-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ta6pKlLjcgebNcO4acxAAKfnPOCw6/O3onX2iw+DlCAlAmCFkmYKrSFTKvb+BVFF m0WbP3uu2V94pFW5fr2Ayg== 0000950135-08-002695.txt : 20080423 0000950135-08-002695.hdr.sgml : 20080423 20080423153115 ACCESSION NUMBER: 0000950135-08-002695 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20080423 DATE AS OF CHANGE: 20080423 EFFECTIVENESS DATE: 20080428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: New England Variable Life Separate Account CENTRAL INDEX KEY: 0000717347 IRS NUMBER: 042708937 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-89409 FILM NUMBER: 08771702 BUSINESS ADDRESS: STREET 1: NEW ENGLAND LIFE INSURANCE COMPANY STREET 2: 501 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6175782000 MAIL ADDRESS: STREET 1: NEW ENGLAND LIFE INSURANCE COMPANY STREET 2: 501 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT DATE OF NAME CHANGE: 20011204 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND LIFE SEPARATE ACCOUNT DATE OF NAME CHANGE: 20011129 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: New England Variable Life Separate Account CENTRAL INDEX KEY: 0000717347 IRS NUMBER: 042708937 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03713 FILM NUMBER: 08771703 BUSINESS ADDRESS: STREET 1: NEW ENGLAND LIFE INSURANCE COMPANY STREET 2: 501 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6175782000 MAIL ADDRESS: STREET 1: NEW ENGLAND LIFE INSURANCE COMPANY STREET 2: 501 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT DATE OF NAME CHANGE: 20011204 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND LIFE SEPARATE ACCOUNT DATE OF NAME CHANGE: 20011129 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT DATE OF NAME CHANGE: 19920703 0000717347 S000004217 New England Variable Life Separate Account C000011864 Zenith Survivorship Life 2002 and Zenith Survivorship Life Plus 485BPOS 1 b68052a1e485bpos.txt NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT As filed with Securities and Exchange Commission on April 23, 2008 Registration Nos. 333-89409 811-3713 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITES ACT OF 1933 [ ] Pre-Effective Amendment No. [ ] Post- Effective Amendment No. 13 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 39 [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 02116 (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 Mary E. Thornton, 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 April 28, 2008 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: Interests 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. BlackRock Aggressive Growth Portfolio BlackRock Bond Income Portfolio BlackRock Diversified Portfolio BlackRock Large Cap Value Portfolio BlackRock Legacy Large Cap Growth Portfolio BlackRock Money Market Portfolio BlackRock Strategic Value Portfolio Davis Venture Value Portfolio FI Large Cap Portfolio FI Mid Cap Opportunities Portfolio FI Value Leaders Portfolio Franklin Templeton Small Cap Growth Portfolio Harris Oakmark Focused Value Portfolio Jennison Growth Portfolio Julius Baer International Stock Portfolio Lehman Brothers(R) Aggregate Bond Index Portfolio Loomis Sayles Small Cap Portfolio MetLife Mid Cap Stock Index Portfolio MetLife Stock Index Portfolio MFS(R) Total Return Portfolio MFS(R) Value Portfolio Morgan Stanley EAFE(R) Index Portfolio Neuberger Berman Mid Cap Value Portfolio Oppenheimer Global Equity Portfolio Russell 2000(R) Index Portfolio T. Rowe Price Large Cap Growth Portfolio T. Rowe Price Small Cap Growth Portfolio Western Asset Management Strategic Bond Opportunities Portfolio Western Asset Management U.S. Government Portfolio Zenith Equity Portfolio MetLife Conservative Allocation Portfolio MetLife Conservative to Moderate Allocation Portfolio MetLife Moderate Allocation Portfolio MetLife Moderate to Aggressive Allocation Portfolio MetLife Aggressive Allocation Portfolio MET INVESTORS SERIES TRUST BlackRock Large Cap Core Portfolio Clarion Global Real Estate Portfolio Cyclical Growth and Income ETF Portfolio Cyclical Growth ETF Portfolio Harris Oakmark International Portfolio Janus Forty Portfolio Lazard Mid Cap Portfolio Legg Mason Partners Aggressive Growth Portfolio Legg Mason Value Equity Portfolio Lord Abbett Bond Debenture Portfolio Met/AIM Small Cap Growth Portfolio MFS(R) Research International Portfolio Oppenheimer Capital Appreciation Portfolio PIMCO Inflation Protected Bond Portfolio PIMCO Total Return Portfolio RCM Technology Portfolio T. Rowe Price Mid Cap Growth Portfolio FIDELITY(R) VARIABLE INSURANCE PRODUCTS Equity-Income Portfolio AMERICAN FUNDS INSURANCE SERIES American Funds Bond Fund American Funds Global Small Capitalization Fund American Funds Growth Fund American Funds Growth-Income Fund You receive BlackRock Money Market Sub-Account performance until 15 days (less in some states) after we apply your initial premium to the Policy. 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. APRIL 28, 2008 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-20 Certain Payments We Receive with Regard to the Eligible Funds..... A-20 Selection of the Eligible Funds................................... A-20 Voting Rights..................................................... A-21 Rights Reserved by NELICO......................................... A-21 THE POLICIES........................................................... A-22 Purchasing a Policy............................................... A-22 Replacing Existing Insurance...................................... A-22 Policy Owner and Beneficiary...................................... A-22 Conversion Rights................................................. A-23 PREMIUMS............................................................... A-24 Flexible Premiums................................................. A-24 Amount Provided for Investment under the Policy................... A-24 Right to Return the Policy........................................ A-25 Allocation of Net Premiums........................................ A-25 RECEIPT OF COMMUNICATIONS AND PAYMENTS AT NELICO'S DESIGNATED OFFICE... A-26 Payment of Proceeds............................................... A-27 CASH VALUE............................................................. A-27 DEATH BENEFITS......................................................... A-28 Expanded Death Benefit Rider...................................... A-29 Change in Death Benefit Option.................................... A-29 Death Proceeds Payable............................................ A-30 Reduction in Face Amount.......................................... A-30 SURRENDERS AND PARTIAL SURRENDERS...................................... A-31 Surrender......................................................... A-31 Partial Surrender................................................. A-31 TRANSFERS.............................................................. A-31 Transfer Option................................................... A-31 Dollar Cost Averaging/Asset Rebalancing........................... A-33 LOANS.................................................................. A-34 LAPSE AND REINSTATEMENT................................................ A-35 Lapse............................................................. A-35 Reinstatement..................................................... A-36 ADDITIONAL BENEFITS BY RIDER........................................... A-36 THE FIXED ACCOUNT...................................................... A-37 General Description............................................... A-38 Values and Benefits............................................... A-38 Policy Transactions............................................... A-38
A-2
PAGE ---- CHARGES................................................................ A-39 Deductions from Premiums.......................................... A-39 Surrender Charge.................................................. A-41 Transfer Charge................................................... A-42 Monthly Deduction from Cash Value................................. A-42 Loan Interest Spread.............................................. A-44 Charges Against the Eligible Funds and the Sub-Accounts of the Variable Account................................................ A-44 TAX CONSIDERATIONS..................................................... A-44 Introduction...................................................... A-44 Tax Status of the Policy.......................................... A-44 Tax Treatment of Policy Benefits.................................. A-45 NELICO's Income Taxes............................................. A-49 DISTRIBUTION OF THE POLICIES........................................... A-49 LEGAL PROCEEDINGS...................................................... A-51 RESTRICTIONS ON FINANCIAL TRANSACTIONS................................. A-51 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.......................... A-51 FINANCIAL STATEMENTS................................................... A-52 GLOSSARY............................................................... A-53 APPENDIX A: CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM TEST ... A-54 APPENDIX B: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND NET CASH VALUES............................................................... A-56
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 fifty-seven 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 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 also impose restrictions on "market timing" transfers. (See "Transfers" for additional information on such restrictions.) We may offer the following automated transfer privileges: -- DOLLAR COST AVERAGING. Under the dollar cost averaging program, you would 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 would automatically reallocate your Policy's cash value among the sub- accounts periodically to return the allocation to the percentages you specify. 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 A-4 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 generally 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 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). A-5 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, the rules are not entirely clear if either or both insureds are in a substandard underwriting class. The death benefit under the Policy will never be less than the minimum amount required for the Policy to be treated as life insurance under section 7702 of the Internal Revenue Code, as in effect on the date the Policy was issued. 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, 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 MEC should generally not be treated as a taxable distribution. 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. We are not currently imposing the limitations, but we reserve the right to do so. 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 to other financial or investment products or strategies, there is no certainty that such advantages will always continue to exist. A-6 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
- --------------------------------------------------------------------------------------------------------- MAXIMUM AMOUNT CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED 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 premiums paid above of premiums paid above the Target Premium(1) the 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 initial Policies with an initial face amount of at least face amount of at least $1 million), and 4% of $1 million), and 4% of premiums paid above the premiums paid above the Target Premium Target 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
- --------------------------------------------------------------------------------------------------------- MAXIMUM AMOUNT CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED DEDUCTIBLE - --------------------------------------------------------------------------------------------------------- Premium Tax Imposed on On payment of premium 2.5% in all Policy years 2.5% in all Policy years Premiums - --------------------------------------------------------------------------------------------------------- Federal Tax Imposed on On payment of premium 1% in all Policy years 1% in all Policy years Premiums - --------------------------------------------------------------------------------------------------------- Surrender Charge On surrender, lapse, or In Policy year 1, 90% of In Policy year 1, 90% of face amount reduction in the lesser of premiums the lesser of premiums the first 15 Policy paid or the Benchmark paid or the Benchmark years (and before the Premium (less in other Premium (less in other younger insured attains Policy years--see Policy years--see age 100)(1) footnote)(2) footnote)(2) - --------------------------------------------------------------------------------------------------------- Transfer Charge On transfer of cash Not currently charged $25 for each transfer in value between sub- excess of 12 per Policy 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. 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
- --------------------------------------------------------------------------------------------------------- MAXIMUM AMOUNT CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED DEDUCTIBLE - --------------------------------------------------------------------------------------------------------- Cost of Insurance(1) Minimum and Maximum Monthly $.000000002 to $500.00 $.00000009 to $500.00 Charge per $1,000 of net amount per $1,000 of net amount at risk(2) at 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 preferred underwriting class with a base Policy face amount of $2,100,000 - --------------------------------------------------------------------------------------------------------- Policy Fee Monthly $12.50 in Policy $12.50 in Policy years 1-3 years 1-3 $5.50 in Policy years 4+ $5.50 in Policy years 4+ ($12.50 in New Jersey) - ---------------------------------------------------------------------------------------------------------
A-8
- --------------------------------------------------------------------------------------------------------- MAXIMUM AMOUNT CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED DEDUCTIBLE - --------------------------------------------------------------------------------------------------------- Mortality and Expense Monthly .90% in Policy years 1- .90% in Policy years 1- Risk Charge (annual 10 10 .45% in Policy years rate imposed on cash .45% in Policy years 11+ 11+ value in the Variable Account and in the general account due to a Policy loan)(3) - --------------------------------------------------------------------------------------------------------- Administrative Monthly $.08 per $1,000 of base $.08 per $1,000 of base Charge(4) 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(5) 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 We are currently waiving the following amount of the Mortality and Expense Risk Charge: 0.08% for the Sub-account investing in the BlackRock Large Cap Core Portfolio and an amount equal to the Eligible Fund expenses that are in excess of 0.88% for the Sub-account investing in the MFS Research International Portfolio (Class A). 4 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. 5 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):
- --------------------------------------------------------------------------------------------------------- MAXIMUM AMOUNT CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED DEDUCTIBLE - --------------------------------------------------------------------------------------------------------- Survivorship Level Term Insurance Rider Minimum and Maximum Monthly $.000000003 to $500.00 $.00000009 to $500.00 Charge per $1,000 of net amount per $1,000 of net amount at risk at risk Charge in the first Monthly $.000006 per $1,000 of $.0004 per $1,000 of net Policy year for a net amount at risk amount at risk male and a female insured, both issue age 40, in the nonsmoker preferred underwriting class with a rider face amount of $1,600,000. - ---------------------------------------------------------------------------------------------------------
A-9
- --------------------------------------------------------------------------------------------------------- MAXIMUM AMOUNT CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED DEDUCTIBLE - --------------------------------------------------------------------------------------------------------- Survivorship 4 Year Level Term Insurance Rider Minimum and Maximum Monthly $.00000009 to $500.00 $.00000009 to $500.00 Charge per $1,000 of rider face per $1,000 of rider face amount amount Charge in the first Monthly $.004 per $1,000 of $.004 per $1,000 of Policy year for a rider face amount rider face amount male insured in the nonsmoker preferred 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 rider $.41 per $1,000 of rider Policy year for a face amount face amount male insured, age 45, 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 rider $.28 per $1,000 of rider Policy year for a 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 $100 $1.08 to $67.77 per $100 Charge of Monthly Deduction of Monthly 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 preferred underwriting class - ---------------------------------------------------------------------------------------------------------
A-10
- --------------------------------------------------------------------------------------------------------- MAXIMUM AMOUNT CHARGE WHEN CHARGE IS DEDUCTED CURRENT AMOUNT DEDUCTED DEDUCTIBLE - --------------------------------------------------------------------------------------------------------- Waiver of Specified Premium Rider Minimum and Maximum Monthly $1.08 to $67.77 per $100 $1.08 to $67.77 per $100 Charge of Specified Premium of Specified 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 plus amount (base Policy plus any joint or single life any joint or single life term insurance rider) term insurance rider) - --------------------------------------------------------------------------------------------------------- Expanded Death Benefit Rider Minimum and Maximum Monthly $.02 to $4.39 per $1,000 $.02 to $4.39 per $1,000 Charge of base Policy face of base Policy face amount amount Charge for a male and Monthly $.06 per $1,000 of base $.06 per $1,000 of base a female insured, Policy face amount Policy face amount both issue age 55, in the nonsmoker preferred underwriting class with a base Policy face amount of $2,100,000 - ---------------------------------------------------------------------------------------------------------
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, 2007, before 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)................. 0.29% 1.01%
The following table describes the annual operating expenses for each Eligible Fund for the year ended December 31, 2007, before and after any applicable contractual fee waivers and expense reimbursements: A-11 ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
ACQUIRED FUND GROSS TOTAL FEE WAIVERS NET TOTAL MANAGEMENT OTHER 12B-1 FEES AND ANNUAL AND EXPENSE ANNUAL FEES EXPENSES FEES EXPENSES* EXPENSES REIMBURSEMENTS EXPENSES** ---------- -------- ----- ------------- ----------- -------------- ---------- METROPOLITAN SERIES FUND, INC. (CLASS A SHARES) BlackRock Aggressive Growth Portfolio...................... 0.71% 0.05% -- -- 0.76% -- 0.76% BlackRock Bond Income Portfolio.. 0.38% 0.06% -- -- 0.44% 0.01% 0.43%(1) BlackRock Diversified Portfolio.. 0.44% 0.06% -- -- 0.50% -- 0.50% BlackRock Large Cap Value Portfolio...................... 0.68% 0.06% -- -- 0.74% -- 0.74% BlackRock Legacy Large Cap Growth Portfolio...................... 0.73% 0.06% -- -- 0.79% -- 0.79% BlackRock Money Market Portfolio...................... 0.33% 0.07% -- -- 0.40% 0.01% 0.39%(2) BlackRock Strategic Value Portfolio...................... 0.82% 0.06% -- -- 0.88% -- 0.88% Davis Venture Value Portfolio.... 0.69% 0.04% -- -- 0.73% -- 0.73% FI Large Cap Portfolio........... 0.77% 0.07% -- -- 0.84% -- 0.84% FI Mid Cap Opportunities Portfolio...................... 0.68% 0.05% -- -- 0.73% -- 0.73% FI Value Leaders Portfolio....... 0.64% 0.07% -- -- 0.71% -- 0.71% Franklin Templeton Small Cap Growth Portfolio............... 0.90% 0.11% -- -- 1.01% -- 1.01% Harris Oakmark Focused Value Portfolio...................... 0.72% 0.04% -- -- 0.76% -- 0.76% Jennison Growth Portfolio........ 0.63% 0.04% -- -- 0.67% -- 0.67% Julius Baer International Stock Portfolio...................... 0.84% 0.12% -- -- 0.96% 0.04% 0.92%(3) Lehman Brothers Aggregate Bond Index Portfolio................ 0.25% 0.05% -- -- 0.30% 0.01% 0.29%(4) Loomis Sayles Small Cap Portfolio...................... 0.90% 0.05% -- -- 0.95% 0.05% 0.90%(5) MetLife Mid Cap Stock Index Portfolio...................... 0.25% 0.07% -- 0.01% 0.33% 0.01% 0.32%(6) MetLife Stock Index Portfolio.... 0.25% 0.04% -- -- 0.29% 0.01% 0.28%(6) MFS Total Return Portfolio....... 0.53% 0.05% -- -- 0.58% -- 0.58% MFS(R) Value Portfolio........... 0.72% 0.05% -- -- 0.77% 0.07% 0.70%(7) Morgan Stanley EAFE Index Portfolio...................... 0.30% 0.12% -- 0.01% 0.43% 0.01% 0.42%(8) Neuberger Berman Mid Cap Value Portfolio...................... 0.64% 0.05% -- -- 0.69% -- 0.69% Oppenheimer Global Equity Portfolio...................... 0.51% 0.10% -- -- 0.61% -- 0.61% Russell 2000 Index Portfolio..... 0.25% 0.07% -- 0.01% 0.33% 0.01% 0.32%(6) T. Rowe Price Large Cap Growth Portfolio...................... 0.60% 0.07% -- -- 0.67% -- 0.67% T. Rowe Price Small Cap Growth Portfolio...................... 0.51% 0.08% -- -- 0.59% -- 0.59% Western Asset Management Strategic Bond Opportunities Portfolio...................... 0.61% 0.05% -- -- 0.66% -- 0.66% Western Asset Management U.S. Government Portfolio........... 0.49% 0.05% -- -- 0.54% -- 0.54% Zenith Equity Portfolio.......... -- 0.01% -- 0.70% 0.71% -- 0.71%(9) MetLife Conservative Allocation Portfolio...................... 0.10% 0.05% -- 0.59% 0.74% 0.05% 0.69%(10) MetLife Conservative to Moderate Allocation Portfolio........... 0.10% 0.01% -- 0.64% 0.75% 0.01% 0.74%(10) MetLife Moderate Allocation Portfolio...................... 0.08% 0.01% -- 0.67% 0.76% -- 0.76%(10)
A-12
ACQUIRED FUND GROSS TOTAL FEE WAIVERS NET TOTAL MANAGEMENT OTHER 12B-1 FEES AND ANNUAL AND EXPENSE ANNUAL FEES EXPENSES FEES EXPENSES* EXPENSES REIMBURSEMENTS EXPENSES** ---------- -------- ----- ------------- ----------- -------------- ---------- MetLife Moderate to Aggressive Allocation Portfolio........... 0.08% 0.01% -- 0.70% 0.79% -- 0.79%(10) MetLife Aggressive Allocation Portfolio...................... 0.10% 0.04% -- 0.73% 0.87% 0.04% 0.83%(10) MET INVESTORS SERIES TRUST (CLASS A SHARES) BlackRock Large Cap Core Portfolio...................... 0.58% 0.07% -- -- 0.65% -- 0.65% Clarion Global Real Estate Portfolio...................... 0.61% 0.04% -- -- 0.65% -- 0.65% Cyclical Growth and Income ETF Portfolio...................... 0.45% 0.10% -- 0.23% 0.78% -- 0.78%(11) Cyclical Growth ETF Portfolio.... 0.45% 0.09% -- 0.24% 0.78% -- 0.78%(11) Harris Oakmark International Portfolio...................... 0.77% 0.09% -- -- 0.86% -- 0.86% Janus Forty Portfolio............ 0.65% 0.05% -- -- 0.70% -- 0.70% Lazard Mid Cap Portfolio......... 0.69% 0.07% -- -- 0.76% -- 0.76% Legg Mason Partners Aggressive Growth Portfolio............... 0.62% 0.05% -- -- 0.67% -- 0.67% Legg Mason Value Equity Portfolio...................... 0.63% 0.04% -- -- 0.67% -- 0.67% Lord Abbett Bond Debenture Portfolio...................... 0.49% 0.05% -- -- 0.54% -- 0.54% Met/AIM Small Cap Growth Portfolio...................... 0.86% 0.06% -- -- 0.92% -- 0.92% MFS Research International Portfolio...................... 0.70% 0.09% -- -- 0.79% -- 0.79% Oppenheimer Capital Appreciation Portfolio...................... 0.58% 0.04% -- -- 0.62% -- 0.62% PIMCO Inflation Protected Bond Portfolio...................... 0.50% 0.05% -- -- 0.55% -- 0.55% PIMCO Total Return Portfolio..... 0.48% 0.04% -- -- 0.52% -- 0.52%(12) RCM Technology Portfolio......... 0.88% 0.09% -- -- 0.97% -- 0.97% T. Rowe Price Mid Cap Growth Portfolio...................... 0.75% 0.05% -- -- 0.80% -- 0.80% FIDELITY VARIABLE INSURANCE PRODUCTS (INITIAL CLASS) Equity-Income Portfolio.......... 0.46% 0.09% -- -- 0.55% -- 0.55% AMERICAN FUNDS INSURANCE SERIES (CLASS 2 SHARES) American Funds Bond Fund......... 0.40% 0.01% 0.25% -- 0.66% -- 0.66% American Funds Global Small Capitalization Fund............ 0.70% 0.03% 0.25% -- 0.98% -- 0.98% American Funds Growth Fund....... 0.32% 0.01% 0.25% -- 0.58% -- 0.58% American Funds Growth-Income Fund........................... 0.26% 0.01% 0.25% -- 0.52% -- 0.52%
- ------- * Acquired Fund Fees and Expenses are fees and expenses incurred indirectly by a portfolio as a result of investing in shares of one or more underlying portfolios. ** Net Total Annual Operating Expenses do not reflect: (1) voluntary waivers of fees or expenses; (2) contractual waivers that are in effect for less than one year from the date of this Prospectus; or (3) expense reductions resulting from custodial fee credits or directed brokerage arrangements. (1) MetLife Advisers, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each class of the Portfolio to the annual rate of 0.325% for amounts over $1 billion but less than $2 billion. (2) MetLife Advisers, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each Class of the Portfolio to the annual rate of 0.345% for the first $500 million of the Portfolio's average daily net assets and 0.335% for the next $500 million. (3) MetLife Advisers, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each Class of the Portfolio to the annual rate of 0.81% for the first $500 million of the Portfolio's average daily net assets and 0.78% for the next $500 million. A-13 (4) MetLife Advisers, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each Class of the Portfolio to 0.244%. (5) MetLife Advisers, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each Class of the Portfolio by 0.05%. (6) MetLife Advisors, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each Class of the Portfolio to 0.243%. (7) MetLife Advisers, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each Class of the Portfolio to the annual rate of 0.65% for the first $1.25 billion of the Portfolio's average daily net assets, 0.60% for the next $250 million and 0.50% for amounts over $1.5 billion. (8) MetLife Advisers, LLC had contractually agreed, for the period April 28, 2008 through April 30, 2009, to reduce the Management Fee for each Class of the Portfolio to 0.293%. (9) The Portfolio is a "fund of funds" that invests equally in three other portfolios of the Metropolitan Series Fund, Inc.: the FI Value Leaders Portfolio, the Jennison Growth Portfolio and the Capital Guardian U.S. Equity Portfolio. Because the Portfolio invests in other underlying portfolios, the Portfolio will bear its pro rata portion of the operating expenses of the underlying portfolios in which it invests, including the management fee. (10) The Portfolio is a "fund of funds" that invests substantially all of its assets in other portfolios of the Metropolitan Series Fund, Inc. and the Met Investors Series Trust. Because the Portfolio invests in other underlying portfolios, the Portfolio will bear its pro rata portion of the operating expenses of the underlying portfolios in which it invests, including the management fee. MetLife Advisers, LLC has contractually agreed, for the period April 28, 2008 through April 30, 2009, to waive fees or pay all expenses (other than acquired fund fees and expenses, brokerage costs, taxes, interest and any extraordinary expenses) so as to limit the net operating expenses of the Portfolio (other than acquired fund fees and expenses, brokerage costs, taxes, interest and any extraordinary expenses) to 0.10% for the Class A shares, 0.35% for the Class B shares and 0.25% for the Class E shares. (11) The Portfolio primarily invests its assets in other investment companies known as exchange-traded funds ("Underlying ETFs"). As an investor in an Underlying ETF or other investment company, the Portfolio also will bear its pro-rata portion of the operating expenses of that Underlying ETF or other investment company including the management fee. (12) The Management Fee has been restated to reflect an amended management fee agreement, as if the agreement had been in effect during the preceeding fiscal year. The fee and expense information regarding the Eligible Funds was provided by those Eligible Funds. Fidelity Variable Insurance Products and the American Funds Insurance Series are not affiliated with NELICO. For information concerning compensation paid for the sale of the Policies, see "Distribution of the Policies." A-14 (FLOW CHART) HOW THE POLICY WORKS 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 with Survivorship Level Term Rider) 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 BENEFITS - - Fixed settlement options are available for policy proceeds CASH VALUES - - Net premium payments invested in your choice of Eligible Fund investments (in some states after an initial period during which net investment experience equal to that of the BlackRock 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 (subject to restrictions we impose on "market timing" transfers). We may limit the timing, frequency and amount of transfers from (and in some cases to) the Fixed Account. 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 (generally) - - 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. - - 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 plus 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 200 Park Avenue, New York, New York 10166. 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. Any amount of the death benefit that exceeds the Policy's cash value is paid from NELICO's general account. Death benefit amounts paid from the general account are subject to the claims-paying ability of NELICO. 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 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
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ----------- -------------------- BlackRock Aggressive Growth BlackRock Advisors, LLC Maximum capital appreciation. Portfolio BlackRock Bond Income BlackRock Advisors, LLC A competitive total return Portfolio primarily from investing in fixed-income securities. BlackRock Diversified BlackRock Advisors, LLC High total return while Portfolio attempting to limit investment risk and preserve capital. BlackRock Large Cap Value BlackRock Advisors, LLC Long-term growth of capital. Portfolio BlackRock Legacy Large Cap BlackRock Advisors, LLC Long-term growth of capital. Growth Portfolio BlackRock Money Market BlackRock Advisors, LLC A high level of current income Portfolio(1) consistent with preservation of capital. BlackRock Strategic Value BlackRock Advisors, LLC High total return, consisting Portfolio principally of capital appreciation.
A-16
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ----------- -------------------- Davis Venture Value Portfolio Davis Selected Advisers, Growth of capital. L.P.(2) FI Large Cap Portfolio Pyramis Global Advisors, Long-term growth of capital. LLC(3) FI Mid Cap Opportunities Pyramis Global Advisors, Long-term growth of capital. Portfolio LLC(3) FI Value Leaders Portfolio Pyramis Global Advisors, Long-term growth of capital. LLC(3) Franklin Templeton Small Cap Franklin Advisers, Inc. Long-term capital growth. Growth Portfolio Harris Oakmark Focused Value Harris Associates L.P. Long-term capital Portfolio appreciation. Jennison Growth Portfolio Jennison Associates LLC Long-term growth of capital. Julius Baer International Julius Baer Investment Long-term growth of capital. Stock Portfolio (formerly FI Management LLC(3) International Stock Portfolio) Lehman Brothers Aggregate Bond MetLife Investment Advisors To equal the performance of Index Portfolio Company, LLC the Lehman Brothers Aggregate Bond Index. Loomis Sayles Small Cap Loomis, Sayles & Company, L.P. Long-term capital growth from Portfolio investments in common stocks or other equity securities. MetLife Mid Cap Stock Index MetLife Investment Advisors To equal the performance of Portfolio Company, LLC the Standard & Poor's Mid Cap 400 Composite Stock Price Index. MetLife Stock Index Portfolio MetLife Investment Advisors To equal the performance of Company, LLC the Standard & Poor's 500 Composite Stock Price Index. MFS Total Return Portfolio Massachusetts Financial Favorable total return through Services Company investment in a diversified portfolio. MFS Value Portfolio (formerly Massachusetts Financial Long-term capital Harris Oakmark Large Cap Value Services Company(4) appreciation. Portfolio) Morgan Stanley EAFE Index MetLife Investment Advisors To equal the performance of Portfolio Company, LLC the MSCI EAFE Index. Neuberger Berman Mid Cap Value Neuberger Berman Management Capital growth. Portfolio Inc. Oppenheimer Global Equity OppenheimerFunds, Inc. Capital appreciation. Portfolio Russell 2000 Index Portfolio MetLife Investment Advisors To equal the return of the Company, LLC Russell 2000 Index. T. Rowe Price Large Cap Growth T. Rowe Price Associates, Inc. Long-term growth of capital Portfolio and, secondarily, dividend income. T. Rowe Price Small Cap Growth T. Rowe Price Associates, Inc. Long-term capital growth. Portfolio Western Asset Management Western Asset Management To maximize total return Strategic Bond Opportunities Company consistent with preservation Portfolio of capital.
A-17
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ----------- -------------------- Western Asset Management U.S. Western Asset Management To maximize total return Government Portfolio Company consistent with preservation of capital and maintenance of liquidity. Zenith Equity Portfolio(3) N/A Long-term capital appreciation. MetLife Conservative N/A A high level of current Allocation Portfolio income, with growth of capital as a secondary objective. MetLife Conservative to N/A A high total return in the Moderate Allocation Portfolio form of income and growth of capital, with a greater emphasis on income. MetLife Moderate Allocation N/A A balance between a high level Portfolio of current income and growth of capital, with a greater emphasis on growth of capital. MetLife Moderate to Aggressive N/A Growth of capital. Allocation Portfolio MetLife Aggressive Allocation N/A Growth of capital. Portfolio
MET INVESTORS SERIES TRUST ADVISER: MET INVESTORS ADVISORY LLC
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ----------- -------------------- BlackRock Large Cap Core BlackRock Advisors, LLC Long-term capital growth. Portfolio Clarion Global Real Estate ING Clarion Real Estate Total return through Portfolio (formerly Neuberger Securities L.P.(6) investment in real estate Berman Real Estate Portfolio) securities, emphasizing both capital appreciation and current income. Cyclical Growth and Income ETF Gallatin Asset Management, Growth of capital and income. Portfolio Inc. Cyclical Growth ETF Portfolio Gallatin Asset Management, Growth of capital. Inc. Harris Oakmark International Harris Associates L.P. Long-term capital Portfolio appreciation. Janus Forty Portfolio Janus Capital Management LLC Capital appreciation. Lazard Mid Cap Portfolio Lazard Asset Management LLC Long-term growth of capital. Legg Mason Partners Aggressive ClearBridge Advisors, LLC Capital appreciation. Growth Portfolio Legg Mason Value Equity Legg Mason Capital Management, Long-term growth of capital. Portfolio Inc. Lord Abbett Bond Debenture Lord, Abbett & Co. LLC To provide high current income Portfolio and the opportunity for capital appreciation to produce a high total return. Met/AIM Small Cap Growth Invesco Aim Capital Long-term growth of capital. Portfolio Management, Inc.(7) MFS Research International Massachusetts Financial Capital appreciation. Portfolio Services Company
A-18
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ----------- -------------------- Oppenheimer Capital OppenheimerFunds, Inc. Capital appreciation. Appreciation Portfolio PIMCO Inflation Protected Bond Pacific Investment Management Maximum real return, Portfolio Company LLC consistent with preservation of capital and prudent investment management. PIMCO Total Return Portfolio Pacific Investment Management Maximum total return, Company LLC consistent with the preservation of capital and prudent investment management. RCM Technology Portfolio RCM Capital Management LLC Capital appreciation; no consideration is given to income. T. Rowe Price Mid Cap Growth T. Rowe Price Associates, Inc. Long-term growth of capital. Portfolio
FIDELITY(R) VARIABLE INSURANCE PRODUCTS ADVISER: FIDELITY MANAGEMENT & RESEARCH COMPANY
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ----------- -------------------- VIP Equity-Income Portfolio 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 & Poor's 500(SM) Index (S&P 500(R)).
AMERICAN FUNDS INSURANCE SERIES ADVISER: CAPITAL RESEARCH AND MANAGEMENT COMPANY
ELIGIBLE FUND SUB-ADVISER INVESTMENT OBJECTIVE - ------------- ----------- -------------------- American Funds Bond Fund N/A Maximize current income and preserve capital by investing primarily in fixed-income securities. 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) An investment in the BlackRock Money Market Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to preserve the value of your investment at $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 BlackRock Money Market Portfolio may become extremely low and possibly negative. (2) Davis Selected Advisers, L.P. may also delegate any of its responsibilities to Davis Selected Advisers-NY, Inc., a wholly-owned subsidiary. (3) Prior to April 28, 2008, Fidelity Management & Research Company was the sub- adviser to this Portfolio. (4) Prior to January 7, 2008, Harris Associates L.P. was the sub-adviser to this Portfolio. (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 Value Leaders Portfolio, the Jennison Growth Portfolio and the Capital Guardian U.S. Equity Portfolio. The sub-advisers to these Portfolios are Pyramis Global Advisors, LLC, Jennison Associates LLC and Capital Guardian Trust Company, respectively. A-19 (6) Prior to April 28, 2008, Neuberger Berman Management Inc. was the sub- adviser to this Portfolio. (7) Prior to April 28, 2008, A I M Capital Management, Inc. 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 investment adviser or 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. CERTAIN PAYMENTS WE RECEIVE WITH REGARD TO THE ELIGIBLE FUNDS An investment adviser (other than our affiliates MetLife Advisers, LLC; and Met Investors Advisory LLC) or subadviser of an Eligible Fund, or its affiliates, may make payments to us and/or certain of our affiliates. These payments may be used for a variety of purposes, including payment of expenses for certain administrative, marketing, and support services with respect to the Policies and, in the Company's role as an intermediary, with respect to the Eligible Funds. The Company and its affiliates may profit from these payments. These payments may be derived, in whole or in part, from the advisory fee deducted from Eligible Fund assets. Policy Owners, through their indirect investment in the Eligible Funds, bear the costs of these advisory fees (see the Eligible Funds' prospectuses for more information). The amount of the payments we receive is based on a percentage of assets of the Eligible Funds attributable to the Policies and certain other variable insurance products that we and our affiliates issue. These percentages differ and some advisers or subadvisers (or other affiliates) may pay us more than others. These percentages currently range up to 0.50%. Additionally, an investment adviser or subadviser of an Eligible Fund or its affiliates may provide us with wholesaling services that assist in the distribution of the Policies and may pay us and/or certain of our affiliates amounts to participate in sales meetings. These amounts may be significant and may provide the adviser or subadviser (or their affiliate) with increased access to persons involved in the distribution of the Policies. We and/or certain of our affiliated insurance companies have joint ownership interests in affiliated investment advisers MetLife Advisers, LLC and Met Investors Advisory LLC, which are formed as "limited liability companies". Our ownership interests in MetLife Advisers, LLC and Met Investors Advisory LLC entitle us to profit distributions if the adviser makes a profit with respect to the advisory fees it receives from the Eligible Funds. We will benefit accordingly from assets allocated to the Eligible Funds to the extent they result in profits to the advisers. (See "Fee Table--Eligible Funds Fees and Expenses" for information on the management fees paid by the Eligible Funds and the Statement of Additional Information for the Eligible Funds for information on the management fees paid by the advisers to the subadvisers.) Certain Eligible Funds have adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940. An Eligible Fund's 12b-1 Plan, if any, is described in more detail in the Eligible Fund's prospectus. (See "Fee Table--Eligible Fund Fees and Expenses" and "Distribution of the Policies.") Any payments we receive pursuant to those 12b-1 Plans are paid to us or our distributor. Payments under an Eligible Fund's 12b-1 Plan decrease the Eligible Fund's investment return. SELECTION OF THE ELIGIBLE FUNDS We select the Eligible Funds offered through this Policy based on a number of criteria, including asset class coverage, the strength of the adviser's or subadviser's reputation and tenure, brand recognition, performance, and the A-20 capability and qualification of each investment firm. Another factor we consider during the selection process is whether the Eligible Fund's adviser or subadviser is one of our affiliates or whether the Eligible Fund, its adviser, its subadviser(s), or an affiliate will make payments to us or our affiliates. For additional information on these arrangements, see "Certain Payments We Receive with Regard to the Eligible Funds" above. In this regard, the profit distributions we receive from our affiliated investment advisers are a component of the total revenue that we consider in configuring the features and investment choices available in the variable insurance products that we and our affiliated insurance companies issue. Since we and our affiliated insurance companies may benefit more from the allocation of assets to portfolios advised by our affiliates than those that are not, we may be more inclined to offer portfolios advised by our affiliates in the variable insurance products we issue. We review the Eligible Funds periodically and may remove an Eligible Fund or limit its availability to new Premiums and/or transfers of cash value if we determine that the Eligible Fund no longer meets one or more of the selection criteria, and/or if the Eligible Fund has not attracted significant allocations from Policy Owners. In some cases, we have included Eligible Funds based on recommendations made by selling firms. These selling firms may receive payments from the Eligible Funds they recommend and may benefit accordingly from the allocation of cash value to such Eligible Funds. We make certain payments to American Funds Distributors, Inc., principal underwriter for the American Funds Insurance Series. (See "Distribution of the Policies.") WE DO NOT PROVIDE ANY INVESTMENT ADVICE AND DO NOT RECOMMEND OR ENDORSE ANY PARTICULAR ELIGIBLE FUND. YOU BEAR THE RISK OF ANY DECLINE IN THE CASH VALUE OF YOUR POLICY RESULTING FROM THE PERFORMANCE OF THE ELIGIBLE FUNDS YOU HAVE CHOSEN. 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 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. The effect of this proportional voting is that a small number of Policy Owners may control the outcome of a vote. 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. A-21 We will notify you if exercise of any of these rights would result in a material change in the Variable Account or its investments. If automatic allocations of premium payments made through our pre-authorized checking arrangement are being made to a Sub-Account that is closed, and if you do not give us other instructions, then any amounts that would have gone into the closed Sub-Account will be allocated to the BlackRock Money Market Sub-Account. 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. (See "Receipt of Communications and Payments at NELICO's 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 a term rider that provides death benefit coverage at a lower overall cost than coverage under the base Policy; however, the term rider has no surrenderable cash value and terminates at the younger insured's age 100. (See "Additional Benefits by Rider".) To obtain more information about these other policies and the term rider, 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 A-22 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 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 A-23 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 pre-authorized checking arrangement 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 you may also choose to have us withdraw your premium payments from your bank checking account or CDC Nvest Cash Management Trust account under our pre-authorized checking arrangement. We do not accept cash or money orders. We will send premium notices for annual, semi- annual or quarterly Planned Premiums. If any payments under the Policy exceed the "7-pay limit" under Federal tax law, your Policy will become a "modified endowment contract" and you may have more adverse tax consequences with respect to certain distributions than would otherwise be the case if premium payments did not exceed the "7-pay limit". 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 payments at our Designated Office (or at our Administrative Office in Tampa, Florida) if they are received before the close of regular trading on the New York Stock Exchange. Payments received after that time, or on a day when the New York Stock Exchange is not open, will be allocated to your Policy's sub- accounts on the next day that the New York Stock Exchange is open. (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. Your initial net premium is credited with investment performance as of the investment start date. The investment start date is the later of the Policy Date and the date we first receive a premium payment for the Policy. For this purpose, receipt of the premium payment 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, unless you request otherwise, the Policy Date is the date the Policy application is approved. Monthly Deductions begin on the Policy Date. The amount of premium paid with the application must be at least 10% of the annual Planned Premium for the A-24 Policy. You may only make one premium payment before the Policy is issued. If we decline an application, we refund the premium payment made. If you make a premium payment with the application, we will cover the insureds under a temporary insurance agreement beginning on the later of the date the application is signed or the date of any required medical examination. (See "Death Benefits".) PREMIUM ON DELIVERY. If you pay the initial premium on delivery of the Policy, unless you request otherwise, the Policy Date is the date of delivery, and the investment start date is the date your premium payment is received at a NELICO agency or at our Designated Office, whichever is earlier. Monthly Deductions begin on the Policy Date. We credit interest to the Policy at a 4% net annual 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 our pre-authorized checking arrangement). BACKDATING. We may sometimes backdate a Policy, if you request, by assigning a Policy Date earlier than the date the Policy application is approved. You may wish to backdate so that you can obtain lower cost of insurance rates, based on a younger insurance age. Backdating in some cases causes a higher Surrender Charge if it results in the Surrender Charge being based on a lower age bracket. (See "Surrender Charge".) For a backdated Policy, you must also pay the Minimum Premium payable for the period between the Policy Date and the investment start date. As of the investment start date, we allocate to the Policy those net premiums, adjusted for monthly Policy charges and interest at a 4% net annual rate for that period. 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. FOR POLICIES ISSUED IN CALIFORNIA. If you are age 60 or older, you may cancel the Policy within 30 days after you receive it. If you elected on the Policy application to allocate 100% of your initial net premium to the BlackRock Money Market Sub-Account, we will generally refund the premiums you paid; if you elected to allocate your initial net premium to the other Sub-Accounts and/or the Fixed Account, we will refund the Policy's cash value. ALLOCATION OF NET PREMIUMS We generally allocate your initial net premium to the Sub-Accounts and the Fixed Account as of the investment start date. In states that require a refund of premiums if you exercise the Right to Return the Policy, however, we hold the portion of your initial net premium allocated to the Sub-Accounts in the BlackRock Money Market Sub-Account until 15 days after the investment start date, and then we make the allocation among the Sub-Accounts as you choose. (In these states, we allocate the amounts you allocate 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. 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.") FOR POLICIES ISSUED IN CALIFORNIA. If you are age 60 or older and you allocate 100% of your initial net premium to the BlackRock Money Market Sub- Account in order to receive a refund of premiums should you cancel the Policy during the Right to Return the Policy period, we will not automatically transfer your cash value or reallocate your future premiums to the other Sub-Accounts and/or the Fixed Account once the Right to Return the Policy period has ended. You must contact us to request a transfer or reallocation. 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 A-25 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 (usually 4:00 p.m. Eastern Time). 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. These rules apply regardless of the reason we did not receive your request by the close of regular trading on the New York Stock Exchange--even if due to our delay (such as a delay in answering your telephone call). The Designated Office for various Policy transactions is as follows: Premium Payments New England Financial P.O. Box 371499 Pittsburgh, PA 15250-7499 Payment Inquiries and New England Financial/MetLife Correspondence P.O. Box 30440 Tampa, FL 33630-3440 (800) 388-4000 Surrenders, Cancellations (Free New England Financial/MetLife Look Period), Loans, P.O. Box 543 Withdrawals and Sub-Account Warwick, RI 02887-0543 Transfers Beneficiary and New England Financial/MetLife Owner Changes P.O. Box 541 Warwick, RI 02887-0541 Death Claims New England Financial/MetLife P.O. Box 353 Warwick, RI 02887-0353 Sub-Account Transfers by (800) 200-2214 Telephone All Other Telephone (800) 388-4000 Transactions and Inquiries
You may request an account transfer or reallocation of future premiums by written request (which may be telecopied) to us or by telephoning us (subject to our restrictions on "market timing" transfers). 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 or facsimile are genuine. Any telephone or facsimile instructions that we reasonably believe to be genuine are your responsibility, including losses arising from any errors in the communication of instructions. However, because telephone transactions may be available to anyone who provides certain information about you and your Policy, you should protect that information. We may not be able to verify that you are the person providing telephone instructions, or that you have authorized any such person to act for you. If you send your premiums or transaction requests to an address other than the one we designated for receipt of such premiums or requests, we may return the premium to you, or there may be a delay in applying the premium or transaction to your Policy. 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 A-26 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. 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. We may withhold payment of surrender or loan proceeds if any portion of those proceeds would be derived from a Policy Owner's check, or from a premium transaction under our pre-authorized checking arrangement that has not yet cleared (i.e., that could still be dishonored by your banking institution). We may use telephone, fax, Internet or other means of communications to verify that payment from the Policy Owner's check has been or will be collected. We will not delay payment longer than necessary for us to verify that payment has been or will be collected. Policy Owners may avoid the possibility of delay in the disbursement of proceeds coming from a check that has not yet cleared by providing us with a certified check. 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", "Monthly Deduction 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. A-27 DEATH BENEFITS The death benefit is payable to the beneficiary at the death of the second insured to die. Coverage under the Policy generally begins when you pay 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 time that begins on the later of the date we receive the premium payment or the date of any required medical examination. Temporary coverage is not available for proposed insureds who have received medical treatment for, or been diagnosed as having, certain conditions or diseases specified in the temporary insurance agreement. The maximum temporary coverage is the lesser of the amount of insurance applied for and $2,000,000. 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. A-28 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. THE GUARANTEED DEATH BENEFIT RIDER IS ONLY AVAILABLE IF YOU SELECT OPTION 4. (SEE "LAPSE" FOR A DESCRIPTION OF THE GUARANTEED DEATH BENEFIT RIDER.) YOU CANNOT CHOOSE TO HAVE BOTH THE GUARANTEED DEATH BENEFIT RIDER AND THE SURVIVORSHIP LEVEL TERM INSURANCE RIDER. 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. The tax consequences of keeping the Policy in force beyond the younger insured's age 100 are uncertain. 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. 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. A-29 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 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 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-30 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 a partial surrender in the Policy except as premium payments, which are subject to the charges described under "Deductions From Premiums". 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 we receive a request. You can contact your registered representative or our 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 A-31 when we receive the transfer request, if the request is received before the close of regular trading on the New York Stock Exchange. Transfer requests received after that time, or on a day that the New York Stock Exchange is not open, will be effective on the next day that the New York Stock Exchange is open. (See "Receipt of Communications and Payments at NELICO's Designated Office".) For special rules regarding transfers involving the Fixed Account, see "The Fixed Account". Frequent requests from Policy owners to transfer cash value may dilute the value of an Eligible Fund's shares if the frequent trading involves an attempt to take advantage of pricing inefficiencies created by a lag between a change in the value of the securities held by the Eligible Fund and the reflection of that change in the Eligible Fund's share price ("arbitrage trading"). Regardless of the existence of pricing inefficiencies, frequent transfers may also increase brokerage and administrative costs of the underlying Eligible Funds and may disrupt portfolio management strategy, requiring an Eligible Fund to maintain a high cash position and possibly resulting in lost investment opportunities and forced liquidations ("disruptive trading"). Accordingly, arbitrage trading and disruptive trading activities (referred to collectively as "market timing") may adversely affect the long-term performance of the Eligible Funds, which may in turn adversely affect Policy owners and other persons who may have an interest in the Policies (e.g., beneficiaries). We have policies and procedures that attempt to detect and deter frequent transfers in situations where we determine there is a potential for arbitrage trading. Currently, we believe that such situations may be presented in the international, small-cap, and high-yield Eligible Funds (i.e., the BlackRock Strategic Value Portfolio, Clarion Global Real Estate Portfolio, Julius Baer International Stock Portfolio, Franklin Templeton Small Cap Growth Portfolio, Loomis Sayles Small Cap Portfolio, Morgan Stanley EAFE Index Portfolio, Oppenheimer Global Equity Portfolio, Russell 2000 Index Portfolio, Western Asset Management Strategic Bond Opportunities Portfolio, T. Rowe Price Small Cap Growth Portfolio, Harris Oakmark International Portfolio, Lord Abbett Bond Debenture Portfolio, Met/AIM Small Cap Growth Portfolio, MFS Research International Portfolio and American Funds Global Small Capitalization Fund--the "Monitored Portfolios") and we monitor transfer activity in those Monitored Portfolios. In addition, as described below, we intend to treat all American Funds Insurance Series portfolios ("American Funds portfolios") as Monitored Portfolios. We employ various means to monitor transfer activity, such as examining the frequency and size of transfers into and out of the Monitored Portfolios within given periods of time. For example, we currently monitor transfer activity to determine if, for each category of international, small- cap, and high-yield Eligible Funds, in a 12-month period there were, (1) six or more transfers involving the given category; (2) cumulative gross transfers involving the given category that exceed the current cash value; and (3) two or more "round-trips" involving any portfolio in the given category. A round-trip generally is defined as a transfer in followed by a transfer out within the next seven calendar days or a transfer out followed by a transfer in within the next seven calendar days, in either case subject to certain other criteria. We do not believe that other Eligible Funds present a significant opportunity to engage in arbitrage trading and therefore do not monitor transfer activity in those Eligible Funds. We may change the Monitored Portfolios at any time without notice in our sole discretion. In addition to monitoring transfer activity in certain Eligible Funds, we rely on the underlying Eligible Funds to bring any potential disruptive trading activity they identify to our attention for investigation on a case-by-case basis. We will also investigate other harmful transfer activity that we identify from time to time. We may revise these policies and procedures in our sole discretion at any time without prior notice. AMERICAN FUNDS MONITORING POLICY. As a condition to making their portfolios available in our products, American Funds requires us to treat all American Funds portfolios as Monitored Portfolios under our current market timing and excessive trading policies and procedures. Further, American Funds requires us to impose additional specified monitoring criteria for all American Funds portfolios available under the Policy, regardless of the potential for arbitrage trading. We are required to monitor transfer activity in American Funds portfolios to determine if there were two or more transfers in followed by transfers out, in each case of a certain dollar amount or greater, in any 30-day period. A first violation of the American Funds monitoring policy will result in a written notice of violation; each additional violation will result in the imposition of a six-month restriction, during which period we will require all transfer requests to or from an American Funds portfolio to be submitted with an original signature. Further, as Monitored Portfolios, all American Funds portfolios also will be subject to our current market timing and excessive trading policies, procedures and restrictions (described below), and transfer restrictions may be imposed upon a violation of either monitoring policy. A-32 Our policies and procedures may result in transfer restrictions being applied to deter market timing. Currently, when we detect transfer activity in the Monitored Portfolios that exceeds our current transfer limits, or other transfer activity that we believe may be harmful to other Policy owners or other persons who have an interest in the Policies, we require all future transfer requests to or from any Monitored Portfolios or other identified Eligible Funds under that Policy to be submitted either (i) in writing with an original signature or (ii) by telephone prior to 10:00 a.m. Transfers made under a Dollar Cost Averaging Program, and, if applicable, any rebalancing program described in this prospectus are not treated as transfers when we evaluate trading patterns for market timing. The detection and deterrence of harmful transfer activity involves judgments that are inherently subjective, such as the decision to monitor only those Eligible Funds that we believe are susceptible to arbitrage trading or the determination of the transfer limits. Our ability to detect and/or restrict such transfer activity may be limited by operational and technological systems, as well as our ability to predict strategies employed by Policy owners to avoid such detection. Our ability to restrict such transfer activity also may be limited by provisions of the Policy. Accordingly, there is no assurance that we will prevent all transfer activity that may adversely affect Policy owners and other persons with interests in the Policies. We do not accommodate market timing in any Eligible Fund and there are no arrangements in place to permit any Policy owner to engage in market timing; we apply our policies and procedures without exception, waiver, or special arrangement. The Eligible Funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares and we reserve the right to enforce these policies and procedures. For example, Eligible Funds may assess a redemption fee (which we reserve the right to collect) on shares held for a relatively short period. The prospectuses for the Eligible Funds describe any such policies and procedures, which may be more or less restrictive than the policies and procedures we have adopted. Although we may not have the contractual authority or the operational capacity to apply the frequent trading policies and procedures of the Eligible Funds, we have entered into a written agreement, as required by SEC regulation, with each Eligible Fund or its principal underwriter that obligates us to provide to the Eligible Fund promptly upon request certain information about the trading activity of individual Policy Owners, and to execute instructions from the Eligible Fund to restrict or prohibit further purchases or transfers by specific Policy Owners who violate the frequent trading policies established by the Eligible Fund. In addition, Policy Owners and other persons with interests in the Policies should be aware that the purchase and redemption orders received by the Eligible Funds generally are "omnibus" orders from intermediaries, such as retirement plans or separate accounts funding variable insurance products. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance products and/or individual retirement plan participants. The omnibus nature of these orders may limit the Eligible Funds in their ability to apply their frequent trading policies and procedures. In addition, the other insurance companies and/or retirement plans may have different policies and procedures or may not have any such policies and procedures because of contractual limitations. For these reasons, we cannot guarantee that the Eligible Funds (and thus Policy Owners) will not be harmed by transfer activity relating to other insurance companies and/or retirement plans that may invest in the Eligible Funds. If an Eligible Fund believes that an omnibus order reflects one or more transfer requests from Policy Owners engaged in disruptive trading activity, the Eligible Fund may reject the entire omnibus order. In accordance with applicable law, we reserve the right to modify or terminate the transfer privilege at any time. We also reserve the right to defer or restrict the transfer privilege at any time that we are unable to purchase or redeem shares of any of the Eligible Funds, including any refusal or restriction on purchases or redemptions of their shares as a result of their own policies and procedures on market timing activities (even if an entire omnibus order is rejected due to the market timing activity of a single Policy owner). You should read the Eligible Fund prospectuses for more details. 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 A-33 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 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-34 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. (You may not choose the Guaranteed Death Benefit Rider if you elect the Survivorship Level Term Insurance 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 or the addition of the Survivorship Level Term Insurance Rider will terminate the Guaranteed Death Benefit Rider. 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 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 A-35 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 may be to your economic advantage to include a portion or percentage of your insurance coverage under the Survivorship Level Term Insurance Rider because both current and guaranteed charges for the rider are lower than those of the base Policy. The Survivorship Level Term Insurance Rider can 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 rider, the cost of insurance for the 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 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 Survivorship Level Term Insurance Rider. 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 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 A-36 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 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. A-37 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. We are not currently enforcing this restriction, but we reserve the right to do so. 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. We are not currently enforcing this restriction, but we reserve the right to do so. Regardless of these limits, if a transfer of cash value from the Fixed Account would reduce the remaining cash value in the Fixed Account below $100, you may transfer the entire amount of Fixed Account cash value. We may limit the total number of transfers among sub-accounts and from the sub-accounts to the Fixed Account to four in one Policy year (twelve per Policy year for Policies issued in New York). We currently do not limit the number of these transfers in a Policy year. A-38 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. 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. A-39 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 pre-authorized checking 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-40 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 our pre-authorized checking 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-41 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-42 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-43 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 the Survivorship Level Term Insurance Rider, 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. IRS CIRCULAR 230 NOTICE: The tax information contained herein is not intended to (and cannot) be used by anyone to avoid IRS penalties. It is intended to support the sale of the Policy. You should seek tax advice based on your particular circumstances from an independent tax adviser. 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, 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, there is additional uncertainty. 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. The insurance proceeds payable on the death of the A-44 second insured to die will never be less than the minimum amount required for the Policy to be treated as life insurance under section 7702 of the Internal Revenue Code, as in effect on the date the Policy was issued. In some circumstances, owners of variable contracts who retain excessive control over the investment of the underlying separate account assets may be treated as the owners of those assets. Although published guidance in this area does not address certain aspects of the Policies, we believe that the Owner of a Policy should not be treated as the owner of the Variable Account assets. We reserve the right to modify the Policies to bring them into conformity with applicable standards should such modification be necessary to prevent Owners of the Policies from being treated as the owners of the underlying Variable Account assets. 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. If Eligible Fund shares are sold directly to either non-qualified plans or to tax-qualified retirement plans that later lose their tax qualified status, the Variable Account investing in the Eligible Fund may fail the diversification requirements of Section 817(h) of the Internal Revenue Code of 1986. This could have adverse tax consequences for variable life insurance owners, including losing the benefit of tax deferral. 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--DEATH BENEFITS. We believe that the death benefit under a Policy should generally be excludible from the gross income of the beneficiary to the extent provided in section 101 of the Code. In the case of employer-owned life insurance as defined in section 101(j) of the Code, the amount excludable from gross income is limited to premiums paid unless the Policy falls within certain specified exceptions and a notice and consent requirement is satisfied before the Policy is issued. Certain specified exceptions are based on the status of an employee as highly compensated or recently employed. There are also exceptions for Policy proceeds paid to an employee's heirs. These exceptions only apply if proper notice is given to the insured employee and consent is received from the insured employee before the issuance of the Policy. These rules apply to Policies issued August 18, 2006 and later and also apply to Policies issued before August 18, 2006 after a material increase in the death benefit or other material change. An IRS reporting requirement applies to employer-owned life insurance subject to these rules. Because these rules are complex and will affect the tax treatment of death benefits, it is advisable to consult tax counsel. The death benefit will also be taxable in the case of a transfer-for-value unless certain exceptions apply. Federal, state and local transfer, and other tax consequences of ownership or receipt 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 circumstances. 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. Due to the Policy's flexibility with respect to premium payments and benefits, each Policy's circumstances will determine whether the Policy is a MEC. 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-45 a "material change" in the Policy's benefits or other terms, the Policy may have to be retested as if it were a newly issued Policy. A material change can occur, for example, when there is an increase in the death benefit which is due to the payment of an unnecessary premium. Unnecessary premiums are premiums paid into the Policy which are not needed in order to provide a death benefit equal to the lowest death benefit that was payable in the first seven Policy years. To prevent your Policy from becoming a Modified Endowment Contract, it may be necessary to limit premium payments or to limit reductions in benefits. A current or prospective Policy Owner should consult a tax advisor to determine whether a Policy transaction will cause the Policy to be classified as a Modified Endowment Contract. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as Modified Endowment Contracts are subject to the following tax rules: (1) All distributions other than death benefits, including distributions upon surrender and withdrawals, from a Modified Endowment Contract will be treated first as distributions of gain taxable as ordinary income and as tax-free recovery of the Policy Owner's investment in the Policy only after all gain has been distributed. (2) Loans taken from or secured by a Policy classified as a Modified Endowment Contract are treated as distributions and taxed accordingly. (3) A 10 percent additional income tax is imposed on the amount subject to tax except where the distribution or loan is made when the Policy Owner has attained age 59 1/2 or is disabled, or where the distribution is part of a series of substantially equal periodic payments for the life (or life expectancy) of the Policy Owner or the joint lives (or joint life expectancies) of the Policy Owner and the Policy Owner's beneficiary or designated beneficiary. If a Policy becomes a modified endowment contract, distributions that occur during the contract year will be taxed as distributions from a modified endowment contract. In addition, distributions from a Policy within two years before it becomes a modified endowment contract will be taxed in this manner. This means that a distribution made from a Policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment contract. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy that is not classified as a Modified Endowment Contract are generally treated first as a recovery of the Policy Owner's investment in the Policy and only after the recovery of all investment in the Policy as taxable income. However, certain distributions which must be made in order to enable the Policy to continue to qualify as a life insurance contract for Federal income tax purposes if Policy benefits are reduced during the first 15 Policy years may be treated in whole or in part as ordinary income subject to tax. 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. A-46 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. LIFE INSURANCE PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS. Policy Owners that are not U.S. citizens or residents will generally be subject to U.S. Federal withholding tax on taxable distributions from life insurance policies at a 30% rate, unless a lower treaty rate applies. In addition, Policy Owners may be subject to state and/or municipal taxes and taxes that may be imposed by the Policy Owner's country of citizenship or residence. Prospective purchasers are advised to consult with a qualified tax adviser regarding taxation with respect to a purchase of the Policy. 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. 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. ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAXES. The transfer of the Policy or the 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. When the insured dies, the death proceeds will generally be includable in the Policy Owner's estate for purposes of the Federal estate tax if the Policy Owner was the insured. If the Policy Owner was not the insured, the fair market value of the Policy would be included in the Policy Owner's estate upon the Policy Owner's death. The Policy would not be includable in the insured's estate if the insured neither retained incidents of ownership at death nor had given up ownership within three years before death. Moreover, under certain circumstances, the Internal Revenue Code may impose a "generation-skipping transfer tax" when all or part of a life insurance policy is transferred to, or a death benefit is paid to, an individual two or more generations younger than the Policy Owner. Regulations issued under the Internal Revenue Code may require us to deduct the tax from your Policy, or from any applicable payment, and pay it directly to the IRS. Qualified tax advisers should be consulted concerning the estate and gift tax consequences of Policy ownership and distributions under Federal, state and local 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. The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") repeals the Federal estate tax and replaces it with a carryover basis income tax regime effective for estates of decedents dying after December 31, 2009. EGTRRA also repeals the generation-skipping transfer tax, but not the gift tax, for transfers made after December 31, 2009. EGTRRA contains a sunset provision, which essentially returns the Federal estate, gift and generation-skipping transfer taxes to their pre-EGTRRA form, beginning in 2011. Congress may or may not enact permanent repeal between now and then. During the period prior to 2010, EGTRRA provides for periodic decreases in the maximum estate tax rate coupled with periodic increases in the estate tax exemption. The maximum estate tax rate for 2007-2009 is 45%. The estate tax exemption is $2,000,000 for 2006-2008 and $3,500,000 in 2009. The complexity of the new tax law, along with uncertainty as to how it might be modified in coming years, underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios. OTHER POLICY OWNER TAX MATTERS. 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. Providing excessive life insurance coverage in a retirement plan will have adverse tax consequences. The inclusion of A-47 riders, such as waiver of premium riders, may also have adverse tax consequences. Therefore, it is important to discuss with your tax adviser the suitability of the Policy, including the suitability of coverage amounts and Policy riders, before any purchase by a retirement plan. Any proposed distribution or sale of a Policy by a retirement plan will also need to be discussed with a tax adviser. 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. In the case of a business owned Policy, the provisions of section 101(j) of the Code may limit the amount of the death benefit excludable from gross income unless a specified exception applies and a notice and consent requirement is satisfied, as discussed above. 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. Ownership of the Policy by a corporation, trust or other non-natural person could jeopardize some (or all) of such entity's interest deduction under Internal Revenue Code Section 264, even where such entity's indebtedness is in no way connected to the Policy. In addition, under Section 264(f)(5), if a business (other than a sole proprietorship) is directly or indirectly a beneficiary of the Policy, the Policy could be treated as held by the business for purposes of the Section 264(f) entity-holder rules. Therefore, it would be advisable to consult with a qualified tax adviser before any non-natural person is made an owner or holder of the Policy, or before a business (other than a sole proprietorship) is made a beneficiary of the Policy. GUIDANCE ON SPLIT DOLLAR PLANS. The IRS has issued guidance on split dollar insurance plans. A tax adviser should be consulted with respect to this 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 taxed under the economic benefit regime, there is a risk that some of the Policy cash value may be taxed prior to any Policy distribution. If your split dollar plan provides deferred compensation, recently enacted rules governing deferred compensation arrangements may apply. Failure to adhere to these rules will result in adverse tax consequences. Consult a tax adviser. 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. Any affected business contemplating the payment of a premium on an existing 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. A-48 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. TAX CREDITS AND DEDUCTIONS. NELICO may be entitled to certain tax benefits related to the assets of the Variable Account. These tax benefits, which may include foreign tax credits and corporate dividend received deductions, are not passed back to the Variable Account or to Policy Owners since NELICO is the owner of the assets from which the tax benefits are derived. 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 We have entered into a distribution agreement with our affiliate, New England Securities Corporation ("Distributor"), for the distribution and sale of the Policies. Distributor is a member of the Financial Industry Regulatory Authority ("FINRA"). An investor brochure that includes information describing FINRA's Public Disclosure Program is available by calling FINRA's Public Disclosure Program hotline at 1-800-289-9999, or by visiting FINRA's website at www.finra.org. Distributor offers the Policies through its sales representatives. Distributor may also enter into selling agreements with other affiliated and unaffiliated broker-dealers ("selling firms") for the sale of the Policies. Our affiliated broker-dealers are MetLife Securities, Inc. ("MSI"), Tower Square Securities, Inc. and Walnut Street Securities, Inc. We pay commissions to Distributor for sales of the Policies by its sales representatives, as well as selling firms. We pay American Funds Distributors, Inc., principal underwriter for the American Funds Insurance Series, a percentage of all premiums allocated to the American Funds Bond Fund, the American Funds Global Small Capitalization Fund, the American Funds Growth Fund, and the American Funds Growth-Income Fund, for the services it provides in marketing the Funds' shares in connection with the Policies. Each of these Funds makes payments to Distributor under their distribution plans in consideration of services provided and expenses incurred by Distributor in distributing their shares. These payments currently equal 0.25% of Variable Account assets invested in the particular Eligible Fund. (See "Fee Tables--Annual Eligible Fund Operating Expenses" and the Eligible Fund prospectuses.) Distributor may also receive brokerage commissions on securities transactions initiated by an investment adviser of an Eligible Fund. Distributor's sales representatives receive cash payments for the products they sell and service based upon a "gross dealer concession" model. The cash payments received are equal to part or all of the gross dealer concession amounts described below. The percentage the sales representative receives is determined by a formula that takes into consideration the amount of proprietary products the sales representative sells and services. Proprietary products are products issued by us or an affiliate. Because sales of proprietary products are a factor in determining the percentage of the gross dealer concession amount to which Distributor's sales representatives are entitled, these sales representatives have an incentive to favor sale of the Policy over similar products issued by non-affiliates. In the first Policy year, the gross dealer concession amount for the Policies is 117% of premiums paid, up to the Commissionable Target Premium, and 7% of premiums paid in excess of the Commissionable Target Premium. In Policy years 2 through 4, the gross dealer concession amount is 8.0% of all premiums paid, in policy years 5 through 10, the gross dealer concession is 5% of all premiums paid, and in Policy year 11 and thereafter the gross dealer concession amount is 2.0% of all premiums paid. Commissionable Target Premium is the Target Premium, as defined in the Glossary, plus the Target Premium associated with any riders added to the Policy. All or a portion of the cash payments may be returned if the Policy is not continued through the first Policy year. Sales representatives receive A-49 less compensation for the sale of Policies that provide a significant portion of death benefit through the use of term riders. Distributor also makes payments for the sale of the Policy to the Managing Partner who supervises the sales representative. Payments to Managing Partners vary and depend on a number of factors, including the sales representative's level of sales, as well as the level of sales by all sales representatives in the Managing Partner's agency. Distributor's sales representatives and their Managing Partners (and the sales representatives and managers of our affiliates) may also be eligible for cash compensation such as bonuses, equity awards (for example, stock options), training allowances, supplemental salary, payments based on a percentage of the Policy's cash value, financing arrangements, marketing support, medical and retirement benefits and other insurance and non-insurance benefits. The amount of this cash compensation is based primarily on the amount of proprietary products sold. Proprietary products are products issued by NELICO and its affiliates. Sales representatives must meet a minimum level of sales of proprietary products in order to maintain their agent status with us and in order to be eligible for most of the cash compensation listed above. Managing Partners may be eligible for additional cash compensation based on the performance (with emphasis on the sale of proprietary products) of the sales representatives that the Managing Partner supervises. Managing Partners may pay a portion of their cash compensation to their sales representatives. Sales representatives and their Managing Partners (and the sales representatives and managers of our affiliates) are also eligible for various non-cash compensation programs that we offer such as conferences, trips, prizes, and awards. Other payments may be made for other services that do not directly involve the sale of the Policies. These services may include the recruitment and training of personnel, production of promotional literature, and similar services. In addition to the payments listed above, NELICO makes certain payments to its business unit or to the business unit of its affiliate that is responsible for the operation of the distribution systems through which the Policy is sold. This amount is part of the total compensation paid for the sale of the Policy. Receipt of the cash compensation described above may provide our sales representatives and their Managing Partners, and the sales representatives and Managing Partners of our affiliates, with an incentive to favor the sale of the Policies over similar products issued by non-affiliates. Distributor pays compensation for the sale of the Policies by affiliated and unaffiliated selling firms. The compensation paid to selling firms for sales of the Policies is generally not expected to exceed, on a present value basis, the aggregate amount of compensation that is paid by Distributor with respect to sales made through Distributor's sales representatives. Selling firms pay their sales representatives all or a portion of the commissions received for their sales of Policies; some firms may retain a portion of commissions. The amount that selling firms pass on to their sales representatives is determined in accordance with their internal compensation programs. Those programs may also include other types of cash compensation and other benefits. In the case of our affiliate, MSI, the portion that MSI passes on to its sales representatives depends on a formula that takes into consideration the amount of proprietary products that the sales representative sells and services, which provides the sales representative with an incentive to favor the sale of the Policies over other similar products issued by non-affiliates. Sales representatives of affiliated selling firms and their managers may be eligible for various cash benefits that we may provide jointly with affiliated selling firms. Ask your sales representative for further information about what your sales representative and the selling firm for which he or she works may receive in connection with your purchase of a Policy. One of our affiliated selling firms, MetLife Investors Distribution Company ("MLIDC"), enters into selling agreements with other unaffiliated selling firms for the sale of the Policies and other variable insurance products, i.e., annuity contracts and life insurance policies, that we and our affiliates issue. MLIDC may also enter preferred distribution arrangements through which it pays additional compensation to certain of these selling firms, including marketing allowances, introduction fees, persistency payments, preferred status fees and industry conference fees. Marketing allowances are periodic payments to certain selling firms based on cumulative periodic (usually quarterly) sales of these variable insurance products. Introduction fees are payments to selling firms in connection with the addition of these variable products to the selling firm's line of investment products, including expenses relating to establishing the data communications systems necessary for the selling firm to offer, sell and administer these products. Persistency payments are periodic payments based on account and/or cash values of these variable A-50 insurance products. Preferred status fees are paid to obtain preferred treatment of these products in selling firms' marketing programs, which may include marketing services, participation in marketing meetings, listings in data resources and increased access to their sales representatives. Industry conference fees are amounts paid to cover in part the costs associated with sales conferences and educational seminars for selling firms' sales representatives. These preferred distribution arrangements are not offered to all selling firms. The terms of any particular agreement governing compensation may vary among selling firms and the amounts may be significant. We and Distributor may enter into similar preferred distribution arrangements with our affiliated broker-dealers, Walnut Street Securities, Inc., Tower Square Securities, Inc. and MSI. The prospect of receiving, or the receipt of, additional compensation as described above may provide selling firms or their representatives with an incentive to favor sales of the Policies over other variable insurance policies (or other investments) with respect to which the selling firm does not receive additional compensation, or lower levels of additional compensation. You may wish to take such payment arrangements into account when considering and evaluating any recommendation relating to the Policies. For more information about any such arrangements, ask your sales representative for further information about what your sales representative and the selling firm for which he or she works may receive in connection with your purchase of a Policy. Commissions and other incentives or payments described above are not charged directly to Policy Owners or the Variable Account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the Policy. The Statement of Additional Information contains additional information about the compensation paid for the sale of the Policies. LEGAL PROCEEDINGS In the ordinary course of business, NELICO, similar to other life insurance companies, is involved in lawsuits (including class action lawsuits), arbitrations and other legal proceedings. Also, from time to time, state and federal regulators or other officials conduct formal and informal examinations or undertake other actions dealing with various aspects of the financial services and insurance industries. In some legal proceedings involving insurers, substantial damages have been sought and/or material settlement payments have been made. It is not possible to predict with certainty the ultimate outcome of any pending legal proceeding or regulatory action. However, NELICO does not believe any such action or proceeding will have a material adverse effect upon the Separate Account or upon the ability of New England Securities Corporation to perform its contract with the Separate Account or of NELICO to meet its obligations under the Policies. RESTRICTIONS ON FINANCIAL TRANSACTIONS Applicable laws designed to counter terrorism and prevent money laundering might, in certain circumstances, require us to reject a premium payment and/or block or "freeze" your Policy. If these laws apply in a particular situation, we would not be allowed to process any request for withdrawals, surrenders, loans 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 you or your Policy to government regulators. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements of each of the Subaccounts of New England Variable Life Separate Account included in this Prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The principal address of Deloitte & Touche LLP is 201 East Kennedy Boulevard, Suite 1200, Tampa, Florida 33602-5827. A-51 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-52 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 later of the Policy Date and the date we first receive a premium payment for the Policy. NET CASH VALUE. The amount you receive if you surrender the Policy. It is equal to the Policy's cash value reduced by any applicable Surrender Charge and by any outstanding Policy loan and accrued interest. NET INVESTMENT EXPERIENCE. For any period, a sub-account's net investment experience equals the investment experience of the underlying Eligible Fund's shares for the same period, reduced by the amount of charges against the sub- account for that period. PLANNED PREMIUM. The Planned Premium is the premium payment schedule you choose to help meet your future goals under the Policy. The Planned Premium can be a fixed amount or can vary over time and is subject to certain limits under the Policy. Payments in addition to any Planned Premium are called unscheduled payments in the Policy and can be paid at any time, subject to certain limits. PREMIUMS. Premiums include all payments under the Policy, whether a Planned Premium or an unscheduled payment. POLICY DATE. 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 date the Policy application is approved. 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. Under our current administrative rules, a Policy that would be dated on the 29th, 30th or 31st of a month will receive a Policy Date of the 28th. 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-53 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:
NET SINGLE POLICY YEAR 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 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-54
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 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-55 APPENDIX B ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES AND NET CASH VALUES The tables in Appendix B illustrate the way the Policies work, based on assumptions about investment returns and the insureds' characteristics. They show how the death benefit, net cash value and cash value could vary over an extended period of time assuming hypothetical gross rates of return (i.e., investment income and capital gains and losses, realized or unrealized) for the Variable Account equal to constant after tax annual rates of 0%, 6% and 10%. The tables are based on a face amount of $2,100,000 for a male and a female, both age 55. The insureds are assumed to be in the nonsmoker preferred underwriting class. The tables assume no rider benefits and assume that no allocations are made to the Fixed Account. Values are first given based on current mortality and other Policy charges and then based on guaranteed mortality and other Policy charges. (See "Charges".) Illustrations show the Option 2 death benefit. Policy values would be different (either higher or lower) from the illustrated amounts in certain circumstances. For example, illustrated amounts would be different where actual gross rates of return averaged 0%, 6% or 10%, but: (i) the rates of return varied above and below these averages during the period, (ii) premiums were paid in other amounts or at other than annual intervals, or (iii) cash values were allocated differently among individual sub- accounts with varying rates of return. They would also differ if a Policy loan or partial surrender were made during the period of time illustrated, if either or both insureds were in another risk classification, or if the Policies were issued at unisex rates. For example, as a result of variations in actual returns, additional premium payments beyond those illustrated may be necessary to maintain the Policy in force for the periods shown or to realize the Policy values shown, even if the average rate of return is achieved. The death benefits, net cash values and cash values shown in the tables reflect: (i) deductions from premiums for the sales charge and state and federal premium tax charge; and (ii) a Monthly Deduction (consisting of a Policy fee, a mortality and expense charge, an administrative charge, and a charge for the cost of insurance) from the cash value on the first day of each Policy month.(*) The net cash values reflect a Surrender Charge deducted from the cash value upon surrender, face reduction or lapse during the first 15 Policy years. (See "Charges".) The illustrations reflect an arithmetic average of the gross investment advisory fees and operating expenses of the Eligible Funds, at an annual rate of 0.69% of the average daily net assets of the Eligible Funds. This average does not reflect expense subsidies by the investment advisers of certain Eligible Funds. The gross rates of return used in the illustrations do not reflect the deductions of the charges and expenses of the Eligible Funds. Taking account of the average investment advisory fee and operating expenses of the Eligible Funds, the gross annual rates of return of 0%, 6% and 10% correspond to net investment experience at constant annual rates of -0.69%, 5.27% and 9.24%, respectively. If you request, we will furnish a personalized illustration reflecting the proposed insureds' ages, sex, underwriting classification, the death benefit option and the face amount or premium payment schedule requested. Because these and other assumptions will differ, the values shown in the personalized illustrations can differ very substantially from those shown in the tables. Therefore, you should carefully review the information that accompanies any personalized illustration. That information will disclose all the assumptions on which the personalized illustration is based. Where applicable, we will also furnish on request a personalized illustration for a Policy which is not affected by the sex of the insureds. You should contact your registered representative to request a personalized illustration. - ---------- (*) For Policies issued in New Jersey, the illustration in Appendix B based on guaranteed maximum charges contains values and benefits that are more favorable than those which would result based on the guaranteed Policy fee and guaranteed maximum basic monthly administrative charge for New Jersey Policies. Personalized illustrations based on guaranteed charges for Policies issued in New Jersey will use the guaranteed fees and charges applicable in New Jersey. A-56 MALE AND FEMALE BOTH ISSUE AGE 55 $22,315 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK $2,100,000 FACE AMOUNT OPTION 2 DEATH BENEFIT THIS ILLUSTRATION IS BASED ON CURRENT POLICY CHARGES.
DEATH BENEFIT NET CASH VALUE CASH VALUE ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL END OF RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF POLICY ---------------------------- --------------------------- --------------------------- YEAR 0% 6% 10% 0% 6% 10% 0% 6% 10% - ------ -- -- --- -- -- --- -- -- --- 1 2,100,000 2,100,000 2,100,000 0 0 0 13,126 13,976 14,543 2 2,100,000 2,100,000 2,100,000 11,633 14,369 16,249 29,660 32,396 34,276 3 2,100,000 2,100,000 2,100,000 29,015 34,688 38,709 45,655 51,328 55,349 4 2,100,000 2,100,000 2,100,000 47,024 56,736 63,840 62,278 71,989 79,093 5 2,100,000 2,100,000 2,100,000 64,380 79,279 90,529 78,247 93,146 104,396 6 2,100,000 2,100,000 2,100,000 81,235 102,487 119,058 93,715 114,967 131,538 7 2,100,000 2,100,000 2,100,000 99,332 128,161 151,371 110,426 139,254 162,465 8 2,100,000 2,100,000 2,100,000 117,129 154,849 186,203 126,836 164,556 195,910 9 2,100,000 2,100,000 2,100,000 134,620 182,584 223,751 142,940 190,904 232,071 10 2,100,000 2,100,000 2,100,000 151,797 211,402 264,230 158,730 218,335 271,163 15 2,100,000 2,100,000 2,100,000 242,407 386,849 537,323 242,407 386,849 537,323 20 2,100,000 2,100,000 2,100,000 315,560 594,168 937,222 315,560 594,168 937,222 25 2,100,000 2,100,000 2,100,000 363,674 838,858 1,536,108 363,674 838,858 1,536,108 30 2,100,000 2,100,000 2,572,819 345,750 1,106,827 2,450,304 345,750 1,106,827 2,450,304 35 2,100,000 2,100,000 4,022,943 189,323 1,391,451 3,831,374 189,323 1,391,451 3,831,374 40 2,100,000 5,978,961 1,727,394 5,919,763 1,727,394 5,919,763 45 2,234,429 9,107,817 2,234,429 9,107,817 2,234,429 9,107,817
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB- ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 10% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-57 MALE AND FEMALE BOTH ISSUE AGE 55 $22,315 ANNUAL PREMIUM FOR NON-SMOKER PREFERRED UNDERWRITING RISK $2,100,000 FACE AMOUNT OPTION 2 DEATH BENEFIT THIS ILLUSTRATION IS BASED ON GUARANTEED POLICY CHARGES.
DEATH BENEFIT NET CASH VALUE CASH VALUE ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL GROSS ANNUAL GROSS ANNUAL GROSS ANNUAL END OF RATE OF RETURN OF RATE OF RETURN OF RATE OF RETURN OF POLICY ---------------------------- ------------------------- ------------------------- YEAR 0% 6% 10% 0% 6% 10% 0% 6% 10% - ------ -- -- --- -- -- --- -- -- --- 1 2,100,000 2,100,000 2,100,000 0 0 0 13,126 13,976 14,543 2 2,100,000 2,100,000 2,100,000 11,633 14,369 16,249 29,660 32,396 34,276 3 2,100,000 2,100,000 2,100,000 29,015 34,688 38,709 45,655 51,328 55,349 4 2,100,000 2,100,000 2,100,000 47,024 56,736 63,840 62,278 71,989 79,093 5 2,100,000 2,100,000 2,100,000 64,380 79,279 90,529 78,247 93,146 104,396 6 2,100,000 2,100,000 2,100,000 81,014 102,261 118,829 93,494 114,741 131,309 7 2,100,000 2,100,000 2,100,000 96,841 125,607 148,781 107,934 136,700 159,875 8 2,100,000 2,100,000 2,100,000 111,742 149,206 180,402 121,449 158,912 190,108 9 2,100,000 2,100,000 2,100,000 125,560 172,901 213,669 133,880 181,221 221,989 10 2,100,000 2,100,000 2,100,000 138,100 196,499 248,534 145,033 203,432 255,467 15 2,100,000 2,100,000 2,100,000 183,098 318,025 461,890 183,098 318,025 461,890 20 2,100,000 2,100,000 2,100,000 138,789 383,589 705,592 138,789 383,589 705,592 25 2,100,000 2,100,000 266,082 940,053 266,082 940,053 30 2,100,000 1,073,318 1,073,318 35 2,100,000 740,485 740,485 40 45
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE INVESTMENT EXPERIENCE OF THE POLICY'S SUB- ACCOUNTS. THE DEATH BENEFIT, CASH VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 10% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-58 Additional information about the Policy and the Variable Account can be found in the Statement of Additional Information, which is available online at our website www.nef.com. You may also obtain a copy of the Statement of Additional Information, without charge, by calling 1-800-200-2214 or by e- mailing us at AskUs@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 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 100 F Street, NE, Washington, DC 20549-0102. File No. 811-3713 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Policy Owners of New England Variable Life Separate Account and the Board of Directors of New England Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the New England Variable Life Separate Account (the "Separate Account") of New England Life Insurance Company (the "Company") comprising each of the individual Sub- Accounts listed in Appendix A as of December 31, 2007, and the related statements of operations and changes in net assets for each of the periods in the three years then ended. We have also audited the statements of operations and changes in net assets for each of the periods presented in the three years ended December 31, 2007, for the individual Sub-Account listed in Appendix B. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Separate Account is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Separate Account's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2007, by correspondence with the custodian. 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 constituting the Separate Account of the Company as of December 31, 2007, the results of their operations and the changes in their net assets for each of the periods presented in the three years then ended, in conformity with accounting principles generally accepted in the United States of America. /S/ DELOITTE & TOUCHE LLP Certified Public Accountants Tampa, FL March 24, 2008 AA-1 APPENDIX A MSF Zenith Equity Sub-Account MSF BlackRock Bond Income Sub-Account MSF BlackRock Money Market Sub-Account MSF MFS Total Return Sub-Account MSF Harris Oakmark Focused Value Sub-Account MSF FI Value Leaders Sub-Account MSF Loomis Sayles Small Cap Sub-Account MSF Davis Venture Value Sub-Account MSF BlackRock Legacy Large Cap Growth Sub-Account MSF Western Asset Management U.S. Government Sub-Account MSF Western Asset Management Strategic Bond Opportunities Sub-Account MSF FI Mid Cap Opportunities Sub-Account MSF Jennison Growth Sub-Account MSF Russell 2000 Index Sub-Account MSF FI International Stock Sub-Account MSF BlackRock Strategic Value Sub-Account MSF MetLife Stock Index Sub-Account MSF Lehman Brothers Aggregate Bond Index Sub-Account MSF Morgan Stanley EAFE Index Sub-Account MSF MetLife Mid Cap Stock Index Sub-Account MSF Franklin Templeton Small Cap Growth Sub-Account MSF BlackRock Large Cap Value Sub-Account MSF Neuberger Berman Mid Cap Value Sub-Account MSF Harris Oakmark Large Cap Value Sub-Account MSF T. Rowe Price Large Cap Growth Sub-Account MSF T. Rowe Price Small Cap Growth Sub-Account MSF Oppenheimer Global Equity Sub-Account MSF BlackRock Aggressive Growth Sub-Account MSF BlackRock Diversified Sub-Account MSF MetLife Conservative Allocation Sub-Account MSF MetLife Conservative to Moderate Allocation Sub-Account MSF MetLife Moderate Allocation Sub-Account MSF MetLife Moderate to Aggressive Allocation Sub-Account MSF MetLife Aggressive Allocation Sub-Account MSF FI Large Cap Sub-Account American Funds Growth Sub-Account American Funds Growth-Income Sub-Account American Funds Global Small Capitalization Sub-Account American Funds Bond Sub-Account Fidelity VIP Equity-Income Sub-Account Fidelity VIP Overseas Sub-Account MIST T. Rowe Price Mid-Cap Growth Sub-Account MIST PIMCO Total Return Sub-Account MIST RCM Technology Sub-Account MIST Lazard Mid-Cap Sub-Account MIST Met/AIM Small Cap Growth Sub-Account MIST Harris Oakmark International Sub-Account MIST Legg Mason Partners Aggressive Growth Sub-Account MIST Neuberger Berman Real Estate Sub-Account MIST MFS Research International Sub-Account MIST Lord Abbett Bond Debenture Sub-Account MIST Oppenheimer Capital Appreciation Sub-Account MIST Cyclical Growth ETF Sub-Account MIST Cyclical Growth and Income ETF Sub-Account MIST PIMCO Inflation Protected Bond Sub-Account MIST Legg Mason Value Equity Sub-Account MIST BlackRock Large-Cap Core Sub-Account MIST Janus Forty Sub-Account AA-2 APPENDIX B MSF BlackRock Large Cap Sub-Account AA-3 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2007
MSF MSF BLACKROCK MSF BLACKROCK MSF MFS MSF HARRIS OAKMARK ZENITH EQUITY BOND INCOME MONEY MARKET TOTAL RETURN FOCUSED VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------ ------------- ------------ ------------------ ASSETS: Investments at fair value........ $690,594,069 $127,264,799 $262,494,738 $129,344,353 $158,598,792 Other receivables................ -- -- -- 641 -- Due from New England Life Insurance Company............. -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Total Assets................ 690,594,069 127,264,799 262,494,738 129,344,994 158,598,792 ------------ ------------ ------------ ------------ ------------ LIABILITIES: Other payables................... 1 8 -- -- 12 Due to New England Life Insurance Company....................... 2,284,739 643,419 913,293 913,026 716,282 ------------ ------------ ------------ ------------ ------------ Total Liabilities........... 2,284,740 643,427 913,293 913,026 716,294 ------------ ------------ ------------ ------------ ------------ NET ASSETS......................... $688,309,329 $126,621,372 $261,581,445 $128,431,968 $157,882,498 ============ ============ ============ ============ ============ MSF FI VALUE LEADERS SUB-ACCOUNT ------------- ASSETS: Investments at fair value........ $79,364,546 Other receivables................ -- Due from New England Life Insurance Company............. -- ----------- Total Assets................ 79,364,546 ----------- LIABILITIES: Other payables................... -- Due to New England Life Insurance Company....................... 444,623 ----------- Total Liabilities........... 444,623 ----------- NET ASSETS......................... $78,919,923 ===========
The accompanying notes are an integral part of these financial statements. AA-4
MSF WESTERN MSF WESTERN ASSET MSF LOOMIS SAYLES MSF DAVIS MSF BLACKROCK LEGACY ASSET MANAGEMENT MANAGEMENT STRATEGIC MSF FI MID CAP SMALL CAP VENTURE VALUE LARGE CAP GROWTH U.S. GOVERNMENT BOND OPPORTUNITIES OPPORTUNITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ------------- -------------------- ---------------- -------------------- -------------- $175,245,739 $384,998,705 $226,036,890 $8,641,838 $15,342,866 $33,999,805 -- 11 -- -- -- 2 -- -- -- -- -- -- ------------ ------------ ------------ ---------- ----------- ----------- 175,245,739 384,998,716 226,036,890 8,641,838 15,342,866 33,999,807 ------------ ------------ ------------ ---------- ----------- ----------- -- -- -- -- -- -- 817,512 1,832,089 1,253,369 86,505 189,450 253,976 ------------ ------------ ------------ ---------- ----------- ----------- 817,512 1,832,089 1,253,369 86,505 189,450 253,976 ------------ ------------ ------------ ---------- ----------- ----------- $174,428,227 $383,166,627 $224,783,521 $8,555,333 $15,153,416 $33,745,831 ============ ============ ============ ========== =========== =========== MSF FI MSF JENNISON MSF RUSSELL INTERNATIONAL GROWTH 2000 INDEX STOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ----------- ------------- $8,045,335 $27,290,053 $49,703,006 -- -- -- -- -- -- ---------- ----------- ----------- 8,045,335 27,290,053 49,703,006 ---------- ----------- ----------- -- -- 1 106,109 231,575 253,907 ---------- ----------- ----------- 106,109 231,575 253,908 ---------- ----------- ----------- $7,939,226 $27,058,478 $49,449,098 ========== =========== ===========
The accompanying notes are an integral part of these financial statements. AA-5 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2007
MSF MSF MSF BLACKROCK MSF METLIFE LEHMAN BROTHERS MORGAN STANLEY MSF METLIFE STRATEGIC VALUE STOCK INDEX AGGREGATE BOND INDEX EAFE INDEX MID CAP STOCK INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ------------ -------------------- -------------- ------------------- ASSETS: Investments at fair value.. $63,725,614 $222,829,425 $28,937,355 $22,317,061 $19,229,936 Other receivables.......... -- -- -- 1 -- Due from New England Life Insurance Company....... -- -- -- -- -- ----------- ------------ ----------- ----------- ----------- Total Assets.......... 63,725,614 222,829,425 28,937,355 22,317,062 19,229,936 ----------- ------------ ----------- ----------- ----------- LIABILITIES: Other payables............. 6 3 1 -- -- Due to New England Life Insurance Company....... 386,777 1,167,891 180,482 189,068 200,214 ----------- ------------ ----------- ----------- ----------- Total Liabilities..... 386,783 1,167,894 180,483 189,068 200,214 ----------- ------------ ----------- ----------- ----------- NET ASSETS................... $63,338,831 $221,661,531 $28,756,872 $22,127,994 $19,029,722 =========== ============ =========== =========== =========== MSF FRANKLIN TEMPLETON SMALL CAP GROWTH SUB-ACCOUNT ------------------ ASSETS: Investments at fair value.. $7,204,909 Other receivables.......... -- Due from New England Life Insurance Company....... -- ---------- Total Assets.......... 7,204,909 ---------- LIABILITIES: Other payables............. -- Due to New England Life Insurance Company....... 130,650 ---------- Total Liabilities..... 130,650 ---------- NET ASSETS................... $7,074,259 ==========
The accompanying notes are an integral part of these financial statements. AA-6
MSF MSF MSF MSF MSF MSF BLACKROCK NEUBERGER BERMAN HARRIS OAKMARK T. ROWE PRICE T. ROWE PRICE OPPENHEIMER LARGE CAP VALUE MID CAP VALUE LARGE CAP VALUE LARGE CAP GROWTH SMALL CAP GROWTH GLOBAL EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ---------------- --------------- ---------------- ---------------- ------------- $12,047,592 $39,946,741 $12,428,637 $8,056,199 $4,302,777 $6,587,487 -- -- -- -- -- -- -- -- -- -- -- -- ----------- ----------- ----------- ---------- ---------- ---------- 12,047,592 39,946,741 12,428,637 8,056,199 4,302,777 6,587,487 ----------- ----------- ----------- ---------- ---------- ---------- -- 5 -- -- -- -- 128,173 229,393 129,946 108,030 77,428 204,096 ----------- ----------- ----------- ---------- ---------- ---------- 128,173 229,398 129,946 108,030 77,428 204,096 ----------- ----------- ----------- ---------- ---------- ---------- $11,919,419 $39,717,343 $12,298,691 $7,948,169 $4,225,349 $6,383,391 =========== =========== =========== ========== ========== ========== MSF MSF METLIFE MSF BLACKROCK BLACKROCK CONSERVATIVE AGGRESSIVE GROWTH DIVERSIFIED ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------- ------------ $2,301,682 $3,627,258 $2,075,961 -- -- -- -- -- -- ---------- ---------- ---------- 2,301,682 3,627,258 2,075,961 ---------- ---------- ---------- -- -- -- 68,454 79,152 62,338 ---------- ---------- ---------- 68,454 79,152 62,338 ---------- ---------- ---------- $2,233,228 $3,548,106 $2,013,623 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. AA-7 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2007
MSF METLIFE MSF METLIFE MODERATE TO CONSERVATIVE TO MSF METLIFE AGGRESSIVE MSF METLIFE MSF FI MODERATE ALLOCATION MODERATE ALLOCATION ALLOCATION AGGRESSIVE ALLOCATION LARGE CAP SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------- ------------------- ----------- --------------------- ----------- ASSETS: Investments at fair value... $3,348,667 $29,647,292 $40,760,271 $7,250,945 $226,159 Other receivables........... -- -- -- -- -- Due from New England Life Insurance Company........ -- -- -- -- -- ---------- ----------- ----------- ---------- -------- Total Assets........... 3,348,667 29,647,292 40,760,271 7,250,945 226,159 ---------- ----------- ----------- ---------- -------- LIABILITIES: Other payables.............. -- -- -- -- -- Due to New England Life Insurance Company........ 69,462 455,206 291,735 119,901 7,663 ---------- ----------- ----------- ---------- -------- Total Liabilities...... 69,462 455,206 291,735 119,901 7,663 ---------- ----------- ----------- ---------- -------- NET ASSETS.................... $3,279,205 $29,192,086 $40,468,536 $7,131,044 $218,496 ========== =========== =========== ========== ======== AMERICAN FUNDS GROWTH SUB-ACCOUNT -------------- ASSETS: Investments at fair value... $236,869,518 Other receivables........... -- Due from New England Life Insurance Company........ -- ------------ Total Assets........... 236,869,518 ------------ LIABILITIES: Other payables.............. 7 Due to New England Life Insurance Company........ 1,047,422 ------------ Total Liabilities...... 1,047,429 ------------ NET ASSETS.................... $235,822,089 ============
The accompanying notes are an integral part of these financial statements. AA-8
AMERICAN FUNDS AMERICAN FUNDS AMERICAN FUNDS FIDELITY VIP FIDELITY VIP MIST T. ROWE PRICE GROWTH-INCOME GLOBAL SMALL CAPITALIZATION BOND EQUITY-INCOME OVERSEAS MID-CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------- --------------------------- -------------- ------------- ------------ ------------------ $132,552,953 $88,458,567 $9,928,326 $161,393,068 $157,387,257 $25,371,265 -- -- -- -- 1 -- -- -- -- -- -- -- ------------ ----------- ---------- ------------ ------------ ----------- 132,552,953 88,458,567 9,928,326 161,393,068 157,387,258 25,371,265 ------------ ----------- ---------- ------------ ------------ ----------- 4 4 -- 1 -- 644 581,017 501,563 121,877 687,251 625,550 176,313 ------------ ----------- ---------- ------------ ------------ ----------- 581,021 501,567 121,877 687,252 625,550 176,957 ------------ ----------- ---------- ------------ ------------ ----------- $131,971,932 $87,957,000 $9,806,449 $160,705,816 $156,761,708 $25,194,308 ============ =========== ========== ============ ============ =========== MIST PIMCO MIST RCM MIST LAZARD TOTAL RETURN TECHNOLOGY MID-CAP SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ----------- ----------- $58,649,638 $6,030,767 $8,630,036 -- 1 -- -- -- 5,101 ----------- ---------- ---------- 58,649,638 6,030,768 8,635,137 ----------- ---------- ---------- 1 -- -- 290,062 102,504 104,664 ----------- ---------- ---------- 290,063 102,504 104,664 ----------- ---------- ---------- $58,359,575 $5,928,264 $8,530,473 =========== ========== ==========
The accompanying notes are an integral part of these financial statements. AA-9 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES -- (CONCLUDED) DECEMBER 31, 2007
MIST MIST LEGG MASON MIST MIST MFS MIST MET/AIM HARRIS OAKMARK PARTNERS NEUBERGER BERMAN RESEARCH SMALL CAP GROWTH INTERNATIONAL AGGRESSIVE GROWTH REAL ESTATE INTERNATIONAL SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- -------------- ----------------- ---------------- ------------- ASSETS: Investments at fair value..... $5,236,185 $55,351,392 $2,879,136 $23,811,123 $22,252,742 Other receivables............. -- -- -- -- -- Due from New England Life Insurance Company.......... -- -- -- -- -- ---------- ----------- ---------- ----------- ----------- Total Assets............. 5,236,185 55,351,392 2,879,136 23,811,123 22,252,742 ---------- ----------- ---------- ----------- ----------- LIABILITIES: Other payables................ 2 2 -- -- -- Due to New England Life Insurance Company.......... 96,972 292,650 68,226 232,975 167,951 ---------- ----------- ---------- ----------- ----------- Total Liabilities........ 96,974 292,652 68,226 232,975 167,951 ---------- ----------- ---------- ----------- ----------- NET ASSETS...................... $5,139,211 $55,058,740 $2,810,910 $23,578,148 $22,084,791 ========== =========== ========== =========== =========== MIST LORD ABBETT BOND DEBENTURE SUB-ACCOUNT -------------- ASSETS: Investments at fair value..... $39,634,716 Other receivables............. -- Due from New England Life Insurance Company.......... -- ----------- Total Assets............. 39,634,716 ----------- LIABILITIES: Other payables................ -- Due to New England Life Insurance Company.......... 273,886 ----------- Total Liabilities........ 273,886 ----------- NET ASSETS...................... $39,360,830 ===========
The accompanying notes are an integral part of these financial statements. AA-10
MIST OPPENHEIMER MIST CYCLICAL MIST CYCLICAL MIST PIMCO MIST LEGG MASON MIST BLACKROCK CAPITAL APPRECIATION GROWTH ETF GROWTH AND INCOME ETF INFLATION PROTECTED BOND VALUE EQUITY LARGE-CAP CORE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------- ------------- --------------------- ------------------------ --------------- -------------- $929,814 $855,470 $554,985 $1,603,711 $15,270,450 $2,121,728 -- -- -- -- 452 -- -- -- -- -- -- -- -------- -------- -------- ---------- ----------- ---------- 929,814 855,470 554,985 1,603,711 15,270,902 2,121,728 -------- -------- -------- ---------- ----------- ---------- -- -- -- -- -- 453 29,664 38,264 14,848 23,837 138,816 61,864 -------- -------- -------- ---------- ----------- ---------- 29,664 38,264 14,848 23,837 138,816 62,317 -------- -------- -------- ---------- ----------- ---------- $900,150 $817,206 $540,137 $1,579,874 $15,132,086 $2,059,411 ======== ======== ======== ========== =========== ========== MIST JANUS FORTY SUB-ACCOUNT ----------- $4,390,017 -- -- ---------- 4,390,017 ---------- -- 33,266 ---------- 33,266 ---------- $4,356,751 ==========
The accompanying notes are an integral part of these financial statements. AA-11 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF ZENITH MSF BLACKROCK BOND EQUITY INCOME SUB-ACCOUNT SUB-ACCOUNT --------------------------------------- -------------------------------------- 2007 2006 2005 2007 2006 2005 ----------- ----------- ----------- ---------- ----------- ----------- INVESTMENT INCOME: Dividends............................... $ 5,502,763 $ 3,979,926 $ 6,876,189 $4,328,987 $ 7,710,876 $ 5,631,818 ----------- ----------- ----------- ---------- ----------- ----------- EXPENSES: Mortality and expense risk charges...... 4,386,637 4,467,612 4,495,973 679,178 717,365 772,945 Administrative charges.................. -- -- ----------- ----------- ----------- ---------- ----------- ----------- Total expenses..................... 4,386,637 4,467,612 4,495,973 679,178 717,365 772,945 ----------- ----------- ----------- ---------- ----------- ----------- Net investment income (loss)............ 1,116,126 (487,686) 2,380,216 3,649,809 6,993,511 4,858,873 ----------- ----------- ----------- ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions............. -- -- -- -- 131,914 1,627,107 Realized gains (losses) on sale of investments.......................... 9,513,829 3,349,559 (5,379,155) 127,546 (13,781) 996,410 ----------- ----------- ----------- ---------- ----------- ----------- Net realized gains (losses)........ 9,513,829 3,349,559 (5,379,155) 127,546 118,133 2,623,517 ----------- ----------- ----------- ---------- ----------- ----------- Change in unrealized gains (losses) on investments.......................... 23,411,344 51,317,310 70,211,420 3,398,540 (2,014,842) (4,913,177) ----------- ----------- ----------- ---------- ----------- ----------- Net realized and unrealized gains (losses) on investments.............. 32,925,173 54,666,869 64,832,265 3,526,086 (1,896,709) (2,289,660) ----------- ----------- ----------- ---------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ $34,041,299 $54,179,183 $67,212,481 $7,175,895 $ 5,096,802 $ 2,569,213 =========== =========== =========== ========== =========== ===========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-12
MSF BLACKROCK MSF MFS MSF HARRIS OAKMARK MONEY MARKET TOTAL RETURN FOCUSED VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------------- --------------------------------------- -------------------------- 2007 2006 2005 2007 2006 2005 2007 2006 ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- $10,093,362 $4,241,081 $2,504,875 $ 2,950,145 $ 4,709,688 $ 2,316,436 $ 1,048,730 $ 582,752 ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- 427,655 409,635 414,735 754,803 744,613 769,066 950,782 1,000,013 -- -- -- ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- 427,655 409,635 414,735 754,803 744,613 769,066 950,782 1,000,013 ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- 9,665,707 3,831,446 2,090,140 2,195,342 3,965,075 1,547,370 97,948 (417,261) ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- -- -- -- 4,463,515 2,946,345 1,468,852 23,124,324 17,981,050 -- -- -- 1,902,142 (1,226,278) (5,994,499) 8,964,547 10,486,064 ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- -- -- -- 6,365,657 1,720,067 (4,525,647) 32,088,871 28,467,114 ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- -- -- -- (3,417,410) 8,705,063 6,226,980 (44,475,207) (6,779,768) ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- -- -- -- 2,948,247 10,425,130 1,701,333 (12,386,336) 21,687,346 ----------- ---------- ---------- ----------- ----------- ----------- ------------ ----------- $ 9,665,707 $3,831,446 $2,090,140 $ 5,143,589 $14,390,205 $ 3,248,703 $(12,288,388) $21,270,085 =========== ========== ========== =========== =========== =========== ============ =========== MSF HARRIS OAKMARK FOCUSED VALUE SUB-ACCOUNT ----------- 2005 ----------- $ 81,262 ----------- 1,028,292 ----------- 1,028,292 ----------- (947,030) ----------- 1,952,508 10,028,942 ----------- 11,981,450 ----------- 5,681,945 ----------- 17,663,395 ----------- $16,716,365 ===========
The accompanying notes are an integral part of these financial statements. AA-13 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF FI VALUE MSF LOOMIS SAYLES LEADERS SMALL CAP SUB-ACCOUNT SUB-ACCOUNT --------------------------------------- --------------------------------------- 2007 2006 2005 2007 2006 2005 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends............................... $ 809,095 $ 958,429 $ 928,280 $ 146,606 $ -- $ -- ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Mortality and expense risk charges...... 548,087 557,966 531,868 1,052,120 1,011,861 942,436 Administrative charges.................. -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Total expenses..................... 548,087 557,966 531,868 1,052,120 1,011,861 942,436 ----------- ----------- ----------- ----------- ----------- ----------- Net investment income (loss)............ 261,008 400,463 396,412 (905,514) (1,011,861) (942,436) ----------- ----------- ----------- ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions............. 7,659,831 2,213,565 -- 20,142,285 14,538,332 1,892,004 Realized gains (losses) on sale of investments.......................... 584,957 (1,027,480) (2,000,300) 3,068,217 2,674,592 7,354,968 ----------- ----------- ----------- ----------- ----------- ----------- Net realized gains (losses)........ 8,244,788 1,186,085 (2,000,300) 23,210,502 17,212,924 9,246,972 ----------- ----------- ----------- ----------- ----------- ----------- Change in unrealized gains (losses) on investments.......................... (5,423,442) 7,503,062 9,329,675 (3,427,252) 8,523,003 1,095,808 ----------- ----------- ----------- ----------- ----------- ----------- Net realized and unrealized gains (losses) on investments.............. 2,821,346 8,689,147 7,329,375 19,783,250 25,735,927 10,342,780 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ $ 3,082,354 $ 9,089,610 $ 7,725,787 $18,877,736 $24,724,066 $ 9,400,344 =========== =========== =========== =========== =========== ===========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-14
MSF DAVIS VENTURE MSF BLACKROCK LEGACY MSF WESTERN ASSET MANAGEMENT VALUE LARGE CAP GROWTH U.S. GOVERNMENT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - -------------------------------------- ----------------------------------------- -------------------------------- 2007 2006 2005 2007 2006 2005 2007 2005 2006 - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- $ 3,162,666 $ 3,079,024 $ 2,385,741 $ 431,640 $ 259,843 $ 927,385 $ 180,075 $ 217,962 $ 52,739 - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- 2,172,613 2,091,326 2,023,092 1,322,272 1,306,165 1,349,395 48,445 52,571 12,987 -- -- -- -- -- -- -- -- -- - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- 2,172,613 2,091,326 2,023,092 1,322,272 1,306,165 1,349,395 48,445 52,571 12,987 - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- 990,053 987,698 362,649 (890,632) (1,046,322) (422,010) 131,630 165,391 39,752 - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- -- -- -- -- -- -- -- -- 71,945 9,218,751 4,885,353 4,781,824 (5,770,805) (12,779,112) (14,537,569) 548,137 (135,837) 474 - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- 9,218,751 4,885,353 4,781,824 (5,770,805) (12,779,112) (14,537,569) 548,137 (135,837) 72,419 - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- 5,528,444 43,007,635 26,829,481 42,663,606 21,093,144 28,235,221 (163,639) 403,509 (63,876) - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- 14,747,195 47,892,988 31,611,305 36,892,801 8,314,032 13,697,652 384,498 267,672 8,543 - ----------- ----------- ----------- ----------- ------------ ------------ --------- --------- -------- $15,737,248 $48,880,686 $31,973,954 $36,002,169 $ 7,267,710 $ 13,275,642 $ 516,128 $ 433,063 $ 48,295 =========== =========== =========== =========== ============ ============ ========= ========= ========
The accompanying notes are an integral part of these financial statements. AA-15 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF WESTERN ASSET MANAGEMENT MSF FI MID CAP STRATEGIC BOND OPPORTUNITIES OPPORTUNITIES SUB-ACCOUNT SUB-ACCOUNT ------------------------------- ------------------------------------ 2007 2006 2005 2007 2006 2005 -------- -------- --------- ---------- ---------- ---------- INVESTMENT INCOME: Dividends................................... $410,391 $625,265 $ 157,099 $ 45,446 $ 1,790 $ -- -------- -------- --------- ---------- ---------- ---------- EXPENSES: Mortality and expense risk charges.......... 62,240 50,309 26,433 181,049 174,002 176,847 Administrative charges...................... -- -- -- -- -------- -------- --------- ---------- ---------- ---------- Total expenses........................... 62,240 50,309 26,433 181,049 174,002 176,847 -------- -------- --------- ---------- ---------- ---------- Net investment income (loss)................ 348,151 574,956 130,666 (135,603) (172,212) (176,847) -------- -------- --------- ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions................. 14,151 99,652 96,910 -- -- -- Realized gains (losses) on sale of investments.............................. (87,287) (87,814) 129,189 2,127,224 1,255,273 (428,954) -------- -------- --------- ---------- ---------- ---------- Net realized gains (losses).............. (73,136) 11,838 226,099 2,127,224 1,255,273 (428,954) -------- -------- --------- ---------- ---------- ---------- Change in unrealized gains (losses) on investments.............................. 253,652 8,968 (186,816) 529,109 2,418,061 2,538,292 -------- -------- --------- ---------- ---------- ---------- Net realized and unrealized gains (losses) on investments........................... 180,516 20,806 39,283 2,656,333 3,673,334 2,109,338 -------- -------- --------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations................ $528,667 $595,762 $ 169,949 $2,520,730 $3,501,122 $1,932,491 ======== ======== ========= ========== ========== ==========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-16
MSF JENNISON MSF RUSSELL 2000 MSF FI INTERNATIONAL GROWTH INDEX STOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------- ------------------------------------- ------------------------------------- 2007 2006 2005(A) 2007 2006 2005 2007 2006 2005 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- $ 33,839 $ -- $ -- $ 268,946 $ 230,031 $ 180,042 $ 544,110 $ 729,587 $ 280,738 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- 34,144 35,207 23,580 128,128 127,671 116,225 264,117 260,392 246,068 -- -- -- -- -- -- -- -- - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- 34,144 35,207 23,580 128,128 127,671 116,225 264,117 260,392 246,068 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- (305) (35,207) (23,580) 140,818 102,360 63,817 279,993 469,195 34,670 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- 283,769 6,968 -- 2,200,968 1,065,026 881,529 2,643,262 -- -- 315,524 343,593 113,996 1,226,017 2,295,212 1,047,635 2,972,805 3,142,765 60,812 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- 599,293 350,561 113,996 3,426,985 3,360,238 1,929,164 5,616,067 3,142,765 60,812 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- 241,138 (97,967) 1,346,139 (4,104,853) 760,311 (920,521) (1,169,019) 3,874,760 7,358,868 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- 840,431 252,594 1,460,135 (677,868) 4,120,549 1,008,643 4,447,048 7,017,525 7,419,680 - -------- -------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- $840,126 $217,387 $1,436,555 $ (537,050) $4,222,909 $1,072,460 $ 4,727,041 $7,486,720 $7,454,350 ======== ======== ========== =========== ========== ========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements. AA-17 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF BLACKROCK MSF METLIFE STRATEGIC VALUE STOCK INDEX SUB-ACCOUNT SUB-ACCOUNT ---------------------------------------- -------------------------------------- 2007 2006 2005 2007 2006 2005 ------------ ----------- ----------- ----------- ----------- ---------- INVESTMENT INCOME: Dividends............................... $ 220,789 $ 224,665 $ -- $ 2,398,288 $ 4,372,870 $3,421,268 ------------ ----------- ----------- ----------- ----------- ---------- EXPENSES: Mortality and expense risk charges...... 325,408 335,248 350,929 1,332,854 1,289,082 1,270,350 Administrative charges.................. -- -- -- -- -- -- ------------ ----------- ----------- ----------- ----------- ---------- Total expenses....................... 325,408 335,248 350,929 1,332,854 1,289,082 1,270,350 ------------ ----------- ----------- ----------- ----------- ---------- Net investment income (loss)............ (104,619) (110,583) (350,929) 1,065,434 3,083,788 2,150,918 ------------ ----------- ----------- ----------- ----------- ---------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions............. 8,479,929 13,284,231 4,835,969 4,661,979 7,462,193 -- Realized gains (losses) on sale of investments.......................... 4,161,467 1,764,431 2,738,291 3,177,430 685,540 (869,033) ------------ ----------- ----------- ----------- ----------- ---------- Net realized gains (losses).......... 12,641,396 15,048,662 7,574,260 7,839,409 8,147,733 (869,033) ------------ ----------- ----------- ----------- ----------- ---------- Change in unrealized gains (losses) on investments.......................... (15,003,565) (4,163,723) (4,669,915) 1,523,885 19,171,837 6,994,271 ------------ ----------- ----------- ----------- ----------- ---------- Net realized and unrealized gains (losses) on investments.............. (2,362,169) 10,884,939 2,904,345 9,363,294 27,319,570 6,125,238 ------------ ----------- ----------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............ $ (2,466,788) $10,774,356 $ 2,553,416 $10,428,728 $30,403,358 $8,276,156 ============ =========== =========== =========== =========== ==========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-18
MSF LEHMAN BROTHERS MSF MORGAN STANLEY MSF METLIFE AGGREGATE BOND INDEX EAFE INDEX MID CAP STOCK INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------------------------------- ------------------------------------ ------------------------------------ 2007 2006 2005 2007 2006 2005 2007 2006 2005 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $1,404,882 $1,293,549 $1,157,616 $ 410,461 $ 265,198 $ 179,280 $ 145,663 $ 192,747 $ 91,207 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 95,544 95,979 103,536 77,728 59,709 45,771 72,303 61,078 52,899 -- -- -- -- -- -- -- -- -- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 95,544 95,979 103,536 77,728 59,709 45,771 72,303 61,078 52,899 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1,309,338 1,197,570 1,054,080 332,733 205,489 133,509 73,360 131,669 38,308 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -- -- -- 218,913 -- -- 780,511 1,093,970 667,929 (421,410) (259,014) 8,478 1,209,367 885,145 820,065 656,349 1,024,828 662,040 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (421,410) (259,014) 8,478 1,428,280 885,145 820,065 1,436,860 2,118,798 1,329,969 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 905,709 151,885 (564,840) 230,293 2,461,504 569,205 (229,825) (744,231) 184,066 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 484,299 (107,129) (556,362) 1,658,573 3,346,649 1,389,270 1,207,035 1,374,567 1,514,035 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $1,793,637 $1,090,441 $ 497,718 $1,991,306 $3,552,138 $1,522,779 $1,280,395 $1,506,236 $1,552,343 ========== ========== ========== ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. AA-19 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF FRANKLIN TEMPLETON MSF BLACKROCK SMALL CAP GROWTH LARGE CAP SUB-ACCOUNT SUB-ACCOUNT -------------------------------- ------------------------------- 2007 2006 2005 2007(B) 2006 2005 --------- -------- --------- --------- -------- -------- INVESTMENT INCOME: Dividends.................................... $ -- $ -- $ -- $ 29,085 $ 22,762 $ 15,079 --------- -------- --------- --------- -------- -------- EXPENSES: Mortality and expense risk charges........... 26,810 28,720 27,835 1,428 4,287 3,792 Administrative charges....................... -- -- -- -- -- -- --------- -------- --------- --------- -------- -------- Total expenses............................ 26,810 28,720 27,835 1,428 4,287 3,792 --------- -------- --------- --------- -------- -------- Net investment income (loss)................. (26,810) (28,720) (27,835) 27,657 18,475 11,287 --------- -------- --------- --------- -------- -------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions.................. 510,107 349,716 214,727 -- -- -- Realized gains (losses) on sale of investments............................... 304,907 374,033 375,574 367,439 96,820 91,015 --------- -------- --------- --------- -------- -------- Net realized gains (losses)............... 815,014 723,749 590,301 367,439 96,820 91,015 --------- -------- --------- --------- -------- -------- Change in unrealized gains (losses) on investments............................... (481,667) (40,740) (268,460) (295,910) 114,020 (52,412) --------- -------- --------- --------- -------- -------- Net realized and unrealized gains (losses) on investments............................... 333,347 683,009 321,841 71,529 210,840 38,603 --------- -------- --------- --------- -------- -------- Net increase (decrease) in net assets resulting from operations................. $ 306,537 $654,289 $ 294,006 $ 99,186 $229,315 $ 49,890 ========= ======== ========= ========= ======== ========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-20
MSF BLACKROCK MSF NEUBERGER BERMAN MSF HARRIS OAKMARK LARGE CAP VALUE MID CAP VALUE LARGE CAP VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - -------------------------------- ------------------------------------- ------------------------------------ 2007 2006 2005 2007 2006 2005 2007 2006 2005 - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- $ 101,926 $ 80,958 $ 42,131 $ 223,989 $ 180,406 $ 67,355 $ 107,958 $ 103,127 $ 83,913 - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- 36,677 21,578 17,673 186,043 178,822 132,620 48,197 52,868 56,910 -- -- -- -- -- -- -- -- -- - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- 36,677 21,578 17,673 186,043 178,822 132,620 48,197 52,868 56,910 - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- 65,249 59,380 24,458 37,946 1,584 (65,265) 59,761 50,259 27,003 - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- 387,606 396,606 45,372 1,205,537 3,259,000 1,934,364 377,407 -- -- 359,624 148,622 148,397 1,141,912 1,396,123 708,334 458,712 704,802 486,957 - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- 747,230 545,228 193,769 2,347,449 4,655,123 2,642,698 836,119 704,802 486,957 - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- (599,618) 598,642 54,281 (1,353,621) (908,234) 476,829 (1,411,253) 1,401,637 (644,749) - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- 147,612 1,143,870 248,050 993,828 3,746,889 3,119,527 (575,134) 2,106,439 (157,792) - --------- ---------- -------- ----------- ---------- ---------- ----------- ---------- --------- $ 212,861 $1,203,250 $272,508 $ 1,031,774 $3,748,473 $3,054,262 $ (515,373) $2,156,698 $(130,789) ========= ========== ======== =========== ========== ========== =========== ========== =========
The accompanying notes are an integral part of these financial statements. AA-21 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF T. ROWE PRICE MSF T. ROWE PRICE LARGE CAP GROWTH SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ 2007 2006 2005 2007 2006 2005 -------- -------- -------- -------- -------- -------- INVESTMENT INCOME: Dividends..................................... $ 30,054 $ 23,618 $ 22,907 $ -- $ -- $ -- -------- -------- -------- -------- -------- -------- EXPENSES: Mortality and expense risk charges............ 32,838 18,139 4,385 18,437 13,378 2,744 Administrative charges........................ -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Total expenses............................. 32,838 18,139 4,385 18,437 13,378 2,744 -------- -------- -------- -------- -------- -------- Net investment income (loss).................. (2,784) 5,479 18,522 (18,437) (13,378) (2,744) -------- -------- -------- -------- -------- -------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions................... 59,691 -- -- -- -- -- Realized gains (losses) on sale of investments................................ 282,606 414,265 52,379 153,641 148,598 35,555 -------- -------- -------- -------- -------- -------- Net realized gains (losses)................ 342,297 414,265 52,379 153,641 148,598 35,555 -------- -------- -------- -------- -------- -------- Change in unrealized gains (losses) on investments................................ 220,924 274,201 401,931 266,932 (69,411) 111,744 -------- -------- -------- -------- -------- -------- Net realized and unrealized gains (losses) on investments................................ 563,221 688,466 454,310 420,573 79,187 147,299 -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations.................. $560,437 $693,945 $472,832 $402,136 $ 65,809 $144,555 ======== ======== ======== ======== ======== ========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-22
MSF OPPENHEIMER MSF BLACKROCK MSF BLACKROCK GLOBAL EQUITY AGGRESSIVE GROWTH DIVERSIFIED SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------------------------- ---------------------------- ------------------------------ 2007 2006 2005 2007 2006 2005 2007 2006 2005 - -------- -------- -------- -------- ------- ------- -------- -------- -------- $ 67,589 $ 92,861 $ 4,794 $ -- $ -- $ -- $ 80,791 $ 75,836 $ 23,386 - -------- -------- -------- -------- ------- ------- -------- -------- -------- 24,863 16,758 3,627 6,542 4,379 1,689 10,216 10,705 6,411 -- -- -- -- -- -- -- -- -- - -------- -------- -------- -------- ------- ------- -------- -------- -------- 24,863 16,758 3,627 6,542 4,379 1,689 10,216 10,705 6,411 - -------- -------- -------- -------- ------- ------- -------- -------- -------- 42,726 76,103 1,167 (6,542) (4,379) (1,689) 70,575 65,131 16,975 - -------- -------- -------- -------- ------- ------- -------- -------- -------- 88,174 71,767 -- -- -- -- -- -- -- 266,756 148,433 14,077 83,010 53,157 29,202 122,433 32,548 42,119 - -------- -------- -------- -------- ------- ------- -------- -------- -------- 354,930 220,200 14,077 83,010 53,157 29,202 122,433 32,548 42,119 - -------- -------- -------- -------- ------- ------- -------- -------- -------- (64,091) 302,557 177,774 210,386 13,209 29,347 (15,315) 223,263 41,409 - -------- -------- -------- -------- ------- ------- -------- -------- -------- 290,839 522,757 191,851 293,396 66,366 58,549 107,118 255,811 83,528 - -------- -------- -------- -------- ------- ------- -------- -------- -------- $333,565 $598,860 $193,018 $286,854 $61,987 $56,860 $177,693 $320,942 $100,503 ======== ======== ======== ======== ======= ======= ======== ======== ========
The accompanying notes are an integral part of these financial statements. AA-23 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF METLIFE MSF METLIFE CONSERVATIVE CONSERVATIVE ALLOCATION TO MODERATE ALLOCATION SUB-ACCOUNT SUB-ACCOUNT ---------------------------- ---------------------------- 2007 2006 2005(A) 2007 2006 2005(A) -------- ------- ------- -------- ------- ------- INVESTMENT INCOME: Dividends....................................... $ -- $15,353 $1,666 $ -- $ 7,682 $ 921 -------- ------- ------ -------- ------- ------ EXPENSES: Mortality and expense risk charges.............. 7,484 1,896 574 6,272 1,020 189 Administrative charges.......................... -- -- -- -- -- -- -------- ------- ------ -------- ------- ------ Total expenses............................... 7,484 1,896 574 6,272 1,020 189 -------- ------- ------ -------- ------- ------ Net investment income (loss).................... (7,484) 13,457 1,092 (6,272) 6,662 732 -------- ------- ------ -------- ------- ------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions..................... 837 5,892 441 4,518 5,267 45 Realized gains (losses) on sale of investments.. 79,400 1,663 35 93,567 (1,515) 1,590 -------- ------- ------ -------- ------- ------ Net realized gains (losses).................. 80,237 7,555 476 98,085 3,752 1,635 -------- ------- ------ -------- ------- ------ Change in unrealized gains (losses) on investments.................................. 26,176 23,520 4,828 42,349 37,322 1,955 -------- ------- ------ -------- ------- ------ Net realized and unrealized gains (losses) on investments.................................. 106,413 31,075 5,304 140,434 41,074 3,590 -------- ------- ------ -------- ------- ------ Net increase (decrease) in net assets resulting from operations.............................. $ 98,929 $44,532 $6,396 $134,162 $47,736 $4,322 ======== ======= ====== ======== ======= ======
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-24
MSF METLIFE MSF METLIFE MODERATE TO AGGRESSIVE MSF METLIFE MODERATE ALLOCATION ALLOCATION AGGRESSIVE ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------ ------------------------------- ----------------------------- 2007 2006 2005(A) 2007 2006 2005(A) 2007 2006 2005(A) - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- $ 46,442 $ 193,892 $15,189 $ 69,019 $ 105,754 $10,881 $ 15,959 $ 11,554 $ 1,511 - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- 55,629 22,851 2,590 92,683 33,391 2,174 23,833 6,252 350 -- -- -- -- -- -- -- -- -- - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- 55,629 22,851 2,590 92,683 33,391 2,174 23,833 6,252 350 - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- (9,187) 171,041 12,599 (23,664) 72,363 8,707 (7,874) 5,302 1,161 - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- 32,152 271,127 337 39,440 269,137 253 10,196 48,490 1,142 340,089 68,899 1,188 600,792 97,892 4,220 107,011 19,663 1,271 - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- 372,241 340,026 1,525 640,232 367,029 4,473 117,207 68,153 2,413 - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- 434,465 763,970 80,069 110,236 1,414,416 59,638 (66,432) 190,262 12,700 - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- 806,706 1,103,996 81,594 750,468 1,781,445 64,111 50,775 258,415 15,113 - -------- ---------- ------- -------- ---------- ------- -------- -------- ------- $797,519 $1,275,037 $94,193 $726,804 $1,853,808 $72,818 $ 42,901 $263,717 $16,274 ======== ========== ======= ======== ========== ======= ======== ======== =======
The accompanying notes are an integral part of these financial statements. AA-25 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF FI LARGE CAP AMERICAN FUNDS GROWTH SUB-ACCOUNT SUB-ACCOUNT ----------------- --------------------------------------- 2007 2006(C) 2007 2006 2005 ------- ------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends........................................ $ 201 $ -- $ 1,808,360 $ 1,615,103 $ 1,155,350 ------- ------ ----------- ----------- ----------- EXPENSES: Mortality and expense risk charges............... 450 14 931,420 840,501 725,394 Administrative charges........................... -- -- -- -- -- ------- ------ ----------- ----------- ----------- Total expenses................................ 450 14 931,420 840,501 725,394 ------- ------ ----------- ----------- ----------- Net investment income (loss)..................... (249) (14) 876,940 774,602 429,956 ------- ------ ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions...................... 8,351 -- 15,721,386 1,235,025 -- Realized gains (losses) on sale of investments... (1,581) 3 13,121,698 5,192,349 2,405,771 ------- ------ ----------- ----------- ----------- Net realized gains (losses)................... 6,770 3 28,843,084 6,427,374 2,405,771 ------- ------ ----------- ----------- ----------- Change in unrealized gains (losses) on investments................................... (2,362) 1,229 (4,084,594) 11,430,058 21,506,036 ------- ------ ----------- ----------- ----------- Net realized and unrealized gains (losses) on Investments................................... 4,408 1,232 24,758,490 17,857,432 23,911,807 ------- ------ ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............................... $ 4,159 $1,218 $25,635,430 $18,632,034 $24,341,763 ======= ====== =========== =========== ===========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-26
AMERICAN FUNDS AMERICAN FUNDS GROWTH-INCOME GLOBAL SMALL CAPITALIZATION AMERICAN FUNDS BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------- -------------------------------------- ------------------- 2007 2006 2005 2007 2006 2005 2007 2006(C) - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- $ 2,024,719 $ 1,767,133 $1,310,673 $ 2,390,291 $ 265,030 $ 346,171 $ 602,879 $ 5,629 - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- 467,907 423,392 407,832 352,106 262,581 174,725 29,462 4,908 -- -- -- -- -- -- -- -- - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- 467,907 423,392 407,832 352,106 262,581 174,725 29,462 4,908 - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- 1,556,812 1,343,741 902,841 2,038,185 2,449 171,446 573,417 721 - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- 4,240,718 2,556,084 387,210 6,097,376 2,961,958 -- -- -- 4,528,995 4,285,244 1,956,707 4,426,929 2,972,183 2,045,188 35,969 (45) - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- 8,769,713 6,841,328 2,343,917 10,524,305 5,934,141 2,045,188 35,969 (45) - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- (4,583,687) 7,262,226 2,102,684 1,634,253 6,069,880 6,281,497 (437,728) 90,784 - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- 4,186,026 14,103,554 4,446,601 12,158,558 12,004,021 8,326,685 (401,759) 90,739 - ----------- ----------- ---------- ----------- ----------- ---------- --------- ------- $ 5,742,838 $15,447,295 $5,349,442 $14,196,743 $12,006,470 $8,498,131 $ 171,658 $91,460 =========== =========== ========== =========== =========== ========== ========= =======
The accompanying notes are an integral part of these financial statements. AA-27 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
FIDELITY VIP EQUITY-INCOME FIDELITY VIP OVERSEAS SUB-ACCOUNT SUB-ACCOUNT ---------------------------------------- --------------------------------------- 2007 2006 2005 2007 2006 2005 ------------ ----------- ----------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends.............................. $ 3,064,817 $ 5,504,500 $ 2,594,848 $ 5,111,389 $ 1,245,648 $ 817,432 ------------ ----------- ----------- ----------- ----------- ----------- EXPENSES: Mortality and expense risk charges..... 1,045,345 988,690 968,260 918,741 857,135 756,839 Administrative charges................. -- -- ------------ ----------- ----------- ----------- ----------- ----------- Total expenses...................... 1,045,345 988,690 968,260 918,741 857,135 756,839 ------------ ----------- ----------- ----------- ----------- ----------- Net investment income (loss)........... 2,019,472 4,515,810 1,626,588 4,192,648 388,513 60,593 ------------ ----------- ----------- ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions............ 13,515,291 19,947,649 5,702,259 10,137,255 865,959 639,729 Realized gains (losses) on sale of investments......................... 2,864,369 3,302,552 4,169,368 220,654 (2,696,039) 976,472 ------------ ----------- ----------- ----------- ----------- ----------- Net realized gains (losses)......... 16,379,660 23,250,201 9,871,627 10,357,909 (1,830,080) 1,616,201 ------------ ----------- ----------- ----------- ----------- ----------- Change in unrealized gains (losses) on investments......................... (16,083,412) 1,879,953 (3,446,973) 8,937,231 24,309,349 19,836,609 ------------ ----------- ----------- ----------- ----------- ----------- Net realized and unrealized gains (losses) on investments............. 296,248 25,130,154 6,424,654 19,295,140 22,479,269 21,452,810 ------------ ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations........... $ 2,315,720 $29,645,964 $ 8,051,242 $23,487,788 $22,867,782 $21,513,403 ============ =========== =========== =========== =========== ===========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-28
MIST T. ROWE PRICE MIST PIMCO MID-CAP GROWTH TOTAL RETURN MIST RCM TECHNOLOGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------------------------------- ----------------------------------- -------------------------------- 2007 2006 2005 2007 2006 2005 2007 2006 2005 - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- $ 54,866 $ -- $ -- $1,944,178 $1,199,023 $ 22,275 $ -- $ -- $ -- - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- 101,197 87,596 66,861 203,511 188,799 158,792 18,206 14,830 15,761 -- -- -- - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- 101,197 87,596 66,861 203,511 188,799 158,792 18,206 14,830 15,761 - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- (46,331) (87,596) (66,861) 1,740,667 1,010,224 (136,517) (18,206) (14,830) (15,761) - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- 1,046,424 660,383 368,914 -- 17,702 263,932 151,685 -- 25,657 1,737,033 638,410 607,665 35,653 4,333 148,971 502,076 28,396 (70,742) - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- 2,783,457 1,298,793 976,579 35,653 22,035 412,903 653,761 28,396 (45,085) - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- 895,981 (53,103) 1,202,380 2,098,892 1,194,931 477,776 595,431 157,821 409,427 - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- 3,679,438 1,245,690 2,178,959 2,134,545 1,216,966 890,679 1,249,192 186,217 364,342 - ---------- ---------- ---------- ---------- ---------- --------- ---------- -------- -------- $3,633,107 $1,158,094 $2,112,098 $3,875,212 $2,227,190 $ 754,162 $1,230,986 $171,387 $348,581 ========== ========== ========== ========== ========== ========= ========== ======== ========
The accompanying notes are an integral part of these financial statements. AA-29 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MIST LAZARD MIST MET/AIM MID-CAP SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT ---------------------------------- -------------------------------- 2007 2006 2005 2007 2006 2005 ----------- -------- --------- -------- --------- --------- INVESTMENT INCOME: Dividends................................... $ 57,415 $ 32,928 $ 21,353 $ -- $ -- $ -- ----------- -------- --------- -------- --------- --------- EXPENSES: Mortality and expense risk charges.......... 41,294 28,902 28,093 19,748 19,305 18,759 Administrative charges...................... -- -- -- -- ----------- -------- --------- -------- --------- --------- Total expenses........................... 41,294 28,902 28,093 19,748 19,305 18,759 ----------- -------- --------- -------- --------- --------- Net investment income (loss)................ 16,121 4,026 (6,740) (19,748) (19,305) (18,759) ----------- -------- --------- -------- --------- --------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions................. 786,878 723,389 644,873 69,016 561,530 77,549 Realized gains (losses) on sale of investments.............................. 35,802 42,786 230,324 268,048 213,397 337,036 ----------- -------- --------- -------- --------- --------- Net realized gains (losses).............. 822,680 766,175 875,197 337,064 774,927 414,585 ----------- -------- --------- -------- --------- --------- Change in unrealized gains (losses) on investments.............................. (1,252,571) 60,580 (443,804) 171,391 (225,798) (114,128) ----------- -------- --------- -------- --------- --------- Net realized and unrealized gains (losses) on investments........................... (429,891) 826,755 431,393 508,455 549,129 300,457 ----------- -------- --------- -------- --------- --------- Net increase (decrease) in net assets resulting from operations................ $ (413,770) $830,781 $ 424,653 $488,707 $ 529,824 $ 281,698 =========== ======== ========= ======== ========= =========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-30
MIST HARRIS OAKMARK MIST LEGG MASON PARTNERS MIST NEUBERGER BERMAN INTERNATIONAL AGGRESSIVE GROWTH REAL ESTATE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------ -------------------------------- ------------------------------------- 2007 2006 2005 2007 2006 2005 2007 2006 2005 - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- $ 536,334 $ 963,939 $ 31,624 $ 6,982 $ -- $ -- $ 303,897 $ 187,018 $ -- - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- 245,138 163,035 90,152 13,291 15,055 15,219 115,932 79,737 34,808 -- -- -- -- -- -- - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- 245,138 163,035 90,152 13,291 15,055 15,219 115,932 79,737 34,808 - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- 291,196 800,904 (58,528) (6,309) (15,055) (15,219) 187,965 107,281 (34,808) - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- 4,601,954 2,406,268 329,543 284,333 203,518 3,598 2,435,217 888,402 12,751 3,272,828 1,074,798 592,237 41,658 284,271 316,472 1,183,037 832,878 201,804 - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- 7,874,782 3,481,066 921,780 325,991 487,789 320,070 3,618,254 1,721,280 214,555 - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- (9,052,128) 5,394,065 2,041,888 (250,410) (542,275) 137,586 (8,438,976) 3,634,132 847,791 - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- (1,177,346) 8,875,131 2,963,668 75,581 (54,486) 457,656 (4,820,722) 5,355,412 1,062,346 - ----------- ---------- ---------- --------- --------- -------- ----------- ---------- ---------- $ (886,150) $9,676,035 $2,905,140 $ 69,272 $ (69,541) $442,437 $(4,632,757) $5,462,693 $1,027,538 =========== ========== ========== ========= ========= ======== =========== ========== ==========
The accompanying notes are an integral part of these financial statements. AA-31 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF OPERATIONS -- (CONCLUDED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MIST MFS RESEARCH MIST LORD ABBETT BOND INTERNATIONAL DEBENTURE SUB-ACCOUNT SUB-ACCOUNT ---------------------------------- ------------------------------------- 2007 2006 2005 2007 2006 2005 ---------- ---------- -------- ---------- ---------- ----------- INVESTMENT INCOME: Dividends.................................. $ 254,062 $ 114,246 $ 21,042 $2,071,611 $2,392,153 $ 1,551,512 ---------- ---------- -------- ---------- ---------- ----------- EXPENSES: Mortality and expense risk charges......... 76,591 33,607 6,112 172,086 138,690 118,297 Administrative charges..................... -- -- -- -- -- ---------- ---------- -------- ---------- ---------- ----------- Total expenses.......................... 76,591 33,607 6,112 172,086 138,690 118,297 ---------- ---------- -------- ---------- ---------- ----------- Net investment income (loss)............... 177,471 80,639 14,930 1,899,525 2,253,463 1,433,215 ---------- ---------- -------- ---------- ---------- ----------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Realized gain distributions................ 2,475,350 449,149 179,824 47,775 -- 2,207,072 Realized gains (losses) on sale of investments............................. 76,075 461,623 52,795 194,210 (42,854) 338,350 ---------- ---------- -------- ---------- ---------- ----------- Net realized gains (losses)............. 2,551,425 910,772 232,619 241,985 (42,854) 2,545,422 ---------- ---------- -------- ---------- ---------- ----------- Change in unrealized gains (losses) on investments............................. (534,417) 533,798 232,397 237,120 840,461 (3,442,079) ---------- ---------- -------- ---------- ---------- ----------- Net realized and unrealized gains (losses) on investments.......................... 2,017,008 1,444,570 465,016 479,105 797,607 (896,657) ---------- ---------- -------- ---------- ---------- ----------- Net increase (decrease) in net assets resulting from operations............... $2,194,479 $1,525,209 $479,946 $2,378,630 $3,051,070 $ 536,558 ========== ========== ======== ========== ========== ===========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-32
MIST CYCLICAL MIST PIMCO MIST OPPENHEIMER MIST CYCLICAL GROWTH AND INFLATION MIST LEGG MASON CAPITAL APPRECIATION GROWTH ETF INCOME ETF PROTECTED BOND VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------------- ----------------- ---------------- ----------------- ------------------------ 2007 2006 2005(A) 2007 2006(C) 2007 2006(C) 2007 2006(C) 2007 2006(C) -------- ------- ------- ------- ------- ------ ------- ------- ------- ----------- ---------- $ 569 $ 670 $ 100 $ -- $ 958 $ 1 $518 $ 6,107 $ -- $ 571 $ 24,458 -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- 2,466 1,113 166 2,198 54 402 1 1,990 304 90,453 59,974 -- -- -- -- -- -- -- -- -- -- -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- 2,466 1,113 166 2,198 54 402 1 1,990 304 90,453 59,974 -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- (1,897) (443) (66) (2,198) 904 (401) 517 4,117 (304) (89,882) (35,516) -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- 25,435 1,527 1,429 -- 200 16 -- -- -- 19,247 324,347 38,860 1,008 205 5,211 30 2,297 57 6,584 3,457 165,623 (1,762) -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- 64,295 2,535 1,634 5,211 230 2,313 57 6,584 3,457 184,870 322,585 -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- (22,990) 16,452 276 12,959 663 3,249 261 60,630 (646) (1,096,137) 915,746 -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- 41,305 18,987 1,910 18,170 893 5,562 318 67,214 2,811 (911,267) 1,238,331 -------- ------- ------ ------- ------ ------ ---- ------- ------ ----------- ---------- $ 39,408 $18,544 $1,844 $15,972 $1,797 $5,161 $835 $71,331 $2,507 $(1,001,149) $1,202,815 ======== ======= ====== ======= ====== ====== ==== ======= ====== =========== ========== MIST BLACKROCK LARGE-CAP CORE MIST JANUS FORTY SUB-ACCOUNT SUB-ACCOUNT -------------- ---------------- 2007(D) 2007(D) -------------- ---------------- $ -- $ -- ------- -------- 2,290 5,703 -- -- ------- -------- 2,290 5,703 ------- -------- (2,290) (5,703) ------- -------- -- -- 1,835 32,447 ------- -------- 1,835 32,447 ------- -------- 17,789 325,311 ------- -------- 19,624 357,758 ------- -------- $17,334 $352,055 ======= ========
The accompanying notes are an integral part of these financial statements. AA-33 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF ZENITH MSF BLACKROCK EQUITY BOND INCOME SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------ ------------------------------------------ 2007 2006 2005 2007 2006 2005 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss)......... $ 1,116,126 $ (487,686) $ 2,380,216 $ 3,649,809 $ 6,993,511 $ 4,858,873 Net realized gains (losses).......... 9,513,829 3,349,559 (5,379,155) 127,546 118,133 2,623,517 Change in unrealized gains (losses) on investments.................... 23,411,344 51,317,310 70,211,420 3,398,540 (2,014,842) (4,913,177) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations...................... 34,041,299 54,179,183 67,212,481 7,175,895 5,096,802 2,569,213 ------------ ------------ ------------ ------------ ------------ ------------ POLICY TRANSACTIONS: Premium payments received from policy owners............................ 48,982,296 57,108,890 65,714,595 13,102,069 15,774,530 19,391,114 Net transfers (including fixed account).......................... (16,648,229) (13,281,803) (25,730,819) (3,553,929) (1,868,717) (3,904,856) Policy charges....................... (28,682,505) (32,125,034) (35,597,542) (8,076,177) (8,943,481) (9,748,943) Transfers for policy benefits and terminations...................... (83,441,462) (92,360,514) (79,421,692) (17,053,383) (11,632,711) (14,362,312) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policy transactions.................... (79,789,900) (80,658,461) (75,035,458) (15,581,420) (6,670,379) (8,624,997) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets............................ (45,748,601) (26,479,278) (7,822,977) (8,405,525) (1,573,577) (6,055,784) NET ASSETS: Beginning of period.................. 734,057,930 760,537,208 768,360,185 135,026,897 136,600,474 142,656,258 ------------ ------------ ------------ ------------ ------------ ------------ End of period........................ $688,309,329 $734,057,930 $760,537,208 $126,621,372 $135,026,897 $136,600,474 ============ ============ ============ ============ ============ ============
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-34
MSF HARRIS OAKMARK MSF BLACKROCK MSF MFS FOCUSED MONEY MARKET TOTAL RETURN VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------------------------- ------------------------------------------ ------------ 2007 2006 2005 2007 2006 2005 2007 ------------ ------------- ------------ ------------ ------------ ------------ ------------ $ 9,665,707 $ 3,831,446 $ 2,090,140 $ 2,195,342 $ 3,965,075 $ 1,547,370 $ 97,948 -- -- -- 6,365,657 1,720,067 (4,525,647) 32,088,871 -- -- -- (3,417,410) 8,705,063 6,226,980 (44,475,207) ------------ ------------- ------------ ------------ ------------ ------------ ------------ 9,665,707 3,831,446 2,090,140 5,143,589 14,390,205 3,248,703 (12,288,388) ------------ ------------- ------------ ------------ ------------ ------------ ------------ 98,073,424 135,699,752 107,472,471 12,200,489 13,733,135 15,024,558 17,550,825 93,437,588 (100,453,140) (63,053,463) (2,098,624) 294,564 385,064 (9,114,711) (9,650,087) (10,769,926) (11,021,637) (9,076,745) (9,257,656) (9,466,492) (10,337,802) (28,514,588) (21,985,731) (34,342,941) (12,959,163) (13,537,678) (10,812,487) (21,517,389) ------------ ------------- ------------ ------------ ------------ ------------ ------------ 153,346,337 2,490,955 (945,570) (11,934,043) (8,767,635) (4,869,357) (23,419,077) ------------ ------------- ------------ ------------ ------------ ------------ ------------ 163,012,044 6,322,401 1,144,570 (6,790,454) 5,622,570 (1,620,654) (35,707,465) 98,569,401 92,247,000 91,102,430 135,222,422 129,599,852 131,220,506 193,589,963 ------------ ------------- ------------ ------------ ------------ ------------ ------------ $261,581,445 $ 98,569,401 $ 92,247,000 $128,431,968 $135,222,422 $129,599,852 $157,882,498 ============ ============= ============ ============ ============ ============ ============ MSF HARRIS OAKMARK FOCUSED VALUE SUB-ACCOUNT --------------------------- 2006 2005 ------------ ------------ $ (417,261) $ (947,030) 28,467,114 11,981,450 (6,779,768) 5,681,945 ------------ ------------ 21,270,085 16,716,365 ------------ ------------ 20,240,462 22,603,533 (6,984,833) (1,228,394) (11,758,335) (11,941,873) (20,553,354) (17,247,580) ------------ ------------ (19,056,060) (7,814,314) ------------ ------------ 2,214,025 8,902,051 191,375,938 182,473,887 ------------ ------------ $193,589,963 $191,375,938 ============ ============
The accompanying notes are an integral part of these financial statements. AA-35 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF FI MSF LOOMIS VALUE LEADERS SAYLES SMALL CAP SUB-ACCOUNT SUB-ACCOUNT ---------------------------------------- ------------------------------------------ 2007 2006 2005 2007 2006 2005 ------------ ----------- ----------- ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss).......... $ 261,008 $ 400,463 $ 396,412 $ (905,514) $ (1,011,861) $ (942,436) Net realized gains (losses)........... 8,244,788 1,186,085 (2,000,300) 23,210,502 17,212,924 9,246,972 Change in unrealized gains (losses) on investments........................ (5,423,442) 7,503,062 9,329,675 (3,427,252) 8,523,003 1,095,808 ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations....................... 3,082,354 9,089,610 7,725,787 18,877,736 24,724,066 9,400,344 ------------ ----------- ----------- ------------ ------------ ------------ POLICY TRANSACTIONS: Premium payments received from policy owners............................. 7,145,787 8,012,599 8,896,771 14,774,231 15,721,567 17,455,776 Net transfers (including fixed account)........................... (3,058,805) (1,419,862) (1,898,427) (1,641,025) 1,490,346 (2,197,482) Policy charges........................ (4,894,875) (5,258,146) (5,533,622) (9,578,386) (10,054,115) (9,873,297) Transfers for policy benefits and terminations....................... (10,114,059) (7,262,710) (6,281,616) (19,552,476) (17,447,756) (15,390,121) ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policy transactions..................... (10,921,952) (5,928,119) (4,816,894) (15,997,656) (10,289,958) (10,005,124) ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets............................. (7,839,598) 3,161,491 2,908,893 2,880,080 14,434,108 (604,780) NET ASSETS: Beginning of period................... 86,759,521 83,598,030 80,689,137 171,548,147 157,114,039 157,718,819 ------------ ----------- ----------- ------------ ------------ ------------ End of period......................... $ 78,919,923 $86,759,521 $83,598,030 $174,428,227 $171,548,147 $157,114,039 ============ =========== =========== ============ ============ ============
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-36
MSF WESTERN ASSET MANAGEMENT MSF DAVIS MSF BLACKROCK U.S. VENTURE VALUE LEGACY LARGE CAP GROWTH GOVERNMENT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------- ------------------------------------------ ------------ 2007 2006 2005 2007 2006 2005 2007 ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 990,053 $ 987,698 $ 362,649 $ (890,632) $ (1,046,322) $ (422,010) $ 131,630 9,218,751 4,885,353 4,781,824 (5,770,805) (12,779,112) (14,537,569) 548,137 5,528,444 43,007,635 26,829,481 42,663,606 21,093,144 28,235,221 (163,639) ------------ ------------ ------------ ------------ ------------ ------------ ------------ 15,737,248 48,880,686 31,973,954 36,002,169 7,267,710 13,275,642 516,128 ------------ ------------ ------------ ------------ ------------ ------------ ------------ 38,544,386 41,433,594 45,304,294 23,107,132 27,126,878 32,017,760 974,535 (162,183) 6,972,882 4,723,509 (8,990,395) (8,238,569) (11,651,043) (13,642,180) (24,032,496) (25,071,853) (24,730,783) (13,964,343) (15,188,080) (16,836,570) (1,071,721) (38,349,034) (37,940,542) (35,703,171) (21,903,233) (23,004,299) (23,077,763) (1,333,311) ------------ ------------ ------------ ------------ ------------ ------------ ------------ (23,999,327) (14,605,919) (10,406,151) (21,750,839) (19,304,070) (19,547,616) (15,072,677) ------------ ------------ ------------ ------------ ------------ ------------ ------------ (8,262,079) 34,274,767 21,567,803 14,251,330 (12,036,360) (6,271,974) (14,556,549) 391,428,706 357,153,939 335,586,136 210,532,191 222,568,551 228,840,525 23,111,882 ------------ ------------ ------------ ------------ ------------ ------------ ------------ $383,166,627 $391,428,706 $357,153,939 $224,783,521 $210,532,191 $222,568,551 $ 8,555,333 ============ ============ ============ ============ ============ ============ ============ MSF WESTERN ASSET MANAGEMENT U.S. GOVERNMENT SUB-ACCOUNT ------------------------ 2006 2005 ----------- ---------- $ 165,391 $ 39,752 (135,837) 72,419 403,509 (63,876) ----------- ---------- 433,063 48,295 ----------- ---------- 933,314 602,814 18,232,860 3,928,870 (164,432) (4,874) (2,311,899) (102,069) ----------- ---------- 16,689,843 4,424,741 ----------- ---------- 17,122,906 4,473,036 5,988,976 1,515,940 ----------- ---------- $23,111,882 $5,988,976 =========== ==========
The accompanying notes are an integral part of these financial statements. AA-37 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF WESTERN ASSET MANAGEMENT STRATEGIC BOND MSF WESTERN ASSET OPPORTUNITIES MSF FI MID CAP OPPORTUNITIES SUB-ACCOUNT SUB-ACCOUNT -------------------------------------- --------------------------------------- 2007 2006 2005 2007 2006 2005 ----------- ----------- ---------- ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss)............ $ 348,151 $ 574,956 $ 130,666 $ (135,603) $ (172,212) $ (176,847) Net realized gains (losses)............. (73,136) 11,838 226,099 2,127,224 1,255,273 (428,954) Change in unrealized gains (losses) on investments.......................... 253,652 8,968 (186,816) 529,109 2,418,061 2,538,292 ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations.......... 528,667 595,762 169,949 2,520,730 3,501,122 1,932,491 ----------- ----------- ---------- ----------- ----------- ----------- POLICY TRANSACTIONS: Premium payments received from policy owners............................... 1,691,871 1,722,200 944,706 3,742,012 4,265,472 5,352,651 Net transfers (including fixed account)............................. 722,589 3,997,084 4,983,850 (151,503) (437,405) (2,329,977) Policy charges.......................... (408,643) (1,072,703) (479,569) (2,393,294) (2,619,758) (2,693,904) Transfers for policy benefits and terminations......................... (1,376,844) (759,525) 9,081 (2,973,113) (3,616,353) (3,827,741) ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from policy transactions....................... 628,973 3,887,056 5,458,068 (1,775,898) (2,408,044) (3,498,971) ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets... 1,157,640 4,482,818 5,628,017 744,832 1,093,078 (1,566,480) NET ASSETS: Beginning of period..................... 13,995,776 9,512,958 3,884,941 33,000,999 31,907,921 33,474,401 ----------- ----------- ---------- ----------- ----------- ----------- End of period........................... $15,153,416 $13,995,776 $9,512,958 $33,745,831 $33,000,999 $31,907,921 =========== =========== ========== =========== =========== ===========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-38
MSF MSF MSF JENNISON GROWTH RUSSELL 2000 INDEX FI INTERNATIONAL STOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------- --------------------------------------- --------------------------------------- 2007 2006 2005(A) 2007 2006 2005 2007 2006 2005 - ---------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- $ (305) $ (35,207) $ (23,580) $ 140,818 $ 102,360 $ 63,817 $ 279,993 $ 469,195 $ 34,670 599,293 350,561 113,996 3,426,985 3,360,238 1,929,164 5,616,067 3,142,765 60,812 241,138 (97,967) 1,346,139 (4,104,853) 760,311 (920,521) (1,169,019) 3,874,760 7,358,868 - ---------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- 840,126 217,387 1,436,555 (537,050) 4,222,909 1,072,460 4,727,041 7,486,720 7,454,350 - ---------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- 865,331 1,205,068 740,436 2,914,771 3,263,779 3,248,510 4,627,887 5,276,401 5,882,164 (467,007) (243,649) 6,853,835 1,280,693 (398,409) 1,826,402 (1,272,836) (3,243,602) 2,376,896 (541,759) (602,502) (550,017) (1,512,998) (1,717,841) (1,509,360) (3,100,038) (3,329,491) (2,981,336) (501,709) (933,241) (379,628) (2,543,374) (2,667,653) (1,452,015) (4,854,339) (5,184,592) (4,541,012) - ---------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- (645,144) (574,324) 6,664,626 139,092 (1,520,124) 2,113,537 (4,599,326) (6,481,284) 736,712 - ---------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- 194,982 (356,937) 8,101,181 (397,958) 2,702,785 3,185,997 127,715 1,005,436 8,191,062 7,744,244 8,101,181 -- 27,456,436 24,753,651 21,567,654 49,321,383 48,315,947 40,124,885 - ---------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- $7,939,226 $7,744,244 $8,101,181 $27,058,478 $27,456,436 $24,753,651 $49,449,098 $49,321,383 $48,315,947 ========== ========== ========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. AA-39 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF BLACKROCK MSF METLIFE STRATEGIC VALUE STOCK INDEX SUB-ACCOUNT SUB-ACCOUNT ---------------------------------------- ------------------------------------------ 2007 2006 2005 2007 2006 2005 ------------ ----------- ----------- ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss).......... $ (104,619) $ (110,583) $ (350,929) $ 1,065,434 $ 3,083,788 $ 2,150,918 Net realized gains (losses)........... 12,641,396 15,048,662 7,574,260 7,839,409 8,147,733 (869,033) Change in unrealized gains (losses) on investments........................ (15,003,565) (4,163,723) (4,669,915) 1,523,885 19,171,837 6,994,271 ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations....................... (2,466,788) 10,774,356 2,553,416 10,428,728 30,403,358 8,276,156 ------------ ----------- ----------- ------------ ------------ ------------ POLICY TRANSACTIONS: Premium payments received from policy owners............................. 8,567,884 10,016,371 11,576,525 20,897,752 23,555,006 27,860,084 Net transfers (including fixed account)........................... (3,731,864) (3,240,644) (3,111,264) (4,565,682) (3,618,267) (4,751,511) Policy charges........................ (4,997,622) (5,788,899) (5,579,438) (13,965,424) (14,837,987) (15,678,503) Transfers for policy benefits and terminations....................... (7,850,922) (8,180,388) (8,620,790) (20,215,741) (19,805,380) (17,547,024) ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policy transactions..................... (8,012,524) (7,193,560) (5,734,967) (17,849,095) (14,706,628) (10,116,954) ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets............................. (10,479,312) 3,580,796 (3,181,551) (7,420,367) 15,696,730 (1,840,798) NET ASSETS: Beginning of period................... 73,818,143 70,237,347 73,418,898 229,081,898 213,385,168 215,225,966 ------------ ----------- ----------- ------------ ------------ ------------ End of period......................... $ 63,338,831 $73,818,143 $70,237,347 $221,661,531 $229,081,898 $213,385,168 ============ =========== =========== ============ ============ ============
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-40
MSF LEHMAN BROTHERS MSF MORGAN MSF METLIFE AGGREGATE BOND INDEX STANLEY EAFE INDEX MID CAP STOCK INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------------------------- --------------------------------------- ------------------------- 2007 2006 2005 2007 2006 2005 2007 2006 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 1,309,338 $ 1,197,570 $ 1,054,080 $ 332,733 $ 205,489 $ 133,509 $ 73,360 $ 131,669 (421,410) (259,014) 8,478 1,428,280 885,145 820,065 1,436,860 2,118,798 905,709 151,885 (564,840) 230,293 2,461,504 569,205 (229,825) (744,231) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1,793,637 1,090,441 497,718 1,991,306 3,552,138 1,522,779 1,280,395 1,506,236 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 3,938,931 4,465,814 6,120,007 2,012,947 1,903,791 1,624,296 2,140,824 2,077,311 641,064 (736,557) (39,963) 2,764,130 1,415,021 1,865,320 1,204,876 2,156,257 (2,109,596) (2,347,755) (2,228,461) (1,142,690) (976,720) (664,273) (1,225,103) (1,175,219) (5,505,909) (2,306,877) (2,879,600) (1,502,625) (1,159,728) (885,158) (1,439,724) (1,573,397) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (3,035,510) (925,375) 971,983 2,131,762 1,182,364 1,940,185 680,873 1,484,952 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1,241,873) 165,066 1,469,701 4,123,068 4,734,502 3,462,964 1,961,268 2,991,188 29,998,745 29,833,679 28,363,978 18,004,926 13,270,424 9,807,460 17,068,454 14,077,266 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $28,756,872 $29,998,745 $29,833,679 $22,127,994 $18,004,926 $13,270,424 $19,029,722 $17,068,454 =========== =========== =========== =========== =========== =========== =========== =========== MSF METLIFE MID CAP STOCK INDEX SUB-ACCOUNT ----------- 2005 ----------- $ 38,308 1,329,969 184,066 ----------- 1,552,343 ----------- 1,958,858 1,698,120 (991,538) (878,765) ----------- 1,786,675 ----------- 3,339,018 10,738,248 ----------- $14,077,266 ===========
The accompanying notes are an integral part of these financial statements. AA-41 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF FRANKLIN TEMPLETON MSF BLACKROCK SMALL CAP GROWTH LARGE CAP SUB-ACCOUNT SUB-ACCOUNT ------------------------------------ ------------------------------------- 2007 2006 2005 2007(B) 2006 2005 ---------- ---------- ---------- ----------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss).............. $ (26,810) $ (28,720) $ (27,835) $ 27,657 $ 18,475 $ 11,287 Net realized gains (losses)............... 815,014 723,749 590,301 367,439 96,820 91,015 Change in unrealized gains (losses) on investments............................ (481,667) (40,740) (268,460) (295,910) 114,020 (52,412) ---------- ---------- ---------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 306,537 654,289 294,006 99,186 229,315 49,890 ---------- ---------- ---------- ----------- ---------- ---------- POLICY TRANSACTIONS: Premium payments received from policy owners................................. 1,137,927 1,163,086 1,317,725 104,653 347,915 410,498 Net transfers (including fixed account)... (427,712) 122,806 (24,152) (1,923,687) (129,734) 122,361 Policy charges............................ (581,918) (629,100) 214,577 25,366 (183,772) (351,343) Transfers for policy benefits and terminations........................... (664,298) (726,827) (477,703) (82,524) (100,042) (98,451) ---------- ---------- ---------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from policy transactions... (536,001) (70,035) 1,030,447 (1,876,192) (65,633) 83,065 ---------- ---------- ---------- ----------- ---------- ---------- Net increase (decrease) in net assets..... (229,464) 584,254 1,324,453 (1,777,006) 163,682 132,955 NET ASSETS: Beginning of period....................... 7,303,723 6,719,469 5,395,016 1,777,006 1,613,324 1,480,369 ---------- ---------- ---------- ----------- ---------- ---------- End of period............................. $7,074,259 $7,303,723 $6,719,469 $ -- $1,777,006 $1,613,324 ========== ========== ========== =========== ========== ==========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-42
MSF BLACKROCK MSF NEUBERGER BERMAN MSF HARRIS OAKMARK LARGE CAP VALUE MID CAP VALUE LARGE CAP VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------------------- --------------------------------------- ------------------------- 2007 2006 2005 2007 2006 2005 2007 2006 ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- $ 65,249 $ 59,380 $ 24,458 $ 37,946 $ 1,584 $ (65,265) $ 59,761 $ 50,259 747,230 545,228 193,769 2,347,449 4,655,123 2,642,698 836,119 704,802 598,642 (599,618) -- 54,281 (1,353,621) (908,234) 476,829 (1,411,253) 1,401,637 ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 212,861 1,203,250 272,508 1,031,774 3,748,473 3,054,262 (515,373) 2,156,698 ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 1,736,308 1,273,493 1,223,191 4,765,700 4,959,891 4,126,831 2,470,688 2,614,196 2,790,302 2,264,706 828,737 1,352,841 3,313,258 10,234,605 (807,292) (1,914,435) (809,970) (625,912) (358,712) (2,475,494) (2,429,912) (1,703,492) (1,178,992) (1,198,384) (849,408) (502,152) (493,392) (3,301,385) (4,191,370) (1,518,068) (1,286,132) (1,371,089) ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 2,867,232 2,410,135 1,199,824 341,662 1,651,867 11,139,876 (801,728) (1,869,712) ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- 3,080,093 3,613,385 1,472,332 1,373,436 5,400,340 14,194,138 (1,317,101) 286,986 8,839,326 5,225,941 3,753,609 38,343,907 32,943,567 18,749,429 13,615,792 13,328,806 ----------- ---------- ---------- ----------- ----------- ----------- ----------- ----------- $11,919,419 $8,839,326 $5,225,941 $39,717,343 $38,343,907 $32,943,567 $12,298,691 $13,615,792 =========== ========== ========== =========== =========== =========== =========== =========== MSF HARRIS OAKMARK LARGE CAP VALUE SUB-ACCOUNT ----------- 2005 ----------- $ 27,003 486,957 (644,749) ----------- (130,789) ----------- 2,755,662 3,367,458 (919,919) (1,260,031) ----------- 3,943,170 ----------- 3,812,381 9,516,425 ----------- $13,328,806 ===========
The accompanying notes are an integral part of these financial statements. AA-43 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF T. ROWE PRICE MSF T. ROWE PRICE LARGE CAP GROWTH SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT ------------------------------------- ------------------------------------ 2007 2006 2005 2007 2006 2005 ---------- ----------- ---------- ---------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss).............. $ (2,784) $ 5,479 $ 18,522 $ (18,437) $ (13,378) $ (2,744) Net realized gains (losses)............... 342,297 414,265 52,379 153,641 148,598 35,555 Change in unrealized gains (losses) on investments............................ 220,924 274,201 401,931 266,932 (69,411) 111,744 ---------- ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 560,437 693,945 472,832 402,136 65,809 144,555 ---------- ----------- ---------- ---------- ---------- ---------- POLICY TRANSACTIONS: Premium payments received from policy owners................................. 1,012,052 816,331 591,192 452,880 482,945 192,959 Net transfers (including fixed account)... 1,717,618 (1,166,712) 4,452,406 (2,941) 2,061,128 1,433,966 Policy charges............................ (442,333) (349,606) (212,943) (269,262) (235,627) (69,022) Transfers for policy benefits and terminations........................... (604,435) (354,454) (4,707) (486,114) (494,459) 30,285 ---------- ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from policy transactions... 1,682,902 (1,054,441) 4,825,948 (305,437) 1,813,987 1,588,188 ---------- ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets..... 2,243,339 (360,496) 5,298,780 96,699 1,879,796 1,732,743 NET ASSETS: Beginning of period....................... 5,704,830 6,065,326 766,546 4,128,650 2,248,854 516,111 ---------- ----------- ---------- ---------- ---------- ---------- End of period............................. $7,948,169 $ 5,704,830 $6,065,326 $4,225,349 $4,128,650 $2,248,854 ========== =========== ========== ========== ========== ==========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-44
MSF OPPENHEIMER MSF BLACKROCK MSF BLACKROCK GLOBAL EQUITY AGGRESSIVE GROWTH DIVERSIFIED SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------- ---------------------------------- ------------------------------------ 2007 2006 2005 2007 2006 2005 2007 2006 2005 - ---------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- $ 42,726 $ 76,103 $ 1,167 $ (6,542) $ (4,379) $ (1,689) $ 70,575 $ 65,131 $ 16,975 354,930 220,200 14,077 83,010 53,157 29,202 122,433 32,548 42,119 (64,091) 302,557 177,774 210,386 13,209 29,347 (15,315) 223,263 41,409 - ---------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- 333,565 598,860 193,018 286,854 61,987 56,860 177,693 320,942 100,503 - ---------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- 837,977 559,232 192,624 298,684 259,300 113,786 542,378 530,545 518,291 1,279,304 2,208,426 2,006,518 663,687 478,662 121,245 (106,906) (137,715) 1,547,503 (533,685) (316,970) (71,119) (179,875) (124,900) (21,042) (240,896) (267,046) (150,300) (665,077) (353,882) (16,991) (98,956) (190,376) (22,809) (238,799) (114,557) 214,179 - ---------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- 918,519 2,096,806 2,111,032 683,540 422,686 191,180 (44,223) 11,227 2,129,673 - ---------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- 1,252,084 2,695,666 2,304,050 970,394 484,673 248,040 133,470 332,169 2,230,176 5,131,307 2,435,641 131,591 1,262,834 778,161 530,121 3,414,636 3,082,467 852,291 - ---------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- $6,383,391 $5,131,307 $2,435,641 $2,233,228 $1,262,834 $778,161 $3,548,106 $3,414,636 $3,082,467 ========== ========== ========== ========== ========== ======== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. AA-45 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF METLIFE MSF METLIFE CONSERVATIVE CONSERVATIVE ALLOCATION TO MODERATE ALLOCATION SUB-ACCOUNT SUB-ACCOUNT -------------------------------- ---------------------------------- 2007 2006 2005(A) 2007 2006 2005(A) ---------- -------- -------- ---------- ---------- -------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss)................ $ (7,484) $ 13,457 $ 1,092 $ (6,272) $ 6,662 $ 732 Net realized gains (losses)................. 80,237 7,555 476 98,085 3,752 1,635 Change in unrealized gains (losses) on investments.............................. 26,176 23,520 4,828 42,349 37,322 1,955 ---------- -------- -------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from operations.............. 98,929 44,532 6,396 134,162 47,736 4,322 ---------- -------- -------- ---------- ---------- -------- POLICY TRANSACTIONS: Premium payments received from policy owners................................... 769,492 45,000 37,630 337,216 825,099 3,539 Net transfers (including fixed account)..... 880,143 466,352 467,937 1,533,011 737,291 211,564 Policy charges.............................. (155,322) (43,018) (15,907) (190,305) (84,551) (8,792) Transfers for policy benefits and terminations............................. (541,477) (45,428) (1,636) (189,219) (101,842) 19,974 ---------- -------- -------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from policy transactions..... 952,836 422,906 488,024 1,490,703 1,375,997 226,285 ---------- -------- -------- ---------- ---------- -------- Net increase (decrease) in net assets....... 1,051,765 467,438 494,420 1,624,865 1,423,733 230,607 NET ASSETS: Beginning of period......................... 961,858 494,420 -- 1,654,340 230,607 -- ---------- -------- -------- ---------- ---------- -------- End of period............................... $2,013,623 $961,858 $494,420 $3,279,205 $1,654,340 $230,607 ========== ======== ======== ========== ========== ========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-46
MSF METLIFE MSF METLIFE MSF METLIFE MODERATE ALLOCATION MODERATE TO AGGRESSIVE ALLOCATION AGGRESSIVE ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - --------------------------------------- -------------------------------------- ---------------------------------- 2007 2006 2005(A) 2007 2006 2005(A) 2007 2006 2005(A) - ----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- -------- $ (9,187) $ 171,041 $ 12,599 $ (23,664) $ 72,363 $ 8,707 $ (7,874) $ 5,302 $ 1,161 372,241 340,026 1,525 640,232 367,029 4,473 117,207 68,153 2,413 434,465 763,970 80,069 110,236 1,414,416 59,638 (66,432) 190,262 12,700 - ----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- -------- 797,519 1,275,037 94,193 726,804 1,853,808 72,818 42,901 263,717 16,274 - ----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- -------- 4,591,851 1,970,347 193,806 8,025,824 2,579,522 182,303 1,465,391 398,456 63,611 11,387,562 10,824,618 3,365,968 16,643,206 16,629,738 2,430,641 3,168,683 2,731,433 325,604 (2,291,100) (805,250) (81,379) (3,459,926) (1,255,856) (93,764) (704,990) (195,893) (17,221) (1,867,684) (428,730) 165,328 (3,231,860) (861,689) 226,967 (134,659) (309,325) 17,062 - ----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- -------- 11,820,629 11,560,985 3,643,723 17,977,244 17,091,715 2,746,147 3,794,425 2,624,671 389,056 - ----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- -------- 12,618,148 12,836,022 3,737,916 18,704,048 18,945,523 2,818,965 3,837,326 2,888,388 405,330 16,573,938 3,737,916 -- 21,764,488 2,818,965 -- 3,293,718 405,330 -- - ----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- -------- $29,192,086 $16,573,938 $3,737,916 $40,468,536 $21,764,488 $2,818,965 $7,131,044 $3,293,718 $405,330 =========== =========== ========== =========== =========== ========== ========== ========== ========
The accompanying notes are an integral part of these financial statements. AA-47 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MSF FI AMERICAN FUNDS LARGE CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT ------------------ ------------------------------------------ 2007 2006(C) 2007 2006 2005 -------- ------- ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss)................... $ (249) $ (14) $ 876,940 $ 774,602 $ 429,956 Net realized gains (losses).................... 6,770 3 28,843,084 6,427,374 2,405,771 Change in unrealized gains (losses) on investments................................. (2,362) 1,229 (4,084,594) 11,430,058 21,506,036 -------- ------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations................. 4,159 1,218 25,635,430 18,632,034 24,341,763 -------- ------- ------------ ------------ ------------ POLICY TRANSACTIONS: Premium payments received from policy owners... 37,436 16,267 28,650,107 28,697,849 27,228,305 Net transfers (including fixed account)........ 153,933 15,303 8,738,159 15,651,054 22,188,970 Policy charges................................. 13,753 (523) (15,172,729) (14,638,343) (11,001,262) Transfers for policy benefits and terminations................................ (23,057) 7 (23,992,053) (20,722,283) (16,035,229) -------- ------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policy transactions........ 182,065 31,054 (1,776,516) 8,988,277 22,380,784 -------- ------- ------------ ------------ ------------ Net increase (decrease) in net assets.......... 186,224 32,272 23,858,914 27,620,311 46,722,547 NET ASSETS: Beginning of period............................ 32,272 -- 211,963,175 184,342,864 137,620,317 -------- ------- ------------ ------------ ------------ End of period.................................. $218,496 $32,272 $235,822,089 $211,963,175 $184,342,864 ======== ======= ============ ============ ============
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-48
AMERICAN FUNDS AMERICAN FUNDS AMERICAN GROWTH-INCOME GLOBAL SMALL CAPITALIZATION FUNDS BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------------- --------------------------------------- ----------------------- 2007 2006 2005 2007 2006 2005 2007 2006(C) - ------------ ------------ ------------ ----------- ----------- ----------- ---------- ---------- $ 1,556,812 $ 1,343,741 $ 902,841 $ 2,038,185 $ 2,449 $ 171,446 $ 573,417 $ 721 8,769,713 6,841,328 2,343,917 10,524,305 5,934,141 2,045,188 35,969 (45) (4,583,687) 7,262,226 2,102,684 1,634,253 6,069,880 6,281,497 (437,728) 90,784 - ------------ ------------ ------------ ----------- ----------- ----------- ---------- ---------- 5,742,838 15,447,295 5,349,442 14,196,743 12,006,470 8,498,131 171,658 91,460 - ------------ ------------ ------------ ----------- ----------- ----------- ---------- ---------- 17,443,560 17,768,146 17,474,402 8,861,579 7,460,456 6,022,679 808,464 117,315 5,598,362 4,502,222 8,683,680 11,221,226 9,669,549 10,952,001 6,542,599 3,017,940 (9,265,701) (8,907,016) (6,931,071) (5,193,638) (4,193,256) (2,407,785) (402,838) (52,979) (9,282,924) (9,406,926) (7,928,080) (7,731,219) (5,929,777) (3,514,984) (446,366) (40,804) - ------------ ------------ ------------ ----------- ----------- ----------- ---------- ---------- 4,493,297 3,956,426 11,298,931 7,157,948 7,006,972 11,051,911 6,501,859 3,041,472 - ------------ ------------ ------------ ----------- ----------- ----------- ---------- ---------- 10,236,135 19,403,721 16,648,373 21,354,691 19,013,442 19,550,042 6,673,517 3,132,932 121,735,797 102,332,076 85,683,703 66,602,309 47,588,867 28,038,825 3,132,932 -- - ------------ ------------ ------------ ----------- ----------- ----------- ---------- ---------- $131,971,932 $121,735,797 $102,332,076 $87,957,000 $66,602,309 $47,588,867 $9,806,449 $3,132,932 ============ ============ ============ =========== =========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements. AA-49 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
FIDELITY VIP FIDELITY VIP EQUITY-INCOME OVERSEAS SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------ ------------------------------------------ 2007 2006 2005 2007 2006 2005 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss)......... $ 2,019,472 $ 4,515,810 $ 1,626,588 $ 4,192,648 $ 388,513 $ 60,593 Net realized gains (losses).......... 16,379,660 23,250,201 9,871,627 10,357,909 (1,830,080) 1,616,201 Change in unrealized gains (losses) on investments.................... (16,083,412) 1,879,953 (3,446,973) 8,937,231 24,309,349 19,836,609 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations...................... 2,315,720 29,645,964 8,051,242 23,487,788 22,867,782 21,513,403 ------------ ------------ ------------ ------------ ------------ ------------ POLICY TRANSACTIONS: Premium payments received from policy owners............................ 12,978,363 14,033,200 16,342,695 10,377,600 11,657,246 13,154,046 Net transfers (including fixed account).......................... (793,715) 441,501 (3,576,606) (1,500,831) 376,011 (5,626,376) Policy charges....................... (8,472,918) (8,899,177) (9,604,505) (7,012,401) (7,129,516) (7,163,253) Transfers for policy benefits and terminations...................... (20,802,918) (19,760,305) (16,259,358) (16,976,327) (16,523,855) (12,483,594) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policy transactions.................... (17,091,188) (14,184,781) (13,097,774) (15,111,959) (11,620,114) (12,119,177) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets............................ (14,775,468) 15,461,183 (5,046,532) 8,375,829 11,247,668 9,394,226 NET ASSETS: Beginning of period.................. 175,481,284 160,020,101 165,066,633 148,385,879 137,138,211 127,743,985 ------------ ------------ ------------ ------------ ------------ ------------ End of period........................ $160,705,816 $175,481,284 $160,020,101 $156,761,708 $148,385,879 $137,138,211 ============ ============ ============ ============ ============ ============
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-50
MIST T. ROWE PRICE MIST MIST MID-CAP GROWTH PIMCO TOTAL RETURN RCM TECHNOLOGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------------------- --------------------------------------- ----------------------- 2007 2006 2005 2007 2006 2005 2007 2006 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- $ (46,331) $ (87,596) $ (66,861) $ 1,740,667 $ 1,010,224 $ (136,517) $ (18,206) $ (14,830) 2,783,457 1,298,793 976,579 35,653 22,035 412,903 653,761 28,396 895,981 (53,103) 1,202,380 2,098,892 1,194,931 477,776 595,431 157,821 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- 3,633,107 1,158,094 2,112,098 3,875,212 2,227,190 754,162 1,230,986 171,387 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- 2,616,266 2,412,145 2,210,701 7,798,188 8,332,214 7,951,787 748,864 728,617 2,286,635 4,082,277 3,515,422 8,797,608 2,272,536 5,024,207 992,668 (66,416) (1,482,925) (1,255,222) 1,162,511 (3,609,937) (3,823,317) (2,817,682) (337,837) (403,463) (3,414,682) (2,153,114) (1,558,530) (4,627,274) (4,390,572) (3,201,390) (502,954) (323,852) ----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- 5,294 3,086,086 5,330,104 8,358,585 2,390,861 6,956,922 900,741 (65,114) ----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- 3,638,401 4,244,180 7,442,202 12,233,797 4,618,051 7,711,084 2,131,727 106,273 21,555,907 17,311,727 9,869,525 46,125,778 41,507,727 33,796,643 3,796,537 3,690,264 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- $25,194,308 $21,555,907 $17,311,727 $58,359,575 $46,125,778 $41,507,727 $5,928,264 $3,796,537 =========== =========== =========== =========== =========== =========== ========== ========== MIST RCM TECHNOLOGY SUB-ACCOUNT ----------- 2005 ----------- $ (15,761) (45,085) 409,427 ----------- 348,581 ----------- 812,663 (305,989) (2,923,681) (513,027) ----------- (2,930,034) ----------- (2,581,453) 6,271,717 ----------- $ 3,690,264 ===========
The accompanying notes are an integral part of these financial statements. AA-51 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
MIST MIST LAZARD MID-CAP MET/AIM SMALL CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT ------------------------------------- ------------------------------------ 2007 2006 2005 2007 2006 2005 ----------- ---------- ---------- ---------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss).............. $ 16,121 $ 4,026 $ (6,740) $ (19,748) $ (19,305) $ (18,759) Net realized gains (losses)............... 822,680 766,175 875,197 337,064 774,927 414,585 Change in unrealized gains (losses) on investments............................ (1,252,571) 60,580 (443,804) 171,391 (225,798) (114,128) ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............ (413,770) 830,781 424,653 488,707 529,824 281,698 ----------- ---------- ---------- ---------- ---------- ---------- POLICY TRANSACTIONS: Premium payments received from policy owners................................. 1,061,073 929,653 946,465 583,986 583,612 573,108 Net transfers (including fixed account)... 2,487,040 331,990 775,293 309,844 703,361 (434,825) Policy charges............................ (568,318) (484,415) (365,618) (339,442) (322,915) (273,721) Transfers for policy benefits and terminations........................... (797,916) (848,430) (657,186) (452,322) (645,337) (314,854) ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from policy transactions... 2,181,879 (71,202) 698,954 102,066 318,721 (450,292) ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets..... 1,768,109 759,579 1,123,607 590,773 848,545 (168,594) NET ASSETS: Beginning of period....................... 6,762,364 6,002,785 4,879,178 4,548,438 3,699,893 3,868,487 ----------- ---------- ---------- ---------- ---------- ---------- End of period............................. $ 8,530,473 $6,762,364 $6,002,785 $5,139,211 $4,548,438 $3,699,893 =========== ========== ========== ========== ========== ==========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-52
MIST MIST MIST LEGG MASON PARTNERS NEUBERGER BERMAN REAL HARRIS OAKMARK INTERNATIONAL AGGRESSIVE GROWTH ESTATE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------------------- ------------------------------------ ------------------------- 2007 2006 2005 2007 2006 2005 2007 2006 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- $ 291,196 $ 800,904 $ (58,528) $ (6,309) $ (15,055) $ (15,219) $ 187,965 $ 107,281 7,874,782 3,481,066 921,780 325,991 487,789 320,070 3,618,254 1,721,280 (9,052,128) 5,394,065 2,041,888 (250,410) (542,275) 137,586 (8,438,976) 3,634,132 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- (886,150) 9,676,035 2,905,140 69,272 (69,541) 442,437 (4,632,757) 5,462,693 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- 6,699,487 4,761,695 3,525,337 494,859 524,835 516,302 4,350,769 2,775,441 10,245,789 12,282,382 10,361,229 (140,512) (345,649) 609,339 4,217,420 8,893,675 (3,258,769) (2,448,674) (1,125,549) (228,414) (256,951) (236,670) (2,374,752) (1,528,756) (7,228,755) (2,869,569) (1,196,961) (272,791) (305,655) (330,452) (2,790,791) (1,499,224) ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- 6,457,752 11,725,834 11,564,056 (146,858) (383,420) 558,519 3,402,646 8,641,136 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- 5,571,602 21,401,869 14,469,196 (77,586) (452,961) 1,000,956 (1,230,111) 14,103,829 49,487,138 28,085,269 13,616,073 2,888,496 3,341,457 2,340,501 24,808,259 10,704,430 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- $55,058,740 $49,487,138 $28,085,269 $2,810,910 $2,888,496 $3,341,457 $23,578,148 $24,808,259 =========== =========== =========== ========== ========== ========== =========== =========== MIST NEUBERGER BERMAN REAL ESTATE SUB-ACCOUNT ----------- 2005 ----------- $ (34,808) 214,555 847,791 ----------- 1,027,538 ----------- 1,356,195 5,585,725 (426,306) (138,091) ----------- 6,377,523 ----------- 7,405,061 3,299,369 ----------- $10,704,430 ===========
The accompanying notes are an integral part of these financial statements. AA-53 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONCLUDED) FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, 2005
MIST MIST MFS RESEARCH INTERNATIONAL LORD ABBETT BOND DEBENTURE SUB-ACCOUNT SUB-ACCOUNT -------------------------------------- --------------------------------------- 2007 2006 2005 2007 2006 2005 ----------- ----------- ---------- ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income (loss)............ $ 177,471 $ 80,639 $ 14,930 $ 1,899,525 $ 2,253,463 $ 1,433,215 Net realized gains (losses)............. 2,551,425 910,772 232,619 241,985 (42,854) 2,545,422 Change in unrealized gains (losses) on investments.......................... (534,417) 533,798 232,397 237,120 840,461 (3,442,079) ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations.......... 2,194,479 1,525,209 479,946 2,378,630 3,051,070 536,558 ----------- ----------- ---------- ----------- ----------- ----------- POLICY TRANSACTIONS: Premium payments received from policy owners............................... 1,971,165 849,738 454,269 5,048,438 5,015,300 5,031,351 Net transfers (including fixed account)............................. 9,894,185 5,383,217 2,305,761 1,930,430 759,926 1,974,575 Policy charges.......................... (974,849) (466,966) (82,477) (3,094,670) (3,014,141) (2,531,254) Transfers for policy benefits and terminations......................... (1,510,679) (789,611) (7,719) (3,801,319) (3,269,583) (1,947,373) ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from policy transactions....................... 9,379,822 4,976,378 2,669,834 82,879 (508,498) 2,527,299 ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets... 11,574,301 6,501,587 3,149,780 2,461,509 2,542,572 3,063,857 NET ASSETS: Beginning of period..................... 10,510,490 4,008,903 859,123 36,899,321 34,356,749 31,292,892 ----------- ----------- ---------- ----------- ----------- ----------- End of period........................... $22,084,791 $10,510,490 $4,008,903 $39,360,830 $36,899,321 $34,356,749 =========== =========== ========== =========== =========== ===========
(a) For the period May 1, 2005 to December 31, 2005. (b) For the period January 1, 2007 to April 27, 2007. (c) For the period May 1, 2006 to December 31, 2006. (d) For the period April 30, 2007 to December 31, 2007. The accompanying notes are an integral part of these financial statements. AA-54
MIST MIST MIST MIST OPPENHEIMER CYCLICAL GROWTH CYCLICAL GROWTH PIMCO INFLATION MIST LEGG MASON CAPITAL APPRECIATION ETF AND INCOME ETF PROTECTED BOND VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------- ------------------ ------------------ --------------------- ------------------------- 2007 2006 2005(A) 2007 2006(C) 2007 2006(C) 2007 2006(C) 2007 2006(C) --------- -------- -------- -------- ------- -------- ------- ---------- -------- ----------- ----------- $ (1,897) $ (443) $ (66) $ (2,198) $ 904 $ (401) $ 517 $ 4,117 $ (304) $ (89,882) $ (35,516) 64,295 2,535 1,634 5,211 230 2,313 57 6,584 3,457 184,870 322,585 (22,990) 16,452 276 12,959 663 3,249 261 60,630 (646) (1,096,137) 915,746 --------- -------- -------- -------- ------- -------- ------- ---------- -------- ----------- ----------- 39,408 18,544 1,844 15,972 1,797 5,161 835 71,331 2,507 (1,001,149) 1,202,815 --------- -------- -------- -------- ------- -------- ------- ---------- -------- ----------- ----------- 96,097 46,379 7,461 59,076 2,223 30,553 416 81,110 7,566 1,876,712 1,374,783 583,595 157,892 131,687 752,504 88,638 492,703 38,659 1,418,711 180,926 (289,314) 16,626,658 (51,485) (29,478) (3,938) (62,899) (1,942) (25,861) (1,198) (29,715) (3,063) (1,170,952) (1,009,352) (100,436) (7,347) 9,927 (38,167) 4 (1,133) 2 (125,721) (23,778) (1,438,828) (1,039,287) --------- -------- -------- -------- ------- -------- ------- ---------- -------- ----------- ----------- 527,771 167,446 145,137 710,514 88,923 496,262 37,879 1,344,385 161,651 (1,022,382) 15,952,802 --------- -------- -------- -------- ------- -------- ------- ---------- -------- ----------- ----------- 567,179 185,990 146,981 726,486 90,720 501,423 38,714 1,415,716 164,158 (2,023,531) 17,155,617 332,971 146,981 -- 90,720 -- 38,714 -- 164,158 -- 17,155,617 -- --------- -------- -------- -------- ------- -------- ------- ---------- -------- ----------- ----------- $ 900,150 $332,971 $146,981 $817,206 $90,720 $540,137 $38,714 $1,579,874 $164,158 $15,132,086 $17,155,617 ========= ======== ======== ======== ======= ======== ======= ========== ======== =========== =========== MIST BLACKROCK MIST LARGE-CAP CORE JANUS FORTY SUB-ACCOUNT SUB-ACCOUNT -------------- ----------- 2007(D) 2007(D) -------------- ----------- $ (2,290) $ (5,703) 1,835 32,447 17,789 325,311 ---------- ---------- 17,334 352,055 ---------- ---------- 261,566 64,358 2,139,773 4,029,930 (195,732) (53,982) (163,530) (35,610) ---------- ---------- 2,042,077 4,004,696 ---------- ---------- 2,059,411 4,356,751 -- -- ---------- ---------- $2,059,411 $4,356,751 ========== ==========
The accompanying notes are an integral part of these financial statements. AA-55 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS 1. ORGANIZATION New England Variable Life Separate Account (the "Separate Account"), a separate account of New England Life Insurance Company (the "Company"), was established by the Company's Board of Directors on January 31, 1983 to support operations of the Company with respect to certain variable life insurance policies (the "Policies"). The Company is an indirect wholly-owned subsidiary of MetLife, Inc., a Delaware corporation. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended, and exists in accordance with the regulations of the Massachusetts Department of Insurance. The Separate Account is divided into Sub-Accounts, each of which is treated as an individual accounting entity for financial reporting purposes. Each Sub- Account invests in shares of the corresponding portfolio, series, or fund (with the same name) of registered investment management companies (the "Trusts") which are presented below: Metropolitan Series Fund, Inc. ("MSF") American Funds Insurance Series ("American Funds") Fidelity Variable Insurance Products Fund ("Fidelity VIP") Met Investors Series Trust ("MIST") The assets of the Separate Account are registered in the name of the Company. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from the Company's other assets and liabilities. The portion of the Separate Account's assets applicable to the Policies is not chargeable with liabilities arising out of any other business the Company may conduct. Premium payments applied to the Separate Account are invested in one or more Sub-Accounts in accordance with the selection made by the policy owner. The following Sub-Accounts were available for investment as of December 31, 2007: MSF Zenith Equity Sub-Account MSF MetLife Conservative Allocation Sub- Account MSF BlackRock Bond Income Sub-Account MSF MetLife Conservative to Moderate Allocation Sub-Account MSF BlackRock Money Market Sub-Account MSF MetLife Moderate Allocation Sub- Account MSF MFS Total Return Sub-Account MSF MetLife Moderate to Aggressive Allocation Sub-Account MSF Harris Oakmark Focused Value Sub- MSF MetLife Aggressive Allocation Sub- Account Account MSF FI Value Leaders Sub-Account MSF FI Large Cap Sub-Account MSF Loomis Sayles Small Cap Sub-Account American Funds Growth Sub-Account MSF Davis Venture Value Sub-Account American Funds Growth-Income Sub-Account MSF BlackRock Legacy Large Cap Growth American Funds Global Small Sub-Account Capitalization Sub-Account MSF Western Asset Management U.S. American Funds Bond Sub-Account Government Sub-Account MSF Western Asset Management Strategic Fidelity VIP Equity-Income Sub-Account Bond Opportunities Sub-Account MSF FI Mid Cap Opportunities Sub-Account Fidelity VIP Overseas Sub-Account MSF Jennison Growth Sub-Account MIST T. Rowe Price Mid-Cap Growth Sub- Account MSF Russell 2000 Index Sub-Account MIST PIMCO Total Return Sub-Account MSF FI International Stock Sub-Account MIST RCM Technology Sub-Account MSF BlackRock Strategic Value Sub-Account MIST Lazard Mid-Cap Sub-Account MSF MetLife Stock Index Sub-Account MIST Met/AIM Small Cap Growth Sub-Account MSF Lehman Brothers Aggregate Bond Index MIST Harris Oakmark International Sub- Sub-Account Account MSF Morgan Stanley EAFE Index Sub-Account MIST Legg Mason Partners Aggressive Growth Sub-Account MSF MetLife Mid Cap Stock Index Sub- MIST Neuberger Berman Real Estate Sub- Account Account MSF Franklin Templeton Small Cap Growth MIST MFS Research International Sub- Sub-Account Account MSF BlackRock Large Cap Value Sub-Account MIST Lord Abbett Bond Debenture Sub- Account MSF Neuberger Berman Mid Cap Value Sub- MIST Oppenheimer Capital Appreciation Account Sub-Account MSF Harris Oakmark Large Cap Value Sub- MIST Cyclical Growth ETF Sub-Account Account MSF T. Rowe Price Large Cap Growth Sub- MIST Cyclical Growth and Income ETF Sub- Account Account MSF T. Rowe Price Small Cap Growth Sub- MIST PIMCO Inflation Protected Bond Sub- Account Account MSF Oppenheimer Global Equity Sub-Account MIST Legg Mason Value Equity Sub-Account MSF BlackRock Aggressive Growth Sub- MIST BlackRock Large-Cap Core Sub-Account Account MSF BlackRock Diversified Sub-Account MIST Janus Forty Sub-Account
AA-56 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION -- (CONTINUED) The following Sub-Accounts ceased operations during the year ended December 31, 2007: MSF BlackRock Large Cap Sub-Account The operations of the Sub-Accounts were affected by the following changes that occurred during the year ended December 31, 2007: NAME CHANGES:
Old Name New Name - -------- -------- RCM Global Technology Portfolio RCM Technology Portfolio Legg Mason Aggressive Growth Legg Mason Partners Aggressive Portfolio Growth Portfolio
MERGERS:
Old Name New Name - -------- -------- BlackRock Large Cap Portfolio BlackRock Large-Cap Core Portfolio
This report is prepared for the general information of policy owners and is not an offer of units of the Separate Account or shares of the Separate Account's underlying investments. It should not be used in connection with any offer except in conjunction with the prospectus for the Separate Account products offered by the Company and the prospectus of the underlying portfolio, series, or fund which collectively contain all the pertinent information, including additional information on charges and expenses. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for variable life separate accounts registered as unit investment trusts. VALUATION OF INVESTMENTS Investments are reported at fair value and are based on the net asset value per share as determined by the underlying assets of the portfolio, series, or fund of the Trusts, which value their investment securities at fair value. Changes in fair value are recorded in the statements of operations. SECURITY TRANSACTIONS Security transactions are recorded on a 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 realized gain distributions are recorded on the ex-distribution date. FEDERAL INCOME TAXES The operations of the Separate Account form a part of the total operations of the Company and are not taxed separately. The Company is taxed as a life insurance company under the provisions of the Internal Revenue Code ("IRC"). Under the current provisions of the IRC, the Company does not expect to incur federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the Policies. Accordingly, no charge is being made currently to the Separate Account for federal income taxes. The Company will periodically review 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 attributable to the Policies. AA-57 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) PREMIUM PAYMENTS The Company deducts a sales charge and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain Policies, the Company 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. Net premiums are credited as accumulation units as of the end of the valuation period in which received, as provided in the prospectus. NET TRANSFERS The policy owner has the opportunity to transfer funds between Sub-Accounts within the Separate Account or the fixed account, which is an investment option in the Company's general account. USE OF ESTIMATES The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT Effective January 1, 2007, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes -- An Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income tax recognized in a company's financial statements. FIN 48 requires companies to determine whether it is "more likely than not" that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. Previously recorded income tax benefits that no longer meet this standard are required to be charged to earnings in the period that such determination is made. The adoption of FIN 48 had no impact on the financial statements of the Separate Account. FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and requires enhanced disclosures about fair value measurements. SFAS 157 does not require additional fair value measurements. The pronouncement is effective for fiscal years beginning after November 15, 2007. The guidance in SFAS 157 will be applied prospectively with certain exceptions. The Company believes the adoption of SFAS 157 will have no material impact on the financial statements of the Separate Account. CHANGE IN BASIS OF PRESENTATION In prior year statements of changes in net assets, the Separate Account reported cost of insurance ("COI") in the financial statement line item "Transfers for policy benefits and terminations." The COI has been reclassified and now appears separately in the line item "Policy charges." This reclassification presents COI more consistent with the intent of what COI charges represent. The reclassification had no effect on the net assets of the Sub-Accounts or unit values of the Policies. 3. EXPENSES AND RELATED PARTY TRANSACTIONS The following annual Separate Account charge is an asset-based charge and assessed through a daily reduction in unit values which is recorded as an expense in the accompanying statements of operations: Mortality and Expense Risk -- The mortality risk assumed by the Company is the risk that those insured may die sooner than anticipated and therefore, the Company will pay an aggregate amount of death benefits greater than anticipated. The expense risk assumed is where expenses incurred in issuing and administering the Policies will exceed the amounts realized from the administrative charges assessed against the Policies. AA-58 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 3. EXPENSES AND RELATED PARTY TRANSACTIONS -- (CONTINUED) The table below represents the range of effective annual rates for the charge for the year ended December 31, 2007: - -------------------------------------------------------------------------- Mortality and Expense Risk 0.20%-0.90% - --------------------------------------------------------------------------
The above referenced charge may not necessarily correspond to the costs associated with providing the services or benefits indicated by the designation of the charge or associated with a particular policy. For some Policies, the Mortality and Expense Risk charge which ranges from .10% to .90% is assessed on a monthly basis through the redemption of units. Other policy charges that are assessed through the redemption of units generally include: COI charges, administrative charges, a policy fee, and charges for benefits provided by rider. The COI charge is the primary charge under the policy for the death benefit provided by the Company. Administrative charges range from $.15 to $.38 for every $1,000 of the policy face amount and are assessed per policy per month. Policy fees range from $0 to $25 and are assessed monthly depending on the policy and the policy year. In addition, a surrender charge is imposed if the policy is partially or fully surrendered within the specified surrender charge period that ranges from 0% to 90% and/or $0 to $5 for every $1,000 of the policy face amount. For those policy owners who choose optional living benefit riders, these charges range from $0 to $500 per $100 or $1,000 face amount of the policy cash value and are deducted monthly. These charges are assessed through the redemption of units and are recorded as policy transactions in the accompanying statements of changes in net assets. Certain investments in the various portfolios, series or funds of the MIST and MSF Trusts hold shares which are managed by Met Investors Advisory, LLC and MetLife Advisers, LLC, respectively. Both act in the capacity of investment advisor and are indirect affiliates of the Company. AA-59 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 4. STATEMENT OF INVESTMENTS
FOR THE YEAR ENDED AS OF DECEMBER 31, DECEMBER 31, 2007 2007 ----------------------------- ------------------------ COST OF PROCEEDS FROM SHARES COST ($) PURCHASES ($) SALES ($) ---------- ----------- ------------- ------------- MSF Zenith Equity Sub-Account............... 1,472,639 597,919,698 13,747,006 92,761,924 MSF BlackRock Bond Income Sub-Account....... 1,139,243 124,798,372 9,213,726 21,213,615 MSF BlackRock Money Market Sub-Account...... 2,624,946 262,494,738 218,797,493 55,701,178 MSF MFS Total Return Sub-Account............ 837,126 114,721,244 12,857,635 17,968,978 MSF Harris Oakmark Focused Value Sub- Account................................... 722,743 153,312,556 28,993,339 29,381,222 MSF FI Value Leaders Sub-Account............ 404,571 69,022,134 11,008,622 14,033,841 MSF Loomis Sayles Small Cap Sub-Account..... 707,606 139,990,664 26,684,957 23,408,665 MSF Davis Venture Value Sub-Account......... 10,565,277 267,292,978 19,809,494 42,981,001 MSF BlackRock Legacy Large Cap Growth Sub- Account................................... 8,453,137 167,979,262 6,770,555 29,365,949 MSF Western Asset Management U.S. Government Sub-Account............................... 691,901 8,446,573 4,178,912 19,157,020 MSF Western Asset Management Strategic Bond Opportunities Sub-Account............................... 1,206,200 15,094,593 5,079,941 4,028,400 MSF FI Mid Cap Opportunities Sub-Account.... 1,608,316 23,300,441 3,015,378 4,919,550 MSF Jennison Growth Sub-Account............. 590,700 6,556,026 1,044,894 1,396,926 MSF Russell 2000 Index Sub-Account.......... 1,924,545 26,462,909 7,318,829 4,780,602 MSF FI International Stock Sub-Account...... 3,098,691 32,333,595 5,462,721 7,167,546 MSF BlackRock Strategic Value Sub-Account... 4,200,766 68,565,383 12,951,782 12,623,185 MSF MetLife Stock Index Sub-Account......... 6,022,417 182,674,648 17,086,472 29,218,957 MSF Lehman Brothers Aggregate Bond Index Sub-Account............................... 2,637,863 28,146,579 7,451,253 9,198,858 MSF Morgan Stanley EAFE Index Sub-Account... 1,298,258 17,143,601 5,625,812 2,913,230 MSF MetLife Mid Cap Stock Index Sub- Account................................... 1,279,437 17,785,059 4,448,412 2,889,722 MSF Franklin Templeton Small Cap Growth Sub- Account................................... 675,249 6,972,694 1,852,760 1,896,854 MSF BlackRock Large Cap Sub-Account(a)...... -- -- 192,609 2,102,932 MSF BlackRock Large Cap Value Sub-Account... 885,202 11,551,906 4,997,909 1,671,898 MSF Neuberger Berman Mid Cap Value Sub- Account................................... 1,878,962 38,141,383 8,102,808 6,555,607 MSF Harris Oakmark Large Cap Value Sub- Account................................... 871,573 11,941,171 2,539,057 2,909,804 MSF T. Rowe Price Large Cap Growth Sub- Account................................... 488,847 7,104,131 2,939,281 1,169,481 MSF T. Rowe Price Small Cap Growth Sub- Account................................... 249,147 3,950,165 812,404 1,130,857 MSF Oppenheimer Global Equity Sub-Account... 376,428 6,164,278 2,618,769 1,438,582 MSF BlackRock Aggressive Growth Sub- Account................................... 79,670 2,014,973 1,112,294 420,665 MSF BlackRock Diversified Sub-Account....... 199,519 3,331,336 1,013,154 1,008,035 MSF MetLife Conservative Allocation Sub- Account................................... 185,685 2,021,436 2,101,323 1,117,989 MSF MetLife Conservative to Moderate Allocation Sub-Account.................... 288,430 3,267,041 2,707,838 1,186,129 MSF MetLife Moderate Allocation Sub- Account................................... 2,470,608 28,368,788 15,240,988 3,077,559 MSF MetLife Moderate to Aggressive Allocation Sub-Account.................... 3,279,185 39,175,981 24,370,787 6,264,782 MSF MetLife Aggressive Allocation Sub- Account................................... 572,744 7,114,415 4,929,298 1,082,526 MSF FI Large Cap Sub-Account................ 15,427 227,292 300,889 103,479 American Funds Growth Sub-Account........... 3,550,203 181,837,650 41,013,573 26,217,476 American Funds Growth-Income Sub-Account.... 3,136,606 112,221,867 21,251,297 10,967,992 American Funds Global Small Capitalization Sub-Account............................... 3,282,322 67,516,913 23,474,583 8,089,616 American Funds Bond Sub-Account............. 900,120 10,275,270 7,953,001 796,863 Fidelity VIP Equity-Income Sub-Account...... 6,750,024 156,688,895 23,265,000 24,959,084 Fidelity VIP Overseas Sub-Account........... 6,215,926 105,589,795 20,174,805 20,961,492 MIST T. Rowe Price Mid-Cap Growth Sub- Account................................... 2,581,004 21,662,159 6,830,929 5,794,290 MIST PIMCO Total Return Sub-Account......... 4,772,143 55,364,407 16,966,579 6,910,903 MIST RCM Technology Sub-Account............. 884,277 4,978,942 2,955,592 1,924,918 MIST Lazard Mid-Cap Sub-Account............. 709,124 9,751,244 5,480,651 2,511,859 MIST Met/AIM Small Cap Growth Sub-Account... 352,368 4,806,511 1,668,386 1,503,877 MIST Harris Oakmark International Sub- Account................................... 3,205,060 54,883,525 21,223,005 9,891,940 MIST Legg Mason Partners Aggressive Growth Sub-Account............................... 381,848 3,049,466 807,095 704,793 MIST Neuberger Berman Real Estate Sub- Account................................... 1,691,131 27,565,412 12,341,448 6,263,534 MIST MFS Research International Sub- Account................................... 1,542,117 21,969,761 14,224,281 2,126,683 MIST Lord Abbett Bond Debenture Sub- Account................................... 3,138,141 38,527,233 8,657,831 6,639,211 MIST Oppenheimer Capital Appreciation Sub- Account................................... 93,543 936,075 1,069,644 499,764 MIST Cyclical Growth ETF Sub-Account........ 70,876 841,849 829,008 83,248 MIST Cyclical Growth and Income ETF Sub- Account................................... 47,153 551,476 546,612 36,022 MIST PIMCO Inflation Protected Bond Sub- Account................................... 146,324 1,543,727 1,699,136 330,482 MIST Legg Mason Value Equity Sub-Account.... 1,454,329 15,450,841 1,326,766 2,439,669 MIST BlackRock Large-Cap Core Sub- Account(b)................................ 190,460 2,103,939 2,392,940 290,830 MIST Janus Forty Sub-Account(b)............. 52,381 4,064,706 4,347,711 315,453
(a) For the period January 1, 2007 to April 27, 2007. (b) For the period April 30, 2007 to December 31, 2007. AA-60 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE 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 portfolio, series, or fund, and the investment income ratio to average net assets, for each of the five years in the period ended December 31, 2007. The table shows the ranges of total returns of the Sub-Accounts for all Policies investing in the Separate Account. The total return reflects the appropriate mortality and expense risk charged against the Sub-Account assets, where applicable, for each type of policy. These figures do not reflect charges deducted from the premiums and the cash values of the Policies as such charges will affect the actual cash values and benefits of the Policies.
FOR THE YEAR ENDED DECEMBER 31 AS OF DECEMBER 31 ------------------------------------------------------ ----------------- EXPENSE RATIO(2) TOTAL RETURN(3,4) INVESTMENT(1) LOWEST TO LOWEST TO NET ASSETS ($) INCOME RATIO (%) HIGHEST (%) HIGHEST (%) ----------------- ---------------- ---------------- ----------------- MSF Zenith Equity Sub-Account.......... 2007 688,309,329 0.76 0.20-0.90 4.31-5.26 2006 734,057,930 0.53 0.00-0.90 7.31-8.28 2005 760,537,208 0.90 0.00-0.90 9.17-10.15 2004 768,360,185 0.45 0.00-0.90 10.00-11.00 2003 756,136,082 0.26 0.00-0.90 30.27-31.45 MSF BlackRock Bond Sub-Account......... 2007 126,621,372 3.31 0.20-0.90 5.34-6.29 2006 135,026,897 5.70 0.00-0.90 3.48-4.41 2005 136,600,474 4.03 0.00-0.90 1.50-2.41 2004 142,656,258 4.05 0.00-0.90 3.49-4.43 2003 144,581,086 3.23 0.00-0.90 4.90-5.85 MSF BlackRock Money Market Sub- Account.............................. 2007 261,581,445 4.94 0.20-0.90 4.09-5.04 2006 98,569,401 4.66 0.00-0.90 3.88-4.81 2005 92,247,000 2.73 0.00-0.90 1.97-2.89 2004 91,102,430 0.94 0.00-0.90 0.08-0.99 2003 104,081,007 0.79 0.00-0.90 (0.10)-0.81 MSF MFS Total Return Sub-Account....... 2007 128,431,968 2.19 0.20-0.90 3.44-4.38 2006 135,222,422 3.59 0.00-0.90 11.21-12.21 2005 129,599,852 1.78 0.00-0.90 2.20-3.12 2004 131,220,506 2.34 0.00-0.90 10.25-11.25 2003 83,494,581 1.36 0.00-0.90 15.95-17.00 MSF Harris Oakmark Focused Value Sub- Account.............................. 2007 157,882,498 0.57 0.20-0.90 (7.68)-(6.84) 2006 193,589,963 0.31 0.00-0.90 11.45-12.45 2005 191,375,939 0.04 0.00-0.90 9.00-9.98 2004 182,473,887 0.04 0.00-0.90 8.51-9.93 2003 165,660,062 0.14 0.00-0.90 31.47-32.66 MSF FI Value Leader Sub-Account........ 2007 78,919,923 0.96 0.20-0.90 3.26-4.20 2006 86,759,521 1.12 0.00-0.90 10.93-11.93 2005 83,598,030 1.13 0.00-0.90 9.71-10.69 2004 80,689,137 1.25 0.00-0.90 12.71-13.73 2003 76,081,031 0.72 0.00-0.90 25.78-26.92 MSF Loomis Sayles Small Cap Sub- Account.............................. 2007 174,428,227 0.08 0.20-0.90 10.89-11.90 2006 171,548,147 -- 0.00-0.90 15.64-16.68 2005 157,114,039 -- 0.00-0.90 6.00-6.96 2004 157,718,819 -- 0.00-0.90 15.31-16.35 2003 143,154,523 -- 0.00-0.90 35.24-36.47 MSF Davis Venture Value Sub-Account.... 2007 383,166,627 0.80 0.20-0.90 3.64-4.58 2006 391,428,706 0.83 0.00-0.90 13.56-14.58 2005 357,153,939 0.69 0.00-0.90 9.31-10.30 2004 335,586,136 0.58 0.00-0.90 11.36-12.37 2003 302,685,265 0.36 0.00-0.90 29.70-30.87
AA-61 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. FINANCIAL HIGHLIGHTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31 AS OF DECEMBER 31 ------------------------------------------------------ ----------------- EXPENSE RATIO(2) TOTAL RETURN(3,4) INVESTMENT(1) LOWEST TO LOWEST TO NET ASSETS ($) INCOME RATIO (%) HIGHEST (%) HIGHEST (%) ----------------- ---------------- ---------------- ----------------- MSF BlackRock Legacy Large Cap Growth Sub-Account.......................... 2007 224,783,521 0.20 0.20-0.90 17.65-18.72 2006 210,532,191 0.12 0.00-0.90 3.20-4.13 2005 222,568,551 0.41 0.00-0.90 6.05-7.00 2004 228,840,525 -- 0.00-0.90 7.84-8.81 2003 225,355,598 0.06 0.00-0.90 33.94-35.15 MSF Western Asset Management U.S. Government Sub-Account............... 2007 8,555,333 1.62 0.20-0.90 3.41-4.35 2006 23,111,882 1.96 0.00-0.90 3.23-4.16 2005 5,988,976 1.41 0.00-0.90 0.81-1.72 2004 1,515,940 0.86 0.00-0.90 2.08-3.01 2003 1,028,922 0.75 0.00 1.68 MSF Western Asset Management Strategic Bond Opportunities Sub-Account....... 2007 15,153,416 2.75 0.20-0.90 3.10-4.03 2006 13,995,776 5.01 0.00-0.90 4.12-5.06 2005 9,512,958 2.35 0.00-0.90 1.91-2.83 2004 3,884,941 1.79 0.00-0.90 5.65-6.61 2003 1,638,004 2.09 0.00 12.62 MSF FI Mid Cap Opportunities Sub- Account.............................. 2007 33,745,831 0.13 0.20-0.90 7.36-8.33 2006 33,000,999 0.01 0.00-0.90 10.85-11.85 2005 31,907,921 0.00 0.00-0.90 5.96-6.92 2004 33,474,401 0.52 0.00-0.90 16.14-17.19 2003 28,559,896 -- 0.00-0.90 33.38-34.58 MSF Jennison Growth Sub-Account........ 2007 7,939,226 0.43 0.20-0.90 10.67-11.67 2006 7,744,244 -- 0.00-0.90 1.84-2.76 2005 8,101,181 -- 0.00-0.90 20.77-21.49 MSF Russell 2000 Index Sub-Account..... 2007 27,058,478 0.93 0.20-0.90 (2.40)-(1.51) 2006 27,456,436 0.86 0.00-0.90 16.91-17.96 2005 24,753,651 0.78 0.00-0.90 3.57-4.50 2004 21,567,654 0.45 0.00-0.90 16.71-17.77 2003 13,781,579 0.59 0.00-0.90 44.76-46.07 MSF FI International Stock Sub- Account.............................. 2007 49,449,098 1.07 0.20-0.90 9.34-10.33 2006 49,321,383 1.49 0.00-0.90 15.45-16.49 2005 48,315,947 0.63 0.00-0.90 16.95-18.00 2004 40,124,885 1.28 0.00-0.90 17.13-18.19 2003 35,668,554 0.68 0.00-0.90 26.90-28.04 MSF BlackRock Strategic Value Sub- Account.............................. 2007 63,338,831 0.31 0.20-0.90 (4.32)-(3.45) 2006 73,818,143 0.31 0.00-0.90 15.69-16.73 2005 70,237,347 -- 0.00-0.90 3.22-4.15 2004 73,418,898 -- 0.00-0.90 11.97-14.31 2003 57,204,349 -- 0.00-0.90 48.79-50.14 MSF MetLife Stock Index Sub-Account.... 2007 221,661,531 1.05 0.20-0.90 4.29-5.23 2006 229,081,898 2.00 0.00-0.90 14.43-15.46 2005 213,385,168 1.60 0.00-0.90 3.70-4.64 2004 215,225,966 0.85 0.00-0.90 9.54-10.53 2003 200,963,908 1.69 0.00-0.90 27.05-28.20
AA-62 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. FINANCIAL HIGHLIGHTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31 AS OF DECEMBER 31 ------------------------------------------------------ ----------------- EXPENSE RATIO(2) TOTAL RETURN(3,4) INVESTMENT(1) LOWEST TO LOWEST TO NET ASSETS ($) INCOME RATIO (%) HIGHEST (%) HIGHEST (%) ----------------- ---------------- ---------------- ----------------- MSF Lehman Brothers Aggregate Bond Index Sub-Account.................... 2007 28,756,872 4.78 0.20-0.90 5.91-6.87 2006 29,998,745 4.36 0.00-0.90 3.19-4.12 2005 29,833,679 3.98 0.00-0.90 1.15-2.06 2004 28,363,978 3.15 0.00-0.90 3.16-4.10 2003 25,940,210 6.15 0.00-0.90 2.70-3.63 MSF Morgan Stanley EAFE Index Sub- Account.............................. 2007 22,127,994 1.95 0.20-0.90 9.82-10.82 2006 18,004,926 1.70 0.00-0.90 24.60-25.72 2005 13,270,424 1.55 0.00-0.90 12.23-13.24 2004 9,807,460 0.68 0.00-0.90 18.57-19.64 2003 4,822,619 1.26 0.00-0.90 36.40-37.64 MSF MetLife Mid Cap Stock Index Sub- Account.............................. 2007 19,029,722 0.76 0.20-0.90 6.81-7.78 2006 17,068,454 1.22 0.00-0.90 9.11-10.10 2005 14,077,266 0.74 0.00-0.90 11.27-12.27 2004 10,738,248 0.47 0.00-0.90 15.00-16.05 2003 6,317,800 0.45 0.00-0.90 33.76-34.96 MSF Franklin Templeton Small Cap Growth Sub-Account.......................... 2007 7,074,259 -- 0.20-0.90 3.60-4.54 2006 7,303,723 -- 0.00-0.90 9.03-10.01 2005 6,719,469 -- 0.00-0.90 3.72-4.65 2004 5,395,016 -- 0.00-0.90 10.41-11.41 2003 3,347,608 -- 0.00-0.90 43.63-44.93 MSF BlackRock Large Cap Sub-Account (a).................................. 2007 -- 1.58 0.20-0.90 4.46-5.36 2006 1,777,006 1.31 0.00-0.90 13.09-14.11 2005 1,613,324 0.97 0.00-0.90 2.66-3.59 2004 1,480,369 0.65 0.00-0.90 9.86-10.85 2003 911,927 0.65 0.00-0.90 29.07-30.24 MSF BlackRock Large Cap Value Sub- Account.............................. 2007 11,919,419 0.93 0.20-0.90 2.46-3.39 2006 8,839,326 1.20 0.00-0.90 18.26-19.32 2005 5,225,941 0.94 0.00-0.90 5.04-5.98 2004 3,753,609 -- 0.00-0.90 12.38-13.40 2003 2,167,116 1.39 0.00-0.90 34.46-35.68 MSF Neuberger Berman Mid Cap Value Sub- Account.............................. 2007 39,717,343 0.55 0.20-0.90 2.52-3.45 2006 38,343,907 0.50 0.00-0.90 10.46-11.45 2005 32,943,567 0.26 0.00-0.90 11.26-12.27 2004 18,749,429 0.23 0.00-0.90 21.80-22.91 2003 9,582,471 0.26 0.00-0.90 35.29-36.52 MSF Harris Oakmark Large Cap Value Sub- Account.............................. 2007 12,298,691 0.79 0.20-0.90 (4.66)-(3.79) 2006 13,615,792 0.80 0.00-0.90 17.06-18.11 2005 13,328,806 0.73 0.00-0.90 (2.26)-(1.38) 2004 9,516,425 0.47 0.00-0.90 10.42-11.42 2003 5,609,527 -- 0.00-0.90 24.37-25.49 MSF T. Rowe Price Large Cap Growth Sub- Account.............................. 2007 7,948,169 0.42 0.20-0.90 8.40-9.39 2006 5,704,830 0.42 0.00-0.90 12.23-13.24 2005 6,065,326 0.67 0.00-0.90 5.64-6.59 2004 766,546 -- 0.00-0.90 8.94-9.93
AA-63 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. FINANCIAL HIGHLIGHTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31 AS OF DECEMBER 31 ------------------------------------------------------ ----------------- EXPENSE RATIO(2) TOTAL RETURN(3,4) INVESTMENT(1) LOWEST TO LOWEST TO NET ASSETS ($) INCOME RATIO (%) HIGHEST (%) HIGHEST (%) ----------------- ---------------- ---------------- ----------------- MSF T. Rowe Price Small Cap Growth Sub- Account.............................. 2007 4,225,349 -- 0.20-0.90 8.87-9.86 2006 4,128,650 -- 0.00-0.90 2.97-3.90 2005 2,248,854 -- 0.00-0.90 10.01-11.01 2004 516,111 -- 0.00-0.90 10.09-11.08 MSF Oppenheimer Global Equity Sub- Account.............................. 2007 6,383,391 1.08 0.20-0.90 5.53-6.49 2006 5,131,307 2.33 0.00-0.90 15.55-16.59 2005 2,435,641 0.37 0.00-0.90 15.18-16.22 2004 131,591 -- 0.00-0.90 15.37-16.42 MSF BlackRock Aggressive Growth Sub- Account.............................. 2007 2,233,228 -- 0.20-0.90 19.49-20.58 2006 1,262,834 -- 0.00-0.90 5.77-6.73 2005 778,161 -- 0.00-0.90 9.71-10.70 2004 530,121 -- 0.00-0.90 12.28-12.98 MSF BlackRock Diversified Sub-Account.. 2007 3,548,106 2.37 0.20-0.90 4.94-5.90 2006 3,414,636 2.35 0.00-0.90 9.54-10.53 2005 3,082,467 1.19 0.00-0.90 2.13-3.05 2004 852,291 -- 0.00-0.90 7.53-8.72 MSF MetLife Conservative Allocation Sub-Account.......................... 2007 2,013,623 -- 0.20-0.90 4.79-5.74 2006 961,858 2.62 0.00-0.90 6.30-7.25 2005 494,420 0.67 0.00-0.90 3.50-4.13 MSF MetLife Conservative to Moderate Allocation Sub-Account............... 2007 3,279,205 -- 0.20-0.90 4.11-5.06 2006 1,654,340 1.51 0.00-0.90 8.79-9.77 2005 230,607 0.80 0.00-0.90 5.79-6.43 MSF MetLife Moderate Allocation Sub- Account.............................. 2007 29,192,086 0.20 0.20-0.90 3.61-4.55 2006 16,573,938 1.85 0.00-0.90 11.18-12.18 2005 3,737,916 0.81 0.00-0.90 8.00-8.66 MSF MetLife Moderate to Aggressive Allocation Sub-Account............... 2007 40,468,536 0.20 0.20-0.90 3.18-4.12 2006 21,764,488 0.94 0.00-0.90 13.53-14.55 2005 2,818,965 0.77 0.00-0.90 10.27-10.94 MSF MetLife Aggressive Allocation Sub- Account.............................. 2007 7,131,044 0.27 0.20-0.90 2.55-3.48 2006 3,293,718 0.72 0.00-0.90 15.03-16.07 2005 405,330 0.75 0.00-0.90 12.04-12.72 MSF FI Large Cap Sub-Account........... 2007 218,496 0.12 0.20-0.90 3.01-3.94 2006 32,272 -- 0.00-0.90 1.62-2.23 American Funds Growth Sub-Account...... 2007 235,822,089 0.78 0.20-0.90 11.34-12.35 2006 211,963,175 0.81 0.00-0.90 9.23-10.22 2005 184,342,864 0.72 0.00-0.90 15.15-16.19 2004 137,620,317 0.19 0.00-0.90 11.49-12.50 2003 98,204,163 0.13 0.00-0.90 35.58-36.81 American Funds Growth-Income Sub- Account.............................. 2007 131,971,932 1.54 0.20-0.90 4.10-5.04 2006 121,735,797 1.60 0.00-0.90 14.17-15.20 2005 102,332,076 1.39 0.00-0.90 4.89-5.83 2004 85,683,703 0.96 0.00-0.90 9.38-10.37 2003 60,261,397 1.18 0.00-0.90 31.24-32.43
AA-64 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. FINANCIAL HIGHLIGHTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31 AS OF DECEMBER 31 ------------------------------------------------------ ----------------- EXPENSE RATIO(2) TOTAL RETURN(3,4) INVESTMENT(1) LOWEST TO LOWEST TO NET ASSETS ($) INCOME RATIO (%) HIGHEST (%) HIGHEST (%) ----------------- ---------------- ---------------- ----------------- American Funds Global Small Capitalization Sub-Account........... 2007 87,957,000 2.91 0.20-0.90 20.33-21.43 2006 66,602,309 0.46 0.00-0.90 22.95-24.05 2005 47,588,867 0.92 0.00-0.90 24.23-25.35 2004 28,038,825 -- 0.00-0.90 19.80-20.88 2003 16,170,489 0.52 0.00-0.90 52.15-53.53 American Funds Bond Sub-Account........ 2007 9,806,449 9.07 0.20-0.90 2.40-3.33 2006 3,132,932 0.57 0.00-0.90 5.32-5.95 Fidelity VIP Equity-Income Sub- Account.............................. 2007 160,705,816 1.75 0.20-0.90 0.62-1.53 2006 175,481,284 3.32 0.00-0.90 19.12-20.19 2005 160,020,101 1.60 0.00-0.90 4.92-5.87 2004 165,066,633 1.51 0.00-0.90 10.53-11.53 2003 157,938,372 1.72 0.00-0.90 29.16-30.33 Fidelity VIP Overseas Sub-Account...... 2007 156,761,708 3.30 0.20-0.90 16.26-17.31 2006 148,385,879 0.87 0.00-0.90 17.02-18.08 2005 137,138,211 0.62 0.00-0.90 17.98-19.05 2004 127,743,985 1.12 0.00-0.90 12.61-13.64 2003 120,188,250 0.77 0.00-0.90 42.09-43.37 MIST T. Rowe Price Mid-Cap Growth Sub- Account.............................. 2007 25,194,308 0.23 0.20-0.90 16.79-17.85 2006 21,555,907 -- 0.00-0.90 5.61-6.56 2005 17,311,727 -- 0.00-0.90 13.84-14.87 2004 9,869,525 -- 0.00-0.90 17.09-18.15 2003 5,166,306 -- 0.00-0.90 35.90-37.12 MIST PIMCO Total Return Sub-Account.... 2007 58,359,575 3.62 0.20-0.90 6.88-7.85 2006 46,125,778 2.55 0.00-0.90 3.87-4.80 2005 41,507,727 0.06 0.00-0.90 1.55-2.46 2004 33,796,643 7.43 0.00-0.90 4.30-5.25 2003 24,279,961 1.53 0.00-0.90 3.58-4.52 MIST RCM Technology Sub-Account........ 2007 5,928,264 -- 0.20-0.90 30.48-31.67 2006 3,796,537 -- 0.00-0.90 4.54-5.48 2005 3,690,264 -- 0.00-0.90 10.36-11.35 2004 6,271,717 0.05 0.00-0.90 (5.14)-(4.28) 2003 4,294,955 -- 0.00-0.90 56.43-57.84 MIST Lazard Mid-Cap Sub-Account........ 2007 8,530,473 0.64 0.20-0.90 (3.35)-(2.47) 2006 6,762,364 0.53 0.00-0.90 13.85-14.87 2005 6,002,785 0.39 0.00-0.90 7.43-8.40 2004 4,879,178 -- 0.00-0.90 13.57-14.60 2003 2,523,380 0.12 0.00-0.90 25.29-26.42 MIST Met/AIM Small Cap Growth Sub- Account.............................. 2007 5,139,211 -- 0.20-0.90 10.40-11.40 2006 4,548,438 -- 0.00-0.90 12.89-13.91 2005 3,699,893 -- 0.00-0.90 7.62-8.59 2004 3,868,487 -- 0.00-0.90 5.77-6.73 2003 3,568,720 -- 0.00-0.90 37.83-39.08 MIST Harris Oakmark International Sub- Account.............................. 2007 55,058,740 0.93 0.20-0.90 (1.75)-(0.86) 2006 49,487,138 2.51 0.00-0.90 28.05-29.20 2005 28,085,269 0.15 0.00-0.90 13.46-14.48 2004 13,616,073 0.04 0.00-0.90 19.72-20.80 2003 5,222,560 1.73 0.00-0.90 34.16-35.37
AA-65 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 5. FINANCIAL HIGHLIGHTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31 AS OF DECEMBER 31 ------------------------------------------------------ ----------------- EXPENSE RATIO(2) TOTAL RETURN(3,4) INVESTMENT(1) LOWEST TO LOWEST TO NET ASSETS ($) INCOME RATIO (%) HIGHEST (%) HIGHEST (%) ----------------- ---------------- ---------------- ----------------- MIST Legg Mason Partners Aggressive Growth Sub-Account................... 2007 2,810,910 0.23 0.20-0.90 1.68-2.60 2006 2,888,496 -- 0.00-0.90 (2.48)-(1.60) 2005 3,341,457 -- 0.00-0.90 12.83-13.84 2004 2,340,501 -- 0.00-0.90 7.84-8.82 2003 2,049,192 -- 0.00-0.90 28.76-29.93 MIST Neuberger Berman Real Estate Sub- Account.............................. 2007 23,578,148 1.11 0.20-0.90 (15.56)-(14.79) 2006 24,808,259 1.05 0.00-0.90 36.67-37.90 2005 10,704,430 -- 0.00-0.90 12.59-13.61 2004 3,299,369 3.44 0.00-0.90 28.96-29.74 MIST MFS Research International Sub- Account.............................. 2007 22,084,791 1.44 0.20-0.90 12.58-13.60 2006 10,510,490 1.49 0.00-0.90 25.78-26.91 2005 4,008,903 0.86 0.00-0.90 15.73-16.77 2004 859,123 -- 0.00-0.90 18.65-19.72 MIST Lord Abbett Bond Debenture Sub- Account.............................. 2007 39,360,830 5.37 0.20-0.90 5.89-6.85 2006 36,899,321 6.78 0.00-0.90 8.38-9.35 2005 34,356,749 4.73 0.00-0.90 0.90-1.81 2004 31,292,892 6.47 0.00-0.90 7.46-9.59 2003 28,578,861 6.34 0.00-0.90 26.13-27.26 MIST Oppenheimer Capital Appreciation Sub-Account.......................... 2007 900,150 0.10 0.20-0.90 13.42-14.45 2006 332,971 0.28 0.00-0.90 6.85-7.81 2005 146,981 0.14 0.00-0.90 3.93-4.87 MIST Cyclical Growth ETF Sub-Account... 2007 817,206 -- 0.20-0.90 5.02-5.76 2006 90,720 6.20 0.00-0.90 7.06-7.70 MIST Cyclical Growth and Income ETF Sub-Account.......................... 2007 540,137 -- 0.20-0.90 4.81-5.97 2006 38,714 8.25 0.00-0.90 6.68-7.31 MIST PIMCO Inflation Protected Bond Sub-Account.......................... 2007 1,579,874 1.02 0.20-0.90 10.08-11.08 2006 164,158 -- 0.00-0.90 (0.42)-0.46 MIST Legg Mason Value Equity Sub- Account.............................. 2007 15,132,086 -- 0.20-0.90 (6.57)-(5.72) 2006 17,155,617 0.21 0.00-0.90 7.71-8.35 MIST BlackRock Large-Cap Core Sub- Account(b)........................... 2007 2,059,411 -- 0.20-0.90 5.67-6.63 MIST Janus Forty Sub-Account(b)........ 2007 4,356,751 -- 0.20-0.90 26.05-27.09
(1.) These amounts represent the dividends, excluding distributions of capital gains, received by the Sub-Account from the underlying portfolio, series, or fund net of management fees assessed by the portfolio manager, divided by the average net assets. These ratios exclude mortality and expense risk charges. The recognition of investment income by the Sub-Account is affected by the timing of the declaration of dividends by the underlying portfolio, series, or fund in which the Sub-Account invests. (2.) These amounts represent the annualized policy expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. The investment income ratio is calculated for each period indicated or from the effective date through the end of the reporting period. AA-66 NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT OF NEW ENGLAND LIFE INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS -- (CONCLUDED) 5. FINANCIAL HIGHLIGHTS -- (CONCLUDED) (3.) Each Sub-Account calculates a daily performance measure called a "unit value," which reflects changes in the net asset value per share of the underlying assets of the portfolio, series, or fund including daily charges against the Sub-Account for mortality and expense risk charges, where applicable, and any dividend or capital gain distributions from the portfolio, series, or 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. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. As the total return is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual policy total returns are not within the ranges presented. (4.) The Company sells a number of Policies which have unique combinations of features and fees. Differences in the fee structures result in a variety of expense ratios and total returns that are charged against the Separate Account or policy cash values. (a) For the period January 1, 2007 to April 27, 2007. (b) For the period April 30, 2007 to December 31, 2007. AA-67 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 April 28, 2008. 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 APRIL 28, 2008 TO PROSPECTUS DATED APRIL 28, 2008 This supplement is prepared for Owners of ZENITH SURVIVORSHIP LIFE 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. 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. VL-196-08 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. 6. If you add the Survivorship Level Term Insurance Rider to your Policy, you can choose to 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 ("Inside Term"). If you choose not to do this, then the face amount of the rider will simply be added to the Policy proceeds ("Outside Term"). The Survivorship Level Term Insurance Rider described in the current Zenith Survivorship Life 2002 prospectus is only available as Outside Term. Inside Term may provide greater potential for the cash value to grow relative to the death benefit. Outside Term may provide greater potential for a higher death benefit relative to the cash value; 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. 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. For Policies issued in New York, the Survivorship Level Term Insurance Rider is available only as Outside Term. If you chose the Guaranteed Death Benefit Rider at issue, a change in death benefit option, the addition of the Survivorship Level Term Insurance Rider as Outside Term, or a change under the 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 the Survivorship Level Term Insurance Rider, and at age 100 of the younger insured. If you seek to reduce the overall cost of your insurance protection, it is generally to your economic advantage to include a significant portion or percentage of your insurance coverage under the Inside Term rider since both current and guaranteed charges for the Survivorship Level Term Insurance Rider are lower than those of the base Policy. Outside Term 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 Outside Term coverage can become expensive relative to the base Policy cost, particularly at higher attained ages. 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. For more information about term riders, see "Additional Benefits by Rider" in the Prospectus. NEW ENGLAND LIFE INSURANCE COMPANY 501 BOYLSTON STREET BOSTON, MASSACHUSETTS 02116 (617) 578-2000 ZENITH SURVIVORSHIP LIFE 2002 SUPPLEMENT DATED APRIL 28, 2008 TO PROSPECTUS DATED APRIL 28, 2008 This supplement is prepared for Owners of ZENITH SURVIVORSHIP LIFE 2002 Policies issued prior to May 1, 2004. It describes a difference between your Policy and the Policy as described in the current Zenith Survivorship Life 2002 prospectus. If you add the Survivorship Level Term Insurance Rider to your Policy, you can choose to 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 ("Inside Term"). If you choose not to do this, then the face amount of the rider will simply be added to the Policy proceeds ("Outside Term"). The Survivorship Level Term Insurance Rider described in the current Zenith Survivorship Life 2002 prospectus is only available as Outside Term. Inside Term may provide greater potential for the cash value to grow relative to the death benefit. Outside Term may provide greater potential for a higher death benefit relative to the cash value; 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. 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. For Policies issued in New York, the Survivorship Level Term Insurance Rider is available only as Outside Term. If you chose the Guaranteed Death Benefit Rider at issue, a change in death benefit option, the addition of the Survivorship Level Term Insurance Rider as Outside Term, or a change under the 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 the Survivorship Level Term Insurance Rider, and at age 100 of the younger insured. If you seek to reduce the overall cost of your insurance protection, it is generally to your economic advantage to include a significant portion or percentage of your insurance coverage under the Inside Term rider since both current and guaranteed charges for the Survivorship Level Term Insurance Rider are lower than those of the base Policy. Outside Term can also provide less VL-213-08 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 Outside Term coverage can become expensive relative to the base Policy cost, particularly at higher attained ages. 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. For more information about term riders, see "Additional Benefits by Rider" in the Prospectus. 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) APRIL 28, 2008 This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the Prospectus dated April 28, 2008 and should be read in conjunction therewith. A copy of the Prospectus may be obtained by writing to New England Securities Corporation, 501 Boylston Street, Boston, Massachusetts 02116. VL-202-08 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-4 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-6 LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY...................... SAI-6 MISSTATEMENT OF AGE OR SEX............................................ SAI-6 REPORTS............................................................... SAI-7 PERSONALIZED ILLUSTRATIONS............................................ SAI-7 PERFORMANCE DATA...................................................... SAI-7 INVESTMENT ADVICE..................................................... SAI-7 REGISTRATION STATEMENT................................................ SAI-10 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM......................... SAI-10 EXPERTS............................................................... SAI-10 FINANCIAL STATEMENTS.................................................. F-1
SAI-2 GENERAL INFORMATION AND HISTORY THE COMPANY New England Life Insurance 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 located at 200 Park Avenue, New York, New York 10166. 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. MetLife entered into a net worth maintenance agreement with NELICO at the time MetLife merged with New England Mutual Life Insurance Company. Under the agreement, MetLife agreed, without limitation as to the amount, to cause NELICO to have certain minimum capital and surplus levels and liquidity necessary to enable it to meet its current obligations on a timely basis. At December 31, 2005, the capital and surplus of NELICO was in excess of these minimum capital and surplus levels. MetLife and NELICO entered into the agreement in part to enhance and maintain the financial strength of NELICO as set forth in the agreement. Creditors of NELICO (including its policyholders) have certain rights under the agreement to enforce the provisions of the agreement through certain state insurance regulators. However, the agreement provides, among other things, that it does not provide any creditor of NELICO with recourse to or against any of the assets of MetLife. MetLife has the right to terminate the agreement upon thirty days written notice to NELICO. MetLife has agreed not to terminate the agreement unless one of certain designated events occur, including if NELICO attains a financial strength rating from Moody's Investors Service, Inc. without giving weight to the support of the agreement, that is the same as or better than its Moody's rating with such support. 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 The Policies are offered to the public on a continuous basis. We anticipate continuing to offer the Policies, but reserve the right to discontinue the offering. New England Securities Corporation ("Distributor") serves as principal underwriter for the Policies. Distributor is a Massachusetts corporation organized in 1968 and a wholly-owned subsidiary of the Company, and its home address is located at 501 Boylston Street, Boston, Massachusetts 02116. Distributor is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority. Distributor is not a member of the Securities Investor Protection Corporation. Distributor may enter into selling agreements with other broker-dealers ("selling firms") and compensate them for their services. Sales representatives are appointed as our insurance agents. SAI-3 Distributor received sales compensation with respect to the Variable Account in the following amounts during the periods indicated:
AGGREGATE AMOUNT OF AGGREGATE AMOUNT OF COMMISSIONS RETAINED FISCAL YEAR COMMISSIONS PAID TO DISTRIBUTOR BY DISTRIBUTOR AFTER PAYMENTS TO SELLING FIRMS - ----------- ------------------------------- ---------------------------------------------- 2007............................ $35,683,129 $0 2006............................ $37,283,298 $0 2005............................ $37,920,772 $0
Distributor passes through commissions it receives to selling firms for their sales and does not retain any portion of it in return for its services as distributor for the Policies. Under the distribution arrangement, we pay the following sales expenses: sales representative training allowances; deferred compensation and insurance benefits of registered persons; advertising expenses; and all other expenses of distributing the Policies. ADDITIONAL INFORMATION ABOUT THE OPERATION OF THE POLICIES DOLLAR COST AVERAGING We may offer an automated transfer privilege called dollar cost averaging, under which 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 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). You must transfer a minimum of $100 to each account that you select under this feature. If, in the future, we exercise our right to limit the number of transfers 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 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, in the future, we exercise our right to limit the number of transfers 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. SAI-4 Ask your registered representative about the availability of this feature. PAYMENT OF PROCEEDS We may 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. (See "Receipt of Communications and Payments at NELICO's Designated Office" in the prospectus.) The payment options available are fixed benefit options only and are not affected by the investment experience of the Variable Account. Once payments under an option begin, withdrawal rights may be restricted. Even if the death benefit under the Policy is excludible from income, payments under Payment Options may not be excludible in full. This is because earnings on the death benefit after the second insured's death are taxable and payments under the Payment Options generally include such earnings. You should consult a tax adviser as to the tax treatment of payments under Payment Options. 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. SAI-5 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. 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. SAI-6 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 insureds' 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, insureds, 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 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. 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, mortality and expense risk, and administrative 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 of the corresponding Sub-Account. 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. SAI-7 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 BlackRock Money Market Portfolio), the Back Bay Advisors Bond Income Series (currently, the BlackRock Bond Income Portfolio), the Westpeak Value Growth Series (currently, the FI Value Leaders 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 Value Leaders Portfolio (formerly, the FI Structured Equity Portfolio which was formerly the Westpeak Growth and Income Series which was formerly the Westpeak Value Growth 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 BlackRock Money Market Portfolio (formerly, the State Street Research Money Market Portfolio which was formerly the Back Bay Advisors Money Market Series) and the BlackRock Bond Income Portfolio (formerly, the State Street Research Bond Income Portfolio which was 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; BlackRock Advisors, Inc. became the sub-adviser to these Portfolios on January 31, 2005. 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. On or about April 30, 2004, the Balanced Portfolio merged with and into the MFS Total Return Portfolio and the Balanced Portfolio ceased to exist. 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, the Zenith Equity Portfolio became a "fund of funds" that invests equally in three other Portfolios of the Met Series Fund: the FI Value Leaders 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. The sub-adviser to the BlackRock Legacy Large Cap Growth Portfolio (formerly, the State Street Research Large Cap Growth Portfolio which was formerly the Alger Equity Growth Portfolio) was Fred Alger Management, Inc. until May 1, 2004, when State Street Research & Management Company became the sub-adviser; BlackRock Advisors, Inc. became the sub-adviser on January 31, 2005. On May 1, 2004, the MFS Total Return Portfolio of the Met Series Fund replaced the VIP Asset Manager Portfolio of Fidelity(R) Variable Insurance Products. On or about April 30, 2004, the FI Mid Cap Opportunities Portfolio merged with and into the Janus Mid Cap Portfolio and immediately thereafter Fidelity SAI-8 Management & Research Company replaced Janus Capital Management LLC as the sub- adviser to the Portfolio, which then became known as the FI Mid Cap Opportunities Portfolio. On or about April 30, 2004, the MFS Research Managers Portfolio merged with and into the MFS Investors Trust Portfolio and the MFS Research Managers Portfolio ceased to exist. On or about May 1, 2006, the MFS Investors Trust Portfolio merged with and into the Legg Mason Value Equity Portfolio, a Portfolio of the Met Investors Series Trust, and the MFS Investors Trust Portfolio ceased to exist. The sub-adviser to the MFS(R) Research International Portfolio (formerly, the Fidelity VIP Overseas Portfolio) was Fidelity Management & Research Company until April 28, 2008 when Massachusetts Financial Services Company became the sub-adviser. 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 Julius Baer International Stock Portfolio (formerly, the FI International Stock Portfolio which was formerly the Putnam International Stock Portfolio) was Fidelity Management & Research Company until April 28, 2008 when Julius Baer Investment Management LLC became the sub-adviser. On December 1, 2000, the Putnam International Stock Portfolio replaced the Morgan Stanley International Magnum Equity Series (formerly the Draycott International Equity Series) of the Zenith Fund. The sub-adviser to the Morgan Stanley International Magnum Equity Series was Draycott Partners, Ltd. until May 1, 1997, when Morgan Stanley Asset Management Inc. became the sub-adviser. On April 28, 2003, the Janus Growth Portfolio, formerly a Portfolio of the Met Series Fund, merged with and into the Janus Aggressive Growth Portfolio of the Met Investors Series Trust. The sub-adviser to the Janus Aggressive Growth Portfolio was Janus Capital Management LLC until October 1, 2006, when Legg Mason Capital Management, Inc. became the sub-adviser to the Portfolio which then became known as the Legg Mason Partners Aggressive Growth Portfolio. The sub-adviser to the BlackRock Aggressive Growth Portfolio (formerly, the State Street Research Aggressive Growth Portfolio), the BlackRock Strategic Value Portfolio (formerly, the State Street Research Aurora Portfolio), the BlackRock Diversified Portfolio (formerly, the State Street Research Diversified Portfolio), the BlackRock Investment Trust Portfolio (formerly, the State Street Research Investment Trust Portfolio), and the BlackRock Large Cap Value Portfolio (formerly, the State Street Research Large Cap Value Portfolio) was State Street Research & Management Company until January 31, 2005, when BlackRock Advisors, Inc. became the sub-adviser. On April 30, 2007, the BlackRock Investment Trust Portfolio merged with and into the BlackRock Large Cap Core Portfolio, a Portfolio of the Met Investors Series Trust, and the BlackRock Investment Trust Portfolio ceased to exist. The sub-adviser to the Oppenheimer Global Equity Portfolio (formerly, the Scudder Global Equity Portfolio) was Deutsche Investment Management Americas Inc. until May 1, 2005 when OppenheimerFunds, Inc. became the sub-adviser. On May 1, 2005, the Met/Putnam Voyager Portfolio (formerly, the Putnam Large Cap Growth Portfolio) merged with and into the Jennison Growth Portfolio and the Met/Putnam Voyager Portfolio ceased to exist. The sub-adviser to the Western Asset Management Strategic Bond Opportunities Portfolio and the Western Asset Management U.S. Government Portfolio (formerly, the Salomon Brothers Strategic Bond Opportunities Portfolio and the Salomon Brothers U.S. Government Portfolio, respectively) was Salomon Brothers Asset Management Inc. until May 1, 2006, when Western Asset Management Company became the sub-adviser to the Portfolios. The sub-adviser of the MFS(R) Value Portfolio (formerly, the Harris Oakmark Large Cap Value Portfolio) was Harris Associates L.P. until January 7, 2008 when Massachusetts Financial Services Company 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, the 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. The sub-adviser to the RCM Technology Portfolio (formerly, the PIMCO PEA Innovation Portfolio) was PEA Capital LLC until January 15, 2005 when RCM Capital Management LLC became the sub-adviser. On May 1, 2005, the Lord Abbett Bond Debenture Portfolio replaced the VIP High Income Portfolio of Fidelity Variable Insurance Products. The sub-adviser to the Lazard Mid Cap Portfolio (formerly, the Met/ SAI-9 AIM Mid Cap Core Equity Portfolio) was AIM Capital Management Inc. until December 19, 2005, when Lazard Asset Management LLC became the sub-adviser. On April 28, 2008, ING Clarion Real Estate Securities, L.P. succeeded Neuberger Berman Management, Inc. as sub-adviser to the Neuberger Berman Real Estate Portfolio, which then changed its name to Clarion Global Real Estate Portfolio. 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. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The consolidated financial statements of New England Life Insurance Company (the "Company") included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the fact that the Company changed its method of accounting for income taxes as required by accounting guidance adopted on January 1, 2007, and changed its method of accounting for defined benefit pension and other postretirement plans, as required by accounting guidance adopted on December 31, 2006), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The principal address of Deloitte & Touche LLP is 201 East Kennedy Boulevard, Suite 1200, Tampa, Florida 33602-5827. EXPERTS Paul L. LeClair, FSA, MAAA, Vice President of NELICO has examined actuarial matters included in the Registration Statement, as stated in his opinion filed as an exhibit to the Registration Statement. SAI-10 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS for the Years Ended December 31, 2007, 2006 and 2005 and Report of Independent Registered Public Accounting Firm F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholder 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, 2007 and 2006, 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, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of New England Life Insurance Company and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, the Company changed its method of accounting for income taxes as required by accounting guidance adopted on January 1, 2007, and changed its method of accounting for defined benefit pension and other postretirement plans, as required by accounting guidance adopted on December 31, 2006. /s/ DELOITTE & TOUCHE LLP Certified Public Accountants Tampa, Florida April 14, 2008 F-2 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2007 AND 2006 (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
2007 2006 ------- ------- ASSETS Investments: Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $814 and $880, respectively)............................................ $ 821 $ 886 Equity securities available-for-sale, at estimated fair value (cost: $0 and $7, respectively).................... -- 7 Mortgage loans on real estate............................... 2 2 Policy loans................................................ 411 357 Other limited partnership interests......................... 14 18 Short-term investments...................................... 123 141 ------- ------- Total investments........................................ 1,371 1,411 Cash.......................................................... 51 12 Accrued investment income..................................... 20 21 Premiums and other receivables................................ 302 286 Deferred policy acquisition costs............................. 1,349 1,310 Current income tax recoverable................................ 13 -- Other assets.................................................. 66 58 Separate account assets....................................... 10,904 10,490 ------- ------- Total assets............................................. $14,076 $13,588 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Future policy benefits...................................... $ 594 $ 541 Policyholder account balances............................... 813 922 Other policyholder funds.................................... 433 400 Policyholder dividends payable.............................. 5 4 Current income tax payable.................................. -- 3 Deferred income tax liability............................... 69 59 Other liabilities........................................... 179 215 Separate account liabilities................................ 10,904 10,490 ------- ------- Total liabilities........................................ 12,997 12,634 ------- ------- CONTINGENCIES, COMMITMENTS AND GUARANTEES (NOTE 10) STOCKHOLDER'S EQUITY: Common stock, par value $125 per share; 50,000 shares authorized; 20,000 shares issued and outstanding............ 3 3 Additional paid-in capital.................................... 458 458 Retained earnings............................................. 627 503 Accumulated other comprehensive loss.......................... (9) (10) ------- ------- Total stockholder's equity............................... 1,079 954 ------- ------- Total liabilities and stockholder's equity............... $14,076 $13,588 ======= =======
See accompanying notes to consolidated financial statements. F-3 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (IN MILLIONS)
2007 2006 2005 ---- ---- ---- REVENUES Premiums..................................................... $ 80 $ 96 $106 Universal life and investment-type product policy fees....... 546 521 481 Net investment income........................................ 71 71 66 Other revenues............................................... 121 92 88 Net investment gains (losses)................................ 7 (4) (4) ---- ---- ---- Total revenues.......................................... 825 776 737 ---- ---- ---- EXPENSES Policyholder benefits and claims............................. 142 142 153 Interest credited to policyholder account balances........... 30 34 32 Policyholder dividends....................................... 8 7 6 Other expenses............................................... 507 486 461 ---- ---- ---- Total expenses.......................................... 687 669 652 ---- ---- ---- Income before provision for income tax....................... 138 107 85 Provision for income tax..................................... 27 9 29 ---- ---- ---- Net income................................................... $111 $ 98 $ 56 ==== ==== ====
See accompanying notes to consolidated financial statements. F-4 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (IN MILLIONS)
ACCUMULATED OTHER COMPREHENSIVE LOSS --------------------------- NET DEFINED ADDITIONAL UNREALIZED BENEFIT COMMON PAID-IN RETAINED INVESTMENT PLANS STOCK CAPITAL EARNINGS GAINS (LOSSES) ADJUSTMENT TOTAL ------- ---------- -------- -------------- ---------- ------- Balance at January 1, 2005........ $ 3 $458 $349 $ 14 $ -- $ 824 Comprehensive income: Net income...................... 56 56 Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax..... (11) (11) ------- Comprehensive income............ 45 ------- --------- -------- ---- ---------- ------- Balance at December 31, 2005...... 3 458 405 3 -- 869 Comprehensive income: Net income...................... 98 98 Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax..... (3) (3) ------- Comprehensive income............ 95 ------- Adoption of SFAS 158, net of income tax................... (10) (10) ------- --------- -------- ---- ---------- ------- Balance at December 31, 2006...... 3 458 503 -- (10) 954 Cumulative effect of a change in accounting principle, net of income tax (Note 1)............. 13 13 ------- --------- -------- ---- ---------- ------- Balance at January 1, 2007........ 3 458 516 -- (10) 967 Comprehensive income: Net income...................... 111 111 Other comprehensive income (loss): Unrealized investment gains (losses), net of related offsets and income tax..... 1 1 ------- Comprehensive income............ 112 ------- --------- -------- ---- ---------- ------- Balance at December 31, 2007...... $3 $ 458 $ 627 $ 1 $ (10) $ 1,079 ======= ========= ======== ==== ========== =======
See accompanying notes to consolidated financial statements. F-5 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (IN MILLIONS)
2007 2006 2005 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.............................................. $ 111 $ 98 $ 56 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization expenses............. 3 3 6 Amortization of premiums and accretion of discounts associated with investments, net................. (1) -- 2 (Gains) losses from sales of investments and businesses, net.................................. (7) 4 4 Interest credited to policyholder account balances......................................... 30 34 32 Universal life and investment-type product policy fees............................................. (546) (521) (481) Change in premiums and other receivables........... 7 (30) (69) Change in deferred policy acquisition costs, net... (40) (22) (32) Change in insurance-related liabilities............ 52 39 78 Change in income tax payable....................... (7) 12 26 Change in other assets............................. 108 124 86 Change in other liabilities........................ 206 209 184 Other, net......................................... 1 (4) (4) ------- ------- ------- Net cash used in operating activities................... (83) (54) (112) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturity securities.......................... 283 196 470 Mortgage loans on real estate...................... -- 7 -- Other limited partnership interests................ 3 2 2 Purchases of: Fixed maturity securities.......................... (219) (286) (460) Payment to participating common stock shareholders upon dissolution of subsidiary (Note 2)............ (16) -- -- Net change in short-term investments.................. 18 (89) (22) Net change in policy loans............................ (54) (30) (19) Other, net............................................ (1) 8 (2) ------- ------- ------- Net cash provided by (used in) investing activities..... 14 (192) (31) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits........................................... 1,771 1,626 1,366 Withdrawals........................................ (1,663) (1,374) (1,117) Redemption of shares subject to mandatory redemption.. -- -- (100) ------- ------- ------- Net cash provided by financing activities............... 108 252 149 ------- ------- ------- Change in cash.......................................... 39 6 6 Cash, beginning of year................................. 12 6 -- ------- ------- ------- CASH, END OF YEAR....................................... $ 51 $ 12 $ 6 ======= ======= ======= Supplemental disclosures of cash flow information: Net cash paid (received) during the year for: Interest........................................... $ -- $ -- $ 3 ======= ======= ======= Income tax......................................... $ 22 $ (7) $ 4 ======= ======= =======
See accompanying notes to consolidated financial statements. F-6 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS New England Life Insurance Company ("NELICO") and its subsidiaries (collectively, the "Company") is a wholly-owned subsidiary of Metropolitan Life Insurance Company ("MLIC"), which is a wholly-owned subsidiary of MetLife, Inc. ("MetLife"). The Company is headquartered in Boston, Massachusetts as a Massachusetts chartered company. The Company principally provides life insurance and 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 Company is licensed to conduct business in 50 states and the District of Columbia. NELICO owned 100% of the voting common stock of Omega Reinsurance Corporation ("Omega"), which was dissolved in October 2007. Omega is included in the accompanying consolidated financial statements until its date of dissolution. See Note 2. NELICO owns 100% of the outstanding common stock of New England Securities Corporation ("NES") and a majority interest in MetLife Advisors, LLC ("Advisors"). BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of NELICO and its subsidiaries. Intercompany accounts and transactions have been eliminated. The Company uses the equity method of accounting for investments in other limited partnership interests in which it has more than a minor equity interest or more than a minor influence over the partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in other limited partnership interests in which it has a minor equity investment and virtually no influence over the partnership's operations. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2007 presentation. The Company had no minority interest related to consolidated entities at December 31, 2007. Minority interest related to consolidated entities included in other liabilities was $7 million at December 31, 2006. Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates include those used in determining: i) the fair value of investments in the absence of quoted market values; ii) investment impairments; iii) the recognition of income on certain investments; iv) the application of the consolidation rules to certain investments; v) the fair value of and accounting for derivatives; F-7 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) vi) the capitalization and amortization of deferred policy acquisition costs ("DAC"); vii) the liability for future policyholder benefits; viii) accounting for income taxes and the valuation of deferred tax assets; ix) accounting for reinsurance transactions; x) accounting for employee benefit plans; and xi) the liability for litigation and regulatory matters. A description of such critical estimates is incorporated within the discussion of the related accounting policies which follow. 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. Actual results could differ from these estimates. Investments The Company's investments are in fixed maturity and equity securities, mortgage loans on real estate, policy loans, other limited partnerships and short-term investments. The accounting policies related to each are as follows: Fixed Maturity and Equity Securities. 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 these securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes. All security transactions are recorded on a trade date basis. Investment gains and losses on sales of securities are determined on a specific identification basis. Interest income on fixed maturity securities is recorded when earned using an effective yield method giving effect to amortization of premiums and accretion of discounts. Dividends on equity securities are recorded when declared. These dividends and interest income are recorded as part of net investment income. Included within fixed maturity securities are loan-backed securities including mortgage-backed and asset-backed securities. Amortization of the premium or discount from the purchase of these securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for single class and multi-class mortgage-backed and asset-backed securities are obtained from broker-dealer survey values or internal estimates. For credit-sensitive mortgage-backed and asset-backed securities and certain prepayment-sensitive securities, the effective yield is recalculated on a prospective basis. For all other mortgage-backed and asset-backed securities, the effective yield is recalculated on a retrospective basis. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other-than-temporary in the period in which the determination is made. These impairments are included within net investment gains (losses) and the cost basis of the fixed maturity and equity securities is reduced accordingly. The Company does not change the revised cost basis for subsequent recoveries in value. 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. The Company's review of its fixed maturity and equity securities for impairments includes an analysis of the total gross unrealized losses by three categories of securities: (i) securities where the estimated fair value had declined and remained below cost or amortized cost by less than 20%; (ii) securities where the estimated fair value had declined and remained below cost or amortized cost by 20% or more for less than six months; and (iii) securities where the F-8 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) estimated fair value had declined and remained below cost or amortized cost by 20% or more for six months or greater. Additionally, 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 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 cost or 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; (vi) the Company's ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost or amortized cost (See also Note 3); (vii) unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; and (viii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. Mortgage Loans on Real Estate. Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income. Loans are considered to be impaired when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Valuation allowances are established for the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan's original effective interest rate, the value of the loan's collateral if the loan is in the process of foreclosure or otherwise collateral dependent, or the loan's market value if the loan is being sold. The Company also establishes allowances for loan losses when a loss contingency exists for pools of loans with similar characteristics, such as mortgage loans based on similar property types or loan to value risk factors. A loss contingency exists when the likelihood that a future event will occur is probable based on past events. Interest income earned on impaired loans is accrued on the principal amount of the loan based on the loan's contractual interest rate. However, interest ceases to be accrued for loans on which interest is generally more than 60 days past due and/or where the collection of interest is not considered probable. Cash receipts on such impaired loans are recorded as a reduction of the recorded investment. Gains and losses from the sale of loans and changes in valuation allowances are reported in net investment gains (losses). Policy Loans. Policy loans are stated at unpaid principal balances. Interest income on such loans is recorded as earned using the contractually agreed upon interest rate. Generally, interest is capitalized on the policy's anniversary date. Other Limited Partnership Interests. The Company uses the equity method of accounting for investments in other limited partnership interests in which it has more than a minor equity interest or more than a minor influence over the partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in other limited partnership interests in which it has a minor equity investment and virtually no influence over the partnership's operations. In addition to the investees performing regular evaluations for the impairment of underlying investments, the Company routinely evaluates its investments in other limited partnerships for impairments. For its cost method investments, the Company follows an impairment analysis which is similar to the process followed for its fixed maturity and equity securities as described previously. For equity method investees, the F-9 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company considers financial and other information provided by the investee, other known information and inherent risks in the underlying investments, as well as future capital commitments, in determining whether an impairment has occurred. When an other-than-temporary impairment is deemed to have occurred, the Company records a realized capital loss within net investment gains (losses) to record the investment at its fair value. Short-term Investments. Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at amortized cost, which approximates fair value. Estimates and Uncertainties. The Company's investments are exposed to three primary sources of risk: credit, interest rate and market valuation. The financial statement risks, stemming from such investment risks, are those associated with the recognition of impairments, the recognition of income on certain investments, and the determination of fair values. The determination of the amount of allowances and impairments, as applicable, are described previously by investment type. The determination of such allowances and impairments is highly subjective and is based upon the Company's periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. The recognition of income on certain investments (e.g. loan-backed securities including mortgage-backed and asset-backed securities, certain investment transactions, etc.) is dependent upon market conditions, which could result in prepayments and changes in amounts to be earned. The fair values of publicly held fixed maturity securities and publicly held equity securities are based on quoted market prices or estimates from independent pricing services. However, in cases where quoted market prices are not available, such as for private fixed maturity securities, fair values are estimated using present value or valuation techniques. The determination of fair values is based on: (i) valuation methodologies; (ii) securities the Company deems to be comparable; and (iii) assumptions deemed appropriate given the circumstances. The fair value estimates are made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. Factors considered in estimating fair value include: coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, credit rating, industry sector of the issuer, and quoted market prices of comparable securities. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. Additionally, when the Company enters into certain other limited partnerships for which the Company may be deemed to be the primary beneficiary under Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 46(r), Consolidation of Variable Interest Entities -- An Interpretation of ARB No. 51, it may be required to consolidate such investments. The accounting rules for the determination of the primary beneficiary are complex and require evaluation of the contractual rights and obligations associated with each party involved in the entity, an estimate of the entity's expected losses and expected residual returns and the allocation of such estimates to each party. The use of different methodologies and assumptions as to the determination of the fair value of investments, the timing and amount of impairments, the recognition of income, or consolidation of investments may have a material effect on the amounts presented within the consolidated financial statements. F-10 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Derivative Financial Instruments Derivatives are financial instruments whose values are derived from interest rates, foreign currency exchange rates, or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter market. The Company uses a variety of derivatives, including swaps and forwards, to manage the risk associated with variability in cash flows or changes in fair values related to the Company's financial instruments. To a lesser extent, the Company may use credit derivatives, such as credit default swaps, to synthetically replicate investment risks and returns which are not readily available in the cash market. The Company also purchases certain securities, issues certain insurance policies and investment contracts and engages in certain reinsurance contracts that have embedded derivatives. Freestanding derivatives are carried on the Company's consolidated balance sheet either as assets within other invested assets or as liabilities within other liabilities at fair value as determined by quoted market prices or through the use of pricing models. The determination of fair value, when quoted market values are not available, is based on valuation methodologies and assumptions deemed appropriate under the circumstances. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, market volatility, and liquidity. Values can also be affected by changes in estimates and assumptions used in pricing models. Such assumptions include estimates of volatility, interest rates, foreign currency exchange rates, other financial indices and credit ratings. Essential to the analysis of the fair value is risk of counterparty default. The use of different assumptions may have a material effect on the estimated derivative fair value amounts, as well as the amount of reported net income. If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the fair value of the derivative are generally reported in net investment gains (losses). The fluctuations in fair value of derivatives which have not been designated for hedge accounting can result in significant volatility in net income. To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge as either (i) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment ("fair value hedge"); or (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"). In this documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income. The accounting for derivatives is complex and interpretations of the primary accounting standards continue to evolve in practice. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment under these accounting standards. If it was determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected. Differences in judgment as to the availability and application of hedge accounting designations and the appropriate accounting treatment may result in a differing impact on the consolidated financial statements of the Company from that previously reported. Under a fair value hedge, changes in the fair value of the hedging derivative, including amounts measured as ineffectiveness, and changes in the fair value of the hedged item related to the designated risk being hedged, are reported within net investment gains (losses). The fair values of the hedging derivatives are exclusive of any F-11 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accruals that are separately reported in the consolidated statement of income within interest income or interest expense to match the location of the hedged item. The Company had no fair value hedges during the years ended December 31, 2007, 2006 and 2005. Under a cash flow hedge, changes in the fair value of the hedging derivative measured as effective are reported within other comprehensive income (loss), a separate component of stockholder's equity, and the deferred gains or losses on the derivative are reclassified into the consolidated statement of income when the Company's earnings are affected by the variability in cash flows of the hedged item. Changes in the fair value of the hedging instrument measured as ineffectiveness are reported within net investment gains (losses). The fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of income within interest income or interest expense to match the location of the hedged item. The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; (iv) a hedged firm commitment no longer meets the definition of a firm commitment; or (v) the derivative is de- designated as a hedging instrument. When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the fair value or cash flows of a hedged item, the derivative continues to be carried on the consolidated balance sheet at its fair value, with changes in fair value recognized currently in net investment gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in fair value of derivatives recorded in other comprehensive income (loss) related to discontinued cash flow hedges are released into the consolidated statement of income when the Company's earnings are affected by the variability in cash flows of the hedged item. When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur by the end of the specified time period or the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the consolidated balance sheet at its fair value, with changes in fair value recognized currently in net investment gains (losses). Any asset or liability associated with a recognized firm commitment is derecognized from the consolidated balance sheet, and recorded currently in net investment gains (losses). Deferred gains and losses of a derivative recorded in other comprehensive income (loss) pursuant to the cash flow hedge of a forecasted transaction are recognized immediately in net investment gains (losses). In all other situations in which hedge accounting is discontinued, the derivative is carried at its fair value on the consolidated balance sheet, with changes in its fair value recognized in the current period as net investment gains (losses). The Company is also a party to financial instruments that contain terms which are deemed to be embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. If the instrument would not be accounted for in its entirety at fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative. Such embedded derivatives are carried on the consolidated balance sheet at fair value with the host contract and changes in their fair value are reported currently in net investment gains (losses). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at fair value, with changes in fair value recognized in the current period in net investment gains (losses). Additionally, the Company may elect to carry an entire contract on the balance sheet at fair value, with changes in F-12 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) fair value recognized in the current period in net investment gains (losses) if that contract contains an embedded derivative that requires bifurcation. There is a risk that embedded derivatives requiring bifurcation may not be identified and reported at fair value in the consolidated financial statements and that their related changes in fair value could materially affect reported net income. 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, as appropriate. Estimated lives generally range from five to ten years for leasehold improvements and three to seven years for all other property and equipment. The cost basis of the property, equipment and leasehold improvements was less than $1 million and $1 million at December 31, 2007 and 2006, respectively. Accumulated depreciation and amortization of property, equipment and leasehold improvements was less than $1 million at both December 31, 2007 and 2006. Related depreciation and amortization expense was $1 million, less than $1 million and less than $1 million for the years ended December 31, 2007, 2006 and 2005, respectively. Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as certain internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized generally over a four-year period using the straight-line method. The cost basis of computer software was $35 million at both December 31, 2007 and 2006, respectively. Accumulated amortization of capitalized software was $32 million and $30 million at December 31, 2007 and 2006, respectively. Related amortization expense was $1 million, $2 million and $4 million for the years ended December 31, 2007, 2006 and 2005, respectively. Deferred Policy Acquisition Costs The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that vary with and relate to the production of new business are deferred as DAC. Such costs consist principally of commissions and agency and policy issue expenses. The recovery of DAC is dependent upon the future profitability of the related business. DAC on life insurance or investment-type contracts are amortized in proportion to gross premiums, gross margins or gross profits, depending on the type of contract as described below. The Company amortizes DAC related to non-participating and non-dividend- paying traditional contracts (term insurance, non-participating whole life insurance, non-medical health insurance and traditional group life insurance) over the entire premium paying period in proportion to the present value of actual historic and expected future gross premiums. The present value of expected premiums is based upon the premium requirement of each policy and assumptions for mortality, morbidity, persistency, and investment returns at policy issuance that include provisions for adverse deviation and are consistent with the assumptions used to calculate future policyholder benefit liabilities. These assumptions are not revised after policy issuance or acquisition unless the DAC balance is deemed to be unrecoverable from future expected profits. Absent a premium deficiency, variability in amortization after policy issuance or acquisition is caused only by variability in premium volumes. The Company amortizes DAC related to participating, dividend-paying traditional contracts over the estimated lives of the contracts in proportion to actual and expected future gross margins. The amortization includes interest based on rates in effect at inception of the contracts. The future gross margins are dependent principally on investment returns, policyholder dividend scales, mortality, persistency, expenses to administer the business, creditworthiness of reinsurance counterparties, and certain economic variables, such as inflation. For participating contracts future gross margins are also dependent upon changes in the policyholder dividend obligation. Of these factors, the Company anticipates that investment returns, expenses, persistency, and other factor changes and F-13 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) policyholder dividend scales are reasonably likely to impact significantly the rate of DAC amortization. Each reporting period, the Company updates the estimated gross margins with the actual gross margins for that period. When the actual gross margins change from previously estimated gross margins, the cumulative DAC amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross margins exceed those previously estimated, the DAC amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross margins are below the previously estimated gross margins. Each reporting period, the Company also updates the actual amount of business in-force, which impacts expected future gross margins. The Company amortizes DAC related to variable universal life contracts and variable deferred annuity contracts over the estimated lives of the contracts in proportion to actual and expected future gross profits. The amortization includes interest based on rates in effect at inception of the contracts. The amount of future gross profits is dependent principally upon returns in excess of the amounts credited to policyholders, mortality, persistency, interest crediting rates, expenses to administer the business, creditworthiness of reinsurance counterparties, the effect of any hedges used, and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns, expenses, and persistency are reasonably likely to impact significantly the rate of DAC amortization. Each reporting period, the Company updates the estimated gross profits with the actual gross profits for that period. When the actual gross profits change from previously estimated gross profits, the cumulative DAC amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross profits exceed those previously estimated, the DAC amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross profits are below the previously estimated gross profits. Each reporting period, the Company also updates the actual amount of business remaining in-force, which impacts expected future gross profits. Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on such contracts each reporting period. Returns that are higher than the Company's long-term expectation produce higher account balances, which increases the Company's future fee expectations and decreases future benefit payment expectations on minimum death benefit guarantees, resulting in higher expected future gross profits. The opposite result occurs when returns are lower than the Company's long-term expectation. The Company's practice to determine the impact of gross profits resulting from returns on separate accounts assumes that long- term appreciation in equity markets is not changed by short-term market fluctuations, but is only changed when sustained interim deviations are expected. The Company monitors these changes and only changes the assumption when its long-term expectation changes. The Company also reviews periodically other long-term assumptions underlying the projections of estimated gross margins and profits. These include investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, and expenses to administer business. Management annually updates assumptions used in the calculation of estimated gross margins and profits which may have significantly changed. If the update of assumptions causes expected future gross margins and profits to increase, DAC amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease. Prior to 2007, DAC related to any internally replaced contract was generally expensed at the date of replacement. As described more fully in "Adoption of New Accounting Pronouncements", effective January 1, 2007, the Company adopted Statement of Position ("SOP") 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1"). Under SOP 05-1, an internal replacement is defined as a modification in product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If the modification substantially changes the contract, the DAC is written off immediately through income and any new deferrable costs associated with the replacement contract are deferred. If F-14 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed. Sales Inducements The Company has two different types of sales inducements which are included in other assets: (i) the policyholder receives a bonus whereby the policyholder's initial account balance is increased by an amount equal to a specified percentage of the customer's deposit; and (ii) the policyholder receives a higher interest rate using a dollar cost averaging method than would have been received based on the normal general account interest rate credited. The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. Liability for Future Policy Benefits and Policyholder Account Balances The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities and non- medical health insurance. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the present value of future expected benefits to be paid reduced by the present value of future expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the respective product type. Utilizing these assumptions, liabilities are established on a block of business basis. Future policy benefit liabilities for participating 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 (ii) the liability for terminal dividends. Future policy benefit liabilities for non-participating traditional life insurance policies are equal to the aggregate of the present value of expected future benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to mortality and persistency are based upon the Company's experience when the basis of the liability is established. The interest rate for the aggregate future policy benefit liabilities is 6%. 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 both December 31, 2007 and 2006. Participating policies represented approximately 42% and 59%, 43% and 51%, and 45% and 47%, of gross and net life insurance premiums for the years ended December 31, 2007, 2006 and 2005, respectively. Future policy benefit liabilities for individual and group traditional fixed annuities after annuitization are equal to the present value of expected future payments. Interest rates used in establishing such liabilities range from 5% to 7%. 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. Interest rates used in establishing such liabilities range from 4% to 7%. 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. The effects of changes in such estimated liabilities are included in the results of operations in the period in which the changes occur. F-15 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company establishes future policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity contracts and secondary and paid-up guarantees relating to certain life policies as follows: - Annuity guaranteed minimum death benefit ("GMDB") liabilities are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the GMDB liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility are consistent with the historical experience of the Standard & Poor's 500 Index ("S&P"). The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. - Guaranteed minimum income benefit ("GMIB") liabilities are determined by estimating the expected value of the income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used for estimating the GMIB liabilities are consistent with those used for estimating the GMDB liabilities. In addition, the calculation of guaranteed annuitization benefit liabilities incorporates an assumption for the percentage of the potential annuitizations that may be elected by the contractholder. Liabilities for universal and variable life secondary guarantees and paid- up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balances, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility for variable products are consistent with historical S&P experience. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. The Company establishes policyholder account balances for guaranteed minimum benefit riders relating to certain variable annuity products as follows: - Guaranteed minimum withdrawal benefit riders ("GMWB") guarantee the contractholder a return of their purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that the contractholder's cumulative withdrawals in a contract year do not exceed a certain limit. The initial guaranteed withdrawal amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts). The GMWB is an embedded derivative, which is measured at fair value separately from the host variable annuity product. The risk associated with GMWB riders written is ceded 100% to an affiliate through a reinsurance agreement. - Guaranteed minimum accumulation benefit riders ("GMAB") provide the contractholder, after a specified period of time determined at the time of issuance of the variable annuity contract, with a minimum accumulation of their purchase payments even if the account value is reduced to zero. The initial guaranteed accumulation amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts). The GMAB is also an embedded derivative, which is measured at fair value separately from the host variable annuity product. The risk associated with GMAB riders written is ceded 100% to an affiliate through a reinsurance agreement. F-16 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - For both GMWB and GMAB, the initial benefit base is increased by additional purchase payments made within a certain time period and decreases by benefits paid and/or withdrawal amounts. After a specified period of time, the benefit base may also increase as a result of an optional reset as defined in the contract. The fair values of the GMWB and GMAB riders are calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. In measuring the fair value of GMWBs and GMABs, the Company attributes a portion of the fees collected from the policyholder equal to the present value of expected future guaranteed minimum withdrawal and accumulation benefits (at inception). The changes in fair value are reported in net investment gains (losses). Any additional fees represent "excess" fees and are reported in universal life and investment-type product policy fees. These riders may be more costly than expected in volatile or declining markets, causing an increase in liabilities for future policy benefits, negatively affecting net income. The Company periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual experience. Differences between actual experience and the assumptions used in pricing these policies, guarantees and riders and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in such estimated liabilities are included in the results of operations in the period in which the changes occur. Policyholder account balances relate to investment-type contracts and universal life-type policies. Investment-type contracts principally include traditional individual fixed annuities in the accumulation phase and non- variable group annuity contracts. Policyholder account balances are equal to (i) policy account values, which consist of an accumulation of gross premium payments; and (ii) credited interest, ranging from 3% to 10% less expenses, mortality charges, and withdrawals. Other Policyholder Funds Other policyholder funds include policy and contract claims, unearned revenue liabilities, premiums received in advance, policyholder dividends due and unpaid, and policyholder dividends left on deposit. The liability for policy and contract claims generally relates to incurred but not reported death and disability claims, as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company's estimated ultimate cost of settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from actuarial analyses of historical patterns of claims and claims development for each line of business. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense in the period in which the estimates are changed or payments are made. The unearned revenue liability relates to universal life-type and investment-type products and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenue and amortized using the product's estimated gross profits, similar to DAC. Such amortization is recorded in universal life and investment-type product policy fees. The Company accounts for the prepayment of premiums on its group life and health contracts as premium received in advance and applies the cash received to premiums when due. Also included in other policyholder funds are policyholder dividends due and unpaid on participating policies and policyholder dividends left on deposit. Such liabilities are presented at amounts contractually due to policyholders. F-17 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due from policyholders. Policyholder 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 and disability contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life-type 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 and are recorded in universal life and investment-type product policy fees in the period in which services are provided. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance. Other Revenues Other revenues include advisory fees, broker-dealer commissions and fees and administrative service fees. Such fees and commissions are recognized in the period in which services are performed. Policyholder Dividends Policyholder dividends are approved annually by NELICO'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 NELICO. Income Taxes The Company joins with MetLife and its includable life insurance and non- life insurance subsidiaries in filing a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended. The Company's accounting for income taxes represents management's best estimate of various events and transactions. Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following: (i) future taxable income exclusive of reversing temporary differences and carryforwards; (ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback years; and F-18 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (iv) tax planning strategies. The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances include when the ultimate deductibility of certain items is challenged by taxing authorities (See also Note 9) or when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur. As described more fully in "Adoption of New Accounting Pronouncements", the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes -- An Interpretation of FASB Statement No. 109 ("FIN 48") effective January 1, 2007. Under FIN 48, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made. The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax. Reinsurance The Company enters into reinsurance transactions as both a provider and a purchaser of reinsurance for its life insurance products. For each of its reinsurance contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of reinsurance at the inception of the contract. The net cost of reinsurance is recorded as an adjustment to DAC and recognized as a component of other expenses on a basis consistent with the way the acquisition costs on the underlying reinsured contracts would be recognized. Subsequent amounts paid (received) on the reinsurance of in-force blocks, as well as amounts paid (received) related to new business, are recorded as ceded (assumed) premiums and ceded (assumed) future policy benefit liabilities are established. For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums and are reflected as a component of premiums and other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in proportion to the amount of protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria of reinsurance accounting, amounts paid (received) in excess of (which do not exceed) the related insurance liabilities ceded (assumed) are recognized immediately as a loss. Any gains on such retroactive contracts are deferred and recorded in other liabilities. The gains are amortized primarily using the recovery method. The assumptions used to account for both long and short-duration reinsurance contracts are consistent with those used for the underlying contracts. Ceded policyholder and contract related liabilities, other than those currently due, are reported gross on the balance sheet. F-19 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amounts currently recoverable under reinsurance contracts are included in premiums and other receivables and amounts currently payable are included in other liabilities. Such assets and liabilities relating to reinsurance contracts with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance contract. Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance contracts and are net of reinsurance ceded. If the Company determines that a reinsurance contract does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the contract using the deposit method of accounting. Deposits received are included in other liabilities and deposits made are included within other assets. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other revenues or other expenses, as appropriate. Amounts received from reinsurers for policy administration are reported in other revenues. Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed previously. Separate Accounts Separate accounts are established in conformity with 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. The Company reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from the Company's general account liabilities; (iii) investments are directed by the contractholder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contractholder. The Company reports separate account assets meeting such criteria at their fair value. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line in the consolidated statements of income. The Company's revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. Employee Benefit Plans The Company's employees, who meet specified eligibility requirements, participate in pension, other postretirement and postemployment plans in various forms. These benefit plans are accounted for following the guidance outlined in Statement of Financial Accounting Standards ("SFAS") No. 87, Employers' Accounting for Pensions ("SFAS 87"), SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, SFAS No. 112, Employers Accounting for Postemployment Benefits -- An Amendment of FASB Statements No. 5 and No. 43 and as of December 31, 2006, SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and SFAS No. 132(r) ("SFAS 158"). The obligations and expenses associated with these plans require an extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases, healthcare cost trend F-20 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) rates, as well as assumptions regarding participant demographics such as rate and age of retirements, withdrawal rates, and mortality. Management, in consultation with its external actuarial firm, determines these assumptions based upon a variety of factors such as historical performance of the plan and its assets, currently available market and industry data, and expected benefit payout streams. The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant effect on the Company's consolidated financial statements and liquidity. As described more fully in "Adoption of New Accounting Pronouncements", effective December 31, 2006, the Company adopted SFAS 158. Effective with the adoption of SFAS 158 on December 31, 2006, the Company recognizes the funded status of the benefit obligations for each of its plans on the consolidated balance sheet. The actuarial gains or losses, prior service costs and credits, and the remaining net transition asset or obligation that had not yet been included in net periodic benefit costs as of December 31, 2006 are now charged, net of income tax, to accumulated other comprehensive loss. Additionally, these changes eliminated the additional minimum pension liability provisions of SFAS 87. Litigation Contingencies The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on the Company's financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in the Company's consolidated financial statements. It is possible that an adverse outcome in certain of the Company's litigation and regulatory investigations, or the use of different assumptions in the determination of amounts recorded could have a material effect upon the Company's consolidated net income or cash flows. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Income Taxes Effective January 1, 2007, the Company adopted FIN 48. FIN 48 clarifies the accounting for uncertainty in income tax recognized in a company's financial statements. FIN 48 requires companies to determine whether it is "more likely than not" that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. Previously recorded income tax benefits that no longer meet this standard are required to be charged to earnings in the period that such determination is made. As a result of the implementation of FIN 48, the Company recognized a $10 million decrease in the liability for unrecognized tax benefits, a $3 million decrease in the interest liability for unrecognized tax benefits, and a corresponding increase to the January 1, 2007 balance of retained earnings of $13 million. See also Note 9. Insurance Contracts Effective January 1, 2007, the Company adopted SOP 05-1 which provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts other than those specifically described in SFAS 97, Accounting and Reporting by Insurance Enterprises for Certain Long- Duration Contracts and for Realized Gains and Losses from the Sale of Investments. SOP 05-1 defines an internal replacement and is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. In addition, in February 2007, the American Institute of Certified Public Accountants ("AICPA") issued F-21 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) related Technical Practice Aids ("TPAs") to provide further clarification of SOP 05-1. The TPAs became effective concurrently with the adoption of SOP 05-1. As a result of the adoption of SOP 05-1 and the related TPAs, if an internal replacement modification substantially changes a contract, then the DAC is written off immediately through income and any new deferrable costs associated with the new replacement are deferred. If a contract modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are immediately expensed. The adoption of SOP 05-1 and the related TPAs did not have an impact on the Company's consolidated financial statements. Defined Benefit and Other Postretirement Plans Effective December 31, 2006, the Company adopted SFAS 158. The pronouncement revises financial reporting standards for defined benefit pension and other postretirement plans by requiring the: (i) recognition in the statement of financial position of the funded status of defined benefit plans measured as the difference between the fair value of plan assets and the benefit obligation, which is the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for other postretirement plans; (ii) recognition as an adjustment to accumulated other comprehensive loss, net of income tax, those amounts of actuarial gains and losses, prior service costs and credits, and net asset or obligation at transition that have not yet been included in net periodic benefit costs as of the end of the year of adoption; (iii) recognition of subsequent changes in funded status as a component of other comprehensive income; (iv) measurement of benefit plan assets and obligations as of the date of the statement of financial position; and (v) disclosure of additional information about the effects on the employer's statement of financial position. The adoption of SFAS 158 resulted in an increase of $10 million, net of income tax, to accumulated other comprehensive loss, which is included as a component of total consolidated stockholder's equity. As the Company's measurement date for its pension and other postretirement benefit plans is already December 31 there was no impact of adoption due to changes in measurement date. See also "Summary of Significant Accounting Policies and Critical Accounting Estimates" and Note 11. Derivative Financial Instruments The Company has adopted guidance relating to derivative financial instruments as follows: - Effective January 1, 2006, the Company adopted prospectively SFAS No. 155, Accounting for Certain Hybrid Instruments ("SFAS 155"). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging ("SFAS 133") and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 140"). SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. In addition, among other changes, SFAS 155: (i) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; F-22 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iii) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (iv) amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity ("QSPE") from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial interest. The adoption of SFAS 155 did not have a material impact on the Company's consolidated financial statements. - Effective October 1, 2006, the Company adopted SFAS 133 Implementation Issue No. B40, Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets ("Issue B40"). Issue B40 clarifies that a securitized interest in prepayable financial assets is not subject to the conditions in paragraph 13(b) of SFAS 133, if it meets both of the following criteria: (i) the right to accelerate the settlement if the securitized interest cannot be controlled by the investor; and (ii) the securitized interest itself does not contain an embedded derivative (including an interest rate-related derivative) for which bifurcation would be required other than an embedded derivative that results solely from the embedded call options in the underlying financial assets. The adoption of Issue B40 did not have a material impact on the Company's consolidated financial statements. - Effective January 1, 2006, the Company adopted prospectively SFAS 133 Implementation Issue No. B38, Embedded Derivatives: Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option ("Issue B38") and SFAS 133 Implementation Issue No. B39, Embedded Derivatives: Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor ("Issue B39"). Issue B38 clarifies that the potential settlement of a debtor's obligation to a creditor occurring upon exercise of a put or call option meets the net settlement criteria of SFAS 133. Issue B39 clarifies that an embedded call option, in which the underlying is an interest rate or interest rate index, that can accelerate the settlement of a debt host financial instrument should not be bifurcated and fair valued if the right to accelerate the settlement can be exercised only by the debtor (issuer/borrower) and the investor will recover substantially all of its initial net investment. The adoption of Issues B38 and B39 did not have a material impact on the Company's consolidated financial statements. Other Effective January 1, 2007, the Company adopted SFAS No. 156, Accounting for Servicing of Financial Assets -- an amendment of FASB Statement No. 140 ("SFAS 156"). Among other requirements, SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations. The adoption of SFAS 156 did not have an impact on the Company's consolidated financial statements. Effective November 15, 2006, the Company adopted U.S. Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for purposes of assessing materiality. SAB 108 requires that registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when relevant quantitative and qualitative factors are considered, is material. SAB 108 permits companies to initially apply its provisions by either restating prior financial statements or recording a cumulative effect adjustment to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment to retained earnings for F-23 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) errors that were previously deemed immaterial but are material under the guidance in SAB 108. The adoption of SAB 108 did not have a material impact on the Company's consolidated financial statements. Effective January 1, 2006, the Company adopted SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS 154"). SFAS 154 requires retrospective application to prior periods' financial statements for a voluntary change in accounting principle unless it is deemed impracticable. It also requires that a change in the method of depreciation, amortization, or depletion for long-lived, non- financial assets be accounted for as a change in accounting estimate rather than a change in accounting principle. The adoption of SFAS 154 did not have a material impact on the Company's consolidated financial statements. In June 2005, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights ("EITF 04-5"). EITF 04-5 provides a framework for determining whether a general partner controls and should consolidate a limited partnership or a similar entity in light of certain rights held by the limited partners. The consensus also provides additional guidance on substantive rights. EITF 04-5 was effective after June 29, 2005 for all newly formed partnerships and for any pre-existing limited partnerships that modified their partnership agreements after that date. For all other limited partnerships, EITF 04-5 required adoption by January 1, 2006 through a cumulative effect of a change in accounting principle recorded in opening equity or applied retrospectively by adjusting prior period financial statements. The adoption of the provisions of EITF 04-5 did not have a material impact on the Company's consolidated financial statements. Effective November 9, 2005, the Company prospectively adopted the guidance in FASB Staff Position ("FSP") No. FAS 140-2, Clarification of the Application of Paragraphs 40(b) and 40(c) of FAS 140 ("FSP 140-2"). FSP 140-2 clarified certain criteria relating to derivatives and beneficial interests when considering whether an entity qualifies as a QSPE. Under FSP 140-2, the criteria must only be met at the date the QSPE issues beneficial interests or when a derivative financial instrument needs to be replaced upon the occurrence of a specified event outside the control of the transferor. The adoption of FSP 140-2 did not have a material impact on the Company's consolidated financial statements. Effective July 1, 2005, the Company adopted SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 ("SFAS 153"). SFAS 153 amended prior guidance to eliminate the exception for nonmonetary exchanges of similar productive assets and replaced it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS 153 were required to be applied prospectively for fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 did not have a material impact on the Company's consolidated financial statements. Effective July 1, 2005, the Company adopted EITF Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements ("EITF 05-6"). EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. As required by EITF 05-6, the Company adopted this guidance on a prospective basis which had no material impact on the Company's consolidated financial statements. In June 2005, the FASB completed its review of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ("EITF 03-1"). EITF 03-1 provides accounting guidance regarding the determination of when an impairment of debt and marketable equity securities and investments accounted for under the cost method should be considered other-than- temporary and recognized in income. EITF 03-1 also requires certain quantitative and qualitative disclosures for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The FASB decided not to provide additional guidance on the meaning of other-than- F-24 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) temporary impairment but has issued FSP Nos. FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments ("FSP 115-1"), which nullifies the accounting guidance on the determination of whether an investment is other-than-temporarily impaired as set forth in EITF 03-1. As required by FSP 115-1, the Company adopted this guidance on a prospective basis, which had no material impact on the Company's consolidated financial statements, and has provided the required disclosures. FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Fair Value In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. Effective January 1, 2008, the Company adopted SFAS 157 and applied the provisions of the statement prospectively to assets and liabilities measured and disclosed at fair value. In addition to new disclosure requirements, the adoption of SFAS 157 primarily changes the valuation of embedded derivatives associated with annuity contracts. The change in valuation of embedded derivatives associated with annuity contracts results from the incorporation of risk margins and the Company's own credit standing in their valuation. As a result of the adoption of SFAS 157 on January 1, 2008, the Company expects such changes to result in a gain in the range of $3 million to $7 million, net of income tax, in the Company's consolidated statement of income. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 permits entities the option to measure most financial instruments and certain other items at fair value at specified election dates and to report related unrealized gains and losses in earnings. The fair value option is generally applied on an instrument-by-instrument basis and is generally an irrevocable election. Effective January 1, 2008, the Company did not elect the fair value option for any instruments. Accordingly, there was no impact on the Company's retained earnings or equity as of January 1, 2008. In June 2007, the AICPA issued SOP 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies ("SOP 07-1") . Upon adoption of SOP 07-1, the Company must also adopt the provisions of FSP No. FSP FIN 46(r)-7, Application of FASB Interpretation No. 46 to Investment Companies ("FSP FIN 46(r)-7"), which permanently exempts investment companies from applying the provisions of FIN No. 46(r), Consolidation of Variable Interest Entities -- An Interpretation of Accounting Research Bulletin No. 51, and its December 2003 revision ("FIN 46(r)") to investments carried at fair value. SOP 07-1 provides guidance for determining whether an entity falls within the scope of the AICPA Audit and Accounting Guide Investment Companies and whether investment company accounting should be retained by a parent company upon consolidation of an investment company subsidiary or by an equity method investor in an investment company. In certain circumstances, SOP 07-1 precludes retention of specialized accounting for investment companies (i.e., fair value accounting), when similar direct investments exist in the consolidated group and are measured on a basis inconsistent with that applied to investment companies. Additionally, SOP 07-1 precludes retention of specialized accounting for investment companies if the reporting entity does not distinguish through documented policies the nature and type of investments to be held in the investment companies from those made in the consolidated group where other accounting guidance is being applied. In February 2008, the FASB issued FSP No. SOP 7-1-1, Effective Date of AICPA Statement of Position 07-1, which delays indefinitely the effective date of SOP 07-1. The Company is closely monitoring further FASB developments. In May 2007, the FASB issued FSP No. FIN 39-1, Amendment of FASB Interpretation No. 39 ("FSP 39-1"). FSP 39-1 amends FIN No. 39, Offsetting of Amounts Related to Certain Contracts ("FIN 39"), to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in accordance with FIN 39. FSP 39-1 also amends FIN 39 for certain terminology modifications. FSP 39-1 applies to fiscal years beginning F-25 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) after November 15, 2007. FSP 39-1 will be applied retrospectively, unless it is impracticable to do so. Upon adoption of FSP 39-1, the Company is permitted to change its accounting policy to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements. The adoption of FSP 39-1 will not have an impact on the Company's financial statements. Business Combinations In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations -- A Replacement of FASB Statement No. 141 ("SFAS 141(r)") and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements -- An Amendment of ARB No. 51 ("SFAS 160") which are effective for fiscal years beginning after December 15, 2008. Under SFAS 141(r) and SFAS 160: - All business combinations (whether full, partial, or "step" acquisitions) result in all assets and liabilities of an acquired business being recorded at fair value, with limited exceptions. - Acquisition costs are generally expensed as incurred; restructuring costs associated with a business combination are generally expensed as incurred subsequent to the acquisition date. - The fair value of the purchase price, including the issuance of equity securities, is determined on the acquisition date. - Certain acquired contingent liabilities are recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies. - Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. - Noncontrolling interests (formerly known as "minority interests") are valued at fair value at the acquisition date and are presented as equity rather than liabilities. - When control is attained on previously noncontrolling interests, the previously held equity interests are remeasured at fair value and a gain or loss is recognized. - Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. - When control is lost in a partial disposition, realized gains or losses are recorded on equity ownership sold and the remaining ownership interest is remeasured and holding gains or losses are recognized. The pronouncements are effective for fiscal years beginning on or after December 15, 2008 and apply prospectively to business combinations. Presentation and disclosure requirements related to noncontrolling interests must be retrospectively applied. The Company is currently evaluating the impact of SFAS 141(r) on its accounting for future acquisitions and the impact of SFAS 160 on its consolidated financial statements. Other In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities -- An Amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of SFAS 161 on its consolidated financial statements. F-26 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In February 2008, the FASB issued FSP No. FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions ("FSP 140- 3"). FSP 140-3 provides guidance for evaluating whether to account for a transfer of a financial asset and repurchase financing as a single transaction or as two separate transactions. FSP 140-3 is effective prospectively for financial statements issued for fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of FSP 140-3 on its consolidated financial statements. In January 2008, the FASB cleared SFAS 133 Implementation Issue E23, Clarification of the Application of the Shortcut Method ("Issue E23"). Issue E23 amends SFAS 133 by permitting interest rate swaps to have a non-zero fair value at inception, as long as the difference between the transaction price (zero) and the fair value (exit price), as defined by SFAS 157, is solely attributable to a bid-ask spread. In addition, entities would not be precluded from assuming no ineffectiveness in a hedging relationship of interest rate risk involving an interest bearing asset or liability in situations where the hedged item is not recognized for accounting purposes until settlement date as long as the period between trade date and settlement date of the hedged item is consistent with generally established conventions in the marketplace. Issue E23 is effective for hedging relationships designated on or after January 1, 2008. The Company does not expect the adoption of Issue E23 to have a material impact on its consolidated financial statements. 2. DISPOSITIONS On October 31, 2006, the board of directors of Omega approved the adoption of a restructuring plan (the "Restructuring Plan"). On November 20, 2006, the board of directors of NELICO, as Omega's sole voting shareholder, and Omega's participating common stock ("PCS") shareholders, also approved the Restructuring Plan. Under the Restructuring Plan: (i) all reinsurance arrangements were terminated effective December 31, 2006; (ii) all outstanding shares of PCS were redeemed effective December 31, 2006; and (iii) payments totaling $16 million were made on June 29, 2007 to the PCS shareholders. Payments consisted of former shareholders' outstanding redemption payment balance plus an additional 40 percent of such balance. In connection with the Restructuring Plan, Omega was dissolved in October 2007 and its remaining assets and liabilities were assumed by NELICO. Total assets and total liabilities of Omega at December 31, 2006 were $7 million and $1 million, respectively. Total revenues of Omega included in the Company's consolidated revenues were less than $1 million, $12 million and $33 million for the years ended December 31, 2007, 2006 and 2005, respectively. F-27 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the cost or amortized cost, gross unrealized gain and loss, and estimated fair value of the Company's fixed maturity and equity securities, the percentage that each sector represents by the total fixed maturity securities holdings and by the total equity securities holdings at:
DECEMBER 31, 2007 -------------------------------------------- GROSS COST OR UNREALIZED AMORTIZED ----------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL --------- ---- ---- ---------- ----- (IN MILLIONS) U.S. corporate securities................ $407 $11 $ 7 $411 50.1% Foreign corporate securities............. 177 2 4 175 21.3 Residential mortgage-backed securities... 144 1 -- 145 17.7 U.S. Treasury/agency securities.......... 56 4 -- 60 7.3 Commercial mortgage-backed securities.... 15 -- -- 15 1.8 Foreign government securities............ 15 -- -- 15 1.8 Asset-backed securities.................. -- -- -- -- 0.0 State and political subdivision securities............................. -- -- -- -- 0.0 ---- --- --- ---- ----- Total fixed maturity securities........ $814 $18 $11 $821 100.0% ==== === === ==== ===== Non-redeemable preferred stock........... $ -- $-- $-- $ -- 0.0% ---- --- --- ---- ----- Total equity securities................ $ -- $-- $-- $ -- 0.0% ==== === === ==== =====
DECEMBER 31, 2006 -------------------------------------------- GROSS COST OR UNREALIZED AMORTIZED ----------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL --------- ---- ---- ---------- ----- (IN MILLIONS) U.S. corporate securities................ $445 $12 $ 4 $453 51.1% Foreign corporate securities............. 150 1 4 147 16.6 Residential mortgage-backed securities... 175 1 1 175 19.8 U.S. Treasury/agency securities.......... 93 1 -- 94 10.6 Commercial mortgage-backed securities.... 1 -- -- 1 0.1 Foreign government securities............ 12 -- -- 12 1.4 Asset-backed securities.................. 3 -- -- 3 0.3 State and political subdivision securities............................. 1 -- -- 1 0.1 ---- --- --- ---- ----- Total fixed maturity securities........ $880 $15 $ 9 $886 100.0% ==== === === ==== ===== Non-redeemable preferred stock........... $ 7 $-- $-- $ 7 100.0% ---- --- --- ---- ----- Total equity securities................ $ 7 $-- $-- $ 7 100.0% ==== === === ==== =====
The Company held foreign currency derivatives with notional amounts of $10 million to hedge the exchange rate risk associated with foreign denominated fixed maturity securities at both December 31, 2007 and 2006. The Company is not exposed to any significant concentrations of credit risk in its equity securities portfolio. The Company is exposed to concentrations of credit risk related to U.S. Treasury securities and obligations of F-28 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) U.S. government corporations and agencies. The Company had no fixed maturity securities backed by sub-prime mortgages at both December 31, 2007 and 2006. The Company held fixed maturity securities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $39 million and $36 million at December 31, 2007 and 2006, respectively. These securities had net unrealized gains (losses) of ($2) million and less than $1 million at December 31, 2007 and 2006, respectively. There were no non-income producing fixed maturity securities at both December 31, 2007 and 2006. The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date (excluding scheduled sinking funds), are as follows:
DECEMBER 31, ----------------------------------------------- 2007 2006 ---------------------- ---------------------- AMORTIZED ESTIMATED AMORTIZED ESTIMATED COST FAIR VALUE COST FAIR VALUE --------- ---------- --------- ---------- (IN MILLIONS) Due in one year or less................. $ 35 $ 36 $ 46 $ 46 Due after one year through five years... 340 351 279 285 Due after five years through ten years.. 157 153 257 254 Due after ten years..................... 123 121 119 122 ---- ---- ---- ---- Subtotal.............................. 655 661 701 707 Mortgage-backed and asset-backed securities............................ 159 160 179 179 ---- ---- ---- ---- Total fixed maturity securities....... $814 $821 $880 $886 ==== ==== ==== ====
Fixed maturity securities not due at a single maturity date have been included in the above table in the year of final contractual maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales or disposals of fixed maturity and equity securities classified as available-for-sale are as follows:
YEARS ENDED DECEMBER 31, ------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Proceeds............................................... $229 $117 $377 Gross investment gains................................. $ 1 $ -- $ 1 Gross investment losses................................ $ (3) $ (2) $ (5)
F-29 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNREALIZED LOSS FOR FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the estimated fair value and gross unrealized loss of the Company's fixed maturity (aggregated by sector) and equity securities in an unrealized loss position, aggregated by length of time that the securities have been in a continuous unrealized loss position at:
DECEMBER 31, 2007 --------------------------------------------------------------------------- EQUAL TO OR GREATER LESS THAN 12 MONTHS THAN 12 MONTHS TOTAL ----------------------- ----------------------- ----------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED FAIR VALUE LOSS FAIR VALUE LOSS FAIR VALUE LOSS ---------- ---------- ---------- ---------- ---------- ---------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) U.S. corporate securities......... $ 89 $ 3 $111 $ 4 $200 $ 7 Foreign corporate securities...... 28 -- 72 4 100 4 Residential mortgage-backed securities...................... 27 -- 1 -- 28 -- U.S. Treasury/agency securities... -- -- -- -- -- -- Commercial mortgage-backed securities...................... -- -- -- -- -- -- Foreign government securities..... -- -- 10 -- 10 -- Asset-backed securities........... -- -- -- -- -- -- ---- --- ---- --- ---- --- Total fixed maturity securities................... $144 $ 3 $194 $ 8 $338 $11 ==== === ==== === ==== === Equity securities................. $ -- $-- $ -- $-- $ -- $-- ==== === ==== === ==== === Total number of securities in an unrealized loss position........ 63 55 ==== ====
DECEMBER 31, 2006 --------------------------------------------------------------------------- EQUAL TO OR GREATER LESS THAN 12 MONTHS THAN 12 MONTHS TOTAL ----------------------- ----------------------- ----------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED FAIR VALUE LOSS FAIR VALUE LOSS FAIR VALUE LOSS ---------- ---------- ---------- ---------- ---------- ---------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) U.S. corporate securities......... $124 $ 1 $122 $ 3 $246 $ 4 Foreign corporate securities...... 20 1 84 3 104 4 Residential mortgage-backed securities...................... 37 -- 45 1 82 1 U.S. Treasury/agency securities... 35 -- 15 -- 50 -- Commercial mortgage-backed securities...................... -- -- 1 -- 1 -- Foreign government securities..... 10 -- -- -- 10 -- Asset-backed securities........... 1 -- 1 -- 2 -- ---- --- ---- --- ---- --- Total fixed maturity securities................... $227 $ 2 $268 $ 7 $495 $ 9 ==== === ==== === ==== === Equity securities................. $ -- $-- $ 7 $-- $ 7 $-- ==== === ==== === ==== === Total number of securities in an unrealized loss position........ 101 126 ==== ====
F-30 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) AGING OF GROSS UNREALIZED LOSS FOR FIXED MATURITY AND EQUITY SECURITIES AVAILABLE-FOR-SALE The following tables present the cost or amortized cost, gross unrealized loss and number of securities for fixed maturity and equity securities, where the estimated fair value had declined and remained below cost or amortized cost by less than 20%, or 20% or more at:
DECEMBER 31, 2007 ------------------------------------------------------------ COST OR AMORTIZED GROSS UNREALIZED NUMBER OF COST LOSS SECURITIES ------------------ ------------------ ------------------ LESS 20% LESS 20% LESS 20% THAN 20% OR MORE THAN 20% OR MORE THAN 20% OR MORE -------- ------- -------- ------- -------- ------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) Less than six months................... $ 87 $ 3 $ 1 $ 1 31 2 Six months or greater but less than nine months.......................... 36 -- 2 -- 24 -- Nine months or greater but less than twelve months........................ 21 -- -- -- 7 -- Twelve months or greater............... 202 -- 7 -- 55 -- ---- --- --- --- Total................................ $346 $ 3 $10 $ 1 ==== === === ===
DECEMBER 31, 2006 ------------------------------------------------------------ COST OR AMORTIZED GROSS UNREALIZED NUMBER OF COST LOSS SECURITIES ------------------ ------------------ ------------------ LESS 20% LESS 20% LESS 20% THAN 20% OR MORE THAN 20% OR MORE THAN 20% OR MORE -------- ------- -------- ------- -------- ------- (IN MILLIONS, EXCEPT NUMBER OF SECURITIES) Less than six months................... $175 $-- $ 1 $-- 59 -- Six months or greater but less than nine months.......................... 5 -- -- -- 8 -- Nine months or greater but less than twelve months........................ 49 -- 1 -- 34 -- Twelve months or greater............... 282 -- 7 -- 126 -- ---- --- --- --- Total................................ $511 $-- $ 9 $-- ==== === === ===
At December 31, 2007 and 2006, $10 million and $9 million, respectively, of unrealized losses related to securities with an unrealized loss position of less than 20% of cost or amortized cost, which represented 3% and 2%, respectively, of the cost or amortized cost of such securities. At December 31, 2007, $1 million of unrealized losses related to securities with an unrealized loss position of 20% or more of cost or amortized cost, which represented 33% of the cost or amortized cost of such securities. All such unrealized losses related to securities that were in an unrealized loss position for a period of less than six months. At December 31, 2006, there were no unrealized losses related to securities with an unrealized loss position of 20% or more of cost or amortized cost. F-31 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2007 and 2006, the Company had $11 million and $9 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. These securities are concentrated, calculated as a percentage of gross unrealized loss, as follows:
DECEMBER 31, ----------- 2007 2006 ---- ---- SECTOR: U.S. corporate securities.................................. 64% 45% Foreign corporate securities............................... 36 44 Residential mortgage-backed securities..................... -- 11 --- --- Total................................................... 100% 100% === === INDUSTRY: Finance.................................................... 58% 35% Industrial................................................. 24 28 Utility.................................................... 7 7 Consumer................................................... 7 16 Mortgage-backed............................................ -- 11 Other...................................................... 4 3 --- --- Total................................................... 100% 100% === ===
As described more fully in Note 1, the Company performs a regular evaluation, on a security-by-security basis, of its investment holdings in accordance with its impairment policy in order to evaluate whether such securities are other-than-temporarily impaired. One of the criteria which the Company considers in its other-than-temporary impairment analysis is its intent and ability to hold securities for a period of time sufficient to allow for the recovery of their value to an amount equal to or greater than cost or amortized cost. The Company's intent and ability to hold securities considers broad portfolio management objectives such as asset/liability duration management, issuer and industry segment exposures, interest rate views and the overall total return focus. In following these portfolio management objectives, changes in facts and circumstances that were present in past reporting periods may trigger a decision to sell securities that were held in prior reporting periods. Decisions to sell are based on current conditions or the Company's need to shift the portfolio to maintain its portfolio management objectives including liquidity needs or duration targets on asset/liability managed portfolios. The Company attempts to anticipate these types of changes and if a sale decision has been made on an impaired security and that security is not expected to recover prior to the expected time of sale, the security will be deemed other-than- temporarily impaired in the period that the sale decision was made and an other- than-temporary impairment loss will be recognized. Based upon the Company's current evaluation of the securities in accordance with its impairment policy, the cause of the decline being principally attributable to the general rise in interest rates during the holding period, and the Company's current intent and ability to hold the fixed maturity and equity securities with unrealized losses for a period of time sufficient for them to recover, the Company has concluded that the aforementioned securities are not other-than-temporarily impaired. ASSETS ON DEPOSIT The Company had investment assets on deposit with regulatory agencies with a fair market value of $3 million at both December 31, 2007 and 2006, consisting primarily of fixed maturity securities. F-32 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) MORTGAGE LOANS ON REAL ESTATE Mortgage loans on real estate are categorized as follows:
DECEMBER 31, ----------------------------------- 2007 2006 ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- (IN MILLIONS) Commercial mortgage loans..................... $ 2 100% $ 2 100% --- === --- === Less: Valuation allowances.................... -- -- --- --- Total mortgage loans on real estate......... $ 2 $ 2 === ===
At December 31, 2007, 100% of the Company's mortgage loans on real estate were collateralized by property located in California. Generally, the Company, as the lender, only loans up to 75% of the purchase price of the underlying real estate. OTHER LIMITED PARTNERSHIP INTERESTS The carrying value of other limited partnership interests (which primarily represent ownership interests in pooled investment funds that make private equity investments in companies in the United States and overseas) was $14 million and $18 million at December 31, 2007 and 2006, respectively. NET INVESTMENT INCOME The components of net investment income are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Fixed maturity securities............................. $48 $46 $44 Mortgage loans on real estate......................... -- 1 -- Policy loans.......................................... 21 19 18 Other limited partnership interests................... (1) 3 3 Cash and short-term investments....................... 5 3 2 Other................................................. 1 2 2 --- --- --- Total investment income............................. 74 74 69 Less: Investment expenses............................. 3 3 3 --- --- --- Net investment income............................... $71 $71 $66 === === ===
For each of the years ended December 31, 2007, 2006 and 2005, affiliated investment income of $1 million is included in the table above. For each of the years ended December 31, 2007 and 2006, affiliated investment expenses of $1 million are included in the table above. There were no affiliated investment expenses for the year ended December 31, 2005. See Related Party Investment Transactions for discussion of affiliated net investment income related to short-term investments included in the table above. F-33 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NET INVESTMENT GAINS (LOSSES) The components of net investment gains (losses) are as follows:
YEARS ENDED DECEMBER 31, ----------------------- 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Fixed maturity securities.............................. $(2) $(3) $(4) Derivatives............................................ 8 (1) 1 Other.................................................. 1 -- (1) --- --- --- Net investment gains (losses)........................ $ 7 $(4) $(4) === === ===
For the years ended December 31, 2007, 2006 and 2005, affiliated net investment gains (losses) of $17 million, ($5) million and ($1) million, respectively, are included in the table above. The Company periodically disposes of fixed maturity and equity securities at a loss. Generally, such losses are insignificant in amount or in relation to the cost basis of the investment, are attributable to declines in fair value occurring in the period of the disposition or are as a result of management's decision to sell securities based on current conditions or the Company's need to shift the portfolio to maintain its portfolio management objectives. Losses from fixed maturity and equity securities deemed other-than- temporarily impaired, included within net investment gains (losses), were less than $1 million for each of the years ended December 31, 2007, 2006 and 2005. NET UNREALIZED INVESTMENT GAINS (LOSSES) The components of net unrealized investment gains (losses), included in accumulated other comprehensive loss, are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Fixed maturity securities............................ $ 7 $ 6 $11 Derivatives.......................................... (2) (3) (3) Other................................................ (1) (1) (1) --- --- --- Subtotal........................................... 4 2 7 --- --- --- Amounts allocated from DAC........................... (2) (2) (2) Deferred income tax.................................. (1) -- (2) --- --- --- Subtotal........................................... (3) (2) (4) --- --- --- Net unrealized investment gains (losses)............. $ 1 $-- $ 3 === === ===
F-34 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The changes in net unrealized investment gains (losses) are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Balance, January 1,.................................. $-- $ 3 $ 14 Unrealized investment gains (losses) during the year............................................... 2 (5) (19) Unrealized gains (losses) relating to: DAC................................................ -- -- 2 Deferred income tax................................ (1) 2 6 --- --- ---- Balance, December 31,................................ $ 1 $-- $ 3 === === ==== Net change in unrealized investment gains (losses)... $ 1 $(3) $(11) === === ====
VARIABLE INTEREST ENTITIES The following table presents the total assets of and maximum exposure to loss relating to variable interest entities ("VIEs") for which the Company has concluded that it holds significant variable interests but it is not the primary beneficiary and which have not been consolidated:
DECEMBER 31, 2007 ----------------------- NOT PRIMARY BENEFICIARY ----------------------- MAXIMUM TOTAL EXPOSURE TO ASSETS(1) LOSS(2) --------- ----------- (IN MILLIONS) Trust preferred securities(3).......................... $1,250 $20 ------ --- Total................................................ $1,250 $20 ====== ===
- -------- (1) The assets of the trust preferred securities are reflected at the carrying amounts at which such assets would have been reflected on the Company's consolidated balance sheet had the Company consolidated the VIE from the date of its initial investment in the entity. (2) The maximum exposure to loss relating to trust preferred securities is equal to the carrying amounts plus any unfunded commitments, reduced by amounts guaranteed by other partners. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. (3) Trust preferred securities are complex, uniquely structured investments which contain features of both equity and debt, may have an extended or no stated maturity, and may be callable at the issuer's option after a defined period of time. RELATED PARTY INVESTMENT TRANSACTIONS As of December 31, 2007 and 2006, the Company held $117 million and $125 million, respectively, of its total invested assets in the Metropolitan Money Market Pool, an affiliated partnership. These amounts are included in short-term investments. Net investment income from these invested assets was $5 million, $3 million and $2 million for the years ended December 31, 2007, 2006 and 2005, respectively. F-35 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In the normal course of business, the Company transfers invested assets, primarily consisting of fixed maturity securities, to and from affiliates. Assets transferred to and from affiliates, inclusive of amounts related to reinsurance agreements, are as follows:
YEARS ENDED DECEMBER 31, --------------------- 2007 2006 2005 ----- ----- ----- (IN MILLIONS) Estimated fair value of assets transferred to affiliates.......................................... $ -- $ 1 $ 3 Amortized cost of assets transferred to affiliates.... $-- $ 1 $ 3 Net investment gains (losses) recognized on transfers........................................... $-- $-- $-- Estimated fair value of assets transferred from affiliates.......................................... $-- $-- $ 4
4. DERIVATIVE FINANCIAL INSTRUMENTS TYPES OF DERIVATIVE FINANCIAL INSTRUMENTS The following table presents the notional amount and current market or fair value of derivative financial instruments held at:
DECEMBER 31, 2007 DECEMBER 31, 2006 ------------------------------- ------------------------------- CURRENT MARKET CURRENT MARKET OR FAIR VALUE OR FAIR VALUE NOTIONAL -------------------- NOTIONAL -------------------- AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES -------- ------ ----------- -------- ------ ----------- (IN MILLIONS) Foreign currency swaps................ $10 $-- $ 5 $10 $-- $ 4 Credit default swaps.................. 20 -- -- 20 -- -- --- --- --- --- --- --- Total............................... $30 $-- $ 5 $30 $-- $ 4 === === === === === ===
The above table does not include notional amounts for equity variance swaps. At both December 31, 2007 and 2006, the Company owned 500 equity variance swaps. Fair values of equity variance swaps were insignificant and were not included in the preceding table. The following table presents the notional amount of derivative financial instruments by maturity at December 31, 2007:
REMAINING LIFE ----------------------------------------------------------------------------------- AFTER ONE YEAR AFTER FIVE YEARS ONE YEAR OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS TOTAL ---------------- ------------------ ----------------- --------------- ----- (IN MILLIONS) Foreign currency swaps.... $-- $10 $-- $-- $10 Credit default swaps...... -- 20 -- -- 20 --- --- --- --- --- Total................... $-- $30 $-- $-- $30 === === === === ===
Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets denominated in foreign currencies. In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the inception and termination of the currency swap by each party. Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. In an equity variance swap, the Company agrees with another F-36 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) party to exchange amounts in the future, based on changes in equity volatility over a defined period. Equity variance swaps are not included in the preceding table. Certain credit default swaps are used by the Company to hedge against credit-related changes in the value of its investments and to diversify its credit risk exposure in certain portfolios. In a credit default swap transaction, the Company agrees with another party, at specified intervals, to pay a premium to insure credit risk. If a credit event, as defined by the contract, occurs, generally the contract will require the swap to be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. HEDGING The following table presents the notional amount and fair value of derivatives by type of hedge designation at:
DECEMBER 31, 2007 DECEMBER 31, 2006 ------------------------------- ------------------------------- FAIR VALUE FAIR VALUE NOTIONAL -------------------- NOTIONAL -------------------- AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES -------- ------ ----------- -------- ------ ----------- (IN MILLIONS) Non-qualifying..................... $30 $-- $5 $30 $-- $4 --- --- -- --- --- -- Total............................ $30 $-- $5 $30 $-- $4 === === == === === ==
The Company did not have any qualifying hedges for the years ended December 31, 2007 and 2006. The Company recognized insignificant net investment income (expense) from settlement payments related to qualifying hedges for the year ended December 31, 2005. The Company recognized insignificant net investment gains (losses) from settlement payments related to non-qualifying hedges for each of the years ended December 31, 2007, 2006 and 2005. CASH FLOW HEDGES The Company designates and accounts for foreign currency swaps used to hedge the foreign currency cash flow exposure of foreign currency denominated investments as cash flow hedges, when they have met the requirements of SFAS 133. For the years ended December 31, 2007 and 2006, the Company did not recognize any net investment gains (losses) as the ineffective portion of all cash flow hedges. For the year ended December 31, 2005, the Company recognized an insignificant amount in net investment gains (losses) related to the ineffective portion of all cash flow hedges. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. There were no instances in which the Company discontinued cash flow hedge accounting because the forecasted transactions did not occur on the anticipated date or in the additional time period permitted by SFAS 133. There were no hedged forecasted transactions, other than the receipt or payment of variable interest payments for the years ended December 31, 2007, 2006 and 2005. F-37 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents the components of other comprehensive income (loss), before income tax, related to cash flow hedges:
YEARS ENDED DECEMBER 31, ------------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Other comprehensive income (loss) balance at the beginning of the year............................... $(3) $(3) $(5) Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges.............................................. -- -- 2 Amounts reclassified to net investment gains (losses)............................................ 1 -- -- --- --- --- Other comprehensive income (loss) balance at the end of the year......................................... $(2) $(3) $(3) === === ===
At December 31, 2007, insignificant amounts of the deferred net gains (losses) on derivatives accumulated in other comprehensive income (loss) is expected to be reclassified to earnings during the year ending December 31, 2008. NON-QUALIFYING DERIVATIVES AND DERIVATIVES FOR PURPOSES OTHER THAN HEDGING The Company enters into the following derivatives that do not qualify for hedge accounting under SFAS 133 or for purposes other than hedging: (i) foreign currency swaps to economically hedge its exposure to adverse movements in exchange rates; (ii) credit default swaps to minimize its exposure to adverse movements in credit; and (iii) equity variance swaps to economically hedge liabilities embedded in certain variable annuity products. The following table presents changes in fair value related to derivatives that do not qualify for hedge accounting:
YEARS ENDED DECEMBER 31, ------------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Net investment gains (losses), excluding embedded derivatives......................................... $-- $(1) $--
EMBEDDED DERIVATIVES The Company has certain embedded derivatives that are required to be separated from their host contracts and accounted for as derivatives. These host contracts include guaranteed minimum withdrawal contracts and guaranteed minimum accumulation contracts. The following table presents the fair value of the Company's embedded derivatives at:
DECEMBER 31, ----------- 2007 2006 ---- ---- (IN MILLIONS) Embedded derivatives assets.................................. $ 9 $-- Embedded derivatives liabilities............................. $-- $--
The following table presents changes in fair value related to embedded derivatives:
YEARS ENDED DECEMBER 31, ------------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Net investment gains (losses)......................... $9 $-- $--
F-38 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CREDIT RISK The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company's derivative contracts is limited to the fair value at the reporting date. The credit exposure of the Company's derivative transactions is represented by the fair value of contracts with a net positive fair value at the reporting date. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. At both December 31, 2007 and 2006, the Company was not required to pledge and was not entitled to receive any collateral related to derivative instruments. 5. DEFERRED POLICY ACQUISITION COSTS Information regarding DAC is as follows:
DAC ------------- (IN MILLIONS) Balance at January 1, 2005.................................... $1,254 Capitalizations............................................. 131 ------ Subtotal................................................. 1,385 ------ Less: Amortization related to: Unrealized investment gains (losses)..................... (2) Other expenses........................................... 99 ------ Total amortization..................................... 97 ------ Balance at December 31, 2005.................................. 1,288 Capitalizations............................................. 118 ------ Subtotal................................................. 1,406 ------ Less: Amortization related to: Other expenses........................................... 93 ------ Total amortization..................................... 93 ------ Less: Dispositions and other................................ 3 ------ Balance at December 31, 2006.................................. 1,310 Capitalizations............................................. 136 ------ Subtotal................................................. 1,446 ------ Less: Amortization related to: Net investment gains (losses)............................ 2 Other expenses........................................... 95 ------ Total amortization..................................... 97 ------ Balance at December 31, 2007.................................. $1,349 ======
Amortization of DAC is related to (i) investment gains and losses and the impact of such gains and losses on the amount of the amortization; (ii) unrealized investment gains and losses to provide information regarding the amount F-39 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) that would have been amortized 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. 6. INSURANCE INSURANCE LIABILITIES Insurance liabilities are as follows:
DECEMBER 31, --------------------------------------- POLICY- OTHER FUTURE HOLDER POLICY- POLICY ACCOUNT HOLDER BENEFITS BALANCES FUNDS ----------- ----------- ----------- 2007 2006 2007 2006 2007 2006 ---- ---- ---- ---- ---- ---- (IN MILLIONS) Retirement & savings......................... $ -- $ -- $ 19 $ 26 $ -- $ -- Non-medical health & other................... 55 53 -- -- 2 4 Traditional life............................. 451 405 -- -- 9 5 Universal variable life...................... 61 61 483 588 421 389 Annuities.................................... 27 22 265 259 1 2 Other........................................ -- -- 46 49 -- -- ---- ---- ---- ---- ---- ---- Total...................................... $594 $541 $813 $922 $433 $400 ==== ==== ==== ==== ==== ====
Affiliated policyholder account balances, included in the table above, were less than $1 million at both December 31, 2007 and 2006. There were no affiliated other policyholder funds at December 31, 2007. Affiliated other policyholder funds, included in the table above, were less than $1 million at December 31, 2006. SALES INDUCEMENTS Information regarding deferred sales inducements, which are reported in other assets, is as follows:
YEARS ENDED DECEMBER 31, ------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Balance at January 1,.................................... $39 $33 $27 Capitalization........................................... 9 8 8 Amortization............................................. (6) (2) (2) --- --- --- Balance at December 31,.................................. $42 $39 $33 === === ===
SEPARATE ACCOUNTS Separate account assets and liabilities consist of pass-through separate accounts totaling $10,904 million and $10,490 million at December 31, 2007 and 2006, respectively, for which the policyholder assumes all 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 $357 million, $348 million and $349 million for the years ended December 31, 2007, 2006 and 2005, respectively. For each of the years ended December 31, 2007, 2006 and 2005, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts. F-40 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GUARANTEES The Company issues annuity contracts which may include contractual guarantees to the contractholder for: (i) return of no less than total deposits made to the contract less any partial withdrawals ("return of net deposits"); and (ii) the highest contract value on a specified anniversary date minus any withdrawals following the contract anniversary, or total deposits made to the contract less any partial withdrawals plus a minimum return ("anniversary contract value" or "minimum return"). The Company also issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit. Information regarding the types of guarantees relating to annuity contracts and universal and variable life contracts is as follows:
DECEMBER 31, --------------------------------------------------------------- 2007 2006 ------------------------------ ------------------------------ IN THE AT IN THE AT EVENT OF DEATH ANNUITIZATION EVENT OF DEATH ANNUITIZATION -------------- ------------- -------------- ------------- (IN MILLIONS) ANNUITY CONTRACTS(1) RETURN OF NET DEPOSITS Separate account value.......... $ 3,659 N/A $ 2,915 N/A Net amount at risk(2)........... $ 7(3) N/A $ --(3) N/A Average attained age of contractholders............... 59 years N/A 59 years N/A ANNIVERSARY CONTRACT VALUE OR MINIMUM RETURN Separate account value.......... $ 2,869 $ 2,886 $ 2,882 $ 2,501 Net amount at risk(2)........... $ 61(3) $ 34(4) $ 30(3) $ 6(4) Average attained age of contractholders............... 60 years 58 years 59 years 57 years
DECEMBER 31, ------------------------------------------------- 2007 2006 ----------------------- ----------------------- SECONDARY PAID UP SECONDARY PAID UP GUARANTEES GUARANTEES GUARANTEES GUARANTEES ---------- ---------- ---------- ---------- (IN MILLIONS) UNIVERSAL AND VARIABLE LIFE CONTRACTS(1) Account value (general and separate account)............................ $ 2,860 N/A $ 2,859 N/A Net amount at risk(2)................. $ 27,377(3) N/A $ 29,152(3) N/A Average attained age of policyholders....................... 47 years N/A 46 years N/A
- -------- (1) The Company's annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. (2) The net amount at risk is based on the direct amount at risk (excluding reinsurance). (3) The net amount at risk for guarantees of amounts in the event of death is defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. (4) The net amount at risk for guarantees of amounts at annuitization is defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. F-41 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information regarding the liabilities for guarantees (excluding base policy liabilities) relating to annuity and universal and variable life contracts is as follows:
UNIVERSAL AND VARIABLE LIFE CONTRACTS ------------- ANNUITY CONTRACTS -------------------------- GUARANTEED GUARANTEED DEATH ANNUITIZATION SECONDARY BENEFITS BENEFITS GUARANTEES TOTAL ---------- ------------- ------------- ----- (IN MILLIONS) Balance at January 1, 2005............. $ 2 $-- $-- $ 2 Incurred guaranteed benefits........... -- -- 1 1 Paid guaranteed benefits............... -- -- -- -- --- --- --- --- Balance at December 31, 2005........... 2 -- 1 3 Incurred guaranteed benefits........... (1) -- -- (1) Paid guaranteed benefits............... -- -- -- -- --- --- --- --- Balance at December 31, 2006........... 1 -- 1 2 Incurred guaranteed benefits........... -- 3 -- 3 Paid guaranteed benefits............... -- -- -- -- --- --- --- --- Balance at December 31, 2007........... $ 1 $ 3 $ 1 $ 5 === === === ===
Excluded from the table above are guaranteed death and annuitization benefit liabilities on the Company's annuity contracts of $4 million, $3 million and $2 million at December 31, 2007, 2006 and 2005, respectively, which were reinsured 100% to an affiliate and had corresponding recoverables from affiliated reinsurers related to such guarantee liabilities. Account balances of contracts with insurance guarantees are invested in separate account asset classes as follows:
AT DECEMBER 31, --------------- 2007 2006 ------ ------ (IN MILLIONS) Mutual Fund Groupings Equity.................................................. $5,674 $6,358 Bond.................................................... 899 751 Balanced................................................ 1,646 504 Money Market............................................ 292 176 Specialty............................................... 112 138 ------ ------ Total................................................ $8,623 $7,927 ====== ======
7. REINSURANCE The Company's life insurance operations participate in reinsurance activities in order to limit losses, minimize exposure to large risks, and provide additional capacity for future growth. The Company has historically reinsured the mortality risk on new individual life insurance policies primarily on an excess of retention basis or a quota share basis. Until 2005, the Company reinsured up to 90% of the mortality risk for all new individual life insurance policies. This practice was initiated for different products starting at various points in time between the mid-1990's and 2000. During 2005, the Company changed its retention practices for certain individual life insurance. Amounts reinsured in prior years remain reinsured under the original reinsurance; however, under the new retention guidelines, the Company reinsures up to 90% of the mortality risk in excess of $1 million for most new F-42 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) individual life insurance policies that it writes. On a case by case basis, the Company may retain up to $5 million per life on single life individual policies and reinsure 100% of amounts in excess of the Company's retention limits. The Company evaluates its reinsurance programs routinely and may increase or decrease its retention at any time. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specific characteristics. In addition to reinsuring mortality risk as described previously, the Company reinsures other risks, as well as 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 has exposure to catastrophes, which could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of retention and quota share reinsurance arrangements to provide greater diversification of risk and minimize exposure to larger risks. The Company currently reinsures 100% of its new production of riders containing benefit guarantees related to variable annuities to an affiliate. The Company reinsures its business through a diversified group of reinsurers. No single unaffiliated reinsurer has a material obligation to the Company nor is the Company's business substantially dependent upon any reinsurance contracts. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The amounts in the consolidated statements of income are presented net of reinsurance ceded. Information regarding the effect of reinsurance is as follows:
YEARS ENDED DECEMBER 31, -------------------- 2007 2006 2005 ---- ----- ----- (IN MILLIONS) Direct premiums....................................... $153 $ 183 $ 220 Reinsurance assumed................................... -- 14 36 Reinsurance ceded..................................... (73) (101) (150) ---- ----- ----- Net premiums.......................................... $ 80 $ 96 $ 106 ==== ===== ===== Reinsurance recoverables netted against policyholder benefits and claims.................... $ 59 $ 85 $ 145 ==== ===== =====
Unaffiliated reinsurance recoverables, included in premiums and other receivables, were $179 million and $186 million at December 31, 2007 and 2006, respectively. Unaffiliated reinsurance and ceded commissions payables, included in other liabilities, were $30 million and $31 million at December 31, 2007 and 2006, respectively RELATED PARTY REINSURANCE TRANSACTIONS The Company has reinsurance agreements with certain MetLife subsidiaries, including MLIC, Exeter Reassurance Company, Ltd., Reinsurance Group of America, Incorporated and MetLife Reinsurance Company of Vermont. At December 31, 2007, the Company had reinsurance-related assets and liabilities from these agreements totaling $83 million and $8 million, respectively. At December 31, 2006, comparable assets and liabilities were $72 million and $2 million, respectively. F-43 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table reflects the related party reinsurance information recorded in income for the:
YEARS ENDED DECEMBER 31, ------------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Assumed premiums...................................... $-- $-- $ 8 Assumed fees, included in universal life and investment-type product policy fees................. $-- $-- $ 1 Assumed benefits, included in policyholder benefits and claims.......................................... $-- $ 1 $ 4 Assumed acquisition costs, included in other expenses............................................ $-- $-- $ 2 Ceded premiums........................................ $ 7 $ 3 $ 3 Ceded fees, included in universal life and investment- type product policy fees............................ $28 $24 $21 Interest earned on ceded reinsurance, included in other revenues...................................... $ 1 $ 1 $ 1 Ceded benefits, included in policyholder benefits and claims.............................................. $ 8 $16 $11 Ceded benefits, included in interest credited to policyholder account balances....................... $ 2 $ 2 $-- Interest costs on ceded reinsurance, included in other expenses............................................ $(2) $(1) $(1)
The Company has ceded risks related to guaranteed minimum benefit riders written by the Company to another affiliate. The guaranteed minimum benefit riders directly written by the Company are embedded derivatives and changes in their fair value are included within net investment gains (losses). The ceded reinsurance agreements also contain embedded derivatives and changes in their fair value are included in net investment gains (losses). The ceded amounts, included in net investment gains (losses), were $17 million, ($5) million and ($2) million for the years ended December 31, 2007, 2006 and 2005, respectively. 8. PREFERRED STOCK Effective December 30, 1998, the Company issued 200,000 shares of Series A Adjustable Rate Cumulative Preferred Stock, which were held by MetLife Credit Corporation, an affiliate, at par value of $1,000 per share. Dividends were paid quarterly in arrears at the applicable rate which was recalculated on the first business day after each quarterly dividend payment date based on the product of (1 -- the highest federal income tax rate for corporations applicable during such dividend period) times (the "AA" Composite Commercial Paper (Financial) Rate + 180 basis points). The adoption of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity ("SFAS 150"), as of January 1, 2004, required the Company to reclassify $100 million of mandatorily redeemable preferred stock from stockholder's equity to liabilities. In accordance with SFAS 150, dividends paid on the Company's preferred stock are treated as interest expense in 2005. The Company redeemed 100,000 shares on August 5, 2003 with the approval of the Massachusetts Commissioner of Insurance (the "Commissioner"), leaving 100,000 shares outstanding. On December 30, 2005, the Company redeemed the remaining $100 million of Preferred Stock with the approval of the Commissioner. NELICO paid no preferred dividends during each of the years ended December 31, 2007 and 2006. NELICO paid preferred dividends of $3 million during the year ended December 31, 2005 with prior approval of the Commissioner. F-44 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. INCOME TAXES The provision for income tax is as follows:
YEARS ENDED DECEMBER 31, ------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Current: Federal................................................ $17 $(8) $15 State and local........................................ 1 1 1 --- --- --- Subtotal............................................... 18 (7) 16 --- --- --- Deferred: Federal................................................ 9 16 13 --- --- --- Provision for income tax................................. $27 $ 9 $29 === === ===
The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported is as follows:
YEARS ENDED DECEMBER 31, ------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Tax provision at U.S. statutory rate.................... $ 48 $ 37 $30 Tax effect of: Tax-exempt investment income.......................... (25) (24) (4) Prior year tax........................................ 4 (6) 2 Other, net............................................ -- 2 1 ---- ---- --- Provision for income tax................................ $ 27 $ 9 $29 ==== ==== ===
F-45 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
DECEMBER 31, ----------- 2007 2006 ---- ---- (IN MILLIONS) Deferred income tax assets: Policyholder liabilities and receivables.................. $315 $310 Employee benefits......................................... 6 6 Deferred intercompany losses.............................. 10 10 Investments............................................... -- 3 Other, net................................................ 7 1 ---- ---- 338 330 Less: Valuation allowance................................. 10 10 ---- ---- 328 320 ---- ---- Deferred income tax liabilities: Investments............................................... 4 -- DAC....................................................... 392 379 Net unrealized investment gains........................... 1 -- ---- ---- 397 379 ---- ---- Net deferred income tax liability........................... $(69) $(59) ==== ====
The Company recorded a valuation allowance related to a deferred intercompany loss from the sale prior to 2003 of Exeter Reassurance Company, Ltd. to MetLife within the same consolidated group. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for deferred intercompany losses will not be realized. The Company participates in a tax sharing agreement with MetLife. Under the agreement, current income tax expense (benefit) is computed on a separate return basis and provides that members shall make payments (receive reimbursement) to (from) MetLife to the extent that their incomes (losses and other credits) contribute to (reduce) the consolidated income tax expense. The consolidating companies are reimbursed for net operating losses or other tax attributes they have generated when utilized in the consolidated return. Pursuant to the tax sharing agreement, the amount due to (from) affiliates is ($13) million and $3 million as of December 31, 2007 and 2006, respectively. The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company is under continuous examination by the Internal Revenue Service ("IRS") and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction. With a few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by tax authorities for years prior to 2000. In the first quarter of 2005, the IRS commenced an examination of the Company's U.S. income tax returns for 2000 through 2002 that is anticipated to be completed in 2008. As a result of the implementation of FIN 48, the Company recognized a $10 million decrease in the liability for unrecognized tax benefits, a $3 million decrease in the interest liability for unrecognized tax benefits, and a corresponding increase to the January 1, 2007 balance of retained earnings of $13 million. F-46 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On September 25, 2007, the IRS issued Revenue Ruling 2007-61, which announced its intention to issue regulations with respect to certain computational aspects of the Dividends Received Deduction ("DRD") on separate account assets held in connection with variable annuity contracts. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that would have changed accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other interested parties will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time. For the year ended December 31, 2007, the Company recognized an income tax benefit of $24 million related to the separate account DRD. 10. CONTINGENCIES, COMMITMENTS AND GUARANTEES CONTINGENCIES LITIGATION The Company has faced numerous claims, including class action lawsuits, alleging improper marketing or sales of individual life insurance policies, annuities, mutual funds or other products. The Company continues to vigorously defend against the claims in these matters. Some sales practices claims have been resolved through settlement. Other sales practices claims have been won by dispositive motions or have gone to trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance, annuities, mutual funds or other products may be commenced in the future. Wilmington Shipping Company ("WSC") and two of its employees have sued the Company for in excess of $5 million in damages in federal court in North Carolina. WSC asserts that the Company advised the investment of pension plan funds in a Developmental Property (real estate) account that it claims caused plan losses of over $2 million. WSC also alleges that the Company failed to give appropriate investment and plan termination advice. The Company's motion for summary judgment was granted. The plaintiffs appealed to the U.S. Court of Appeals for the 4th Circuit. In August 2007, the Fourth Circuit affirmed in part and reversed in part the lower court's decision and remanded the matter for further proceedings. The Company is vigorously defending against the remaining claims in federal court in North Carolina. Various litigation, claims and assessments against the Company, in addition to those discussed previously and 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 or taxpayer. Further, state insurance regulatory authorities or other federal, state or industry authorities may conduct investigations or make inquiries, such as information requests, subpoenas, or books and records examinations, concerning a wide variety of issues, including the Company's compliance with applicable insurance and other laws and regulations. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, except as noted previously in connection with specific matters. In some of the matters referred to above, large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. 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 consolidated net income or cash flows. F-47 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INSOLVENCY ASSESSMENTS Most of the jurisdictions in which the Company is admitted to transact business require insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. Assessments levied against the Company were less than $1 million for each of the years ended December 31, 2007, 2006 and 2005. At December 31, 2007 and 2006, the Company maintained a liability of $375 thousand and $302 thousand, respectively. The related asset for premium tax offsets was $282 thousand and $210 thousand, respectively, for undiscounted future assessments in respect of impaired, insolvent or failed insurers. The Company maintained at December 31, 2007 and 2006, an asset related to paid assessments representing currently available premium tax offsets of $118 thousand and $176 thousand, respectively. COMMITMENTS LEASES The Company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum sublease income and minimum gross rental payments relating to these lease agreements are as follows:
SUBLEASE GROSS RENTAL INCOME PAYMENTS -------- ------------ (IN MILLIONS) 2008................................................... $ 6 $22 2009................................................... $-- $12 2010................................................... $-- $10 2011................................................... $-- $ 6 2012................................................... $-- $ 3 Thereafter............................................. $-- $15
GUARANTEES In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties pursuant to which it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities, and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to $45 million, with a cumulative maximum of $90 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company's F-48 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future. The Company's recorded liabilities at both December 31, 2007 and 2006 for indemnities, guarantees and commitments were insignificant. 11. EMPLOYEE BENEFIT PLANS PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company's employees, sales representatives and retirees participate in funded qualified and unfunded non-qualified defined benefit pension plans and other postretirement plans sponsored by MLIC. Pension benefits are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits based upon years of credited service and either final average or career average earnings. The cash balance formula utilizes hypothetical or notional accounts which credit participants with benefits equal to a percentage of eligible pay as well as earnings credits, determined annually based upon the average annual rate of interest on 30-year U.S. Treasury securities, for each account balance. The non-qualified plan provides supplemental pension benefits to certain executive level employees and retirees. The Company also provides certain postemployment benefits and certain postretirement medical and life insurance benefits for retired employees through a plan sponsored by MLIC. Employees of the Company who were hired prior to 2003 (or, in certain cases, rehired during or after 2003) and meet age and service criteria while working for the Company, may become eligible for these other postretirement benefits, at various levels, in accordance with the applicable plans. Virtually all retirees, or their beneficiaries, contribute a portion of the total cost of postretirement medical benefits. Employees hired after 2003 are not eligible for any employer subsidy for postretirement medical benefits. The Company is allocated both pension and other postretirement expenses from MLIC associated with benefits provided to its employees and does not bear direct obligation for benefits under these benefit plans. Therefore, the assets and obligations of these benefit plans are not included in the accompanying consolidated balance sheets. The Company's share of pension expense was $4 million for the year ended December 31, 2007 and $6 million for each of the years ended December 31, 2006 and 2005. In addition, the Company's share of postretirement expense was less than $1 million, $2 million, and $3 million for the years ended December 31, 2007, 2006 and 2005, respectively. The combined allocated pension and other postretirement benefit expense is included in the accompanying consolidated income statements. The Company sponsors the Non-Qualified Retirement Plan for Managing Partners (the "MPRP Plan"), a non-qualified defined benefit pension plan. The MPRP Plan supplements earned benefits to participants under the Agency Employees' Retirement Plan (the "AERP Plan"), a multiple employer pension plan. The assets and obligations of the AERP Plan are not included in the accompanying consolidated balance sheets or the disclosure below. The Company made contributions of less than $1 million, $10 million and $8 million for the years ended December 31, 2007, 2006 and 2005, respectively, to the AERP Plan. The assets and obligations of the MPRP Plan along with the related net periodic pension expense, are included in the accompanying consolidated financial statements and disclosures below. Effective March 1, 2005, the Company amended and revalued its multi- employer postretirement plan to a new single employer plan. Prior to March 1, 2005, the Company made contributions of $2 million to the former multi-employer plan in 2005. The assets and obligations of the new postretirement plan, along with the related net periodic other postretirement expense, are included in the accompanying consolidated financial statements and disclosures below. F-49 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As described more fully in Note 1, effective December 31, 2006, the Company adopted SFAS 158. The adoption of SFAS 158 required the recognition of the funded status of defined benefit pension and other postretirement plans and eliminated the additional minimum pension liability provision of SFAS 87. Upon adoption of SFAS 158, the Company recognized as an adjustment to accumulated other comprehensive loss, net of income tax, those amounts of actuarial gains and losses, prior service costs and credits, and the remaining net transition asset or obligation that had not yet been included in net periodic benefit cost at the date of adoption. The following table summarizes the adjustments to the December 31, 2006 consolidated balance sheet as a result of recognizing the funded status of the defined benefit plans.
DECEMBER 31, 2006 ---------------------------------------------------- ADDITIONAL MINIMUM PRE PENSION ADOPTION OF POST SFAS 158 LIABILITY SFAS 158 SFAS 158 ADJUSTMENTS ADJUSTMENT ADJUSTMENT ADJUSTMENTS BALANCE SHEET CAPTION ----------- ---------- ----------- ----------- (IN MILLIONS) Other liabilities: Accrued pension benefit cost..................................... $(21) $-- $ -- $(21) Other liabilities: Accrued postretirement benefit cost............................. $ (7) $-- $(16) $(23) --- ---- Accumulated other comprehensive loss, before income tax: Defined benefit plans.................... $-- $(16) $(16) Deferred income tax........................ $-- $ 6 --- ---- Accumulated other comprehensive loss, net of income tax: Defined benefit plans.................... $-- $(10) $(10) === ====
A December 31 measurement date is used for all of the Company's defined benefit pension and other postretirement benefit plans. F-50 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OBLIGATIONS, FUNDED STATUS AND NET PERIODIC BENEFIT COSTS
DECEMBER 31, ------------------------- OTHER POSTRETIRE- PENSION MENT BENEFITS BENEFITS ----------- ----------- 2007 2006 2007 2006 ---- ---- ---- ---- (IN MILLIONS) Change in benefit obligation: Benefit obligation at beginning of year............ $ 21 $ 20 $ 23 $ 23 Service cost..................................... -- 1 1 1 Interest cost.................................... 2 1 1 2 Plan participants' contributions................. -- -- 3 3 Net actuarial (gains) losses..................... 1 (1) (1) (2) Change in benefits............................... 6 -- -- -- Benefits paid.................................... (1) -- (3) (4) ---- ---- ---- ---- Benefit obligation at end of year.................. 29 21 24 23 ---- ---- ---- ---- Change in plan assets: Fair value of plan assets at beginning of year..... -- -- -- -- Actual return on plan assets..................... -- -- -- -- Employer contribution............................ 1 -- -- -- Benefits paid.................................... (1) -- -- -- ---- ---- ---- ---- Fair value of plan assets at end of year........... -- -- -- -- ---- ---- ---- ---- Funded status at end of year....................... $(29) $(21) $(24) $(23) ==== ==== ==== ==== Amounts recognized in consolidated balance sheet consist of: Other liabilities................................ $(29) $(21) $(24) $(23) ==== ==== ==== ==== Accumulated other comprehensive loss: Net actuarial (gains) losses..................... $ -- $ -- $ (4) $ (2) Prior service cost (credit)...................... 1 -- 18 18 ---- ---- ---- ---- 1 -- 14 16 Deferred income tax.............................. -- -- (5) (6) ---- ---- ---- ---- $ 1 $ -- $ 9 $ 10 ==== ==== ==== ====
The accumulated benefit obligation for the defined benefit pension plan was $28 million and $19 million at December 31, 2007 and 2006, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows:
DECEMBER 31, ----------- 2007 2006 ---- ---- (IN MILLIONS) Projected benefit obligation................................. $29 $21 Accumulated benefit obligation............................... $28 $19 Fair value of plan assets.................................... $-- $--
F-51 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The projected benefit obligation exceeded assets for all pension and postretirement plans at December 31, 2007 and 2006. The components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were as follows:
YEARS ENDED DECEMBER 31, -------------------------------- OTHER PENSION POSTRETIREMENT BENEFITS BENEFITS ----------- ------------------ 2007 2006 2007 2006 2005 ---- ---- ---- ---- ---- (IN MILLIONS) NET PERIODIC BENEFIT COST Service cost.................................. $-- $ 1 $ 1 $1 $-- Interest cost................................. 2 1 1 2 1 Amortization of prior service cost............ 5 -- 2 2 2 --- --- --- -- --- Net periodic benefit cost.................. $ 7 $ 2 $ 4 $5 $ 3 --- === --- == === OTHER CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER COMPREHENSIVE INCOME (LOSS) Net acturial (gains) losses................... -- -- Prior Service cost (credit)................... 6 -- Amortization of prior service (cost) credit... (5) (2) --- --- Total recognized in other comprehensive income (loss)............................ 1 (2) --- --- Total recognized in net periodic benefit cost and other comprehensive income (loss)................................... $ 8 $ 2 === ===
Included within other comprehensive income (loss) are other changes in plan assets and benefit obligations associated with pension benefits of $1 million and other postretirement benefits of ($2) million for an aggregate reduction in other comprehensive income of ($1) million before income tax and less than ($1) million, net of income tax. The estimated prior service cost for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year is $1 million. The estimated net actuarial gains and prior service cost for the defined benefit postretirement plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next year is less than $1 million and $2 million, respectively. In 2004, the Company adopted the guidance in FSP 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, to account for future subsidies to be received under the Prescription Drug Act. The Company began receiving these subsidies during 2007. The reduction in the accumulated postretirement obligation was $1 million and $2 million for the years ended December 31, 2007 and 2006, respectively. The reduction of the net periodic postretirement benefit cost resulting from the Prescription Drug Act was less than $1 million for each of the years ended December 31, 2007, 2006 and 2005. The Company received subsidies of less than $1 million for the year ended December 31, 2007. F-52 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ASSUMPTIONS Assumptions used in determining benefit obligations were as follows:
DECEMBER 31, --------------------------- OTHER PENSION POSTRETIRE- BENEFITS MENT BENEFITS ----------- ------------- 2007 2006 2007 2006 ---- ---- ---- ---- Discount rate...................................... 6.65% 6.00% 6.65% 6.00% Rate of compensation increase...................... 4.00% 4.00% N/A N/A
Assumptions used in determining net periodic benefit cost were as follows:
DECEMBER 31, -------------------------------- OTHER PENSION POSTRETIREMENT BENEFITS BENEFITS ----------- ------------------ 2007 2006 2007 2006 2005 ---- ---- ---- ---- ---- Discount rate................................. 6.00% 5.80% 6.00% 5.80% 5.70% Expected rate of return on plan assets........ N/A N/A N/A N/A N/A Rate of compensation increase................. 4.00% 4.00% N/A N/A N/A
The discount rate is determined annually based on the yield, measured on a yield to worst basis, of a hypothetical portfolio constructed of high quality debt instruments available on the valuation date, which would provide the necessary future cash flows to pay the aggregate projected benefit obligation when due. The assumed healthcare cost trend rates used in measuring the accumulated postretirement benefit obligation and net periodic benefit cost were as follows:
DECEMBER 31, --------------------------------------------------- 2007 2006 ------------------------ ------------------------ Pre-Medicare eligible claims..... 8.5% down to 5% in 2014 9.0% down to 5% in 2014 Medicare eligible claims......... 10.5% down to 5% in 2018 11.0% down to 5% in 2018
Assumed healthcare cost trend rates may have a significant effect on the amounts reported for healthcare plans. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:
ONE PERCENT ONE PERCENT INCREASE DECREASE ----------- ----------- (IN THOUSANDS) Effect on total service and interest cost components......................................... $ 55 $ (49) Effect on accumulated postretirement benefit obligation......................................... $491 $(458)
CASH FLOWS Benefit payments due under the non-qualified pension plan are funded from the Company's general assets as they become due under the provision of the plan. In 2008, the Company does not anticipate making any contributions other than benefit payments to its non-qualified pension plan. Other postretirement benefits represent a non-vested, non-guaranteed obligation of the Company and current regulations do not require specific funding levels for these benefits. Total payments were $4 million and $3 million for the years ended December 31, 2007 and 2006, respectively. It is the Company's practice to use its general assets to pay claims as they come due. F-53 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Gross benefit payments for the next ten years, which reflect expected future service as appropriate, net of gross subsidies to be received under the Prescription Drug Act for the postretirement plan are expected to be as follows:
OTHER POSTRETIREMENT BENEFITS ------------------------------------- PENSION PRESCRIPTION DRUG BENEFITS GROSS SUBSIDIES NET -------- ------- ----------------- ------- (IN THOUSANDS) 2008.................................. $ 1,117 $ 2,034 $(414) $ 1,620 2009.................................. $ 1,863 $ 2,049 $(456) $ 1,593 2010.................................. $ 2,210 $ 2,065 $(494) $ 1,571 2011.................................. $ 2,383 $ 2,107 $ -- $ 2,107 2012.................................. $ 2,433 $ 2,030 $ -- $ 2,030 2013 -- 2017.......................... $11,772 $10,443 $ -- $10,443
SAVINGS AND INVESTMENT PLANS The Company sponsors savings and investment plans for substantially all employees, under which a portion of employee contributions are matched. The Company contributed less than $1 million for each of the years ended December 31, 2007, 2006 and 2005, respectively. 12. EQUITY STATUTORY EQUITY AND INCOME Each insurance company's state of domicile imposes minimum risk-based capital ("RBC") requirements that were developed by the National Association of Insurance Commissioners ("NAIC"). The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital, as defined by the NAIC, to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NELICO exceeded the minimum RBC requirements for all periods presented herein. The NAIC adopted the Codification of Statutory Accounting Principles ("Codification") in 2001. Codification was intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the effect of Codification on the statutory capital and surplus of NELICO. Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing securities on a different basis. In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets not admitted by the Company are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis and tax basis not expected to reverse and become recoverable within a year. Statutory net income of NELICO, as filed with the Commonwealth of Massachusetts Division of Insurance, was $122 million, $109 million and $50 million for the years ended December 31, 2007, 2006 and 2005, respectively. Statutory capital and surplus, as filed, was $544 million and $435 million at December 31, 2007 and 2006, respectively. F-54 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DIVIDEND RESTRICTIONS Stockholder dividends or other distributions proposed to be paid by NELICO must be approved by the Commissioner if such dividends or distributions, together with other dividends or distributions made within the preceding calendar year, exceed the greater of: (i) 10% of NELICO's statutory surplus as of the immediately preceding calendar year; or (ii) NELICO's statutory net gain from operations for the immediately preceding calendar year. In addition, dividends cannot be paid from a source other than statutory unassigned funds surplus without prior approval of the Commissioner. The maximum amount of the dividend which NELICO may pay to MLIC in 2008 without prior approval is $94 million. NELICO paid no common stockholder dividends for the years ended December 31, 2007, 2006 and 2005. OTHER COMPREHENSIVE INCOME (LOSS) The following table sets forth the reclassification adjustments required for the years ended December 31, 2007, 2006 and 2005 in other comprehensive income (loss) that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
YEARS ENDED DECEMBER 31, ------------------ 2007 2006 2005 ---- ---- ---- (IN MILLIONS) Holding gains (losses) on investments arising during the year.................................................. $ 1 $(7) $(24) Income tax effect of holding gains (losses)............. -- 3 9 Reclassification adjustments: Recognized holding (gains) losses included in current year income........................................ -- 2 3 Amortization of premium and accretion of discounts associated with investments........................ 1 -- 2 Income tax effect....................................... (1) (1) (2) Allocation of holding gains on investments relating to other policyholder amounts............................ -- -- 2 Income tax effect of allocation of holding gains to other policyholder amounts............................ -- -- (1) --- --- ---- Other comprehensive income (loss)....................... $ 1 $(3) $(11) === === ====
F-55 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. OTHER EXPENSES Information on other expenses is as follows:
YEARS ENDED DECEMBER 31, --------------------- 2007 2006 2005 ----- ----- ----- (IN MILLIONS) Compensation......................................... $ 54 $ 54 $ 56 Commissions.......................................... 154 128 124 Interest and dividends............................... -- 2 4 Amortization of DAC.................................. 97 93 99 Capitalization of DAC................................ (136) (118) (131) Insurance tax, license and fees...................... 16 17 16 Agency allowances.................................... 63 58 60 Sub-advisory fees and related expenses............... 169 155 123 Minority interest.................................... -- 4 (1) Other................................................ 90 93 111 ----- ----- ----- Total other expenses............................... $ 507 $ 486 $ 461 ===== ===== =====
For the years ended December 31, 2007, 2006 and 2005, commissions and capitalization of DAC include the impact of affiliated reinsurance transactions. See Note 7. See also Note 15 for discussion of affiliated expenses included in the table above. 14. FAIR VALUE INFORMATION The estimated fair value of financial instruments has 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. The implementation of SFAS 157 may impact the fair value assumptions and methodologies associated with the valuation of assets and liabilities. See also Note 1 regarding the adoption of SFAS 157. Amounts related to the Company's financial instruments are as follows:
CARRYING ESTIMATED VALUE FAIR VALUE -------- ---------- (IN MILLIONS) DECEMBER 31, 2007 Assets: Fixed maturity securities............................. $821 $821 Equity securities..................................... $ -- $ -- Mortgage loans on real estate......................... $ 2 $ 2 Policy loans.......................................... $411 $411 Short-term investments................................ $123 $123 Cash.................................................. $ 51 $ 51 Accrued investment income............................. $ 20 $ 20 Liabilities: Policyholder account balances......................... $329 $318
F-56 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CARRYING ESTIMATED VALUE FAIR VALUE -------- ---------- (IN MILLIONS) DECEMBER 31, 2006 Assets: Fixed maturity securities............................. $886 $886 Equity securities..................................... $ 7 $ 7 Mortgage loans on real estate......................... $ 2 $ 2 Policy loans.......................................... $357 $357 Short-term investments................................ $141 $141 Cash.................................................. $ 12 $ 12 Accrued investment income............................. $ 21 $ 21 Liabilities: Policyholder account balances......................... $329 $319
The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows: FIXED MATURITY SECURITIES AND EQUITY SECURITIES The fair values of publicly held fixed maturity securities and publicly held equity securities are based on quoted market prices or estimates from independent pricing services. However, in cases where quoted market prices are not available, such as for private fixed maturity securities, fair values are estimated using present value or valuation techniques. The determination of fair values is based on: (i) valuation methodologies; (ii) securities the Company deems to be comparable; and (iii) assumptions deemed appropriate given the circumstances. The fair value estimates are based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. Factors considered in estimating fair value include: coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, credit rating, industry sector of the issuer, and quoted market prices of comparable securities. MORTGAGE LOANS ON REAL ESTATE Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. POLICY LOANS The carrying values for policy loans approximate fair value. CASH AND SHORT-TERM INVESTMENTS The carrying values for cash and short-term investments approximate fair values due to the short-term maturities of these instruments. ACCRUED INVESTMENT INCOME The carrying value for accrued investment income approximates fair value. F-57 NEW ENGLAND LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) POLICYHOLDER ACCOUNT BALANCES The fair value of policyholder account balances which have final contractual maturities are estimated by discounting expected future cash flows based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. The fair value of policyholder account balances without final contractual maturities are assumed to equal their current net surrender value. DERIVATIVE FINANCIAL INSTRUMENTS The fair value of derivative financial instruments are based upon quotations obtained from dealers or other reliable sources. See Note 4 for derivative fair value disclosures. 15. RELATED PARTY TRANSACTIONS SERVICE AGREEMENTS The Company has entered into a Master Service Agreement with MLIC which provides administrative, accounting, legal and similar services to the Company. MLIC charged the Company $14 million, $1 million and $5 million, included in other expenses, for services performed under the Master Service Agreement for the years ended December 31, 2007, 2006 and 2005, respectively. The Company entered into a Service Agreement with MetLife Group, Inc. ("MetLife Group"), a wholly-owned subsidiary of MetLife, under which MetLife Group provides personnel services, as needed, to support the activities of the Company. MetLife Group charged the Company $28 million, $29 million and $36 million, included in other expenses, for services performed under the Service Agreement for the years ended December 31, 2007, 2006 and 2005, respectively. The Company has entered into various agreements with other affiliates to provide and receive services necessary to conduct its activities. Typical services provided under these agreements include management, policy administrative functions and distribution services. Expenses incurred, net of income earned, related to these agreements and recorded in other expenses, were $69 million, $18 million and $4 million for the years ended December 31, 2007, 2006 and 2005, respectively. In 2005, the Company entered into broker-dealer wholesale sales agreements with several affiliates ("Distributors"), in which the Distributors agree to sell, on the Company's behalf, fixed rate insurance products through authorized retailers. The Company agrees to compensate the Distributors for the sale and servicing of such insurance products in accordance with the terms of the agreements. The Distributors charged the Company $1 million, $3 million and $4 million, included in other expenses, for the years ended December 31, 2007, 2006 and 2005, respectively. The Company received fees for this service of $37 million, $36 million and $13 million, included in other expenses, for the years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007 and 2006, amounts due to affiliates were $2 million and $17 million, respectively. These receivables exclude affiliated reinsurance balances discussed in Note 7. MLIC charged the Company $1 million for the use of certain computers, furniture and other fixed assets during each of the years ended December 31, 2007 and 2005. There were no such charges to the Company during the year ended December 31, 2006. See Notes 3, 6 and 7 for additional related party transactions. F-58 PART C OTHER INFORMATION ITEM 26. 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 (vi) Forms of Selling Agreement 19 (vii) Form of Retail Sales Agreement 22 (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 (iii) Enterprise Application for Policies 18 (iv) Updated Enterprise Application for Policies 20 (f) (i) Amended and restated Articles of Organization of NELICO 3 (ii) Amendments to the Amended and restated Articles of Organization 8 (iii) Amended and Restated By-Laws of NELICO 14 (g) Reinsurance Agreement 17 (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) Amendment No. 2 to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and New England Life Insurance Company 13 (vi) Amendment No. 1 to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and New England Life Insurance Company 13 (vii) Participation Agreement among Met Investors Series Trust, Met Investors Advisory Corp., Met Investors Distribution Company and New England Life Insurance Company 16 (viii) Participation Agreement among American Funds Insurance Series, Capital Research and Management Company and New England Life Insurance Company 15 (ix) Participation Agreement among Metropolitan Series Fund, Inc., MetLife Advisers, LLC, MetLife Investors Distribution Company and New England Life Insurance Company (8/31/2007) 25 (i) None (j) Net Worth Maintenance Agreement 22 (k) Opinion and Consent of Marie C. Swift, Esquire 19 (l) Actuarial Opinion (m) Calculation Exhibit (n) Consent of Independent Registered Public Accounting Firm (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) 23 (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) (i) Powers of Attorney 24 (ii) Powers of Attorney for Lisa M. Weber and James J, Reilly - ----------------------- 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. 7 to the Variable Account's Form N-6 Registration Statement, File No. 333-89409, filed April 29, 2003. 18 Incorporated herein by reference to Post-Effective Amendment No. 7 to the Variable Account's Form N-6 Registration Statement, File No. 333-73676, filed April 28, 2004. 19 Incorporated herein by reference to Post-Effective Amendment No. 9 to the Variable Account's Form N-6 Registration Statement, File No. 333-89409, filed April 29, 2004. 20 Incorporated herein by reference to Post-Effective Amendment No. 11 to the Variable Account's Form N-6 Registration Statement, File No. 333-73676, filed April 26, 2005. 21 Incorporated herein by reference to Post-Effective Amendment No. 10 to New England Variable Annuity Separate Account's Form N-4 Registration Statement, File No. 333-51676, filed October 20, 2005. 22 Incorporated herein by reference to Post-Effective Amendment No. 11 to the Variable Account's Form N-6 Registration Statement, File No. 333-46401, filed April 26, 2006. 23 Incorporated herein by reference to Post-Effective Amendment No. 13 to the Variable Account's Form N-6 Registration Statement, File No. 333-73676, filed April 19, 2007. 24 Incorporated herein by reference to Post-Effective Amendment No. 13 to the Variable Account's Form N-6 Registration Statement, File No. 333-89409, filed April 19, 2007. 25 Incorporated herein by reference to Post-Effective Amendment No. 14 to the Variable Account's Form N-6 Registration Statement, File No. 333-73676, filed April 22, 2008. ITEM 27. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Business Address Positions and Offices with Depositor - ------------------------------ ------------------------------------------------------------- Lisa M. Weber ** Chairman of the Board, President and Chief Executive Officer Michael K. Farrell *** Director Gene L. Lunman **** Director William J. Mullaney** Director Michael J. Vietri ***** Director William J. Wheeler ** Director Joseph J. Prochaska, Jr. ** Executive Vice President and Chief Accounting Officer Gwenn L. Carr ** Senior Vice President and Assistant Secretary Alan C. Leland, Jr.* Senior Vice President Eric T. Steigerwalt ** Senior Vice President and Treasurer Brian Breneman ** Senior Vice President William D. Cammarata ****** Senior Vice President James J. Reilly ** Vice President (Principal Financial Officer) Daniel D. Jordan * Vice President and Secretary
* The principal business address is MetLife, 501 Boylston Street, Boston, MA 02116. ** The principal business address is MetLife, One MetLife Plaza, 27-01 Queens Plaza North, Long Island City, NY 11101. *** The principal office address is MetLife, 10 Park Avenue, Morristown, NJ 07962 **** The principal office address is MetLife, 185 Asylum Street, Hartford, CT 01603 ***** The principal office address is MetLife, 177 South Commons Drive, Aurora, IL 60504 ****** The principal office address is MetLife, 18210 Crane Nest Drive, Tampa, FL 33647 ITEM 28. 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 subsidiary of Metropolitan Life Insurance Company, which is organized under the laws of New York. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc., a publicly traded company. 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, 2007 The following is a list of subsidiaries of MetLife, Inc. updated as of December 31, 2007. 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 Taiwan Insurance Company Limited (Taiwan) E. Metropolitan Tower Life Insurance Company (DE) 1. TH Tower NGP, LLC (DE) 2. Partners Tower, L.P. (DE) - a 99% limited partnership interest of Partners Tower, L.P. is held by Metropolitan Tower Life Insurance Company and 1% general partnership interest is held by TH Tower NGP, LLC (DE) 3. TH Tower Leasing, LLC (DE) 4. MetLife Reinsurance Company of Charleston (SC) 5. MetLife Reinsurance Company of Vermont (VT) 6. Entrecap Real Estate II, LLC (DE) a) PREFCO Dix-Huit LLC (CT) b) PREFCO X Holdings LLC (CT) c) PREFCO Ten Limited Partnership (CT) - a 99.9% limited partnership interest of PREFCO Ten Limited Partnership is held by Entrecap Real Estate II, LLC and 0.1% general partnership is held by PREFCO X Holdings LLC. a) PREFCO Vingt LLC (CT) b) PREFCO Twenty Limited Partnership (CT) - a 99% limited partnership interest of PREFCO Twenty Limited Partnership is held by Entrecap Real Estate II, LLC and 1% general partnership is held by PREFCO Vingt LLC. 7. Plaza Drive Properties, LLC (DE) 8. MTL Leasing, LLC (DE) a) PREFCO IX Realty LLC (CT) b) PREFCO XIV Holdings LLC (CT) c) PREFCO Fourteen Limited Partnership (CT) - a 99.9% limited partnership interest of PREFCO Fourteen Limited Partnership is held by MTL Leasing, LLC and 0.1% general partnership is held by PREFCO XIV Holdings LLC. F. MetLife Pensiones S.A. (Mexico)- 97.4738% is owned by MetLife, Inc. and 2.5262% is owned by MetLife International Holdings, Inc. G. MetLife Chile Inversiones Limitada (Chile)- 99.9999999% is owned by MetLife, Inc. and 0.0000001% is owned by Natiloportem Holdings, Inc. 1. MetLife Chile Seguros de Vida S.A. (Chile)- 99.99% is owned by MetLife Chile Inversiones Limitada and 0.01% is owned by MetLife International Holdings, Inc. a) MetLife Chile Administradora de Mutuos Hipotecarios S.A. (Chile)- 99.99% is owned by MetLife Chile Seguros de Vida S.A. and 0.01% is owned by MetLife Chile Inversiones Limitada. H. MetLife Mexico S.A. (Mexico)- 98.70541% is owned by MetLife, Inc., 1.29459% is owned by MetLife International Holdings, Inc. 1. MetLife Afore, S.A. de C.V. (Mexico)- 99.99% is owned by MetLife Mexico S.A. (Mexico) and 0.01% is owned by MetLife Pensiones S.A. a) Met1 SIEFORE, S.A. de C.V. (Mexico)- 99.99% is owned by MetLife Afore, S.A. de C.V. and 0.01% is owned by MetLife Mexico S.A. (Mexico) b) Met2 SIEFORE, S.A. de C.V. (Mexico)- 99.99% is owned by MetLife Afore, S.A. de C.V. and 0.01% is owned by MetLife Mexico S.A. (Mexico) c) MetA SIEFORE, S.A. de C.V. (Mexico)- 99.9% is owned by MetLife Afore, S.A. de C.V. and 0.01% is owned by MetLife Mexico S.A. (Mexico) I. MetLife Mexico Servicios, S.A. de C.V. (Mexico)- 98% is owned by MetLife, Inc. and 2% is owned by MetLife International Holdings, Inc. J. MetLife Seguros de Vida S.A. (Uruguay) K. MetLife Securities, Inc. (DE) L. Enterprise General Insurance Agency, Inc. (DE) 1. MetLife General Insurance Agency of Texas, Inc. (DE) 2. MetLife General Insurance Agency of Massachusetts, Inc. (MA) 1 M. Metropolitan Property and Casualty Insurance Company (RI) 1. Metropolitan General Insurance Company (RI) 2. Metropolitan Casualty Insurance Company (RI) 3. Metropolitan Direct Property and Casualty Insurance Company (RI) 4. Met P&C Managing General Agency, Inc. (TX) 5. MetLife Auto & Home Insurance Agency, Inc. (RI) 6. Metropolitan Group Property and Casualty Insurance Company (RI) a) Metropolitan Reinsurance Company (U.K.) Limited (United Kingdom) 7. Metropolitan Lloyds, Inc. (TX) a) Metropolitan Lloyds Insurance Company of Texas (TX)- Metropolitan Lloyds Insurance Company of Texas, an affiliated association, provides automobile, 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. 8. Economy Fire & Casualty Company (IL) a) Economy Preferred Insurance Company (IL) b) Economy Premier Assurance Company (IL) N. Cova Corporation (MO) 1. Texas Life Insurance Company (TX) 2. Cova Life Management Company (DE) O. MetLife Investors Insurance Company (MO) P. First MetLife Investors Insurance Company (NY) Q. Walnut Street Securities, Inc. (MO) R. Newbury Insurance Company, Limited (BERMUDA) S. MetLife Investors Group, Inc. (DE) 1. MetLife Investors Distribution Company (MO) 2. Met Investors Advisory, LLC (DE) 3. MetLife Investors Financial Agency, Inc. (TX) 2 T. MetLife International Holdings, Inc. (DE) 1. MetLife Mexico Cares, S.A. de C.V. (Mexico) a) Fundacion MetLife Mexico, A.C. (Mexico) 2. Natiloportem Holdings, Inc. (DE) a) Servicios Administrativos Gen, S.A. de C.V. (Mexico) (1) MLA Comercial, S.A. de C.V. (Mexico) 99% is owned by Servicios Administrativos Gen, S.A. de C.V. and 1% is owned by MetLife Mexico Cares, S.A. de C.V. (2) MLA Servicios, S.A. de C.V. (Mexico) 99% is owned by Servicios Administrativos Gen, S.A. de C.V. and 1% is owned by MetLife Mexico Cares, S.A. de C.V. 3. MetLife India Insurance Company Private Limited (India)- 26% is owned by MetLife International Holdings, Inc. and 74% is owned by third parties. 4. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)- 99.99905% is owned by MetLife International Holdings, Inc. and 0.00095% is owned by Natiloporterm Holdings, Inc. 5. Metropolitan Life Seguros de Retiro S.A. (Argentina)- 95.23% is owned by MetLife International Holdings, Inc. and 4.77% is owned by Natiloportem Holdings, Inc. 6. Metropolitan Life Seguros de Vida S.A. (Argentina)- 95.2499% is owned by MetLife International Holdings, Inc. and 4.7473% is owned by Natiloportem Holdings, Inc. 7. MetLife Insurance Company of Korea Limited (South Korea)- 21.22% of MetLife Insurance Company of Korea Limited is owned by MetLife, Mexico, S.A. and 78.78% is owned by Metlife International Holdings, Inc. 8. Metropolitan Life Seguros e Previdencia Privada S.A. (Brazil)- 74.5485235740% is owned by MetLife International Holdings, Inc. and 25.451476126% is owned by MetLife Worldwide Holdings, Inc. and 0.0000003% is owned by Natiloportem Holdings, Inc. 9. MetLife Global, Inc. (DE) 10. MetLife Administradora de Fundos Multipatrocinados Ltda (Brazil) - 95.4635% is owned by MetLife International Holdings, Inc. and 4.5364% is owned by Natiloportem Holdings, Inc. 11. MetLife Insurance Limited (United Kingdom) 12. MetLife General Insurance Limited (Australia) 13. MetLife Limited (United Kingdom) 14. MetLife Insurance S.A./NV (Belgium) - 99.9% is owned by MetLife International Holdings, Inc. and 0.1% is owned by third parties. 15. MetLife Services Limited (United Kingdom) 16. MetLife Insurance Limited (Australia) a) MetLife Insurance and Investment Trust (Australia) b) MetLife Investments Pty Limited (Australia) c) MetLife Services (Singapore) PTE Limited (Australia) 17. Siembra Seguros de Retiro S.A. (Argentina) - 96.8819% is owned by MetLife International Holdings, Inc. and 3.1180% is owned by Natiloportem Holdings, Inc. 18. Best Market S.A. (Argentina) - 5% of the shares are held by Natiloportem Holdings, Inc. and 94.9999% is owned by MetLife International Holdings Inc. 19. Compania Previsional MetLife S.A. (Brazil) - 95.4635% is owned by MetLife International Holdings, Inc. and 4.5364% is owned by Natiloportem Holdings, Inc. (a) Met AFJP S.A. (Argentina) - 75.4088% of the shares of Met AFJP S.A. are held by Compania Previsional MetLife SA, 19.5912% is owned by Metropolitan Life Seguros de Vida SA, 3.9689% is held by Natiloportem Holdings, Inc. and 1.0310% is held by Metropolitan Life Seguros de Retiro SA. 20. MetLife Worldwide Holdings, Inc. (DE) a) MetLife Towarzystwo Ubezpieczen na Zycie Spolka Akcyjna. (Poland) b) MetLife Direct Co., Ltd. (Japan) c) MetLife Fubon Limited (Japan) U. Metropolitan Life Insurance Company (NY) 1. 334 Madison Euro Investments, Inc. (DE) a) Park Twenty Three Investments Company (United Kingdom)- 1% voting control of Park Twenty Three Investments Company is held by St. James Fleet Investments Two Limited. 1% of the shares of Park Twenty Three Investments Company is held by Metropolitan Life Insurance Company. 99% is owned by 334 Madison Euro Investment, Inc. (1) Convent Station Euro Investments Four Company (United Kingdom)- 1% voting control of Convent Station Euro Investments Four Company is held by 334 Madison Euro Investments, Inc. as nominee for Park Twenty Three Investments Company. 99% is owned by Park Twenty Three Investments Company. 2. 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. 3. One Madison Investments (Cayco) Limited (Cayman Islands)- 10.1% voting control of One Madison Investments (Cayco) Limited is held by Convent Station Euro Investments Four Company. 89.9% of the shares of One Madison Investments (Cayco) Limited is held by Metropolitan Life Insurance Company. 4. CRB Co, Inc. (MA)- AEW Real Estate Advisors, Inc. holds 49,000 preferred non-voting shares and AEW Advisors, Inc. holds 1,000 preferred non-voting shares of CRB, Co., Inc. 5. GA Holding Corp. (MA) 3 6. Thorngate, LLC (DE) 7. Alternative Fuel I, LLC (DE) 8. Transmountain Land & Livestock Company (MT) 9. MetPark Funding, Inc. (DE) 10. HPZ Assets LLC (DE) 11. Missouri Reinsurance (Barbados), Inc. (Barbados) 12. Metropolitan Tower Realty Company, Inc. (DE) a) Midtown Heights, LLC (DE) 13. MetLife Real Estate Cayman Company (Cayman Islands) 14. Metropolitan Marine Way Investments Limited (Canada) 15. MetLife Private Equity Holdings, LLC (DE) 16. 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 and 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. c) MetLife Capital Credit L.P. (DE)- 1% General Partnership interest is held by 23rd Street Investments, Inc., 99% Limited Partnership Interest is held by Metropolitan Life Insurance Company. d) MetLife Capital Limited Partnership (DE)- 1% General Partnership interest is held by 23rd Street Investments, Inc., 99% Limited Partnership Interest is held by Metropolitan Life Insurance Company. 17. Metropolitan Realty Management, Inc. (DE) 18. Hyatt Legal Plans, Inc. (DE) a) Hyatt Legal Plans of Florida, Inc. (FL) 19. MetLife Holdings, Inc. (DE) a) MetLife Credit Corp. (DE) b) MetLife Funding, Inc. (DE) 4 20. Bond Trust Account A (MA) 21. MetLife Investments Asia Limited (Hong Kong). 22. MetLife Investments Limited (United Kingdom)- 23rd Street Investments, Inc. holds one share of MetLife Investments Limited. 23. MetLife Latin America Asesorias e Inversiones Limitada (Chile)- 23rd Street Investments, Inc. holds 0.01% of MetLife Latin America Asesorias e Inversiones Limitada. 24. New England Life Insurance Company (MA) a) MetLife Advisers, LLC (MA) b) New England Securities Corporation (MA) 25. GenAmerica Financial, LLC (MO) a) GenAmerica Capital I (DE) b) General American Life Insurance Company (MO) (1) GenAmerica Management Corporation (MO) 5 (2) Reinsurance Group of America, Incorporated (MO) - 52% is owned by General American Life Insurance Company. (a) Reinsurance Company of Missouri, Incorporated (MO) (i) Timberlake Financial, L.L.C. (DE) (A) Timberlake Reinsurance Company II (SC) (ii) RGA Reinsurance Company (MO) (A) Reinsurance Partners, Inc. (MO) (iii) Parkway Reinsuarnce Company (MO) (b) RGA Worldwide Reinsurance Company, Ltd. (Barbados) (c) RGA Atlantic Reinsurance Company, Ltd. (Barbados) (d) RGA Americas Reinsurance Company, Ltd. (Barbados) (e) RGA Reinsurance Company (Barbados) Ltd. (Barbados) (i) RGA Financial Group, L.L.C. (DE)- 80% is owned by RGA Reinsurance Company (Barbados) Ltd. RGA Reinsurance Company also owns a 20% non-equity membership in RGA Financial Group, L.L.C. (f) RGA Life Reinsurance Company of Canada (Canada) (g) RGA International Corporation (Nova Scotia/Canada) (h) RGA Holdings Limited (U.K.) (United Kingdom) (i) RGA UK Services Limited (United Kingdom) (ii) RGA Capital Limited U.K. (United Kingdom) (iii) RGA Reinsurance (UK) Limited (United Kingdom) (iv) RGA Services India Private Limited (India) - Reinsurance Group of America Incorporated owns 99% of RGA Services India Private Limited and RGA Holdings Limited owns 1%. (i) RGA South African Holdings (Pty) Ltd. (South Africa) (i) RGA Reinsurance Company of South Africa Limited (South Africa) (j) RGA Australian Holdings PTY Limited (Australia) (i) RGA Reinsurance Company of Australia Limited (Australia) (ii) RGA Asia Pacific PTY, Limited (Australia) (k) General American Argentina Seguros de Vida, S.A. (Argentina) - 95% of General American Argentina Seguros de Vida, S.A. is owned by Reinsurance Group of America, Incorporated and 5% is owned by RGA Reinsurance Company (Barbados) Ltd. 6 (l) RGA Technology Partners, Inc. (MO) (m) RGA International Reinsurance Company (Ireland) (n) RGA Capital Trust I (DE) (i) RGA Global Reinsurance Company, Ltd. (Bermuda) 26. Corporate Real Estate Holdings, LLC (DE) 27. Ten Park SPC (CAYMAN ISLANDS ) - 1% voting control of Ten Park SPC is held by 23rd Street Investments, Inc. 28. MetLife Tower Resources Group, Inc. (DE) 29. Headland - Pacific Palisades, LLC (CA) 30. Headland Properties Associates (CA) - 1% is owned by Headland - Pacific Palisades, LLC and 99% is owned by Metropolitan Life Insurance Company. 31. Krisman, Inc. (MO) 32. Special Multi-Asset Receivables Trust (DE) 33. White Oak Royalty Company (OK) 34. 500 Grant Street GP LLC (DE) 35. 500 Grant Street Associates Limited Partnership (CT) - 99% of 500 Grant Street Associates Limited Partnership is held by Metropolitan Life Insurance Company and 1% by 500 Grant Street GP LLC 36. MetLife Canada/MetVie Canada (Canada) 37. MetLife Retirement Services LLC (NJ) a) MetLife Investment Funds Services LLC (NJ) b) MetLife Investment Funds Management LLC (NJ) c) MetLife Associates LLC (DE) 38. Euro CL Investments LLC (DE) 39. MEX DF Properties, LLC (DE) 40. MSV Irvine Property, LLC (DE) - 4% of MSV Irvine Property, LLC is owned by Metropolitan Tower Realty Company, Inc. and 96% is owned by Metropolitan Life Insurance Company 41. MetLife Properties Ventures, LLC (DE) a) Citypoint Holdings II Limited (UK) 42. Housing Fund Manager, LLC (DE) 43. MTC Fund I, LLC (DE) 0.01% of MTC Fund I, LLC is held by Housing Fund Manager, LLC. 44. MTC Fund II, LLC (DE) V. MetLife Capital Trust II (DE) W. MetLife Capital Trust III (DE) X. MetLife Capital Trust IV (DE) Y. MetLife Insurance Company of Connecticut (CT) - 86.72% is owned by MetLife, Inc. and 13.28% is owned by MetLife Investors Group, Inc. (Life Department)(Accident Department) The operations of the Accident Department have ceased as a result of the transfer of the worker's compensation business to an unrelated party. 1. 440 South LaSalle LLC (DE) 2. Pilgrim Investments Oakmont Lane, LLC (DE) - 50% is owned by MetLife Insurance Company of Connecticut and 50% is owned by a third party. 3. Pilgrim Alternative Investments Opportunity Fund I, LLC (DE) - 67% is owned by MetLife Insurance Company of Connecticut, and 33% is owned by third party. 4. Pilgrim Alternative Investments Opportunity Fund III Associates, LLC (CT) - 67% is owned by MetLife Insurance Company of Connecticut, and 33% is owned by third party. 5. Pilgrim Investments Highland Park, LLC (DE) 6. Metropolitan Connecticut Properties Ventures, LLC (DE) 7. MetLife Canadian Property Ventures LLC (NY) 8. Euro TI Investments LLC (DE) 9. Greenwich Street Investments, LLC (DE) a) Greenwich Street Capital Offshore Fund, Ltd. (Virgin Islands) b) Greenwich Street Investments, L.P. (DE) 10. Hollow Creek, L.L.C. (CT) 11. One Financial Place Corporation (DE) - 100% is owned in the aggregate by MetLife Insurance Company of Connecticut. 12. One Financial Place Holdings, LLC (DE)-100% is owned in the aggregate by MetLife Insurance Company of Connecticut. 13. Plaza LLC (CT) a) Tower Square Securities, Inc. (CT) 1) Tower Square Securities Insurance Agency of New Mexico, Inc. (NM) 2) Tower Square Securities Insurance Agency of Ohio, Inc. (OH) 99% is owned by Tower Square Securities, Inc. 14. TIC European Real Estate LP, LLC (DE) 15. MetLife European Holdings, Inc. (UK) a) MetLife Europe Limited (IRELAND) (i) MetLife Pensions Trustees Limited (UK) b) MetLife Assurance Limited (UK) 16. Travelers International Investments Ltd. (Cayman Islands) 17. Euro TL Investments LLC (DE) 18. Corrigan TLP LLC (DE) 19. TLA Holdings LLC (DE) a) The Prospect Company (DE) 1) Panther Valley, Inc. (NJ) 20. TRAL & Co. (CT) - TRAL & Co. is a general partnership. Its partners are MetLife Insurance Company of Connecticut and Metropolitan Life Insurance Company. 21. Tribeca Distressed Securities L.L.C. (DE) 22. MetLife Investors USA Insurance Comapny (DE) 23. MetLife Property Ventures Canada ULC (Canada) Z. MetLife Reinsurance Company of South Carolina (SC) AA. MetLife Investment Advisors Company, LLC (DE) BB. MetLife Standby I, LLC (DE) 1. MetLife Exchange Trust I (DE) CC. MetLife Services and Solutions, LLC (DE) 1. MetLife Solutions Pte. Ltd. (Singapore) (i) MetLife Services East Private Limited (India) DD. Soap Acquisition Corporation (NY) 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 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. 2) 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), a direct wholly owned subsidiary of MetLife, Inc. 3) 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. 4) The Metropolitan Money Market Pool and MetLife Intermediate Income Pool are pass-through investment pools, of which Metropolitan Life Insurance Company and/or its subsidiaries and/or affiliates are general partners. 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. 7 ITEM 29. 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 Directors' and Officers' Liability insurance coverage with limits of $400 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 is against public policy as expressed in the Act and is, 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 30. 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 with Principal Name Underwriter John J. Brett ** Chairman of the Board Craig W. Markham * Director and President William J. Toppeta *** Director Gwenn L. Carr *** Secretary and Clerk John G. Martinez ** Vice President and Financial and Operations Principal
Principal Business Address: * MetLife - 13045 Tesson Ferry Road, St. Louis, MO 63128 ** MetLife - 485 E US Highway South, Iselin, NY 08830 *** MetLife- One MetLife Plaza, 27-01 Queens Plaza North, Long Island City, NY 11101 (c)
(1) (2) (3) (4) (5) Compensation on Net Underwriting Events Occasioning Name of Principal Discounts and the Deduction of a Brokerage Other Underwriter Commissions Deferred Sales Load Commissions Compensation New England Securities Corporation $35,683,129 -- -- --
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 31. 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 200 Park Avenue New York, New York 10166 (c) New England Securities Corporation 501 Boylston Street Boston, Massachusetts 02116 ITEM 32. MANAGEMENT SERVICES Not applicable ITEM 33. 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 in the City of Boston, and the Commonwealth of Massachusetts, on the 22nd day of April, 2008. New England Variable Life Separate Account (Registrant) By: New England Life Insurance Company (Depositor) By: /s/ Marie C. Swift ---------------------------- Marie C. Swift, Esq. Vice President and 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 in the City of Boston, and the Commonwealth of Massachusetts, on the 22nd day of April, 2008. New England Life Insurance Company By: /s/ Marie C. Swift ----------------------------------- Marie C. Swift , Esq. Vice President and 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 22, 2008. * Chairman, President and Chief Executive Officer - ------------------------------------ Lisa M. Weber * Director - ------------------------------------ Michael K. Farrell * Director - ------------------------------------ Gene L. Lunman * Director - ------------------------------------ William J. Mullaney * Senior Vice President and Chief Accounting Officer - ------------------------------------ Joseph J. Prochaska, Jr. * Director - ------------------------------------ Michael J. Vietri * Director - ------------------------------------ William J. Wheeler * Vice President (Principal Financial Officer) - ------------------------------------ James J. Reilly
By: /s/ John E. Connolly, Jr., Esq. -------------------------------- John E. Connolly, Jr., Esq. Attorney-in-fact * Executed by John E. Connolly, Jr., Esquire on behalf of those indicated pursuant to powers of attorney filed herewith and with Post-Effective Amendment No.12 to the Registrant's Registration Statement on Form N-6, File No. 333-89409, filed April 19, 2007. EXHIBIT INDEX (l) Actuarial Opinion (m) Calculation Exhibit (n) Consent of Independent Registered Public Accounting Firm (r)(ii) Powers of Attorney EX-99.(L) 2 b68052a1exv99wxly.txt EX-99.(L) ACTUARIAL OPINION Zenith Survivorship Life 2002 Exhibit (l) April 22, 2008 New England Life Insurance Company 501 Boylston Street Boston, Massachusetts 02117 Gentlemen: In my capacity as Vice President of New England Life Insurance Company (the "Company"), I have provided actuarial advice concerning: The preparation of Post-Effective Amendment No. 13 to the registration statement on Form N-6 (File No. 333-89409) filed by New England Variable Life Separate Account and the Company with the Securities and Exchange Commission under the Securities Act of 1933 with respect to variable life insurance policies (the "Registration Statement"); and The preparation of policy forms for the variable life insurance policies described in the Registration Statement (the "Policies"). It is my professional opinion that: 1. The illustrations of death benefits, net cash values and cash values shown in Appendix B of the Prospectus, based on the assumptions stated in the illustrations, are consistent with the provisions of the Policies and the Company's administrative procedures. The rate structure of the Policies has not been designed,and the assumptions for the illustrations (including sex, age, rating classification, and premium amount and premium payment schedule) have not been selected, so as to make the relationship between premiums and benefits, as shown in the illustrations, appear to be materially more favorable than for any other prospective joint insureds with different assumptions Insureds in other underwriting classes may have higher cost of insurance charges. The illustrations are based on a commonly used rating classification. Assumed premium amounts and ages are appropriate for the markets in which the Policies are sold. 2. The illustration of net premiums shown under the heading "Charges - Deductions from Premiums" in the Prospectus contains the net premium amounts allocated to the Variable Account for a $3,000 annual premium under a Policy with a base face amount below $1 million and a Target Premium of $2,000. I hereby consent to the filing of this opinion as an Exhibit to this Post-Effective Amendment to the Registration Statement and to the use of my name under the heading "Experts" in the Statement of Additional Information. Sincerely, /s/ Paul LeClair Paul LeClair, F.S.A., M.A.A.A. Vice President EX-99.(M) 3 b68052a1exv99wxmy.txt EX-99.(M) CALCULATION EXHIBIT CALCULATION EXHIBIT FOR ZENITH SURVIVORSHIP LIFE 2002 ASSUMPTIONS: MALE/FEMALE, ISSUE AGES 55 / 55, PREFERRED NONSMOKER / PREFERRED NONSMOKER FACE AMOUNT OF 2,100,000.00 GUIDELINE PREMIUM TEST, LEVEL DB OPTION, IRS CORRIDOR PLANNED ANNUAL PREMIUM OF 22,315.00 USING CURRENT CHARGES, 6.00% GROSS INTEREST RATE THE FOLLOWING IS A DETAILED REPRESENTATION OF THE MONTHLY PROCESSING DURING POLICY YEAR 5:
BEGINNING MORTALITY & COST OF MONTH GROSS EXPENSE OF POLICY POLICY CASH PREMIUM PREMIUM RISK ADMIN RIDER INSURANCE YEAR MONTH VALUE PAID LOAD CHARGE CHARGE CHARGE CHARGE 5 1 71,989.46 22,315.00 2,789.36 68.64 79.00 0.00 110.52 5 2 91,648.35 0.00 0.00 68.74 79.00 0.00 110.52 5 3 91,782.07 0.00 0.00 68.84 79.00 0.00 110.52 5 4 91,916.26 0.00 0.00 68.94 79.00 0.00 110.52 5 5 92,050.93 0.00 0.00 69.04 79.00 0.00 110.52 5 6 92,186.08 0.00 0.00 69.14 79.00 0.00 110.51 5 7 92,321.70 0.00 0.00 69.24 79.00 0.00 110.51 5 8 92,457.81 0.00 0.00 69.34 79.00 0.00 110.51 5 9 92,594.40 0.00 0.00 69.45 79.00 0.00 110.51 5 10 92,731.47 0.00 0.00 69.55 79.00 0.00 110.51 5 11 92,869.03 0.00 0.00 69.65 79.00 0.00 110.51 5 12 93,007.08 0.00 0.00 69.76 79.00 0.00 110.51 END END END NET OF MONTH OUTSTANDING OF MONTH OF MONTH POLICY INVESTMENT CASH SURRENDER LOAN NET CASH DEATH YEAR EARNIGS VALUE CHARGE BALANCE VALUE BENEFIT 5 391.40 91,648.35 15,138.07 0.00 76,510.28 2,100,000.00 5 391.97 91,782.07 15,022.51 0.00 76,759.56 2,100,000.00 5 392.55 91,916.26 14,906.95 0.00 77,009.31 2,100,000.00 5 393.12 92,050.93 14,791.39 0.00 77,259.54 2,100,000.00 5 393.70 92,186.08 14,675.83 0.00 77,510.25 2,100,000.00 5 394.28 92,321.70 14,560.28 0.00 77,761.42 2,100,000.00 5 394.86 92,457.81 14,444.72 0.00 78,013.09 2,100,000.00 5 395.44 92,594.40 14,329.16 0.00 78,265.24 2,100,000.00 5 396.03 92,731.47 14,213.60 0.00 78,517.87 2,100,000.00 5 396.62 92,869.03 14,098.05 0.00 78,770.98 2,100,000.00 5 397.21 93,007.08 13,982.49 0.00 79,024.59 2,100,000.00 5 397.80 93,145.61 13,866.93 0.00 79,278.68 2,100,000.00
THE FOLLOWING IS A DESCRIPTION OF EACH COLUMN OF THE DETAILED REPRESENTATION: POLICY YEAR The policy year is assumed to be 5, as described above. POLICY MONTH The policy month ranges from 1 through 12, to describe the monthly processing that occurs throughout the policy year. BEGINNING OF MONTH CASH VALUE The beginning of month cash value (BOM CV) in each current month is equal to the end of month cash value from each previous month. This demonstration assumes that the cash value is comprised of variable account cash value only; no fixed account cash value or loan account cash value are present. GROSS PREMIUM PAID The gross premium paid is the planned ANNUAL premium of 22,315.00 as described above. PREMIUM LOAD The premium load is the sum of the sales charge, premium tax, and federal tax as described in the Transaction Fees table. For year 5, this sum is 12.50% of gross premium paid up to target premium, and 7.50% of gross premium paid in excess of target premium. With a target premium of 22,314.60 in year 5 month 1, the premium load is therefore 12.50% x 22,314.60 + 7.50% x 0.40 = 2,789.355. MORTALITY & EXPENSE RISK CHARGE The mortality & expense (M&E) risk charge is a percentage of the sum of the variable account cash value and the loan account cash value at the time that the charge is deducted. This demonstration assumes that all cash value is comprised of variable account cash value only. The annual percentages are described in the Periodic Fees table. The monthly percentages are 1/12th of the annual percentages. For example, in year 5 month 1, the percentage is 0.90% and the cash value at the time that the charge is deducted is: Cash Value = Beginning Of Month Cash Value + Gross Premium Paid - Premium Load Cash Value = 71,989.46094199 + 22,315.00 - 2,789.355 (values are from the Detailed Representation above) Cash Value = 91,515.10594199 The mortality & expense risk charge is therefore 0.90%/12 x 91,515.10594199 = 68.63632946. ADMIN CHARGE The admin charge is the sum of the Policy Fee and the Administrative Charge (per 1000) multiplied by the face amount divided by 1000 as described in the Periodic Fees table (although the Administrative Charge (per 1000) listed in the Periodic Fees table is rounded to 2 places, whereas the exact charge is used here). In year 5, this sum is therefore 5.50 + (0.035 x 2,100,000.00 / 1,000) = 79.00. RIDER CHARGE The rider charge is the sum of all of the charges for riders present, except for the Waiver of Monthly Deduction Rider (WMD). The WMD is calculated after the Cost of Insurance Charge because it uses that charge in its calculation. This illustration assumes no riders (including WMD) are present; the rider charge (as well as WMD charge) is therefore 0.00. A list of available riders can be found in the Rider Fees Table. COST OF INSURANCE CHARGE The cost of insurance (COI) charge is the product of the monthly COI rate and the net amount at risk (NAR). The NAR is the difference between the death benefit (DB) and the cash value (floored at 0), both at the time that the NAR is calculated. There are 5 different DB options: level DB option, guideline premium test, Enhanced corridor: DB = Max (face amount , cash value x Enhanced Corridor Factor level DB option, guideline premium test, IRS corridor: DB = Max (face amount , cash value x IRS Corridor Factor increasing DB option, guideline premium test, Enhanced corridor: DB = Max (face amount + cash value (floored at 0), cash value x Enhanced Corridor Factor level DB option, cash value accumulation test, NSP corridor: DB = Max (face amount , cash value x NSP Corridor Factor increasing DB option, cash value accumulation test, NSP corridor: DB = Max (face amount + cash value (floored at 0), cash value x NSP Corridor Factor At the time that the NAR is calculated, the face amount is comprised of those attributable to the base policy and the Survivorship Level Term Insurance Rider if the rider face amount is included with the base face when determining the corridor death benefit. It is divided by a monthly discount factor which is calculated based upon the guaranteed interest rate. The guaranteed interest rate is 4.00%, so the monthly discount factor is calculated as follows: monthly discount factor = (1 + guaranteed interest rate) [to the power] (1/12) monthly discount factor = (1 + 4.00%) [to the power] (1/12) monthly discount factor = 1.0032737397822 The NAR is: NAR = death benefit - Max (0, cash value) and finally the COI charge is: COI charge = [monthly COI rate / (1 - monthly COI rate)] x NAR For example, in year 5 month 1, we have the following: level DB option, guideline premium test, IRS corridor face amount = 2,100,000.00 cash value = BOM CV + Gross Premium Paid - Premium Load - M&E Risk Charge - Admin Charge - Rider Charge cash value = 71,989.46094199 + 22,315.00 - 2,789.355 - 68.63632946 - 79.00 - 0.00 cash value = 91,367.46961254 IRS Corridor Factor = 1.34 monthly discount factor = 1.0032737397822 monthly COI rate = 0.0000552 DB = Max (face amount / monthly discount factor, cash value x IRS Corridor Factor) DB = Max (2,100,000.00 / 1.0032737397822, 91,367.46961254 x 1.34) DB = Max (2,093,147.57949898, 122,432.41) DB = 2,093,147.57949898 NAR = DB - Max (0, cash value) NAR = 2,093,147.57949898 - Max (0, 91,367.46961254) NAR = 2,093,147.57949898 - 91,367.46961254 NAR = 2,001,780.10988644 COI charge = [monthly COI rate / (1 - monthly COI rate)] x NAR COI charge = [0.0000552 / (1 - 0.0000552)] x 2,001,780.10988644 COI charge = 110.52118570 NET INVESTMENT EARNINGS The net investment earnings represent the policy performance of the cash value. The cash value is actually tracked separately for each sub-account that has invested cash value, as well as for a loan fund if any loan balance is present. This demonstration assumes fund performance across all funds to average a gross annual interest rate of 6.00% and an investment management fee of 0.69%. To calculate the annual net interest rate (used to calculate the net investment earnings), given the annual gross interest rate and the investment management fee, we use the following: annual net interest rate = ROUND{([ {(1+I)[to the power](1/365)} x {1-(IMF/365)} ] [to the power] 365) - 1, 4} where: I = annual gross interest rate IMF = investment management fee For I = 6.00% and IMF = 0.69%, we have: annual net interest rate = ROUND{([ {(1+I)[to the power](1/365)} x {1-(IMF/365)} ] [to the power] 365) - 1, 4} annual net interest rate = ROUND{([ {(1+6.00%)[to the power](1/365)} x {1-(0.69%/365)} ] [to the power] 365) - 1, 4} annual net interest rate = ROUND{([ {(1.06)[to the power](1/365)} x {1-0.00001890} ] [to the power] 365) - 1, 4} annual net interest rate = ROUND{([ 1.00015965 x 0.99998110 ] [to the power] 365) - 1, 4} annual net interest rate = ROUND{(1.00014075 [to the power] 365) - 1, 4} annual net interest rate = ROUND{(1.05271111 - 1, 4} annual net interest rate = ROUND{0.05271111, 4} annual net interest rate = 0.0527 which expressed as a percentage is 5.27%. To calculate the net investment earnings for the month, we calculate the product of the cash value at the time the net investment earnings is calculated and the monthly net interest rate. The cash value at the time the net investment earnings is calculated is: cash value = BOM CV + Gross Premium Paid - Premium Load - -M&E Risk Charge - Admin Charge - Rider Charge - COI Charge The monthly net interest rate is not simply 1/12th of the annual net interest rate, but rather we use a compound formula to solve: monthly net interest rate = [(1 + annual net interest rate) [to the power] (1/12)] - 1 monthly net interest rate = [(1 + 0.0527) [to the power] (1/12)] - 1 monthly net interest rate = [1.0527 [to the power] (1/12)] - 1 monthly net interest rate = 1.0042890 - 1 monthly net interest rate = 0.0042890 For example, in year 5 month 1, we have the following: cash value = BOM CV + Gross Premium Paid - Premium Load - M&E Risk Charge - Admin Charge - Rider Charge - COI Charge cash value = 71,989.46094199 + 22,315.00 - 2,789.355 - 68.63632946 - 79.00 - 0.00 - 110.52118570 cash value = 91,256.94842684 net investment earnings = cash value x monthly net interest rate net investment earnings = 91,256.94842684 x 0.0042890 net investment earnings = 391.40373114 END OF MONTH CASH VALUE The end of month cash value (EOM CV) is simply: EOM CV = BOM CV + Gross Premium Paid - Premium Load - M&E Risk Charge - Admin Charge - Rider Charge - COI Charge + Net Investment Earnings In year 5 month 1, we have: EOM CV = BOM CV + Gross Premium Paid - Premium Load - M&E Risk Charge - Admin Charge - Rider Charge - COI Charge + Net Investment Earnings EOM CV = 71,989.46094199 + 22,315.00 - 2,789.355 - 68.63632946 - 79.00 - 0.00 - 110.52118570 + 391.40373114 EOM CV = 91,648.35215798 SURRENDER CHARGE The initial surrender charge (ISC) outside of NY is equal to a percent (PCT) of the lesser of premiums paid in the first year and the base target premium (BTARG) as of the end of the first policy year: ISC = PCT x Min (premiums paid in policy year 1, BTARG as of end of policy year 1) for states other than NY ISC = PCT x BTARG as of end of policy year 1 for NY PCT is dependent upon the issue age used for table lookups (IAGEU), which is defined as: IAGEU = Min {((Iage1 + Iage2) / 2) rounded down, 5 + Younger Iage} where Iage1 and Iage2 are the individual issue ages of the respective insureds. Given IAGEU, we calculate PCT: PCT = 90% - (1% x Max (0, IAGEU-52) ) The surrender charge grades down linearly monthly over the next 14 years (or (99 - - the younger issue age) years, if less) from its value as of the end of the first year (168 months, or 12x(99- Younger Issue Age) months, if less), reaching $0 at the end of 15 years (actually at the beginning of the last month in the 15th year), or at age 100 of the younger insured, if earlier. For example, in year 5 month 1, we have the following (assuming outside of NY): premiums paid in policy year 1 = 22,315.00 BTARG as of end of policy year 1 = 22,314.60 Iage1 = 55 Iage2 = 55 Younger Iage = 55 IAGEU = Min {((Iage1 + Iage2) / 2) rounded down, 5 + Younger Iage} IAGEU = Min {((55 + 55) / 2) rounded down, 5 + 55} IAGEU = Min {(110 / 2) rounded down, 60} IAGEU = Min {55 rounded down, 60} IAGEU = Min {55, 60} IAGEU = 55 PCT = 90% - (1% x Max (0, IAGEU-52) ) PCT = 90% - (1% x Max (0, 55-52) ) PCT = 90% - (1% x Max (0, 3) ) PCT = 90% - (1% x 3) PCT = 90% - 3% PCT = 87% ISC = PCT x Min (premiums paid in policy year 1, BTARG as of end of policy year 1) for states other than NY ISC = 87% x Min (22,315.00, 22,314.60) for states other than NY ISC = 87% x 22,314.60 ISC = 19,413.70200 N1 = # of months from year 1 month 12 until year 5 month 1 = 37 N2 = # of months from year 1 month 12 until year 15 month 12 = 168 surrender charge = (1 - N1/N2) x ISC surrender charge = (1 - 37/168) x 19,413.70200 surrender charge = (1 - 0.22023810) x 19,413.70200 surrender charge = 15,138.06525 OUTSTANDING LOAN BALANCE The outstanding loan balance represents the amount of cash value loaned, including loan charged interest as described in the Periodic Fees table. This illustration assumes no loans have been taken; the outstanding loan balance is therefore 0.00. END OF MONTH NET CASH VALUE The end of month net cash value (EOM NCV) is the end of month cash value net of surrender charge and outstanding loan balance. That is: EOM NCV = EOM CV - surrender charge - outstanding loan balance In year 5 month 1, we have: EOM NCV = EOM CV - surrender charge - outstanding loan balance EOM NCV = 91,648.35215798 - 15,138.06525 - 0.00 EOM NCV = 76,510.28690798 END OF MONTH DEATH BENEFIT The end of month death benefit (EOM DB) is calculated based upon the DB option. The DB options are as follows: level DB option, guideline premium test, Enhanced corridor: DB = Max (face amount , cash value x Enhanced Corridor Factor level DB option, guideline premium test, IRS corridor: DB = Max (face amount, cash value x IRS Corridor Factor increasing DB option, guideline premium test, Enhanced corridor: DB = Max (face amount + cash value (floored at 0), cash value x Enhanced Corridor Factor level DB option, cash value accumulation test, NSP corridor: DB = Max (face amount, cash value x NSP Corridor Factor increasing DB option, cash value accumulation test, NSP corridor: DB = Max (face amount + cash value (floored at 0), cash value x NSP Corridor Factor The face amount is the same as that used to calculate the NAR in the COI charge. If the Survivoriship Level Term Insurance Rider is present and the rider face amount is excluded from the base face when determining the corridor death benefit, the face amount attributable to that rider is added to the DB. The DB is actually the gross DB, before the reduction of any outstanding loan balance. The EOM DB is therefore: EOM DB = DB - outstanding loan balance In year 5 month 1, we have: level DB option, guideline premium test, IRS Corridor face amount = 2,100,000.00 cash value = EOM CV = 91,648.35215798 IRS Corridor Factor = 1.34 DB = Max (face amount, cash value x IRS Corridor Factor) DB = Max (2,100,000.00, 91,648.35215798 x 1.34) DB = Max (2,100,000.00, 122,808.79189169) DB = 2,100,000.00 EOM DB = DB - outstanding loan balance EOM DB = 2,100,000.00 - 0.00 EOM DB = 2,100,000.00 EX-99.(N) 4 b68052a1exv99wxny.txt EX-99.(N) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Exhibit (n) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the use in this Post-Effective Amendment No. 13/Amendment No. 39 to Registration Statement Nos. 333-89409/811-3713 on Form N-6 of our report dated March 24, 2008, relating to the financial statements of each of the Subaccounts of New England Variable Life Separate Account appearing in the Prospectus, which is part of such Registration Statement, and our report dated April 14, 2008, relating to the consolidated financial statements of New England Life Insurance Company (the "Company") (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the fact that the Company changed its method of accounting for income taxes as required by accounting guidance adopted on January 1, 2007, and changed its method of accounting for defined benefit pension and other postretirement plans, as required by accounting guidance adopted on December 31, 2006), appearing in the Statement of Additional Information, which is part of such Registration Statement, and to the references to us under the headings "Independent Registered Public Accounting Firm" in the Prospectus and "Independent Registered Public Accounting Firm" in the Statement of Additional Information, which are parts of such Registration Statement. /s/ DELOITTE & TOUCHE LLP Tampa, Florida April 22, 2008 EX-99.(R)(II) 5 b68052a1exv99wxryxiiy.txt EX-99.(R)(II) POWERS OF ATTORNEY FOR LISA M. WEBER AND JAMES J. REILLY Exhibit (r)(ii) New England Life Insurance Company Power of Attorney Lisa M. Weber Director KNOW ALL MEN BY THESE PRESENTS, that I, Chairman of the Board, President and Chief Executive Officer of New England Life Insurance Company, a Massachusetts company, do hereby appoint Michele H. Abate, John E. Connolly, Jr., Gina C. Sandonato and Marie C. Swift, and each of them severally, my true and lawful attorney-in-fact, for me and in my name, place and stead to execute and file any instrument or document to be filed as part of or in connection with or in any way related to the Registration Statements and any and all amendments thereto, filed by said Company under the Securities Act of 1933 and/or the Investment Company Act of 1940, in connection with: - - New England Variable Life Separate Account (Zenith Life File No. 002-82838, Zenith Life One File No. 033-10954, Zenith Life Plus File No.033-19540, Zenith Life Plus II File No. 033-52050, Zenith Life Executive 65 File No. 033-64170, Zenith Survivorship Life File No. 033-66864, Zenith Flexible Life File No. 033-88082, Zenith Flexible Life 2001 File No. 333-103193, American Gateway Series File No. 033-65263, Zenith Variable Whole Life File No. 333-21767, Enterprise Executive Advantage File No. 333-46401, Zenith Survivorship Life 2002 File No. 333-89409, Zenith Flexible Life 2002 File No. 333-73676), and - - New England Variable Annuity Separate Account (American Growth Series File No. 033-85442, American Forerunner Series File No. 333-51676), or any other separate accounts for variable contracts of said Company created in the future, and to have full power and authority to do or cause to be done in my name, place and stead each and every act and thing necessary or appropriate in order to effectuate the same, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any of them, may do or cause to be done by virtue hereof. Each said attorney-in-fact shall have power to act hereunder with or without the others. IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of April, 2007. /s/ Lisa M. Weber ---------------------------------------- Lisa M. Weber New England Life Insurance Company Power of Attorney James J. Reilly Vice President KNOW ALL MEN BY THESE PRESENTS, that I, Vice President of New England Life Insurance Company, a Massachusetts company, do hereby appoint Michele H. Abate, John E. Connolly, Jr., Gina C. Sandonato and Marie C. Swift, and each of them severally, my true and lawful attorney-in-fact, for me and in my name, place and stead to execute and file any instrument or document to be filed as part of or in connection with or in any way related to the Registration Statements and any and all amendments thereto, filed by said Company under the Securities Act of 1933 and/or the Investment Company Act of 1940, in connection with: - - New England Variable Life Separate Account (Zenith Life File No. 002-82838, Zenith Life One File No. 033-10954, Zenith Life Plus File No.033-19540, Zenith Life Plus II File No. 033-52050, Zenith Life Executive 65 File No. 033-64170, Zenith Survivorship Life File No. 033-66864, Zenith Flexible Life File No. 033-88082, Zenith Flexible Life 2001 File No. 333-103193, American Gateway Series File No. 033-65263, Zenith Variable Whole Life File No. 333-21767, Enterprise Executive Advantage File No. 333-46401, Zenith Survivorship Life 2002 File No. 333-89409, Zenith Flexible Life 2002 File No. 333-73676), and - - New England Variable Annuity Separate Account (American Growth Series File No. 033-85442, American Forerunner Series File No. 333-51676), or any other separate accounts for variable contracts of said Company created in the future, and to have full power and authority to do or cause to be done in my name, place and stead each and every act and thing necessary or appropriate in order to effectuate the same, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any of them, may do or cause to be done by virtue hereof. Each said attorney-in-fact shall have power to act hereunder with or without the others. IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of June, 2007. /s/ James J. Reilly ---------------------------------------- James J. Reilly -----END PRIVACY-ENHANCED MESSAGE-----