<PAGE>
To Our Contract Owners: August 9, 1996
I am pleased to provide you with your Semi-Annual Report for New England
Variable Annuity Fund I. This report reviews the performance of the fund
through the first six months of 1996 and lists the holdings in the portfolio as
of June 30, 1996. It also contains the complete investment history of this
twenty-five year old fund on both a year by year and cumulative basis.
The proven long-term investment record of this fund is most impressive. For
example, over the ten year period ended June 30, 1996, the value of an
accumulation unit rose from 6.224080 to 17.512335--a total return of 181.4%.
In addition to the performance of the fund, there are a number of other
benefits to owning your variable annuity. It is ideally suited for retirement
planning since you are provided with a hedge against inflation, a guaranteed
minimum death benefit and variable and fixed payout options, including options
that provide payments for your lifetime. Your annuity contract will also
provide for immediate payment of death proceeds to your named beneficiary
without incurring the long delays of probate.
If you are looking for an opportunity to diversify your investments, you may
want to consider the American Growth Series variable annuity. This product
offers greater diversification through a choice of eleven funds, including
common stock funds from some of the most respected fund managers in the
industry, such as the Alger Equity Growth Series and Venture Value Series of
New England Zenith Fund. In addition, the American Growth Series offers
balanced, bond and money market funds as well as a Fixed Account. The American
Growth Series has no front-end sales load and accepts transfers from your
present contract at no charge.
The American Growth Series is not yet available for sale in Michigan. If you
would like more information about this investment opportunity, or for an update
on state availability, please contact your New England representative.
Sincerely,
/s/ Bruce C. Long
Bruce C. Long
President
New England Annuities
NOTE: Investment performance results contained in this report are not a
prediction of future returns and, except for the average annual total returns,
do not reflect the deduction of the maximum 6% sales load, the maximum 3%
administrative charge or 2% premium tax, if applicable. If included, these
charges would reduce performance figures. The investment return on and
principal value of your investment will fluctuate, so that your contract may be
worth more or less than you invested.
For more complete information about the American Growth Series, including
charges and expenses, send for a prospectus from New England Annuities,
Marketing, 501 Boylston Street, Boston, MA 02116. Read it carefully before you
invest or send money.
1
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
INVESTMENT RECORD
PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
New England
Variable Annuity
Fund I
<S> <C>
25 years ended June 30, 1996............................. +1,400.7%
20 years ended June 30, 1996............................. +1,411.1%
15 years ended June 30, 1996............................. +722.0%
10 years ended June 30, 1996............................. +181.4%
5 years ended June 30, 1996............................. +82.6%
1 year ended June 30, 1996.............................. +15.5%
6 months ended June 30, 1996............................ +6.0%
</TABLE>
* The percentage figures for the Fund are based upon beginning accumulation
unit values for the periods shown of $1.166948, $1.158920, $2.130416,
$6.224080, $9.589743, $15.158337 and $16.523266, respectively.
The periods selected cover the preceding twenty-five years, twenty years,
fifteen years, ten years, five years, the past year and the past six months.
The results should be considered in light of the Fund's investment objective
and policies, the characteristics and quality of its portfolio securities, and
the periods selected. Inasmuch as the Fund does not distribute investment
income, the investment record reflects reinvestment of such income. The
investment record for the Fund also reflects charges, at an effective annual
rate of approximately 1.26%, made for investment management and mortality and
expense risks. It also reflects certain other expenses to the Fund, currently
at an annual rate of .08%.
- -------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE TABLE
<TABLE>
<CAPTION>
Accumulation %
Date Unit Value Change
<S> <C> <C>
March 25, 1971........ $1.157298 --
December 31, 1971..... 1.180085 + 2.0
December 31, 1972..... 1.324345 +12.2
December 31, 1973..... 1.144645 -13.6
December 31, 1974..... 0.786512 -31.3
December 31, 1975..... 0.981727 +24.8
December 31, 1976..... 1.147484 +16.9
December 31, 1977..... 1.077867 - 6.1
December 31, 1978..... 1.180390 + 9.5
December 31, 1979..... 1.356685 +14.9
December 31, 1980..... 1.907809 +40.6
December 31, 1981..... 2.046992 + 7.3
December 31, 1982..... 3.254033 +59.0
December 31, 1983..... 3.943886 +21.2
</TABLE>
<TABLE>
<CAPTION>
Accumulation %
Date Unit Value Change
<S> <C> <C>
December 31, 1984..... $3.572709 - 9.4
December 31, 1985..... 4.823900 +35.0
December 31, 1986..... 6.156190 +27.6
December 31, 1987..... 7.017161 +14.0
December 31, 1988..... 6.745649 - 3.9
December 31, 1989..... 7.984578 +18.4
December 31, 1990..... 8.383448 + 5.0
December 31, 1991..... 11.835525 +41.2
December 31, 1992..... 11.576959 - 2.2
December 31, 1993..... 12.850577 +11.0
December 31, 1994..... 11.899473 - 7.4
December 31, 1995..... 16.523266 +38.9
June 30, 1996......... 17.512335 + 6.0
</TABLE>
The above table indicates the accumulation unit value of the Fund on March 25,
1971, the date of the first sale, and on the last valuation date of each
twelve month period from December 31, 1971 through December 31, 1995, and on
June 30, 1996, together with the percentage change in accumulation unit values
during each such period.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
The average annual total return of the Fund on a single purchase payment of
$1,000 for the 1, 5 and 10 year periods ending June 30, 1996 was 4.1%, 10.5%
and 9.8%, respectively, assuming deduction of the 2% maximum premium tax.
Assuming no premium tax deduction, the average annual total return on a $1,000
purchase payment for the same periods was 6.2%, 10.9% and 10.0%, respectively.
These performance results represent past performance. These results reflect
the deduction of the maximum sales and administrative load of 9% of the first
$46 and 8% of the balance of the purchase payment (after premium tax, if any).
- -------------------------------------------------------------------------------
2
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO CHANGES
Six Months ended June 30, 1996
<TABLE>
<CAPTION>
NEW SECURITIES ADDED
Shares
------
<S> <C>
Anheuser Busch Companies, Inc.... 11,000
Chase Manhattan Corp............. 63,000
Circus Circus Enterprises, Inc... 22,000
Cisco System Inc................. 53,000
Eastman Kodak Co................. 10,000
Halliburton Co................... 60,000
Hilton Hotels Corp............... 26,500
K-Mart Corp...................... 210,000
Microsoft Corp................... 18,500
Nike, Inc........................ 29,500
Schlumberger, LTD................ 37,000
</TABLE>
<TABLE>
<CAPTION>
SECURITIES ELIMINATED
Shares
------
<S> <C>
Air Products and Chemicals, Inc.
................................ 25,000
Burlington Northern Santa Fe
Corp. .......................... 38,500
Chemical Banking Corp. .......... 65,000
Computer Sciences Corp. ......... 13,000
Deere & Co. ..................... 30,000
Eli Lilly & Company ............. 59,200
First Data Corp. ................ 17,300
Lockheed Martin Corp. ........... 15,000
May Department Stores Co. ....... 56,500
Merck & Co., Inc. ............... 51,000
Pfizer, Inc. .................... 20,000
Procter & Gamble Co. ............ 29,000
United Technologies Corp. ....... 36,000
</TABLE>
3
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
INVESTMENTS AS OF JUNE 30, 1996 (Unaudited)
<TABLE>
<C> <S> <C>
COMMON STOCKS--99.4% OF TOTAL NET ASSETS
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
AEROSPACE--2.2%
15,000 Boeing Co. .............................................. $ 1,306,875
-----------
AIRLINES--12.5%
21,000 AMR Corp.*............................................... 1,911,000
51,500 Northwest Airlines Corp.*................................ 2,034,250
66,300 UAL Corp.*............................................... 3,563,625
-----------
7,508,875
-----------
BANKS--MONEY CENTER--14.6%
63,000 Chase Manhattan Corp. ................................... 4,449,375
53,000 Citicorp................................................. 4,379,125
-----------
8,828,500
-----------
BEVERAGES & TOBACCO--7.4%
11,000 Anheuser Busch Companies, Inc. .......................... 825,000
102,000 PepsiCo, Inc. ........................................... 3,608,250
-----------
4,433,250
-----------
COMPUTER SOFTWARE & SERVICES--7.2%
29,900 Computer Associates International, Inc. ................. 2,130,375
18,500 Microsoft Corp.*......................................... 2,222,312
-----------
4,352,687
-----------
ELECTRONIC COMPONENTS--5.0%
53,000 Cisco System Inc.*....................................... 3,001,125
-----------
FOOD--RETAILERS/WHOLESALERS--5.9%
34,000 Philip Morris Companies, Inc. ........................... 3,536,000
-----------
HOTELS & RESTAURANTS--4.9%
26,500 Hilton Hotels Corp. ..................................... 2,981,250
-----------
INSURANCE--12.1%
78,000 Allstate Corp. .......................................... 3,558,750
37,700 American International Group, Inc. ...................... 3,718,163
-----------
7,276,913
-----------
LEISURE--2.8%
22,000 Circus Circus Enterprises, Inc.*......................... 902,000
10,000 Eastman Kodak Co. ....................................... 777,500
-----------
1,679,500
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
INVESTMENTS -- Continued (Unaudited)
<TABLE>
<C> <S> <C>
COMMON STOCKS -- CONTINUED
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
MISCELLANEOUS--5.0%
29,500 Nike, Inc. ............................................ $ 3,031,125
-----------
OIL--SERVICE--10.7%
60,000 Halliburton Co. ....................................... 3,330,000
37,000 Schlumberger, LTD...................................... 3,117,250
-----------
6,447,250
-----------
RETAIL--9.1%
210,000 K-Mart Corp.*.......................................... 2,598,750
60,000 Sears, Roebuck & Co. .................................. 2,917,500
-----------
5,516,250
-----------
TOTAL COMMON STOCKS
(average cost $51,092,145)............................. 59,899,600
-----------
CORPORATE SHORT-TERM NOTES--0.8% OF TOTAL NET ASSETS
<CAPTION>
Face
Amount
------
<C> <S> <C>
$470,000 American Express Credit Corp., 5.39% due 7/1/96........ 470,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(average cost $470,000)................................ 470,000
-----------
TOTAL INVESTMENTS--100.2%
(average cost $51,562,145)............................. 60,369,600
-----------
Receivable for investments sold........................ 1,161,234
Dividends and interest receivable...................... 82,125
Receivable from contractholders........................ 217
Liabilities............................................ (1,350,742)
-----------
TOTAL NET ASSETS--100%................................. $60,262,434
===========
* Non-income producing security.
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in common stocks at market (average cost $51,092,145)
(Note 1)......................................................... $59,899,600
Corporate short-term notes
(at cost which approximates market).............................. 470,000
-----------
Total investments.............................................. 60,369,600
-----------
Receivable for investments sold................................... 1,161,234
Dividends and interest receivable................................. 82,125
Receivable from contractholders................................... 217
-----------
Total assets................................................... 61,613,176
-----------
LIABILITIES
Payable for investments purchased................................. 811,810
Payable for investment advisory fees (Note 3)..................... 14,371
Payable for mortality and expense risks (Note 4).................. 44,062
Payable for other direct expenses................................. 14,937
Payable to bank................................................... 465,562
-----------
Total liabilities.............................................. 1,350,742
-----------
NET ASSETS......................................................... $60,262,434
===========
Net assets attributable to
variable annuity contractholders
3,192,023 accumulation units at
$17.51 per unit.................................................. $55,899,772
Annuity reserves (Note 1)......................................... 4,362,662
-----------
$60,262,434
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENT OF
OPERATIONS
For the six months ended June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 1)
INCOME
Dividends......................................................... $ 445,080
Interest.......................................................... 19,250
----------
Total income.................................................... 464,330
----------
EXPENSES
Mortality and expense risks (Notes 1 and 4)....................... 288,696
Investment advisory fee
(Note 3)......................................................... 94,169
Other direct expenses
(Note 3)......................................................... 24,663
----------
Total expenses.................................................. 407,528
----------
INVESTMENT INCOME-NET.............................................. 56,802
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 2)
Realized net gain from investments sold........................... 3,314,192
Change in unrealized appreciation of
investments...................................................... 213,007
----------
Net gain on investments......................................... 3,527,199
----------
Net increase in net assets resulting from operations................ $3,584,001
==========
</TABLE>
6
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1996 December 31,
(Unaudited) 1995
---------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net.......................... $ 56,802 $ 197,800
Realized net gain from investments sold......... 3,314,192 10,912,465
Change in unrealized appreciation of
investments.................................... 213,007 7,289,902
----------- -----------
Net increase in net assets resulting from
operations..................................... 3,584,001 18,400,167
----------- -----------
CHANGES FROM PRINCIPAL TRANSACTIONS
Purchase payments, less sales and administrative
expenses and applicable premium taxes (Note 3). 156,008 312,538
Contract terminations........................... (3,769,793) (8,858,774)
Annuity payments................................ (283,474) (537,648)
Adjustments to annuity reserves (Note 1)........ (7,553) 11,172
----------- -----------
Decrease in net assets derived from principal
transactions................................... (3,904,812) (9,072,712)
----------- -----------
Total increase (decrease)....................... (320,811) 9,327,455
NET ASSETS
Beginning of period............................. 60,583,245 51,255,790
----------- -----------
End of period................................... $60,262,434 $60,583,245
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
SUPPLEMENTARY INFORMATION --
Selected Per Unit Data and Ratios
Selected data for an accumulation unit outstanding throughout each year, and
for the six months ended June 30, 1996, and ratios are as follows:
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1996 ---------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $16.52 $11.90 $12.85 $11.58 $11.84 $ 8.38
--------- --------- --------- --------- --------- ---------
Per unit data
Investment income...... .13 .24 .29 .16 .25 .24
Expenses............... .12 .19 .16 .15 .14 .13
--------- --------- --------- --------- --------- ---------
Investment income--net. .01 .05 .13 .01 .11 .11
Net realized and
unrealized gain (loss)
on investments........ .98 4.57 (1.08) 1.26 (.37) 3.35
--------- --------- --------- --------- --------- ---------
Net increase (decrease)
in net asset value.... .99 4.62 (.95) 1.27 (.26) 3.46
--------- --------- --------- --------- --------- ---------
Net Asset Value, end of
period................ $17.51 $16.52 $11.90 $12.85 $11.58 $11.84
========= ========= ========= ========= ========= =========
Total Return (%)........ 6.0 38.9 (7.4) 11.0 (2.2) 41.2
Ratios
Ratio of operating
expenses to average
net assets (%)........ 1.34* 1.35 1.26 1.26 1.25 1.26
Ratio of investment
income--net to average
net assets (%)........ .17* .34 1.06 .11 .98 1.11
Portfolio turnover (%).. 259.28* 228.26 139.43 154.15 171.55 157.43
Number of accumulation
units outstanding at
end of period.......... 3,192,023 3,399,132 4,038,331 4,410,741 5,103,553 5,499,204
</TABLE>
* Computed on an annualized basis.
8
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies
New England Variable Annuity Fund I (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund is sold for use with various
retirement plans that are qualified under the Internal Revenue Code, for
individual use, and for use with plans and trusts that are not qualified under
the Internal Revenue Code. The operations of the Fund are part of New England
Mutual Life Insurance Company (the "Insurance Company"). The following is a
summary of significant accounting policies consistently followed by the Fund.
A. Security valuation. Investments in common stocks traded on a national
securities exchange or on the NASDAQ national market system are valued at
their last reported sales prices on the principal exchange, on June 30,
1996, or if there was no reported sale during the day and for over-the-
counter securities not so listed, at the last reported bid prices on that
date. Corporate short-term notes are stated at cost, which approximates
fair market value.
B. Security transactions and related investment income. Security transactions
are accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Net investment income and
net realized and unrealized gain (loss) on investments are allocated to the
contracts on each valuation date based on each contract's pro rata share of
the net assets of the Fund as of the beginning of the valuation period.
C. Federal income taxes. The Fund is not taxed separately because the
operations of the Fund are part of the total operations of the Insurance
Company. The Insurance Company is taxed as a life insurance company under
the Internal Revenue Code. The Fund will not be taxed as a regulated
investment company under subchapter M of the Code. Under existing federal
income tax law, no taxes are payable on the investment income or on the
capital gains of the Fund.
D. Annuity reserves. Annuity reserves are computed for currently payable
contracts according to the Progressive Annuity Mortality Table. The assumed
interest rate is 3.5% unless the annuitant elects otherwise, in which case
the rate may vary from 0-5%, as regulated by the laws of the respective
states. Charges to annuity reserves for mortality and expense risks
experience are reimbursed to the Insurance Company if the reserves required
are less than originally estimated. If additional reserves are required,
the Insurance Company reimburses the variable annuity account.
2. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments (other
than short-term securities) for the six months ended June 30, 1996 were
$78,996,918 and $82,750,280, respectively. Gains and losses from sales of
investments are computed on the basis of average cost.
3. Advisory and Service Fees With Affiliates
During the six months ended June 30, 1996, the Fund incurred investment
management fees of $94,169, payable to the Fund's investment adviser, Capital
Growth Management Limited Partnership, an affiliate of the Insurance Company.
The advisory agreement provides for a fee at the annual rate of 0.3066% of the
average net assets of the Fund. Deductions from purchase payments for sales
and administrative expenses, which for the six months ended June 30, 1996,
amounted to $10,184 and $3,816, respectively, were retained by the Insurance
Company.
Commencing January 1, 1995, the audit and trustee fees were no longer borne by
the Insurance Company. These expenses amounted to $24,663 for the six months
ended June 30, 1996.
9
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- Continued
4. Mortality and Expense Risks and Deductions
Although variable annuity payments differ according to the investment
performance of the Fund, they are not affected by mortality or expense
experience because the Insurance Company assumes the expense risk and the
mortality risk under the contracts. The Insurance Company charges the Fund
assets for assuming those risks. For the six months ended June 30, 1996, the
mortality and expense risk charges totaled $288,696.
The expense risk assumed by the Insurance Company is the risk that the
deductions for sales and administrative expenses and for investment advisory
services provided for in the variable annuity contract may prove insufficient
to cover the cost of those items.
The mortality risk assumed by the Insurance Company has two elements: a life
annuity mortality risk and, for deferred annuity contracts, a minimum death
refund risk.
The life annuity mortality risk results from a provision in the contract in
which the Insurance Company agrees to make annuity payments regardless of how
long a particular annuitant or other payee lives and how long all annuitants
or other payees as a class live if payment options involving life
contingencies are chosen. Those annuity payments are determined in accordance
with annuity purchase rate provisions established at the time the contracts
are issued.
Under deferred annuity contracts, the Insurance Company also assumes a minimum
death refund risk by providing that there will be payable, on the death of the
annuitant during the accumulation period, an amount equal to the greater of
(1) the aggregate purchase payments made, without interest, reduced by any
partial surrender, and (2) the value of the contract as of the death valuation
date.
If those deductions are insufficient to cover the cost of the expense and
mortality risks assumed by the Insurance Company, the Insurance Company
absorbs the resulting losses and makes sufficient transfers to the Fund from
its general assets. Conversely, if those deductions are more than sufficient
after the establishment of any contingency reserves deemed prudent or required
by law, the excess is transferred to the Insurance Company.
5. Related Parties
Two members of the Board of Managers of the Fund are officers of the Insurance
Company and one of those is an officer of the principal underwriter.
6. Increase (Decrease) in Accumulation Units
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 Year ended
(Unaudited) December 31, 1995
---------------- -----------------
<S> <C> <C>
Units purchased............................. 11,123 23,935
Units redeemed.............................. (218,232) (663,134)
--------- ---------
Net decrease............................... (207,109) (639,199)
Units at beginning of period................. 3,399,132 4,038,331
--------- ---------
Units at end of period....................... 3,192,023 3,399,132
========= =========
</TABLE>
10
<PAGE>
New England Variable Annuity Fund I
is sponsored by
NEW ENGLAND MUTUAL LIFE INSURANCE CO.
501 Boylston Street
Boston, Massachusetts 02116
Board of Managers
Anne M. Goggin
Nancy Hawthorne
Joseph M. Hinchey
Richard S. Humphrey, Jr.
Robert B. Kittredge
Laurens MacLure
Dale Rogers Marshall
Joseph F. Turley
Frederick K. Zimmermann
Investment Adviser
Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Distributor
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Legal Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Auditor
Coopers & Lybrand L.L.P.
One International Place
Boston, Massachusetts 02110
This report has been prepared for the contract owners of the Fund and is
authorized for distribution to prospective investors in the Fund when it is
accompanied or preceded by a current prospectus.
501 Boylston Street
Boston, Massachusetts 02116
617-578-2000
- --------------------------------------------------------------------------------
EQUAL OPPORTUNITY EMPLOYER M/F
(C)1996 New England Mutual Life Insurance Company
[LOGO]
- --------------------------------------------------------------------------------
NEW ENGLAND
VARIABLE ANNUITY
FUND I
Semi-Annual Report
June 30, 1996
