLICY FEE. The Policy fee is currently equal to $12.50 per month in the first three Policy years (guaranteed not to exceed $12.50 per month) and $5.50 per month thereafter (guaranteed not to exceed $5.50 per month except for Policies issued in New Jersey where the Policy fee is guaranteed not to exceed $12.50 per month in all Policy years). For Policies issued in New York, the difference between the higher Policy fee applicable in the first three Policy years and the lower fee applicable thereafter is called the Acquisition Policy Fee. The Policy fee compensates us for administrative costs such as record keeping, processing death benefit claims and Policy changes, preparing and mailing reports, and overhead costs. ADMINISTRATIVE CHARGE. We deduct a monthly Administrative Charge to compensate us for administrative expenses incurred in connection with underwriting, issuing and administering the Policy. Currently, the monthly Administrative Charge that is applied in the first three Policy years is $0.08 per $1,000 of base Policy face amount plus Survivorship Level Term Insurance Rider face amount, and in years four and after, $0.06 per $1,000 of base Policy face amount. The Administrative Charge does not apply to the Survivorship Level Term Insurance Rider face amount in years four and after. If the initial face amount (base Policy plus Survivorship Level Term Insurance Rider) is $1 million or greater, the current charge in Policy years four and after is $0.035 (rather than $0.06) per $1,000 of base Policy face amount per month. The current Administrative Charges are the guaranteed maximum charges, except that in New Jersey, the Administrative Charge is guaranteed not to exceed $0.08 per $1,000 of face amount per month in all Policy years. In New York, the difference between the higher Administrative Charge applicable in the first three Policy years and the lower charges applicable thereafter is called the Acquisition Administrative Charge. Currently we intend to apply the Administrative Charge to no more than $4,000,000 of Policy face amount (base Policy plus Survivorship Level Term Insurance Rider) after the first Policy year. This means that the maximum Administrative Charge currently deducted in the second and third Policy years, for example, is $320 per month ($0.08 times 4,000) and in years four and later, $140 per month ($0.035 times 4,000). A-39 MORTALITY AND EXPENSE RISK CHARGE. We deduct a charge for the mortality and expense risks that we assume. This charge is at an annual rate of 0.90% during the first ten Policy years, and 0.45% thereafter. The rate is applied against cash value in the Variable Account and against the amount of any cash value held in the general account that represents a Policy loan. The mortality risk we assume is that insureds may live for shorter periods of time than we estimated. The expense risk we assume is that our costs of issuing and administering the Policies may be more than we estimated. 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. The amount at risk is the amount by which the death benefit (discounted at the monthly equivalent of 4% per year) exceeds the Policy's cash value. The amount at risk is affected by investment performance, loans, premium payments, fees and charges, partial surrenders, and face amount reductions. The cost of insurance rate for your Policy changes from month to month. The guaranteed cost of insurance rates for a Policy depend on each insured's -- underwriting class -- age on the first day of the Policy year -- sex (if the Policy is sex-based). The current cost of insurance rates will also depend on -- each insured's age at issue -- the Policy year -- the base Policy face amount (at issue). We guarantee that the joint rates will not be higher than rates based on the 1980 Commissioners Standard Ordinary Mortality Tables with smoker/nonsmoker modifications (the "1980 CSO Tables"). The actual rates we use may be lower than the maximum rates, depending on our expectations about our future mortality and expense experience, lapse rates and investment earnings. We review the adequacy of our cost of insurance rates periodically and may adjust them. Any change will apply prospectively. We underwrite each insured person separately. The underwriting classes we use are smoker standard, smoker preferred, smoker aggregate, smoker rated, nonsmoker standard, nonsmoker preferred, nonsmoker aggregate, and nonsmoker rated. Rated classes have higher cost of insurance deductions. We base the guaranteed maximum mortality charges for rated Policies on multiples of the 1980 CSO Tables. Three standard smoker and nonsmoker classes are available: -- smoker and nonsmoker preferred and standard, for Policies with initial face amounts (base Policy plus Survivorship Level Term Insurance Rider) of $200,000 or more if the insured's issue age is 20 through 75. -- smoker and nonsmoker aggregate, for Policies with initial face amounts (base Policy plus Survivorship Level Term Insurance Rider) below $200,000 and for all insureds whose issue age is above 75. Within each category (smoker and nonsmoker), the preferred class generally offers the best current cost of insurance rates and the standard class generally offers the least favorable current cost of insurance rates. Cost of insurance rates are generally lower for nonsmokers than for smokers and generally lower for females than for males. Within a given underwriting class, current cost of insurance rates are generally lower for insureds with lower issue ages. Current cost of insurance rates will generally be lower for a particular insured if the Policy face amount (base Policy plus Survivorship Level Term Insurance Rider) at issue is at least $1 million. We offer Policies with cost of insurance rates (and Policy values and benefits) that do not vary based on the sex of the insured where required by state law and to some employee benefit plans. Joint cost of insurance charges under the Policy do not change due to the first insured's death. A-40 The Survivorship Level Term Insurance Rider has its own cost of insurance rates that may be different from those of the base Policy. Generally, the term rider cost of insurance rates are less than or the same as those of the base Policy. (See "Additional Benefits by Rider".) If you choose "Inside Term" (where the face amount of the term rider is included with the face amount of the base Policy when we calculate the base Policy death benefit), then the total net amount at risk equals the total death benefit (that is, the base Policy death benefit calculated by including the term component) minus the cash value. We allocate that total net amount at risk first to the term insurance rider up to the face amount of the rider, and we allocate any excess net amount at risk to the base Policy. This generally results in lower combined total cost of insurance charges under the base Policy and term rider than if you choose "Outside Term". With "Outside Term" (where the term rider's face amount is not used in calculating the base Policy death benefit and is instead simply added to the base Policy's death proceeds), we calculate the net amount at risk and cost of insurance charges separately for the term insurance rider and the base Policy. The term rider's net amount at risk equals its face amount, and the base Policy's net amount at risk equals the base Policy's death benefit (which is calculated without the term rider component) minus the cash value. GUARANTEED DEATH BENEFIT RIDER CHARGE. The charge for the Guaranteed Death Benefit rider is $0.01 per $1000 of face amount (including the base Policy and any joint or single life term insurance rider). CHARGES FOR ADDITIONAL RIDER 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. LOAN INTEREST SPREAD We charge you interest on a loan at a maximum effective rate of 4.35% per year, compounded daily. We also credit interest on the amount we take from the Policy's sub-accounts as a result of the loan at a minimum annual effective rate of 4% per year, compounded daily. As a result, the loan interest spread will never be more than 0.35%. 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. There are daily charges against the Eligible Fund assets for investment advisory services and fund operating expenses. These are described in the Fee Table as well as in the attached Eligible Fund prospectuses. TAX CONSIDERATIONS INTRODUCTION The following summary provides a general description of the Federal income tax considerations associated with the Policies and does not purport to be complete or to cover all tax situations. This discussion is not intended as tax advice. Counsel or other competent tax 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 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, A-41 particularly as to survivorship life policies. Thus, there is some uncertainty regarding the Federal income tax treatment of survivorship life policies. Nevertheless, we anticipate that the Policy should be deemed to be a life insurance contract under Federal tax law. However, if either or both insureds are in a substandard underwriting class, or if a term rider is added, there is additional uncertainty and some risk that your Policy will not be treated as a life insurance contract under Federal tax law, particularly if you pay the full amount of premiums permitted under the Policy. 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 the variable account assets. There is little guidance in this area, and some features of the Policies, such as the flexibility of a Policy Owner to allocate payments and cash values, have not been explicitly addressed in published rulings. While we believe that the Policies do not give Policy Owners investment control over Variable Account assets, we reserve the right to modify the Policies as necessary to prevent a Policy Owner from being treated as the owner of the Variable Account assets supporting the Policies. In addition, the Code requires that the investments of the Variable Account be "adequately diversified" in order for the Policies to be treated as life insurance contracts for Federal income tax purposes. It is intended that the Variable Account, through the Eligible Funds, will satisfy these diversification requirements. The following discussion assumes that the Policy will qualify as a life insurance contract for Federal income tax purposes. TAX TREATMENT OF POLICY BENEFITS IN GENERAL. We believe that the death benefit under a Policy should be excludible from the gross income of the beneficiary. Federal and state estate, inheritance, 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. When distributions from a Policy occur, or when loans are taken out from or secured by a Policy, the tax consequences depend on whether the Policy is classified as a "Modified Endowment Contract." MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life insurance contracts are classified as "Modified Endowment Contracts," with less favorable income tax treatment than other life insurance contracts. In general a Policy will be classified as a Modified Endowment Contract if the amount of premiums paid into the Policy causes the Policy to fail the "7-pay test." A Policy will fail the 7-pay test if at any time in the first seven Policy years, the amount paid into the Policy exceeds the sum of the level premiums that would have been paid at that point under a Policy that provided for paid-up future benefits after the payment of seven level annual payments. If there is a reduction in the benefits under the Policy at any time, for example, as a result of a partial surrender, the 7-pay test will have to be reapplied as if the Policy had originally been issued at the reduced face amount. If there is a "material change" in the Policy's benefits or other terms, the Policy may have to be retested as if it were a newly issued Policy. A material change can occur, for example, when there is an increase in the death benefit which is due to the payment of an unnecessary premium. Unnecessary premiums are premiums paid into the Policy which are not needed in order to provide a death benefit equal to the lowest death benefit that was payable in the first seven Policy years. To prevent your Policy from becoming a Modified Endowment Contract, it may be necessary to limit premium payments or to limit reductions in benefits. A current or prospective Policy Owner should consult a tax advisor to determine whether a Policy transaction will cause the Policy to be classified as a Modified Endowment Contract. A-42 DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as Modified Endowment Contracts are subject to the following tax rules: (1) All distributions other than death benefits, including distributions upon surrender and withdrawals, from a Modified Endowment Contract will be treated first as distributions of gain taxable as ordinary income and as tax-free recovery of the Policy Owner's investment in the Policy only after all gain has been distributed. (2) Loans taken from or secured by a Policy classified as a Modified Endowment Contract are treated as distributions and taxed accordingly. (3) A 10 percent additional income tax is imposed on the amount subject to tax except where the distribution or loan is made when the Policy Owner has attained age 59 1/2 or is disabled, or where the distribution is part of a series of substantially equal periodic payments for the life (or life expectancy) of the Policy Owner or the joint lives (or joint life expectancies) of the Policy Owner and the Policy Owner's beneficiary or designated beneficiary. If a Policy becomes a modified endowment contract, distributions that occur during the contract year will be taxed as distributions from a modified endowment contract. In addition, distributions from a Policy within two years before it becomes a modified endowment contract will be taxed in this manner. This means that a distribution made from a Policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment contract. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy that is not classified as a Modified Endowment Contract are generally treated first as a recovery of the Policy Owner's investment in the Policy and only after the recovery of all investment in the Policy as taxable income. However, certain distributions which must be made in order to enable the Policy to continue to qualify as a life insurance contract for Federal income tax purposes if Policy benefits are reduced during the first 15 Policy years may be treated in whole or in part as ordinary income subject to tax. 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 regarding policy 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. WITHHOLDING. To the extent that Policy distributions are taxable, they are generally subject to withholding for the recipient's federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. TAX TREATMENT OF POLICY SPLIT. The policy split rider permits a Policy to be split into two individual Policies. It is not clear whether exercising the policy split rider will be treated as a taxable transaction or whether the individual Policies that result would be classified as Modified Endowment Contracts. A competent tax advisor should be consulted before exercising the policy split rider. A-43 EXPANDED DEATH BENEFIT RIDER. The tax consequences of continuing the Policy beyond the younger insured's 100th year are unclear. You should consult a tax adviser if you intend to keep the Policy in force beyond the younger insured's 100th year. 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 generation-skipping transfer taxes. For example, the transfer of the Policy to, or the designation as a beneficiary of, or the payment of proceeds to, a person who is assigned to a generation which is two or more generations below the generation assignment of the Policy Owner may have generation skipping transfer tax consequences under federal tax law. The individual situation of each Policy Owner or beneficiary will determine the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how ownership or receipt of Policy proceeds will be treated for purposes of federal, state and local estate, inheritance, generation skipping and other taxes. If a trustee under a pension or profit-sharing plan, or similar deferred compensation arrangement, owns a Policy, the Federal, state and estate tax consequences could differ. The amounts of life insurance that may be purchased on behalf of a participant in a pension or profit-sharing plan are limited. The current cost of insurance for the net amount at risk is treated as a "current fringe benefit" and must be included annually in the plan participant's gross income. We report this cost 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 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. If your Policy is part of an equity split dollar arrangement, there is a risk that some of the Policy cash value may be taxed prior to any Policy distribution. In addition, the Sarbanes-Oxley Act of 2002 (the "Act"), which was signed into law on July 30, 2002, prohibits, with limited exceptions, publicly-traded companies, including non-U.S. companies that have securities listed on U.S. exchanges, from extending, directly or indirectly or through a subsidiary, many types of personal loans to their directors or executive officers. It is possible that this prohibition may be interpreted to apply to split-dollar life insurance arrangements for directors and executive officers of such companies, since such arrangements can arguably be viewed as involving a loan from the employer for at least some purposes. Although the prohibition on loans generally took effect as of July 30, 2002, there is an exception for loans outstanding as of the date of enactment, so long as there is no material modification to the loan terms and the loan is not renewed after July 30, 2002. Any affected business contemplating the payment of a premium on an existing A-44 Policy or the purchase of a new Policy in connection with a split-dollar life insurance arrangement should consult legal counsel. CORPORATE 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 Policy Owner 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. FOREIGN TAX CREDITS. To the extent permitted under Federal tax law, we may claim the benefit of certain foreign tax credits attributable to taxes paid by certain Eligible Funds to foreign jurisdictions. NELICO'S INCOME TAXES Under current Federal income tax law NELICO is not taxed on the Variable Account's operations. Thus, currently we do not deduct a charge from the Variable Account for company Federal income taxes. (We do deduct a charge for Federal taxes from premiums.) We reserve the right to charge the Variable Account for any future Federal income taxes we may incur. Under current laws we may incur state and local taxes (in addition to premium taxes). These taxes are not now significant and we are not currently charging for them. If they increase, we may deduct charges for such taxes. DISTRIBUTION OF THE POLICIES SELLING NETWORK. We have entered into a distribution agreement with New England Securities Corporation ("New England Securities") for the distribution and sale of the Policies. New England Securities is affiliated with us. New England Securities may sell the Policies through its registered representatives. New England Securities also may enter into selling agreements with other broker-dealers who in turn may sell the Policies through their registered representatives. COMMISSION RATES AND OTHER COMPENSATION. We pay the following commissions and/or service fees for sales through New England Securities registered representatives: a maximum of 50% of the Target Premium paid in the first Policy year; 5% in Policy years two through ten; and 3% thereafter. Agents receive a commission of 3% of each payment in excess of the Target Premium in any year. Agents may elect to receive commissions equal to a maximum of .16% of cash value, instead of premium-based compensation, beginning in Policy year 11. Additional amounts may be paid and expenses may be reimbursed based on various factors. 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. 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, premium-based commissions paid to the broker-dealer on behalf of the registered representative will not exceed those listed above. A registered representative may choose a combination of premium-based and cash value-based compensation. In that case, the registered representative will receive maximum premium-based commissions up to the amounts listed above in Policy years one through ten, plus a maximum of .30% of cash value in Policy years two through ten and .09% thereafter. Selling firms may retain a portion of 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 also pay additional compensation to the broker-dealer and/or reimburse it for portions of Policy sales expenses. The registered representative may receive a portion of the expense reimbursement allowance paid to the broker-dealer. A-45 Also, New England Securities may receive 12b-1 fees from certain Eligible Funds. These Eligible Funds have adopted distribution plans pursuant to Rule 12b-1 under the Investment Company Act of 1940, which allows funds to pay fees out of fund assets to those who sell and distribute fund shares. The Statement of Additional Information contains additional information about the compensation paid for the sale of the Policies. LEGAL PROCEEDINGS NELICO, like other life insurance companies, is involved in lawsuits, including class action lawsuits. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, NELICO believes that, as of the date of this prospectus, there are no pending or threatened lawsuits that will have a materially adverse impact on it, the Variable Account, or New England Securities. RESTRICTIONS ON FINANCIAL TRANSACTIONS Federal laws designed to counter terrorism and prevent money laundering by criminals might, in certain circumstances, require us to reject a premium payment and/or block or "freeze" your account. If these laws apply in a particular situation, we would not be allowed to process any request for withdrawals, surrenders, or death benefits, make transfers, or continue making payments under your death benefit option until instructions are received from the appropriate regulator. We also may be required to provide additional information about your account to government regulators. EXPERTS The financial statements of the Variable Account included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the restatement described in Note 6 to the financial statements), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP, 201 E. Kennedy Boulevard, Tampa, Florida 33602, serves as independent public accountants for the Variable Account and NELICO. FINANCIAL STATEMENTS You may find the financial statements of NELICO in the Statement of Additional Information. NELICO's financial statements should be considered only as bearing on our ability to meet our obligations under the Policies. They should not be considered as bearing on the investment performance of the assets held in the Variable Account. A-46 GLOSSARY ACCOUNT. A sub-account of the Variable Account or the Fixed Account. AGE. The age of an insured refers to the insured's age at his or her nearest birthday. BENCHMARK PREMIUM. We use the Benchmark Premium to determine the amount of Surrender Charge that may apply on a surrender, partial surrender, lapse or face amount reduction. It is the same as the Target Premium for the base Policy only and does not include amounts which riders contribute to the Policy's total Target Premium. CASH VALUE. A Policy's cash value includes the amount of its cash value held in the Variable Account, the amount held in the Fixed Account and, if there is an outstanding policy loan, the amount of its cash value held in our general account as a result of the loan. EXCESS POLICY LOAN. When Policy loans plus accrued interest exceed the Policy's cash value less the applicable Surrender Charge. FIXED ACCOUNT. The Fixed Account is a part of our general account to which you may allocate net premiums. It provides guarantees of principal and interest. INVESTMENT START DATE. This is the latest of the date we receive a premium payment for the Policy, the date each of the insureds has signed his/her Part II of the Policy application (if any is required) and the Policy Date. NET CASH VALUE. The amount you receive if you surrender the Policy. It is equal to the Policy's cash value reduced by any applicable Surrender Charge and by any outstanding Policy loan and accrued interest. NET INVESTMENT EXPERIENCE. For any period, a sub-account's net investment experience equals the investment experience of the underlying Eligible Fund's shares for the same period, reduced by the amount of charges against the sub-account for that period. PLANNED PREMIUM. The Planned Premium is the premium payment schedule you choose to help meet your future goals under the Policy. The Planned Premium can be a fixed amount or can vary over time and is subject to certain limits under the Policy. Payments in addition to any Planned Premium are called unscheduled payments in the Policy and can be paid at any time, subject to certain limits. PREMIUMS. Premiums include all payments under the Policy, whether a Planned Premium or an unscheduled payment. POLICY DATE. The date on which coverage under the Policy and Monthly Deductions begin. If you make a premium payment with the application, unless you request otherwise, the Policy Date is generally the later of the date each of the insureds has signed his/her Part II of the application (if any) and receipt of the premium payment. If you choose to pay the initial premium upon delivery of the Policy, unless you request otherwise, the Policy Date is generally the date on which the Policy is delivered to you. TARGET PREMIUM. We use the Target Premium to determine the level of sales charge that applies to your premium payments, and also sales commissions. The Target Premium varies with (i) each $1,000 of face amount, (ii) the sex and underwriting class of each insured and their average issue age, and (iii) certain riders. The dollar amount of your Target Premium appears in Section 1 of your Policy as the amount to which the maximum premium load applies. YOU. "You" refers to the Policy Owner. A-47 APPENDIX A CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST In order to meet the Internal Revenue Code's definition of life insurance, the Policies provide that the death benefit will not be less than what is required by the "cash value accumulation test" under Section 7702(a)(1) of the Internal Revenue Code, or the "guideline premium test" under Section 7702(a)(2) of the Internal Revenue Code, as selected by you when the Policy is issued. (See "Death Benefits".) For the cash value accumulation test, here are sample net single premium factors for a male and female insured, both with an issue age of 55 and both in the nonsmoker preferred risk class.
POLICY YEAR NET SINGLE PREMIUM FACTOR ----------- ------------------------- 10........................................................ 2.19 20........................................................ 1.57 30........................................................ 1.25 40........................................................ 1.10
If the same insureds were both age 45 at issue, the net single premium factors would be:
POLICY YEAR NET SINGLE PREMIUM FACTOR ----------- ------------------------- 10........................................................ 3.13 20........................................................ 2.16 30........................................................ 1.56 40........................................................ 1.24 50........................................................ 1.10
For the guideline premium test, here are the corridor factors. TABLE I
AGE OF YOUNGER INSURED AT START OF BASIC CORRIDOR ENHANCED CORRIDOR THE POLICY YEAR FACTOR FACTOR ------------------- -------------- ----------------- 20 through 40 2.50 2.50 41 2.43 2.43 42 2.36 2.36 43 2.29 2.29 44 2.22 2.22 45 2.15 2.15 46 2.09 2.09 47 2.03 2.03 48 1.97 1.97 49 1.91 1.91 50 1.85 1.85 51 1.78 1.78 52 1.71 1.71 53 1.64 1.64 54 1.57 1.57 55 1.50 1.50 56 1.46 1.46 57 1.42 1.42 58 1.38 1.38 59 1.34 1.34 60 1.30 1.30 61 1.28 1.28
AGE OF YOUNGER INSURED AT START OF BASIC CORRIDOR ENHANCED CORRIDOR THE POLICY YEAR FACTOR FACTOR ------------------- -------------- ----------------- 62 1.26 1.26 63 1.24 1.24 64 1.22 1.22 65 1.20 1.20 66 1.19 1.19 67 1.18 1.18 68 1.17 1.17 69 1.16 1.16 70 1.15 1.15 71 1.13 1.13 72 1.11 1.11 73 1.09 1.09 74 1.07 1.07 75 1.05 1.05 76 1.05 1.05 77 1.05 1.05 78 1.05 1.05 79 1.05 1.05 80 1.05 1.05 81 1.05 1.10 82 1.05 1.15 83 1.05 1.20
A-48
AGE OF YOUNGER INSURED AT START OF BASIC CORRIDOR ENHANCED CORRIDOR THE POLICY YEAR FACTOR FACTOR ------------------- -------------- ----------------- 84 1.05 1.25 85 1.05 1.30 86 1.05 1.35 87 1.05 1.40 88 1.05 1.45 89 1.05 1.50 90 1.05 1.50 91 1.04 1.50 92 1.03 1.50
AGE OF YOUNGER INSURED AT START OF BASIC CORRIDOR ENHANCED CORRIDOR THE POLICY YEAR FACTOR FACTOR ------------------- -------------- ----------------- 93 1.02 1.50 94 1.01 1.50 95 1.01 1.50 96 1.01 1.40 97 1.01 1.30 98 1.01 1.20 99 1.01 1.10 100 1.00 1.00
A-49 Additional information about the Policy and the Variable Account can be found in the Statement of Additional Information. You may obtain a copy of the Statement of Additional Information, without charge, by calling 1-800-200-2214, by e-mailing us at AskUs@nef.com, or by logging on to our website at www.nef.com. You may also obtain, without charge, a personalized illustration of death benefits, net cash values and cash values by calling your registered representative. For information about historical values of the Variable Account Sub-Accounts, call 1-800-333-2501. For Sub-Account transfers and premium reallocations, call 1-800-200-2214. For current information about your Policy values, to change or update Policy information such as your billing address, billing mode, beneficiary or ownership, for information about other Policy transactions, and to ask questions about your Policy, you may call our TeleService Center at 1-800-388-4000. This prospectus incorporates by reference all of the information contained in the Statement of Additional Information, which is legally part of this prospectus. Information about the Policy and the Variable Account, including the Statement of Additional Information, is available for viewing and copying at the SEC's Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 202-942-8090. The Statement of Additional Information, reports and other information about the Variable Account are available on the SEC Internet site at www.sec.gov. Copies of this information may be obtained upon payment of a duplicating fee, by writing to the SEC's Public Reference Section at 450 Fifth Street, NW, Washington, DC 20549-0102. File No. 811-3713 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY INDEPENDENT AUDITORS' REPORT To the Policyholders of New England Variable Life Separate Account and Board of Directors of New England Life Insurance Company: We have audited the accompanying statement of assets and liabilities of each of the sub-accounts (as disclosed in Note 1 to the financial statements) comprising New England Variable Life Separate Account (the "Separate Account") of New England Life Insurance Company ("NELICO") as of December 31, 2002, and the related statements of operations and statements of changes in net assets for each of the periods in the three years then ended. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the underlying fund managers and the depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the sub-accounts of New England Variable Life Separate Account of NELICO as of December 31, 2002, the results of their operations and the changes in their net assets for each of the periods in the three years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 6 to the financial statements, the 2001 and 2000 statements of changes in net assets have been restated. DELOITTE & TOUCHE LLP Tampa, Florida April 10, 2003 AA-1 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002
ZENITH FUND ----------------------------------------------------------------------------------------- STATE STREET STATE STREET ZENITH RESEARCH RESEARCH MFS TOTAL HARRIS OAKMARK FI STRUCTURED EQUITY BOND INCOME MONEY MARKET RETURN FOCUSED VALUE EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ ----------- -------------- ------------- ASSETS: INVESTMENTS AT VALUE: ZENITH FUND Zenith Equity Portfolio (2,383,246 Shares; cost $944,397,027)....................... $628,557,355 $ -- $ -- $ -- $ -- $ -- State Street Research Bond Income Portfolio (1,228,842 Shares; cost $133,293,751)....................... -- 138,539,663 -- -- -- -- State Street Research Money Market Portfolio (1,137,330 Shares; cost $113,732,901)....................... -- -- 113,733,013 -- -- -- MFS Total Return Portfolio (574,356 Shares; cost $92,237,533)........................ -- -- -- 68,830,789 -- -- Harris Oakmark Focused Value Portfolio (699,281 Shares; cost $113,714,981)....................... -- -- -- -- 118,409,284 -- FI Structured Equity Portfolio (519,375 Shares; cost $97,071,589)........................ -- -- -- -- -- 64,869,871 Loomis Sayles Small Cap Portfolio (783,709 Shares; cost $137,472,089)....................... -- -- -- -- -- -- Loomis Sayles Balanced Portfolio (1,490,390 Shares; cost $20,258,029)........................ -- -- -- -- -- -- Davis Venture Value Portfolio (11,928,265 Shares; cost $286,984,615)....................... -- -- -- -- -- -- Alger Equity Growth Portfolio (12,749,966 Shares; cost $321,441,047)....................... -- -- -- -- -- -- Salomon Brothers U.S. Government Portfolio (104,251 Shares; cost $1,237,923)... -- -- -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (107,975 Shares; cost $1,289,589)... -- -- -- -- -- -- MFS Investors Trust Portfolio (635,869 Shares; cost $5,711,634)... -- -- -- -- -- -- MFS Research Managers Portfolio (1,271,750 Shares; cost $14,052,394)........................ -- -- -- -- -- -- FI Mid Cap Opportunities Portfolio (3,560 Shares; cost $27,829)........ -- -- -- -- -- -- METROPOLITAN FUND Janus Mid Cap Portfolio (2,116,219 Shares; cost $41,517,403)........................ -- -- -- -- -- -- Putnam Large Cap Growth Portfolio (1,647,111 Shares; cost $8,609,367)......................... -- -- -- -- -- -- Russell 2000 Index Portfolio (878,449 Shares; cost $8,595,594)... -- -- -- -- -- -- Putnam International Stock Portfolio (3,310,935 Shares; cost $34,657,898)........................ -- -- -- -- -- -- State Street Research Aurora Portfolio (2,807,899 Shares; cost $38,089,774)........................ -- -- -- -- -- -- ------------ ------------ ------------ ----------- ------------ ----------- Total investments.................... 628,557,355 138,539,663 113,733,013 68,830,789 118,409,284 64,869,871 Cash and Accounts Receivable......... -- -- 69,674 -- -- -- ------------ ------------ ------------ ----------- ------------ ----------- Total assets......................... 628,557,355 138,539,663 113,802,687 68,830,789 118,409,284 64,869,871 LIABILITIES: Due to New England Life Insurance Company............................. 5,702,324 1,256,843 1,101,469 624,439 1,074,219 588,505 ------------ ------------ ------------ ----------- ------------ ----------- NET ASSETS........................... $622,855,031 $137,282,820 $112,701,218 $68,206,350 $117,335,065 $64,281,366 ============ ============ ============ =========== ============ =========== ZENITH FUND ----------------------------- LOOMIS SAYLES LOOMIS SAYLES SMALL CAP BALANCED PORTFOLIO PORTFOLIO ------------- ------------- ASSETS: INVESTMENTS AT VALUE: ZENITH FUND Zenith Equity Portfolio (2,383,246 Shares; cost $944,397,027)....................... $ -- $ -- State Street Research Bond Income Portfolio (1,228,842 Shares; cost $133,293,751)....................... -- -- State Street Research Money Market Portfolio (1,137,330 Shares; cost $113,732,901)....................... -- -- MFS Total Return Portfolio (574,356 Shares; cost $92,237,533)........................ -- -- Harris Oakmark Focused Value Portfolio (699,281 Shares; cost $113,714,981)....................... -- -- FI Structured Equity Portfolio (519,375 Shares; cost $97,071,589)........................ -- -- Loomis Sayles Small Cap Portfolio (783,709 Shares; cost $137,472,089)....................... 108,857,223 -- Loomis Sayles Balanced Portfolio (1,490,390 Shares; cost $20,258,029)........................ -- 15,678,907 Davis Venture Value Portfolio (11,928,265 Shares; cost $286,984,615)....................... -- -- Alger Equity Growth Portfolio (12,749,966 Shares; cost $321,441,047)....................... -- -- Salomon Brothers U.S. Government Portfolio (104,251 Shares; cost $1,237,923)... -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (107,975 Shares; cost $1,289,589)... -- -- MFS Investors Trust Portfolio (635,869 Shares; cost $5,711,634)... -- -- MFS Research Managers Portfolio (1,271,750 Shares; cost $14,052,394)........................ -- -- FI Mid Cap Opportunities Portfolio (3,560 Shares; cost $27,829)........ -- -- METROPOLITAN FUND Janus Mid Cap Portfolio (2,116,219 Shares; cost $41,517,403)........................ -- -- Putnam Large Cap Growth Portfolio (1,647,111 Shares; cost $8,609,367)......................... -- -- Russell 2000 Index Portfolio (878,449 Shares; cost $8,595,594)... -- -- Putnam International Stock Portfolio (3,310,935 Shares; cost $34,657,898)........................ -- -- State Street Research Aurora Portfolio (2,807,899 Shares; cost $38,089,774)........................ -- -- ------------ ----------- Total investments.................... 108,857,223 15,678,907 Cash and Accounts Receivable......... -- -- ------------ ----------- Total assets......................... 108,857,223 15,678,907 LIABILITIES: Due to New England Life Insurance Company............................. 987,562 142,240 ------------ ----------- NET ASSETS........................... $107,869,661 $15,536,667 ============ ===========
See Notes to Financial Statements AA-2
ZENITH FUND -------------------------------------------------------------------------------------------------------- SALOMON DAVIS SALOMON BROTHERS MFS MFS VENTURE ALGER EQUITY BROTHERS STRATEGIC BOND INVESTORS RESEARCH FI MID CAP VALUE GROWTH U.S. GOVERNMENT OPPORTUNITIES TRUST MANAGERS OPPORTUNITIES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ --------------- -------------- ---------- ---------- ------------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 231,289,058 -- -- -- -- -- -- -- 176,714,523 -- -- -- -- -- -- -- 1,286,459 -- -- -- -- -- -- -- 1,235,235 -- -- -- -- -- -- -- 4,330,266 -- -- -- -- -- -- -- 8,711,486 -- -- -- -- -- -- -- 29,159 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------ ------------ ---------- ---------- ---------- ---------- ------- 231,289,058 176,714,523 1,286,459 1,235,235 4,330,266 8,711,486 29,159 -- -- -- -- -- -- -- ------------ ------------ ---------- ---------- ---------- ---------- ------- 231,289,058 176,714,523 1,286,459 1,235,235 4,330,266 8,711,486 29,159 2,098,273 1,603,169 11,671 11,206 39,285 79,031 265 ------------ ------------ ---------- ---------- ---------- ---------- ------- $229,190,785 $175,111,354 $1,274,788 $1,224,029 $4,290,981 $8,632,455 $28,894 ============ ============ ========== ========== ========== ========== ======= METROPOLITAN FUND -------------------------------------------------------------------- PUTNAM RUSSELL PUTNAM STATE STREET JANUS MID LARGE CAP 2000 INTERNATIONAL RESEARCH CAP GROWTH INDEX STOCK AURORA PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------- ---------- ---------- ------------- ------------ $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 22,029,841 -- -- -- -- -- 5,913,129 -- -- -- -- -- 7,247,200 -- -- -- -- -- 25,692,853 -- -- -- -- -- 31,083,438 ----------- ---------- ---------- ----------- ----------- 22,029,841 5,913,129 7,247,200 25,692,853 31,083,438 -- -- -- -- -- ----------- ---------- ---------- ----------- ----------- 22,029,841 5,913,129 7,247,200 25,692,853 31,083,438 199,857 53,644 65,747 233,088 281,992 ----------- ---------- ---------- ----------- ----------- $21,829,984 $5,859,485 $7,181,453 $25,459,765 $30,801,446 =========== ========== ========== =========== ===========
See Notes to Financial Statements AA-3 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002
METROPOLITAN FUND ---------------------------------------------------------------------- MORGAN METLIFE MID METLIFE LEHMAN BROTHERS STANLEY CAP STOCK JANUS STOCK INDEX AGGREGATE BOND EAFE INDEX INDEX GROWTH PORTFOLIO INDEX PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ --------------- ---------- ----------- ---------- ASSETS: INVESTMENTS AT VALUE: METROPOLITAN FUND (CONTINUED) MetLife Stock Index Portfolio (6,826,967 Shares; cost $217,371,181)............................... $159,819,306 $ -- $ -- $ -- $ -- Lehman Brothers Aggregate Bond Index Portfolio (1,927,501 Shares; cost $20,485,160)............. -- 21,530,182 -- -- -- Morgan Stanley EAFE Index Portfolio (241,935 Shares; cost $1,915,937)......................... -- -- 1,756,444 -- -- MetLife Mid Cap Stock Index Portfolio (385,823 Shares; cost $3,856,286)......................... -- -- -- 3,422,251 -- Janus Growth Portfolio (251,689 Shares; cost $1,711,647)...................................... -- -- -- -- 1,366,671 Franklin Templeton Small Cap Growth Portfolio (205,844 Shares; cost $1,518,839)................ -- -- -- -- -- State Street Research Investment Trust Portfolio (16,992 Shares; cost $362,715)................... -- -- -- -- -- State Street Research Large Cap Value Portfolio (55,894 Shares; cost $454,370)................... -- -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (308,770 Shares; cost $4,168,294)................ -- -- -- -- -- Harris Oakmark Large Cap Value Portfolio (148,762 Shares; cost $1,482,093)......................... -- -- -- -- -- AMERICAN FUND American Funds Growth Portfolio (1,301,381 Shares; cost $51,283,175)................................ -- -- -- -- -- American Funds Growth-Income Portfolio (1,221,984 Shares; cost $35,460,027)........................ -- -- -- -- -- American Funds Global Small Cap Portfolio (729,823 Shares; cost $7,810,378)......................... -- -- -- -- -- FIDELITY FUND Fidelity VIP Equity-Income Portfolio (7,113,751 Shares; cost $147,244,213)....................... -- -- -- -- -- Fidelity VIP Overseas Portfolio (7,869,421 Shares; cost $145,775,673)............................... -- -- -- -- -- Fidelity VIP High Income Portfolio (3,175,711 Shares; cost $23,166,348)........................ -- -- -- -- -- Fidelity VIP Asset Manager Portfolio (1,260,836 Shares; cost $19,592,852)........................ -- -- -- -- -- MET INVESTORS FUND MFS Mid Cap Growth Portfolio (345,205 Shares; cost $2,054,243)...................................... -- -- -- -- -- PIMCO Total Return Portfolio (1,027,469 Shares; cost $11,307,538)................................ -- -- -- -- -- PIMCO Innovation Portfolio (97,532 Shares; cost $318,714)........................................ -- -- -- -- -- Met/AIM Mid Cap Core Equity Portfolio (72,082 Shares; cost $723,217)........................... -- -- -- -- -- Met/AIM Small Cap Growth Portfolio (131,870 Shares; cost $1,221,808)......................... -- -- -- -- -- State Street Research Concentrated International Portfolio (3,436 Shares; cost $31,303)........... -- -- -- -- -- ------------ ----------- ---------- ---------- ---------- Total investments................................. 159,819,306 21,530,182 1,756,444 3,422,251 1,366,671 Cash and Accounts Receivable...................... -- -- -- -- -- ------------ ----------- ---------- ---------- ---------- Total assets...................................... 159,819,306 21,530,182 1,756,444 3,422,251 1,366,671 LIABILITIES: Due to New England Life Insurance Company......... 1,449,894 195,324 15,935 31,047 12,399 ------------ ----------- ---------- ---------- ---------- NET ASSETS........................................ $158,369,412 $21,334,858 $1,740,509 $3,391,204 $1,354,272 ============ =========== ========== ========== ========== METROPOLITAN FUND ------------------------------------------------------------------------ STATE STREET STATE STREET NEUBERGER FRANKLIN TEMPLETON RESEARCH RESEARCH LARGE BERMAN PARTNERS SMALL CAP GROWTH INVESTMENT TRUST CAP VALUE MID CAP VALUE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------------ ---------------- -------------- --------------- ASSETS: INVESTMENTS AT VALUE: METROPOLITAN FUND (CONTINUED) MetLife Stock Index Portfolio (6,826,967 Shares; cost $217,371,181)............................... $ -- $ -- $ -- $ -- Lehman Brothers Aggregate Bond Index Portfolio (1,927,501 Shares; cost $20,485,160)............. -- -- -- -- Morgan Stanley EAFE Index Portfolio (241,935 Shares; cost $1,915,937)......................... -- -- -- -- MetLife Mid Cap Stock Index Portfolio (385,823 Shares; cost $3,856,286)......................... -- -- -- -- Janus Growth Portfolio (251,689 Shares; cost $1,711,647)...................................... -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (205,844 Shares; cost $1,518,839)................ 1,319,459 -- -- -- State Street Research Investment Trust Portfolio (16,992 Shares; cost $362,715)................... -- 324,882 -- -- State Street Research Large Cap Value Portfolio (55,894 Shares; cost $454,370)................... -- -- 444,357 -- Neuberger Berman Partners Mid Cap Value Portfolio (308,770 Shares; cost $4,168,294)................ -- -- -- 3,939,908 Harris Oakmark Large Cap Value Portfolio (148,762 Shares; cost $1,482,093)......................... -- -- -- -- AMERICAN FUND American Funds Growth Portfolio (1,301,381 Shares; cost $51,283,175)................................ -- -- -- -- American Funds Growth-Income Portfolio (1,221,984 Shares; cost $35,460,027)........................ -- -- -- -- American Funds Global Small Cap Portfolio (729,823 Shares; cost $7,810,378)......................... -- -- -- -- FIDELITY FUND Fidelity VIP Equity-Income Portfolio (7,113,751 Shares; cost $147,244,213)....................... -- -- -- -- Fidelity VIP Overseas Portfolio (7,869,421 Shares; cost $145,775,673)............................... -- -- -- -- Fidelity VIP High Income Portfolio (3,175,711 Shares; cost $23,166,348)........................ -- -- -- -- Fidelity VIP Asset Manager Portfolio (1,260,836 Shares; cost $19,592,852)........................ -- -- -- -- MET INVESTORS FUND MFS Mid Cap Growth Portfolio (345,205 Shares; cost $2,054,243)...................................... -- -- -- -- PIMCO Total Return Portfolio (1,027,469 Shares; cost $11,307,538)................................ -- -- -- -- PIMCO Innovation Portfolio (97,532 Shares; cost $318,714)........................................ -- -- -- -- Met/AIM Mid Cap Core Equity Portfolio (72,082 Shares; cost $723,217)........................... -- -- -- -- Met/AIM Small Cap Growth Portfolio (131,870 Shares; cost $1,221,808)......................... -- -- -- -- State Street Research Concentrated International Portfolio (3,436 Shares; cost $31,303)........... -- -- -- -- ---------- -------- -------- ---------- Total investments................................. 1,319,459 324,882 444,357 3,939,908 Cash and Accounts Receivable...................... -- -- -- -- ---------- -------- -------- ---------- Total assets...................................... 1,319,459 324,882 444,357 3,939,908 LIABILITIES: Due to New England Life Insurance Company......... 11,970 2,947 4,031 35,743 ---------- -------- -------- ---------- NET ASSETS........................................ $1,307,489 $321,935 $440,326 $3,904,165 ========== ======== ======== ========== METROPOLITAN FUND --------------- HARRIS OAKMARK LARGE CAP VALUE PORTFOLIO --------------- ASSETS: INVESTMENTS AT VALUE: METROPOLITAN FUND (CONTINUED) MetLife Stock Index Portfolio (6,826,967 Shares; cost $217,371,181)............................... $ -- Lehman Brothers Aggregate Bond Index Portfolio (1,927,501 Shares; cost $20,485,160)............. -- Morgan Stanley EAFE Index Portfolio (241,935 Shares; cost $1,915,937)......................... -- MetLife Mid Cap Stock Index Portfolio (385,823 Shares; cost $3,856,286)......................... -- Janus Growth Portfolio (251,689 Shares; cost $1,711,647)...................................... -- Franklin Templeton Small Cap Growth Portfolio (205,844 Shares; cost $1,518,839)................ -- State Street Research Investment Trust Portfolio (16,992 Shares; cost $362,715)................... -- State Street Research Large Cap Value Portfolio (55,894 Shares; cost $454,370)................... -- Neuberger Berman Partners Mid Cap Value Portfolio (308,770 Shares; cost $4,168,294)................ -- Harris Oakmark Large Cap Value Portfolio (148,762 Shares; cost $1,482,093)......................... 1,429,605 AMERICAN FUND American Funds Growth Portfolio (1,301,381 Shares; cost $51,283,175)................................ -- American Funds Growth-Income Portfolio (1,221,984 Shares; cost $35,460,027)........................ -- American Funds Global Small Cap Portfolio (729,823 Shares; cost $7,810,378)......................... -- FIDELITY FUND Fidelity VIP Equity-Income Portfolio (7,113,751 Shares; cost $147,244,213)....................... -- Fidelity VIP Overseas Portfolio (7,869,421 Shares; cost $145,775,673)............................... -- Fidelity VIP High Income Portfolio (3,175,711 Shares; cost $23,166,348)........................ -- Fidelity VIP Asset Manager Portfolio (1,260,836 Shares; cost $19,592,852)........................ -- MET INVESTORS FUND MFS Mid Cap Growth Portfolio (345,205 Shares; cost $2,054,243)...................................... -- PIMCO Total Return Portfolio (1,027,469 Shares; cost $11,307,538)................................ -- PIMCO Innovation Portfolio (97,532 Shares; cost $318,714)........................................ -- Met/AIM Mid Cap Core Equity Portfolio (72,082 Shares; cost $723,217)........................... -- Met/AIM Small Cap Growth Portfolio (131,870 Shares; cost $1,221,808)......................... -- State Street Research Concentrated International Portfolio (3,436 Shares; cost $31,303)........... -- ---------- Total investments................................. 1,429,605 Cash and Accounts Receivable...................... -- ---------- Total assets...................................... 1,429,605 LIABILITIES: Due to New England Life Insurance Company......... 12,969 ---------- NET ASSETS........................................ $1,416,636 ==========
See Notes to Financial Statements AA-4
AMERICAN FUND FIDELITY FUND ---------------------------------------------- ------------------------------------------------------------ AMERICAN AMERICAN FIDELITY VIP FUNDS FUNDS GROWTH- AMERICAN FUNDS FIDELITY VIP FIDELITY VIP HIGH FIDELITY VIP GROWTH INCOME GLOBAL SMALL CAP EQUITY-INCOME OVERSEAS INCOME ASSET MANAGER PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------- ------------- ---------------- ------------- ------------- ------------ ------------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 43,322,970 -- -- -- -- -- -- -- 31,185,027 -- -- -- -- -- -- -- 6,736,270 -- -- -- -- -- -- -- 129,185,724 -- -- -- -- -- -- -- 86,406,241 -- -- -- -- -- -- -- 18,831,968 -- -- -- -- -- -- -- 16,075,654 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ----------- ----------- ---------- ------------ ----------- ----------- ----------- 43,322,970 31,185,027 6,736,270 129,185,724 86,406,241 18,831,968 16,075,654 284,077 -- -- -- -- -- -- ----------- ----------- ---------- ------------ ----------- ----------- ----------- 43,607,047 31,185,027 6,736,270 129,185,724 86,406,241 18,831,968 16,075,654 -- 954,105 82,336 1,171,984 783,885 170,845 145,840 ----------- ----------- ---------- ------------ ----------- ----------- ----------- $43,607,047 $30,230,922 $6,653,934 $128,013,740 $85,622,356 $18,661,123 $15,929,814 =========== =========== ========== ============ =========== =========== =========== MET INVESTORS FUND ----------------------------------------------------------------------------------------- MFS MID MET/AIM MET/AIM STATE STREET RESEARCH CAP PIMCO PIMCO MID CAP SMALL CAP CONCENTRATED GROWTH TOTAL RETURN INNOVATION CORE EQUITY GROWTH INTERNATIONAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ---------- ------------ ---------- ----------- ---------- --------------------- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 1,608,654 -- -- -- -- -- -- 11,651,503 -- -- -- -- -- -- 298,449 -- -- -- -- -- -- 709,285 -- -- -- -- -- -- 1,140,675 -- -- -- -- -- -- 30,548 ---------- ----------- -------- -------- ---------- ------- 1,608,654 11,651,503 298,449 709,285 1,140,675 30,548 -- -- -- -- -- -- ---------- ----------- -------- -------- ---------- ------- 1,608,654 11,651,503 298,449 709,285 1,140,675 30,548 14,594 105,703 2,708 6,435 10,348 277 ---------- ----------- -------- -------- ---------- ------- $1,594,060 $11,545,800 $295,741 $702,850 $1,130,327 $30,271 ========== =========== ======== ======== ========== =======
See Notes to Financial Statements AA-5 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS
ZENITH FUND ----------------------------------------------------------------------------------------- ZENITH EQUITY STATE STREET RESEARCH PORTFOLIO BOND INCOME PORTFOLIO -------------------------------------------- ------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------- ------------- ------------ ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends........................ $ 2,662,934 $ 14,861,966 $ 6,825,924 $5,955,168 $7,824,384 $ -- Expenses......................... 4,419,284 5,409,982 6,877,345 813,619 639,637 511,944 ------------- ------------- ------------ ---------- ---------- ---------- Net investment (loss) income...... (1,756,350) 9,451,984 (51,421) 5,141,549 7,184,747 (511,944) ------------- ------------- ------------ ---------- ---------- ---------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............ 15,512,708 (2,138,650) 65,557 1,095,749 (7,181) (36,738) Change in net unrealized (depreciation) appreciation of investments for the period....... (202,056,844) (195,071,228) (63,482,902) 3,365,793 291,924 6,087,779 ------------- ------------- ------------ ---------- ---------- ---------- Net realized and unrealized (losses) gains on investments.... (186,544,136) (197,209,878) (63,417,345) 4,461,542 284,743 6,051,041 ------------- ------------- ------------ ---------- ---------- ---------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $(188,300,486) $(187,757,894) $(63,468,766) $9,603,091 $7,469,490 $5,539,097 ============= ============= ============ ========== ========== ========== ZENITH FUND ------------------------------------------ STATE STREET RESEARCH MONEY MARKET PORTFOLIO ------------------------------------------ FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends........................ $1,416,764 $3,437,775 $4,511,876 Expenses......................... 531,130 495,268 500,145 ---------- ---------- ---------- Net investment (loss) income...... 885,634 2,942,507 4,011,731 ---------- ---------- ---------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............ -- -- -- Change in net unrealized (depreciation) appreciation of investments for the period....... -- -- -- ---------- ---------- ---------- Net realized and unrealized (losses) gains on investments.... -- -- -- ---------- ---------- ---------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $ 885,634 $2,942,507 $4,011,731 ========== ========== ==========
See Notes to Financial Statements AA-6
ZENITH FUND ------------------------------------------------------------------------------------------- MFS TOTAL RETURN HARRIS OAKMARK FOCUSED PORTFOLIO VALUE PORTFOLIO ------------------------------------------ ------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ $ 8,009,640 $13,736,454 $ 1,581,304 $ 227,624 $ 378,221 $ -- 438,539 436,823 448,504 694,231 481,741 259,625 ------------ ----------- ----------- ------------ ----------- ---------- 7,571,101 13,299,631 1,132,800 (466,607) (103,520) (259,625) ------------ ----------- ----------- ------------ ----------- ---------- 687,033 (18,326) (42,829) 3,813,413 26,315 (23,066) (12,621,080) (16,406,840) (3,979,194) (15,327,523) 16,647,698 7,704,271 ------------ ----------- ----------- ------------ ----------- ---------- (11,934,047) (16,425,166) (4,022,023) (11,514,110) 16,674,013 7,681,205 ------------ ----------- ----------- ------------ ----------- ---------- $(4,362,946) $(3,125,535) $(2,889,223) $(11,980,717) $16,570,493 $7,421,580 ============ =========== =========== ============ =========== ========== ZENITH FUND --- --------------------------------------------------------------------------------------- FI STRUCTURED EQUITY LOOMIS SAYLES SMALL CAP PORTFOLIO PORTFOLIO ------------------------------------------ ------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ $ 676,406 $ 814,774 $ 2,499,909 $ 140,106 $10,644,439 $1,181,882 480,986 591,043 659,437 796,837 900,016 902,187 ------------ ------------ ----------- ------------ ------------ ---------- 195,420 223,731 1,840,472 (656,731) 9,744,423 279,695 ------------ ------------ ----------- ------------ ------------ ---------- 1,899,725 (100,512) (18,902) 4,513,962 (5,616) 145,497 (18,712,878) (14,499,780) (7,555,204) (34,940,969) (23,777,058) 2,636,194 ------------ ------------ ----------- ------------ ------------ ---------- (16,813,153) (14,600,292) (7,574,106) (30,427,007) (23,782,674) 2,781,691 ------------ ------------ ----------- ------------ ------------ ---------- $(16,617,733) $(14,376,561) $(5,733,634) $(31,083,738) $(14,038,251) $3,061,386 ============ ============ =========== ============ ============ ==========
See Notes to Financial Statements AA-7 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS
ZENITH FUND --------------------------------------------------------------------------------------- LOOMIS SAYLES BALANCED DAVIS VENTURE VALUE PORTFOLIO PORTFOLIO ------------------------------------------ ------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends........................ $ 387,846 $ 712,069 $ 5,904 $ 2,231,971 $25,909,682 $ -- Expenses......................... 111,358 120,816 117,597 1,567,223 1,680,747 1,440,887 ----------- ----------- --------- ------------ ------------ ----------- Net investment (loss) income...... 276,488 591,253 (111,693) 664,748 24,228,935 (1,440,887) ----------- ----------- --------- ------------ ------------ ----------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............ (1,537,528) (21,371) 79,174 8,638,974 (20,358) (178,858) Change in net unrealized (depreciation) appreciation of investments for the period....... (1,288,815) (1,463,815) (439,098) (56,221,915) (55,778,227) 17,900,696 ----------- ----------- --------- ------------ ------------ ----------- Net realized and unrealized (losses) gains on investments.... (2,826,343) (1,485,186) (359,924) (47,582,941) (55,798,585) 17,721,838 ----------- ----------- --------- ------------ ------------ ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $(2,549,855) $ (893,933) $(471,617) $(46,918,193) $(31,569,650) $16,280,951 =========== =========== ========= ============ ============ =========== ZENITH FUND ------------------------------------------ ALGER EQUITY GROWTH PORTFOLIO ------------------------------------------ FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends........................ $ -- $17,711,821 $ 3,306,492 Expenses......................... 1,346,954 1,827,854 1,981,053 ------------ ------------ ------------ Net investment (loss) income...... (1,346,954) 15,883,967 1,325,439 ------------ ------------ ------------ NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............ 3,186,557 (3,900,025) 416,391 Change in net unrealized (depreciation) appreciation of investments for the period....... (92,753,612) (51,416,836) (52,833,134) ------------ ------------ ------------ Net realized and unrealized (losses) gains on investments.... (89,567,055) (55,316,861) (52,416,743) ------------ ------------ ------------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................... $(90,914,009) $(39,432,894) $(51,091,304) ============ ============ ============
See Notes to Financial Statements AA-8
ZENITH FUND --------------------------------------------------------------------------------------- SALOMON BROTHERS U.S. SALOMON BROTHERS STRATEGIC GOVERNMENT PORTFOLIO BOND OPPORTUNITIES PORTFOLIO ------------------------------------------ ------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ $41,032 $50,491 $ -- $ 85,774 $ 93,555 $ -- 702 7,530 7,636 11,878 10,518 10,241 ------- ------- ------- -------- -------- -------- 40,330 42,961 (7,636) 73,896 83,037 (10,241) ------- ------- ------- -------- -------- -------- 7,689 86 148 (26,212) 340 5,936 24,678 4,160 76,520 52,240 (18,408) 66,382 ------- ------- ------- -------- -------- -------- 32,367 4,246 76,668 26,028 (18,068) 72,318 ------- ------- ------- -------- -------- -------- $72,697 $47,207 $69,032 $ 99,924 $ 64,969 $ 62,077 ======= ======= ======= ======== ======== ======== ZENITH FUND --------------------------------------------------------------------------------------- MFS INVESTORS TRUST MFS RESEARCH MANAGERS PORTFOLIO PORTFOLIO ------------------------------------------ ------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ $ 20,402 $ 17,364 $ 966 $ 18,116 $ 129,228 $ 2,453 25,204 24,863 13,612 63,539 81,648 41,150 ----------- --------- -------- ----------- ----------- ----------- (4,802) (7,499) (12,646) (45,423) 47,580 (38,697) ----------- --------- -------- ----------- ----------- ----------- (398,792) (11,947) (1,002) (2,345,654) (277,116) 60,137 (679,536) (702,670) (20,733) (643,921) (3,572,735) (1,262,543) ----------- --------- -------- ----------- ----------- ----------- (1,078,328) (714,617) (21,735) (2,989,575) (3,849,851) (1,202,406) ----------- --------- -------- ----------- ----------- ----------- $(1,083,130) $(722,116) $(34,381) $(3,034,998) $(3,802,271) $(1,241,103) =========== ========= ======== =========== =========== ===========
See Notes to Financial Statements AA-9 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS
ZENITH FUND METROPOLITAN FUND -------------- -------------------------------------------- FI MID CAP OPPORTUNITIES JANUS MID CAP PORTFOLIO PORTFOLIO -------------- -------------------------------------------- FOR THE PERIOD FOR THE FOR THE FOR THE PERIOD MAY 1, 2002 TO YEAR ENDED YEAR ENDED MAY 1, 2000 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2002 2001 2000 -------------- ------------ ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends......................... $ -- $ -- $ -- $ 1,356,774 Expenses.......................... 62 135,700 161,569 62,269 ------ ------------ ------------ ------------ Net investment (loss) income....... (62) (135,700) (161,569) 1,294,505 ------ ------------ ------------ ------------ NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............. 186 (12,257,869) (417,064) 764,362 Change in net unrealized (depreciation) appreciation of investments for the period........ 1,330 3,466,757 (11,300,813) (11,653,506) ------ ------------ ------------ ------------ Net realized and unrealized (losses) gains on investments..... 1,516 (8,791,112) (11,717,877) (10,889,144) ------ ------------ ------------ ------------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $1,454 $(8,926,812) $(11,879,446) $ (9,594,639) ====== ============ ============ ============ METROPOLITAN FUND -------------------------------------------- PUTNAM LARGE CAP GROWTH PORTFOLIO -------------------------------------------- FOR THE FOR THE FOR THE PERIOD YEAR ENDED YEAR ENDED MAY 1, 2000 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends......................... $ -- $ -- $ -- Expenses.......................... 33,891 36,744 10,822 ----------- ----------- ----------- Net investment (loss) income....... (33,891) (36,744) (10,822) ----------- ----------- ----------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............. (2,630,379) (249,945) 4,567 Change in net unrealized (depreciation) appreciation of investments for the period........ 539,725 (2,008,286) (1,227,677) ----------- ----------- ----------- Net realized and unrealized (losses) gains on investments..... (2,090,654) (2,258,231) (1,223,110) ----------- ----------- ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $(2,124,545) $(2,294,975) $(1,233,932) =========== =========== ===========
See Notes to Financial Statements AA-10
METROPOLITAN FUND ------------------------------------------------------------------------------------------------------------------------- RUSSELL 2000 INDEX PUTNAM INTERNATIONAL STATE STREET RESEARCH PORTFOLIO STOCK PORTFOLIO AURORA PORTFOLIO -------------------------------------------- ------------------------------------------ ----------------------------- FOR THE FOR THE FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE FOR THE PERIOD YEAR ENDED YEAR ENDED MAY 1, 2000 TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MAY 1, 2001 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 2002 2001 ------------ ------------ -------------- ------------ ------------ ------------ ------------ -------------- $ 40,726 $ 10,030 $ 306,539 $ 206,841 $ 766,200 $ 375,644 $ 134,323 $ -- 33,860 22,945 5,829 152,218 138,598 146,270 122,294 33,101 ----------- -------- --------- ----------- ----------- ----------- ----------- -------- 6,866 (12,915) 300,710 54,623 627,602 229,374 12,029 (33,101) ----------- -------- --------- ----------- ----------- ----------- ----------- -------- (563,915) (22,652) 22,026 (449,822) (115,753) (3,434) (643,247) (9,118) (1,042,793) 337,385 (642,986) (4,539,403) (5,013,560) (3,060,509) (7,624,022) 617,685 ----------- -------- --------- ----------- ----------- ----------- ----------- -------- (1,606,708) 314,733 (620,960) (4,989,225) (5,129,313) (3,063,943) (8,267,269) 608,567 ----------- -------- --------- ----------- ----------- ----------- ----------- -------- $(1,599,842) $301,818 $(320,250) $(4,934,602) $(4,501,711) $(2,834,569) $(8,255,240) $575,466 =========== ======== ========= =========== =========== =========== =========== ======== METROPOLITAN FUND ------------------------------------------ METLIFE STOCK INDEX PORTFOLIO ------------------------------------------ FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 ------------ ------------ ------------ $ 3,032,777 $ 7,336,294 $ 149,711 1,116,031 1,296,360 1,351,047 ------------ ------------ ------------ 1,916,746 6,039,934 (1,201,336) ------------ ------------ ------------ (5,805,619) 26,752,426 (203,449) (42,875,959) (59,509,369) (18,851,825) ------------ ------------ ------------ (48,681,578) (32,756,943) (19,055,274) ------------ ------------ ------------ $(46,764,832) $(26,717,009) $(20,256,610) ============ ============ ============
See Notes to Financial Statements AA-11 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS
METROPOLITAN FUND --------------------------------------------------------------------------------------------- LEHMAN BROTHERS AGGREGATE MORGAN STANLEY EAFE INDEX METLIFE MID CAP STOCK INDEX BOND INDEX PORTFOLIO PORTFOLIO PORTFOLIO ----------------------------- ----------------------------- ----------------------------- FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE YEAR MAY 1, 2001 FOR THE YEAR MAY 1, 2001 FOR THE YEAR MAY 1, 2001 ENDED TO ENDED TO ENDED TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2002 2001 ------------ -------------- ------------ -------------- ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends......................... $ 283,297 $ -- $ 3,876 $ -- $ 7,631 $ -- Expenses.......................... 56,571 6,116 5,176 591 12,985 1,777 ---------- ------- --------- ------- --------- ------- Net investment (loss) income...... 226,726 (6,116) (1,300) (591) (5,354) (1,777) ---------- ------- --------- ------- --------- ------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............ 85,942 822 (48,380) 16 (54,202) 26 Change in net unrealized (depreciation) appreciation of investments for the period....... 1,000,240 44,782 (155,310) (4,182) (478,537) 44,502 ---------- ------- --------- ------- --------- ------- Net realized and unrealized (losses) gains on investments.... 1,086,182 45,604 (203,690) (4,166) (532,739) 44,528 ---------- ------- --------- ------- --------- ------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $1,312,908 $39,488 $(204,990) $(4,757) $(538,093) $42,751 ========== ======= ========= ======= ========= ======= METROPOLITAN FUND ----------------------------- JANUS GROWTH PORTFOLIO ----------------------------- FOR THE PERIOD FOR THE YEAR MAY 1, 2001 ENDED TO DECEMBER 31, DECEMBER 31, 2002 2001 ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends......................... $ -- $ -- Expenses.......................... 6,201 1,591 --------- -------- Net investment (loss) income...... (6,201) (1,591) --------- -------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions............ (97,313) (798) Change in net unrealized (depreciation) appreciation of investments for the period....... (305,291) (39,685) --------- -------- Net realized and unrealized (losses) gains on investments.... (402,604) (40,483) --------- -------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $(408,805) $(42,074) ========= ========
See Notes to Financial Statements AA-12
----------------------------------------------------------------------------------------- ----------------------------- METROPOLITAN FUND AMERICAN FUND FRANKLIN STATE STREET NEUBERGER HARRIS TEMPLETON STATE STREET RESEARCH BERMAN OAKMARK SMALL CAP RESEARCH LARGE CAP PARTNERS MID LARGE CAP GROWTH INVESTMENT VALUE CAP VALUE VALUE AMERICAN FUNDS GROWTH PORTFOLIO TRUST PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------------------- --------------- -------------- -------------- -------------- ----------------------------- FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD JANUARY 14, JANUARY 14, MAY 1, 2002 JANUARY 14, MAY 1, 2002 FOR THE YEAR MAY 1, 2001 2002 TO 2002 TO TO 2002 TO TO ENDED TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2002 2002 2002 2002 2002 2001 -------------------- --------------- -------------- -------------- -------------- ------------ -------------- $ -- $ 551 $ 2,002 $ 1,558 $ 8,226 $ 14,213 $ 703,326 3,846 787 768 9,756 2,350 183,023 33,863 --------- -------- --------- --------- -------- ----------- --------- (3,846) (236) 1,234 (8,198) 5,876 (168,810) 669,463 --------- -------- --------- --------- -------- ----------- --------- (64,412) (5,406) (5,405) (18,580) (13,014) (1,769,305) (5,360) (199,380) (37,833) (10,014) (228,386) (52,488) (7,716,831) (243,374) --------- -------- --------- --------- -------- ----------- --------- (263,792) (43,239) (15,419) (246,966) (65,502) (9,486,136) (248,734) --------- -------- --------- --------- -------- ----------- --------- $(267,638) $(43,475) $ (14,185) $(255,164) $(59,626) $(9,654,946) $ 420,729 ========= ======== ========= ========= ======== =========== ========= ------------------------------------------------------------- AMERICAN FUND AMERICAN FUNDS GROWTH- AMERICAN FUNDS GLOBAL SMALL INCOME PORTFOLIO CAP PORTFOLIO ----------------------------- ----------------------------- FOR THE PERIOD FOR THE PERIOD FOR THE YEAR MAY 1, 2001 FOR THE YEAR MAY 1, 2001 ENDED TO ENDED TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 ------------ -------------- ------------ -------------- $ 308,267 $ 247,020 $ 39,924 $ 19,030 127,280 27,140 28,754 3,946 ----------- --------- ----------- -------- 180,987 219,880 11,170 15,084 ----------- --------- ----------- -------- (667,401) (4,325) (190,487) (4,543) (4,433,373) 158,373 (1,204,973) 130,865 ----------- --------- ----------- -------- (5,100,774) 154,048 (1,395,460) 126,322 ----------- --------- ----------- -------- $(4,919,787) $ 373,928 $(1,384,290) $141,406 =========== ========= =========== ========
See Notes to Financial Statements AA-13 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS
FIDELITY FUND --------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME FIDELITY VIP OVERSEAS PORTFOLIO PORTFOLIO ------------------------------------------ ------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.............................. $ 6,356,366 $11,204,132 $13,394,545 $ 781,287 $24,381,084 $ 16,105,748 Expenses............................... 953,331 1,103,777 1,054,512 607,951 762,426 1,056,320 ------------ ------------ ----------- ------------ ------------ ------------ Net investment (loss) income............ 5,403,035 10,100,355 12,340,033 173,336 23,618,658 15,049,428 ------------ ------------ ----------- ------------ ------------ ------------ NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions.................. 5,466,327 (2,881) (452,602) (2,238,040) (23,051,827) 27,078 Change in net unrealized (depreciation) appreciation of investments for the period................................. (40,377,303) (20,180,653) 89,353 (21,574,452) (34,163,623) (55,495,585) ------------ ------------ ----------- ------------ ------------ ------------ Net realized and unrealized (losses) gains on investments................... (34,910,976) (20,183,534) (363,249) (23,812,492) (57,215,450) (55,468,507) ------------ ------------ ----------- ------------ ------------ ------------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $(29,507,941) $(10,083,179) $11,976,784 $(23,639,156) $(33,596,792) $(40,419,079) ============ ============ =========== ============ ============ ============
See Notes to Financial Statements AA-14
FIDELITY FUND MET INVESTORS FUND --------------------------------------------------------------------------------------- ------------------------------- MFS MID CAP PIMCO FIDELITY VIP HIGH INCOME FIDELITY VIP ASSET MANAGER GROWTH TOTAL RETURN PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------ ------------------------------------------ -------------- -------------- FOR THE PERIOD FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE JANUARY 14, MAY 1, 2002 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 2002 TO TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000 2002 2002 ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- $ 1,585,639 $ 1,758,933 $ 1,006,372 $ 633,629 $ 849,491 $ 1,452,323 $ 9,464 $ -- 101,931 95,020 103,143 101,658 104,280 95,403 5,849 55,100 ----------- ----------- ----------- ----------- ----------- ----------- --------- -------- 1,483,708 1,663,913 903,229 531,971 745,211 1,356,920 3,615 (55,100) ----------- ----------- ----------- ----------- ----------- ----------- --------- -------- (5,162,418) (408,150) 261,479 (432,857) (35,169) 16,825 (132,297) 29,320 4,578,778 (2,905,218) (5,088,040) (1,776,281) (1,423,225) (2,075,320) (445,589) 343,965 ----------- ----------- ----------- ----------- ----------- ----------- --------- -------- (583,640) (3,313,368) (4,826,561) (2,209,138) (1,458,394) (2,058,495) (577,886) 373,285 ----------- ----------- ----------- ----------- ----------- ----------- --------- -------- $ 900,068 $(1,649,455) $(3,923,332) $(1,677,167) $ (713,183) $ (701,575) $(574,271) $318,185 =========== =========== =========== =========== =========== =========== ========= ======== MET INVESTORS FUND ----------------------------------------------------------------- STATE STREET MET/AIM MET/AIM RESEARCH PIMCO MID CAP SMALL CAP CONCENTRATED INNOVATION CORE EQUITY GROWTH INTERNATIONAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------------- -------------- -------------- -------------- FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD JANUARY 14, MAY 1, 2002 MAY 1, 2002 MAY 1, 2002 2002 TO TO TO TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2002 2002 2002 -------------- -------------- -------------- -------------- $ -- $ 852 $ -- $ 45 1,032 1,301 2,314 59 --------- -------- -------- ------- (1,032) (449) (2,314) (14) --------- -------- -------- ------- (177,812) (1,711) (12,284) (277) (20,265) (13,932) (81,133) (756) --------- -------- -------- ------- (198,077) (15,643) (93,417) (1,033) --------- -------- -------- ------- $(199,109) $(16,092) $(95,731) $(1,047) ========= ======== ======== =======
See Notes to Financial Statements AA-15 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS
ZENITH FUND ----------------------------------------------- ZENITH EQUITY PORTFOLIO ----------------------------------------------- AS RESTATED AS RESTATED FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) ------------- -------------- -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income...... $ (1,756,350) $ 9,451,984 $ (51,421) Net realized gains (losses) from security transactions............ 15,512,708 (2,138,650) 65,557 Change in net unrealized (depreciation) appreciation of investments...................... (202,056,844) (195,071,228) (63,482,902) ------------- -------------- -------------- Net (decrease) increase in net assets resulting from operations...................... (188,300,486) (187,757,894) (63,468,766) ------------- -------------- -------------- From capital transactions: Net premiums...................... 105,524,901 120,702,047 134,719,373 Redemptions....................... (50,874,532) (49,494,401) (55,233,072) ------------- -------------- -------------- Total net premiums (redemptions).................... 54,650,369 71,207,646 79,486,301 Net portfolio transfers........... (47,937,061) (43,536,243) (53,936,979) Net other transfers............... (65,387,798) (69,956,494) (87,622,165) ------------- -------------- -------------- Net (decrease) increase in net assets resulting from capital transactions.................... (58,674,490) (42,285,091) (62,072,843) ------------- -------------- -------------- NET CHANGE IN NET ASSETS........... (246,974,976) (230,042,985) (125,541,609) NET ASSETS -- BEGINNING OF PERIOD............................ 869,830,007 1,099,872,992 1,225,414,601 ------------- -------------- -------------- NET ASSETS -- END OF PERIOD........ $ 622,855,031 $ 869,830,007 $1,099,872,992 ============= ============== ============== ZENITH FUND -------------------------------------------------------------------------------------------- STATE STREET RESEARCH BOND INCOME PORTFOLIO STATE STREET RESEARCH MONEY MARKET PORTFOLIO --------------------------------------------- -------------------------------------------- AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) ------------- ------------- ------------- ------------ ------------- ------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income...... $ 5,141,549 $ 7,184,747 $ (511,944) $ 885,634 $ 2,942,507 $ 4,011,731 Net realized gains (losses) from security transactions............ 1,095,749 (7,181) (36,738) -- -- -- Change in net unrealized (depreciation) appreciation of investments...................... 3,365,793 291,924 6,087,779 -- -- -- ------------ ------------ ------------ ------------ ------------- ------------- Net (decrease) increase in net assets resulting from operations...................... 9,603,091 7,469,490 5,539,097 885,634 2,942,507 4,011,731 ------------ ------------ ------------ ------------ ------------- ------------- From capital transactions: Net premiums...................... 20,903,173 16,079,114 12,375,855 89,038,110 183,577,288 236,841,520 Redemptions....................... (5,188,578) (3,983,921) (3,301,128) (12,316,384) (7,992,640) (6,646,266) ------------ ------------ ------------ ------------ ------------- ------------- Total net premiums (redemptions).................... 15,714,595 12,095,193 9,074,727 76,721,726 175,584,648 230,195,254 Net portfolio transfers........... 11,316,930 21,636,526 (1,050,289) (41,624,400) (144,125,333) (209,452,023) Net other transfers............... (13,447,775) (8,811,574) (6,327,311) (21,898,761) (19,899,736) (87,904,587) ------------ ------------ ------------ ------------ ------------- ------------- Net (decrease) increase in net assets resulting from capital transactions.................... 13,583,750 24,920,145 1,697,127 13,198,565 11,559,579 (67,161,356) ------------ ------------ ------------ ------------ ------------- ------------- NET CHANGE IN NET ASSETS........... 23,186,841 32,389,635 7,236,224 14,084,199 14,502,086 (63,149,625) NET ASSETS -- BEGINNING OF PERIOD............................ 114,095,979 81,706,344 74,470,120 98,617,019 84,114,933 147,264,558 ------------ ------------ ------------ ------------ ------------- ------------- NET ASSETS -- END OF PERIOD........ $137,282,820 $114,095,979 $ 81,706,344 $112,701,218 $ 98,617,019 $ 84,114,933 ============ ============ ============ ============ ============= =============
(a) As restated, see Note 6 to Financial Statements. See Notes to Financial Statements AA-16
ZENITH FUND ------------------------------------------------------------------------------------------- MFS TOTAL RETURN PORTFOLIO HARRIS OAKMARK FOCUSED VALUE PORTFOLIO ------------------------------------------ ------------------------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) ------------ ------------ ------------ ------------ ------------ ------------ $ 7,571,101 $13,299,631 $ 1,132,800 $ (466,607) $ (103,520) $ (259,625) 687,033 (18,326) (42,829) 3,813,413 26,315 (23,066) (12,621,080) (16,406,840) (3,979,194) (15,327,523) 16,647,698 7,704,271 ------------ ------------ ----------- ------------ ------------ ----------- (4,362,946) (3,125,535) (2,889,223) (11,980,717) 16,570,493 7,421,580 ------------ ------------ ----------- ------------ ------------ ----------- 11,019,716 10,244,678 10,169,186 21,761,800 12,235,298 6,884,739 (3,005,418) (2,836,810) (3,369,050) (5,167,843) (2,702,206) (1,424,090) ------------ ------------ ----------- ------------ ------------ ----------- 8,014,298 7,407,868 6,800,136 16,593,957 9,533,092 5,460,649 2,047,593 3,235,428 (1,102,701) 23,836,746 34,392,616 19,759 (6,659,290) (5,371,662) (5,538,911) (12,156,751) (6,740,000) (2,474,562) ------------ ------------ ----------- ------------ ------------ ----------- 3,402,601 5,271,634 158,524 28,273,952 37,185,708 3,005,846 ------------ ------------ ----------- ------------ ------------ ----------- (960,345) 2,146,099 (2,730,699) 16,293,235 53,756,201 10,427,426 69,166,695 67,020,596 69,751,295 101,041,830 47,285,629 36,858,203 ------------ ------------ ----------- ------------ ------------ ----------- $68,206,350 $69,166,695 $67,020,596 $117,335,065 $101,041,830 $47,285,629 ============ ============ =========== ============ ============ =========== ZENITH FUND --- --------------------------------------------------------------------------------------- FI STRUCTURED EQUITY PORTFOLIO LOOMIS SAYLES SMALL CAP PORTFOLIO ------------------------------------------ ------------------------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) ------------ ------------ ------------ ------------ ------------ ------------ $ 195,420 $ 223,731 $ 1,840,472 $ (656,731) $ 9,744,423 $ 279,695 1,899,725 (100,512) (18,902) 4,513,962 (5,616) 145,497 (18,712,878) (14,499,780) (7,555,204) (34,940,969) (23,777,058) 2,636,194 ------------ ------------ ----------- ------------ ------------ ------------ (16,617,733) (14,376,561) (5,733,634) (31,083,738) (14,038,251) 3,061,386 ------------ ------------ ----------- ------------ ------------ ------------ 14,513,861 17,243,170 17,754,814 25,258,947 27,576,083 22,841,356 (3,593,368) (2,453,316) (2,995,417) (6,230,888) (5,230,883) (6,014,353) ------------ ------------ ----------- ------------ ------------ ------------ 10,920,493 14,789,854 14,759,397 19,028,059 22,345,200 16,827,003 (6,987,198) (3,228,191) 71,181 (6,918,288) (897,800) 37,692,753 (7,859,332) (8,206,973) (7,382,003) (14,581,770) (13,552,749) (9,159,901) ------------ ------------ ----------- ------------ ------------ ------------ (3,926,037) 3,354,690 7,448,575 (2,471,999) 7,894,651 45,359,855 ------------ ------------ ----------- ------------ ------------ ------------ (20,543,770) (11,021,871) 1,714,941 (33,555,737) (6,143,600) 48,421,241 84,825,136 95,847,007 94,132,066 141,425,398 147,568,998 99,147,757 ------------ ------------ ----------- ------------ ------------ ------------ $64,281,366 $84,825,136 $95,847,007 $107,869,661 $141,425,398 $147,568,998 ============ ============ =========== ============ ============ ============
See Notes to Financial Statements AA-17 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS
ZENITH FUND --------------------------------------------------------------------------------------- LOOMIS SAYLES BALANCED PORTFOLIO DAVIS VENTURE VALUE PORTFOLIO ------------------------------------------ ------------------------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) ------------ ------------ ------------ ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income...... $ 276,488 $ 591,253 $ (111,693) $ 664,748 $ 24,228,935 $ (1,440,887) Net realized gains (losses) from security transactions............ (1,537,528) (21,371) 79,174 8,638,974 (20,358) (178,858) Change in net unrealized (depreciation) appreciation of investments...................... (1,288,815) (1,463,815) (439,098) (56,221,915) (55,778,227) 17,900,696 ----------- ----------- ----------- ------------ ------------ ------------ Net (decrease) increase in net assets resulting from operations...................... (2,549,855) (893,933) (471,617) (46,918,193) (31,569,650) 16,280,951 ----------- ----------- ----------- ------------ ------------ ------------ From capital transactions: Net premiums...................... 3,924,576 3,491,442 3,706,077 55,135,416 54,072,478 43,590,651 Redemptions....................... (907,354) (754,833) (541,601) (11,989,460) (8,701,548) (5,733,092) ----------- ----------- ----------- ------------ ------------ ------------ Total net premiums (redemptions).................... 3,017,222 2,736,609 3,164,476 43,145,956 45,370,930 37,857,559 Net portfolio transfers........... (294,928) 919,446 (718,221) (6,324,654) 29,927,924 52,137,520 Net other transfers............... (2,446,226) (1,818,811) (1,960,922) (29,734,062) (26,694,975) (18,286,851) ----------- ----------- ----------- ------------ ------------ ------------ Net (decrease) increase in net assets resulting from capital transactions.................... 276,068 1,837,244 485,333 7,087,240 48,603,879 71,708,228 ----------- ----------- ----------- ------------ ------------ ------------ NET CHANGE IN NET ASSETS........... (2,273,787) 943,311 13,716 (39,830,953) 17,034,229 87,989,179 NET ASSETS -- BEGINNING OF PERIOD............................ 17,810,454 16,867,143 16,853,427 269,021,738 251,987,509 163,998,330 ----------- ----------- ----------- ------------ ------------ ------------ NET ASSETS -- END OF PERIOD........ $15,536,667 $17,810,454 $16,867,143 $229,190,785 $269,021,738 $251,987,509 =========== =========== =========== ============ ============ ============ ZENITH FUND ------------------------------------------ ALGER EQUITY GROWTH PORTFOLIO ------------------------------------------ AS RESTATED AS RESTATED FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income...... $ (1,346,954) $ 15,883,967 $ 1,325,439 Net realized gains (losses) from security transactions............ 3,186,557 (3,900,025) 416,391 Change in net unrealized (depreciation) appreciation of investments...................... (92,753,612) (51,416,836) (52,833,134) ------------ ------------ ------------ Net (decrease) increase in net assets resulting from operations...................... (90,914,009) (39,432,894) (51,091,304) ------------ ------------ ------------ From capital transactions: Net premiums...................... 55,603,488 64,300,826 62,510,597 Redemptions....................... (10,450,731) (9,853,730) (8,077,469) ------------ ------------ ------------ Total net premiums (redemptions).................... 45,152,757 54,447,096 54,433,128 Net portfolio transfers........... (23,278,546) 2,175,648 85,404,643 Net other transfers............... (26,675,457) (47,284,621) (12,234,592) ------------ ------------ ------------ Net (decrease) increase in net assets resulting from capital transactions.................... (4,801,246) 9,338,123 127,603,179 ------------ ------------ ------------ NET CHANGE IN NET ASSETS........... (95,715,255) (30,094,771) 76,511,875 NET ASSETS -- BEGINNING OF PERIOD............................ 270,826,609 300,921,380 224,409,505 ------------ ------------ ------------ NET ASSETS -- END OF PERIOD........ $175,111,354 $270,826,609 $300,921,380 ============ ============ ============
(a) As restated, see Note 6 to Financial Statements. See Notes to Financial Statements AA-18
ZENITH FUND ------------------------------------------------------------------------------------------- SALOMON BROTHERS STRATEGIC BOND SALOMON BROTHERS U.S. GOVERNMENT PORTFOLIO OPPORTUNITIES PORTFOLIO ------------------------------------------ ------------------------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) ------------ ------------ ------------ ------------ ------------ ------------ $ 40,330 $ 42,961 $ (7,636) $ 73,896 $ 83,037 $ (10,241) 7,689 86 148 (26,212) 340 5,936 24,678 4,160 76,520 52,240 (18,408) 66,382 ---------- -------- -------- ---------- ---------- ---------- 72,697 47,207 69,032 99,924 64,969 62,077 ---------- -------- -------- ---------- ---------- ---------- -- -- -- -- -- -- -- (10,706) 1,550 (1,175) (36,313) (2,827) ---------- -------- -------- ---------- ---------- ---------- -- (10,706) 1,550 (1,175) (36,313) (2,827) -- 28,413 (56,167) (71,648) 102,007 (76,915) 349,796 (13,093) (12,498) (9,413) (14,087) (11,393) ---------- -------- -------- ---------- ---------- ---------- 349,796 4,614 (67,115) (82,236) 51,607 (91,135) ---------- -------- -------- ---------- ---------- ---------- 422,493 51,821 1,917 17,688 116,576 (29,058) 852,295 800,474 798,557 1,206,341 1,089,765 1,118,823 ---------- -------- -------- ---------- ---------- ---------- $1,274,788 $852,295 $800,474 $1,224,029 $1,206,341 $1,089,765 ========== ======== ======== ========== ========== ========== ZENITH FUND --- --------------------------------------------------------------------------------------- MFS INVESTORS TRUST PORTFOLIO MFS RESEARCH MANAGERS PORTFOLIO ------------------------------------------ ------------------------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) ------------ ------------ ------------ ------------ ------------ ------------ $ (4,802) $ (7,499) $ (12,646) $ (45,423) $ 47,580 $ (38,697) (398,792) (11,947) (1,002) (2,345,654) (277,116) 60,137 (679,536) (702,670) (20,733) (643,921) (3,572,735) (1,262,543) ----------- ---------- ---------- ----------- ----------- ----------- (1,083,130) (722,116) (34,381) (3,034,998) (3,802,271) (1,241,103) ----------- ---------- ---------- ----------- ----------- ----------- 1,261,160 1,104,466 511,027 2,848,128 3,666,773 1,389,537 (82,430) (45,776) (37,853) (474,981) (467,089) (130,905) ----------- ---------- ---------- ----------- ----------- ----------- 1,178,730 1,058,690 473,174 2,373,147 3,199,684 1,258,632 60,503 1,339,007 2,126,907 (2,014,769) 1,144,285 11,980,716 (552,026) (352,993) 6,998 (1,488,777) (666,033) (17,899) ----------- ---------- ---------- ----------- ----------- ----------- 687,207 2,044,704 2,607,079 (1,130,399) 3,677,936 13,221,449 ----------- ---------- ---------- ----------- ----------- ----------- (395,923) 1,322,588 2,572,698 (4,165,397) (124,335) 11,980,346 4,686,904 3,364,316 791,618 12,797,852 12,922,187 941,841 ----------- ---------- ---------- ----------- ----------- ----------- $ 4,290,981 $4,686,904 $3,364,316 $ 8,632,455 $12,797,852 $12,922,187 =========== ========== ========== =========== =========== ===========
See Notes to Financial Statements AA-19 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS
ZENITH FUND METROPOLITAN FUND -------------- ---------------------------------------------- FI MID CAP OPPORTUNITIES JANUS MID CAP PORTFOLIO PORTFOLIO ---------------------------------------------- -------------- AS RESTATED AS RESTATED FOR THE PERIOD FOR THE YEAR FOR THE YEAR FOR THE PERIOD MAY 1, 2002 TO ENDED ENDED MAY 1, 2000 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2002 2001(A) 2000(A) -------------- -------------- ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income...... $ (62) $ (135,700) $ (161,569) $ 1,294,505 Net realized gains (losses) from security transactions............ 186 (12,257,869) (417,064) 764,362 Change in net unrealized (depreciation) appreciation of investments...................... 1,330 3,466,757 (11,300,813) (11,653,506) ------- ------------ ------------ ------------ Net (decrease) increase in net assets resulting from operations...................... 1,454 (8,926,812) (11,879,446) (9,594,639) ------- ------------ ------------ ------------ From capital transactions: Net premiums...................... 11,358 9,276,903 10,576,777 2,953,055 Redemptions....................... -- (1,042,710) (677,625) (129,838) ------- ------------ ------------ ------------ Total net premiums (redemptions).................... 11,358 8,234,193 9,899,152 2,823,217 Net portfolio transfers........... 25,547 (3,222,513) 9,477,069 31,992,287 Net other transfers............... (9,465) (3,318,501) (3,392,964) (261,059) ------- ------------ ------------ ------------ Net (decrease) increase in net assets resulting from capital transactions.................... 27,440 1,693,179 15,983,257 34,554,445 ------- ------------ ------------ ------------ NET CHANGE IN NET ASSETS........... 28,894 (7,233,633) 4,103,811 24,959,806 NET ASSETS -- BEGINNING OF PERIOD............................ -- 29,063,617 24,959,806 -- ------- ------------ ------------ ------------ NET ASSETS -- END OF PERIOD........ $28,894 $ 21,829,984 $29,063,617 $ 24,959,806 ======= ============ ============ ============ METROPOLITAN FUND -------------------------------------------- PUTNAM LARGE CAP GROWTH PORTFOLIO -------------------------------------------- AS RESTATED AS RESTATED FOR THE YEAR FOR THE YEAR FOR THE PERIOD ENDED ENDED MAY 1, 2000 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) ------------ ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income...... $ (33,891) $ (36,744) $ (10,822) Net realized gains (losses) from security transactions............ (2,630,379) (249,945) 4,567 Change in net unrealized (depreciation) appreciation of investments...................... 539,725 (2,008,286) (1,227,677) ----------- ----------- ----------- Net (decrease) increase in net assets resulting from operations...................... (2,124,545) (2,294,975) (1,233,932) ----------- ----------- ----------- From capital transactions: Net premiums...................... 2,550,638 2,041,506 672,516 Redemptions....................... (178,950) (125,346) (9,823) ----------- ----------- ----------- Total net premiums (redemptions).................... 2,371,688 1,916,160 662,693 Net portfolio transfers........... (563,705) 2,813,031 5,876,190 Net other transfers............... (922,093) (418,889) (222,138) ----------- ----------- ----------- Net (decrease) increase in net assets resulting from capital transactions.................... 885,890 4,310,302 6,316,745 ----------- ----------- ----------- NET CHANGE IN NET ASSETS........... (1,238,655) 2,015,327 5,082,813 NET ASSETS -- BEGINNING OF PERIOD............................ 7,098,140 5,082,813 -- ----------- ----------- ----------- NET ASSETS -- END OF PERIOD........ $ 5,859,485 $ 7,098,140 $ 5,082,813 =========== =========== ===========
(a) As restated, see Note 6 to Financial Statements. See Notes to Financial Statements AA-20
METROPOLITAN FUND ----------------------------------------------------------------------------------------------------------------------------- STATE STREET RESEARCH RUSSELL 2000 INDEX PORTFOLIO PUTNAM INTERNATIONAL STOCK PORTFOLIO AURORA PORTFOLIO -------------------------------------------- ------------------------------------------ ----------------------------- AS RESTATED AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE FOR THE PERIOD YEAR ENDED YEAR ENDED MAY 1, 2000 TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MAY 1, 2001 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) 2002 2001(A) ------------ ------------ -------------- ------------ ------------ ------------ ------------ -------------- $ 6,866 $ (12,915) $ 300,710 $ 54,623 $ 627,602 $ 229,374 $ 12,029 $ (33,101) (563,915) (22,652) 22,026 (449,822) (115,753) (3,434) (643,247) (9,118) (1,042,793) 337,385 (642,986) (4,539,403) (5,013,560) (3,060,509) (7,624,022) 617,685 ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- (1,599,842) 301,818 (320,250) (4,934,602) (4,501,711) (2,834,569) (8,255,240) 575,466 ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 1,919,451 1,367,109 219,502 6,406,193 5,579,942 4,407,045 8,662,181 1,478,099 (264,112) (136,116) (2,726) (893,212) (696,941) (451,800) (1,385,821) (167,176) ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 1,655,339 1,230,993 216,776 5,512,981 4,883,001 3,955,245 7,276,360 1,310,923 2,006,579 2,704,989 1,935,622 3,553,221 5,403,726 4,157,319 18,104,292 15,717,971 (821,225) (466,334) 336,988 (1,595,963) (1,735,387) (4,564,340) (3,298,409) (629,917) ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 2,840,693 3,469,648 2,489,386 7,470,239 8,551,340 3,548,224 22,082,243 16,398,977 ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 1,240,851 3,771,466 2,169,136 2,535,637 4,049,629 713,655 13,827,003 16,974,443 5,940,602 2,169,136 -- 22,924,128 18,874,499 18,160,844 16,974,443 -- ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- $ 7,181,453 $5,940,602 $2,169,136 $25,459,765 $22,924,128 $18,874,499 $30,801,446 $16,974,443 =========== ========== ========== =========== =========== =========== =========== =========== METROPOLITAN FUND --- ------------------------------------------ METLIFE STOCK INDEX PORTFOLIO ------------------------------------------ AS RESTATED AS RESTATED FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) ------------ ------------ ------------ $ 1,916,746 $ 6,039,934 $ (1,201,336) (5,805,619) 26,752,426 (203,449) (42,875,959) (59,509,369) (18,851,825) ------------ ------------ ------------ (46,764,832) (26,717,009) (20,256,610) ------------ ------------ ------------ 37,063,908 39,801,654 39,147,722 (8,271,246) (6,513,787) (6,515,817) ------------ ------------ ------------ 28,792,662 33,287,867 32,631,905 (6,187,606) 15,241,914 21,601,786 (18,597,608) (18,044,521) (19,367,314) ------------ ------------ ------------ 4,007,448 30,485,260 34,866,377 ------------ ------------ ------------ (42,757,384) 3,768,251 14,609,767 201,126,796 197,358,545 182,748,778 ------------ ------------ ------------ $158,369,412 $201,126,796 $197,358,545 ============ ============ ============
See Notes to Financial Statements AA-21 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------ METROPOLITAN FUND LEHMAN BROTHERS AGGREGATE MORGAN STANLEY EAFE METLIFE MID CAP BOND INDEX PORTFOLIO INDEX PORTFOLIO STOCK INDEX PORTFOLIO ------------------------------ ------------------------------ ------------------------------ AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD YEAR ENDED MAY 1, 2001 YEAR ENDED MAY 1, 2001 YEAR ENDED MAY 1, 2001 DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, 2002 2001(A) 2002 2001(A) 2002 2001(A) ------------ --------------- ------------ --------------- ------------ --------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income.................... $ 226,726 $ (6,116) $ (1,300) $ (591) $ (5,354) $ (1,777) Net realized gains (losses) from security transactions.............. 85,942 822 (48,380) 16 (54,202) 26 Change in net unrealized (depreciation) appreciation of investments............... 1,000,240 44,782 (155,310) (4,182) (478,537) 44,502 ----------- ---------- ---------- -------- ---------- ---------- Net (decrease) increase in net assets resulting from operations............... 1,312,908 39,488 (204,990) (4,757) (538,093) 42,751 ----------- ---------- ---------- -------- ---------- ---------- From capital transactions: Net premiums............... 2,872,377 384,578 534,654 68,580 843,981 158,146 Redemptions................ (728,353) (51,865) (14,775) (10,573) (41,416) (8,975) ----------- ---------- ---------- -------- ---------- ---------- Total net premiums (redemptions)............. 2,144,024 332,713 519,879 58,007 802,565 149,171 Net portfolio transfers.... 14,531,633 4,188,650 996,756 333,025 2,330,476 944,550 Net other transfers........ (1,140,897) (73,661) (85,402) 127,991 (319,196) (21,020) ----------- ---------- ---------- -------- ---------- ---------- Net (decrease) increase in net assets resulting from capital transactions..... 15,534,760 4,447,702 1,431,233 519,023 2,813,845 1,072,701 ----------- ---------- ---------- -------- ---------- ---------- NET CHANGE IN NET ASSETS.... 16,847,668 4,487,190 1,226,243 514,266 2,275,752 1,115,452 NET ASSETS--BEGINNING OF PERIOD..................... 4,487,190 -- 514,266 -- 1,115,452 -- ----------- ---------- ---------- -------- ---------- ---------- NET ASSETS--END OF PERIOD... $21,334,858 $4,487,190 $1,740,509 $514,266 $3,391,204 $1,115,452 =========== ========== ========== ======== ========== ========== ------------------------------ METROPOLITAN FUND JANUS GROWTH PORTFOLIO ------------------------------ AS RESTATED FOR THE FOR THE PERIOD YEAR ENDED MAY 1, 2001 DECEMBER 31, TO DECEMBER 31, 2002 2001(A) ------------ --------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income.................... $ (6,201) $ (1,591) Net realized gains (losses) from security transactions.............. (97,313) (798) Change in net unrealized (depreciation) appreciation of investments............... (305,291) (39,685) ---------- --------- Net (decrease) increase in net assets resulting from operations............... (408,805) (42,074) ---------- --------- From capital transactions: Net premiums............... 416,795 64,937 Redemptions................ (36,161) (26,573) ---------- --------- Total net premiums (redemptions)............. 380,634 38,364 Net portfolio transfers.... 545,333 940,157 Net other transfers........ (50,462) (48,875) ---------- --------- Net (decrease) increase in net assets resulting from capital transactions..... 875,505 929,646 ---------- --------- NET CHANGE IN NET ASSETS.... 466,700 887,572 NET ASSETS--BEGINNING OF PERIOD..................... 887,572 -- ---------- --------- NET ASSETS--END OF PERIOD... $1,354,272 $ 887,572 ========== =========
(a) As restated, see Note 6 to Financial Statements. See Notes to Financial Statements AA-22
METROPOLITAN FUND AMERICAN FUND ------------------------------------------------------------------------------------------- ------------------------------ STATE STREET STATE STREET NEUBERGER BERMAN HARRIS FRANKLIN TEMPLETON RESEARCH RESEARCH LARGE PARTNERS OAKMARK SMALL CAP GROWTH INVESTMENT TRUST CAP VALUE MID CAP VALUE LARGE CAP VALUE AMERICAN FUNDS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO GROWTH PORTFOLIO ---------------------- ---------------- -------------- ---------------- --------------- ------------------------------ FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD AS RESTATED JANUARY 14, JANUARY 14, MAY 1, JANUARY 14, MAY 1, FOR THE FOR THE PERIOD 2002 TO 2002 TO 2002 TO 2002 TO 2002 TO YEAR ENDED MAY 1, 2001 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31, 2002 2002 2002 2002 2002 2002 2001(A) ---------------------- ---------------- -------------- ---------------- --------------- ------------ --------------- $ (3,846) $ (236) $ 1,234 $ (8,198) $ 5,876 $ (168,810) $ 669,463 (64,412) (5,406) (5,405) (18,580) (13,014) (1,769,305) (5,360) (199,380) (37,833) (10,014) (228,386) (52,488) (7,716,831) (243,374) ---------- -------- -------- ---------- ---------- ----------- ----------- (267,638) (43,475) (14,185) (255,164) (59,626) (9,654,946) 420,729 ---------- -------- -------- ---------- ---------- ----------- ----------- 250,912 90,594 46,427 512,612 388,947 11,414,042 1,979,441 (19,428) (13,633) (9) (38,899) (18,954) (956,522) (144,984) ---------- -------- -------- ---------- ---------- ----------- ----------- 231,484 76,961 46,418 473,713 369,993 10,457,520 1,834,457 1,468,425 329,748 407,503 3,758,198 1,257,829 25,670,224 19,367,339 (124,782) (41,299) 590 (72,582) (151,560) (4,057,007) (431,269) ---------- -------- -------- ---------- ---------- ----------- ----------- 1,575,127 365,410 454,511 4,159,329 1,476,262 32,070,737 20,770,527 ---------- -------- -------- ---------- ---------- ----------- ----------- 1,307,489 321,935 440,326 3,904,165 1,416,636 22,415,791 21,191,256 -- -- -- -- -- 21,191,256 -- ---------- -------- -------- ---------- ---------- ----------- ----------- $1,307,489 $321,935 $440,326 $3,904,165 $1,416,636 $43,607,047 $21,191,256 ========== ======== ======== ========== ========== =========== =========== AMERICAN FUND --------------------------------------------------------------- F AMERICAN FUNDS AMERICAN FUNDS GROWTH-INCOME PORTFOLIO GLOBAL SMALL CAP PORTFOLIO --- ------------------------------ ------------------------------ AS RESTATED AS RESTATED FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD YEAR ENDED MAY 1, 2001 YEAR ENDED MAY 1, 2001 DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, 2002 2001(A) 2002 2001(A) --- ------------ --------------- ------------ --------------- $ 180,987 $ 219,880 $ 11,170 $ 15,084 (667,401) (4,325) (190,487) (4,543) (4,433,373) 158,373 (1,204,973) 130,865 ----------- ----------- ----------- ---------- (4,919,787) 373,928 (1,384,290) 141,406 ----------- ----------- ----------- ---------- 8,310,809 1,528,344 1,483,048 199,909 (756,414) (143,885) (149,413) (18,564) ----------- ----------- ----------- ---------- 7,554,395 1,384,459 1,333,635 181,345 15,559,701 13,853,685 4,687,315 2,120,530 (2,985,289) (590,170) (295,368) (130,639) ----------- ----------- ----------- ---------- 20,128,807 14,647,974 5,725,582 2,171,236 ----------- ----------- ----------- ---------- 15,209,020 15,021,902 4,341,292 2,312,642 15,021,902 -- 2,312,642 -- ----------- ----------- ----------- ---------- $30,230,922 $15,021,902 $ 6,653,934 $2,312,642 =========== =========== =========== ==========
See Notes to Financial Statements AA-23 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS
FIDELITY FUND --------------------------------------------------------------------------------------- FIDELITY VIP FIDELITY VIP EQUITY-INCOME PORTFOLIO OVERSEAS PORTFOLIO ------------------------------------------ ------------------------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) 2002 2001(A) 2000(A) ------------ ------------ ------------ ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income.................... $ 5,403,035 $ 10,100,355 $ 12,340,033 $ 173,336 $ 23,618,658 $ 15,049,428 Net realized gains (losses) from security transactions.............. 5,466,327 (2,881) (452,602) (2,238,040) (23,051,827) 27,078 Change in net unrealized (depreciation) appreciation of investments............... (40,377,303) (20,180,653) 89,353 (21,574,452) (34,163,623) (55,495,585) ------------ ------------ ------------ ------------ ------------ ------------ Net (decrease) increase in net assets resulting from operations............... (29,507,941) (10,083,179) 11,976,784 (23,639,156) (33,596,792) (40,419,079) ------------ ------------ ------------ ------------ ------------ ------------ From capital transactions: Net premiums............... 22,531,776 23,566,426 24,790,229 20,344,954 22,864,761 45,688,246 Redemptions................ (16,315,552) (6,104,089) (6,663,965) (5,241,284) (5,059,804) (5,164,811) ------------ ------------ ------------ ------------ ------------ ------------ Total net premiums (redemptions)............. 6,216,224 17,462,337 18,126,264 15,103,670 17,804,957 40,523,435 Net portfolio transfers.... (3,318,658) 1,729,692 (10,695,232) (6,490,242) (2,729,062) 19,044,295 Net other transfers........ (14,275,115) (14,881,838) (12,338,265) (5,955,817) (69,264,627) (36,838,204) ------------ ------------ ------------ ------------ ------------ ------------ Net (decrease) increase in net assets resulting from capital transactions..... (11,377,549) 4,310,191 (4,907,233) 2,657,611 (54,188,732) 96,405,934 ------------ ------------ ------------ ------------ ------------ ------------ NET CHANGE IN NET ASSETS.... (40,885,490) (5,772,988) 7,069,551 (20,981,545) (87,785,524) 55,986,855 NET ASSETS--BEGINNING OF PERIOD..................... 168,899,230 174,672,218 167,602,667 106,603,901 194,389,425 138,402,570 ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS--END OF PERIOD... $128,013,740 $168,899,230 $174,672,218 $ 85,622,356 $106,603,901 $194,389,425 ============ ============ ============ ============ ============ ============ FIDELITY FUND ------------------------------------------ FIDELITY VIP HIGH INCOME PORTFOLIO ------------------------------------------ AS RESTATED AS RESTATED FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001(A) 2000(A) ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income.................... $ 1,483,708 $ 1,663,913 $ 903,229 Net realized gains (losses) from security transactions.............. (5,162,418) (408,150) 261,479 Change in net unrealized (depreciation) appreciation of investments............... 4,578,778 (2,905,218) (5,088,040) ----------- ----------- ----------- Net (decrease) increase in net assets resulting from operations............... 900,068 (1,649,455) (3,923,332) ----------- ----------- ----------- From capital transactions: Net premiums............... 3,813,957 3,376,955 3,195,995 Redemptions................ (898,196) (398,080) (712,532) ----------- ----------- ----------- Total net premiums (redemptions)............. 2,915,761 2,978,875 2,483,463 Net portfolio transfers.... 1,990,409 3,183,382 658,505 Net other transfers........ (2,434,319) (2,217,026) (1,091,144) ----------- ----------- ----------- Net (decrease) increase in net assets resulting from capital transactions..... 2,471,851 3,945,231 2,050,824 ----------- ----------- ----------- NET CHANGE IN NET ASSETS.... 3,371,919 2,295,776 (1,872,508) NET ASSETS--BEGINNING OF PERIOD..................... 15,289,204 12,993,428 14,865,936 ----------- ----------- ----------- NET ASSETS--END OF PERIOD... $18,661,123 $15,289,204 $12,993,428 =========== =========== ===========
(a) As restated, see Note 6 to Financial Statements. See Notes to Financial Statements AA-24
FIDELITY FUND MET INVESTORS FUND ---------------------------------------------- --------------------------------------------------------------------- MET/AIM MFS MID CAP PIMCO PIMCO MID CAP FIDELITY VIP GROWTH TOTAL RETURN INNOVATION CORE EQUITY ASSET MANAGER PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------ --------------- --------------- --------------- --------------- AS RESTATED AS RESTATED FOR THE PERIOD FOR THE PERIOD FOR THE FOR THE FOR THE JANUARY 14, FOR THE PERIOD JANUARY 14, FOR THE PERIOD YEAR ENDED YEAR ENDED YEAR ENDED 2002 TO MAY 1, 2002 TO 2002 TO MAY 1, 2002 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31, 2002 2001(A) 2000(A) 2002 2002 2002 2002 ---------------- ------------ ------------ --------------- --------------- --------------- --------------- $ 531,971 $ 745,211 $ 1,356,920 $ 3,615 $ (55,100) $ (1,032) $ (449) (432,857) (35,169) 16,825 (132,297) 29,320 (177,812) (1,711) (1,776,281) (1,423,225) (2,075,320) (445,589) 343,965 (20,265) (13,932) ----------- ----------- ----------- ---------- ------------ --------- -------- (1,677,167) (713,183) (701,575) (574,271) 318,185 (199,109) (16,092) ----------- ----------- ----------- ---------- ------------ --------- -------- 3,351,209 3,516,423 2,631,829 286,665 1,153,449 131,808 82,277 (755,893) (842,300) (743,365) (23,104) (135,966) (148) (8,039) ----------- ----------- ----------- ---------- ------------ --------- -------- 2,595,316 2,674,123 1,888,464 263,561 1,017,483 131,660 74,238 364,022 1,595,619 2,389,044 2,082,432 10,385,033 414,579 635,542 (2,303,855) (1,447,196) (1,867,050) (177,662) (174,901) (51,389) 9,162 ----------- ----------- ----------- ---------- ------------ --------- -------- 655,483 2,822,546 2,410,458 2,168,331 11,227,615 494,850 718,942 ----------- ----------- ----------- ---------- ------------ --------- -------- (1,021,684) 2,109,363 1,708,883 1,594,060 11,545,800 295,741 702,850 16,951,498 14,842,135 13,133,252 -- -- -- -- ----------- ----------- ----------- ---------- ------------ --------- -------- $15,929,814 $16,951,498 $14,842,135 $1,594,060 $ 11,545,800 $ 295,741 $702,850 =========== =========== =========== ========== ============ ========= ======== MET INVESTORS FUND --- --------------------------------------- MET/AIM STATE STREET RESEARCH SMALL CAP CONCENTRATED GROWTH INTERNATIONAL PORTFOLIO PORTFOLIO --------------- --------------------- FOR THE PERIOD FOR THE PERIOD MAY 1, 2002 MAY 1, 2002 TO DECEMBER 31, TO DECEMBER 31, 2002 2002 --- --------------- --------------------- $ (2,314) $ (14) (12,284) (277) (81,133) (756) ---------- ------- (95,731) (1,047) ---------- ------- 198,445 7,235 (10,244) -- ---------- ------- 188,201 7,235 1,044,610 24,381 (6,753) (298) ---------- ------- 1,226,058 31,318 ---------- ------- 1,130,327 30,271 -- -- ---------- ------- $1,130,327 $30,271 ========== =======
See Notes to Financial Statements AA-25 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--DECEMBER 31, 2002 1. BUSINESS. New England Variable Life Separate Account (the "Separate Account"), a separate account of New England Life Insurance Company ("NELICO"), was established by NELICO's Board of Directors on January 31, 1983 to support NELICO's operations with respect to certain variable life contracts ("Contracts"). NELICO is an indirect wholly owned subsidiary of Metropolitan Life Insurance Company ("Metropolitan Life"). The Separate Account was registered as a unit investment trust on June 8, 1983 under the Investment Company Act of 1940, as amended. It was established in accordance with the regulations of the Delaware Insurance Department and is now operating in accordance with the regulations of the Commonwealth of Massachusetts Division of Insurance. The Separate Account presently consists of forty-three sub-accounts that support various variable life insurance policies. The Separate Account is divided into sub-accounts invested in shares of the corresponding portfolios, series or funds of the New England Zenith Fund (the "Zenith Fund"), the Metropolitan Series Fund, Inc. (the "Metropolitan Fund"), the American Funds Insurance Series (the "American Fund"), the Fidelity Variable Insurance Products Funds (the "Fidelity Fund") and the Met Investors Series Trust (the "Met Investors Fund"), collectively, (the "Funds"). For convenience, the portfolios, series and funds are referred to as "portfolios." The assets of the Separate Account are registered in the name of NELICO. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from NELICO's other assets and liabilities. The portion of the Separate Accounts assets applicable to the variable life insurance policies is not chargeable with liabilities arising out of any other business NELICO may conduct. ZENITH FUND: Zenith Equity Portfolio State Street Research Bond Income Portfolio State Street Research Money Market Portfolio MFS Total Return Portfolio Harris Oakmark Focused Value Portfolio FI Structured Equity Portfolio Loomis Sayles Small Cap Portfolio Loomis Sayles Balanced Portfolio Davis Venture Value Portfolio Alger Equity Growth Portfolio Salomon Brothers U.S. Government Portfolio Salomon Brothers Strategic Bond Opportunities Portfolio MFS Investors Trust Portfolio MFS Research Managers Portfolio FI Mid Cap Opportunities Portfolio(d) METROPOLITAN FUND: Janus Mid Cap Portfolio(a) Putnam Large Cap Growth Portfolio(a) Russell 2000 Index Portfolio(a) Putnam International Stock Portfolio State Street Research Aurora Portfolio(b) MetLife Stock Index Portfolio Lehman Brothers Aggregate Bond Index Portfolio(b) Morgan Stanley EAFE Index Portfolio(b) MetLife Mid Cap Stock Index Portfolio(b) METROPOLITAN FUND (CONTINUED): Janus Growth Portfolio(b) Franklin Templeton Small Cap Growth Portfolio(c) State Street Research Investment Trust Portfolio(c) State Street Research Large Cap Value Portfolio(d) Neuberger Berman Partners Mid Cap Value Portfolio(c) Harris Oakmark Large Cap Value Portfolio(d) AMERICAN FUND: American Funds Growth Portfolio(b) American Funds Growth-Income Portfolio(b) American Funds Global Small Cap Portfolio(b) FIDELITY FUND: Fidelity VIP Equity-Income Portfolio Fidelity VIP Overseas Portfolio Fidelity VIP High Income Portfolio Fidelity VIP Asset Manager Portfolio MET INVESTORS FUND: MFS Mid Cap Growth Portfolio(c) PIMCO Total Return Portfolio(d) PIMCO Innovation Portfolio(c) Met/AIM Mid Cap Core Equity Portfolio(d) Met/AIM Small Cap Growth Portfolio(d) State Street Research Concentrated International Portfolio(d) (a) On May 1, 2000, operations commenced for the three new sub-accounts added to the Separate Account on that date: Janus Mid Cap Portfolio, Putnam Large Cap Growth Portfolio and Russell 2000 Index Portfolio. (b) On May 1, 2001, operations commenced for the eight new sub-accounts added to the Separate Account on that date: State Street Research Aurora Portfolio, Lehman Brothers Aggregate Bond Index Portfolio, Morgan AA-26 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Stanley EAFE Index Portfolio, MetLife Mid Cap Stock Index Portfolio, Janus Growth Portfolio, American Funds Growth Portfolio, American Funds Growth-Income Portfolio and American Funds Global Small Cap Portfolio. (c) On January 14, 2002, operations commenced for five new sub-accounts added to the Separate Account on that date: Franklin Templeton Small Cap Growth Portfolio, State Street Research Investment Trust Portfolio, Neuberger Berman Partners Mid Cap Value Portfolio, MFS Mid Cap Growth Portfolio and PIMCO Innovation Portfolio. (d) On May 1, 2002, operations commenced for the seven new sub-accounts added to the Separate Account on that date: FI Mid Cap Opportunities Portfolio, State Street Research Large Cap Value Portfolio, Harris Oakmark Large Cap Value Portfolio, PIMCO Total Return Portfolio, Met/AIM Mid Cap Core Equity Portfolio, Met/AIM Small Cap Growth Portfolio, and State Street Research Concentrated International Portfolio. 2. SIGNIFICANT ACCOUNTING POLICIES. The financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America for variable life separate accounts registered as unit investment trusts. A. VALUATION OF INVESTMENTS. Investments are made in the portfolios of the Funds and are valued at the reported net asset values of these portfolios. The investments of the Funds are valued at fair value. Money market fund investments are valued utilizing the amortized cost method of valuation. B. SECURITY TRANSACTIONS. Purchases and sales are recorded on the trade date basis. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. Income from dividends and gains from realized gain distributions are recorded on the ex-distribution date. C. FEDERAL INCOME TAXES. The operations of the Separate Account are included in the Federal income tax return of NELICO, which is taxed as a life insurance company under the provisions of the Internal Revenue Code ("IRC"). Under the current provisions of the IRC, NELICO does not expect to incur Federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Separate Account for Federal income taxes. NELICO will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any Federal income taxes that would be attributed to the contracts. D. NET PREMIUMS. NELICO deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain policies, NELICO also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. E. USE OF ESTIMATES. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported herein. Actual results could differ from those estimates. F. RECLASSIFICATION. Certain reclassifications have been made to the financial statements for prior periods to conform to the current year's presentation. G. PORTFOLIO AND OTHER TRANSFERS. Transfers among the sub-accounts are presented under the caption net portfolio transfers. Cost of insurance charges, policy loan activity, benefit payments and miscellaneous gains and losses are presented under the caption net other transfers. 3. EXPENSES. NELICO charges the Separate Account for the mortality and expense risk NELICO assumes. The mortality risk assumed by NELICO is the risk that insureds may live for shorter periods of time than NELICO estimated when setting its cost of insurance charges. The expense risk assumed by NELICO is the risk that the deductions for sales and administrative charges may prove insufficient to cover actual cost. If these deductions are insufficient to cover the cost of the mortality and expense risk assumed by NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to the Separate Account from its general assets. Conversely, if those deductions are more than sufficient after the establishment of any contingency reserves deemed prudent or required by law, the excess is retained by NELICO. Under some versions of the policies, the charge is assessed daily against the Separate Account assets, and under others it is deducted monthly from policy cash values. The rate of the charge varies by policy version. AA-27 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. PURCHASES AND SALES OF INVESTMENTS. The cost of purchases and proceeds from sales of investments for the year ended December 31, 2002 were as follows:
PURCHASES SALES --------- -------- (IN THOUSANDS) ZENITH FUND: Zenith Equity Portfolio................................... $ 34,277 $ 94,190 State Street Research Bond Income Portfolio............... 34,872 15,255 State Street Research Money Market Portfolio.............. 59,625 45,773 MFS Total Return Portfolio................................ 19,108 7,872 Harris Oakmark Focused Value Portfolio.................... 39,125 10,990 FI Structured Equity Portfolio............................ 8,443 12,194 Loomis Sayles Small Cap Portfolio......................... 13,399 16,496 Loomis Sayles Balanced Portfolio.......................... 3,830 3,266 Davis Venture Value Portfolio............................. 37,258 29,441 Alger Equity Growth Portfolio............................. 27,253 33,886 Salomon Brothers U.S. Government Series Portfolio......... 560 158 Salomon Brothers Strategic Bond Opportunities Portfolio... 120 118 MFS Investors Trust Portfolio............................. 1,775 1,089 MFS Research Managers Portfolio........................... 1,680 2,814 FI Mid Cap Opportunities Portfolio........................ 43 15 METROPOLITAN FUND: Janus Mid Cap Portfolio................................... 6,644 5,139 Putnam Large Cap Growth Portfolio......................... 2,982 2,136 Russell 2000 Index Portfolio.............................. 4,359 1,491 Putnam International Stock Portfolio...................... 8,871 1,110 State Street Research Aurora Portfolio.................... 25,411 3,040 MetLife Stock Index Portfolio............................. 28,000 21,816 Lehman Brothers Aggregate Bond Index Portfolio............ 17,374 1,419 Morgan Stanley EAFE Index Portfolio....................... 1,923 477 MetLife Mid Cap Stock Index Portfolio..................... 3,602 763 Janus Growth Portfolio.................................... 1,081 200 Franklin Templeton Small Cap Growth Portfolio............. 1,843 260 State Street Research Investment Trust Portfolio.......... 418 50 State Street Research Large Cap Value Portfolio........... 477 17 Neuberger Berman Partners Mid Cap Value Portfolio......... 4,430 243 Harris Oakmark Large Cap Value Portfolio.................. 1,565 70 AMERICAN FUND: American Funds Growth Portfolio........................... 34,782 2,502 American Funds Growth-Income Portfolio.................... 22,970 2,466 American Funds Global Small Cap Portfolio................. 6,664 867 FIDELITY FUND: Fidelity VIP Equity-Income Portfolio...................... 19,811 25,382 Fidelity VIP Overseas Portfolio........................... 13,295 9,737 Fidelity VIP High Income Portfolio........................ 7,651 3,831 Fidelity VIP Asset Manager Portfolio...................... 3,992 2,708 MET INVESTORS FUND: MFS Mid Cap Growth Portfolio.............................. 2,498 312 PIMCO Total Return Portfolio.............................. 11,987 708 PIMCO Innovation Portfolio................................ 756 260 Met/AIM Mid Cap Core Equity Portfolio..................... 737 12 Met/AIM Small Cap Growth Portfolio........................ 1,288 54 State Street Research Concentrated International Portfolio............................................... 34 2 -------- -------- Total................................................... $516,813 $360,629 ======== ========
AA-28 (This page intentionally left blank) AA-29 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. FINANCIAL HIGHLIGHTS. The following table is a summary of total returns, expenses as a percentage of average net assets, excluding expenses for the underlying funds, and the investment income ratio to average net assets, for each of the two years in the period ended December 31, 2002 or lesser time period if applicable. The table shows the ranges of total returns of the sub-accounts for all variable life insurance policies investing in the Separate Account. The total return reflects the appropriate mortality and expense risk charge against sub-account assets, where applicable, for each type of variable life insurance policy. These figures do not reflect charges deducted from the premiums and the cash values of the policies. Such charges will affect the actual cash values and benefits of the policies.
ZENITH FUND ----------------------------------------------------------------------------- STATE STREET STATE STREET RESEARCH RESEARCH ZENITH EQUITY BOND INCOME MONEY MARKET MFS TOTAL PORTFOLIO PORTFOLIO PORTFOLIO RETURN PORTFOLIO ----------------- ----------------- ----------------- ----------------- 2002 Net Assets (In Thousands).......... $ 622,855 $ 137,283 $ 112,701 $ 68,206 Investment Income Ratio to Average Net Assets(1)..................... 0.36% 4.74% 1.34% 11.66% Expenses as a Percent of Average Net Assets(2)..................... 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... -22.63% to -21.93% 7.48% to 8.45% .51% to 1.42% -6.23% to -5.38% 2001 Net Assets (In Thousands)(4)....... $ 869,830 $ 114,096 $ 98,617 $ 69,167 Investment Income Ratio to Average Net Assets(1)..................... 1.51% 7.99% 3.76% 20.17% Expenses as a Percent of Average Net Assets(2)..................... 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... -17.18% to -16.43% 7.83% to 8.81% 3.04% to 3.98% -4.67% to -3.80% ZENITH FUND ------------------------------------- HARRIS OAKMARK FOCUSED VALUE FI STRUCTURED PORTFOLIO EQUITY PORTFOLIO ----------------- ----------------- 2002 Net Assets (In Thousands).......... $ 117,335 $ 64,281 Investment Income Ratio to Average Net Assets(1)..................... 0.21% 0.91% Expenses as a Percent of Average Net Assets(2)..................... 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... -9.65% to -8.84% -20.18% to -19.46% 2001 Net Assets (In Thousands)(4)....... $ 101,042 $ 84,825 Investment Income Ratio to Average Net Assets(1)..................... 0.51% 0.90% Expenses as a Percent of Average Net Assets(2)..................... 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... 26.63% to 27.78% -14.70% to -13.93%
ZENITH FUND METROPOLITAN FUND ----------------- --------------------------------------------------------- PUTNAM FI MID CAP JANUS LARGE RUSSELL OPPORTUNITIES MID CAP CAP GROWTH 2000 PORTFOLIO PORTFOLIO PORTFOLIO INDEX PORTFOLIO ----------------- ----------------- ----------------- ----------------- 2002 Net Assets (In Thousands).......... $ 29 $ 21,830 $ 5,859 $ 7,181 Investment Income Ratio to Average Net Assets(1)..................... 0.00% 0.00% 0.00% 0.62% Expenses as a Percent of Average Net Assets(2)..................... 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... -18.95% to -18.10% -29.63% to -28.99% -29.55% to -28.91% -21.18% to -20.46% 2001 Net Assets (In Thousands)(4)....... $ -- $ 29,064 $ 7,098 $ 5,941 Investment Income Ratio to Average Net Assets(1)..................... -- 0.00% 0.00% 0.25% Expenses as a Percent of Average Net Assets(2)..................... -- 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... -- -38.23% to -37.54% -31.45% to -30.82% -0.04% to 0.87% METROPOLITAN FUND -------------------------------------- STATE STREET PUTNAM RESEARCH INTERNATIONAL AURORA STOCK PORTFOLIO(A) PORTFOLIO ------------------ ----------------- 2002 Net Assets (In Thousands).......... $ 25,460 $ 30,801 Investment Income Ratio to Average Net Assets(1)..................... 0.85% 0.56% Expenses as a Percent of Average Net Assets(2)..................... 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... -18.23% to -17.49% -22.02% to -21.32% 2001 Net Assets (In Thousands)(4)....... $ 22,924 $ 16,974 Investment Income Ratio to Average Net Assets(1)..................... 3.67% 0.00% Expenses as a Percent of Average Net Assets(2)..................... 0.00% to 0.90% 0.00% to 0.90% Total Return(3).................... -21.31% to -20.59% -.60% to 0.00%
(a) On December 1, 2000, the Putnam International Stock Portfolio (which commenced operations on May 1, 1991) was substituted for the Morgan Stanley International Magnum Equity Portfolio, which is no longer available for investment under the contracts. Values before December 1, 2000 reflect the performance of the Morgan Stanley International Equity Portfolio. (b) On April 27, 2001, the MetLife Stock Index Portfolio (which commenced operations on May 1, 1990) was substituted for the Westpeak Stock Index Portfolio, which is no longer available for investment under the contracts. Values on or before April 27, 2001 reflect performance of the Westpeak Stock Index Portfolio. (1) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude mortality and expense charges. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-accounts invest. (2) These ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. (3) Each sub-account calculates a daily performance measure called a "unit value," which reflects changes in the underlying fund's net asset value per share, a daily charge against the sub-account for mortality and expense risks, and any dividend or capital gain distributions from the fund. The total return of a sub-account is calculated by taking the difference between the sub-account's ending unit value and the beginning unit value for the period and dividing it by the beginning unit value for the period. (4) As restated, see Note 6 to Financial Statements. AA-30 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ZENITH FUND ------------------------------------------------------------------------------------------------------------------------- SALOMON BROTHERS LOOMIS SAYLES LOOMIS SAYLES ALGER SALOMON BROTHERS STRATEGIC BOND SMALL CAP BALANCED DAVIS VENTURE EQUITY GROWTH U.S. GOVERNMENT OPPORTUNITIES PORTFOLIO PORTFOLIO VALUE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- $ 107,870 $ 15,537 $ 229,191 $ 175,111 $ 1,275 $ 1,224 0.11% 2.33% 0.90% 0.00% 3.86% 7.06% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% 0.00% -22.26% to -21.56% -14.32% to -13.54% -17.12% to -16.37% -33.77% to -33.17% 7.94% 9.61% $ 141,425 $ 17,810 $ 269,022 $ 270,827 $ 852 $ 1,206 7.37% 4.11% 9.95% 6.20% 6.11% 8.15% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% 0.00% -9.65% to -8.83% -5.31% to -4.45% -11.95% to -11.14% -12.82% to -12.02% 6.73% 6.82% ZENITH FUND --- ------------------------------------- MFS RESEARCH MFS INVESTORS MANAGERS TRUST PORTFOLIO PORTFOLIO ----------------- ----------------- $ 4,291 $ 8,632 0.45% 0.17% 0.00% to 0.90% 0.00% to 0.90% -20.93% to -20.21% -24.80% to -24.12% $ 4,687 $ 12,798 0.43% 1.00% 0.00% to 0.90% 0.00% to 0.90% -16.69% to -15.93% -21.67% to -20.95%
METROPOLITAN FUND -------------------------------------------------------------------------------------------------------------------------- METLIFE STOCK LEHMAN BROTHERS MORGAN METLIFE MID FRANKLIN TEMPLETON INDEX AGGREGATE BOND STANLEY EAFE CAP STOCK JANUS GROWTH SMALL CAP GROWTH PORTFOLIO(B) INDEX PORTFOLIO INDEX PORTFOLIO INDEX PORTFOLIO PORTFOLIO PORTFOLIO ----------------- ----------------- ----------------- ----------------- ----------------- ------------------ $ 158,369 $ 21,335 $ 1,741 $ 3,391 $ 1,354 $ 1,307 1.69% 2.19% 0.34% 0.34% 0.00% 0.00% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% -23.02% to -22.33% 9.25% to 10.23% -17.38% to -16.63% -15.67% to -14.91% -31.19% to -30.56% -28.46% to -27.82% $ 201,127 $ 4,487 $ 514 $ 1,115 $ 888 $ -- 3.68% 0.00% 0.00% 0.00% 0.00% -- 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% -- -13.02% to -12.23% 4.18% to 4.81% -16.69% to -16.19% -1.45% to -0.85% -22.27% to -21.80% -- METROPOLITAN FUND --- ------------------------------------- STATE STREET STATE STREET RESEARCH RESEARCH LARGE INVESTMENT TRUST CAP VALUE PORTFOLIO PORTFOLIO ----------------- ----------------- $ 322 $ 440 0.34% 0.91% 0.00% to 0.90% 0.00% to 0.90% -26.80% to -26.13% -20.44% to -19.96% $ -- $ -- -- -- -- -- -- --
AA-31 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
METROPOLITAN FUND AMERICAN FUND ------------------------------------- ------------------------------------- NEUBERGER HARRIS AMERICAN AMERICAN BERMAN PARTNERS OAKMARK FUNDS FUNDS MID CAP VALUE LARGE CAP VALUE GROWTH GROWTH-INCOME PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------------- ----------------- ----------------- ----------------- 2002 Net Assets (In Thousands)................ $ 3,904 $ 1,417 $ 43,607 $ 30,231 Investment Income Ratio to Average Net Assets(1)............................... 0.08% 1.16% 0.04% 1.36% Expenses as a Percent of Average Net Assets(2)............................... 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% Total Return(3).......................... -10.44% to -9.63% -17.58% to -17.08% -25.13% to -24.45% -19.08% to -18.34% 2001 Net Assets (In Thousands)(4)............. $ -- $ -- $ 21,191 $ 15,022 Investment Income Ratio to Average Net Assets(1)............................... -- -- 6.64% 3.29% Expenses as a Percent of Average Net Assets(2)............................... -- -- 0.00% to 0.90% 0.00% to 0.90% Total Return(3).......................... -- -- -14.64% to -14.12% -3.30% to -2.52% AMERICAN FUND FIDELITY FUND ----------------- ------------------------------------- AMERICAN FUNDS FIDELITY VIP FIDELITY VIP GLOBAL SMALL CAP EQUITY-INCOME OVERSEAS PORTFOLIO PORTFOLIO PORTFOLIO ----------------- ----------------- ----------------- 2002 Net Assets (In Thousands)................ $ 6,654 $ 128,014 $ 85,622 Investment Income Ratio to Average Net Assets(1)............................... 0.89% 4.28% 0.81% Expenses as a Percent of Average Net Assets(2)............................... 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% Total Return(3).......................... -19.78% to -19.05% -17.69% to -16.95% -20.99% to -20.28% 2001 Net Assets (In Thousands)(4)............. $ 2,313 $ 168,899 $ 106,604 Investment Income Ratio to Average Net Assets(1)............................... 1.65% 6.52% 16.20% Expenses as a Percent of Average Net Assets(2)............................... 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% Total Return(3).......................... -8.63% to -8.07% -5.81% to -4.96% -21.88% to -21.17%
(a) On December 1, 2000, the Putnam International Stock Portfolio (which commenced operations on May 1, 1991) was substituted for the Morgan Stanley International Magnum Equity Portfolio, which is no longer available for investment under the contracts. Values before December 1, 2000 reflect the performance of the Morgan Stanley International Equity Portfolio. (b) On April 27, 2001, the MetLife Stock Index Portfolio (which commenced operations on May 1, 1990) was substituted for the Westpeak Stock Index Portfolio, which is no longer available for investment under the contracts. Values on or before April 27, 2001 reflect performance of the Westpeak Stock Index Portfolio. (1) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude mortality and expense charges. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-accounts invest. (2) These ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. (3) Each sub-account calculates a daily performance measure called a "unit value," which reflects changes in the underlying fund's net asset value per share, a daily charge against the sub-account for mortality and expense risks, and any dividend or capital gain distributions from the fund. The total return of a sub-account is calculated by taking the difference between the sub-account's ending unit value and the beginning unit value for the period and dividing it by the beginning unit value for the period. (4) As restated, see Note 6 to Financial Statements. AA-32 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FIDELITY FUND MET INVESTORS FUND ------------------------------------- ----------------------------------------------------------------------------- MFS MET/AIM FIDELITY VIP FIDELITY VIP MID CAP PIMCO PIMCO MID CAP HIGH INCOME ASSET MANAGER GROWTH TOTAL RETURN INNOVATION CORE EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- $ 18,661 $ 15,930 $ 1,594 $ 11,546 $ 296 $ 703 9.34% 3.85% 1.19% 0.00% 0.00% 0.24% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 0.00% to 0.90% 2.52% to 3.54% -9.55% to -8.73% -44.50% to -43.99% 6.44% to 7.08% -51.01% to -50.57% -14.70% to -14.18% $ 15,289 $ 16,951 $ -- $ -- $ -- $ -- 12.44% 5.34% -- -- -- -- 0.00% to 0.90% 0.00% to 0.90% -- -- -- -- -12.53% to -11.73% -4.95% to -4.09% -- -- -- -- MET INVESTORS FUND ----------------------------------------- MET/AIM STATE STREET RESEARCH SMALL CAP CONCENTRATED GROWTH INTERNATIONAL PORTFOLIO PORTFOLIO ----------------- --------------------- $ 1,130 $ 30 0.00% 0.30% 0.00% to 0.90% 0.00% to 0.90% -24.11% to -23.65% -15.77% to -15.64% $ -- $ -- -- -- -- -- -- --
AA-33 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS. Subsequent to the issuance of the Separate Account's 2001 financial statements, management determined amounts previously classified as a liability, included in Due to NELICO, should not have been included. Net other transfers, included in capital transactions, was adjusted to reflect this change. As a result, the statements of changes in net assets for the years ended December 31, 2001 and 2000 have been restated from amounts previously reported to remove such amounts from Due to NELICO. This adjustment had no impact on the statements of operations, share transactions of the sub-accounts or policyholder values. The following table summarizes the effects of the restatement:
ZENITH FUND ------------------------------------------------------------------- ZENITH EQUITY PORTFOLIO ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $ (27,190,807) $ (42,285,091) $ (59,950,302) $ (62,072,843) -------------- -------------- -------------- -------------- NET CHANGE IN NET ASSETS........... (214,948,701) (230,042,985) (123,419,068) (125,541,609) NET ASSETS--BEGINNING OF PERIOD.... 1,023,284,312 1,099,872,992 1,146,703,380 1,225,414,601 -------------- -------------- -------------- -------------- NET ASSETS--END OF PERIOD.......... $ 808,335,611 $ 869,830,007 $1,023,284,312 $1,099,872,992 ============== ============== ============== ============== ZENITH FUND ------------------------------------------------------------------- STATE STREET RESEARCH BOND INCOME PORTFOLIO ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $ 20,630,896 $ 24,920,145 $ 657,209 $ 1,697,127 ------------ ------------ ----------- ----------- NET CHANGE IN NET ASSETS........... 28,100,386 32,389,635 6,196,306 7,236,224 NET ASSETS--BEGINNING OF PERIOD.... 74,236,713 81,706,344 68,040,407 74,470,120 ------------ ------------ ----------- ----------- NET ASSETS--END OF PERIOD.......... $102,337,099 $114,095,979 $74,236,713 $81,706,344 ============ ============ =========== ===========
AA-34 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ZENITH FUND ------------------------------------------------------------------------------------------------------ STATE STREET RESEARCH MONEY MARKET PORTFOLIO MFS TOTAL RETURN PORTFOLIO ------------------------------------------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 2001 2001 -------------- --------------- -------------- --------------- -------------- --------------- $ 11,036,855 $ 11,559,579 $ (67,120,401) $ (67,161,356) $ 4,568,886 $ 5,271,634 ------------- ------------- ------------- ------------- ------------ ------------ 13,979,362 14,502,086 (63,108,670) (63,149,625) 1,443,351 2,146,099 73,661,213 84,114,933 136,769,883 147,264,558 61,147,652 67,020,596 ------------- ------------- ------------- ------------- ------------ ------------ $ 87,640,575 $ 98,617,019 $ 73,661,213 $ 84,114,933 $ 62,591,003 $ 69,166,695 ============= ============= ============= ============= ============ ============ ZENITH FUND ------------------------------------------------------------------- HARRIS OAKMARK FOCUSED VALUE MFS TOTAL RETURN PORTFOLIO PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 -------------- --------------- -------------- --------------- $ (133,356) $ 158,524 $ 31,556,990 $ 37,185,708 ----------- ----------- ------------ ------------ (3,022,579) (2,730,699) 48,127,483 53,756,201 64,170,231 69,751,295 42,681,315 47,285,629 ----------- ----------- ------------ ------------ $61,147,652 $67,020,596 $ 90,808,798 $101,041,830 =========== =========== ============ ============
AA-35 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ZENITH FUND ------------------------------------------------------------------- HARRIS OAKMARK FOCUSED VALUE PORTFOLIO FI STRUCTURED EQUITY PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $ 1,766,383 $ 3,005,846 $ (5,268,448) $ 3,354,690 ----------- ----------- ------------ ------------ NET CHANGE IN NET ASSETS........... 9,187,963 10,427,426 (19,645,009) (11,021,871) NET ASSETS--BEGINNING OF PERIOD.... 33,493,352 36,858,203 95,130,385 95,847,007 ----------- ----------- ------------ ------------ NET ASSETS--END OF PERIOD.......... $42,681,315 $47,285,629 $ 75,485,376 $ 84,825,136 =========== =========== ============ ============ ZENITH FUND ------------------------------------------------------------------- LOOMIS SAYLES SMALL CAP FI STRUCTURED EQUITY PORTFOLIO PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $15,753,707 $ 7,448,575 $ 7,271,183 $ 7,894,651 ----------- ----------- ------------ ------------ NET CHANGE IN NET ASSETS........... 10,020,073 1,714,941 (6,767,068) (6,143,600) NET ASSETS--BEGINNING OF PERIOD.... 85,110,312 94,132,066 132,626,230 147,568,998 ----------- ----------- ------------ ------------ NET ASSETS--END OF PERIOD.......... $95,130,385 $95,847,007 $125,859,162 $141,425,398 =========== =========== ============ ============
AA-36 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ZENITH FUND ------------------------------------------------------------------------------------------------------ LOOMIS SAYLES SMALL CAP PORTFOLIO LOOMIS SAYLES BALANCED PORTFOLIO -------------------------------- ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 2000 2000 -------------- --------------- -------------- --------------- -------------- --------------- $ 40,512,180 $ 45,359,855 $ 1,452,740 $ 1,837,244 $ 201,695 $ 485,333 ------------ ------------ ----------- ----------- ----------- ----------- 43,573,566 48,421,241 558,807 943,311 (269,922) 13,716 89,052,664 99,147,757 15,019,446 16,867,143 15,289,368 16,853,427 ------------ ------------ ----------- ----------- ----------- ----------- $132,626,230 $147,568,998 $15,578,253 $17,810,454 $15,019,446 $16,867,143 ============ ============ =========== =========== =========== =========== ZENITH FUND ------------------------------------------------------------------- DAVIS VENTURE VALUE PORTFOLIO ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 -------------- --------------- -------------- --------------- $ 53,373,170 $ 48,603,879 $ 53,432,164 $ 71,708,228 ------------ ------------ ------------ ------------ 21,803,520 17,034,229 69,713,115 87,989,179 216,183,147 251,987,509 146,470,032 163,998,330 ------------ ------------ ------------ ------------ $237,986,667 $269,021,738 $216,183,147 $251,987,509 ============ ============ ============ ============
AA-37 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ZENITH FUND ------------------------------------------------------------------- ALGER EQUITY GROWTH PORTFOLIO ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $ 6,731,902 $ 9,338,123 $125,328,665 $127,603,179 ------------ ------------ ------------ ------------ NET CHANGE IN NET ASSETS........... (32,700,992) (30,094,771) 74,237,361 76,511,875 NET ASSETS--BEGINNING OF PERIOD.... 272,882,939 300,921,380 198,645,578 224,409,505 ------------ ------------ ------------ ------------ NET ASSETS--END OF PERIOD.......... $240,181,947 $270,826,609 $272,882,939 $300,921,380 ============ ============ ============ ============ ZENITH FUND ------------------------------------------------------------------- SALOMON BROTHERS U.S. GOVERNMENT PORTFOLIO ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $ 24,307 $ 4,614 $(72,415) $(67,115) -------- -------- -------- -------- NET CHANGE IN NET ASSETS........... 71,514 51,821 (3,383) 1,917 NET ASSETS--BEGINNING OF PERIOD.... 753,927 800,474 757,310 798,557 -------- -------- -------- -------- NET ASSETS--END OF PERIOD.......... $825,441 $852,295 $753,927 $800,474 ======== ======== ======== ========
AA-38 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ZENITH FUND ------------------------------------------------------------------------------------------------------ SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES PORTFOLIO MFS INVESTORS TRUST PORTFOLIO ------------------------------------------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 2001 2001 -------------- --------------- -------------- --------------- -------------- --------------- $ 68,174 $ 51,607 $ (87,922) $ (91,135) $1,800,092 $2,044,704 ---------- ---------- ---------- ---------- ---------- ---------- 133,143 116,576 (25,845) (29,058) 1,077,976 1,322,588 1,035,189 1,089,765 1,061,034 1,118,823 3,009,703 3,364,316 ---------- ---------- ---------- ---------- ---------- ---------- $1,168,332 $1,206,341 $1,035,189 $1,089,765 $4,087,679 $4,686,904 ========== ========== ========== ========== ========== ========== ZENITH FUND ------------------------------------------------------------------- MFS INVESTORS TRUST PORTFOLIO MFS RESEARCH MANAGERS PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 -------------- --------------- -------------- --------------- $2,351,246 $2,607,079 $ 3,504,546 $ 3,677,936 ---------- ---------- ----------- ----------- 2,316,865 2,572,698 (297,725) (124,335) 692,838 791,618 11,606,566 12,922,187 ---------- ---------- ----------- ----------- $3,009,703 $3,364,316 $11,308,841 $12,797,852 ========== ========== =========== ===========
AA-39 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ZENITH FUND METROPOLITAN FUND -------------------------------- -------------------------------- MFS RESEARCH MANAGER PORTFOLIO JANUS MID CAP PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $12,059,466 $13,221,449 $13,552,665 $15,983,257 ----------- ----------- ----------- ----------- NET CHANGE IN NET ASSETS........... 10,818,363 11,980,346 1,673,219 4,103,811 NET ASSETS--BEGINNING OF PERIOD.... 788,203 941,841 23,854,019 24,959,806 ----------- ----------- ----------- ----------- NET ASSETS--END OF PERIOD.......... $11,606,566 $12,922,187 $25,527,238 $29,063,617 =========== =========== =========== =========== METROPOLITAN FUND ------------------------------------------------------------------- PUTNAM LARGE CAP JANUS MID CAP PORTFOLIO GROWTH PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY REPORTED FOR AS RESTATED FOR THE PERIOD THE PERIOD AS PREVIOUSLY MAY 1, 2000 MAY 1, 2000 REPORTED FOR AS RESTATED FOR TO TO THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $33,448,658 $34,554,445 $4,035,880 $4,310,302 ----------- ----------- ---------- ---------- NET CHANGE IN NET ASSETS........... 23,854,019 24,959,806 1,740,905 2,015,327 NET ASSETS--BEGINNING OF PERIOD.... -- -- 4,495,828 5,082,813 ----------- ----------- ---------- ---------- NET ASSETS--END OF PERIOD.......... $23,854,019 $24,959,806 $6,236,733 $7,098,140 =========== =========== ========== ==========
AA-40 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
METROPOLITAN FUND ------------------------------------------------------------------------------------------------------ PUTNAM LARGE CAP GROWTH PORTFOLIO RUSSELL 2000 INDEX PORTFOLIO -------------------------------- ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE PERIOD THE PERIOD AS PREVIOUSLY THE PERIOD THE PERIOD MAY 1, 2000 MAY 1, 2000 REPORTED FOR AS RESTATED FOR MAY 1, 2000 MAY 1, 2000 TO TO THE YEAR ENDED THE YEAR ENDED TO TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 2000 2000 -------------- --------------- -------------- --------------- -------------- --------------- $5,729,760 $6,316,745 $2,754,531 $3,469,648 $2,483,462 $2,489,386 ---------- ---------- ---------- ---------- ---------- ---------- 4,495,828 5,082,813 3,056,349 3,771,466 2,163,212 2,169,136 -- -- 2,163,212 2,169,136 -- -- ---------- ---------- ---------- ---------- ---------- ---------- $4,495,828 $5,082,813 $5,219,561 $5,940,602 $2,163,212 $2,169,136 ========== ========== ========== ========== ========== ========== METROPOLITAN FUND ------------------------------------------------------------------- PUTNAM INTERNATIONAL STOCK PORTFOLIO ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 -------------- --------------- -------------- --------------- $ 7,331,696 $ 8,551,340 $ 6,003,538 $ 3,548,224 ----------- ----------- ----------- ----------- 2,829,985 4,049,629 3,168,969 713,655 19,387,515 18,874,499 16,218,546 18,160,844 ----------- ----------- ----------- ----------- $22,217,500 $22,924,128 $19,387,515 $18,874,499 =========== =========== =========== ===========
AA-41 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
METROPOLITAN FUND ------------------------------------------------------------------- STATE STREET RESEARCH AURORA PORTFOLIO METLIFE STOCK INDEX PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY REPORTED FOR AS RESTATED FOR THE PERIOD THE PERIOD AS PREVIOUSLY MAY 1, 2001 MAY 1, 2001 REPORTED FOR AS RESTATED FOR TO TO THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2001 2001 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $14,594,576 $16,398,977 $ 27,969,894 $ 30,485,260 ----------- ----------- ------------ ------------ NET CHANGE IN NET ASSETS........... 15,170,042 16,974,443 1,252,885 3,768,251 NET ASSETS--BEGINNING OF PERIOD.... -- -- 177,006,534 197,358,545 ----------- ----------- ------------ ------------ NET ASSETS--END OF PERIOD.......... $15,170,042 $16,974,443 $178,259,419 $201,126,796 =========== =========== ============ ============ METROPOLITAN FUND ------------------------------------------------------------------- LEHMAN BROTHERS AGGREGATE METLIFE STOCK INDEX PORTFOLIO BOND INDEX PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY REPORTED FOR AS RESTATED FOR AS PREVIOUSLY THE PERIOD THE PERIOD REPORTED FOR AS RESTATED FOR MAY 1, 2001 MAY 1, 2001 THE YEAR ENDED THE YEAR ENDED TO TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $ 32,741,075 $ 34,866,377 $4,052,821 $4,447,702 ------------ ------------ ---------- ---------- NET CHANGE IN NET ASSETS........... 12,484,465 14,609,767 4,092,309 4,487,190 NET ASSETS--BEGINNING OF PERIOD.... 164,522,069 182,748,778 -- -- ------------ ------------ ---------- ---------- NET ASSETS--END OF PERIOD.......... $177,006,534 $197,358,545 $4,092,309 $4,487,190 ============ ============ ========== ==========
AA-42 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
METROPOLITAN FUND ------------------------------------------------------------------------------------------------------ MORGAN STANLEY EAFE METLIFE MID CAP STOCK INDEX PORTFOLIO INDEX PORTFOLIO JANUS GROWTH PORTFOLIO -------------------------------- -------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE PERIOD THE PERIOD THE PERIOD THE PERIOD THE PERIOD THE PERIOD MAY 1, 2001 MAY 1, 2001 MAY 1, 2001 MAY 1, 2001 MAY 1, 2001 MAY 1, 2001 TO TO TO TO TO TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2001 2001 2001 2001 -------------- --------------- -------------- --------------- -------------- --------------- $442,025 $519,023 $ 917,382 $1,072,701 $ 831,161 $929,646 -------- -------- --------- ---------- --------- -------- 437,268 514,266 960,133 1,115,452 789,087 887,572 -- -- -- -- -- -- -------- -------- --------- ---------- --------- -------- $437,268 $514,266 $ 960,133 $1,115,452 $ 789,087 $887,572 ======== ======== ========= ========== ========= ======== AMERICAN FUND ------------------------------------------------------------------- AMERICAN FUNDS AMERICAN FUNDS GROWTH PORTFOLIO GROWTH-INCOME PORTFOLIO -------------------------------- -------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE PERIOD THE PERIOD THE PERIOD THE PERIOD MAY 1, 2001 MAY 1, 2001 MAY 1, 2001 MAY 1, 2001 TO TO TO TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2001 2001 -------------- --------------- -------------- --------------- $18,415,248 $20,770,527 $12,844,132 $14,647,974 ----------- ----------- ----------- ----------- 18,835,977 21,191,256 13,218,060 15,021,902 -- -- -- -- ----------- ----------- ----------- ----------- $18,835,977 $21,191,256 $13,218,060 $15,021,902 =========== =========== =========== ===========
AA-43 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AMERICAN FUND FIDELITY FUND ------------------------------- -------------------------------------------------------------- AMERICAN FUNDS GLOBAL SMALL CAP PORTFOLIO FIDELITY VIP EQUITY-INCOME PORTFOLIO ------------------------------- -------------------------------------------------------------- AS PREVIOUSLY REPORTED FOR AS RESTATED FOR THE PERIOD THE PERIOD AS PREVIOUSLY AS PREVIOUSLY MAY 1, 2001 MAY 1, 2001 REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR TO TO THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2001 2001 2000 2000 -------------- --------------- -------------- --------------- -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $1,928,132 $2,171,236 $ 5,360,389 $ 4,310,191 $ (7,005,291) $ (4,907,233) ---------- ---------- ------------ ------------ ------------ ------------ NET CHANGE IN NET ASSETS........... 2,069,538 2,312,642 (4,722,790) (5,772,988) 4,971,493 7,069,551 NET ASSETS--BEGINNING OF PERIOD.... -- -- 157,030,403 174,672,218 152,058,910 167,602,667 ---------- ---------- ------------ ------------ ------------ ------------ NET ASSETS--END OF PERIOD.......... $2,069,538 $2,312,642 $152,307,613 $168,899,230 $157,030,403 $174,672,218 ========== ========== ============ ============ ============ ============ FIDELITY FUND -------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO -------------------------------- AS PREVIOUSLY REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, 2001 2001 -------------- --------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS...................... $(49,676,942) $(54,188,732) ------------ ------------ NET CHANGE IN NET ASSETS........... (83,273,734) (87,785,524) NET ASSETS--BEGINNING OF PERIOD.... 183,248,954 194,389,425 ------------ ------------ NET ASSETS--END OF PERIOD.......... $ 99,975,220 $106,603,901 ============ ============
AA-44 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONCLUDED)
FIDELITY FUND ------------------------------------------------------------------------------------------------------ FIDELITY VIP OVERSEAS PORTFOLIO FIDELITY VIP HIGH INCOME PORTFOLIO -------------------------------- ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 2000 2001 2001 2000 2000 -------------- --------------- -------------- --------------- -------------- --------------- $ 97,329,641 $ 96,405,934 $ 3,327,381 $ 3,945,231 $ 2,074,967 $ 2,050,824 ------------ ------------ ----------- ----------- ----------- ----------- 56,910,562 55,986,855 1,677,926 2,295,776 (1,848,365) (1,872,508) 126,338,392 138,402,570 11,632,558 12,993,428 13,480,923 14,865,936 ------------ ------------ ----------- ----------- ----------- ----------- $183,248,954 $194,389,425 $13,310,484 $15,289,204 $11,632,558 $12,993,428 ============ ============ =========== =========== =========== =========== FIDELITY FUND ------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO ------------------------------------------------------------------- AS PREVIOUSLY AS PREVIOUSLY REPORTED FOR AS RESTATED FOR REPORTED FOR AS RESTATED FOR THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 2000 -------------- --------------- -------------- --------------- $ 2,322,255 $ 2,822,546 $ 2,151,661 $ 2,410,458 ----------- ----------- ----------- ----------- 1,609,072 2,109,363 1,450,086 1,708,883 13,220,267 14,842,135 11,770,181 13,133,252 ----------- ----------- ----------- ----------- $14,829,339 $16,951,498 $13,220,267 $14,842,135 =========== =========== =========== ===========
AA-45 NEW ENGLAND LIFE INSURANCE COMPANY 501 BOYLSTON STREET BOSTON, MA 02116 RECEIPT This is to acknowledge receipt of a Zenith Survivorship Life 2002 Prospectus dated May 1, 2003. This Variable Life Insurance Policy is offered by New England Life Insurance Company. ----------------------------------------------------- ----------------------------------------------------- (Date) (Client's Signature)
NEW ENGLAND LIFE INSURANCE COMPANY 501 BOYLSTON STREET BOSTON, MASSACHUSETTS 02116 (617) 578-2000 ZENITH SURVIVORSHIP LIFE 2002 SUPPLEMENT DATED MAY 1, 2003 TO PROSPECTUS DATED MAY 1, 2003 This supplement is prepared for Owners of ZENITH SURVIVORSHIP PLUS Policies. It describes certain differences between your Policy and the Policy as described in the current Zenith Survivorship Life 2002 prospectus. 1. The current Zenith Survivorship Life 2002 prospectus states that the sales charge in Policy years 2 through 10 is reduced from 11.5% to 9% if the initial face amount of the Policy, including the face amount of the Survivorship Level Term Insurance Rider, is at least $1,000,000. Under your Policy the sales charge in Policy years 2 through 10 is reduced from 11.5% to 9% if the base Policy face amount is at least $1,000,000. 2. The current Policy fee described in the current Zenith Survivorship Life 2002 prospectus is $12.50 per month in the first three Policy years and $5.50 per month thereafter. The current Policy fee under your Policy is $10.50 per month in the first three Policy years and $3.50 per month thereafter. 3. The current Zenith Survivorship Life 2002 prospectus states that the current Administrative Charge is $.08 per $1,000 of total Policy face amount in the first three Policy years and $.06 per $1,000 of base Policy face amount thereafter ($.035 per month in Policy year four and after if the total initial face amount is $1,000,000 or more). There is no extra Administrative Charge for insureds in an underwriting class below standard. Under your Policy, the current basic Administrative Charge (that is, the charge that applies if both insureds are in a standard or better underwriting class) is $.07 per $1,000 of total Policy face amount (that is, base Policy plus Survivorship Level Term Insurance Rider) per month in the first three Policy years and $.05 per $1,000 of total Policy face amount per month thereafter ($.025 per month in Policy year four and after if the base Policy face amount is $1,000,000 or more). If either insured is in an underwriting class below standard, there is an extra charge of $.02 per $1,000 of total Policy face amount per month that applies on both a current and guaranteed basis. If only one of the insureds is in a class below standard, the extra charge applies in Policy years four through six, and if both insureds are in a class below standard, the extra charge applies in Policy years four through nine. Although we currently intend to apply the basic Administrative Charge to no more than $4,000,000 of total Policy face amount after the first Policy year, we will impose the extra charge on the total Policy face amount during the applicable period if one or both of the insureds are in an underwriting class below standard. VL-196-03 4. The current Zenith Survivorship Life 2002 prospectus provides that the smoker and nonsmoker aggregate underwriting classes are available for total Policy face amounts (base Policy plus Survivorship Level Term Insurance Rider) of up to $200,000, and the smoker preferred, nonsmoker preferred and nonsmoker standard classes are available for total face amounts of $200,000 or more. Under your Policy, the nonsmoker aggregate underwriting class was available for base Policy face amounts of up to $500,000, and the nonsmoker preferred and nonsmoker standard underwriting classes were available for base Policy face amounts of $500,000 or more. The smoker preferred and smoker aggregate underwriting classes are not available under your Policy. 5. The Minimum Premium Guarantee period described in the current Zenith Survivorship Life 2002 prospectus is five years. The Minimum Premium Guarantee period under your Policy is three years. ZENITH SURVIVORSHIP LIFE 2002 FLEXIBLE PREMIUM ADJUSTABLE VARIABLE SURVIVORSHIP LIFE INSURANCE POLICIES NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT ISSUED BY NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ADDITIONAL INFORMATION (PART B) MAY 1, 2003 This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the Prospectus dated May 1, 2003 and should be read in conjunction therewith. A copy of the Prospectus may be obtained by writing to New England Securities Corporation ("New England Securities"), 501 Boylston Street, Boston, Massachusetts 02116. SAI-1 TABLE OF CONTENTS
PAGE ------ GENERAL INFORMATION AND HISTORY............................. SAI-3 The Company............................................... SAI-3 The Variable Account...................................... SAI-3 DISTRIBUTION OF THE POLICIES................................ SAI-3 ADDITIONAL INFORMATION ABOUT THE OPERATION OF THE POLICIES.................................................. SAI-4 Dollar Cost Averaging..................................... SAI-4 Asset Rebalancing......................................... SAI-5 Payment of Proceeds....................................... SAI-5 Payment Options........................................... SAI-5 ADDITIONAL INFORMATION ABOUT CHARGES........................ SAI-6 Group or Sponsored Arrangements........................... SAI-6 POTENTIAL CONFLICTS OF INTEREST............................. SAI-7 LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY............ SAI-7 MISSTATEMENT OF AGE OR SEX.................................. SAI-7 REPORTS..................................................... SAI-7 PERSONALIZED ILLUSTRATIONS.................................. SAI-7 ADVERTISING PRACTICES....................................... SAI-8 PERFORMANCE DATA............................................ SAI-8 INVESTMENT ADVICE........................................... SAI-9 LEGAL MATTERS............................................... SAI-10 REGISTRATION STATEMENT...................................... SAI-10 EXPERTS..................................................... SAI-10 FINANCIAL STATEMENTS........................................
SAI-2 GENERAL INFORMATION AND HISTORY THE COMPANY NELICO was organized as a stock life insurance company in Delaware on September 9, 1980 and is licensed to sell life insurance in all states and the District of Columbia. 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, New York 10010. MetLife then became the parent of NELICO. MetLife is a wholly-owned subsidiary of MetLife, Inc., a publicly-traded company. MetLife, Inc., through its affiliates and subsidiaries, is a leading provider of insurance and other financial services to a broad spectrum of individual and institutional customers. 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 located at 501 Boylston Street, Boston, Massachusetts 02116. 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. 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 any applicable 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, 501 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. New England Securities offers the Policies through its sales representatives. New England Securities also may enter into selling agreements with other broker-dealers and compensate these broker-dealers up to the amounts disclosed in the prospectus for their services. Sales representatives must be licensed as insurance agents and appointed by us. SAI-3 New England Securities received sales compensation with respect to the Variable Account in the following amounts during the periods indicated:
AGGREGATE AMOUNT OF COMMISSIONS RETAINED BY NEW ENGLAND SECURITIES AGGREGATE AMOUNT OF AFTER PAYMENTS TO ITS COMMISSIONS PAID TO REGISTERED PERSONS AND FISCAL YEAR NEW ENGLAND SECURITIES* OTHER BROKER DEALERS ----------- ----------------------- ----------------------- 2000......................................... $89,777,793 $0 2001......................................... $89,291,926 $0 2002......................................... $82,764,079 $0
--------------- * Includes sales compensation paid to registered persons of New England Securities. New England Securities passes through commissions it receives and does not retain any override as distributor for the Policies. However, New England Securities' operating and other expenses are paid for by NELICO. 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. These programs include conferences, seminars, meals, sporting events, theater performances, payment for travel, lodging and entertainment, prizes, and awards, subject to applicable regulatory requirements. 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. The American Funds Growth Fund, the American Funds Growth-Income Fund, and the American Funds Global Small Capitalization Fund have adopted a Distribution Plan in connection with their Class 2 shares and pay New England Securities for its costs in distributing these shares. The Distribution Plan has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, which allows funds to pay fees to those who sell and distribute fund shares out of fund assets. The 12b-1 fees are in consideration of distribution services provided and expenses incurred in the performance of New England Securities' obligations under an agreement with the American Funds Growth Fund, the American Funds Growth-Income Fund and the American Funds Global Small Capitalization Fund. Under this agreement, these Funds pay New England Securities for its distribution-related services and expenses at an annual rate of 0.25% of assets attributable to the Policies and certain other variable insurance products that we and our affiliates may issue. ADDITIONAL INFORMATION ABOUT THE OPERATION OF THE POLICIES DOLLAR COST AVERAGING We may offer an automated transfer privilege called dollar cost averaging. The same dollar amount is transferred to selected Sub-Accounts (and/or the Fixed Account) periodically. Over time, more purchases of Eligible Fund shares are made when the value of those shares is low, and fewer shares are purchased when the value is high. As a result, a lower than average cost of purchases may be achieved over the long term. This plan of investing allows you to take advantage of investment fluctuations, but does not assure a profit or protect against a loss in declining markets. Under this feature, you may request that a certain amount of your cash value be transferred on any selected business day of each month (or if not a day when the New York Stock Exchange is open, the next such day), from any one Sub-Account to one or more of the other Sub-Accounts (and/or the Fixed Account). We limit your SAI-4 allocation of cash value to no more than nine accounts (including the Fixed Account) at any one time. You must transfer a minimum of $100 to each account that you select under this feature. If we exercise our right to limit the number of transfers to four per Policy year, or to impose a $25 charge for transfers in excess of 12 per Policy year, we reserve the right to count transfers made under the dollar cost averaging program 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 your registered representative. You may not participate in the dollar cost averaging program while you are participating in the asset rebalancing program. (See "Asset Rebalancing" below). You can cancel your use of the dollar cost averaging program at any time before a transfer date. Transfers will continue until you notify us to stop or there no longer is sufficient cash value in the Sub-Account from which you are transferring. There is no extra charge for this feature. We reserve the right to suspend dollar cost averaging at any time. ASSET REBALANCING We may offer an asset rebalancing program for your cash value. Cash value allocated to the Sub-Accounts can be expected to increase or decrease at different rates. An asset rebalancing program automatically reallocates your cash value among the Sub-Accounts and the Fixed Account periodically to return the allocation to the allocation percentages you specify. Asset 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. Asset rebalancing does not guarantee profits, nor does it assure that you will not have losses. When available, you can select an asset rebalancing program when you apply for the Policy or at a later date. You specify the percentage allocations by which your cash value will be reallocated among the Sub-Accounts, as well as the frequency (using calender month-end, quarter-end or year-end dates). You may not participate in the asset rebalancing program while you are participating in the dollar cost averaging program. (See "Dollar Cost Averaging" above.) On the last day of your chosen period on which the New York Stock Exchange is open, we will transfer cash value among the Sub-Accounts as necessary to return the allocation to your specifications. Asset rebalancing will continue until you notify us in writing or by telephone to stop. If we exercise our right to limit the number of transfers to four per Policy year, or to impose a $25 charge for transfers in excess of 12 per Policy year, we reserve the right to count transfers made under the asset rebalancing program against the total number of transfers allowed in a Policy year. There is no extra charge for this feature. Ask your registered representative about the availability of this feature. PAYMENT OF PROCEEDS We may withhold payment of surrender or loan proceeds if those proceeds are coming from a Policy Owner's check, or from a Master Service Account premium transaction, which has not yet cleared. We may also delay payment while we consider whether to contest the Policy. We pay interest on the death benefit proceeds from the date they become payable to the date we pay them. The beneficiary can elect our Total Control Account program for payment of death proceeds at any time before we pay them. 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. PAYMENT OPTIONS We pay the Policy's death benefit and net cash value in one sum unless you or the payee choose a payment option for all or part of the proceeds. You can choose a combination of payment options. You can make, change or revoke the selection of payee or payment option before the last death under the Policy. You can contact your registered representative or our Designated Office for the procedure to follow. The payment options available are SAI-5 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% a year, compounded yearly. Additional interest for any year is added to the monthly payments for that year. (ii) LIFE INCOME. We pay proceeds in equal monthly installments (i) during the life of the payee, (ii) for the longer of the life of the payee or 10 years, or (iii) for the longer of the life of the payee or 20 years. (iii)LIFE INCOME WITH REFUND. We pay proceeds in equal monthly installments during the life of the payee. At the payee's death, we pay any unpaid proceeds remaining either in one sum or in equal monthly installments until we have paid the total proceeds. (iv)INTEREST. We hold proceeds for the life of the payee or another agreed upon period. We pay interest of at least 3% a year monthly or add it to the principal annually. At the death of the payee, or at the end of the period agreed to, we pay the balance of principal and any interest in one sum. (v) SPECIFIED AMOUNT OF INCOME. We pay proceeds plus accrued interest of at least 3% a year in an amount and at a frequency elected until we have paid total proceeds. We pay any amounts unpaid at the death of the payee in one sum. (vi)LIFE INCOME FOR TWO LIVES. We pay proceeds in equal monthly installments (i) while either of two payees is living, (ii) for the longer of the life of the surviving payee or 10 years, or (iii) while the two payees are living and, after the death of one payee, we pay two-thirds of the monthly amount for the life of the surviving payee. You need our consent to use an option if the installment payments would be less than $20. ADDITIONAL INFORMATION ABOUT CHARGES GROUP OR SPONSORED ARRANGEMENTS We may issue the Policies to group or sponsored arrangements, as well as on an individual basis. A "group arrangement" includes a situation where a trustee, employer or similar entity purchases individual Policies covering a group of individuals. An example of such an arrangement is a non-qualified deferred compensation plan. A "sponsored arrangement" includes a situation where an employer or an association permits group solicitation of its employees or members for the purchase of individual Policies. We may waive, reduce or vary any Policy charges under Policies sold to a group or sponsored arrangement. We may also raise the interest rate credited to loaned amounts under these Policies. The amount of the variations and our eligibility rules may change from time to time. In general, they reflect cost savings over time that we anticipate for Policies sold to the eligible group or sponsored arrangements and relate to objective factors such as the size of the group, its stability, the purpose of the funding arrangement and characteristics of the group members. These variations of charges do not apply to Policies sold in New York other than Policies sold to non-qualified deferred compensation plans of various types. Consult your registered representative for any variations that may be available and appropriate for your case. The United States Supreme Court has ruled that insurance policies with values and benefits that vary with the sex of the insured may not be used to fund certain employee benefit programs. We 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. SAI-6 POTENTIAL CONFLICTS OF INTEREST 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 and qualified plans. 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 and qualified plans, if applicable. If there is a material conflict, the Board of Trustees will determine what action should be taken, including the removal of the affected Sub-Accounts from the Eligible Fund(s), if necessary. If we believe any Eligible Fund action is insufficient, we will consider taking other action to protect Policy Owners. There could, however, be unavoidable delays or interruptions of operations of the Variable Account that we may be unable to remedy. LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY Generally, we can challenge the validity of your Policy or a rider during either insured's lifetime for two years (or less, if required by state law) from the date of issue, based on misrepresentations made in the application. We can challenge the portion of the death benefit resulting from an underwritten premium payment for two years (during either insured's lifetime) from the premium payment. However, if either insured dies within two years of the date of issue, we can challenge all or part of the Policy at any time, based on misrepresentations relating to that insured. You should notify us immediately upon the first death of an insured under the Policy. Even if premiums continue to be paid after the first death, we generally can contest the Policy or limit benefits under the suicide provision and terminate the Policy at any time, even beyond the two-year period, if we were not notified of a death that occurred during the period of contestability. MISSTATEMENT OF AGE OR SEX If the application misstates either 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 insureds' correct ages and, if the Policy is sex-based, correct sexes. 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, account transfers, lapses, surrenders and other Policy transactions when they occur. You will be sent periodic reports containing the financial statements of the Eligible Funds. PERSONALIZED ILLUSTRATIONS We may provide personalized illustrations showing how the Policies work based on assumptions about investment returns and the Policy Owner's and/or insured's characteristics. The illustrations are intended to show how the death benefit, net cash value, and cash value could vary over an extended period of time assuming hypothetical gross rates of return (i.e., investment income and capital gains and losses, realized or unrealized) for the Variable Account equal to specified constant after-tax rates of return. One of the gross rates of return will be 0%. Gross rates of return do not reflect the deduction of any charges and expenses. The illustrations will be based on specified assumptions, such as face amount, premium payments, insured, underwriting class, and death benefit option. Illustrations will disclose the specific assumptions upon which they are based. Values will be given based on guaranteed mortality and expense risk and other charges and may also be based on current mortality and expense risk and other charges. The illustrated death benefit, net cash value, and cash value for a hypothetical Policy would be different, either higher or lower, from the amounts shown in the illustration if the actual gross rates of return averaged the gross SAI-7 rates of return upon which the illustration is based, but varied above and below the average during the period, or if premiums were paid in other amounts or at other than annual intervals. 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 in particular illustrations even if the average rate of return is realized. Illustrations may also show the internal rate of return on the net cash value and the death benefit. The internal rate of return on the net cash value is equivalent to an interest rate (after taxes) at which an amount equal to the illustrated premiums could have been invested outside the Policy to arrive at the net cash value of the Policy. The internal rate of return on the death benefit is equivalent to an interest rate (after taxes) at which an amount equal to the illustrated premiums could have been invested outside the Policy to arrive at the death benefit of the Policy. Illustrations may also show values based on the historical performance of the Sub-Accounts of the Variable Account. ADVERTISING PRACTICES Professional organizations may endorse the Policies. We may use such endorsements in Policy sales material. We may pay the professional organization for the use of its customer or mailing lists to distribute Policy promotional materials. An endorsement by a third party does not predict the future performance of the Policies. Articles discussing the Variable Account's investment performance, rankings and other characteristics may appear in publications. Some or all of these publishers or ranking services (including, but not limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) may publish their own rankings or performance reviews of variable contract separate accounts, including the Variable Account. We may use references to, or reprints of such articles or rankings as sales material and may include rankings that indicate the names of other variable contract separate accounts and their investment experience. We may also use "unit values" to provide information about the Variable Account's investment performance in 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. PERFORMANCE DATA We may provide information concerning the historical investment experience of the Sub-Accounts, including average annual net rates of return for periods of one, three, five, and ten years, as well as average annual net rates of return and total net rates of return since inception of the Eligible Funds. These net rates of return represent past performance and are not an indication of future performance. Cost of insurance, sales, premium tax, asset (mortality and expense risk) and administration and issue expense charges, which can significantly reduce the return to the Policy Owner, are not reflected in these rates. The rates of return reflect only the fees and expenses of the underlying Eligible Funds. The net rates of return show performance from the inception of the Eligible Funds, which in some instances, may precede the inception date the corresponding Sub-Account. SAI-8 INVESTMENT ADVICE The Variable Account invests in the Portfolios of the Metropolitan Series Fund, Inc. ("Met Series Fund"), the Met Investors Series Trust, and other unaffiliated open-end management investment companies that serve as investment vehicles for variable life and variable annuity separate accounts. MetLife Advisers, LLC ("MetLife Advisers") and Met Investors Advisory LLC ("Met Investors Advisory"), as the advisers to the Met Series Fund and the Met Investors Series Trust, respectively, may, from time to time, replace the sub-adviser of a Portfolio with a new sub-adviser. A number of sub-adviser changes have been made with respect to the Portfolios in which the Variable Account invests. MetLife Advisers (formerly known as New England Investment Management, Inc. which was formerly known as TNE Advisers, Inc.) became the investment adviser to the Portfolios of the Met Series Fund on May 1, 2001. Prior to May 1, 2001, Metropolitan Life Insurance Company was the investment adviser for all Portfolios of the Met Series Fund. MetLife Advisers was also the investment adviser to each of the Series of the New England Zenith Fund ("Zenith Fund") until May 1, 2003, the date on which each Series became a Portfolio of the Met Series Fund. MetLife Advisers had been the adviser to all Series of the Zenith Fund since 1994, with the following exceptions: in the case of the Back Bay Advisors Money Market Series (currently, the State Street Research Money Market Portfolio), the Back Bay Advisors Bond Income Series (currently, the State Street Research Bond Income Portfolio), the Westpeak Value Growth Series (currently, the FI Structured Equity Portfolio), the Loomis Sayles Small Cap Series and the Loomis Sayles Avanti Growth Series (currently, the Harris Oakmark Focused Value Portfolio), MetLife Advisers became the adviser on May 1, 1995; and, in the case of the Capital Growth Series (currently, the Zenith Equity Portfolio), MetLife Advisers became the adviser on May 1, 2001. Met Investors Advisory (formerly known as Met Investors Advisory Corp. which was formerly known as Security First Investment Management) became the investment adviser for the Portfolios of the Met Investors Series Trust on February 12, 2001. The following is the sub-adviser history of the Met Series Fund Portfolios that, prior to April 28, 2003, were Series of the Zenith Fund: The sub-adviser to the FI Structured Equity Portfolio (formerly, the Westpeak Growth and Income Series) was Westpeak Investment Advisors, L.P. until May 1, 2002, when Fidelity Management & Research Company became the sub-adviser. The sub-adviser to the State Street Research Money Market Portfolio (formerly, the Back Bay Advisors Money Market Series) and the State Street Research Bond Income Portfolio (formerly, the Back Bay Advisors Bond Income Series) was Back Bay Advisors, L.P. until July 1, 2001, when State Street Research & Management Company became the sub-adviser. The sub-adviser to the MFS Total Return Portfolio (formerly, the Back Bay Advisors Managed Series) was Back Bay Advisors, L.P. until July 1, 2001 when Massachusetts Financial Services Company became the sub-adviser. The sub-adviser to the Harris Oakmark Focused Value Portfolio (formerly, the Harris Oakmark Mid Cap Value Series which was formerly the Goldman Sachs Midcap Value Series which was formerly the Loomis Sayles Avanti Growth Series) was Loomis, Sayles and Company, L.P. until May 1, 1998, when Goldman Sachs Asset Management, a separate operating division of Goldman Sachs & Co., became the sub-adviser; Harris Associates L.P. became the sub-adviser on May 1, 2000. The sub-adviser to the Balanced Portfolio (formerly, the Loomis Sayles Balanced Series) was Loomis, Sayles and Company, L.P. until May 1, 2000, when Wellington Management Company, LLP became the sub-adviser. The sub-adviser to the Westpeak Stock Index Series, which was replaced by the MetLife Stock Index Portfolio on April 27, 2001 and was formerly known as the Stock Index Series, was Back Bay Advisors, L.P. until August 1, 1993, when Westpeak Investment Advisors, L.P. became the sub-adviser. Prior to May 1, 2002, Capital Growth Management Limited Partnership was the sub-adviser to the Zenith Equity Portfolio. As of May 1, 2002, Capital Growth Management Limited Partnership ceased to be the sub-adviser to the Zenith Equity Portfolio and at that time, Zenith Equity Portfolio became a "fund of funds" that invests equally in three other Portfolios of the Met Series Fund: the FI Structured Equity Portfolio, the Jennison Growth Portfolio and the Capital Guardian U.S. Equity Portfolio. The sub-advisers to these Portfolios are Fidelity Management & Research Company, Jennison Associates LLC and Capital Guardian Trust Company, respectively. SAI-9 The following is the sub-adviser history of the remaining Met Series Fund Portfolios: Metropolitan Life Insurance Company became the sub-adviser to the Lehman Brothers(R) Aggregate Bond Index Portfolio, the MetLife Stock Index Portfolio, the MetLife Mid Cap Stock Index Portfolio, the Morgan Stanley EAFE(R) Index Portfolio and the Russell 2000(R) Index Portfolio on May 1, 2001. The sub-adviser to the Morgan Stanley International Magnum Equity Series, which was replaced by the Putnam International Stock Portfolio on December 1, 2000 and was formerly known as the Draycott International Equity Series, was Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management Inc. became the sub-adviser. The following is the sub-adviser history of the Met Investors Series Trust: The sub-adviser to the T. Rowe Price Mid-Cap Growth Portfolio (formerly, the MFS Mid Cap Growth Portfolio) was Massachusetts Financial Services Company until T. Rowe Price Associates, Inc. became the sub-adviser effective January 1, 2003. The sub-adviser to the Harris Oakmark International Portfolio (formerly, State Street Research Concentrated International Portfolio) was State Street Research & Management Company until Harris Associates L.P. became the sub-adviser effective January 1, 2003. LEGAL MATTERS Legal matters in connection with the Policies have been passed on by Anne M. Goggin, General Counsel of NELICO. Sutherland Asbill & Brennan LLP, of Washington, D.C., has provided legal advice on certain matters relating to the Federal securities laws. REGISTRATION STATEMENT This Statement of Additional Information and the prospectus omit 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 consolidated financial statements of NELICO and subsidiaries included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the change in the method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP, 201 E. Kennedy Boulevard, Tampa, Florida 33602, serves as independent public accountants for the Variable Account and NELICO. SAI-10 NEW ENGLAND LIFE INSURANCE COMPANY INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of New England Life Insurance Company We have audited the accompanying consolidated balance sheets of New England Life Insurance Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of New England Life Insurance Company and subsidiaries as of December 31, 2002 and 2001, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. DELOITTE & TOUCHE LLP Boston, Massachusetts February 19, 2003 1 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001 (DOLLARS IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
2002 2001 ------ ------ ASSETS Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $658 and $340, respectively)........... $ 685 $ 344 Equity securities, at fair value (cost: $24 and $30, respectively)........................................... 23 27 Policy loans.............................................. 270 262 Other limited partnership interests....................... 15 20 Short-term investments.................................... 34 -- Other invested assets..................................... 10 12 ------ ------ Total investments..................................... 1,037 665 ------ ------ Cash and cash equivalents................................... 106 210 Accrued investment income................................... 17 19 Premiums and other receivables.............................. 180 133 Deferred policy acquisition costs........................... 1,269 1,185 Other assets................................................ 89 113 Separate account assets..................................... 5,425 5,725 ------ ------ TOTAL ASSETS.......................................... $8,123 $8,050 ====== ====== LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Future policy benefits.................................... $ 338 $ 245 Policyholder account balances............................. 748 661 Other policyholder funds.................................. 306 296 Policyholder dividends payable............................ 2 2 Current income taxes payable.............................. 18 -- Deferred income taxes payable............................. 63 68 Other liabilities......................................... 254 115 Separate account liabilities.............................. 5,425 5,725 ------ ------ TOTAL LIABILITIES..................................... 7,154 7,112 ------ ------ Commitments and contingencies (Note 6) STOCKHOLDER'S EQUITY: Common stock, par value $125.00 per share; 50,000 shares authorized; 20,000 shares issued and outstanding.......... 3 3 Preferred stock, no par value; 1,000,000 shares authorized; 200,000 issued and outstanding............................ -- -- Additional paid-in capital.................................. 647 647 Retained earnings........................................... 295 284 Accumulated other comprehensive income...................... 24 4 ------ ------ TOTAL STOCKHOLDER'S EQUITY............................ 969 938 ------ ------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $8,123 $8,050 ====== ======
See accompanying notes to consolidated financial statements. 2 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (DOLLARS IN MILLIONS)
2002 2001 2000 ---- ---- ---- REVENUES Premiums.................................................... $ 91 $117 $125 Universal life and investment-type product policy fees...... 407 351 272 Net investment income....................................... 36 44 63 Other revenues.............................................. 190 221 283 Net investment losses....................................... (11) (1) (28) ---- ---- ---- TOTAL REVENUES...................................... 713 732 715 ---- ---- ---- EXPENSES Policyholder benefits and claims............................ 131 104 150 Interest credited to policyholder account balances.......... 30 24 20 Policyholder dividends...................................... 5 3 18 Other expenses.............................................. 477 463 490 ---- ---- ---- TOTAL EXPENSES...................................... 643 594 678 ---- ---- ---- Income before provision for income taxes, cumulative effect of a change in accounting principle, and minority interest.................................................. 70 138 37 Provision for income taxes.................................. 14 42 25 ---- ---- ---- Income before cumulative effect of a change in accounting principle and minority interest........................... 56 96 12 Cumulative effect of a change in accounting principle....... (15) -- -- Minority interest........................................... (25) (20) -- ---- ---- ---- NET INCOME.................................................. $ 16 $ 76 $ 12 ==== ==== ====
See accompanying notes to consolidated financial statements. 3 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (DOLLARS IN MILLIONS)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED COMPREHENSIVE STOCK CAPITAL EARNINGS (LOSS) INCOME TOTAL ------ ---------- -------- ------------- ----- BALANCE AT DECEMBER 31, 1999........................ $3 $647 $215 $(11) $854 Dividends on preferred stock...................... (11) (11) Comprehensive income: Net income...................................... 12 12 Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes................................ 2 2 ---- Comprehensive income.............................. 14 -- ---- ---- ---- ---- BALANCE AT DECEMBER 31, 2000........................ 3 647 216 (9) 857 Dividends on preferred stock...................... (8) (8) Comprehensive income: Net income...................................... 76 76 Other comprehensive income: Unrealized investment gains net of related offsets and income taxes.................... 13 13 ---- Comprehensive income.............................. 89 -- ---- ---- ---- ---- BALANCE AT DECEMBER 31, 2001........................ 3 647 284 4 938 Dividends on preferred stock...................... (5) (5) Comprehensive income: Net income...................................... 16 16 Other comprehensive income: Unrealized investment gains net of related offsets and income taxes.................... 20 20 ---- Comprehensive income.............................. 36 -- ---- ---- ---- ---- BALANCE AT DECEMBER 31, 2002........................ $3 $647 $295 $ 24 $969 == ==== ==== ==== ====
See accompanying notes to consolidated financial statements. 4 NEW ENGLAND LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (DOLLARS IN MILLIONS)
2002 2001 2000 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 16 $ 76 $ 12 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization expenses.................. 8 10 13 Losses from sale of investments......................... 11 1 28 Interest credited to policyholder account balances...... 30 24 20 Universal life and investment-type product policy fees................................................... (407) (351) (272) Change in accrued investment income..................... 2 1 10 Change in premiums and other receivables................ 6 (12) (2) Change in deferred policy acquisition costs, net........ (79) (153) (113) Change in insurance-related liabilities................. 103 102 (420) Change in income taxes payable.......................... 3 40 (11) Change in other liabilities............................. 139 (64) 26 Other, net................................................ 42 123 177 ------- ------- ------- Net cash used in operating activities....................... (126) (203) (532) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturities........................................ 176 135 587 Equity securities....................................... 1 -- 35 Purchases of: Fixed maturities........................................ (550) (226) (87) Equity securities....................................... -- (5) (9) Net change in short-term investments...................... (34) 10 53 Net change in policy loans................................ (8) (28) (52) Loss from sale of business, net........................... -- -- (54) Other, net................................................ 39 (19) (3) ------- ------- ------- Net cash (used in) provided by investing activities......... (376) (133) 470 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits................................................ 1,426 2,109 1,712 Withdrawals............................................. (1,023) (1,669) (1,532) Long-term debt repaid..................................... -- -- (77) Dividends on preferred stock.............................. (5) (8) (11) ------- ------- ------- Net cash provided by financing activities................... 398 432 92 ------- ------- ------- Change in cash and cash equivalents......................... (104) 96 30 Cash and cash equivalents, beginning of year................ 210 114 84 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 106 $ 210 $ 114 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest................................................ $ 1 $ 2 $ 7 ======= ======= ======= Income taxes............................................ $ 6 $ 7 $ 22 ======= ======= =======
See accompanying notes to consolidated financial statements. 5 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS New England Life Insurance Company (the "Company" or "NELICO") is a wholly owned stock life insurance subsidiary of Metropolitan Life Insurance Company ("Metropolitan Life"). The Company is headquartered in Boston, Massachusetts as a Massachusetts chartered company. The Company principally provides variable life insurance and variable annuity contracts through a network of general agencies and independent brokers located throughout the United States. The Company also provides participating and non-participating traditional life insurance, pension products, as well as, group life, medical, and disability coverage. The principal subsidiaries of which NELICO owns 100% of the outstanding common stock are: New England Pension and Annuity Company ("NEPA") and Newbury Insurance Company, Limited ("Newbury") for insurance operations and, through New England Life Holdings, Inc. (a holding company for non-insurance operations), New England Securities Corporation ("NES"), and NL Holding Corporation ("NL Holding") and its wholly owned subsidiaries Nathan and Lewis Securities, Inc., Nathan and Lewis Associates, Inc. NELICO owns a majority interest in MetLife Advisers LLC ("Advisers") and New England Financial Distributors LLC ("NEFD"). On October 31, 2000 Exeter Reassurance Co., Ltd, a Bermuda Corporation was sold to MetLife, Inc. the ultimate parent company of NELICO. The principal business activities of the subsidiaries are disclosed below. NEPA was incorporated under the laws of the State of Delaware on September 12, 1980. NEPA holds licenses to sell annuity contracts in 22 states, but is currently not actively engaged in the sale or distribution of insurance products. Newbury was incorporated in Bermuda on May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act of 1978 (Bermuda). Newbury provides professional liability and personal injury coverage to the agents of NELICO through a facultative reinsurance agreement with Lexington Insurance Company. Effective September 1, 2000, Newbury began providing errors and omissions coverage to certain of the life insurance agents of MetLife through a facultative reinsurance agreement with Fireman's Fund Insurance Company. NES, a National Association of Securities Dealers ("NASD") registered broker/dealer, conducts business as a wholesale distributor of investment products through the sales force of NELICO. Established in 1968, NES offers a range of investment products including mutual funds, investment partnerships, and individual securities. In 1994, NES became a Registered Investment Advisor with the Securities and Exchange Commission ("SEC"), and now offers individually managed portfolios. NES is the national distributor for variable annuity and variable life products issued by NELICO. Advisers, which changed its name from New England Investment Management LLC in May 2001, was incorporated on August 26, 1994, and is registered as an investment adviser with the SEC, under the Investment Advisers Act of 1940. Advisers was organized to serve as an investment adviser to certain series of the New England Zenith Fund and certain other Metropolitan Life funds. Prior to January 1, 2001, Advisers was owned 100% by the Company. On January 1, 2001 the Company entered into an agreement with certain affiliated entities whereby those entities received a non-voting equity interest in Advisers. The Company retained 100% of the voting interests. NL Holding engages in securities brokerage, dealer trading in fixed income securities, over the counter stock, unit investment trusts, and the sale of insurance related products and annuities, sold through licensed brokers and independent agents. Nathan and Lewis Securities, Inc., a wholly owned subsidiary of NL Holding, is a NASD registered broker/dealer. Nathan & Lewis Associates, a wholly owned subsidiary of NL Holding, is a general insurance agent which sells insurance policies and other insurance related products through its licensed brokers and independent agents. NEFD was incorporated in Delaware on November 5, 1999. NEFD is licensed as an insurance agency to facilitate the distribution of insurance and other financial products, including securities. 6 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The significant accounting policies, estimates, and related judgments underlying the Company's consolidated financial statements are summarized below. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. The accompanying consolidated financial statements include the accounts of NELICO and its subsidiaries, and other limited partnerships in which the Company has a majority voting interest or general partner interest with limited removal rights by limited partners. Intercompany accounts and transactions have been eliminated. In addition, the Company has established a minority interest for the portion of the net income of Advisers not attributable to the Company's ownership of $25 million and $20 million for the years ended December 31, 2002 and 2001, respectively. Minority interest in the stockholder's equity of the Company was less than $1 million as of December 31, 2002 and 2001, respectively. The Company uses the equity method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has more than a minor interest, has influence over the partnership's operating and financial policies and does not have a controlling interest. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2002 presentation. INVESTMENTS The Company's principal investments are in fixed maturities, which are exposed to three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of income, impairments and the determination of fair values. The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the fixed maturities impairment evaluation process include, but are not limited to: (i) The length of time and the extent to which the market value has been below amortized cost; (ii) The potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) The potential for impairments in an entire industry sector or sub-sector; (iv) The potential for impairments in certain economically depressed geographic locations; (v) The potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; and (vi) Other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of accumulated other comprehensive income, net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as investment losses. Investment gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. 7 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Policy loans are stated at unpaid principal balances, which are not in excess of net cash surrender values of related insurance policies. Short-term investments are stated at amortized cost, which approximates fair value. Other invested assets are reported at their estimated fair value. VARIABLE INTEREST ENTITIES Effective in 2003, Financial Accounting Standards Board ("FASB") Interpretation No. 46, Consolidation of Variable Interest Entities, and Interpretation of APB No. 51 ("FIN 46") established new accounting guidance relating to the consolidation of variable interest entities ("VIEs"). Certain investments in real estate joint ventures and other limited partnership interests meet the VIE definition. The Company will be required to consolidate any VIE for which it is determined that the Company is the primary beneficiary. The Company is still in the process of evaluating its investments with regard to the implementation of FIN 46. The following table presents the total assets and the maximum exposure to loss relating to the VIEs that the Company believes it is reasonably possible it will need to consolidate in accordance with the provisions of FIN 46 at:
DECEMBER 31, 2002 ---------------------- MAXIMUM TOTAL EXPOSURE ASSETS TO LOSS -------- ---------- (DOLLARS IN MILLIONS) Other structured investment transactions.................... $18 $ --(1) Other limited partnership interests......................... 1 1(2) --- ----- Total................................................... $19 $ 1 === =====
--------------- (1) The maximum exposure to loss is based on the carrying value of beneficial interests. (2) The maximum exposure to loss is based on the carrying value plus unfunded commitments reduced by amounts guaranteed by other partners. The other structured investment is an equity interest in a life insurance entity that the Company holds. This entity, which reinsures certain risks from the Company and Metropolitan Life, was established to facilitate the retention of top producing agents and to increase the quality of insurance written by such agents through the use of agent-owned participating equity. CASH AND CASH EQUIVALENTS The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. PROPERTY, EQUIPMENT, LEASEHOLD IMPROVEMENTS AND COMPUTER SOFTWARE Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the- years-digits method over the estimated useful lives of the assets. Estimated lives range from four to seven years for leasehold improvements and three to 15 years for all other property and equipment. Accumulated depreciation and amortization of property, equipment, and leasehold improvements was $4 million and $54 million at December 31, 2002 and 2001, respectively. Related depreciation and amortization expense was $168,000, $1 million and $9 million for the years ended December 31, 2002, 2001 and 2000, respectively. During 2002, the Company received $27 million from Metlife for the purchase of the Company's computers, furniture and other fixed assets at net book value. Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as, internal and external costs incurred to develop internal-use computer software during the 8 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) application development stage are capitalized. Such costs are amortized generally over a three-year period using the straight-line method. Accumulated amortization of capitalized software was $15 million and $10 million at December 31, 2002 and 2001, respectively. Related amortization expense was $5 million, $8 million and $2 million for the years ended December 31, 2002, 2001 and 2000, respectively. DEFERRED POLICY ACQUISITION COSTS The costs of acquiring new business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized with interest over the expected life of the contract for participating traditional life, variable life, universal life, investment-type products, and variable annuities. Generally, deferred policy acquisition costs are amortized in proportion to the present value of estimated gross margins or profits from investments, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception or acquisition of the contracts. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health policies and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Information regarding deferred policy acquisition costs is as follows:
YEARS ENDED DECEMBER 31, -------------------------- 2002 2001 2000 ------ ------ ------ (DOLLARS IN MILLIONS) Balance at January 1........................................ $1,185 $1,021 $ 931 Capitalization of policy acquisition costs.................. 189 216 223 ------ ------ ------ Total................................................... 1,374 1,237 1,154 ------ ------ ------ Amortization allocated to: Net realized investment losses............................ -- -- 1 Unrealized investment (losses) gains...................... (4) (11) 23 Other expenses............................................ 109 63 109 ------ ------ ------ Total amortization...................................... 105 52 133 ------ ------ ------ Balance at December 31...................................... $1,269 $1,185 $1,021 ====== ====== ======
Amortization of deferred policy acquisition costs is allocated to: (i) investment gains and losses to provide consolidated statement of income information regarding the impact of such gains on the amount of the amortization, (ii) unrealized investment gains and losses to provide information regarding the amount of deferred policy acquisition costs that would have been amortized to earnings, if such gains and losses had been recognized and (iii) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Investment gains and losses that relate to certain products have a direct impact on the amortization of deferred policy acquisition costs. Presenting investment gains and losses net of related amortization of deferred policy 9 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. GOODWILL The excess of cost over the fair value of net assets acquired ("goodwill") is included in other assets. On January 1, 2002, the Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, ("SFAS 142"). In accordance with SFAS 142, goodwill is not amortized but tested for impairment at least annually to determine if a write down of the cost of the asset is required. Impairments are recognized in operating results when the carrying amount of goodwill exceeds its implied fair value. Prior to the adoption of SFAS 142, goodwill was amortized on a straight-line basis over a period of 10 years and impairments were recognized in operating results when permanent diminution in value was deemed to have occurred. During the fourth quarter of 2002, the Company completed the goodwill impairment tests, which indicated the Company's goodwill was impaired. The Company wrote off all of the goodwill and recorded a cumulative effect of a change in accounting principle of $15 million. The goodwill impairment was due to reductions in anticipated future performance of its subsidiary, Nathan and Lewis Securities, Inc. Net income for the years ended December 31, 2001 and 2000, adjusted to exclude amortization of goodwill, would have been $78 million and $14 million, respectively. Changes in goodwill were as follows:
YEARS ENDED DECEMBER 31, -------------------------- 2002 2001 2000 ------ ------ ------ (DOLLARS IN MILLIONS) Net balance at January 1.................................... $ 15 $17 $19 Impairment losses........................................... (15) -- -- Amortization................................................ -- (2) (2) ---- --- --- Net balance at December 31.................................. $ -- $15 $17 ==== === ===
DECEMBER 31, ------------- 2002 2001 ----- ---- (DOLLARS IN MILLIONS) Accumulated amortization.................................... $ -- $8 ===== ==
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, annuities and disabled lives. Generally, amounts are payable over an extended period of time and the profitability of the products is dependent on the pricing of the products. Principal assumptions used in pricing policies and in the establishment of liabilities for future policy benefits are mortality, morbidity, expenses, persistency, investment returns and inflation. Differences between the actual experience and assumptions used in pricing the policies and in the establishment of liabilities result in variances in profit and could result in losses. Future policy benefit liabilities for traditional life insurance policies are equal to the aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 4% to 5%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (ii) the liability for terminal dividends and (iii) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. 10 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liability range from 6% to 7%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. The interest rate used in establishing such liabilities is 3%. Policyholder account balances for variable life, universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest ranging from 1% to 9%, less expenses, mortality charges, and withdrawals. The liability for unpaid claims represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs. Revisions of these estimates are included in operations in the year such refinements are made. RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Separate account investment management and advisory fees are also included in universal life and investment-type product income. Such fees are recognized in the period in which services are performed. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. OTHER REVENUES Other revenues include broker/dealer commissions and fees, and administrative fees. Such commissions and fees are recognized in the period in which services are performed. POLICYHOLDER DIVIDENDS Policyholder dividends are approved annually by the Company's board of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the Company. PARTICIPATING BUSINESS Participating business represented approximately 3% of the Company's life insurance in force and 9% of the number of life insurance policies in force at December 31, 2002 and 2001. Participating policies represented approximately 52% and 70%, 52% and 67% and 55% and 65% of gross and net life insurance premiums for the years ended December 31, 2002, 2001 and 2000, respectively. 11 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INCOME TAXES Beginning in taxable year 2002, NELICO joins with MetLife and its includable affiliates in filing a consolidated federal income tax return. Prior to taxable year 2002, NELICO and its includable life insurance and non-life insurance subsidiaries filed a separate consolidated federal income tax return. Non-includable subsidiaries of NELICO file either separate or separate consolidated tax returns. Income tax expense has been calculated in accordance with the provisions of the Internal Revenue Code, as amended. The Company uses the liability method of accounting for income taxes. Income tax provisions are based on income reported for financial statement purposes. The future tax consequences of temporary differences between financial reporting and tax basis of assets and liabilities are measured as of the balance sheet dates and are recorded as deferred income tax assets or liabilities. REINSURANCE The Company has reinsured certain of its life insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. SEPARATE ACCOUNTS Separate Accounts are established in conformity with the state insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Investments (stated at estimated fair market value) and liabilities of the separate accounts are reported separately as assets and liabilities. Deposits to separate accounts, investment income, and realized and unrealized gains and losses on the investments of the separate account accrue directly to contract holders and, accordingly, are not reflected in the Company's consolidated financial statements. Mortality, policy administration and surrender charges to all separate accounts are included in revenues. APPLICATION OF ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FIN 46 which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is in the process of assessing the impact of FIN 46 on its consolidated financial statements. Certain disclosure provisions of FIN 46 were required for December 31, 2002 financial statements. See "Variable Interest Entities." Effective July 1, 2001, the Company adopted SFAS No. 141, Business Combinations ("SFAS 141"). SFAS 141 requires the purchase method of accounting for all business combinations and separate recognition of intangible assets apart from goodwill if such intangible assets meet certain criteria. Adoption of SFAS 141 did not have an impact on the Company's consolidated financial statements for 2002. Effective January 1, 2002, the Company adopted SFAS No. 142 Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 142 eliminates the systematic amortization and establishes criteria for measuring the impairment of goodwill and certain other intangible assets by reporting unit. The Company did not amortize goodwill during 2002. Amortization of goodwill was $2 million for both years ended December 31, 2001 and 2000. The Company has completed the required impairment tests of goodwill and indefinite-lived intangible assets. As a result of these tests, the Company recorded a $15 million charge to earnings relating to the impairment of all goodwill assets in the fourth quarter of 2002 as a cumulative effect of a change in accounting principle. 12 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides a single model for accounting for long-lived assets to be disposed of by superseding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less costs to sell, rather than on a net realizable value basis. Future operating losses relating to discontinued operations also are no longer recognized before they occur. SFAS 144 (i) broadens the definition of a discontinued operation to include a component of an entity (rather than a segment of a business); (ii) requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed; and (iii) retains the basic provisions of (a) APB 30 regarding the presentation of discontinued operations in the statements of income, (b) SFAS 121 relating to recognition and measurement of impaired long-lived assets (other than goodwill), and (c) SFAS 121 relating to the measurement of long-lived assets classified as held-for-sale. Adoption of SFAS 144 did not have an impact on the Company's consolidated financial statements for 2002. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. In addition to amending or rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS 145 generally precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS 145 also requires sale-leaseback treatment for certain modifications of a capital lease that result in the lease being classified as an operating lease. SFAS 145 is effective for fiscal years beginning after May 15, 2002, and will not have a significant impact on the Company's consolidated results of operations, financial position or cash flows. Effective April 1, 2001, the Company adopted certain additional accounting and reporting requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -- a Replacement FASB Statement No. 125, relating to the derecognition of transferred assets and extinguished liabilities and the reporting of servicing assets and liabilities. The adoption of these requirements did not have a material impact on the Company's consolidated financial statements. Effective April 1, 2001, the Company adopted EITF 99-20, Recognition of Interest Income and Impairment on Certain Investments. This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The adoption of EITF 99-20 did not have a material impact on the Company's consolidated financial statements. In July 2001, the SEC released Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for loan and lease losses. The application of SAB 102 by the Company did not have a material impact on the Company's consolidated financial statements. Effective October 1, 2000, the Company adopted SAB No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the Securities and Exchange Commission's views in applying GAAP to revenue recognition in financial statements. The requirements of SAB 101 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 2000, the Company adopted Statement of Position ("SOP") No. 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. Adoption of SOP 98-7 did not have a material effect on the Company's consolidated financial statements. 13 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. INVESTMENTS FIXED MATURITIES AND EQUITY SECURITIES Fixed maturities and equity securities at December 31, 2002 were as follows:
GROSS COST OR UNREALIZED AMORTIZED ------------ ESTIMATED COST GAIN LOSS FAIR VALUE --------- ---- ---- ---------- (DOLLARS IN MILLIONS) Fixed maturities: U.S. corporate securities................................. 371 19 2 388 Mortgage-backed securities................................ 147 3 -- 150 Foreign corporate securities.............................. 60 4 1 63 U.S. treasuries/agencies.................................. 22 2 -- 24 Asset-backed securities................................... 40 2 -- 42 Foreign government securities............................. 1 -- -- 1 Other fixed income assets................................. 17 -- -- 17 ---- --- -- ---- Total fixed maturities.................................. $658 $30 $3 $685 ==== === == ==== Equity securities: Common stocks............................................. $ 24 $-- $1 $ 23 ==== === == ====
Fixed maturities and equity securities at December 31, 2001 were as follows:
GROSS COST OR UNREALIZED AMORTIZED ------------ ESTIMATED COST GAIN LOSS FAIR VALUE --------- ---- ---- ---------- (DOLLARS IN MILLIONS) Fixed maturities: U.S. corporate securities................................. 179 6 3 182 Mortgage-backed securities................................ 83 -- -- 83 Foreign corporate securities.............................. 21 1 1 21 U.S. treasuries/agencies.................................. 27 1 -- 28 Asset-backed securities................................... 11 -- -- 11 Foreign government securities............................. 4 -- -- 4 Other fixed income assets................................. 15 -- -- 15 ---- --- -- ---- Total fixed maturities.................................. $340 $ 8 $4 $344 ==== === == ==== Equity securities: Common stocks............................................. $ 30 $-- $3 $ 27 ==== === == ====
The Company held fixed maturities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $28 million for the years ended December 31, 2002 and 2001, respectively. Non-income producing fixed maturities were $1 million and $657 thousand at December 31, 2002 and 2001, respectively. 14 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The cost or amortized cost and estimated fair value of bonds at December 31, 2002, by contractual maturity date are shown below:
COST OR AMORTIZED ESTIMATED COST FAIR VALUE --------- ---------- (DOLLARS IN MILLIONS) Due in one year or less..................................... $ 11 $ 12 Due after one year through five years....................... 200 207 Due after five years through ten years...................... 179 189 Due after ten years......................................... 81 84 ---- ---- Subtotal................................................ 471 492 Mortgage-backed and asset-backed securities................. 187 193 ---- ---- Total fixed maturities.................................... $658 $685 ==== ====
Fixed maturities not due at a single maturity date have been included in the above tables in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of securities classified as available-for-sale were as follows:
YEARS ENDED DECEMBER 31, ------------------------- 2002 2001 2000 ----- ----- ----- (DOLLARS IN MILLIONS) Proceeds.................................................... $62 $127 $119 Gross investment gains...................................... 1 2 1 Gross investment losses..................................... 3 2 1
Gross investment losses above exclude writedowns recorded during 2002 and 2001 for other than temporarily impaired available-for-sale securities of $9 million and $1 million, respectively. There were no writedowns for the year ended December 31, 2000. Excluding investments in U.S. Treasury securities and obligations of U.S. government corporations and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. ASSETS ON DEPOSIT The Company had investment assets on deposit with regulatory agencies with a fair market value of $6 million at December 31, 2002 and 2001. 15 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NET INVESTMENT INCOME The components of net investment income were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- (DOLLARS IN MILLIONS) Fixed maturities............................................ $24 $23 $48 Equity securities........................................... -- 1 2 Policy loans................................................ 15 14 12 Other limited partnership interests......................... (6) 5 2 Cash, cash equivalents and short-term investments........... 4 -- -- Other....................................................... 2 2 4 --- --- --- Total................................................... 39 45 68 Less: Investment expenses................................... 3 1 5 --- --- --- Net investment income................................... $36 $44 $63 === === ===
NET INVESTMENT LOSSES Net investment losses were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- (DOLLARS IN MILLIONS) Fixed maturities............................................ $(5) $-- $ -- Equity securities........................................... (6) -- (28) Other....................................................... -- (1) (1) ---- --- ---- Total................................................... (11) (1) (29) Amounts allocable to deferred policy acquisition costs...... -- -- 1 ---- --- ---- Net investment losses................................... $(11) $(1) $(28) ==== === ====
Investment losses have been reduced by deferred policy acquisition costs to the extent that such amortization results from investment gains and losses. This presentation may not be comparable to presentations made by other insurers. 16 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NET UNREALIZED INVESTMENT GAINS (LOSSES) The components of net unrealized investment gains (losses), included in accumulated other comprehensive income, were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- (DOLLARS IN MILLIONS) Fixed maturities............................................ $27 $ 4 $(5) Equity securities........................................... (1) (3) (2) Other invested assets....................................... (1) (2) -- ---- --- --- Total................................................... 25 (1) (7) ---- --- --- Amounts allocable to: Deferred policy acquisition costs......................... 9 5 (6) Deferred income taxes....................................... (10) -- 4 ---- --- --- Total................................................... (1) 5 (2) ---- --- --- Net unrealized investment gains (losses)................ $24 $ 4 $(9) ==== === ===
The changes in net unrealized investment gains (losses) were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- (DOLLARS IN MILLIONS) Balance at January 1........................................ $ 4 $(9) $(11) Unrealized gains during the year............................ 26 6 25 Unrealized gains (losses) relating to Deferred policy acquisition costs....................... 4 11 (23) Deferred income taxes....................................... (10) (4) -- ---- --- ---- Balance at December 31...................................... $24 $ 4 $ (9) ==== === ==== Net change in unrealized investment gains................... $20 $13 $ 2 ==== === ====
3. FAIR VALUE INFORMATION The estimated fair value amounts of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. 17 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Amounts related to the Company's financial instruments were as follows:
CARRYING ESTIMATED VALUE FAIR VALUE -------- ---------- (DOLLARS IN MILLIONS) DECEMBER 31, 2002 Assets: Fixed maturities.......................................... $685 $685 Equity securities......................................... 23 23 Policy loans.............................................. 270 270 Short-term investments.................................... 34 34 Cash and cash equivalents................................. 106 106 Liabilities: Policyholder account balances............................. 282 264
CARRYING ESTIMATED VALUE FAIR VALUE -------- ---------- (DOLLARS IN MILLIONS) DECEMBER 31, 2001 Assets: Fixed maturities.......................................... $344 $344 Equity securities......................................... 27 27 Policy loans.............................................. 262 262 Cash and cash equivalents................................. 210 210 Liabilities: Policyholder account balances............................. 228 222
The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: FIXED MATURITIES AND EQUITY SECURITIES The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities for which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. POLICY LOANS The carrying value of policy loans approximate fair value. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The carrying values for cash and cash equivalents and short-term investments approximated fair market values due to the short-term maturities of these instruments. POLICYHOLDER ACCOUNT BALANCES The fair value of policyholder account balances are estimated by discounting expected future cash flows, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. 18 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. EMPLOYEE BENEFIT PLANS PENSION BENEFIT AND OTHER BENEFIT PLANS Effective January 1, 2001, the Company's employees became employees of Metropolitan Life and in connection with this transition the New England Life Insurance Company Retirement Plan and Trust ("NEF Retirement Plan") merged into the Metropolitan Life Retirement Plan for United States Employees ("Retirement Plan") and the New England 401K Plan and Trust ("NEF 401k Plan") merged into the Savings and Investment Plan for Employees of Metropolitan Life and Participating Affiliates ("SIP"). Retirement benefits are based primarily on years of service and the employee's average salary.
DECEMBER 31, ---------------------------------- PENSION BENEFITS OTHER BENEFITS ---------------- -------------- 2002 2001 2002 2001 ----- ----- ----- ----- (DOLLARS IN MILLIONS) Change in projected benefit obligation: Projected benefit obligation at beginning of year........... $ -- $ 286 $ 13 $ 45 Interest cost............................................. -- -- 1 1 Actuarial losses (gains).................................. -- -- 3 (1) Transfers in (out of controlled group).................... -- (286) -- (31) Benefits paid............................................. -- -- (1) (1) ----- ----- ---- ---- Projected benefit obligation at end of year................. -- -- 16 13 ----- ----- ---- ---- Change in plan assets: Contract value of plan assets at beginning of year.......... -- 213 -- -- Transfers in (out of controlled group).................... -- (213) -- -- ----- ----- ---- ---- Contract value of plan assets at end of year................ -- -- -- -- Under funded................................................ -- -- (16) (13) ----- ----- ---- ---- Unrecognized net actuarial (gains).......................... -- -- (14) (18) ----- ----- ---- ---- Prepaid accrued benefit cost................................ $ -- $ -- $(30) $(31) ===== ===== ==== ====
There were no aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans. The assumptions used in determining the aggregate projected benefit obligation and aggregate contract value for the pension and other benefits were as follows:
PENSION BENEFITS OTHER BENEFITS ----------------- -------------- 2002 2001 2002 2001 ------- ------ ----- ----- (DOLLARS IN MILLIONS) Weighted average assumptions at December 31, Discount rate............................................... N/A N/A 6.75% 7.40% Expected rate of return on plan assets...................... N/A N/A N/A N/A Rate of compensation increase............................... N/A N/A N/A N/A
The assumed health care cost trend rate used in measuring the accumulated non-pension post-retirement benefit obligation was generally 9% in 2002, gradually decreasing to 5% in 2010 and generally 9.5% in 2001, gradually decreasing to 5% over five years. 19 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have no material effect on the health care plans. The components of periodic benefit costs were as follows:
PENSION BENEFITS OTHER BENEFITS ---------------------- ---------------------- 2002 2001 2000 2002 2001 2000 ----- ----- ---- ----- ----- ---- (DOLLARS IN MILLIONS) Service cost................................... -- -- 7 -- -- 1 Interest cost.................................. -- -- 20 1 1 3 Expected return on plan assets................. -- -- (19) -- -- -- Amortization of prior actuarial gains.......... -- -- 1 (1) (1) (1) ----- ----- ---- ----- ----- --- Net periodic benefit cost...................... $ -- $ -- $ 9 $ -- $ -- $ 3 ===== ===== ==== ===== ===== ===
SAVINGS AND INVESTMENT PLANS The Company sponsored savings and investment plans for substantially all employees under which the Company matched a portion of employee contributions. The Company contributed $2 million, for the year ended December 31, 2000. As previously stated, the NEF 401K Plan was merged into Metropolitan Life's SIP plan effective January 1, 2001. All contributions to the SIP plan are made by Metropolitan Life. 5. SEPARATE ACCOUNTS The Company has non-guaranteed separate accounts totaling $5,425 million and $5,725 million at December 31, 2002 and 2001, respectively, for which the policyholder assumes the investment risk. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $54 million, $48 million and $46 million for the years ended December 31, 2002, 2001 and 2000, respectively. The portfolios are segregated from other investments and are managed to minimize liquidity and interest rate risk. In order to minimize the risk of disintermediation associated with early withdrawals, these investment products carry a graded surrender charge as well as a market value adjustment. 6. COMMITMENTS AND CONTINGENCIES Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Recent regulatory actions against certain large life insurers encountering financial difficulty have prompted various state insurance guaranty associations to begin assessing life insurance companies for the losses. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments. A large part of the assessments paid by the Company's insurance subsidiaries pursuant to these laws may be used as credits for a portion of the Company's premium taxes. The Company paid guaranty fund assessments of less than one million in 2002, 2001, and 2000. Various litigation, claims and assessments against the Company, in addition to those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other Federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. 20 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In some of the matters referred to above, large and/or indeterminate amounts, including punitive damages and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, it is the opinion of the Company's management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in the Company's consolidated financial statements, are not likely to have a material adverse effect on the Company's consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's operating results or cash flows in particular annual periods. 7. INCOME TAXES The provision for income tax expense was as follows:
YEARS ENDED DECEMBER 31, -------------------------- 2002 2001 2000 ------ ------ ------ (DOLLARS IN MILLIONS) Current: Federal................................................... $ 29 $(2) $ 36 ---- --- ---- 29 (2) 36 ---- --- ---- Deferred: Federal................................................... (15) 44 (12) State and local........................................... -- -- 1 ---- --- ---- (15) 44 (11) ---- --- ---- Provision for income taxes.................................. $ 14 $42 $ 25 ==== === ====
Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- (DOLLARS IN MILLIONS) Tax provision at U.S. statutory rate........................ $25 $48 $13 Tax effect of: Tax exempt investment income.............................. (3) (2) -- Sale of Subsidiaries...................................... -- -- 10 Other, net................................................ (8) (4) 2 --- --- --- Provision for income taxes.................................. $14 $42 $25 === === ===
21 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax liabilities consisted of the following:
DECEMBER 31, --------------------- 2002 2001 ------- ------- (DOLLARS IN MILLIONS) Deferred income tax assets: Policyholder liabilities and receivables.................. $300 $284 Tax loss carry-forwards................................... 10 10 Other..................................................... 22 20 ---- ---- 332 314 ---- ---- Less: valuation allowance................................. 10 10 ---- ---- 322 304 ---- ---- Deferred income tax liabilities: Investments............................................... (5) 6 Deferred policy acquisition costs......................... 365 344 Net unrealized investment gains........................... 10 4 Other..................................................... 15 18 ---- ---- 385 372 ---- ---- Net deferred income tax liability........................... $(63) $(68) ==== ====
8. REINSURANCE The Company's life insurance operations participate in reinsurance activities in order to limit losses, minimize exposure to large risks, and to provide additional capacity for future growth. The Company currently reinsures up to 90% of the mortality risk for all new individual life insurance policies that it writes through its various franchises. Risks in excess of $5 million are 100% reinsured. The Company reinsures its business through a diversified group of reinsurers. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks of specific characteristics. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. In addition to reinsuring mortality risk, the Company reinsures other risks and specific coverages. The Company routinely reinsures certain classes of risks in order to limit its exposure to particular travel, avocation and lifestyle hazards. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The effect of reinsurance on premiums earned is as follows:
YEARS ENDED DECEMBER 31, --------------------------- 2002 2001 2000 ----- ----- ----- (DOLLARS IN MILLIONS) Direct premiums............................................. $ 228 $ 305 $ 221 Reinsurance assumed......................................... -- (10) 11 Reinsurance ceded........................................... (137) (178) (107) ----- ----- ----- Net premiums................................................ $ 91 $ 117 $ 125 ===== ===== ===== Reinsurance recoveries netted against policyholder benefits.................................................. $ 127 $ 102 $ 73 ===== ===== =====
Reinsurance recoverables, included in premiums and other receivables, were $116 million and $94 million at December 31, 2002 and 2001, respectively. 22 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following provides an analysis of the activity in the liability for benefits relating to group accident and non-medical health policies and contracts:
YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- (DOLLARS IN MILLIONS) BALANCE AT JANUARY 1........................................ $ 7 $ 4 $ 4 Reinsurance recoverables.................................. (5) (3) (3) --- --- --- NET BALANCE AT JANUARY 1.................................... 2 1 1 --- --- --- Incurred related to: Current year.............................................. 1 1 -- --- --- --- NET BALANCE AT DECEMBER 31.................................. 3 2 1 Add: Reinsurance recoverables............................. 10 5 3 --- --- --- BALANCE AT DECEMBER 31...................................... $13 $ 7 $ 4 === === ===
9. OTHER EXPENSES Other expenses were comprised of the following:
YEARS ENDED DECEMBER 31, --------------------------- 2002 2001 2000 ----- ----- ----- (DOLLARS IN MILLIONS) Compensation................................................ $ 99 $ 106 $ 92 Commissions................................................. 250 224 234 Amortization of policy acquisition costs.................... 109 63 109 Capitalization of policy acquisition costs.................. (189) (216) (223) Advisory fees............................................... 84 95 85 Insurance taxes, licenses, and fees......................... 8 23 27 Agency allowances........................................... 69 90 86 Other....................................................... 47 78 80 ----- ----- ----- Total other expenses...................................... $ 477 $ 463 $ 490 ===== ===== =====
10. STOCKHOLDER'S EQUITY DIVIDEND RESTRICTIONS Stockholder dividends or other distributions proposed to be paid by NELICO must be approved by the Massachusetts Commissioner of Insurance (the "Commissioner") if such dividends or distributions, together with other dividends or distributions made within the preceding 12 months, exceeds the greater of (1) 10% of NELICO's statutory surplus as regards policyholders as of the previous December 31, or (2) NELICO's statutory net gain from operations for the 12 month period ending the previous December 31. In addition, Dividends cannot be paid from a source other than statutory surplus without prior approval of the Commissioner. Since NELICO's statutory surplus is less than zero, NELICO cannot pay any dividends without prior approval of the Commissioner. The Company paid no common stockholder dividends for the years ended December 31, 2002, 2001 and 2000. The Company paid preferred dividends of $5 million, $8 million, and $11 million during the years ended December 31, 2002, 2001, and 2000, respectively, with prior approval of the Commissioner. STATUTORY EQUITY AND INCOME Applicable insurance department regulations require that the insurance subsidiaries prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department 23 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of the state of domicile. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt, and valuing securities on a different basis. Statutory net (loss) income of the Company, as filed with the Commonwealth of Massachusetts Division of Insurance (the "Division"), was ($35) million, $2 million and ($11) million for the years ended 2002, 2001 and 2000, respectively; statutory capital and surplus, as filed, was $360 million and $364 million at December 31, 2002 and 2001, respectively. The National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"), which is intended to standardize regulatory accounting and reporting to state insurance departments, and became effective January 1, 2001. However, statutory accounting principles continue to be established by individual state laws and permitted practices. The Division required adoption of the Codification, with certain modifications, for the preparation of statutory financial statements effective January 1, 2001. The adoption of the Codification, as modified by the Division increased the Company's statutory capital and surplus by approximately $32 million, as of January 1, 2001. Further modifications by state insurance departments may impact the effect of the Codification on the Company's statutory capital and surplus. 11. OTHER COMPREHENSIVE INCOME The following table sets forth the reclassification adjustments required for the years ended December 31, 2002, 2001 and 2000 to avoid double-counting in other comprehensive income items that are included as part of net income for the current year that have been reported as a part of other comprehensive income in the current or prior year:
YEARS ENDED DECEMBER 31, ------------------------ 2002 2001 2000 ---- ---- ---- (DOLLARS IN MILLIONS) Holding gains on investments arising during the year........ $10 $20 $ 23 Income tax effect of holding (gains) or losses.............. (3) (5) 16 Reclassification adjustments: Recognized holding losses (gains) included in current year income.................................................. 16 (12) -- Amortization of premiums and accretion of discounts on investments............................................. 1 (1) -- Income tax effect......................................... (6) 3 -- Allocation of holding gains (losses) on investments relating to other policyholder amounts............................. 4 11 (23) Income tax effect of allocation of holding gains or losses to other policyholder amounts............................. (2) (3) (14) --- ---- ---- Other comprehensive income.................................. $20 $13 $ 2 === ==== ====
12. RELATED PARTY TRANSACTIONS Effective 2001, Metropolitan Life and the Company entered into a Master Service Agreement for Metropolitan Life to provide all administrative, accounting, legal and similar services to the Company. This Agreement replaced the former Administrative Services Agreement ("ASA") under which the Company provided such services for certain Metropolitan Life life insurance and annuity contracts defined in the ASA. Metropolitan Life charged the Company $154 million and $73 million for administrative services in 2002 and 2001 respectively. The Company charged Metropolitan Life $164 million for administrative services for 2000. In addition, $61 million was charged to Metropolitan Life by the Company for other miscellaneous services for 2000. These services were charged based upon direct costs incurred. Service fees charged to Metropolitan Life were recorded by NELICO as a reduction in operating expenses. 24 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During 2002, the Company received $27 million from MetLife for the purchase of the Company's computers, furniture and other fixed assets at net book value. The Company has preferred stock outstanding of $200 million owned by MetLife Credit Corporation. The Company paid $5 million, $8 million and $11 million of dividends on the preferred stock in 2002, 2001 and 2000, respectively. During 1998 the Company acquired NL Holding and entered into employment agreements with key individuals of NL Holding. Under these agreements, which expired in 2001, the Company paid $0, $5 million, $0 in 2002, 2001 and 2000, respectively. Commissions earned by NES from sales of shares in funds sponsored by New England Funds ("NEF"), a subsidiary of MetLife through October 2000, were $12 million in 2000. NES earned asset-based income of $10 million on assets under management with NEF of approximately $3,500 million in 2000. Management believes intercompany expenses have been calculated on a reasonable basis, however these costs may not necessarily be indicative of the costs that would be incurred if the Company operated on a standalone basis. The Company has various reinsurance agreements with affiliated entities. The Company had ceded premium of $34 million, $32 million, and $28 million in 2002, 2001 and 2000, respectively. 13. BUSINESS SEGMENT INFORMATION The Company provides insurance and financial services to customers primarily in the United States. The Company's core businesses are divided into five segments: Individual Life, Individual Annuity, Group Pension, Group Life and Health, and Corporate. These segments are managed separately because either they provide different products and services, require different strategies, or have different technology requirements. Individual Life sells primarily variable life as well as traditional life policies. Individual Annuity sells variable annuity contracts. Group Pension sells a variety of group annuity and pension contracts to corporations and other institutions. Group Life and Health provides group life, medical, and disability contracts to corporations and small businesses and provides disability income coverage to individuals. Through its Corporate segment, the Company reports the operating results of subsidiaries as well as items that are not allocated to any of the business segments. Set forth in the following tables is certain financial information with respect to the Company's operating segments for the years ended December 31, 2002, 2001 and 2000. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates the performance of each operating segment based on profit or loss from operations after income taxes. The Company does not allocate non-recurring items to the segments. Allocation of net investment income and net investment gains (losses) were based on the amount of assets allocated to each segment. Other costs and operating costs were allocated to each of the segments based on: (i) a review of the nature of such costs, (ii) time studies analyzing the amount of employee compensation costs incurred by each segment, and (iii) cost estimates included in the Company's product pricing. 25 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CORPORATE AT OR FOR THE YEAR ENDED INDIVIDUAL INDIVIDUAL GROUP GROUP AND DECEMBER 31, 2002 LIFE ANNUITY PENSION LIFE, A&H SUBSIDIARIES TOTAL ------------------------ ---------- ---------- ------- --------- ------------ ------ (DOLLARS IN MILLIONS) Premiums.................................. $ 75 $ 3 $ -- $11 $ 2 $ 91 Universal life and investment-type product policy fees............................. 281 41 10 -- 75 407 Net investment income..................... 6 8 2 1 19 36 Other revenues............................ 13 (3) 4 7 169 190 Net investment losses..................... (1) (1) -- -- (9) (11) Policyholder benefits and claims.......... 110 7 -- 8 6 131 Interest credited to policyholder......... 21 6 3 -- -- 30 Policyholders' Dividends.................. 5 -- -- -- -- 5 Other Expenses............................ 195 36 12 8 226 477 Income (loss) before provision for income taxes, cumulative effect of a change in accounting principle, and minority interest................................ 43 (1) 1 3 24 70 Provision (benefit) for income taxes...... 15 -- -- 1 (2) 14 Income (loss) before cumulative effect of a change in accounting principle, and minority interest....................... 28 (1) 1 2 26 56 Cumulative effect of a change in accounting principle.................... -- -- -- -- (15) (15) Minority interest......................... -- -- -- -- (25) (25) Net income (loss)......................... 28 (1) 1 2 (14) 16 Total assets.............................. 3,634 2,270 1,160 16 1,043 8,123 Deferred policy acquisition costs......... 1,132 118 10 2 7 1,269 Separate account assets................... 2,317 1,996 1,112 -- -- 5,425 Policyholder liabilities.................. 1,031 255 38 22 48 1,394 Separate account liabilities.............. 2,317 1,996 1,112 -- -- 5,425
26 NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CORPORATE AT OR FOR THE YEAR ENDED INDIVIDUAL INDIVIDUAL GROUP GROUP AND DECEMBER 31, 2001 LIFE ANNUITY PENSION LIFE, A&H SUBSIDIARIES TOTAL ------------------------ ---------- ---------- ------- --------- ------------ ------ (DOLLARS IN MILLIONS) Premiums.................................. $ 73 $ 1 $ -- $42 $ 1 $ 117 Universal life and investment-type product policy fees............................. 247 30 10 -- 64 351 Net investment (loss) income............ (6) 3 3 1 43 44 Other revenues............................ 6 3 4 10 198 221 Net investment gains (losses)............. 2 -- -- -- (3) (1) Policyholder benefits and claims.......... 69 2 (2) 32 3 104 Interest credited to policyholder......... 18 3 3 -- -- 24 Policyholders' Dividends.................. 3 -- -- -- -- 3 Other Expenses............................ 160 32 7 13 251 463 Income before provision for income taxes and minority interest................... 72 -- 9 8 49 138 Provision for income taxes................ 24 -- 3 3 12 42 Income before minority interest........... 48 -- 6 5 37 96 Minority interest......................... -- -- -- -- (20) (20) Net income................................ 48 -- 6 5 17 76 Total assets.............................. 3,704 2,047 1,252 48 999 8,050 Deferred policy acquisition costs......... 1,062 101 11 5 6 1,185 Separate account assets................... 2,709 1,834 1,182 -- -- 5,725 Policyholder liabilities.................. 894 182 47 42 39 1,204 Separate account liabilities.............. 2,709 1,834 1,182 -- -- 5,725
CORPORATE FOR THE YEAR ENDED INDIVIDUAL INDIVIDUAL GROUP GROUP LIFE, AND DECEMBER 31, 2000 LIFE ANNUITY PENSION A&H SUBSIDIARIES TOTAL ------------------ ---------- ---------- ------- ----------- ------------ ------ (DOLLARS IN MILLIONS) Premiums.......................... $ 70 $ -- $ -- $ 36 $ 19 $ 125 Universal life and investment-type product policy fees............. 210 25 7 -- 30 272 Net investment (loss) income...... (13) (1) 1 -- 76 63 Other revenues.................... 11 10 7 8 247 283 Net investment gains (losses)..... 35 2 (2) -- (63) (28) Policyholder benefits and claims.......................... 83 6 -- 31 30 150 Interest credited to policyholder.................... 13 2 3 -- 2 20 Policyholders' Dividends.......... 3 -- -- -- 15 18 Other Expenses.................... 153 33 8 13 283 490 Income (loss) before provision for income taxes.................... 61 (5) 2 -- (21) 37 Provision (benefit) for income taxes........................... 9 (3) 2 -- 17 25 Net income (loss)................. 52 (2) -- -- (38) 12
Revenues derived from any single customer do not exceed 10% of the total consolidated revenues for the years presented. Revenues were predominantly generated from United States activity. Activity from other geographic locations did not exceed 10% for any geographic location. 27 PART C OTHER INFORMATION ITEM 27. EXHIBITS (a) January 31, 1983 Resolution of the Board of Directors of NEVLICO 5 (b) None (c) (i) Distribution Agreement between NEVLICO and NELESCO 6 (ii) Form of Contract between NELICO and its General Agents 5 (iii) Form of contract between NELICO and its Agents 6 (iv) Commission Schedule for Policies 11 (v) Form of contract among NES, NELICO and other broker dealers 4 (d) (i) Two Specimens of Policy 10 (ii) Riders to Policy 11 (iii) Additional Riders to Policy 5 (iv) Split Option Rider 7 (v) Additional Rider to Policy 13 (vi) Endorsement to Policy 15 (e) (i) Specimen of Application for Policy 10 (ii) Additional Application 5 (f) (i) Amended and restated Articles of Organization of NELICO 3 (ii) Amended and restated By-Laws of NELICO 4 (iii) Amendments to the Amended and restated Articles of Organization 8 (iv) Amended and Restated By-Laws of NELICO 14 (g) Reinsurance Agreement (h) (i) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and New England Variable Life Insurance Company 6 (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 12 (v) Participation Agreement among New England Zenith Fund, New England Investment Management, Inc., New England Securities Corporation and New England Life Insurance Company 12 (vi) Amendment No. 2 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and New England Life Insurance Company 13 (vii) Amendment No. 1 to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and New England Life Insurance Company 13 (viii) Participation Agreement among Met Investors Series Trust, Met Investors Advisory Corp., Met Investors Distribution Company and New England Life Insurance Company 16 (ix) Participation Agreement among American Funds Insurance Series, Capital Research and Management Company and New England Life Insurance Company 15 (i) None (j) None (k) (i) Opinion and Consent of H. James Wilson, Esq. 11 (ii) Opinion and Consent of Anne M. Goggin, Esq. 13 (iii) Consent of Anne M. Goggin, Esquire (l) None (m) None (n) (i) Consent of Sutherland Asbill & Brennan LLP (ii) Consent of Independent Auditor (o) None (p) None (q) (i) Consolidated memorandum describing certain procedures, filed pursuant to Rule 6e-2(b)(12)(ii) and Rule 6e-3(T)(b)(12)(iii) 6 (ii) Addendum to Consolidated memorandum describing certain procedures, filed pursuant to Rule 6e-3(T)(b)(12)(iii) 2 (iii) Second Addendum to Consolidated Memorandum 9 (r) Powers of Attorney 17 ----------------------- 1 Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Variable Account's Form S-6 Registration Statement, File No. 033-88082, filed June 22, 1995. 2 Incorporated herein by reference to Post-Effective Amendment No. 6 to the Variable Account's Form S-6 Registration Statement, File No. 033-66864, filed April 26, 1996. 3 Incorporated herein by reference to the Variable Account's Form S-6 Registration Statement, File No. 333-21767, filed February 13, 1997. 4 Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Variable Account's Form S-6 Registration Statement, File No. 333-21767, filed July 16, 1997. 5 Incorporated herein by reference to Post Effective Amendment No. 9 to the Variable Account's Form S-6 Registration Statement, File No. 033-66864, filed February 25, 1998. 6 Incorporated herein by reference to Post-Effective Amendment No. 9 to the Variable Account's Form S-6 Registration Statement, File No. 033-52050, filed April 24, 1998. 7 Incorporated herein by reference to Post Effective Amendment No. 10 to the Variable Account's Form S-6 Registration Statement, File No. 033-66864, filed April 30, 1998. 8 Incorporated herein by reference to the Post-Effective Amendment No. 4 to the Variable Account's Form S-6 Registration Statement, File No. 033-65263, filed February 24, 1999. 9 Incorporated herein by reference to the Post-Effective Amendment No. 10 to the Variable Account's Form S-6 Registration Statement, File No. 033-52050, filed April 26, 1999. 10 Incorporated herein by reference to the Variable Account's Form S-6 Registration Statement, File No. 333-89409, filed October 20, 1999. 11 Incorporated herein by reference to the Pre-Effective Amendment No. 1 to the Variable Account's Form S-6 Registration Statement, File No. 333-89409, filed March 6, 2000. 12 Incorporated herein by reference to Post-Effective Amendment No. 11 to the Variable Account's Form S-6 Registration Statement, File No. 033-88082, filed November 9, 2000. 13 Incorporated herein by reference to Post-Effective Amendment No. 2 to the Variable Account's Form S-6 Registration Statement, File No. 333-89409, filed February 26, 2001. 14 Incorporated herein by reference to Post-Effective Amendment No. 4 to the Variable Account's Form S-6 Registration Statement, File No. 333-21767, filed April 25, 2001. 15 Incorporated herein by reference to Post-Effective Amendment No. 4 to the Variable Account's Form S-6 Registration Statement, File No. 333-89409, filed July 20, 2001. 16 Incorporated herein by reference to the Variable Account's Form S-6 Registration Statement, File No. 333-73676, filed November 19, 2001. 17 Incorporated herein by reference to Post-Effective Amendment No. 1 to the Variable Account's Form N-6 Registration Statement, File No. 333-73676, filed December 13, 2002. ITEM 28 DIRECTORS AND OFFICERS OF THE DEPOSITOR Name and Principal Business Address Positions and Offices with Depositor C. Robert Henrikson ** Chairman, President and Chief Executive Officer Thom A. Faria * Director and President, New England Financial Distribution Stewart G. Nagler ** Director Catherine A. Rein *** Director Stanley J. Talbi ** Director
Lisa M. Weber ** Director William J. Wheeler ** Director David W. Allen * Senior Vice President Mary Ann Brown ** Senior Vice President and Chief Actuary James D. Gaughan ** Secretary and Clerk Anne M. Goggin * Senior Vice President and General Counsel Alan C. Leland, Jr. * Senior Vice President George J. Maloof * Executive Vice President Hugh C. McHaffie * Senior Vice President Scott D. McInturff * Senior Vice President and Actuary Stephen J. McLaughlin * Senior Vice President Thomas W. Moore * Senior Vice President Anthony J. Williamson **** Senior Vice President, Treasurer (Principal Financial Officer) Virginia M. Wilson **** Senior Vice President, Controller (Principal Accounting Officer)
*The principal office address is 501 Boylston Street, Boston, MA 02117 **The office address is One Madison Avenue, New York, NY 10010 ***The office address is Metropolitan Property and Casualty Insurance Company, 700 Quaker Lane, Warwick, RI 02887 ****The principal office address is 1 MetLife Plaza, 27-01 Queens Plaza North, Long Island City NY 11101 ITEM 29. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE INSURANCE COMPANY OR REGISTRANT The following list provides information regarding the entities under common control with the Depositor. The Depositor is a wholly-owned, indirect subsidiary of Metropolitan Life Insurance Company, which is organized under the laws of New York. The Depositor is organized under the laws of Massachusetts. No person is controlled by the Registrant. ORGANIZATIONAL STRUCTURE OF METLIFE, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 2002 The following is a list of subsidiaries of MetLife, Inc. updated as of December 31, 2002. Those entities which are listed at the left margin (labeled with capital letters) are direct subsidiaries of MetLife, Inc. Unless otherwise indicated, each entity which is indented under another entity is a subsidiary of that other entity and, therefore, an indirect subsidiary of MetLife, Inc. Certain inactive subsidiaries have been omitted from the MetLife, Inc. Organizational listing. The voting securities (excluding directors' qualifying shares, if any) of the subsidiaries listed are 100% owned by their respective parent corporations, unless otherwise indicated. The jurisdiction of domicile of each subsidiary listed is set forth in the parenthetical following such subsidiary. A. MetLife Group, Inc. (NY) B. MetLife Bank National Association (USA) C. Exeter Reassurance Company, Ltd. (Bermuda) D. MetLife Capital Trust I (DE) E. Aseguradora Hidalgo, S.A. (Mexico) F. Metropolitan Insurance and Annuity Company (DE) G. MetLife Pensiones S.A. (Mexico)- Ownership of MetLife Pensiones S.A. and Seguros Genesis, S.A. (Mexico) is as follows: MetLife, Inc. owns 97.4738%, and Metropolitan Asset Management Corporation owns 2.5262%. H. MetLife Chile Inversiones Limitada (Chile)- 99.9999999% is owned by Met- Life, Inc. and 0.0000001% is owned by Natiloportem Holdings, Inc. 1. MetLife Chile Reaseguros de Vida S.A. (Chile)- 99.999735% is owned by MetLife Chile Inversiones Limitada and 0.000265% is owned by MetLife International Holdings, Inc. 2. MetLife Chile Seguros de Vida S.A. (Chile)- 95.7302007% is owned by MetLife Chile Inversiones Limitada, 4.2696274% by MetLife Chile Reaseguros de Vida S.A. and 0.0001719% by MetLife International Holdings, Inc. I. Seguros Genesis S.A. (Mexico)- Ownership of MetLife Pensiones S.A. and Seguros Genesis, S.A. (Mexico) is as follows: MetLife, Inc. owns 97.4738%, and Metropolitan Asset Management Corporation owns 2.5262%. J. Metropolitan Life Seguros de Vida S.A. (Uruguay) 1. Jefferson Pilot Omega Seguros de Vida S.A. (Uruguay) K. Cova Corporation (MO) 1 1. Texas Life Insurance Company (TX) a) Texas Life Agency Services, Inc. (TX) b) Texas Life Agency Services of Kansas, Inc. (KS) 2. Cova Life Management Company (DE) 3. MetLife Investors Insurance Company (MO) a) MetLife Investors Insurance Company of California (CA) b) First MetLife Investors Insurance Company (NY) L. Walnut Street Securities, Inc. (MO) 1. WSS Insurance Agency of Massachusetts, Inc. (MA) 2. Walnut Street Advisers, Inc. (MO) 3. WSS Insurance Agency of Nevada, Inc. (NV) M. MetLife Investors Group, Inc. (DE) 1. MetLife Investors USA Insurance Company (DE) 2. MetLife Investors Group of Ohio (OH) 3. Security First Insurance Agency (MA) 4. MetLife Investors Distribution Company (DE) 5. MetLife Investors Insurance Agency, Inc. (Nevada) 6. Met Investors Advisory, LLC (DE) 7. MetLife Investors Financial Agency, Inc. (TX) N. MetLife International Holdings, Inc. (DE) 1. MetLife Iberia, S.A.(Spain)- Shares of MetLife Iberia, S.A. are held by MetLife International Holdings at 80%. a) Seguros Genesis S.A. (Spain) b) Genesis Seguros Gnerales, Sociedad Anonima de Seguros y Reaseguros (Spain) 2 2. Natiloportem Holdings, Inc.(DE) a) Metropolitan Life Insurance Services Limited (United Kingdom)- 50% of the shares of Metropolitan Life Insurance Services Limited are held by Metropolitan Life Insurance Company. b) Metropolitan Company Limited (Isle of Man) c) Servicios Administrativos Gen, S.A. de C.V. (Mexico) d) European Marketing Services S.r.l. (Italy)- 95% of the shares of European Marketing Services S.r.l are held by Natiloportem Holdings, Inc. and 5% are held by MetLife International Holdings, Inc. 3. MetLife India Insurance Company Private Limited (India)-26% of the shares of MetLife India Insurance Company Private Limited are held by MetLife International Holdings, Inc. and 74% by third parties. 4. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong) 5. Metropolitan Life Seguros de Retiro S.A. (Argentina) 6. Metropolitan Life Seguros de Vida S.A. (Argentina) a) Met AFJP S.A. (Argentina)- 95% of the shares of Met AFJP S.A. are held by Metropolitan Life Seguros de Vida S.A. (Argentina) and 5% of the shares are held by Metropolitan Seguros de Retiro S.A. 7. MetLife Services Company Czechia, s.r.o. (Czech Republic)- 10% of the shares of MetLife Services Company Czechia are held by Natiloportem Holdings, Inc. and 90% of the shares are held by MetLife International Holdings, Inc. 8. Metropolitan Life Ubezpieczen na Zycie S.A. (Poland)- 48% of the shares of Metropolitan Life Ubezpieczen na Zycie S.A. are held directly by MetLife, Inc. 9. MetLife Insurance Company of Korea Limited (South Korea) 10. Metropolitan Life Seguros e Previdencia Privada S.A. (Brazil) a) Seguradora Seasul S.A. (Brazil) - 99.89% of the shares of Seguradora Seasul S.A. are held by Metropolitan Life Seguros e Previdencia Privada S.A. O. Metropolitan Life Insurance Company (NY) 1. 334 Madison Avenue BTP-D Holdings, LLC (DE) 2. 334 Madison Avenue BTP-E Holdings, LLC (DE) 3. 334 Madison Avenue Euro Investments, Inc. (DE) a) Park Twenty Three Investments Company (United Kingdom)- 99% of the voting control of Park Twenty Three Investments Four Company is held by 334 Madison Euro Investments, Inc. and 1% is held by St. James Fleet Investments Two Limited. 3 (1) Convent Station Euro Investments Four Company (United Kingdom)- 99% of the voting control of Convent Station Euro Investments Four Company is held by Park Twenty Three Investments Company and 1% by 334 Madison Euro Investments, Inc. as nominee for Park Twenty Three Investments Company. 4. St. James Fleet Investments Two Limited (Cayman Islands)- 34% of the shares of St. James Fleet Investments Two Limited is held by Metropolitan Life Insurance Company. 5. One Madison Investments (Cayco) Limited (Cayman Islands)- 89.9% of the voting control of One Madison Investments (Cayco) Limited is held by Metropolitan Life Insurance Company and 10.1% is held by Convent Station Euro Investments Four Company. 6. CRB Co, Inc.(MA)- AEW Estate Advisors, Inc. holds 49,000 preferred non-voting shares of CRB Co., Inc. and AEW Advisors, Inc. holds 1,000 preferred non-voting shares of CRB, Co., Inc. 7. GA Holding Corp. (MA) 8. CRH Co., Inc. (MA) 9. L/C Development Corporation (CA) 10. New England Portfolio Advisors, Inc. (MA) 11. Benefit Services Corporation (GA) 12. One Madison Merchandising L.L.C. (CT) 13. Transmountain Land & Livestock Company (MT) 14. MetPark Funding, Inc. (DE) 15. HPZ Assets LLC (DE) 16. MetDent, Inc. (DE) 17. Missouri Reinsurance (Barbados), Inc. (Barbados) 18. Metropolitan Tower Realty Company, Inc. (DE) 19. Metropolitan Tower Life Insurance Company (DE) 20. Security Equity Life Insurance Company (NY) 21. MetLife Security Insurance Company of Louisiana (LA) 22. P.T. MetLife Sejahtera (Indonesia)-94.3% of P.T. MetLife Sejahtera is held by Metropolitan Life Insurance Company. 4 23. Met Life Holdings Luxembourg S.A. (Luxembourg) 24. Metropolitan Life Holdings Netherlands BV (Netherlands) 25. MetLife (India) Private Ltd. (India) 26. Metropolitan Marine Way Investments Limited (Canada) 27. MetLife Central European Services Spolka z Organiczona Odpowiedzialmoscia (Poland) 28. MetLife Investments Ireland Limited (Ireland) 29. MetLife Private Equity Holdings, LLC (DE) 30. MetLife Securities, Inc. (DE) 31. 23rd Street Investments, Inc. (DE) a) Mezzanine Investment Limited Partnership-BDR (DE). Metropolitan Life Insurance Company holds a 99% limited partnership interest in Mezzanine Investment Limited Partnership-BDR. 23rd Street Investments, Inc. is a 1% general partner. b) Mezzanine Investment Limited Partnership-LG (DE). 23rd Street Investments, Inc. is a 1% general partner of Mezzanine Investment Limited Partnership-LG. Metropolitan Life Insurance Company holds a 99% limited partnership interest in Mezzanine Investment Limited Partnership-LG. (1) Coating Technologies International, Inc. (DE) 32. Metropolitan Realty Management, Inc. (DE) a) Edison Supply and Distribution (DE) b) Cross & Brown Company (NY) (1) CBNJ, Inc.(NJ) 33. Hyatt Legal Plans, Inc. (DE) a) Hyatt Legal Plans of Florida, Inc. (FL) 34. MetLife Holdings, Inc. a) MetLife Credit Corp. b) MetLife Funding, Inc. 5 35. Metropolitan Property & Casualty Insurance Company a) Metropolitan General Insurance Company (RI) b) Metropolitan Casualty Insurance Company (RI) c) Metropolitan Direct Property and Casualty Insurance Company (RI) d) Met P&C Managing General Agency, Inc.(TX) e) MetLife Auto & Home Insurance Agency, Inc. (RI) f) Metropolitan Group Property and Casualty Insurance Company (RI) (1) Metropolitan Reinsurance Company (U.K.) Limited (United Kingdom) g) Metropolitan Lloyds, Inc. (TX) (1) Metropolitan Lloyds Insurance Company of Texas (TX)- Metropolitan Lloyds Insurance Company of Texas, an affiliated association, provides homeowner and related insurance for the Texas market. It is an association of individuals designated as underwriters. Metropolitan Lloyds, Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company, serves as the attorney-in-fact and manages the association. h) Economy Fire & Casualty Company (IL) (1) Economy Preferred Insurance Company (IL) (2) Economy Premier Assurance Company (IL) 36. SSRM Holdings, Inc. (DE) a) State Street Research & Management Company (DE) (1) State Street Research Investment Services, Inc. (MA) b) SSR Realty Advisors, Inc. (DE) (1) Metric Management, Inc.(DE) (2) Metric Assignor, Inc. (CA) (3) SSR AV, Inc. (DE) (4) Metric Capital Corporation (CA) (5) SSR Development Partners LLC (DE) (6) Metric Property Management, Inc. (DE)- 50% of Metric Property Management is held by Metric Realty and SSR Realty Advisors, Inc. 6 (7) Metric Realty (IL)- 50% of Metric Realty is held by SSR Realty Advisors, Inc. 37. Metropolitan Asset Management Corporation (DE) a) MetLife Capital Credit L.P. (DE) - 73.78% Limited Partnership interest of MetLife Capital Credit L.P. is held directly by Metropolitan Life Insurance Company and 10% General Partnership interest of MetLife Capital Credit L.P. is held by Metropolitan Asset Management Corporation. (1) MetLife Capital CFLI Holdings, LLC (DE) (a) MetLife Capital CFLI Leasing, LLC (DE) b) MetLife Capital Limited Partnership (DE)- 73.78% Limited Partnership interest is held directly by Metropolitan Life Insurance Company and 9.58% Limited Partnership and 16.64% General Partnership interests are held by Metropolitan Asset Management Corporation. c) MetLife Investments Asia Limited (Hong Kong)- One share of MetLife Investments Asia Limited is held by W&C Services, Inc., a nominee of Metropolitan Asset Management Corporation. d) MetLife Investments Limited (United Kingdom)- 23rd Street Investments, Inc. holds one share of MetLife Investments and MetLife Investments, S.A. and 1% of MetLife Latin America Asesorias e Inversiones Limitada. e) MetLife Investments, S.A.(Argentina)- 23rd Street Investments, Inc. holds one share of MetLife Investments and MetLife Investments, S.A. and 1% of MetLife Latin America Asesorias e Inversiones Limitada. f) MetLife Latin America Asesorias e Inversiones Limitada (Chile)- 23rd Street Investments, Inc. holds one share of MetLife Investments and MetLife Investments, S.A. and 1% of MetLife Latin America Asesorias e Inversiones Limitada. 38. MetLife General Insurance Agency, Inc. (DE) a) MetLife General Insurance Agency of Alabama, Inc. (DE) b) MetLife General Insurance Agency of Kentucky, Inc. (DE) c) MetLife General Insurance Agency of Mississippi, Inc. (DE) d) MetLife General Insurance Agency of North Carolina, Inc. (DE) e) MetLife General Insurance Agency of Texas, Inc.(DE) f) MetLife General Insurance Agency of Massachusetts, Inc. (MA) 39. MetLife New England Holdings, Inc. (DE) 7 a) New England Life Insurance Company (MA) (1) New England Life Holdings, Inc. (DE) (a) New England Securities Corporation (MA) (b) Hereford Insurance Agency, Inc. (MA) (c) Hereford Insurance Agency of Hawaii, Inc. (HI) (d) Fairfield Insurance Agency of Texas, Inc. (TX) (e) MetLife Advisers, LLC (MA) (f) N.L. Holding Corp. (DEL) (NY) (i) Nathan & Lewis Securities, Inc. (NY) (ii) Nathan & Lewis Associates-Arizona, Inc. (AZ) (iii) Nathan & Lewis of Nevada, Inc. (NV) (iv) Nathan & Lewis Associates, Inc. (NY) (A) Nathan and Lewis Insurance Agency of Massachusetts, Inc. (MA) (B) Nathan and Lewis Associates of Texas, Inc. (TX) (2) Newbury Insurance Company, Limited (Bermuda) (3) New England Pension and Annuity Company (DE) (4) Omega Reinsurance Corporation (AZ) 40. GenAmerica Financial Corporation (MO) a) GenAmerica Capital I (DE) b) General American Distributors, Inc. (MO) c) General American Life Insurance Company (MO) (1) Paragon Life Insurance Company (MO) (2) John S. McSwaney & Associates, Inc. (ND) (3) GenAmerica Management Corporation (MO)- 90% of the voting shares of GenAmerica Management Corporation are owned by General American Life Insurance Company. 8 (4) Krisman, Inc. (MO) (5) White Oak Royalty Company (OK) (6) Equity Intermediary Company (MO) (a) Reinsurance Group of America, Incorporated (MO)- 48.9% of Reinsurance Group of America, Incorporated is held by Equity Intermediary Company and 9.6% of the voting shares of Reinsurance Group of America, Incorporated is held directly by Metropolitan Life Insurance Company. (i) Reinsurance Company of Missouri, Incorporated (MO) (A) RGA Reinsurance Company (MO) (aa) Fairfield Management Group, Inc.(MO) (a.1) Reinsurance Partners, Inc. (MO) (a.2) Great Rivers Reinsurance Management, Inc. (MO) (a.3) RGA (U.K.) Underwriting Agency Limited (United Kingdom) (ii) Triad Re, Ltd. (Barbados)-67% of Triad Re, Ltd. is held by Reinsurance Group of America, Incorporated and 100% of the preferred stock of Triad Re, Ltd. is also held by Reinsurance Group of America Incorporated. (iii) RGA Sigma Reinsurance SPC (Cayman Islands) (iv) RGA Americas Reinsurance Company, Ltd. (Barbados) (v) RGA Reinsurance Company (Barbados) Ltd. (Barbados) (A) RGA Financial Group, L.L.C. (DE)- 80% of RGA Financial Group, L.L.C. is held by RGA Reinsurance Company (Barbados) Ltd. and 20% of RGA Financial Group, LLC is held by RGA Reinsurance Company (vi) RGA Life Reinsurance Company of Canada (Canada) (vii) RGA International Corporation (Nova Scotia) (A) RGA Financial Products Limited (Canada) (viii) RGA Holdings Limited (U.K) (United Kingdom) (ix) RGA UK Services Limited (United Kingdom) 9 (x) RGA Capital Limited U.K. (United Kingdom) (xi) RGA Reinsurance (UK) Limited (United Kingdom) (xii) RGA South African Holdings (Pty) Ltd. (South Africa) (A) RGA Reinsurance Company of South Africa Limited (South Africa) (xiii)RGA Australian Holdings PTY Limited (Australia) (A) RGA Reinsurance Company of Australia Limited (Australia) (B) RGA Asia Pacific PTY, Limited (Australia) (xiv) General American Argentina Seguros de Vida, S.A. (Argentina) (xv) RGA Argentina S.A. (Argentina) (xvi) Regal Atlantic Company (Bermuda) Ltd.(Bermuda) (xvii)Malaysia Life Reinsurance Group Berhad (Malaysia)- 30% interest of Malaysia Life Reinsurance Group Berhad is held by Reinsurance Group of America, Incorporated. The voting securities (excluding directors' qualifying shares, if any) of each subsidiary shown on the organizational chart are 100% owned by their respective parent corporation, unless otherwise indicated. In addition to the entities shown on the organizational chart, MetLife, Inc. (or where indicated, a subsidiary) also owns interests in the following entities: 1) Metropolitan Structures is a general partnership in which Metropolitan Life Insurance Company owns a 50% interest. 2) Metropolitan Life Insurance Company owns varying interests in certain mutual funds distributed by its affiliates. These ownership interests are generally expected to decrease as shares of the funds are purchased by unaffiliated investors. 3) Metropolitan Life Insurance Company indirectly owns 100% of the non-voting preferred stock of Nathan and Lewis Associates Ohio, Incorporated, an insurance agency. 100% of the voting common stock of this company is held by an individual who has agreed to vote such shares at the direction of N.L. HOLDING CORP. (DEL), an indirect wholly owned subsidiary of Metropolitan. 4) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited partnerships, are investment vehicles through which investments in certain entities are held. A wholly-owned subsidiary of Metropolitan Life Insurance Company serves as the general partner of the limited partnerships and Metropolitan Life Insurance Company directly owns a 99% limited partnership interest in each MILP. The MILPs have various ownership and/or debt interests in certain companies. The various MILPs own, directly or indirectly, 100% of the voting stock of the following: Coating Technologies International, Inc. 10 5) New England Life Insurance Company ("NELICO"), owns 100% of the voting stock of Omega Reinsurance Corporation. NELICO does not have a financial interest in this subsidiary. NOTE: THE METLIFE, INC. ORGANIZATIONAL CHART DOES NOT INCLUDE REAL ESTATE JOINT VENTURES AND PARTNERSHIPS OF WHICH METLIFE, INC. AND/OR ITS SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE SUBSIDIARIES HAVE ALSO BEEN OMITTED. 11 ITEM 30. INDEMNIFICATION The Depositor's parent, MetLife, Inc. has secured a Financial Institution Bond in the amount of $50,000,000, subject to a $5,000,000 deductible. MetLife maintains a directors' and officers' liability policy with a maximum coverage of $300 million under which the Depositor and New England Securities Corporation, the Registrant's underwriter (the "Underwriter"), as well as certain other subsidiaries of MetLife are covered. 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. ITEM 31. PRINCIPAL UNDERWRITERS (a) New England Securities Corporation also serves as principal underwriter for: New England Variable Annuity Fund I New England Variable Annuity Separate Account New England Life Retirement Investment Account The New England Variable Account (b) The directors and officers of the Registrant's principal underwriter, New England Securities Corporation, and their addresses are as follows:
Positions and Offices Name and Principal Business Address with Principal Underwriter Vacant Chairman of the Board, President and CEO Virgel E. Aquino *** Vice President, Operations Mary M. Diggins** Vice President, General Counsel, Secretary and Clerk Johannes Etwaroo*** Vice President of Operations Thom A. Faria** Director Anne M. Goggin** Director Paul D. Hipworth*** Assistant Vice President, Treasurer and Chief Financial Officer Joanne E. Logue ** Vice President, Chief Compliance Officer
Principal Business Address: *General American, 700 Market Street, St. Louis, MO 63101 **New England Life, Boylston Street, Boston, MA 02117 ***MetLife, 485 E US Highway South, NY 08830 (c)
(3) (2) Compensation on (1) Net Underwriting Events Occasioning (4) (5) Name of Principal Discounts and the Deduction of a Brokerage Other Underwriter Commissions Deferred Sales Load Commissions Compensation New England Securities Corporation $82,764,079 -- -- --
Commissions are paid by the Company directly to agents who are registered representatives of the principal underwriter, or to broker-dealers that have entered into selling agreements with the principal underwriter with respect to sales of the Contracts. ITEM 32. LOCATION OF ACCOUNTS AND RECORDS The following companies will maintain possession of the documents required by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder: (a) Registrant (b) Metropolitan Life Insurance Company One Madison Avenue New York, New York 10010 (c) New England Securities Corporation 501 Boylston Street Boston, Massachusetts 02116 ITEM 33. MANAGEMENT SERVICES Not applicable ITEM 34. FEE REPRESENTATION New England Life Insurance Company hereby represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred, and the risks assumed by New England Life Insurance Company. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, New England Variable Life Separate Account, certifies that it meets all of the requirements for effectiveness of this amended Registration Statement under Rule 485(b) under the Securities Act and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and the Commonwealth of Massachusetts, on the 28th day of April, 2003. New England Variable Life Separate Account (Registrant) By: New England Life Insurance Company (Depositor) By: /s/ Anne M. Goggin ---------------------------------- Anne M. Goggin, Esq. Senior Vice President and General Counsel Attest: /s/ John E. Connolly, Jr. ---------------------------- John E. Connolly, Jr. Counsel Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Depositor, New England Life Insurance Company, certifies that it meets all of the requirements for effectiveness of this amended Registration Statement under Rule 485(b) under the Securities Act and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and the Commonwealth of Massachusetts, on the 28th day of April, 2003. New England Life Insurance Company (Seal) By: /s/ Anne M. Goggin --------------------------------------- Anne M. Goggin, Esq. Senior Vice President and General Counsel Attest: /s/ John E. Connolly, Jr. ------------------------------ John E. Connolly, Jr. Counsel Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed below by the following persons, in the capacities indicated, on April 28, 2003. * Chairman, President and Chief Executive Officer -------------------------------------------- C. Robert Henrikson * Director -------------------------------------------- Thom A. Faria * Director -------------------------------------------- Stewart G. Nagler * Director -------------------------------------------- Catherine A. Rein * Director -------------------------------------------- Stanley J. Talbi * Director -------------------------------------------- Lisa M. Weber * Director -------------------------------------------- William J. Wheeler * Senior Vice President and Treasurer -------------------------------------------- (Principal Financial Officer) Anthony J. Williamson * Senior Vice President and Controller -------------------------------------------- (Principal Accounting Officer) Virginia M. Wilson By: /s/ Marie C. Swift, Esq. ----------------------------- 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. 1 to the Variable Account's Form N-6 Registration Statement, File No. 333-73676, on December 13, 2002. EXHIBIT INDEX (g) Reinsurance Agreement (k)(iii) Consent of Anne M. Goggin, Esquire (n)(i) Consent of Sutherland Asbill & Brennan LLP (n)(ii) Consent of Independent Auditor