<PAGE>
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1996
REGISTRATION NOS. 2-34420
811-1930
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 48 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 27 [X]
(Check appropriate box or boxes)
---------------
NEW ENGLAND VARIABLE ANNUITY FUND I
(EXACT NAME OF REGISTRANT)
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
(NAME OF INSURANCE COMPANY)
501 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02117
(ADDRESS OF INSURANCE COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
617-578-2000
(INSURANCE COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------
H. JAMES WILSON
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
501 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02117
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
COPY TO:
JOHN M. LODER, ESQUIRE
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
It is proposed that this filing will become effective (check appropriate box)
[_]immediately upon filing pursuant to paragraph (b) of Rule 485
[_]on (date) pursuant to paragraph (b) of Rule 485
[X]60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_]on May 1, 1996 pursuant to paragraph (a)(1) of Rule 485
[_]75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_]on (date) pursuant to paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. The issuer filed a Rule 24f-2
Notice for its fiscal year ended December 31, 1995 on February 16, 1996.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-3 CAPTION IN STATEMENT
ITEM NO. CAPTION IN PROSPECTUS OF ADDITIONAL INFORMATION
-------- --------------------- -------------------------
<C> <S> <C>
1 Cover Page
2 Special Terms
3 Highlights
Per Unit Income and Capital Changes;
4(a),(b) Financial Statements
4(c) Fund Performance
5 Description of the Insurance Company and
the Fund; Investment Objective, Policies
and Restrictions
6 Description of the Insurance Company and
the Fund; Deductions and Expenses
7 Deductions and Expenses
8 Description of the Insurance Company and
the Fund; The Variable Annuity Contracts;
Voting Rights
9 The Variable Annuity Contracts
10 The Variable Annuity Contracts
The Variable Annuity Contracts;
11 Deductions and Expenses; Cover Page Net Investment Factor
12 The Variable Annuity Contracts
13 The Variable Annuity Contracts; Federal
Income Tax Status; Retirement Plans
Offering Federal Tax Benefits
14 Inapplicable
15 Back Cover
16 Cover Page
17 Table of Contents
18 The Company
19 Investment Objective and
Policies
20 Management of the Fund
21 Investment Advisory and
Other Services
22 Portfolio Transactions
and Brokerage
Commissions
The Variable Annuity Contracts;
23 Deductions and Expenses
24 Inapplicable
25(c) Calculation of
Performance Data
26 Annuity Payments
27 Financial Statements
</TABLE>
<PAGE>
PROSPECTUS
NEW ENGLAND VARIABLE ANNUITY FUND I
Individual Variable Annuity Contracts
----------------------------------------------------
Offered by
New England Mutual Life Insurance Company
501 Boylston Street, Boston, Massachusetts 02116
617/578-2000
MAY 1, 1996
This prospectus describes individual variable annuity contracts for use with
various retirement plans that qualify for tax-benefited treatment under the
Internal Revenue Code (the "Code"), for individual use and for use with plans
and trusts not qualifying under the Code for tax-benefited treatment. Deferred
contracts can be purchased with either a single payment or flexible payments,
and immediate contracts can be purchased with a single payment. Net purchase
payments with respect to the contracts are invested in New England Variable
Annuity Fund I (the "Fund"), a separate investment account of New England
Mutual Life Insurance Company (the "Company"). The investment objective of the
Fund is to obtain growth of capital through investment principally in equity
securities of a diversified group of companies and industries.
Although this prospectus describes the terms of the contracts, no new
contracts are being offered at this time. However, holders of existing
flexible payment deferred contracts may continue to make purchase payments.
This prospectus should be read carefully and retained for future reference.
It sets forth information about the Fund that a prospective investor ought to
know before investing. Additional information about the Fund is contained in a
Statement of Additional Information dated May 1, 1996, which has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The Table of Contents of the Statement of Additional Information
appears on page 24 of this prospectus. The Statement of Additional Information
is available without charge and may be obtained by writing to New England
Securities Corporation ("New England Securities"), 399 Boylston Street,
Boston, Massachusetts 02116.
New England Securities, a wholly-owned subsidiary of the Company, serves as
principal underwriter for the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
SPECIAL TERMS
- -------------------------------------------------------------------------------
As used in this prospectus, the following terms have the indicated meanings:
Annuitant: the person on whose life the variable annuity contract is issued.
Fund: a separate investment account of the Company through which amounts at-
tributable to the variable annuity contracts offered hereby are set aside and
invested.
Payee: any person entitled to receive payment in one sum or under a payment
option. The term includes (i) an Annuitant, (ii) a beneficiary or contingent
beneficiary who becomes entitled to payments upon death of the Annuitant, and
(iii) in the event of surrender or partial surrender of the contract, the
Contractholder.
Contractholder: the person or entity with legal rights of ownership in a
variable annuity contract.
Deferred Contract: a variable annuity contract in which annuity payments are
to commence on a selected future maturity date.
Immediate Contract: a variable annuity contract in which annuity payments are
to commence at a date agreed upon by the Company and the Contractholder, which
date is normally the date the purchase payment is applied.
Purchase Payments: amounts paid to the Company by or on behalf of the Annui-
tant to purchase a variable annuity.
After-tax Purchase Payments: the balance of purchase payments remaining after
deducting any applicable state premium taxes.
Net Purchase Payments: the balance of purchase payments remaining after first
deducting any applicable state premium taxes and after further deducting sales
and administrative expenses.
Accumulation Period: the period during which amounts are accumulated under a
deferred annuity contract prior to application under a payment option.
Annuity Period: the period commencing when amounts accumulated under a de-
ferred annuity contract are applied under a payment option. An immediate annu-
ity contract is always in the annuity period.
Accumulation Unit: an accounting device used to measure the value of a con-
tract before annuity payments begin.
Annuity Unit: an accounting device used to calculate the dollar amount of an-
nuity payments.
Maturity Date: the date on which annuity payments are scheduled to commence.
2
<PAGE>
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
VARIABLE ANNUITY CONTRACTS -- This prospectus describes individual variable
annuity contracts for individual use and for use with retirement plans,
including the following plans that qualify for tax-benefited treatment: (1)
retirement plans qualified under Section 401(a), 401(k), or 403(a) of the Code
("Qualified Plans"); (2) annuity purchase plans adopted by public school
systems and certain tax-exempt organizations pursuant to Section 403(b) of the
Code ("TSA Plans"); (3) individual retirement accounts adopted by or on behalf
of individuals pursuant to Section 408(a) of the Code and individual
retirement annuities purchased pursuant to Section 408(b) of the Code (both of
which may be referred to as "IRAs"), including simplified employee pension
plans and salary reduction simplified employee pension plans which are
specialized IRAs that meet the requirements of Section 408(k) of the Code
("SEPs" and "SARSEPs"); (4) eligible deferred compensation plans (within the
meaning of Section 457 of the Code) for employees of state and local
governments and tax-exempt organizations ("Section 457 Plans"); and (5)
governmental plans (within the meaning of Section 414(d) of the Code) for
governmental employees, including Federal employees ("Governmental Plans").
The basic objective of the contracts is to provide annuity payments that
will tend to conform more closely than a fixed annuity would to changes in the
cost of living. To this end, annuity payments under the contracts are based on
the changing values of the assets held in the Fund.
THE COMPANY -- The Fund is a separate investment account of New England
Mutual Life Insurance Company (the "Company"). The Company and Metropolitan
Life Insurance Company ("MetLife") have entered into an agreement to merge,
with MetLife to be the survivor of the merger. Upon consummation of the
merger, the Fund will become a separate account of MetLife, and the contracts
will thereafter be deemed to be variable annuity contracts issued by MetLife.
The merger is not expected to have any adverse tax consequences on
Contractholders.
THE FUND'S ADVISER -- Capital Growth Management Limited Partnership serves
as investment adviser to the Fund for a fee equal to an annual rate of .3066
of 1% of the Fund's average daily net assets. (See "Investment Advisory
Services and Deductions.")
PURCHASE OF VARIABLE ANNUITY CONTRACTS -- No new contracts are being offered
at this time, but holders of existing flexible payment deferred contracts may
continue to make purchase payments. From each purchase payment there are first
deducted any applicable state premium taxes, which currently range up to 2%.
Deductions are then made from each after-tax purchase payment for sales and
administrative expenses. Such expenses may aggregate up to 9.9% of the net
purchase payment (9% of the after-tax purchase payment) for flexible payment
deferred contracts and 8.7% of the net purchase payment (8% of the after-tax
purchase payment) for single purchase payment deferred or immediate contracts.
The deduction from any purchase payment for sales expenses will not exceed 6%
of the after-tax payment. Reduced sales charges are applicable in certain
cases. (See "Deductions from Purchase Payments for Sales and Administrative
Services and Premium Taxes.")
OTHER DEDUCTIONS -- The Company is compensated for the mortality and expense
risks associated with the contracts by daily deductions from the Fund's net
assets equal, on an annual basis, to a maximum of .9490 of 1% for deferred
contracts and .6935 of 1% for immediate contracts. (See "Mortality and Expense
Risks and Deductions.")
SURRENDER OF CONTRACT -- Before annuity payments are to commence,
Contractholders may surrender their contracts without charge, for their cash
value or for other types of early payment. (See "Surrender (Redemption)
Proceeds" under "Accumulation Period (Deferred Contracts).")
3
<PAGE>
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
The following table lists the charges and expenses incurred with respect to
purchase payments invested under the contracts. The items listed include
charges deducted from purchase payments and charges assessed against the
Fund's assets. The purpose of the table is to assist you in understanding the
various costs and expenses which you will bear, directly and indirectly, as a
Contractholder.(1)
CONTRACTHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
FLEXIBLE PURCHASE SINGLE PURCHASE
PAYMENT CONTRACTS PAYMENT CONTRACTS
----------------- -----------------------
<S> <C> <C>
Sales Load Imposed on Purchases (as a
percentage of purchase payments
after deduction of any applicable
premium tax)........................ 6.0% 6.0% of first $5,000
3.75% of next $95,000
1.75% of excess
Administrative Charge Imposed on
Purchases (as a percentage of
purchase payments after deduction of
any applicable premium tax)......... 3.0% of first $46 2.0% of first $5,000
2.0% of excess 0.25% of excess
Maximum Premium Tax Charge Imposed on
Purchases (as a percentage of
purchase payments)(2)............... 2.0% 2.0%
</TABLE>
ANNUAL EXPENSES
(as a percentage of average net assets)(3)
<TABLE>
<S> <C>
Management Fee......................................................... 0.31%
Expense Risk Fee....................................................... 0.11%
Mortality Risk Fee(4).................................................. 0.84%
Other Expenses......................................................... 0.09%
----
TOTAL ANNUAL EXPENSES................................................ 1.35%
</TABLE>
EXAMPLE (5)
There are no extra expenses if you surrender or annuitize your contract. At
the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
For a flexible purchase payment deferred con-
tract: $93 $120 $148 $229
For a single purchase payment deferred con-
tract(6): $93 $119 $148 $229
</TABLE>
- -------
NOTES:
(1) All charges and expenses apply for the duration of the contracts, except
that the mortality and expense risk fees do not apply during the annuity
period if the Contractholder elects to transfer the proceeds of the
contract from the Fund to the Company's general assets. (See "Fixed
Payment Options.")
(2) Premium taxes are not charged in all states and vary in amount from state
to state. The maximum premium tax currently deducted by the Company is 2%.
In certain states, the premium tax may be deducted from the contract value
when the contractholder elects to commence annuity benefits rather than
from purchase payments as they are received. (See "Deductions from
Purchase Payments for Sales and Administrative Services and Premium
Taxes.")
(3) The percentages shown in the Annual Expenses portion of the table have
been rounded off to the nearest hundredth of a percent. (See "Deductions
from Fund Assets.")
(4) The fee shown is for a deferred contract. The mortality risk fee for an
immediate contract is 0.58% of the Fund's average net assets. Therefore,
total annual expenses for such a contract would be lower than for a
deferred contract. (See "Mortality and Expense Risks and Deductions.")
(5) The Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. The
figures assume that no premium tax has been deducted from purchase
payments. Also, all expense amounts have been rounded off to the nearest
dollar.
(6) The minimum purchase payment for a single purchase payment contract is
$2,000. However, no new contracts are being offered at this time.
4
<PAGE>
PER UNIT INCOME AND CAPITAL CHANGES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
(The information in this table relating to the five most recent fiscal years
has been derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report thereon accompanies the financial
statements of the Fund.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income and expenses:
Total investment
income................ $ .24 $ .29 $ .16 $ .25 $ .24 $ .16 $ .22 $ .32 $ .12 $ .12
Operating expenses..... .19 .16 .15 .14 .13 .10 .09 .09 .10 .07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income.. $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13 $ .23 $ .02 $ .05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Capital changes:
Net investment income.. $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13 $ .23 $ .02 $ .05
Net realized and
unrealized gains
(losses) on
investments........... 4.57 (1.08) 1.26 (.37) 3.35 .34 1.10 (.50) .84 1.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in
accumulation unit
value................. 4.62 (.95) 1.27 (.26) 3.46 .40 1.23 (.27) .86 1.34
Accumulation unit value
at
beginning of period.... 11.90 12.85 11.58 11.84 8.38 7.98 6.75 7.02 6.16 4.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Accumulation unit value
at end of period....... $16.52 $11.90 $12.85 $11.58 $11.84 $ 8.38 $ 7.98 $ 6.75 $ 7.02 $ 6.16
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of operating
expenses to
average net assets (%). 1.35 1.26 1.26 1.25 1.26 1.26 1.26 1.26 1.26 1.25
Ratio of net investment
income to
average net assets (%). .34 1.06 .11 .98 1.11 .69 1.72 3.39 .36 .82
Portfolio turnover (%).. 228.26 139.43 154.15 171.55 157.43 136.52 206.90 259.70 139.77 120.98
Number of accumulation
units
outstanding at end of
period
(in thousands)......... 3,399 4,038 4,411 5,104 5,499 5,961 6,958 8,657 9,219 8,534
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Fund and of the Company may be found in the
Statement of Additional Information.
5
<PAGE>
- -------------------------------------------------------------------------------
FUND PERFORMANCE
- -------------------------------------------------------------------------------
The average annual total return of the Fund illustrated below is based upon
accumulation unit values for the 1, 5 and 10 year periods ending December 31,
1995. Calculations are based on a single investment of $1,000 assumed to be
made at the beginning of each period shown. One illustration deducts the
maximum premium tax of 2% and then deducts the maximum sales and
administrative load of 9% of the first $46 and 8% of the balance. The other
illustration does not deduct any premium tax but does deduct the maximum sales
and administrative load of 9% of the first $46 and 8% of the balance. The net
amount (the Net Purchase Payment) is divided by the accumulation unit value at
the beginning of each of the 1, 5 and 10 year periods to arrive at the number
of accumulation units held during each period. The units held are multiplied
by the accumulation unit value on December 31, 1995 to arrive at the contract
value. The average annual total return is the annual compounded rate of return
which would produce the contract value on December 31, 1995.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
ASSUMING NO
PREMIUM TAX
-----------
<S> <C>
Period Ending December 31, 1995
1 Year................................. 27.7%
5 Years................................ 12.6%
10 Years................................ 12.2%
</TABLE>
<TABLE>
<CAPTION>
ASSUMING MAXIMUM
PREMIUM TAX
OF 2.0%
----------------
<S> <C>
Period Ending December 31, 1995
1 Year................... 25.1%
5 Years.................. 12.2%
10 Years.................. 11.9%
</TABLE>
Historical investment performance is also illustrated in the Fund's Annual
and Semi-Annual Reports (the "Reports") by showing the percentage change in
the unit value without reflecting the impact of any sales and administrative
charges. The average annual total returns shown above are lower than the
historical investment performance for the same periods because average annual
total returns reflect sales and administrative charges. The percent change in
unit value represents what the increase in contract value would be for a
Contractholder who did not make any purchase payments or surrenders during the
year. The Reports show the percent change in unit value for every calendar
year since inception of the Fund. Additionally, the Reports show the percent
change in unit value from inception of the Fund to the date of the report and
for the 15, 10, 5 and 1 year periods ending with the date of the report. The
percentage change is calculated by dividing the difference in unit values at
the beginning and end of the period by the beginning unit value.
6
<PAGE>
- -------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY AND THE FUND
- -------------------------------------------------------------------------------
The Company, the first chartered mutual life insurance company in the United
States, was organized in 1835 under the laws of The Commonwealth of Massachu-
setts. The Company currently has assets of over $16 billion. It offers life
insurance, annuity, accident and health insurance products and is licensed to
do business in all states, the District of Columbia and Puerto Rico. The
Company's Home Office is at 501 Boylston Street, Boston, Massachusetts 02116.
The Company and Metropolitan Life Insurance Company ("MetLife") have entered
into an agreement to merge, with MetLife to be the survivor of the merger. The
merger is conditioned upon, among other things, approval by the policyholders
of the Company and MetLife and receipt of certain regulatory approvals.
Upon consummation of the merger, the Fund will become a separate account of
MetLife. The Contracts will thereafter be deemed to be variable annuity con-
tracts issued by MetLife.
The Fund was established in 1969 by the Company as a separate investment ac-
count in accordance with Massachusetts law. The Fund is registered as an open-
end diversified management investment company under the Investment Company Act
of 1940 (the "1940 Act"). The Fund meets the definition of a "separate ac-
count" under Federal securities laws.
The variable annuity contracts provide that the assets in the Fund shall not
be chargeable with liabilities arising out of any other business the Company
may conduct and that the income and realized and unrealized capital gains or
losses of the Fund must be credited to or charged against the Fund without re-
gard to other income and capital gains or losses of the Company. The obliga-
tions arising under the variable annuity contracts are general corporate obli-
gations of the Company.
The Fund is managed by its Board of Managers, which is elected by the
Contractholders. The affairs of the Fund are conducted in accordance with
Rules and Regulations adopted by the Board.
The Rules and Regulations of the Fund permit it to reorganize and qualify as
a unit investment trust or to terminate registration under the 1940 Act, in
each case upon approval by a majority vote of the Contractholders and subject
to any necessary approval of the Securities and Exchange Commission (the
"SEC").
- -------------------------------------------------------------------------------
THE VARIABLE ANNUITY CONTRACTS
- -------------------------------------------------------------------------------
Each Contractholder makes one or more Purchase Payments to the Company. In
the case of deferred contracts each Net Purchase Payment is credited in the
form of Accumulation Units, while in the case of immediate contracts the Net
Purchase Payment is credited in the form of Annuity Units. The value of these
Units fluctuates in accordance with the net investment results of the Fund.
A. HOW CONTRACT PURCHASE PAYMENTS MAY BE MADE
The initial Purchase Payment for a flexible payment deferred contract must be
at least $10. Thereafter, Purchase Payments of $10 or more may be made at any
time. The Company may, however, limit the amount of Purchase Payments made in
any contract year to three times the anticipated annual contribution specified
by the Contractholder in the contract application. After the first Purchase
Payment is made, no further payments are required to keep the contract in
force.
B. ACCUMULATION UNIT VALUES, ANNUITY UNIT VALUES AND NET INVESTMENT FACTORS
Accumulation Unit Values (which are used to value deferred contracts during
the Accumulation Period, as described below in C. 2 of this section under the
caption "Accumulation Period (Deferred Contracts)--Contract Value") and Annu-
ity Unit Values (which are used to determine the number of Annuity Units cred-
ited under a variable payment option upon annuitization and the amounts of
payments made pursuant to a variable payment option during the Annuity Period)
are determined as of the close of regular trading on the New York Stock Ex-
change (the "Exchange") on each day on which the Exchange is open for trading
(a "Trading Day") by multiplying the then current Accumulation Unit Value or
Annuity Unit Value, as the case may be, by the appropriate Net Investment Fac-
tor determined as of the closing of the Exchange on that day. In determining a
Net Investment Factor, the Fund takes into account (i) the investment income
paid or accrued on its assets since the previous de
7
<PAGE>
termination of such Net Investment Factor, plus or minus realized and
unrealized capital gains or losses, respectively, during such period, and (ii)
deductions for taxes, if any, paid or reserved against and arising from the
income and realized and unrealized capital gains on assets of the Fund, other
expenses paid by the Fund, expense risk charge and mortality risk charge. The
formulas for determining Net Investment Factors are described under the cap-
tion "Net Investment Factor" in the Statement of Additional Information. The
Net Investment Factor used to determine current Annuity Unit Values for imme-
diate contracts will be different from the Net Investment Factor used to de-
termine current Accumulation Unit Values during the Accumulation Period and
Annuity Unit Values during the Annuity Period for deferred contracts because
different deductions attributable to mortality risk assumptions are made in
respect of each type of contract.
In determining the value of the assets of the Fund, each security traded on a
national securities exchange is valued at the last reported sale price on the
principal exchange on each Trading Day. If there has been no reported sale on
such day, then the value of such security is taken to be the last reported bid
price on such day. Any security not traded on a securities exchange but traded
in the over-the-counter market is valued at the last reported sale price. Any
securities or other assets for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Board of
Managers or persons acting at their direction.
C. ACCUMULATION PERIOD (DEFERRED CONTRACTS)
1. Basis Upon Which Accumulation Units are Credited
During the Accumulation Period each Net Purchase Payment is credited in the
form of Accumulation Units. The number of Accumulation Units credited will be
equal to the Net Purchase Payment divided by the value of an Accumulation Unit
next determined following receipt of the Purchase Payment at the Company's
Home Office.
2. Contract Value
The value of a contract during the Accumulation Period is determined by mul-
tiplying the total number of Accumulation Units then credited to the contract
by the current value of an Accumulation Unit (the "Accumulation Unit Value").
3. Surrender (Redemption) Proceeds
During the Accumulation Period while the Annuitant is living, the
Contractholder may surrender the contract for its value in cash or apply the
value under a fixed or variable payment option. (See "Annuity Payment Options
Available" and "General Limitations on Options.") The request for surrender
must be in writing and must be received at the Company's Home Office prior to
the earlier of the Maturity Date or the death of the Annuitant. Payment of
surrender proceeds normally will be made within seven days, subject to the
Company's right to suspend payments under certain circumstances described be-
low. A partial surrender or withdrawal may also be made in the same manner.
The Company is not required to permit a partial surrender or withdrawal which
would reduce the contract value to less than $200. Further, the Federal tax
laws impose penalties upon, and in some cases prohibit, certain premature dis-
tributions from the Contracts before or after the date on which annuity pay-
ments are to begin. (See "Federal Income Tax Status.")
On receipt of a request for surrender, the Company will cancel the number of
Accumulation Units necessary to equal the dollar amount of the withdrawal.
Surrenders will be based on Accumulation Unit Values next determined after the
surrender request is received at the Company's Home Office or, if payment is
to be made under a payment option, such later date as may be specified in the
surrender request.
Surrender proceeds will be increased accordingly if surrender of a contract
results in a credit against the premium tax liability of the Company.
The Fund may suspend the right of surrender or redemption and may postpone
payment when the Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the SEC during periods when trading on the Exchange
is restricted or during an emergency which makes it impracticable for the Fund
to dispose of its securities or fairly to determine the value of its net as-
sets, or during any other period permitted by the SEC for the protection of
investors.
No redemption is permitted in connection with a contract issued pursuant to
the Optional Retirement Program of The University of Texas System prior to the
Annuitant's death, retirement or termination of employment in all institutions
of higher education.
8
<PAGE>
If contracts offered by this prospectus are issued in connection with retire-
ment plans, reference should be made to each variable annuity contract and the
terms of the applicable plan or trust with respect to limitations or restric-
tions on surrender for cash or other forms of early settlement, and careful
attention should be paid to tax consequences. (See "Federal Income Tax Sta-
tus.")
4. Death Proceeds
In the event that the Annuitant dies during the Accumulation Period under a
deferred contract, the Company will pay to the beneficiary, upon receipt of
due proof of death of the Annuitant, the contract's death proceeds equal to
the greater of (i) the sum of all Purchase Payments made, without interest,
adjusted for any partial surrenders, and (ii) the value of the contract next
determined after the later of the date on which due proof of death is received
at the Company's Home Office and the date on which written election of payment
in one sum or under a payment option is received at the Company's Home Office.
(See restrictions on payment options imposed by Section 72(s) of the Code,
discussed below.)
The death proceeds will be paid in cash or will be applied to provide one or
more of the fixed or variable methods of payment available (see "Annuity Pay-
ment Options Available"), depending upon the election made by the
Contractholder during the life of the Annuitant. Such an election, particu-
larly in the case of contracts issued in connection with retirement plans
qualifying for tax- benefited treatment, would be subject to any applicable
requirements of Federal tax law. If the Contractholder has not made such an
election, payment will be in a single sum, unless the beneficiary elects an
annuity payment option within 90 days after receipt by the Company of due
proof of the death of the Annuitant. Whether and when such an election is made
could affect when the contract's death proceeds are deemed to be received un-
der the tax laws.
Section 72(s) of the Code requires that, in order to qualify as annuities un-
der Section 72 of the Code, all contracts (i) issued after January 18, 1985
and (ii) not for use with various retirement plans qualifying for tax-bene-
fited treatment under the Code, must contain certain limitations on the period
over which payments from the contract may be made upon the death of the
Contractholder. Reference should be made to the contract for a description of
these limitations. There are comparable rules to Section 72(s) that govern the
timing of payments after the death of the Annuitant in the case of tax-bene-
fited retirement plans. (See discussion under heading "Distributions from the
Contract" on page 19 of this prospectus.)
Deferred contracts subject to the law of Texas issued prior to May 1, 1978
contain a special death benefit provision. Reference should be made to such
contracts for a description of this provision.
D. ANNUITY PERIOD (DEFERRED AND IMMEDIATE CONTRACTS)
The Annuity Period, in the case of a deferred contract, commences when
amounts accumulated under the contract are applied under an annuity payment
option. An immediate contract is always in the Annuity Period.
1. Choice of Retirement Date and Annuity Payment Option
If contracts offered by this prospectus are used in connection with retire-
ment plans qualifying for tax-benefited treatment, reference should be made to
the terms of the particular plan under which a contract is purchased. Such
plan will ordinarily provide for a time by which benefits must commence, the
period over which such payments may be made, the payment options that may be
selected, and the minimum annual amounts of such payments.
A. DEFERRED CONTRACTS
In applying for a deferred contract the Contractholder ordinarily selects a
retirement date (Maturity Date) on which annuity payments are to begin, and a
form of payment option. (See "Annuity Payment Options Available.") Each of the
annuity payment options may be selected on either a fixed or a variable basis
or a combination thereof. The Contractholder may (within the limits of the re-
tirement plan, if the contract is issued in connection with such a plan) defer
the Maturity Date or change the annuity payment form up to the date on which
annuity payments would otherwise have begun and may surrender the contract in
whole or in part on any date up to and including the Maturity Date.
B. IMMEDIATE CONTRACTS
Under immediate contracts annuity payments begin on a date mutually agreed
upon by the Company and the
9
<PAGE>
Contractholder. That date is normally the date the Purchase Payment is ap-
plied. Under these contracts, only the Single Life Annuity and Joint Life An-
nuity Options (see "Annuity Payment Options Available") are available and only
on a variable payment basis. The purchaser of an immediate contract may, at
any time prior to the first annuity payment, surrender the contract for the
surrender proceeds, which would be the amount of assets established in the
Fund to meet the obligation for future annuity payments under the contract.
Payment of surrender proceeds will be made in the same manner as under de-
ferred contracts. (See "Surrender (Redemption) Proceeds.")
2. Sex-Neutral Contracts
In 1983, the United States Supreme Court ruled that annuity benefits derived
from contributions made to certain employer-sponsored plans on or after August
1, 1983 must be determined on a sex-neutral basis. Under the decision, bene-
fits derived from contributions made prior to August 1, 1983 can continue to
be calculated on a sex-distinct basis. The Court's decision does not affect
nonemployer-related individual retirement accounts funded through the purchase
of individual variable annuity contracts.
Except as described below, the contracts use sex-neutral annuity rates ("Sex-
Neutral Contracts"), including contracts purchased prior to the time when Sex-
Neutral Contracts were first made available if annuity payments with respect
to such contracts commenced after August 1, 1983. Sex-neutral annuity rates
are the applicable male rates, whether the Payee is male or female. Sex-dis-
tinct annuity rates continue to apply only to contracts for which annuity pay-
ments commenced prior to August 1, 1983. (See "Variable Payment Options.")
With respect to contracts issued in New York or Oregon for use in situations
not involving an employer-sponsored plan, benefits will be calculated on a
sex-distinct basis.
3. Fixed and Variable Payment Options
When a Contractholder selects an annuity payment option (see "Annuity Payment
Options Available" below), he or she may also choose to apply annuity proceeds
to a fixed payment option, a variable payment option or a combination thereof.
If the Contractholder does not select a payment option by the Maturity Date,
variable payments will be made while the Payee is living but for at least ten
years. (See "Annuity Payment Options Available" below.)
A.FIXED PAYMENT OPTIONS
Fixed payment options are available only under deferred contracts. All pro-
ceeds applied under fixed payment options will be transferred from the Fund to
the Company's general assets, and will no longer participate in or be affected
by the investment performance of the Fund.
The applicable annuity purchase rates vary depending on the particular annu-
ity payment option selected and on the age of the Payee (and, where sex-neu-
tral annuity rates are not applicable, on the sex of the Payee) when the annu-
ity payment option selected involves a life contingency.
B.VARIABLE PAYMENT OPTIONS
When a variable payment option has been elected under a deferred contract,
the proceeds (or the selected portion thereof) will be applied at annuity pur-
chase rates then in use by the Company for immediate contracts, or at the an-
nuity purchase rates stated in the contract, whichever are more favorable to
the Payee. In the case of immediate contracts, the Net Purchase Payment is ap-
plied at current Company variable annuity purchase rates.
As in the case of fixed payment options, the applicable annuity purchase
rates vary depending on the particular annuity payment option selected and the
age of the Payee (and where sex-neutral annuity rates are not applicable, on
the sex of the Payee) when the annuity payment option selected involves a life
contingency. Under the variable payment options, however, payments will be
subject to variation from month to month, depending upon the investment per-
formance of the Fund.
The amount of the basic payment level is determined by applying the applica-
ble annuity purchase rates to the proceeds applied to provide the annuity. The
dollar amount of the initial variable annuity payment will be at the basic
payment level unless the contract is an immediate contract and the initial
payment is due more than 14 days after the Net Purchase Payment is applied.
The higher the age of the Payee, the greater the basic payment level, because
the Payee's life expectancy and thus the period of anticipated income payments
will be shorter. Under contracts with sex-distinct purchase rates, a given
10
<PAGE>
contract value will purchase a higher basic payment for a male Payee than for
a female Payee, reflecting the greater life expectancy of the female Payee. If
the Contractholder has selected a payment option which provides for a refund
at death of the Payee or which guarantees that payments will be made for the
balance of a period of a certain number of years after the death of the Payee,
the contract value will produce a lower basic payment level.
The selection of an assumed interest rate will affect both the basic payment
level and the amount by which subsequent payments to the Payee increase or de-
crease. If the net investment performance of the Fund is the same as the as-
sumed interest rate, the monthly payments will remain level. If the net in-
vestment performance exceeds the assumed interest rate the monthly payments
will increase, and conversely, if it is less than the assumed interest rate
the payments will decrease.
Unless otherwise provided, the assumed interest rate will be at an annual
rate of 3.5%. If a 3.5% rate would result in a first payment larger than per-
mitted under applicable state law or regulation, then the Company will select
a lower rate. Subject to the consent of the Company and if permitted under ap-
plicable state law, a different annual assumed interest rate not in excess of
5% may be elected by the Contractholder.
Election of a higher assumed interest rate produces a larger initial payment,
a more slowly rising series of subsequent payments when the actual net invest-
ment performance exceeds the assumed interest rate, and a more rapid drop in
subsequent payments when the actual net investment performance is less than
the assumed interest rate.
The Company continues to deduct "expense risk" and "mortality risk" charges
from the Fund's assets after the Maturity Date if annuity payments are made
under any variable payment option, including an option not involving a life
contingency and under which the Company bears no mortality risk. (See "Mortal-
ity and Expense Risks and Deductions" below for an explanation of these risk
charges.)
4. Annuity Payment Options Available
A. PAYMENTS FOR SPECIFIED PERIOD (DEFERRED CONTRACTS ONLY)
The proceeds may be paid in monthly payments for any definite number of years
selected, not exceeding 30.
B. SINGLE LIFE ANNUITY
This option and the Joint Life Annuity option (see below) involve life con-
tingencies since they provide that payments will be made during the continua-
tion of one or more lives.
i. With No Period Certain
The proceeds are paid in monthly payments during the lifetime of the Payee.
This form of Single Life Annuity option offers the maximum level of monthly
payments under an option payable over the entire lifetime of the Payee. UNDER
THIS FORM, IT WOULD BE POSSIBLE TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE
PAYEE SHOULD DIE PRIOR TO THE DUE DATE OF THE SECOND ANNUITY PAYMENT, TWO AN-
NUITY PAYMENTS IF THE PAYEE SHOULD DIE PRIOR TO THE DUE DATE OF THE THIRD AN-
NUITY PAYMENT, AND SO ON.
ii. With Period Certain
This form of Single Life Annuity option is similar to the form described un-
der i. above except that payments are guaranteed during the period certain
elected. If the Payee should die prior to the end of that period, annuity
payments will be continued during the remainder of the period to the desig-
nated beneficiary. The period certain elected may be 120 months; 240 months;
or, under variable payment options only, the nearest whole number of months
equal to the amount applied to this option divided by the dollar amount of
the basic payment level.
C. JOINT LIFE ANNUITY
i. With No Period Certain
The proceeds are paid in monthly payments during the joint lifetime of the
Payee and a designated joint Payee, and thereafter during the remaining life-
time of the survivor. UNDER THIS FORM OF JOINT LIFE ANNUITY OPTION, IT WOULD
BE POSSIBLE TO RECEIVE ONLY ONE ANNUITY PAYMENT IF BOTH PAYEES SHOULD DIE
PRIOR TO THE DUE DATE OF THE SECOND ANNUITY PAYMENT, TWO ANNUITY PAYMENTS IF
BOTH SHOULD DIE PRIOR TO THE DUE DATE OF THE THIRD ANNUITY PAYMENT, AND SO
ON.
ii. With 120 Months Certain
This form of Joint Life Annuity option is similar to the form described un-
der i. above, except that the pay-
11
<PAGE>
ments are guaranteed for a period certain of 120 months. If both the Payee
and the joint Payee should die before the end of that period, annuity pay-
ments will be continued during the remainder of such period to the designated
beneficiary.
iii. With Reduced Payments to Survivor (No Period Certain)
This form of Joint Life Annuity option is similar to the form described un-
der i. above except that the payments to the survivor, which continue for the
survivor's remaining lifetime, are reduced to two-thirds of the amount that
would have been payable if both Payees were still living. UNDER THIS FORM OF
JOINT LIFE ANNUITY OPTION, IT WOULD BE POSSIBLE TO RECEIVE ONLY ONE ANNUITY
PAYMENT IF BOTH PAYEES SHOULD DIE PRIOR TO THE DUE DATE OF THE SECOND ANNUITY
PAYMENT, TWO ANNUITY PAYMENTS IF BOTH SHOULD DIE PRIOR TO THE DUE DATE OF THE
THIRD ANNUITY PAYMENT, AND SO ON.
D.OTHER METHODS OF PAYMENT
In addition to the annuity payment options described above, other methods of
payment may be selected which are agreed to by the Company.
5.General Limitations on Options
In order to qualify as annuities under Section 72 of the Code, all contracts
(a) issued after January 18, 1985 and (b) not for use with various retirement
plans qualifying for tax-benefited treatment under the Code, limit the period
over which payments from the contracts may be made upon the death of the
Contractholder. There are comparable rules that govern the timing of payments
after the death of the Annuitant in the case of tax-benefited retirement
plans. Please refer to the discussion under "Death Proceeds."
After an option involving life contingencies becomes operative it may not be
changed to another option unless agreed to by the Company. Once annuity pay-
ments under such options have begun, the contract cannot be surrendered for a
single sum cash payment, except that in the case of any such option involving
a period certain, the successor Payee may, at any time after the death of the
Annuitant (or both Annuitants in the case of a Joint Life Annuity), elect to
surrender the contract for a single cash payment equal to the commuted value
(which is calculated based on the Assumed Interest Rate) of all remaining un-
paid certain payments. Under variable options which do not involve life con-
tingencies (such as the Payments for Specified Period option) the contract may
be surrendered for the current value in cash of the Accumulation Units stand-
ing to its credit; alternatively, if the amounts involved are adequate, they
may be applied to any other payment option. Payment or application of surren-
der proceeds during the Annuity Period shall be in accordance with the proce-
dures applicable to surrenders during the Accumulation Period. (See "Surrender
(Redemption) Proceeds.") The election of any option, particularly in connec-
tion with contracts issued to retirement plans qualifying for tax-benefited
treatment, is subject to applicable requirements of Federal tax law, which may
restrict both selection of beneficiaries and manner of payment. Consultation
in this case with a qualified tax adviser is recommended prior to the election
of any option.
Options shall be available only with the consent of the Company if the amount
to be applied is less than $2,000. If necessary to bring the amount of each
periodic payment to at least $20, the Company may change the frequency of pay-
ments to quarterly, semiannually or annually.
E. OWNERSHIP RIGHTS UNDER THE CONTRACT
During the Annuitant's lifetime, all rights under the contract are vested
solely in the Contractholder unless otherwise provided. Such rights include
the right to change the beneficiary, to change the payment option, to assign
the contract (subject to the restrictions referred to below), and to exercise
all other rights, benefits, options and privileges conferred by the contract
or allowed by the Company. Transfer of ownership of the contract from a "pen-
sion plan" under the Employee Retirement Income Security Act of 1974 ("ERISA")
to a non-spousal beneficiary may require spousal consent.
Qualified Plans and certain TSA Plans with sufficient employer involvement
are deemed to be "pension plans" under ERISA, and are, therefore, subject to
rules under the Retirement Equity Act of 1984. These rules require that bene-
fits from annuity contracts purchased by a pension plan and distributed to or
owned by a participant be provided in accordance with certain spousal consent,
present value and other requirements which are not enumerated in the contract.
Thus, the tax consequences of the purchase of the contracts by pension plans
should be considered carefully.
12
<PAGE>
Those contracts described by this prospectus which are used with retirement
plans qualifying for tax-benefited treatment (such plans are defined below un-
der "Retirement Plans Offering Federal Tax Benefits") contain restrictions on
transfer or assignment, reflecting requirements of the Code which must be sat-
isfied in order to assure continued eligibility for the favorable tax treat-
ment accorded these plans. Such favorable tax treatment is described below un-
der "Federal Income Tax Status." In accordance with such requirements, owner-
ship of such a contract may not be changed and the contract may not be sold,
assigned or pledged as collateral for a loan or for any other purpose except
under certain limited circumstances. A Contractholder contemplating a sale,
assignment or pledge of the contract should carefully review its provisions
and consult a qualified tax adviser.
If contracts described by this prospectus are used in connection with retire-
ment plans not qualifying for tax-benefited treatment, such plans may also re-
strict the exercise of rights by the Contractholder.
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
- -------------------------------------------------------------------------------
A. OBJECTIVE AND POLICIES
The investment objective of the Fund is growth of capital through investment
principally in equity securities of a diversified group of companies and in-
dustries. The investment objective will not be changed in any material way
without approval by a majority of the votes attributable to outstanding con-
tracts.
The Fund will invest primarily in seasoned issues which trade on national or
regional stock exchanges or in the over-the-counter market. Current income
will not be an important factor in the selection of equity securities. Income
and realized capital gains will be reinvested.
The Fund's portfolio will normally consist principally of common stocks and
securities convertible into or carrying rights to purchase common stocks. How-
ever, during periods when management considers that economic or market condi-
tions make it advisable, a substantial portion of the Fund's assets may be
held temporarily in cash or fixed income securities (including long-term fixed
income securities) whether or not convertible or carrying such rights. No es-
timate can be made as to when or for how long the Fund will employ such a de-
fensive strategy. Also, as a matter of operational policy the Fund will keep
sufficient amounts of cash and United States Government or other high-grade
liquid securities on hand to meet current expenses and variable annuity con-
tract obligations, and such assets may also be kept on hand for limited peri-
ods pending investment in accordance with the Fund's investment policies.
In furtherance of its investment objective, primary emphasis in the selection
of issues for the Fund's portfolio will be given to those securities believed
by management to offer a potential for long-term appreciation. However, this
emphasis will not preclude occasional investment for short-term appreciation.
In the years 1994 and 1995, the Fund's portfolio turnover rate was approxi-
mately 139% and 228%, respectively. The variation in the portfolio turnover
rate during this period reflects strategic shifts in portfolio holdings de-
signed to maintain an optimum portfolio structure in view of general market
conditions and movements in individual stock prices. The rate of the Fund's
portfolio turnover may vary significantly from time to time depending on the
volatility of prevailing or anticipated economic and market conditions. Higher
levels of portfolio turnover may result in higher brokerage costs to the Fund.
The Fund may change the foregoing investment policies without Contractholder
approval.
It must be recognized that there are risks inherent in the ownership of any
security and that there can be no assurance that the investment objective of
the Fund will be achieved. Equity securities are subject to price declines as
well as advances, and the prices of such securities can decline while the cost
of living is rising. Fixed income securities are subject to credit risk (the
risk that the obligor will default in the payment of principal and/or inter-
est) and to market risk (the risk that the market value of the securities will
change as a result of changes in market rates of interest). The value of the
Fund's investments is subject to risks of changing economic conditions and the
risk inherent in management's ability to anticipate such changes and, to the
extent consistent with the Fund's investment objective and policies, to make
appropriate changes in the Fund's portfolio.
The Fund may invest in repurchase agreements. Under these agreements the Fund
purchases a security subject to the agreement of the seller to repurchase the
security at
13
<PAGE>
an agreed upon price and date. The resale price is in excess of the purchase
price and reflects an agreed upon market rate unrelated to the coupon rate on
the purchased security. Repurchase agreements can be regarded as loans by the
Fund to the seller, collateralized by the securities that are the subject of
the agreement. Repurchase agreements afford the Fund the opportunity to earn a
return on temporarily available cash at relatively low market risk. While the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. Government, the
obligation of the seller is not guaranteed by the U.S. Government and there is
a risk that the seller may fail to repurchase the underlying security. In such
event, the Fund would attempt to exercise rights with respect to the under-
lying security, including possible disposition in the market. However, the
Fund may be subject to various delays and risks of loss, including (a) possi-
ble declines in the value of the underlying security during the period while
the Fund seeks to enforce rights thereto, (b) possible reduced levels of in-
come and lack of access to income during this period, and (c) inability to en-
force rights and expenses of attempted enforcement.
B. RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may
not be changed without approval by a majority vote of the Contractholders.
Reference should by made to the Statement of Additional Information for a de-
scription of other investment restrictions applicable to the Fund. Some of
those restrictions are fundamental policies which may not be changed without
Contractholder approval, and some may be changed by the Board of Managers
without Contractholder approval.
The Fund will not:
1. Purchase any security (other than United States Government obligations)
if as a result more than 5% of the Fund's total assets (taken at current val-
ue) would be invested in securities of any one issuer or more than 10% of the
outstanding voting securities of any one issuer would be held by the Fund;
2. Concentrate its investments in particular industries, but it may invest
up to 25% of its total assets (taken at current value) in a single industry;
3. Borrow money, except as a temporary measure for extraordinary or emer-
gency purposes, but not for investment purposes, and in an amount not in ex-
cess of 5% of its total assets (taken at current value) at the time of such
borrowing.
In addition, pursuant to certain terms of Chapter 175 of the Massachusetts
General Laws, not more than 10% of the assets of all separate investment ac-
counts, including the Fund, maintained by the Company may be invested in the
capital stock, certificates of participation, or shares of any one corpora-
tion, association or trust, other than one or more open-end, diversified man-
agement investment companies as defined in the 1940 Act, if at the time the
investment is made all such separate investment account assets exceed one mil-
lion dollars.
Further, Section 817(h) of the Code requires the investments of the Fund to
be "adequately diversified" in accordance with Treasury Regulations. To the
extent of any conflict between the restrictions listed above and the regula-
tions under Section 817(h), the regulations will control. (See discussion of
the Section 817(h) regulations under "Special Rules for Annuities Used by In-
dividuals or With Plans and Trusts Not Qualifying Under the Code for Tax-Bene-
fited Treatment," below.)
- -------------------------------------------------------------------------------
DEDUCTIONS AND EXPENSES
- -------------------------------------------------------------------------------
A. DEDUCTIONS FROM PURCHASE PAYMENTS FOR SALES AND ADMINISTRATIVE SERVICES AND
PREMIUM TAXES
New England Securities serves as principal underwriter for the Fund pursuant
to a distribution agreement among the Fund, the Company and New England Secu-
rities. The Company retains the deductions for sales expenses described below
except for amounts paid to New England Securities for services it performs and
expenses it incurs as principal underwriter. New England Securities registered
representatives receive commissions on the sale of flexible purchase payment
contracts at a maximum rate of 5% of purchase payments.
Under the terms of an administrative agreement between the Fund and the Com-
pany, the Company furnishes or bears the expense of all legal, actuarial and
accounting
14
<PAGE>
services, office space, facilities and equipment, services of executive and
other personnel and all other administrative services necessary or appropriate
to carry on the various functions of the Fund, but not including expenses at-
tributable to sales activities, which are covered by the distribution agree-
ment. To cover the cost of providing these services, the Company retains the
deduction for administrative expenses described below.
Under the provisions of the administrative agreement and the contracts, the
following items are payable directly by the Fund (see "Accumulation Unit Val-
ues, Annuity Unit Values and Net Investment Factors"): (a) any taxes paid or
reserved for, arising from the income and realized and unrealized capital
gains on assets of the Fund (but see "State Taxation"), (b) fees for mortality
and expense risks assumed and for investment advisory services, (c) brokerage
commissions and taxes, if any, in connection with the purchase or sale of the
Fund's portfolio securities, and (d) fees and expenses of the Board of Manag-
ers, including the auditing of Fund assets.
Various states impose a premium tax on annuity purchase payments received by
insurance companies. The Company may deduct these taxes from Purchase Payments
and currently does so for contracts subject to the insurance tax law of Ken-
tucky and South Dakota. Certain states may require the Company to pay the pre-
mium tax when the Contractholder elects to commence annuity benefits rather
than when Purchase Payments are received. In those states the Company may de-
duct the premium tax on the date when annuity payments are to begin. Current-
ly, the Company follows this procedure for contracts subject to the insurance
tax law of North Carolina. The maximum premium tax currently deducted by the
Company is 2%. The Company may in the future deduct premium taxes under con-
tracts subject to the insurance tax laws of other states, or the applicable
premium tax rates may change.
Surrender of a contract may result in a credit against the premium tax lia-
bility of the Company in certain states. In such event, the surrender proceeds
will be increased accordingly.
Premium tax rates are subject to being changed by law, administrative inter-
pretations or court decisions. Premium tax amounts will depend on, among other
things, the state of residence of the Annuitant and the insurance tax law of
the state.
Sales and administrative expenses are deducted from each After-tax Purchase
Payment. The resulting amount is the Net Purchase Payment. It is expected that
the deductions for sales expenses will cover sales expenses over the life of
the contracts. To the extent sales expenses are not covered by the deduction
for sales expenses, they will be recovered from the general account of the
Company, including any income derived from the mortality and expense risk de-
ductions (see "Mortality and Expense Risks and Deductions").
15
<PAGE>
The applicable deductions from each After-tax Purchase Payment for sales and
administrative expenses are set out in the tables below:
Deductions Applicable to Flexible Purchase Payment Contracts
<TABLE>
<CAPTION>
Deduction for
Sales Expenses
Portion of Deduction Deduction for as a Percentage of
Total After-Tax for Sales Administrative Total Portion of Net
Purchase Payment Expenses Expenses Deduction Purchase Payment
<S> <C> <C> <C> <C>
First $46 6.0% 3.0% 9.0% 6.6%
Balance 6.0% 2.0% 8.0% 6.5%
Deductions Applicable to Single Purchase Payment Contracts
<CAPTION>
Deduction for
Sales Expenses
Portion of Deduction Deduction for as a Percentage of
Total After-Tax for Sales Administrative Total Portion of Net
Purchase Payment Expenses Expenses Deduction Purchase Payment
<S> <C> <C> <C> <C>
First $ 5,000 6.00% 2.00% 8.0% 6.5%
Next $95,000 3.75% 0.25% 4.0% 3.9%
Balance 1.75% 0.25% 2.0% 1.8%
</TABLE>
Under Contracts that have been sold to the following persons, purchase pay-
ments will be subject to the usual deductions for administrative expenses and
premium taxes, if any, but will not be subject to any deductions for sales ex-
penses: certain present and retired employees and certain current and former
directors and trustees (including members of the Board of Managers of the
Fund) of the Company and its subsidiaries and mutual funds sponsored by the
Company; agents and general agents of the Company and its insurance company
subsidiaries; certain current and retired employees of such agents and general
agents; the surviving spouses of the employees, agents and general agents
listed above; and any retirement plan or trust for the benefit of the persons
listed above.
B. DEDUCTIONS FROM FUND ASSETS
1.Investment Advisory Services and Deductions
Capital Growth Management Limited Partnership ("CGM"), One International
Place, Boston, Massachusetts 02110, serves as investment adviser to the Fund
under an advisory agreement dated September 1, 1993, which provides that CGM
will manage, subject to the supervision of the Fund's Board of Managers, the
investment and reinvestment of the assets of the Fund. For providing such
services the Fund pays CGM an annual fee of .3066% of the average net assets of
the Fund. This fee is computed on a daily basis and is payable monthly.
The general partner of CGM is a corporation controlled equally by Robert L.
Kemp and G. Kenneth Heebner. New England Investment Companies, L.P., an affil-
iate of the Company, owns a 50% limited partnership interest in CGM. CGM pro-
vides discretionary investment services to advisory clients, including other
investment company portfolios.
The merger of the Company into MetLife is being treated as an "assignment",
for purposes of the 1940 Act, of the Fund's investment advisory agreement with
CGM, effective at the time of the merger. At a Special Meeting, held on Decem-
ber 28, 1995, Contractholders of the Fund approved a new investment advisory
agreement between the Fund and CGM, to take effect at the time of the merger
which will be identical, except for its date, to the existing agreement.
16
<PAGE>
2.Mortality and Expense Risks and Deductions
Variable annuity payments will not be affected by mortality or expense expe-
rience adverse to the Company because the Company assumes the "expense risk"
and the "mortality risk" under the contracts, for which assumptions it re-
ceives deductions from Fund assets.
The "expense risk" assumed by the Company is the risk that the deductions for
sales and administrative expenses, and the deductions for investment advisory
services, provided for in the variable annuity contract may be insufficient to
cover the actual cost of such items.
The "mortality risk" assumed by the Company has two elements: a "life annuity
mortality risk" and, in the case of deferred contracts, a "minimum death re-
fund risk."
The "life annuity mortality risk" assumed is that the Company agrees to make
annuity payments under options involving life contingencies regardless of how
long a particular Annuitant or other Payee lives and regardless of how long
all Annuitants or other Payees as a class live.
Under deferred contracts the Company also assumes a "minimum death refund
risk" by providing that a death benefit will be payable upon death of the
Annuitant during the Accumulation Period. (See "Death Proceeds" for a
description of the death benefit payable.)
For assuming these risks the Company makes the following daily deductions
from the Fund's net assets:
i. For deferred contracts: .00260% (.9490% on an annual basis consisting of
.8395% for mortality risk assumptions and .1095% for expense risk assump-
tions).
ii. For immediate contracts: .00190% (.6935% on an annual basis consisting of
.5840% for mortality risk assumptions and .1095% for expense risk assump-
tions).
The percentage of these deductions will not increase over the life of a
contract.
C. TOTAL EXPENSES
For the year ended December 31, 1995, the Fund's total expenses equalled
1.35% of its average net assets.
- -------------------------------------------------------------------------------
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
- -------------------------------------------------------------------------------
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
individual variable annuity contracts described in this prospectus, include:
1. Plans qualified under Section 401(a), 401(k) or 403(a) of the Code
("Qualified Plans");
2. Annuity purchase plans adopted by public school systems and certain tax-
exempt organizations pursuant to Section 403(b) of the Code ("TSA
Plans");
3. Individual retirement accounts adopted by or on behalf of individuals
pursuant to Section 408(a) of the Code and individual retirement
annuities purchased pursuant to Section 408(b) of the Code (both of which
may be referred to as "IRAs"), including simplified employee pension
plans and salary reduction simplified employee pension plans ("SEPs" and
"SARSEPs"), which are specialized IRAs that meet the requirements of
Section 408(k) of the Code ("SEPs" and "SARSEPs");
4. Eligible deferred compensation plans (within the meaning of Section 457
of the Code) for employees of state and local governments and tax-exempt
organizations ("Section 457 Plans"); and
5. Governmental plans (within the meaning of Section 414(d) of the Code) for
governmental employees, including Federal employees ("Governmental
Plans").
An investor should consult a qualified tax or other adviser as to the suit-
ability of the contracts as a funding vehicle for retirement plans qualifying
for tax-benefited treatment, as to the rules underlying such plans, and as to
state and Federal tax aspects of such plans.
A summary of the Federal tax laws regarding contributions to, and distribu-
tions from, the above tax-benefited retirement plans may be found below at
page 18 of this prospectus under the heading "Special Rules for Annuities Pur-
chased for Annuitants under Retirement Plans Qualifying for Tax-Benefited
Treatment." It should be understood that should a tax-benefited retirement
plan
17
<PAGE>
lose its qualification for tax-exempt status, employees will lose some of the
tax benefits described herein.
In the case of most TSA Plans under Section 403(b)(1) of the Code, and in the
case of IRAs purchased under Section 408(b) of the Code, the individual vari-
able annuity contracts described in this prospectus comprise the retirement
"plan" itself. These contracts will be endorsed, if necessary, to comply with
Federal and state legislation governing such plans, and such endorsements may
alter certain contract provisions described in this prospectus. Reference
should be made to the contracts and any endorsements for more complete infor-
mation.
- -------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS
- -------------------------------------------------------------------------------
The following discussion is intended as a general description of the Federal
income tax aspects of the variable annuity contracts. It is not intended as
tax advice. For more complete information, you should consult a qualified tax
adviser.
A. TAX STATUS OF THE COMPANY AND THE FUND
The Company is taxed as a life insurance company under the Code. The Fund and
its operations are part of the Company's total operations and are not taxed
separately. Under current law no taxes are payable on the investment income
and capital gains of the Fund. Such income and gains will be retained in the
Fund and will not be taxable until received by the Annuitant or the
Annuitant's beneficiary in the form of annuity payments or other distribu-
tions.
If under future law the assets, investment income or capital gains of the
Fund are subject to taxes, the contracts provide that the Company may make an
appropriate charge or reserve against the assets of the Fund for such taxes.
B. TAXATION OF THE CONTRACTS
The variable annuity contracts described in this prospectus are considered
annuity contracts the taxation of which is governed by the provisions of Sec-
tion 72 of the Code. As a general proposition, Section 72 provides that
Contractholders are not subject to current taxation on increases in the value
of the contracts until they are received by the Annuitant or beneficiary in
the form of annuity payments. (Exceptions to this rule are discussed below un-
der "Special Rules for Annuities Used by Individuals or with Plans and Trusts
Not Qualifying Under the Code for Tax-Benefited Treatment.")
Under the general rule of Section 72, to the extent there is an "investment"
in an annuity contract, a portion of each annuity payment is excluded from
gross income as a return of such investment. The balance of each annuity pay-
ment is includible in gross income and taxable as ordinary income. In general,
contributions made to an annuity contract which are deductible by the contrib-
utor and earnings on all contributions to the annuity contract will not con-
stitute an "investment" in the annuity contract under Section 72.
1. Special Rules for Annuities Purchased for Annuitants Under Retirement Plans
Qualifying for Tax-Benefited Treatment
Set forth below is a summary of the Federal tax laws applicable to contribu-
tions to, and distributions from, retirement plans that qualify for Federal
tax benefits. Such plans are defined above under the heading "Retirement Plans
Offering Federal Tax Benefits." You should understand that the following sum-
mary does not include everything you need to know regarding such tax laws. The
Code provisions and the rules and regulations thereunder regarding retirement
trusts and plans, the documents which must be prepared and executed, and the
requirements which must be met to obtain favorable tax treatment for them are
very complex. A person contemplating the purchase of a contract for use with a
retirement plan qualifying for tax-benefited treatment under the Code should
consult a qualified tax adviser as to all applicable Federal and state tax as-
pects of the contracts and, if applicable, as to the suitability of the con-
tracts as investments under ERISA.
A. PLAN CONTRIBUTION LIMITATIONS
i. Qualified Plans, SEPs, SARSEPs and Governmental Plans
Statutory limitations on contributions to Qualified Plans, SEPs, SARSEPs and
Governmental Plans may limit the amount of money that may be contributed to
the contract in any contract year. Any purchase payments attributable to such
contributions are tax deduct
18
<PAGE>
ible to the employer and are not currently taxable to the Annuitants for whom
the contracts are purchased. The contributions to the contract and any in-
crease in contract value attributable to such contributions are not subject
to taxation until payments from the contract are made to the Annuitant or
his/her beneficiaries.
ii. TSA Plans
Purchase payments attributable to contributions to TSA Plans are not includ-
ible within the Annuitant's income to the extent such purchase payments do
not exceed the lesser of $9,500 or the "exclusion allowance." The exclusion
allowance is a calculation which takes into consideration the Annuitant's in-
cludible compensation, number of years of service, and prior years of contri-
butions. For more information, the Annuitant should obtain a copy of IRS Pub-
lication 571 on TSA Programs for Employees of Public Schools and Certain Tax-
Exempt Organizations which will better assist the Annuitant in calculating
the exclusion allowance to which he or she may be entitled for any given tax
year. Any purchase payments attributable to permissible contributions under
Code Section 403(b) (and earnings thereon) are not taxable to the Annuitant
until amounts are distributed from the contract.
iii. IRAs
The maximum tax deductible purchase payment which may be contributed each
year to an IRA is the lesser of $2,000 or 100 percent of includible compensa-
tion if the taxpayer is not covered under an employer plan. A spousal IRA is
available if the taxpayer and spouse file a joint return and the spouse earns
no compensation (or elects to be treated as earning no compensation) and is
not yet age 70 1/2. In the case of a spousal IRA, the maximum tax deductible
purchase payment which may be deducted is the lesser of $2,250 or 100 percent
of compensation of the working spouse. If covered under an employer plan,
taxpayers are permitted to make deductible purchase payments; however, the
deductions are phased out and eventually eliminated, on a pro rata basis, for
adjusted gross income between $25,000 and $35,000 for an individual, between
$40,000 and $50,000 for a married couple filing jointly and between $0 and
$10,000 for a married person filing separately. A taxpayer may also make non-
deductible purchase payments. However, the total of deductible and nondeduct-
ible purchase payments may not exceed the limits described above for deduct-
ible payments. For more information concerning contributions to IRAs, you
should obtain a copy of IRS Publication 590 on Individual Retirement Ac-
counts.
iv. Section 457 Plans
Generally, under a Section 457 Plan, an employee or executive may defer in-
come under a written agreement in an amount equal to the lesser of 33 1/3% of
includible compensation or $7,500. The amounts so deferred (including earn-
ings thereon) by an employee or executive electing to contribute to a Section
457 Plan are includible in gross income only in the tax year in which such
amounts are paid or made available to the employee or executive or his/her
beneficiary. Once contributed to the plan, any contracts purchased with em-
ployee contributions remain the sole property of the employer and may be sub-
ject to the general creditors of the employer. The employer retains all own-
ership rights to the contract including voting and redemption rights which
may accrue to the contract(s) issued under the plan.
B. DISTRIBUTIONS FROM THE CONTRACT
Mandatory Withholding on Certain Distributions
Many distributions called "eligible rollover distributions" from Qualified
Plans and from many TSA Plans are subject to automatic withholding by the plan
or payor at the rate of 20%. Withholding can be avoided by arranging a direct
transfer of the eligible rollover distribution to a Qualified Plan, TSA or
IRA.
i. Qualified Plans, TSA Plans, IRAs, SEPs, SARSEPs and Governmental Plans
Payments made from the contracts held under a Qualified Plan, TSA Plan, IRA,
SEP, SARSEP or Governmental Plan are taxable under Section 72 of the Code as
ordinary income, in the year of receipt. Any amount received in surrender of
all or part of the contract value prior to annuitization will, subject to re-
strictions and penalties discussed below, also be included in income in the
year of receipt. If there is any "investment" in the contract, a portion of
each amount received is excluded from gross income as a return of such in-
vestment. Distributions or withdrawals prior to age 59 1/2 may be subject to
a penalty tax of 10% of the amount includible in income. This penalty tax
does not
19
<PAGE>
apply (i) to distributions of excess contributions or deferrals; (ii) to dis-
tributions made on account of the Annuitant's death, retirement, disability
or early retirement at or after age 55; (iii) when distribution from the con-
tract is in the form of an annuity over the life or life expectancy of the
Annuitant (or joint lives or life expectancies of the Annuitant and his or
her beneficiary); or (iv) when distribution is made pursuant to a qualified
domestic relations order. In the case of IRAs, the exceptions for distribu-
tions on account of early retirement at or after age 55 or made pursuant to a
qualified domestic relations order do not apply.
If the Annuitant dies before distributions begin, distributions must be com-
pleted within five years after death, unless payments begin within one year
after death and are made over the life (or life expectancy) of the beneficia-
ry. If the Annuitant's spouse is the beneficiary, distributions need not be-
gin until the Annuitant would have reached age 70 1/2. If the Annuitant dies
after annuity payments have begun, payments must continue to be made at least
as rapidly as payments made before death.
With respect to TSA Plans, contributions to the contract made after December
31, 1988 and any increases in contract value after that date may not be dis-
tributed prior to attaining age 59 1/2, termination of employment, death or
disability. Contributions (but not earnings) made after December 31, 1988 may
also be distributed by reason of financial hardship. These restrictions on
withdrawal will not apply to the contract value as of December 31, 1988.
These restrictions are not expected to change the circumstances under which
transfers to other investments which qualify for tax-free treatment under
Section 403(b) of the Code may be made.
Annuity payments, periodic payments or annual distributions must commence by
April 1 of the calendar year following the year in which the Annuitant at-
tains age 70 1/2. In the case of a Governmental Plan, these distributions
must begin by the later of the date determined by the preceding sentence or
April 1 of the calendar year following the year in which the Annuitant re-
tires. Each annual distribution must equal or exceed a "minimum distribution
amount" which is determined by minimum distribution rules under the plan. A
penalty tax of up to 50% of the amount which should be distributed may be im-
posed by the Internal Revenue Service for failure to distribute the required
minimum distribution amount.
ii. Section 457 Plans
When a distribution under a contract held under a Section 457 Plan is made
to the Annuitant, such amounts are taxed as ordinary income in the year in
which received. The plan must not permit distributions prior to the
Annuitant's separation from service (except in the case of unforeseen emer-
gency). In addition, a distribution prior to age 59 1/2 may be subject to an
additional penalty tax of 10% of the amount included in income unless other-
wise exempt.
Generally, annuity payments, periodic payments or annual distributions must
commence by April 1 of the calendar year following the year in which the An-
nuitant attains age 70 1/2. Minimum distributions under a Section 457 Plan
may be further deferred if the Annuitant remains employed with the sponsoring
employer. Each annual distribution must equal or exceed a "minimum distribu-
tion amount" which is determined by distribution rules under the plan. A pen-
alty tax of up to 50% of the amount which should be distributed may be im-
posed by the Internal Revenue Service for failure to distribute the required
minimum distribution amount. If the Annuitant dies before distributions be-
gin, the same special distribution rules apply in the case of Section 457
Plans as apply in the case of Qualified Plans, TSA Plans, IRAs, SEPs, SARSEPs
and Governmental Plans. These rules are discussed above in the immediately
preceding section of this prospectus.
2. Special Rules for Annuities Used by Individuals or With Plans and Trusts
Not Qualifying Under the Code for Tax-Benefited Treatment
For an annuity held by an individual, any increase in the accumulated value
of the contract is not taxable until amounts are received, either in the form
of annuity payments as contemplated by the contract or in a full or partial
lump sum settlement of the Company's obligations to the Contractholder.
Under Section 72(u) of the Code, however, contracts, including the contracts
described herein, held by other than a natural person (i.e., those held by a
corporation or certain trusts) will generally not be treated as an annuity
contract for Federal tax purposes. This means an annuity
20
<PAGE>
contractholder who is not a natural person will have to include in income any
increase during the taxable year in the accumulated value over the investment
in the contract.
Section 817(h) of the Code requires the investments of the Fund to be "ade-
quately diversified" in accordance with Treasury Regulations. Failure to do so
means the variable annuity contracts described herein would cease to qualify
as annuities for Federal tax purposes. Regulations specifying the diversifica-
tion requirements have been issued by the Department of Treasury, and the Com-
pany believes that the Fund complies fully with these requirements.
Any amount received in a surrender of all or part of the contract value prior
to annuitization will be included in gross income to the extent of any in-
creases in the value of the contract resulting from earnings or gains of the
Fund.
The Code also imposes a ten percent penalty tax on amounts received under a
contract, before or after the annuity starting date, which are includible in
gross income. The penalty tax will not apply to any amount received under the
contract (1) after the Contractholder has attained age 59 1/2, (2) after the
death of the Contractholder, (3) after the Contractholder has become totally
and permanently disabled, (4) as one of a series of substantially equal peri-
odic payments made for the life (or life expectancy) of the Contractholder or
the joint lives (or life expectancies) of the Contractholder and a beneficia-
ry, (5) if the contract is purchased under certain types of retirement plans
or arrangements, (6) allocable to investments in the contract before August
14, 1982, or (7) if the contract is an immediate annuity contract.
In the calculation of any increase in value for contracts entered into after
October 4, 1988, all annuity contracts issued by the Company or its affiliates
to the same Contractholder within a calendar year will be treated as one con-
tract.
If the Contractholder dies, the tax law requires certain distributions from
the contract. (See "Death Proceeds.")
3. Tax Withholding
The Code and the laws of certain states require tax withholding on distribu-
tions made under annuity contracts, unless the recipient has made an election
not to have any amount withheld. The Company provides recipients with an op-
portunity to instruct it as to whether taxes are to be withheld.
- -------------------------------------------------------------------------------
STATE TAXATION
- -------------------------------------------------------------------------------
The Company is subject to a tax levied by The Commonwealth of Massachusetts
on its investment income. Currently, the rate of the tax is 14% of the net in-
vestment income of the Company. Although the administrative agreement between
the Company and the Fund provides that the Fund shall be charged with any
taxes arising from the income on Fund assets, the Company has not charged the
Fund with this tax in the past nor does it have any present intention of doing
so in the future. However, the Company reserves its freedom of action in this
connection.
- -------------------------------------------------------------------------------
VOTING RIGHTS
- -------------------------------------------------------------------------------
All Contractholders have the right to vote at any meeting of Contractholders.
The number of votes which each Contractholder may cast at any meeting is de-
termined as of the record date chosen by the Board of Managers which must be
within 90 days before the date of the meeting. At least 20 days' written no-
tice of the meeting must be given. The number of votes which a Contractholder
may cast on a contract in the Accumulation Period is equal to the number of
Accumulation Units credited to the contract. During the Annuity Period a
Contractholder may cast the number of votes equal to (i) the amount of assets
established in the Fund to meet the obligation for future payments under vari-
able options elected under the contract divided by (ii) the value of an Accu-
mulation Unit. The number of votes attributable to a contract during the Annu-
ity Period will tend to decrease over time.
Although the Contractholder has the sole right to cast all votes attributable
to the contract, during the Accumulation Period an Annuitant has the right to
instruct the Contractholder as to how such votes shall be cast in the follow-
ing circumstances: (i) if the Annuitant is covered by a contract issued in
connection with an individual retirement account established pursuant to Sec-
tion 408(a) of the Code; or (ii) if the Annuitant is an employee covered by a
contract issued in connection with a Qualified Plan or a retirement plan not
qualifying for favorable Federal tax treatment, in which case, the Annuitant
may instruct the Contractholder (a) as to votes attributable to the
21
<PAGE>
Annuitant's own Purchase Payments (voluntary contributions) and (b) to the ex-
tent authorized by the plan, as to any other votes under the contract. Simi-
larly, during the annuity period, every Annuitant or other Payee has the right
to instruct the Contractholder with respect to all votes attributable to the
amount of assets established in the Fund to meet the obligations for future
payments.
If a Contractholder receives instructions from less than all the persons en-
titled to instruct it, it is required to cast the votes for which it receives
no instructions for or against each proposal only in the same proportion as
votes for which instructions have been received. If no instructions are re-
ceived by the Contractholder from any person entitled to instruct it, it may
vote in its sole discretion.
In the case of a contract issued pursuant to Section 403(b) of the Code (an-
nuity purchase plan adopted by a public school system or certain other tax-ex-
empt organizations) or Section 408(b) of the Code (individual retirement annu-
ity), the Annuitant is the Contractholder for voting and all other purposes
during both the Accumulation and Annuity Periods.
If the Company should maintain assets in the Fund which are not attributable
to Contractholders, it will cast the votes attributable to such assets in the
same manner and proportion in which the votes attributable to Contractholders
are cast.
Each Annuitant or other Payee, if any, having the right to instruct the
Contractholders with respect to any votes is entitled to receive from the
Contractholder a notice of that right and of the number of votes to which such
right is applicable. All notices and proxy materials will be provided to the
Contractholders in sufficient number for distribution to all such Annuitants
and other Payees.
The Fund does not hold regular annual meetings of Contractholders. Rather,
meetings of Contractholders are held only when required by the 1940 Act or as
otherwise deemed appropriate by the Fund's Board of Managers.
22
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECIAL TERMS............................................................ 2
HIGHLIGHTS............................................................... 3
EXPENSE TABLE............................................................ 4
PER UNIT INCOME AND CAPITAL CHANGES...................................... 5
FINANCIAL STATEMENTS..................................................... 5
FUND PERFORMANCE......................................................... 6
DESCRIPTION OF THE COMPANY AND THE FUND.................................. 7
THE VARIABLE ANNUITY CONTRACTS........................................... 7
A. How Contract Purchase Payments May be Made............................ 7
B. Accumulation Unit Values, Annuity Unit Values and Net Investment
Factors............................................................... 7
C. Accumulation Period (Deferred Contracts).............................. 8
1. Basis Upon Which Accumulation Units are Credited..................... 8
2. Contract Value....................................................... 8
3. Surrender (Redemption) Proceeds...................................... 8
4. Death Proceeds....................................................... 9
D. Annuity Period (Deferred and Immediate Contracts)..................... 9
1. Choice of Retirement Date and Annuity Payment Option................. 9
2. Sex-Neutral Contracts................................................ 10
3. Fixed and Variable Payment Options................................... 10
4. Annuity Payment Options Available.................................... 11
5. General Limitations on Options....................................... 12
E. Ownership Rights Under the Contract................................... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS........................... 13
A. Objective and Policies................................................. 13
B. Restrictions........................................................... 14
DEDUCTIONS AND EXPENSES................................................... 14
A. Deductions from Purchase Payments for Sales and Administrative Services
and Premium Taxes...................................................... 14
B. Deductions from Fund Assets............................................ 16
1. Investment Advisory Services and Deductions........................... 16
2. Mortality and Expense Risks and Deductions............................ 17
C. Total Expenses......................................................... 17
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ 17
FEDERAL INCOME TAX STATUS................................................. 18
A. Tax Status of the Company and the Fund................................. 18
B. Taxation of the Contracts.............................................. 18
1. Special Rules for Annuities Purchased for Annuitants under Retirement
Plans Qualifying for Tax-Benefited Treatment.......................... 18
2. Special Rules for Annuities Used by Individuals or with Plans and
Trusts not Qualifying under the Code for Tax-Benefited Treatment...... 20
3. Tax Withholding....................................................... 21
STATE TAXATION............................................................ 21
VOTING RIGHTS............................................................. 21
</TABLE>
23
<PAGE>
---------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
---------------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE COMPANY....................................................... II-3
INVESTMENT OBJECTIVE AND POLICIES................................. II-3
MANAGEMENT OF THE FUND............................................ II-4
INVESTMENT ADVISORY AND OTHER SERVICES............................ II-6
Advisory Agreement.............................................. II-6
Administrative Agreement........................................ II-7
Distribution Agreement.......................................... II-7
Safekeeping of Securities....................................... II-8
Independent Accountants......................................... II-8
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS.................. II-8
DISTRIBUTION OF CONTRACTS......................................... II-9
CALCULATION OF PERFORMANCE DATA................................... II-9
ANNUITY PAYMENTS.................................................. II-10
NET INVESTMENT FACTOR............................................. II-11
EXPERTS........................................................... II-12
FINANCIAL STATEMENTS.............................................. II-13
</TABLE>
---------------------------------------
If you would like to obtain a copy of the Statement of Additional
Information of the Fund, please complete the request form below and mail it
to:
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Please send a copy of the Statement of Additional
Information of New England Variable Annuity Fund I to:
---------------------------------------------------
Name
---------------------------------------------------
Street
---------------------------------------------------
City State Zip
24
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
NEW ENGLAND VARIABLE ANNUITY FUND I
Individual Variable Annuity Contracts
----------------------------------------------------
Offered by
New England Mutual Life Insurance Company
MAY 1, 1996
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1996 and
should be read in conjunction therewith. A copy of the Prospectus may be
obtained by writing to New England Securities Corporation ("New England
Securities"), 399 Boylston Street, Boston, Massachusetts 02116.
II-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE COMPANY....................................................... II-3
INVESTMENT OBJECTIVE AND POLICIES................................. II-3
MANAGEMENT OF THE FUND............................................ II-4
INVESTMENT ADVISORY AND OTHER SERVICES............................ II-6
Advisory Agreement.............................................. II-6
Administrative Agreement........................................ II-7
Distribution Agreement.......................................... II-7
Safekeeping of Securities....................................... II-8
Independent Accountants......................................... II-8
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS.................. II-8
DISTRIBUTION OF CONTRACTS......................................... II-9
CALCULATION OF PERFORMANCE DATA................................... II-9
ANNUITY PAYMENTS.................................................. II-10
NET INVESTMENT FACTOR............................................. II-11
EXPERTS........................................................... II-12
FINANCIAL STATEMENTS.............................................. II-13
</TABLE>
II-2
<PAGE>
- -------------------------------------------------------------------------------
THE COMPANY
- -------------------------------------------------------------------------------
New England Variable Annuity Fund I (the "Fund") is a separate investment ac-
count of New England Mutual Life Insurance Company (the "Company" or "The New
England"). The Company and Metropolitan Life Insurance Company ("MetLife")
have entered into an agreement to merge, with MetLife to be the survivor of
the merger. See "Description of the Company and the Fund" in the Prospectus
for more information.
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------------------------------
The investment objective and policies of the Fund are summarized on the front
page of the Prospectus and in the text of the Prospectus under the heading
"Investment Objective, Policies and Restrictions".
As disclosed in the Prospectus, the Fund invests primarily in equity securi-
ties such as common stocks and securities convertible into or carrying rights
to purchase common stocks. However, when management considers that economic or
market conditions make it advisable, the Fund may take a defensive position by
investing a substantial portion of its assets in cash or fixed income securi-
ties (including long-term fixed income securities) whether or not convertible
or carrying such rights. No estimate can be made as to when or for how long
the Fund will employ such defensive strategies; however, in the past, such pe-
riods have approached one year in length.
The investment restrictions set forth in paragraphs 1 through 5 below are
fundamental policies and may not be changed without approval by a majority
vote of the Contractholders.
The Fund will not:
1. Underwrite the securities of other issuers except that it may acquire
portfolio securities under circumstances where, upon the subsequent sale of
such securities, the Fund might be deemed to be an underwriter for purposes of
the Securities Act of 1933;
2. Purchase or sell commodities or commodity contracts;
3. Purchase or sell interests in real estate except such as are represented
by marketable securities of companies, including real estate trusts, whose as-
sets consist substantially of mortgages and other liens on real property and
interests therein and which therefore may represent indirect interests in real
estate;
4. Make loans. Neither the purchase of a portion of an issue of publicly-dis-
tributed bonds, debentures, corporate notes or other evidences of indebted-
ness, nor the purchase of short-term debt securities issued by a company whose
equity securities are listed on the New York Stock Exchange, nor the entering
into of a repurchase agreement shall constitute the making of a loan for pur-
poses of this investment restriction;
5. Purchase any security restricted as to disposition under Federal securi-
ties laws, or otherwise not readily transferable.
The investment restrictions set forth in paragraphs 1 through 6 below may be
changed by the Board of Managers of the Fund without Contractholder approval.
The Fund will not:
1. Make investments for the purpose of exercising control or management;
2. Acquire securities of other investment companies except through purchases
in the open market involving only customary broker's commissions and only if
after any such acquisition not more than 5% of the total assets of the Fund
(taken at current value) would be so invested and not more than 3% of the to-
tal outstanding voting stock of any one investment company would be held;
II-3
<PAGE>
3. Purchase securities on margin (except that it may obtain such short-term
credits as are necessary for the clearance of transactions);
4. Make short sales;
5. Participate on a joint or joint and several basis in any trading account
in securities;
6. Write, purchase or sell puts, calls or combinations thereof or write war-
rants.
- -------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------
The Board of Managers and the officers of the Fund and their addresses, ages
and principal occupations during the past five years are as follows:
ANNE M. GOGGIN*, Manager (47).
The New England, 501 Boylston Street, Boston, MA 02117. Vice President and
Counsel, The New England, since 1994; Vice President, General Counsel, Secre-
tary and Clerk, New England Securities, since 1993. Previously, Second Vice
President and Counsel, The New England.
NANCY HAWTHORNE, Manager (44).
Continental Cablevision, Inc., Pilot House, Lewis Wharf, Boston, MA 02110.
Senior Vice President and Chief Financial Officer, Continental Cablevision,
Inc.
JOSEPH M. HINCHEY Manager (70).
193 Wamphassuc Road, Stonington, CT 06378. Retired; formerly, Senior Vice
President-Finance, Analog Devices, Inc. (manufacturer of electronic devices).
Trustee, Union College and Citizens Scholarship Foundation of America, Inc.;
Director, New England Security Insurance and Chemet Corporation (manufacturer
of metallurgical products).
RICHARD S. HUMPHREY, JR., Manager (70).
217 Waterways Avenue, P.O. Box 518, Boca Grande, FL 33921. Retired; formerly,
Chairman of the Board, HBM/Creamer (advertising agency). Director, RYKA, Inc.
(manufacturer of athletic footwear for women).
ROBERT B. KITTREDGE, Manager (75).
21 Sturdivant Street, Cumberland Foreside, ME 04110. Retired; formerly, Vice
President, General Counsel and Director, Loomis, Sayles & Company, Incorporat-
ed. Trustee, CGM Trust and CGM Capital Development Fund.
LAURENS MACLURE, Manager (70).
183 Sohier Street, Cohasset, MA 02025. Retired; formerly, President and Chief
Executive Officer, New England Deaconess Hospital, and President, NEDH Corp.
(health care holding company). Trustee, CGM Trust and CGM Capital Development
Fund.
DALE ROGERS MARSHALL, Manager (58).
Wheaton College, 26 East Main Street, Norton, MA 02766. President, Wheaton
College.
MARIE C. SWIFT*, Secretary (42).
The New England, 501 Boylston Street, Boston, MA 02117. Counsel, The New En-
gland.
JOSEPH F. TURLEY, Manager (70).
5680 N. A1A, #304, Indian River Shores, FL 32963. Retired; formerly President
and Chief Operating Officer, The Gillette Company (manufacturers of personal
care products). Director, The Gillette Company and EG&G, Inc. (diversified
technical company).
- -------
*Indicates a Board member or officer who is deemed an "interested person" as
defined by the Investment Company Act of 1940 (the "1940 Act").
II-4
<PAGE>
FREDERICK K. ZIMMERMANN*, Manager and Chairman (43).
The New England, 501 Boylston Street, Boston, MA 02117. Executive Vice Presi-
dent (since 1993) and Chief Investment Officer (since 1992), The New England.
Chairman of the Board and President, TNE Advisers, Inc., Director and Vice
President-Investments, New England Variable Life Insurance Company. Chairman
of the Board and President, New England Pension and Annuity Company.
COMMITTEES OF THE BOARD. The Managers have delegated certain functions to two
committees, each of which consists of Managers who are not interested persons
of the Fund. The two committees currently have the same members (Mses. Haw-
thorne and Marshall and Messrs. Hinchey, Humphrey, Kittredge, MacLure and
Turley).
The Audit Committee's responsibilities include review of financial and ac-
counting controls and procedures; recommendations as to the selection of the
independent accountants; review of the scope of the audit; review of financial
statements and audit reports; and review of the independence of the indepen-
dent accountants and approval of fees and assignments relating to both audit
and non-audit activities of the independent accountants. Mr. Hinchey currently
serves as chairman of the Audit Committee.
The Contract Review and Governance Committee reviews and makes recommenda-
tions to the Board as to contracts requiring approval of a majority of the
Managers who are not interested persons of the Fund and any other contracts
which may be referred to it by the Board. The Committee also recommends to the
Board nominees for election as Managers of the Fund and recommends the compen-
sation of the Managers who are not interested persons of the Fund. Mr. MacLure
currently serves as chairman of the Contract Review and Goverance Committee.
BOARD COMPENSATION. The Fund does not pay any remuneration to officers or
Managers who are interested persons of the Fund. Until May 1, 1995, each Man-
ager who was not an interested person of the Fund received, in the aggregate
for serving on the boards of the Fund, New England Zenith Fund ("Zenith") and
21 of the other mutual fund portfolios in the New England group of mutual
funds (the "New England Funds"), a retainer fee at the annual rate of $40,000
and meeting attendance fees of $2,500 for each meeting of the boards he or she
attended and $1,500 for each meeting he or she attended of a committee of the
board of which he or she is a member. Each committee chairman received an ad-
ditional retainer fee at the annual rate of $2,500. These fees described in
this paragraph were allocated among the Fund, the series of Zenith, and the
New England Funds based on a formula that took into account, among other fac-
tors, the net assets of each fund.
Beginning May 1, 1995, each Manager who is not an interested person of the
Fund receives a retainer fee at the annual rate of $20,000 and an attendance
fee of $2,000 for each board meeting attended. In addition, the chairman of
the Contract Review and Governance Committee receives a retainer at the annual
rate of $3,000, and the chairman of the Audit Committee receives a retainer at
the annual rate of $2,000. Also in 1995, each Manager who is not an interested
person received a special, one-time fee of $5,000 relating to the services of
the board in conjunction with the restructuring of the boards of the Fund, Ze-
nith and the New England Funds. These fees are allocated among the Fund and
the series of Zenith based on a formula that takes into account, among other
factors, the net assets of each fund.
- -------
*Indicates a Board member or officer who is deemed an "interested person" as
defined by the Investment Company Act of 1940 (the "1940 Act").
II-5
<PAGE>
During the fiscal year ended December 31, 1995, the persons who were then
Managers of the Fund received the amounts set forth below for serving as a
Manager of the Fund and for also serving on the governing boards of Zenith and
the New England Funds. As of December 31, 1995, there were a total of 14 se-
ries of Zenith and 21 New England Funds.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM THE FUND,
AGGREGATE ZENITH AND
COMPENSATION NEW ENGLAND
FROM THE FUND IN FUNDS IN
NAME OF MANAGER 1995 1995
--------------- ---------------- --------------
<S> <C> <C>
Kenneth J. Cowan................................ $ 554 $69,292
Nancy Hawthorne................................. 2,026 26,333
Joseph M. Hinchey............................... 2,792 50,125
Richard S. Humphrey, Jr. ....................... 2,663 48,167
Robert B. Kittredge............................. 2,621 78,667(a)
Laurens MacLure................................. 2,801 81,500(a)
Dale Rogers Marshall............................ 2,026 26,333
Sandra O. Moose................................. 495 56,250
James H. Scott.................................. 537 59,000
John A. Shane................................... 495 63,000
Joseph F. Turley................................ 2,663 48,167
Pendleton P. White.............................. 495 63,000
</TABLE>
- -------
(a) Also includes compensation paid by the 5 CGM Funds, a group of mutual
funds for which Capital Growth Management Limited Partnership, the
investment adviser of the Fund, serves as investment adviser.
- -------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
- -------------------------------------------------------------------------------
Advisory Agreement. Capital Growth Management Limited Partnership ("CGM"),
One International Place, Boston, Massachusetts, serves as investment adviser
to the Fund under an advisory agreement dated September 1, 1993. CGM has
served as investment adviser since March 1, 1990. Prior to March 1, 1990, the
Fund was managed by Loomis Sayles & Company, Incorporated ("Loomis Sayles"),
whose Capital Growth Management Division was reorganized into CGM on that
date. CGM is a limited partnership whose sole general partner is Kenbob, Inc.,
a corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner. CGM
provides discretionary investment management services to mutual funds and
other clients.
CGM, subject to the supervision of the Fund's Board of Managers, manages the
investment and reinvestment of Fund assets. For providing such services, the
Fund pays CGM an annual fee of .3066% of the average net assets of the Fund
(which excludes any accrued tax liabilities and reserves for taxes arising
from the income and realized and unrealized capital gains on the assets of the
Fund). This is the same fee that Loomis Sayles received under the previous ad-
visory agreement. This fee is computed on a daily basis and is payable month-
ly. During the years ended December 31, 1993, 1994 and 1995, the Fund paid CGM
advisory fees of $184,658, $173,070 and $175,101.
The advisory agreement provides that it shall continue in effect for an ini-
tial term of two years from the date of its execution and thereafter from year
to year so long as its continuance is approved at least annually by (i) the
Board of Managers of the Fund or by the affirmative vote of a majority of the
votes which may be cast by all Contractholders ("majority vote of the
Contractholders") and (ii) by the vote of a majority of the Board of Managers
who are not interested persons of the Fund or of CGM, cast at a meeting called
for that purpose. (Majority vote of the Contractholders means 67% or more of
the votes present (in person or by proxy) and entitled to be cast if
Contractholders entitled to cast more than 50% of the outstanding votes of the
Fund are present (in person or by proxy), or more than 50% of all votes which
are entitled to be cast by all Contractholders of the Fund, whichever is
less.) Any amendment to the advisory agreement must be approved by majority
vote of the Contractholders and by vote of a majority of the Managers who are
II-6
<PAGE>
not such interested persons. The agreement may be terminated without penalty
by the Board of Managers or the Contractholders upon 60 days' written notice
to CGM or by CGM upon 90 days' written notice to the Fund, and it terminates
automatically in the event of its assignment. In addition, the agreement will
automatically terminate if the Fund shall at any time be required by the Com-
pany to eliminate all reference to the phrase "New England" in its name, un-
less the continuance of the agreement after such change of name is approved by
majority vote of the Contractholders and by a majority of the Managers who are
not interested persons of the Fund or CGM. The agreement also provides that
CGM shall not be subject to any liability in connection with the performance
of its services thereunder in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations or duties.
CGM has individual and institutional clients besides the Fund, including
other investment company portfolios, CGM American Tax Free Fund, CGM Capital
Development Fund, the CGM Mutual Fund and the CGM Fixed Income Fund, the CGM
Realty Fund, the New England Growth Fund, a series of New England Funds Trust
I, and the Capital Growth Series of New England Zenith Fund.
Various managers of the Fund also serve as officers, directors, or trustees
of other investment companies advised by CGM or of other corporate or fidu-
ciary clients of CGM. Such clients include some accounts of the Company and
its affiliates ("The New England accounts"). The other investment companies
and clients served by CGM sometimes invest in securities in which the Fund
also invests. If the Fund and such other investment companies, or clients ad-
vised by CGM (including The New England accounts) desire to buy or sell the
same portfolio securities at about the same time, purchases and sales will be
allocated to the extent practicable on a pro rata basis in proportion to the
amounts desired to be purchased or sold for each. It is recognized that in
some cases the practices described in this paragraph could have a detrimental
effect on the price or amount of the securities which the Fund purchases or
sells. In other cases, however, it is believed that these practices may bene-
fit the Fund. It is the opinion of the Board of Managers that the desirability
of retaining CGM as adviser to the Fund outweighs the disadvantages, if any,
which might result from these practices.
New England Investment Companies, L.P. ("NEIC, L.P."), owns a 50% limited
partnership interest in CGM. The Company owns a majority limited partnership
interest in NEIC, L.P. and a 100% interest in NEIC, L.P.'s sole general part-
ner, New England Investment Companies, Inc.
Administrative Agreement. Under the terms of an administrative agreement be-
tween the Fund and the Company, the Company furnishes or bears the expense of
all legal, actuarial and accounting services, office space, facilities and
equipment, services of executive and other personnel and all other administra-
tive services necessary or appropriate to carry on the various functions of
the Fund, but not including expenses attributable to sales activities, which
are covered by the distribution agreement between the Fund and New England Se-
curities. As compensation, the Company retains the deduction for administra-
tive expenses described in the prospectus under the heading "Deductions from
Purchase Payments for Sales and Administrative Services and Premium Taxes."
For the years 1993, 1994 and 1995 this deduction amounted to $16,679, $12,468
and $8,245, respectively.
Under the provisions of the administrative agreement and the contracts, the
following items are payable directly by the Fund: (a) any taxes paid or re-
served for, arising from the income and realized and unrealized capital gains
and assets of the Fund, (b) fees for mortality and expense risks assumed and
for investment advisory services, (c) brokerage commissions and taxes, if any,
in connection with the purchase or sale of the Fund's portfolio securities,
and (d) fees and expenses of the Board of Managers, including the auditing of
Fund assets.
Distribution Agreement. New England Securities serves as principal under-
writer for the Fund pursuant to a distribution agreement among the Fund, the
Company and New England Securities. The agreement does not obligate New En-
gland Securities to sell a specific number of contracts. The Company retains
the deduction for sales expenses described in the prospectus under the heading
"Deductions from Purchase Payments for Sales and Administrative Services and
Premium Taxes". For the years 1993, 1994 and 1995, these deductions amounted
to $50,146, $33,847 and $21,952, respectively.
II-7
<PAGE>
New England Securities also serves as principal underwriter to New England
Retirement Investment Account, The New England Variable Account, New England
Variable Life Separate Account, New England Variable Annuity Separate Account
and New England Zenith Fund.
Safekeeping of Securities. The Fund maintains custody of its securities pur-
suant to a safekeeping and services agreement with State Street Bank and Trust
Company ("State Street Bank"), 225 Franklin Street, Boston, Massachusetts
02110. Eligible securities of the Fund are held on deposit with The Depository
Trust Company. The safekeeping agreement differs from the typical forms of mu-
tual fund custodian agreements in that the responsibilities of the bank are
less. For example, the Company, under its administrative agreement with the
Fund, retains substantially more flexibility in dealing with cash balances and
has much greater responsibility for pricing in the context of contract sales
and redemptions. The Company bears State Street Bank's costs under the safe-
keeping and services agreement in accordance with the terms of the administra-
tive agreement with the Fund.
Independent Accountants. The Fund's independent accountants are Coopers &
Lybrand L.L.P., One International Place, Boston, Massachusetts 02110. Coopers
& Lybrand L.L.P. conducts an annual audit of the Fund's financial statements,
conducts an examination of securities owned by the Fund and held pursuant to
the safekeeping agreement, and consults with the Company's financial personnel
on current accounting and financial matters relating to the Fund.
- -------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
- -------------------------------------------------------------------------------
In buying and selling portfolio securities for the Fund, CGM always seeks the
best price and execution. Transactions in unlisted securities are carried out
through brokers or dealers who make the primary market for such securities un-
less, in the judgment of CGM, a more favorable price can be obtained by carry-
ing out such transactions through other brokers or dealers.
CGM selects only brokers which it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling
the order and will charge commission rates which, when combined with the qual-
ity of the foregoing services, will produce the best price and execution for
the transaction. This does not necessarily mean that the lowest available bro-
kerage commissions will be paid. However, the commissions are believed to be
competitive with generally prevailing rates. CGM will use its best efforts to
obtain information as to the general level of commission rates being charged
by the brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and exe-
cution of the order, as well as the amount of the capital commitment by the
brokers in connection with the order, are taken into account. The Fund will
not pay a broker a commission at a higher rate than otherwise available for
the same transaction in recognition of the value of research services provided
by the broker or in recognition of the value of any other services provided by
the broker which do not contribute to the best price and execution of the
transaction.
Receipt of research services from brokers may sometimes be a factor in se-
lecting a broker which CGM believes will provide best price and execution for
a transaction. These research services include not only a wide variety of re-
ports on such matters as economic and political developments, industries, com-
panies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible
to assign an exact dollar value to these services, they may, to the extent
used, tend to reduce CGM's expenses. These services may be used by CGM in ser-
vicing other client accounts and in some cases may not be used with respect to
the Fund. Receipt of services or products other than research from brokers is
not a factor in the selection of brokers.
In 1995, brokerage transactions for the Fund aggregating $220,836,003 were
allocated to brokers providing research services and $279,085 in commissions
were paid on these transactions. During 1994 and 1995 the Fund paid total bro-
kerage fees of $227,203 and $317,889, respectively.
II-8
<PAGE>
- -------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS
- -------------------------------------------------------------------------------
New England Securities Corporation, a subsidiary of the Company, is the prin-
cipal underwriter of the contracts. The contracts are no longer offered for
sale, but contract owners may make ongoing purchase payments under the Fund's
flexible purchase payment contracts. The Company's life insurance agents and
insurance brokers who are registered representatives of New England Securities
service the contracts. The Company pays commissions, none of which are re-
tained by New England Securities, to the registered representatives who have
sold the contracts. In 1993, 1994 and 1995, The New England paid commissions
to those registered representatives with respect to ongoing purchase payments
under the contracts in the amounts of $83,565, $42,665 and $39,551, respec-
tively.
- -------------------------------------------------------------------------------
CALCULATION OF PERFORMANCE DATA
- -------------------------------------------------------------------------------
As set forth in the prospectus under "Fund Performance," the Fund's Annual
and Semi-Annual Reports show the percentage change in unit value of the Fund
without reflecting the impact of any sales and administrative charges. (The
Annual and Semi-Annual Reports also illustrate the Fund's Average Annual Total
Return, which does reflect the deduction of sales and administration charges.)
The percent change in unit value represents what the increase in contract
value would be for a Contractholder who did not make any Purchase Payments or
surrenders during the year. The percentage change in unit value is shown for
every calendar year since inception of the Fund to the date of the report and
for 15, 10, 5 and 1 year periods ending with the date of the report. The per-
centage change is calculated by dividing the difference in unit values at the
beginning and end of the period by the beginning unit value.
The following percentage change in unit value figures appear in the Fund's
Annual Report for the year ended December 31, 1995.
Percent Change in Unit Value
<TABLE>
<S> <C>
24 years, 9 months ended December 31, 1995............................. 1,327.7%
15 years ended December 31, 1995....................................... 766.1%
10 years ended December 31, 1995....................................... 242.5%
5 years ended December 31, 1995....................................... 97.1%
1 year ended December 31, 1995........................................ 38.9%
</TABLE>
II-9
<PAGE>
ANNUAL PERCENT CHANGE IN UNIT VALUE
SINCE FUND INCEPTION
<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
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
</TABLE>
- -------------------------------------------------------------------------------
ANNUITY PAYMENTS
- -------------------------------------------------------------------------------
When a variable payment option is selected, the contract proceeds will be ap-
plied at annuity purchase rates, which vary depending on the particular option
selected and the age of the payee (and, where sex-neutral annuity rates are
not applicable, on the sex of the payee when the payment option selected in-
volves a life contingency). The impact of the choice of option and the sex and
age of the payee on the level of annuity payments is described in the prospec-
tus under "Variable Payment Options."
The amount of the basic payment level is determined by applying the applica-
ble annuity purchase rate to the amount applied to provide the annuity. This
basic payment level is converted into annuity units, the number of which re-
mains constant. Each monthly annuity payment is in an amount equal to that
number of annuity units multiplied by the value of the applicable annuity unit
as of the date of payment. The values of annuity units will change from day to
day, depending upon the investment performance of the Fund.
The selection of an assumed interest rate will affect both the basic payment
level and the amount by which subsequent payments increase or decrease. The
basic payment level is calculated on the assumption that the Net Investment
Factors (discussed below) applicable to the contract will be equivalent on an
annual basis to a net investment return at the assumed interest rate. If this
assumption is met following the date any payment is determined, then the
amount of the next payment
II-10
<PAGE>
will be exactly equal to the amount of the preceding payment. If the actual
Net Investment Factors are equivalent to a net investment return greater than
the assumed interest rate, the next payment will be larger than the preceding
one; if the actual Net Investment Factors are equivalent to a net investment
return smaller than the assumed interest rate, then the next payment will be
smaller than the preceding payment. The definition of the assumed interest
rate, and the effect of the level of the assumed interest rate on the amount
of monthly payments, is explained in the prospectus under "Variable Payment
Options."
The number of annuity units credited under a variable payment option is de-
termined as follows:
(1) The proceeds under a deferred contract, or the Net Purchase Payment under
an immediate contract, are applied at the Company's annuity purchase rates for
the selected assumed interest rate to determine the basic payment level.
(2) The number of annuity units is determined by dividing the amount of the
basic payment level by the applicable annuity unit value next determined fol-
lowing the application of proceeds (in the case of a deferred contract) or Net
Purchase Payment (in the case of an immediate contract).
The dollar amount of the initial payment will be at the basic payment level
(if, in the case of an immediate contract, the payment is due not later than
14 days after the Net Purchase Payment is applied). The dollar amount of each
subsequent payment is determined by multiplying the number of annuity units by
the applicable annuity unit value which is determined at least 14 days before
the payment is due.
The value of an annuity unit depends on the assumed interest rate and on the
Net Investment Factor applicable at the time of valuation. The Net Investment
Factor, and thus changes in the value of an annuity unit under a variable pay-
ment option, reflect daily deductions for investment advisory services and
mortality and expense risks. (See "Net Investment Factor" below.) The initial
annuity unit values were set at $1.00 effective on the date on which assets
were first placed in the Fund.
The annuity unit value for any day is equal to the corresponding annuity unit
value previously determined multiplied by the applicable Net Investment Factor
for the New York Stock Exchange trading day then ended, and further multiplied
by the assumed interest factor for each day since the annuity unit value was
last determined. The assumed interest factor represents the daily equivalent
of the contract's annual assumed interest rate. In the calculation of annuity
unit values, the assumed interest factor has the effect of reducing the Net
Investment Factor by an amount equal to the daily equivalent of the contract's
assumed interest rate. The result of this adjustment is that if the Net In-
vestment Factor for a valuation period is greater (when expressed as an annual
net investment return) than the assumed interest rate, the annuity unit value
will increase. If the Net Investment Factor for the period is less (when ex-
pressed as an annual net investment return) than the assumed interest rate,
the annuity unit value will decrease. At an assumed interest rate of 3.5% the
assumed interest factor is .9999058. Assumed interest factors for other as-
sumed interest rates are computed on a consistent basis.
- -------------------------------------------------------------------------------
NET INVESTMENT FACTOR
- -------------------------------------------------------------------------------
The Net Investment Factor for the Fund is determined on each day on which the
New York Stock Exchange is open for trading (a "Trading Day") as follows:
On each Trading Day a Gross Investment Rate is determined from the investment
performance of the Fund since the close of regular trading on the New York
Stock Exchange on the preceding Trading Day. This rate may be positive or neg-
ative and is equal to:
i. The investment income since the close of regular trading on the New York
Stock Exchange on the preceding Trading Day, plus capital gains minus capital
losses for the same period, whether realized or unrealized, less deductions
for: (a) any taxes paid or reserved for, arising from the income and realized
and unrealized capital gains on assets of the Fund, (b) brokerage commissions
and taxes, if any, in connection with the purchase or sale of the Fund's port-
folio securities, and (c) fees and expenses of the Board of Managers, divided
by
II-11
<PAGE>
ii. The value of the total assets of the Fund as of the close of regular
trading on the New York Stock Exchange on the preceding Trading Day less any
assets set aside as a provision for taxes and accrued expenses described in i.
above.
The Net Investment Factor is equal to the sum of this Gross Investment Rate
and 1.0000000, less the following deductions from net assets for each day
since the close of regular trading on the New York Stock Exchange on the pre-
ceding Trading Day:
i. For deferred contracts: .00344% (1.2556% on an annual basis consisting of
.3066% for investment advisory services and .8395% for mortality risk assump-
tions plus .1095% for expense risk assumptions made by the Company).
ii. For immediate contracts: .00274% (1.0001% on an annual basis consisting
of .3066% for investment advisory services and .5840% for mortality risk as-
sumptions plus .1095% for expense risk assumptions made by the Company).
The Net Investment Factor may be less than 1.0000000.
- -------------------------------------------------------------------------------
EXPERTS
- -------------------------------------------------------------------------------
The financial statements of the Fund and of the Company included in this
Statement of Additional Information and the information in the Prospectus con-
cerning selected per unit data and ratios have been included herein in reli-
ance on the report of Coopers & Lybrand L.L.P., independent accountants, given
on the authority of that firm as experts in accounting and auditing.
II-12
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Managers and the Contract Owners of New England Variable
Annuity Fund I
We have audited the accompanying statement of assets and liabilities of New
England Variable Annuity Fund I, including the schedule of portfolio invest-
ments, as of December 31, 1995, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and selected per unit data and ratios for
each of the five years in the period then ended. These financial statements
and selected per unit data and ratios are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and selected per unit data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected per
unit data and ratios are free of material misstatement. An audit includes ex-
amining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and bro-
kers. An audit also includes assessing the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, the financial statements and selected per unit data and ra-
tios referred to above present fairly, in all material respects, the financial
position of New England Variable Annuity Fund I as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net as-
sets for each of the two years in the period then ended, and selected per unit
data and ratios for each of the five years in the period then ended, in con-
formity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 5, 1996
II-13
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in common stocks at market (average cost
$51,531,314)(Note 1)........................................... $ 60,125,763
------------
Total investments............................................ 60,125,763
------------
Receivable for investments sold................................. 1,847,293
Dividends and interest receivable............................... 97,719
Receivable from contractholders................................. 297
------------
Total assets................................................. 62,071,072
------------
LIABILITIES
Payable for investments purchased............................... 1,065,223
Payable for investment advisory fees (Note 3)................... 15,126
Payable for mortality and expense risks (Note 4)................ 46,386
Payable for other direct expenses............................... 34,823
Payable to contractholders...................................... 3,800
Payable to bank................................................. 322,469
------------
Total liabilities............................................ 1,487,827
------------
NET ASSETS....................................................... $60,583,245
============
Net assets attributable to
variable annuity contractholders 3,399,132 accumulation units at
$16.52 per unit................................................. $56,164,756
Annuity reserves (Note 1)....................................... 4,418,489
------------
$ 60,583,245
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 1)
INCOME
Dividends....................................................... $ 921,123
Interest........................................................ 41,431
------------
Total income.................................................. 962,554
------------
EXPENSES
Mortality and expense risks (Notes 1 and 4)..................... 537,004
Investment advisory fee
(Note 3)....................................................... 175,101
Other direct expenses
(Note 3)....................................................... 52,649
------------
Total expenses................................................ 764,754
------------
INVESTMENT INCOME-NET............................................ 197,800
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 2)
Realized net gain from investments sold....................... 10,912,465
Change in unrealized appreciation of investments................ 7,289,902
------------
Net gain on investments....................................... 18,202,367
------------
Net increase in net assets resulting from operations.............. $18,400,167
============
</TABLE>
II-14
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net.............................. $ 197,800 $ 605,310
Realized net gain from investments sold............. 10,912,465 3,522,339
Change in unrealized appreciation or depreciation of
investments........................................ 7,289,902 (8,335,515)
----------- -----------
Net increase (decrease) in net assets resulting from
operations......................................... 18,400,167 (4,207,866)
----------- -----------
CHANGES FROM PRINCIPAL TRANSACTIONS
Purchase payments, less sales and administrative
expenses and applicable premium taxes (Note 3)..... 312,538 533,058
Contract terminations............................... (8,858,774) (5,037,786)
Annuity payments.................................... (537,648) (431,578)
Adjustments to annuity reserves (Note 1)............ 11,172 79,368
----------- -----------
Decrease in net assets derived from principal
transactions....................................... (9,072,712) (4,856,938)
----------- -----------
Total increase (decrease)........................... 9,327,455 (9,064,804)
NET ASSETS
Beginning of year................................... 51,255,790 60,320,594
----------- -----------
End of year......................................... $60,583,245 $51,255,790
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-15
<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
ratios are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $11.90 $12.85 $11.58 $11.84 $ 8.38
--------- --------- --------- --------- ---------
Per unit data
Investment income......... .24 .29 .16 .25 .24
Expenses.................. .19 .16 .15 .14 .13
--------- --------- --------- --------- ---------
Investment income-net..... .05 .13 .01 .11 .11
Net realized and
unrealized gain (loss) on
investments.............. 4.57 (1.08) 1.26 (.37) 3.35
--------- --------- --------- --------- ---------
Net increase (decrease) in
net asset value.......... 4.62 (.95) 1.27 (.26) 3.46
--------- --------- --------- --------- ---------
Net Asset Value, end of
period................... $16.52 $11.90 $12.85 $11.58 $11.84
========= ========= ========= ========= =========
Total Return (%)........... 38.9 (7.4) 11.0 (2.2) 41.2
Ratios
Ratio of operating
expenses to average net
assets (%)............... 1.35 1.26 1.26 1.25 1.26
Ratio of investment
income-net to average net
assets (%)............... .34 1.06 .11 .98 1.11
Portfolio turnover (%)..... 228.26 139.43 154.15 171.55 157.43
Number of accumulation
units outstanding at end
of period................. 3,399,132 4,038,331 4,410,741 5,103,553 5,499,204
</TABLE>
II-16
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
New England Variable Annuity Fund I (the "Fund") is registered under the In-
vestment Company Act of 1940, as amended, as a diversified, open-end manage-
ment 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 se-
curities exchange or on the NASDAQ national market system are valued at their
last reported sales prices on the principal exchange, on December 31, 1995, or
if there was no reported sale during the day and for over-the-counter securi-
ties 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 exe-
cuted), and dividend income is recorded on the ex-dividend date. Interest in-
come 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 opera-
tions 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 un-
der 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 con-
tracts according to the Progressive Annuity Mortality Table. The assumed in-
terest 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 re-
imbursed to the Insurance Company if the reserves required are less than orig-
inally 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 year ended December 31, 1995 were
$127,880,425 and $136,039,230, 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 year ended December 31, 1995, the Fund incurred investment manage-
ment fees of $175,101, 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 year ended December 31, 1995,
amounted to $21,952 and $8,245, respectively, were retained by the Insurance
Company.
Commencing January 1, 1995, the audit and trustee fees are no longer borne by
the Insurance Company, these expenses amounted to $52,649 for the year ended
December 31, 1995.
II-17
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
4. MORTALITY AND EXPENSE RISKS AND DEDUCTIONS
Although variable annuity payments differ according to the investment perfor-
mance 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 assum-
ing those risks. During 1995, the mortality and expense risk charges totaled
$537,004.
The expense risk assumed by the Insurance Company is the risk that the deduc-
tions for sales and administrative expenses and for investment advisory serv-
ices 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 contingen-
cies are chosen. Those annuity payments are determined in accordance with an-
nuity purchase rate provisions established at the time the contracts are is-
sued.
Under deferred annuity contracts, the Insurance Company also assumes a mini-
mum 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 ab-
sorbs 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 Insur-
ance Company and one of those is an officer of the principal underwriter.
6. INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Units purchased.......................................... 23,935 42,915
Units redeemed........................................... (663,134) (415,325)
--------- ---------
Net decrease............................................ (639,199) (372,410)
Units at beginning of year................................ 4,038,331 4,410,741
--------- ---------
Units at end of year...................................... 3,399,132 4,038,331
========= =========
</TABLE>
II-18
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
INVESTMENTS AS OF DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
COMMON STOCKS--99.2% OF TOTAL NET ASSETS
<CAPTION>
VALUE
SHARES (NOTE 1)
------ ----------
<C> <S> <C>
AEROSPACE--5.9%
46,000 Boeing Co.................................................. $3,605,250
----------
AEROSPACE/DEFENSE--2.0%
15,000 Lockheed Martin Corp....................................... 1,185,000
----------
AIRLINES--10.1%
9,500 AMR Corp.*................................................. 705,375
46,000 Northwest Airlines Corp.*.................................. 2,346,000
17,200 UAL Corp.*................................................. 3,070,200
----------
6,121,575
----------
BANKS--MONEY CENTER--13.2%
65,000 Chemical Banking Corp...................................... 3,818,750
62,000 Citicorp................................................... 4,169,500
----------
7,988,250
----------
BEVERAGES & TOBACCO--4.6%
50,000 PepsiCo, Inc............................................... 2,793,750
----------
CHEMICALS--MAJOR--2.2%
25,000 Air Products and Chemicals, Inc............................ 1,318,750
----------
COMPUTER SOFTWARE & SERVICES--4.6%
33,000 Computer Associates International, Inc..................... 1,876,875
13,000 Computer Sciences Corp.*................................... 913,250
----------
2,790,125
----------
DRUGS & MEDICINE--13.1%
59,200 Eli Lilly & Company........................................ 3,330,000
51,000 Merck & Co., Inc........................................... 3,353,250
20,000 Pfizer, Inc................................................ 1,260,000
----------
7,943,250
----------
FINANCIAL SERVICES--1.9%
17,300 First Data Corp............................................ 1,156,938
----------
FOOD--RETAILERS/WHOLESALERS--5.5%
37,000 Philip Morris Companies, Inc............................... 3,348,500
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ -----------
<C> <S> <C>
FREIGHT--TRANSPORTATION--5.0%
38,500 Burlington Northern Santa Fe Corp........................ $ 3,003,000
-----------
HOME PRODUCTS & COSMETIC--4.0%
29,000 Procter & Gamble Co...................................... 2,407,000
-----------
INSURANCE--11.8%
80,000 Allstate Corp............................................ 3,290,000
41,700 American International Group, Inc........................ 3,857,250
-----------
7,147,250
-----------
MACHINERY--1.7%
30,000 Deere & Co............................................... 1,057,500
-----------
MISCELLANEOUS--5.6%
36,000 United Technologies Corp................................. 3,415,500
-----------
RETAIL--8.0%
56,500 May Department Stores Co................................. 2,387,125
63,000 Sears, Roebuck & Co...................................... 2,457,000
-----------
4,844,125
-----------
TOTAL COMMON STOCKS
(average cost $51,531,314)............................... 60,125,763
-----------
TOTAL INVESTMENTS--99.2%
(average cost $51,531,314)............................... 60,125,763
-----------
Receivable for investments sold.......................... 1,847,293
Dividends and interest receivable........................ 97,719
Receivable from contractholders.......................... 297
Liabilities.............................................. (1,487,827)
-----------
TOTAL NET ASSETS--100%................................... $60,583,245
===========
* Non-income producing security.
</TABLE>
II-19
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors and Policyholders of New England Mutual Life
Insurance Company:
We have audited the accompanying balance sheets of New England Mutual Life
Insurance Company as of December 31, 1995 and 1994, and the related statements
of operations, surplus, and cash flows for the years then ended. These finan-
cial statements are the responsibility of the Company's management. Our re-
sponsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Mutual Life In-
surance Company as of December 31, 1995 and 1994, and the results of its oper-
ations and its cash flows for the years then ended in conformity with the ac-
counting practices prescribed or permitted by the Division of Insurance of The
Commonwealth of Massachusetts, which are considered generally accepted ac-
counting principles for mutual life insurance companies.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 5, 1996
II-20
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
---- ----
<S> <C> <C>
Assets
Bonds................................................ $ 6,079,832 $ 6,274,558
Stocks............................................... 121,411 98,730
Unconsolidated subsidiaries.......................... 693,694 484,066
Mortgage loans....................................... 1,629,277 1,997,939
Real estate.......................................... 951,175 1,173,360
Policy loans......................................... 1,350,409 1,341,566
Cash and short-term investments...................... 651,147 264,761
Other invested assets................................ 128,818 151,918
Premiums deferred and uncollected.................... 190,786 217,247
Investment income due and accrued.................... 281,548 252,507
Separate Account assets.............................. 4,091,837 3,388,380
Other assets......................................... 91,203 107,800
----------- -----------
Total Assets....................................... $16,261,137 $15,752,832
=========== ===========
Liabilities
Reserves for life and health insurance and annuities. $ 8,116,567 $ 7,961,229
Policy proceeds and dividends........................ 466,762 417,785
Dividends due to policyholders....................... 209,958 208,206
Premium deposit funds................................ 1,864,970 2,149,863
Other policy liabilities............................. 89,735 135,469
Investment valuation reserves........................ 429,488 361,917
Separate Account liabilities......................... 4,064,094 3,358,062
Other liabilities.................................... 395,570 528,151
----------- -----------
Total Liabilities.................................. 15,637,144 15,120,682
Surplus
Special contingency reserves......................... 50,020 68,401
Surplus notes........................................ 147,615 147,593
Unassigned funds..................................... 426,358 416,156
----------- -----------
Total Surplus...................................... 623,993 632,150
----------- -----------
Total Liabilities and Surplus.................... $16,261,137 $15,752,832
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-21
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Income
Premiums, annuity
considerations and
deposit funds............ $1,679,024 $1,943,013
Considerations for
supplementary contracts
and dividend
accumulations............ 165,777 39,940
Net investment income..... 758,152 720,342
Other income.............. 155,211 141,488
------------ ------------
Total................... 2,758,164 2,844,783
Benefits and Expenses
Benefit payments (other
than dividends)............ 2,186,318 2,055,714
Changes to reserves,
deposit funds and other
policy liabilities....... (151,115) (181,714)
Insurance expenses and
taxes (other than federal
income and capital gains
taxes)................... 404,385 429,225
Net transfers to Separate
Accounts................. (64,297) 230,170
------------ ------------
Total benefits and
expenses before
dividends to
policyholders.......... 2,375,291 2,533,395
------------ ------------
Net gain from operations
before dividends to
policyholders and federal
income taxes............... 382,873 311,388
Dividends to
policyholders............ 211,444 207,636
------------ ------------
Net gain from operations
before federal income
taxes...................... 171,429 103,752
Federal income taxes
(excluding tax on capital
gains)................... 12,873 15,725
------------ ------------
Net gain from operations.... 158,556 88,027
Net realized capital
(loss)................... (98,711) (45,761)
------------ ------------
Net Income.................. $ 59,845 $ 42,266
============ ============
</TABLE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF SURPLUS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Surplus--beginning of year.. $ 632,150 $ 400,908
Net Income.................. 59,845 42,266
Surplus notes............... 22 147,593
Other changes to surplus.... (68,024) 41,383
------------ ------------
Surplus--end of year........ $ 623,993 $ 632,150
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-22
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1995 1994
---- ----
<S> <C> <C>
From Operating Activities
Premiums.................. $ 1,727,665 $ 1,920,516
Net investment income..... 765,781 728,010
Benefits.................. (2,220,990) (2,040,816)
Net transfers to Separate
Account.................. 45,275 (226,900)
Expenses and taxes........ (467,797) (445,181)
Policyholder dividends.... (213,599) (220,970)
Net (increase) in policy
loans.................... (8,843) (20,252)
Other income and disburse-
ments, net............... 380,498 (184,806)
----------- -----------
Net Cash Flow from
Operating Activities... 7,990 (490,399)
----------- -----------
From Investing Activities
Proceeds from investments
sold, matured, or repaid. 3,654,321 3,220,146
Cost of investments ac-
quired................... (3,178,367) (3,307,124)
----------- -----------
Net Cash Flow from
Investing Activities... 475,954 (86,978)
----------- -----------
From Financing Activities
Issuance of Surplus Notes. -- 147,593
Issuance of Floating Rate
Notes Payable............ -- 125,000
Issuance of 6% Demand Note
Payable.................. 26,784 --
Repayment of Floating Rate
Notes Payable............ (124,338) --
Net Commercial Paper Ac-
tivity................... (4) (41)
----------- -----------
Net Cash Flow from
Financing Activities... (97,558) 272,552
----------- -----------
Net Cash Flow............... 386,386 (304,825)
Cash and Short-term Invest-
ments
Beginning of year......... 264,761 569,586
----------- -----------
End of year............... $ 651,147 $ 264,761
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-23
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
New England Mutual Life Insurance Company offers a complete line of ordinary
life insurance products, group pension contracts, group life and health con-
tracts, and, through its affiliates, variable life insurance and annuity prod-
ucts, mutual funds, and investment management products. Based on sales and as-
sets, the company's principal market is ordinary and variable life insurance,
which it sells through a network of general agencies located throughout the
United States.
Basis of Presentation
The Company prepares its statutory financial statements, except as to form,
in accordance with accounting practices prescribed or permitted by the Divi-
sion of Insurance of The Commonwealth of Massachusetts. Prescribed statutory
accounting practices include a variety of publications of the National Associ-
ation of Insurance Commissioners (NAIC), as well as state laws, regulations,
and general administrative rules. Permitted accounting practices encompass all
accounting practices not so prescribed. Permitted and prescribed statutory ac-
counting practices are currently considered generally accepted accounting
principles (GAAP) for mutual life insurance companies.
The Financial Accounting Standards Board issued Interpretation 40, Applica-
bility of Generally Accepted Accounting Principles to Mutual Life Insurance
and Other Enterprises, and Statement of Financial Accounting Standards No.
120, Accounting and Reporting by Mutual Life Insurance Enterprises and by In-
surance Enterprises for Certain Long-Duration Participating Contracts. The
American Institute of Certified Public Accountants issued Statement of Posi-
tion 95-1, Accounting for Certain Insurance Activities of Mutual Life Insur-
ance Enterprises. Neither of these groups has a role in establishing regula-
tory accounting practices. These pronouncements will require mutual life in-
surance companies to modify their financial statements in order for them to
continue to be in accordance with generally accepted accounting principles,
effective for the Company's 1996 financial statements. The manner in which
policy reserves, new business acquisition costs, asset valuations and the re-
lated tax effects are recorded will change. Management has not determined the
impact of such changes on its financial statements.
Certain amounts from the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in accordance with permitted and pre-
scribed statutory accounting practices requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the report-
ing period. Actual results could differ from those estimates.
Invested Assets
Carrying values of bonds and stocks have been determined in accordance with
methods and values adopted by the National Association of Insurance
Commissioners (NAIC). Bonds are carried primarily at amortized cost, preferred
stocks at cost, and common stocks (other than stocks of non-publicly traded
subsidiaries) at fair value based upon NAIC market prices. The Company carries
its investment in New England Investment Companies, L.P., (NEIC) a 56% owned,
publicly traded Delaware limited partnership, at a 14% discount from quoted
market value. The discount is determined by the NAIC Securities Valuation
Office based on volume of trading, the existence of market overhang, and
similar trading characteristics. At December 31, 1995 and 1994, the Company's
investment in NEIC had a fair value of $439,188.8 thousand and $324,843.7
thousand, respectively, and a carrying value of $377,702.3 thousand and
$279,365.6 thousand, respectively.
II-24
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
Mortgage loans on real estate are carried at outstanding principal balance or
amortized cost. The Company establishes investment valuation reserves equal to
the amount by which the admitted value of each mortgage loan that has been
modified, is delinquent 90 days or more, or is in the process of modification,
exceeds the estimated fair value of its underlying collateral. These invest-
ment valuation reserves are adjusted annually based upon current valuations.
Investment real estate is carried at cost less accumulated depreciation and
encumbrances of $65,883.7 thousand in 1995 and accumulated depreciation and
encumbrances of $91,446.4 thousand in 1994. A loss reserve is established when
the fair value of the real estate is less than the carrying value, and the
loss is considered other than temporary, but not permanent. Losses considered
permanent are realized and any previously established loss reserve is re-
versed. Depreciation is computed principally using the straight-line method
over an average life of forty years.
Policy loans are carried at the aggregate of the unpaid balances. Policy
loans are an integral part of insurance products and have no maturity dates.
Consequently it is not practicable to value these instruments. Short-term in-
vestments are carried principally at cost, which approximates fair value, and
include securities with a maturity date at purchase of less than one year. In-
vestments in real estate joint ventures and unconsolidated subsidiaries, un-
less publicly traded, are valued using the equity method. Other long-term in-
vestments are carried principally at cost.
Prepayment assumptions for loan-backed bonds and structured securities were
obtained from investment advisors and are updated on a quarterly basis. These
assumptions are consistent with the current interest rate and economic envi-
ronment. The prospective method is used to value loan-backed securities.
Realized gains and losses on the sales of investments are determined on the
specific identification method. Unrealized gains and losses are accounted for
as increases or decreases in surplus.
Risk Management Instruments
Amounts receivable or payable under interest rate swaps used to manage inter-
est rate exposures from mismatches between assets and liabilities are recog-
nized as interest income or expense.
Gains and losses on hedges of existing assets or liabilities are deferred and
included in the carrying amounts of those assets or liabilities and are ulti-
mately recognized in income when resulting premiums or discounts are amortized
or at the time of disposal. Gains and losses related to qualifying hedges of
firm commitments or anticipated transactions also are deferred and are recog-
nized in income, or as adjustments of carrying amounts, when the hedged trans-
action occurs. Gains and losses on early termination of contracts that qualify
for hedge accounting are deferred and are amortized through the Interest Main-
tenance Reserve or as an adjustment to the yield of the related asset or lia-
bility.
Life, Health and Annuity Reserves
Reserves for life insurance policies are predominantly developed using the
1958 and 1980 Commissioners' Standard Ordinary Mortality Table on the Net
Level Premium Method or the Commissioners' Reserve Valuation Method with
assumed interest rates ranging from 2.5% to 6%.
Reserves for group annuities covering purchased benefits are based on
accepted actuarial methods principally at interest rates ranging from 2.75% to
11%. Where benefits have not as yet been purchased, the deposits represent the
accumulated fund balances (net of expenses and fixed surrender charges) at
various interest rates. Group pension and other deposits have a fair value of
$1.9 billion at December 31, 1995 and $2.2 billion at December 31, 1994 as
determined by applying discount rates consistent with pricing for Guaranteed
Investment Contracts to the projected cashflows for the deposits.
II-25
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
Approximately $5.1 billion or 69.4% of the $7.3 billion of gross annuity re-
serves and deposit liabilities in the General and Separate Accounts are sub-
ject to discretionary withdrawal with adjustment for market value or surrender
charges. Another $1.4 billion or 19.7% are not subject to withdrawal. The bal-
ance is subject to discretionary withdrawal without adjustment.
Recognition of Premium Revenue and Related Expenses
Premium revenue is recognized during the premium paying period. Commissions
and other expenses in connection with acquiring new business are charged to
current operations as incurred.
Policyholder Dividends
The Company determines the amount of dividends to be allocated to participat-
ing policies by means of a formula which establishes its dividend scale for
the following year with respect to each group of policies. A liability for the
dividends to be paid or credited to policyholders during the following year on
the anniversary date of the policies is established at each year-end.
Separate Account
Separate Account assets and liabilities represent funds administered and in-
vested by the Company for the benefit of certain pension and annuity contract-
holders. The values of the funds in the Separate Account are not guaranteed
but reflect the actual investment performance of the respective accounts. The
assets are carried at fair value.
Special Contingency Reserves
The Company has established a special purpose surplus fund for the possible
payment of Federal income taxes relating to future disposals of Separate Ac-
count real estate holdings.
Unconsolidated Subsidiaries
The Company records its equity in the earnings of unconsolidated subsidiaries
as unrealized gains or losses, which increases or decreases the Asset Valua-
tion Reserve, and records dividends that are not considered return of capital
in net investment income.
The Company owns 100% of the outstanding common stock of the following compa-
nies:
Boylston Capital Advisors, Inc.
COAC Co., Inc.
CRB Co., Inc.
CRH Companies, Inc.
Exeter Reassurance Company, Ltd.
L/C Development Corporation
New England Life Mortgage Funding Corporation
TNE Advisers, Inc.
New England Investment Companies, Inc.
G.A. Holdings Companies, Inc.
LC Park Place Corporation
TNE-Y Inc.
NEL Partnership Investments I, Inc.
NELRECO Troy, Inc.
II-26
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
New England Pension and Annuity Company
New England Securities Corporation
New England Variable Life Insurance Company
Newbury Insurance Company, Limited
TNE Information Services, Inc.
TNE Funding Corporation
DPA Holding Corp.
Lyon/Copley Corporation
Summarized financial data for unconsolidated subsidiaries at December 31,
1995 and 1994 is shown below:
<TABLE>
<CAPTION>
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Total assets at year-end.................................. $2,215,899 $1,927,666
Total liabilities at year-end............................. 1,534,131 1,450,576
Net income................................................ 41,209 9,082
Dividends paid by subsidiaries to the Company............. 36,098 38,645
</TABLE>
The Company owns 100% of the outstanding voting common stock and 0% of the
outstanding participating common stock of Omega Reinsurance Corporation.
The Company owns 56% of the outstanding partnership units of New England In-
vestment Companies, L.P.
Many of the Company's real estate joint ventures have mortgage loans with the
Company. The carrying values of such mortgages were $232,705.9 thousand and
$392,320.0 thousand at December 31, 1995 and 1994, respectively.
2. INVESTMENT RESERVES AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of valu-
ation and credit-related losses on unassigned surplus. The AVR covers all in-
vested asset classes with risk of loss, including bonds, common stock, mort-
gage loans and real estate.
The Interest Maintenance Reserve (IMR) accumulates realized capital gains and
losses on the sale of all types of fixed-income securities that result from
changes in the overall level of interest rates. These gains are amortized into
operating income over the remaining life of each investment sold. The IMR
amounted to $(1,857.7) thousand and $16,499.0 thousand as of December 31, 1995
and 1994, respectively. The negative balance of the IMR at December 31, 1995
was treated as a non-admitted asset. The amortization of the IMR into net in-
come net of federal income tax for 1995 and 1994 was $(2,674.1) thousand and
$3,662.8 thousand, respectively.
II-27
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
3. INVESTMENTS
The carrying value and estimated fair values of debt securities excluding
Separate Account assets are as follows:
<TABLE>
<CAPTION>
1995
-----------------------------------------
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- ----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of
U.S. government corporations and
agencies............................ $ 321,499 $ 11,051 $ (31) $ 332,519
Corporate securities................. 3,997,609 230,817 (32,341) 4,196,085
Mortgage-backed securities........... 1,205,213 26,344 (33,322) 1,198,235
Other debt securities................ 555,511 39,770 (7,377) 587,904
---------- -------- --------- ----------
Totals........................... $6,079,832 $307,982 $ (73,071) $6,314,743
========== ======== ========= ==========
<CAPTION>
1994
-----------------------------------------
GROSS UNREALIZED ESTIMATED
CARRYING ------------------ FAIR
VALUE GAINS LOSSES VALUE
-------- ----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies........... $ 462,454 $ 664 $ (29,775) $ 433,343
Corporate securities................. 3,727,336 22,776 (172,903) 3,576,209
Mortgage-backed securities........... 1,806,810 4,914 (221,908) 1,589,816
Other debt securities................ 277,958 1,608 (17,719) 261,847
---------- -------- --------- ----------
Totals........................... $6,274,558 $ 29,962 $(443,305) $5,861,215
========== ======== ========= ==========
</TABLE>
Publicly traded debt securities are valued based upon NAIC market prices. The
estimated fair values of private placement obligations are determined using an
internal matrix based on market interest rates, the credit rating of the spe-
cific security and public prices of similar securities.
The carrying value and estimated fair value of debt securities at December
31, 1995 by contractual maturity, are shown below. Stated maturities may dif-
fer from contractual maturities because some borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less.................................. $ 188,199 $ 188,759
Due after one year through five years.................... 914,580 944,466
Due after five years through ten years................... 2,079,678 2,184,390
Due after ten years...................................... 1,692,162 1,798,893
Mortgage-backed securities............................... 1,205,213 1,198,235
---------- ----------
Totals................................................. $6,079,832 $6,314,743
========== ==========
</TABLE>
Proceeds from sales of investments in debt securities were $2,046,539.2 thou-
sand and $1,489,158.0 thousand in 1995 and 1994, respectively. Gross realized
gains were $39,318.9 thousand and $5,832.2 thousand and gross realized losses
II-28
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
were $33,202.5 thousand and $35,633.3 thousand in 1995 and 1994, respectively.
Net realized losses of $(21,030.9) thousand and $(20,862.0) thousand in 1995
and 1994, respectively, were transferred to the IMR.
The carrying values and estimated fair values of stocks and mortgage loans at
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Stocks.............................. $ 121,411 $ 121,411 $ 98,730 $ 98,730
Mortgage loans...................... 1,629,277 1,527,422 1,997,939 1,740,571
</TABLE>
The estimated fair value of mortgage loans is determined using an internal
matrix based upon market interest rates and a credit rating system.
There are no significant concentrations of bonds by issuer or by industry.
As of December 31, 1995 and 1994 the Company's mortgage loans and real estate
were distributed as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
CARRYING VALUE % OF TOTAL CARRYING VALUE % OF TOTAL
-------------- ---------- -------------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Geographic Region
Pacific................... $ 839,372 32.5% $1,139,459 35.9%
South Atlantic............ 495,792 19.2 566,195 17.9
North Central............. 339,710 13.2 374,451 11.8
New England............... 323,721 12.6 380,677 12.0
Middle Atlantic........... 282,717 11.0 343,505 10.8
South Central............. 189,468 7.3 244,522 7.7
Mountain.................. 109,672 4.2 121,698 3.8
Other..................... -- -- 792 0.1
---------- ----- ---------- -----
Total................... $2,580,452 100.0% $3,171,299 100.0%
========== ===== ========== =====
Property Type
Office.................... $1,253,255 48.6% $1,600,891 50.5%
Industrial................ 730,475 28.3 891,248 28.1
Residential............... 350,743 13.6 377,058 11.9
Retail.................... 211,592 8.2 268,560 8.5
Hotel..................... 34,387 1.3 33,542 1.1
---------- ----- ---------- -----
Total................... $2,580,452 100.0% $3,171,299 100.0%
========== ===== ========== =====
</TABLE>
The Company's balance of restructured mortgage loans was $777,993.4 thousand
and $868,148.5 thousand as of December 31, 1995 and 1994, respectively. Inter-
est income which would have been recorded in accordance with the original
terms of these loans would have amounted to approximately $69,815.2 thousand
and $82,127.7 thousand in 1995 and 1994, respectively. Total income included
in net investment income for these loans was approximately $36,771.6 thousand
and $33,060.7 thousand in 1995 and 1994, respectively.
II-29
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
4. DERIVATIVES
Interest Rate Swaps
The Company enters into derivatives contracts, particularly interest rate
swaps, to hedge interest rate exposures arising from mismatched assets and li-
abilities. Under interest rate swaps, the Company agrees to exchange, at spec-
ified intervals, the difference between fixed-rate and floating-rate interest
amounts calculated on an agreed-upon notional principal amount. Because asset
durations have historically been shorter than liabilities, the Company gener-
ally agrees to pay a floating rate, to lengthen the duration of its assets.
Because the size of swap positions needed to reduce the impact of market fluc-
tuations on surplus varies over time, the Company may close out swap positions
or enter into swaps in which it receives the floating rate and pays the fixed
rate to reduce its net position.
At December 31, 1995, $646,800.1 thousand notional principal amount of such
pay-floating swaps and receive-fixed swaps was in effect. The original term to
maturity for these swaps is typically three to five years. The Company's cur-
rent credit exposure on swaps is limited to the value of interest rate swaps
that have become favorable to the Company. At December 31, 1995 and 1994, the
market value of interest rate swaps in a favorable position was $0 and $484.0
thousand, respectively, while the value of all positions was $31,506.2 thou-
sand $111,686.0 thousand unfavorable, respectively.
5. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
The Company's Home Office Retirement Plan and related Select Employees' Sup-
plemental Retirement Plan (together the "Plan") covers substantially all of
its employees. Retirement benefits are based primarily on years of service and
the employee's final average salary. The Company's funding policy is to con-
tribute annually an amount that can be deducted for federal income tax pur-
poses using a different actuarial cost method and different assumptions from
those used for financial reporting purposes. The net pension cost charged to
income in 1995 and 1994 was $7,554.0 thousand and $7,642.2 thousand, respec-
tively.
The following information for the Plan includes amounts relating to unconsol-
idated non-wholly-owned affiliates. Accordingly, the amounts presented are
greater than the Company's share.
<TABLE>
<CAPTION>
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated plan benefits....... $119,000 $104,000
======== ========
Projected benefit obligation............................... $168,000 $157,000
======== ========
Net assets available for plan benefits..................... $116,000 $ 97,000
======== ========
Unrecognized prior service cost............................ $ 3,954 $ 4,397
======== ========
Unrecognized net (loss) from past experience different from
that assumed.............................................. $(47,300) $(60,886)
======== ========
Unamortized transition gains............................... $ 5,185 $ 6,355
======== ========
</TABLE>
II-30
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
The components of net pension cost were:
<TABLE>
<CAPTION>
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 4,797 $ 6,575
Interest cost............................................... 11,012 10,590
Actual return on plan assets................................ (20,891) 2,121
Net amortization and deferral............................... 12,729 (10,002)
Costs allocated to affiliates............................... (93) (1,642)
-------- --------
Net periodic pension cost................................... $ 7,554 $ 7,642
======== ========
</TABLE>
The weighted average discount rate was 8.0% and 7.5% in 1995 and 1994, re-
spectively. The rate of increase in future compensation levels used in deter-
mining the actuarial present value of the projected benefit was 5.0% for 1995
and 1994. Plan assets consist of bonds, stocks, real estate and insurance con-
tracts and have an assumed long-term rate of return of 8.5% for 1995 and 1994.
The Company has defined contribution and contributory pension and savings
plans, covering substantially all of its employees and full-time agents, and
deferred compensation plans, for agents who meet certain service requirements,
for certain senior officers and directors, and general agents. The Company's
contributions to these plans, charged to operations in 1995 and 1994, were
$15,755.4 thousand and $17,324.8 thousand, respectively.
6. OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially
all employees become eligible for these benefits if they have met certain age
and service requirements at retirement. The Company intends to fund the accu-
mulated postretirement benefit obligation as benefits become due.
The following sets forth the plan's funded status reconciled with amounts re-
ported in the Company's balance sheet.
<TABLE>
<CAPTION>
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................... $31,696 $31,367
Fully eligible active plan participants..................... 7,075 5,839
------- -------
Total......................................................... 38,771 37,206
less: unrecognized transition obligation.................... 36,091 41,030
plus: unrecognized net gain................................. 4,915 9,995
------- -------
Accrued postretirement benefit liability...................... $ 7,595 $ 6,171
======= =======
The components of net postretirement benefit cost were:
Estimated eligibility cost.................................. $ 872 $ 860
Interest cost............................................... 2,870 2,928
Amortization of transition obligation over 20 years......... 2,123 2,280
Amortization of gain over 17 years.......................... (642) (613)
------- -------
Net postretirement benefit cost............................... $ 5,223 $ 5,455
======= =======
</TABLE>
II-31
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
Net postretirement benefit costs for the year ended December 31, 1995 in-
cludes the expected cost of such benefits for newly vested employees, interest
cost, gains and losses arising from differences between actuarial assumptions
and actual experience, and amortization of the transition obligation. The dis-
count rate used to determine the net postretirement benefit cost was 8.5% and
8.0% in 1995 and 1994, respectively. The Company made contributions to the
plan of $3,799.0 thousand and $3,579.0 thousand in 1995 and 1994, respective-
ly, as claims were incurred.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.25% and 8.5% for 1995 and 1994, respectively, and the health
care cost trend rate was 8.6% graded to 5.5% over 8 years in 1995 and 9%
graded to 5.5% over 9 years for 1994. The health care cost trend rate assump-
tion has a minimal impact on the amounts reported, since the Company has
capped its contributions at 200% of 1993 levels.
The estimated accumulated benefit obligation for active nonvested employees
was $14,200.0 thousand and $13,300.0 thousand at December 31, 1995 and 1994,
respectively.
7. FEDERAL INCOME TAXES
Federal income taxes are provided on the basis of amounts estimated to be
payable under the Internal Revenue Code. The Company files a consolidated fed-
eral income tax return with its life insurance subsidiaries and its wholly-
owned non-life insurance subsidiaries.
The Internal Revenue Service has completed its examination of the Company's
income tax returns through 1991 and is currently examining the income tax re-
turns for 1992 and 1993. The Company is contesting certain issues since 1976.
The outcome of these proceedings is not currently determinable but, in the
opinion of management, would not have a materially adverse effect on the fi-
nancial statements.
The tax benefit of capital losses was $23,519.0 thousand and $16,507.0 thou-
sand for 1995 and 1994, respectively.
8. NOTES PAYABLE
Notes payable (included in other liabilities) consist of:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
6% Demand Note Payable........................................ $26,784 $ --
Floating Rate Notes Payable................................... -- 124,338
Commercial Paper.............................................. 6,693 6,697
------- --------
Total..................................................... $33,477 $131,035
======= ========
</TABLE>
The floating rate (one month LIBOR plus .25%) notes were payable solely from,
and were collateralized by, $666,147.0 thousand of senior certificates. These
senior certificates were collateralized mortgage obligations included in bonds
on the Company's balance sheet. Interest and principal were paid monthly
solely from the cash flow of the senior certificates. The notes were fully
paid by August, 1995. The carrying value of the notes payable approximated
their fair values which were estimated based upon current market interest
rates for similar debt.
9. SURPLUS NOTES
In February, 1994, the Company privately placed $150,000 thousand, aggregate
principal amount, of 7 7/8% Surplus Notes (the "Notes"), due February 15,
2024, with semi-annual interest payments. The Notes are expressly subordinate
in
II-32
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
right of payment to policy claims and other indebtedness of the Company. The
Notes are not subject to redemption by the Company or through the operation of
a sinking fund prior to maturity. Proceeds of the issuance of the Notes net of
discount and costs of issuance amounted to $145,931.8 thousand.
These proceeds were received in cash and have been reflected in surplus. Each
payment of interest on and principal of the Notes may be made only with the
prior approval of the Massachusetts Commissioner of Insurance (the "Commis-
sioner"). The Company will not accrue any liability for payment of interest or
principal prior to obtaining the Commissioner's approval for payment. Accrued
interest, approved by the Commissioner, as of December 31, 1995 was $4,462.8
thousand. Total interest expense on the Notes was $11,812.5 thousand in 1995
and $10,551.2 thousand in 1994, respectively.
10. SURPLUS
Other changes to surplus consist of:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net unrealized capital gains or (losses).................... $ 75,281 $(80,819)
Change in valuation bases of policyholders' reserves........ (50,804) --
Change in investment reserves............................... (67,571) 63,524
Special purpose surplus funds............................... (18,381) 67,651
Other changes in surplus.................................... (6,549) (8,973)
-------- --------
Total................................................... $(68,024) $ 41,383
======== ========
</TABLE>
11. REINSURANCE
The Company's practice on individual products is to retain not more than
$5,000,000 of risk on any person, excluding accidental death benefits. Total
individual life premiums ceded were $150,095.1 thousand and $80,498.0 thousand
at December 31, 1995 and 1994, respectively. The Company also reinsures a por-
tion of its group life business. The group life premiums ceded were $11,142.5
thousand and $12,470.0 thousand at December 31, 1995 and 1994, respectively.
The total individual and group life insurance in force ceded was $15.4 bil-
lion and $16.0 billion at December 31, 1995 and 1994, respectively.
In 1994, the Company reinsured, under a traditional reinsurance arrangement,
approximately 24% of a block of ordinary whole life insurance policies issued
between 1979 and 1993 and not otherwise reinsured with a wholly-owned subsidi-
ary which retroceded half that block with an unaffiliated reinsurer. As part
of the transaction, the Company amortizes the ceding allowance it received in
1994, producing an increase in net income of $4,445.1 thousand in 1995.
As part of joint venture agreements to market group health and individual
disability income products, the Company reinsures with its partners. The pre-
miums ceded under these agreements were $122,612.5 thousand and $115,121.6
thousand in 1995 and 1994, respectively. Under a separate reinsurance arrange-
ment, effective January 1, 1993, the Company reinsures with its joint venture
partners 80% of all small group business. The premiums ceded under this ar-
rangement were $125,252.1 thousand and $108,293.4 thousand in 1995 and 1994,
respectively.
Business is ceded to reinsurers on the yearly renewable term, coinsurance,
and modified coinsurance bases. The Company is party to a number of reinsur-
ance agreements with non affiliated insurers by means of which, consistent
with usual industry practices, some or all of the mortality or morbidity risk
of the Company is transferred to the other companies. The Company assumes a
small amount of retrocessions from reinsurers and a small amount of reinsur-
ance from an affiliate.
II-33
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
The Company is contingently liable with respect to ceded insurance should any
reinsurer be unable to meet the obligations assumed by it.
In 1995 the Company recognized a $14,100.0 thousand after tax loss on the re-
capture of two surplus relief treaties.
12. COMMITMENTS AND CONTINGENCIES
The Company's obligations with respect to $89,850.0 thousand of zero-coupon
Eurobonds due in 1999 issued by an unconsolidated subsidiary in 1985 (and se-
cured by mortgage loans of the issuer) include obligations to substitute col-
lateral for any defaulted mortgage loan and to provide sufficient funds to the
issuer to enable redemption as a result of any amendment of United States tax
law which would require the issuer to withhold taxes on interest payments. The
Company's obligations with respect to the bonds are subordinated to obliga-
tions to policyholders. The balance of these Eurobonds, net of unamortized
discount, was $63,310.0 thousand as of December 31, 1995.
The Company is guarantor of the obligations arising out of certain financial
instruments issued by a limited partnership in which the Company has an in-
vestment. The financial instruments guaranteed by the Company include interest
rate swap and option contracts between the partnership and other
counterparties. The Company is exposed to credit loss in the event of nonper-
formance by the other parties to the interest rate swap and option contracts.
As of December 31, 1995 contracts in a loss position amounted to $36.0 million
and contracts in a gain position amounted to $40.3 million.
A 1985 agreement, under which the Company sold tax-exempt mortgage loans, ob-
ligates the Company to repurchase defaulted loans. As of December 31, 1995,
the principal amount of the tax-exempt loans outstanding was $8,246.8 thou-
sand.
In addition, at December 31, 1995, the Company is a guarantor of $272,166.9
thousand of outstanding indebtedness and other obligations, lease obligations
of $60,813.6 thousand and municipal reinvestment contract obligations of
$142,556.0 thousand. The Company's obligations with respect to the outstanding
indebtedness, leases and municipal reinvestment contracts are subordinated to
obligations to policyholders. The Company has standby commitments to provide
permanent mortgage financing of $113,558.6 thousand as of December 31, 1995.
Management does not anticipate any losses in connection with the above that
would have a material effect on its financial position.
The Company and Copley Real Estate Advisors, Inc. ("Copley"), an indirect,
majority-owned subsidiary of the Company, are parties to lawsuits arising out
of investments made by institutional investors in certain real estate separate
accounts of the Company, which are or were advised by Copley.
There are currently two lawsuits pending.
First, on July 30, 1993, the Washington State Investment Board ("WSIB") filed
suit against the Company and Copley in the Superior Court of the State of
Washington for Thurston County. The WSIB's suit alleges that certain public
employee retirement plans whose funds were invested by the WSIB have lost over
$600.0 million of the $800.0 million they invested in the Prentiss/Copley In-
vestment Group ("PCIG") and certain other real estate ventures advised by Cop-
ley. The suit seeks rescission of the investments and repayment of the amounts
invested, or alternatively, money damages, plus interest, attorneys' fees and
costs, together with disgorgement of fees and profits received by the Company
and Copley. The Company and Copley have filed an answer denying all liability
to WSIB and raising a number of affirmative defenses. Production of documents
is substantially complete. The Company and Copley have completed a substantial
number of depositions of WSIB witnesses, and WSIB has begun its depositions of
Company and Copley witnesses. The suit is scheduled for trial beginning on
September 9, 1996.
II-34
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
Second, on July 30, 1993, the State Teachers Retirement System of Ohio ("Ohio
Board") filed suit against the Company and Copley in the United States Dis-
trict Court for the Southern District of Ohio. The Ohio Board alleges that it
has lost substantially all of the value of its $50.0 million investment in
PCIG and seeks restoration of that amount, plus interest and disgorgement of
profits made by the Company and Copley, as well as attorneys' fees and costs.
Production of documents is substantially complete. No substantive depositions
have been taken by the Ohio Board, nor has the Company taken any substantive
depositions of Ohio Board witnesses. The court has not set a discovery sched-
ule, nor has a trial date been set.
The ultimate outcome of the WSIB and Ohio Board suits cannot be predicted.
However, while there can be no assurance, the Company believes these suits
should not result in losses that would have a material adverse effect on the
Company's financial condition. The Company and Copley intend to defend the ac-
tions vigorously. In 1995, the Company established a reserve of $10.0 million
on its financial statements with respect to the WSIB lawsuit. The Company has
agreed to indemnify Copley against any and all liability and expense arising
out of these suits or out of other claims or actions relating to the Washing-
ton State retirement plans' or the Ohio Board's investments.
In addition to the two lawsuits described above, the Company is involved in
various litigation in the ordinary course of business. In the opinion of man-
agement, this litigation should not result in judgments or settlements which,
in the aggregate, would have a material adverse effect on the Company's finan-
cial condition.
13. SUBSEQUENT EVENT
The Company and Metropolitan Life Insurance Company (MetLife) have entered
into a definitive agreement, effective as of August 16, 1995, pursuant to
which the Company would be merged with and into MetLife. The closing of the
merger is subject to various conditions, including but not limited to the ob-
taining of various regulatory approvals and the approvals of the policyholders
of both companies. It is currently anticipated that the merger will be consum-
mated during the second quarter of 1996.
The carrying value of the Company's assets is based, in part, on the assump-
tion that they will be held indefinitely as long-term investments. It is rea-
sonably possible that MetLife could change the investment objectives of the
portfolio subsequent to the merger and dispose of certain assets, particularly
mortgage and real estate holdings. If so, the realizable value of those assets
could be reduced in the near term.
II-35
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART C. OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 28. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(1) The following financial statements of the Registrant are included in Part
B of this Registration Statement:
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations for the year ended December 31, 1995.
Statement of Changes in Net Assets for the years ended December 31, 1994 and
1995.
Statement of Supplementary Information--Selected Per Unit Data and Ratios.
Notes to Financial Statements.
Schedule of Investments as of December 31, 1995.
(2) The following financial statements of the Company are included in Part B
of this Registration Statement:
Balance Sheet as of December 31, 1994 and 1995.
Statement of Operations for the years ended December 31, 1994 and 1995.
Statement of Unassigned Surplus for the years ended December 31, 1994 and
1995.
Statement of Cash Flows for the years ended December 31, 1994 and 1995.
Notes to Financial Statements.
(b) Exhibits
(1) Resolutions of the Board of Directors of New England Mutual Life Insur-
ance Company establishing the New England Variable Annuity Fund I (the "Fund")
are incorporated herein by reference to Registration Statement on Form N-8b-1
(No. 811-1930) filed on August 26, 1969.
(2) Amended and Restated Rules and Regulations of the Fund are incorporated
herein by reference to Post-Effective Amendment No. 47 to the Registration
Statement on Form N-3 (File No. 2-34420) filed on April 28, 1995.
(3) Form of Safekeeping Agreement is incorporated herein by reference to Reg-
istration Statement on Form N-8b-1 and Amendment No. 1 thereto filed on Sep-
tember 30, 1970. Amendment to Safekeeping Agreement dated August 29, 1991 is
incorporated herein by reference to Post-Effective Amendment No. 43 to Regis-
tration Statement on Form N-3 (File No. 2-34420) filed on April 30, 1992.
Custodian Fee Schedule is incorporated herein by reference to Post-Effective
Amendment No. 21 to Registration Statement (No. 2-34420) filed on January 24,
1980.
(4) Form of Advisory Agreement is incorporated herein by reference to Post-
Effective Amendment No. 45 to Registration Statement on Form N-3 (File No.
2-34420) filed on April 29, 1994.
(5) Form of Distribution Agreement is incorporated herein by reference to
Registration Statement on Form N-8b-1 and Amendment No. 1 thereto.
III-1
<PAGE>
(6) Form of variable annuity contracts are incorporated herein by reference
to Registration Statement on Form N-8b-1 and Amendment No. 1 thereto.
(i) Form of Endorsement: Tax-Sheltered Annuity is incorporated herein by
reference to Post-Effective Amendment No. 40 to Registration Statement on
Form N-3 (File No. 2-34420) filed on April 24, 1989.
(ii) Form of Endorsement: Individual Retirement Annuity is incorporated
herein by reference to Post-Effective Amendment No. 40 on Form N-3 (File No.
2-34420) filed on April 24, 1989.
(7) Form of application is incorporated herein by reference to Registration
Statement on Form N-8b-1 and Amendments No. 1 and 2 thereto.
(8) (i) Copy of the charter of the Company is incorporated herein by refer-
ence to Post-Effective Amendment No. 34 on Form N-3 (File No. 2-34420) filed
on April 30, 1986.
(ii) Copy of By-Laws of the Company is incorporated herein by reference to
Post-Effective Amendment No. 43 on Form N-3 (File No. 2-34420) filed on April
30, 1992.
(9) None
(10) None
(11) Form of Administrative Agreement is incorporated herein by reference to
Registration Statement on Form N-8b-1 and Amendment No. 1 thereto.
(12) Opinion and Consent of Marie C. Swift, Esq.
(13) (i) Consent of Coopers & Lybrand L.L.P.
(ii) Consent of Ropes & Gray.
(14) None.
(15) None.
(16) Schedule for computation of performance quotations is incorporated
herein by reference to Post-Effective Amendment No. 45 on Form N-3 (File No.
2-34420) filed on April 29, 1994.
(17) Powers of Attorney. (Additional Powers of Attorney are incorporated
herein by reference to Post-Effective Amendment No. 45 on Form N-3 (File No.
2-34420) filed on April 29, 1994 and Post-Effective Amendment No. 46 on Form
N-3 (File No. 2-34420) filed on March 1, 1995.)
ITEM 29. DIRECTORS AND OFFICERS OF THE NEW ENGLAND
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES WITH
BUSINESS ADDRESS WITH THE NEW ENGLAND REGISTRANT
------------------ --------------------------- -------------------
<S> <C> <C>
Susan C. Crampton................. Director --
127 Tarbox Road
Jericho, VT 05465
Burton A. Dole, Jr................ Director --
Chairman
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225-5905
</TABLE>
III-2
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES WITH
BUSINESS ADDRESS WITH THE NEW ENGLAND REGISTRANT
------------------ --------------------------- -------------------
<S> <C> <C>
Edward A. Fox.................... Director --
RR Box 67-15
Harborside, ME 04642
Paul E. Gray..................... Director --
Chairman of the Corporation
Massachusetts Institute of
Technology
77 Massachusetts Avenue
Cambridge, MA 02139
Evelyn E. Handler................ Director --
Executive Director & CEO
California Academy of Sciences
Golden Gate Park
San Francisco, CA 94118-4599
Kernan F. King*.................. Director; President, New --
England Life
Charles M. Leighton.............. Director --
Chairman and Chief Executive
Officer
CML Group, Inc.
524 Main Street
Acton, MA 01720
Thomas J. May.................... Director --
Chairman and Chief Executive
Officer
Boston Edison Company
800 Boylston Street
Boston, MA 02199
Roy W. Menninger, M.D............ Director --
Chairman of the Trustees
The Menninger Foundation
Box 829
Topeka, KS 66601
Robert E. Schneider*............. Director, Executive Vice --
President and Chief
Financial Officer
Robert A. Shafto*................ Chairman of the Board, --
Director, President and
Chief Executive Officer
Rand N. Stowell.................. Director --
President
United Timber Corp.
P.O. Box 650
Pine Street
Dixfield, ME 04224
</TABLE>
- -------
* Principal Business Address: 501 Boylston Street, Boston, MA 02116
III-3
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES WITH
BUSINESS ADDRESS WITH THE NEW ENGLAND REGISTRANT
------------------ --------------------------- -------------------
<S> <C> <C>
Alexander B. Trowbridge.......... Director --
President
Trowbridge Partners Inc.
1317 F Street, NW
Suite 500
Washington, D.C. 20036
Peter S. Voss.................... Director --
Chairman, President and Chief
Executive Officer
New England Investment Companies,
L.P.
399 Boylston Street
Boston, MA 02116
James P. Bossert*................ Vice President and --
Controller
Chester R. Frost*................ Senior Vice President and --
Treasurer
James A. Gallaher*............... Vice President and --
Secretary
Edward C. Hall*.................. President, New England --
Services
Chester T. Lewandowski*.......... Vice President and Actuary --
Bruce C. Long*................... President, New England --
Annuities
Gregory A. Ross*................. President, TNE Information --
Services
Daniel J. Toran*................. Executive Vice President, --
Sales & Marketing
H. James Wilson*................. Executive Vice President --
and General Counsel
John W. Wright*.................. President, New England --
Employee Benefits Group
Frederick K. Zimmermann*......... Executive Vice President --
and Chief Investment
Officer
</TABLE>
- -------
* Principal Business Address: 501 Boylston Street, Boston, MA 02116
III-4
<PAGE>
ITEM 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The following list provides information regarding the direct and indirect
(indicated by the hyphen) subsidiaries of The New England. The New England is
a mutual life insurance company organized under the laws of Massachusetts and
is not under common control with any person. No person is controlled by or
under common control with Registrant.
SUBSIDIARIES OF THE NEW ENGLAND
<TABLE>
<CAPTION>
PERCENTAGE
OF VOTING
SECURITIES
OWNED BY
STATE OF THE NEW
COMPANY ORGANIZATION ENGLAND PRINCIPAL BUSINESS
------- ------------ ---------- ---------------------------
<S> <C> <C> <C>
Boylston Capital Advisors, MA 100% inactive
Inc.......................
- -New England Portfolio MA 100% investment advisor to
Advisors, Inc............. insurance company Separate
Account investors
COAC Co., Inc............. MA 100% holding company for
corporation with interests
in real estate joint
ventures and partnerships
CRB Co. Inc............... MA 100% real estate investment
holding corporation
CRH Companies, Inc........ MA 100% limited partner of general
partner of publicly offered
limited partnership
- -South Sarasota........... FL 100% real estate investment
holding corporation
(inactive)
DPA Holding Corporation... MA 100% real estate investment
holding corporation
Exeter Reassurance Bermuda 100% reinsurance
Company, Ltd..............
GA Holdings Companies, MA 100% corporate partner for real
Inc....................... estate investment (inactive)
L/C Development CA 100% corporate partner for real
Corporation............... estate investment
LC Park Place Corporation. CA 100% corporate partner for real
estate investment (inactive)
Lyons/Copley Development CA 100% general partner in general
Corporation............... account joint ventures
Mercadian Capital L.P..... DE limited dealer in interest rate and
partner currency swaps
95%
- -Mercadian Securities U.K. 95% holding company (inactive)
(Holdings) U.K. ..........
- -Mercadian Securities U.K. 95% broker-dealer (inactive)
International Ltd.........
</TABLE>
III-5
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF VOTING
SECURITIES
OWNED BY
STATE OF THE NEW
COMPANY ORGANIZATION ENGLAND PRINCIPAL BUSINESS
------- ------------ ----------- ---------------------------
<S> <C> <C> <C>
Mercadian Funding L.P... DE limited party to investment and
partnership repurchase agreements with
interest tax-exempt bond issuers
95%
- -Mercadian Funding...... DE 100% owned party to investment and
by repurchase agreements with
Mercadian tax-exempt bond issuers
Funding
L.P.
NEL Partnership MA 100% general partner of private
Investments I, Inc...... limited partnership
NELRECO Troy, Inc....... MA 100% real estate investment
holding, developing,
leasing corporation
(inactive)
Newbury Insurance Bermuda 100% issuer of life insurance
Companies, Limited...... agent's professional
liability insurance
New England Investment MA 100% general partner of New
Companies, Inc.......... England Investment
Companies, L.P.
New England Investment DE 55.9% investment adviser and
Companies, L.P.......... holding company for The New
England's investment
related operating
affiliates
New England Life MA 100% issuer of commercial
Mortgage Funding mortgage-backed securities
Corporation.............
New England Pension and DE 100% insurance
Annuity Company.........
New England Securities MA 100% broker-dealer
Corporation.............
- -Hereford Insurance MA 100% insurance agency
Agency, Inc. ...........
- -Hereford Insurance AL 100% insurance agency
Agency of Alabama, Inc..
- -Hereford Insurance MN 100% insurance agency
Agency of Minnesota,
Inc.....................
New England Variable DE 100% insurance
Life Insurance Company..
Omega Reinsurance AZ 100% reinsurance
Corporation.............
TNE-Y, Inc.............. DE 100% corporate partner for real
estate investment (inactive)
TNE Advisers, Inc....... MA 100% investment adviser to the
New England Zenith Fund
TNE Funding Corporation. DE 100% issuer of commercial
mortgage-backed securities
TNE Information Systems. MA 100% software
</TABLE>
III-6
<PAGE>
The above list does not include real estate joint ventures and partnerships
of which The New England is an investment partner. Also, it does not include
approximately 70 nonoperating subsidiaries of COAC Co., Inc. which generally
have as their sole assets certain real estate partnership interests. The New
England files its financial statements on a statutory basis and therefore the
financial statements of its subsidiaries are not included herein.
The following list provides information about the direct and indirect (indi-
cated by a hyphen) subsidiaries of New England Investment Companies, L.P. The
New England is the direct owner of 55.9% of the voting securities of New En-
gland Investment Companies, L.P.
SUBSIDIARIES OF NEW ENGLAND INVESTMENT COMPANIES, L.P.
<TABLE>
<CAPTION>
PERCENTAGE
OF VOTING
SECURITIES
OWNED
INDIRECTLY BY
STATE OF THE NEW
COMPANY ORGANIZATION ENGLAND PRINCIPAL BUSINESS
------- ------------ ------------- ---------------------------
<S> <C> <C> <C>
Back Bay Advisors, Inc.. MA 55.9% general partner of
investment adviser
Back Bay Advisors, L.P.. DE 55.9% investment adviser
BBC Investment Advisors, MA 55.9% general partner of
Inc..................... investment adviser
BBC Investment Advisors, DE 55.9% investment adviser
L.P.....................
Capital Growth MA NEIC, L.P. investment adviser
Management Limited owns 50%
Partnership limited
partnership
interest
Copley Investment Group, MA 55.9% general partner of private
Inc..................... limited partnerships
Copley Management and DE 55.9% investment adviser
Advisors, L.P...........
Copley Public DE 55.9% manage units and other
Partnership Holding, interests in limited
L.P..................... partnerships
Copley Real Estate MA 55.9% real estate manager and
Advisors, Inc........... adviser
- -Copley Advisors, Inc... MA 55.9% investment adviser
- -Copley Properties MA 55.9% general partner of publicly
Company, Inc............ offered limited partnership
- -Copley Properties MA 55.9% general partner of publicly
Company II, Inc......... offered limited partnership
- -Copley Properties MA 55.9% managing general partner of
Company III, Inc........ publicly offered limited
partnership
- -Copley Securities MA 55.9% Massachusetts securities
Corporation............. corporation (buys, sells,
holds, securities
exclusively for own account)
- -CTR Corporation........ MA 55.9% real estate investment
- -Eighth Copley MA 55.9% real estate investment
Corporation............. holding, developing and
leasing corporation
</TABLE>
III-7
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF VOTING
SECURITIES
OWNED BY
STATE OF THE NEW
COMPANY ORGANIZATION ENGLAND PRINCIPAL BUSINESS
------- ------------ ---------- ---------------------------
<S> <C> <C> <C>
- -Fifth Copley Corporation.. MA 55.9% general partner of publicly
offered limited partnership
- -Fifth Singleton MA 55.9% general partner of private
Corporation................ limited partnership
- -First Income Corporation.. MA 55.9% general partner of publicly
offered limited partnership
- -Fourth Copley Corporation. MA 55.9% general partner of publicly
offered limited partnership
- -Fourth Income Corporation. MA 55.9% general partner of publicly
offered limited partnership
- -Fourth Singleton MA 55.9% (inactive) organized for
Corporation................ use in connection with
limited partnership
- -New England Investment DE 55.9% insurance agent and
Associates, Inc............ marketer of financial
products and services to
institutional investors
- -Second Income Corporation. MA 55.9% general partner of publicly
offered limited partnership
- -Seventh Copley MA 55.9% general partner of publicly
Corporation................ offered limited partnership
- -Sixth Copley Corporation.. MA 55.9% general partner of publicly
offered limited partnership
- -Sixth Singleton MA 55.9% general partner of private
Corporation................ limited partnership
- -Third Income Corporation.. MA 55.9% general partner of publicly
offered limited partnership
- -Third Singleton MA 55.9% general partner of private
Corporation................ limited partnership
CREA Limited Partnership... MA 55.9% real estate manager and
adviser
FundTech Services, L.P..... DE 55.9% broker-dealer, transfer
agent
Graystone Partners, Inc.... DE 55.9% general partner of
consulting and marketing
agent
Graystone Partners, L.P.... DE 55.9% consulting and marketing
agent for asset management
services
Harris Associates Inc...... DE 55.9% general partner of
investment adviser
Harris Associates L.P...... DE 55.9% investment adviser
</TABLE>
III-8
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF VOTING
SECURITIES
OWNED BY
STATE OF THE NEW
COMPANY ORGANIZATION ENGLAND PRINCIPAL BUSINESS
------- ------------ ---------- ---------------------------
<S> <C> <C> <C>
Loomis, Sayles & Company, MA 55.9% general partner of
Inc........................ investment adviser
Loomis, Sayles & Company, DE 55.9% investment adviser
L.P........................
Marlborough Capital MA 55.9% general partner of
Advisors, Inc.............. investment manager
Marlborough Capital DE 55.9% investment manager
Advisors, L.P..............
MC Management, Inc......... MA 55.9% general partner of MC
Management, L.P.
MC Management, L.P......... DE 55.9% general and limited partner
of limited partnership that
serves as general partner
of private investment
partnership
NEF Corporation............ MA 55.9% general partner of mutual
fund wholesale broker-
dealer, transfer agent and
of investment adviser
NEIC Holdings, Inc......... MA 55.9% holding company
New England Funds, L.P..... DE 55.9% mutual fund wholesale
broker-dealer and transfer
agent
New England Funds DE 55.9% investment adviser
Management, L.P............
R & T Asset Management, MA 55.9% general partner to
Inc........................ investment advisers
Reich & Tang Asset DE 55.9% investment adviser
Management, L.P............
Reich & Tang Distributors, DE 55.9% mutual fund wholesale
L.P........................ broker-dealer and transfer
agent
Westpeak Investment MA 55.9% general partner of
Advisors, Inc.............. investment adviser
Westpeak Investment DE 55.9% investment adviser
Advisors, L.P..............
</TABLE>
ITEM 31. NUMBER OF CONTRACTOWNERS
As of March 8, 1996, there were 1,222 owners of tax-qualified contracts and
246 owners of non-qualified contracts offered by Registrant.
ITEM 32. INDEMNIFICATION
Article IV of the Registrant's Amended and Restated Rules and Regulations
provides for the indemnification of its directors and officers as follows:
"The Fund shall indemnify each of the members its Board of Managers and offi-
cers (including persons who serve at its request as directors, officers, or
trustees of another organization in which it has any interest, as a sharehold-
er, creditor
III-9
<PAGE>
or otherwise) against all liabilities and expenses, including but not limited
to amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees, reasonably incurred by him in connection with the
defense or disposition of any action, suit or other proceeding, whether civil
or criminal before any court or administrative or legislative body, in which
he may be or may have been involved as a party or otherwise or with which he
may be or may have been threatened, while in office or thereafter, by reason
of any alleged act or omission as a member or officer or by reason of his be-
ing or having been such a member or officer, except with respect to any matter
as to which he shall have been finally adjudicated in any such action, suit or
other proceeding not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Fund and except that no member or
officer shall be indemnified against any liability to the Fund or its
Contractholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Expenses, including counsel fees, so
incurred by any such member or officer may be paid by the Fund in advance of
the final disposition of any such action, suit or proceeding on the condition
that the amounts so paid shall be repaid to the Fund if it is ultimately de-
termined that indemnification of such expenses is not authorized under this
Article.
"As to any matter disposed of by a compromise payment by such member or offi-
cer, pursuant to a consent decree or otherwise, no such indemnification either
for said payment or for any other expenses shall be provided unless such com-
promise shall be approved as in the best interests of the Fund, after notice
that it involves such indemnification, (a) by a disinterested majority of the
members of the Board of Managers then in office; or (b) by a majority of the
disinterested members of the Board of Managers then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Board of Managers, provided that in the case of approval pursuant to clause
(b) or (c) there has been obtained an opinion in writing of independent legal
counsel to the effect that such member or officer appears to have acted in
good faith in the reasonable belief that his action was in the best interests
of the Fund and that such indemnification would not protect such member or of-
ficer against any liability to the Fund or its Contractholders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office; or (d) by the Contractholders holding a majority of the votes at the
time entitled to vote for members of the Board of Managers, exclusive of the
votes of any interested member or officer. Approval by the Board of Managers
pursuant to clause (a) or (b) or by any disinterested person or persons pursu-
ant to clause (c) of this paragraph shall not prevent the recovery from any
officer or member of any amount paid to him in accordance with either of such
clauses as indemnification if such officer or member is subsequently adjudi-
cated by a court of competent jurisdiction not to have acted in good faith in
the reasonable belief that his action was in the best interests of the Fund or
to have been liable to the Fund or its Contractholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
"The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any member or officer of the Board of Manag-
ers may be entitled. As used in this Article, the terms "member" and "officer"
include their respective heirs, executors and administrators, and "interested"
member or officer is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending, and a "disinterested person" is a person
against whom none of such actions, suits or other proceedings or another ac-
tion, suit or other proceeding on the same or similar grounds is then or had
been pending. Nothing contained in this Article shall affect any rights to in-
demnification to which Fund personnel other than members and officers may be
entitled by contract or otherwise under law."
In addition, the Registrant's investment adviser maintains a professional li-
ability insurance policy with maximum coverage of $6 million under which the
Registrant and its managers are named insureds.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to managers and affiliated persons of the Registrant,
the Registrant has been advised that in the opinion of the Securities and Ex-
change Commission such indemnification may be against public policy as ex-
pressed in the Act and may be, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a manager or affiliated person
of the Registrant in the successful defense of any action, suit
III-10
<PAGE>
or proceeding) is asserted by such manager or affiliated person in connection
with securities registered, the Registrant 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 33. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Capital Growth Management Limited Partnership, the Registrant's investment
adviser, provides investment advice to other registered investment companies
and to other organizations and individuals. Such adviser's sole general part-
ner, Kenbob Inc., has not engaged during the past two fiscal years in any
other businesses, professions, vocations or employments of a substantial na-
ture.
ITEM 34. PRINCIPAL UNDERWRITERS
(a) New England Securities Corporation also serves as principal underwriter
for:
New England Zenith Fund
New England Retirement Investment Account
The New England Variable Account
New England Variable Life Separate Account
New England Variable Annuity Separate Account
(b) The directors and officers of the Registrant's principal underwriter, New
England Securities Corporation, and their addresses are as follows:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES
NAME PRINCIPAL UNDERWRITER WITH REGISTRANT
---- --------------------------- -------------------
<S> <C> <C>
Thomas W. McConnell*............. Director, President and CEO None
Kernan F. King**................. Chairman of Board, Director None
Beverly J. DeWitt**.............. Assistant Secretary None
Anne M. Goggin**................. Vice President, General None
Counsel, Secretary and
Clerk
Mark F. Greco*................... Vice President None
Laura A. Hutner*................. Vice President None
Peter G. Lahaie*................. Assistant Vice President, None
Chief Financial Officer and
Controller
Albert R. Margeson, Jr.*......... Senior Vice President None
Robert F. Regan***............... Vice President None
Jonathan M. Rozek*............... Vice President None
Robert E. Schneider**............ Director None
Michael E. Toland*............... Vice President, Chief None
Compliance Officer,
Assistant Secretary and
Assistant Clerk
</TABLE>
- -------
Principal Business Address:*399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02116
***500 Boylston Street, Boston, MA 02116
III-11
<PAGE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NET
NAME OF UNDERWRITING COMPENSATION
PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE OTHER
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
New England $39,551 0 0 0
Securities Corporation
</TABLE>
Commissions are paid by The New England directly to agents who are registered
representatives of the principal underwriter.
ITEM 35. 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)State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(c)New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
(d)Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
ITEM 36. MANAGEMENT SERVICES
Not applicable
ITEM 37. UNDERTAKINGS
Registrant hereby makes the following undertakings:
(1) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
contained in the registration statement are never more than 16 months old for
so long as payments under the variable annuity contracts may be accepted;
(2) To include either (a) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information or (b) a postcard or similar written com-
munication affixed to or included in the prospectus that the applicant can
remove to send for a Statement of Additional Information;
(3) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form N-3 promptly upon
written or oral request;
(4) The undertakings required by Reg. 270.6c-7, previously made in Item 10
of Part II of Post-Effective Amendment No. 31 to the Registration Statement
on Form N-1 (File No. 2-34420) filed on March 1, 1985 and incorporated herein
by reference; and
(5) To comply with and rely upon the Securities and Exchange Commission No-
Action Letter to the American Council of Life Insurance, dated November 28,
1988, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment Company
Act of 1940.
III-12
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THE REGISTRANT, NEW ENGLAND VARIABLE ANNUITY FUND I, HAS DULY CAUSED
THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF, IN
THE CITY OF BOSTON, AND COMMONWEALTH OF MASSACHUSETTS ON THIS 29TH DAY OF
MARCH, 1996.
New England Variable Annuity Fund I
By: Frederick K. Zimmermann+
------------------------------------
Frederick K. Zimmermann
Chairman of the Board of Managers
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS POST-EFFECTIVE AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Frederick K. Zimmermann+ Chairman of the
- ----------------------------------- Board of March 29, 1996
FREDERICK K. ZIMMERMANN Managers;
Principal
Executive Officer
Anne M. Goggin+ Member of the
- ----------------------------------- Board March 29, 1996
ANNE M. GOGGIN
Nancy Hawthorne+ Member of the
- ----------------------------------- Board March 29, 1996
NANCY HAWTHORNE
Joseph M. Hinchey+ Member of the
- ----------------------------------- Board March 29, 1996
JOSEPH M. HINCHEY
Richard S. Humphrey, Jr.+ Member of the
- ----------------------------------- Board March 29, 1996
RICHARD S. HUMPHREY, JR.
Robert B. Kittredge+ Member of the
- ----------------------------------- Board March 29, 1996
ROBERT B. KITTREDGE
Laurens MacLure+ Member of the
- ----------------------------------- Board March 29, 1996
LAURENS MACLURE
Dale Rogers Marshall+ Member of the
- ----------------------------------- Board March 29, 1996
DALE ROGERS MARSHALL
Joseph F. Turley+ Member of the
- ----------------------------------- Board March 29, 1996
JOSEPH F. TURLEY
By: /s/ Marie C. Swift
-------------------------------
MARIE C. SWIFT
+ Executed by Marie C. Swift behalf of those indicated pursuant to a Power-of-
attorney filed herewith.
III-13
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY HAS CAUSED THIS AMENDMENT TO
ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF BOSTON,
AND COMMONWEALTH OF MASSACHUSETTS ON THIS 29TH DAY OF MARCH, 1996.
New England Mutual Life Insurance
Company
By: /s/ Anne M. Goggin
------------------------------------
Anne M. Goggin
Vice President and Counsel
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS POST-EFFECTIVE AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Robert A. Shafto* Chairman,
- ----------------------------------- President and March 29, 1996
ROBERT A. SHAFTO Chief Executive
Officer
Chester R. Frost* Senior Vice
- ----------------------------------- President, March 29, 1996
CHESTER R. FROST Principal
Accounting
Officer and
Treasurer
Susan C. Crampton* Director
- ----------------------------------- March 29, 1996
SUSAN C. CRAMPTON
Burton A. Dole, Jr.** Director
- ----------------------------------- March 29, 1996
BURTON A. DOLE, JR.
Edward A. Fox** Director
- ----------------------------------- March 29, 1996
EDWARD A. FOX
Paul E. Gray* Director
- ----------------------------------- March 29, 1996
PAUL E. GRAY
Evelyn E. Handler* Director
- ----------------------------------- March 29, 1996
EVELYN E. HANDLER
III-14
<PAGE>
SIGNATURE TITLE DATE
Kernan F. King* Director
- ---------------------------------- March 29, 1996
KERNAN F. KING
Charles M. Leighton* Director
- ---------------------------------- March 29, 1996
CHARLES M. LEIGHTON
Thomas J. May** Director
- ---------------------------------- March 29, 1996
THOMAS J. MAY
Roy W. Menninger* Director
- ---------------------------------- March 29, 1996
ROY W. MENNINGER
Robert E. Schneider* Director,
- ---------------------------------- Executive Vice March 29, 1996
ROBERT E. SCHNEIDER President and
Chief Financial
Officer
Rand N. Stowell* Director
- ---------------------------------- March 29, 1996
RAND N. STOWELL
Alexander B. Trowbridge* Director
- ---------------------------------- March 29, 1996
ALEXANDER B. TROWBRIDGE
Peter S. Voss* Director
- ---------------------------------- March 29, 1996
PETER S. VOSS
By: Anne M. Goggin
-------------------------------
ANNE M. GOGGIN, ESQ.
* Executed by Anne M. Goggin on behalf of those indicated pursuant to a Power-
of-Attorney filed with Post-Effective Amendment No. 45, filed on April 28,
1994.
** Executed by Anne M. Goggin on behalf of those indicated pursuant to a Power-
of-Attorney filed with Post-Effective Amendment No. 46, filed on March 1,
1995.
III-15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
(PAGE ON
EXHIBIT EXECUTED
NO. DESCRIPTION COPY ONLY)
------- ----------- ----------
<C> <S> <C>
Resolutions of The New England Board establishing the
(b) (1) Fund* ....................................................
(2) Amended and Restated Rules and Regulations of the Fund++..
(3) Form of Safekeeping Agreement*** .........................
and Custodian Fee Schedule+ ..............................
(4) Form of Advisory Agreement##..............................
(5) Form of Distribution Agreement***.........................
(6) Form of Variable Annuity Contracts***.....................
(i)Form of Endorsement: Tax-Sheltered Annuity# ...........
(ii)Form of Endorsement: Individual Retirement Annuity#...
(7) Form of application**.....................................
(i)Copy of Certificate of incorporation of Insurance
(8) Company+++ ...............................................
(ii)Copy of by-laws of Insurance Company@@................
(9) None .....................................................
(10) None .....................................................
(11) Form of Administrative Agreement*** ......................
(12) Opinion and Consent of Marie C. Swift, Esq. ..............
(13) (i)Consent of Coopers & Lybrand L.L.P. ...................
(ii)Consent of Ropes & Gray...............................
(14) None .....................................................
(15) None......................................................
(16) Schedule of Computation for Performance Quotations ##.....
(17) Powers of Attorney (Additional Powers ##,++++)............
(27) Financial Data Schedule...................................
</TABLE>
- -------
* Filed with Registration Statement on Form N-8b-1, File No. 811-1930, filed
on August 26, 1969.
** Filed with Amendment No. 2 to the Registration Statement on Form N-8b-1,
File No. 811-1930, filed on November 30, 1970.
*** Filed with Amendment No. 1 to the Registration Statement on Form N-8b-1,
File No. 811-1930, filed on September 30, 1970.
+ Filed with Post-Effective Amendment No. 21 to the Registration Statement
on Form N-1, File No. 2-34420, filed on January 24, 1980.
+++ Filed with Post-Effective Amendment No. 34 to the Registration Statement
on Form N-3, File No. 2-34420, filed on April 30, 1986.
# Filed with Post-Effective Amendment No. 40 to Registration Statement on
Form N-3, File No. 2-34420, filed on April 24, 1989.
@@ Filed with Post-Effective Amendment No. 43 to Registration Statement on
Form N-3, File No. 2-34420, filed on April 30, 1992.
## Filed with Post-Effective Amendment No. 45 to Registration Statement on
Form N-3, File No. 2-34420, filed on April 28, 1994.
++++ Filed+with Post-Effective Amendment No. 46 to Registration Statement on
Form N-3, File No. 2-34420, filed on March 1, 1995.
++ Filed with Post-Effective Amendment No. 47 to the Registration Statement
on Form N-3, File No. 2-34420, filed on April 28, 1995.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 51,531,314
<INVESTMENTS-AT-VALUE> 60,125,763
<RECEIVABLES> 1,945,309
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,071,072
<PAYABLE-FOR-SECURITIES> 1,065,223
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 422,604
<TOTAL-LIABILITIES> 1,487,827
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 60,583,245
<DIVIDEND-INCOME> 921,123
<INTEREST-INCOME> 41,431
<OTHER-INCOME> 0
<EXPENSES-NET> 764,754
<NET-INVESTMENT-INCOME> 197,800
<REALIZED-GAINS-CURRENT> 10,912,465
<APPREC-INCREASE-CURRENT> 7,289,902
<NET-CHANGE-FROM-OPS> 18,400,167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,935
<NUMBER-OF-SHARES-REDEEMED> (663,134)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,327,455
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,101
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 764,754
<AVERAGE-NET-ASSETS> 56,866,378
<PER-SHARE-NAV-BEGIN> 11.90
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 4.57
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.52
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 12
New England Mutual Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
March 25, 1996
New England Mutual Life Insurance Company
New England Variable Annuity Fund I
501 Boylston Street
Boston, MA 02117
Ladies and Gentlemen:
In my capacity as Counsel of New England Mutual Life Insurance Company (the
"Company"), I am rendering the following opinion in connection with the filing
with the Securities and Exchange Commission of a post-effective amendment to
the Registration Statement on Form N-3 under the Securities Act of 1933 and
the Investment Company Act of 1940 (File Nos. 2-34420 and 811-1930). This
amendment is being filed with respect to individual variable annuity contracts
(the "Contracts") issued by New England Variable Annuity Fund I (the "Fund").
In forming the following opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary and
appropriate.
It is my opinion that:
1. The Account is a separate investment account of the Company and is duly
created and validly existing pursuant to the laws of the Commonwealth of
Massachusetts;
2. The Contracts, when issued in accordance with the Prospectus of the
Account and in compliance with applicable local law, are legal and
binding obligations of the Company in accordance with their terms; and
3. Assets, attributable to reserves and other contract liabilities and held
in the Fund, will not be chargeable with liabilities arising out of any
other business the Company may conduct.
I consent to the filing of this opinion as an exhibit to the above-mentioned
amendment to the Registration Statement on Form N-3.
Very truly yours,
Marie C. Swift
Counsel
1
<PAGE>
EXHIBIT 13(i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 48 to the
Registration Statement on Form N-3 (File No. 2-34420) of our report dated
February 5, 1996, on our audits of the financial statements of New England
Variable Annuity Fund I as of December 31, 1995, and for the two years in the
period then ended and of the selected per unit data and ratios for the five
years in the period then ended. We also consent to the inclusion of our report
dated February 5, 1996, on our audits of the financial statements of New England
Mutual Life Insurance Company as of December 31, 1995 and 1994, and for the two
years in the period ended. We also consent to the reference to our Firm under
the captions "Per Unit Income and Capital Changes" in the Prospectus and
"Experts" in the "Statement of Additional Information" in this Post-Effective
Amendment.
Coopers & Lybrand
Boston, Massachusetts
March 26,1996
<PAGE>
EXHIBIT 13(ii)
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
March 26, 1996
New England Variable Annuity Fund I
New England Mutual Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02111
Ladies and Gentlemen:
We hereby consent to being named as counsel to New England Variable Annuity
Fund I (the "Fund") on the back panel of the Prospectus included in Post-
Effective Amendment No. 48 to the Fund's Registration Statement under the
Securities Act of 1933 (Registration No. 2-34420).
Very truly yours,
Ropes & Gray
<PAGE>
EXHIBIT 17
NEW ENGLAND VARIABLE ANNUITY FUND I
POWER OF ATTORNEY
We, the undersigned members of the Board of Managers of New England Variable
Annuity Fund I, hereby severally constitute and appoint Anne M. Goggin,
Frederick K. Zimmermann, Beverly J. DeWitt, Marie C. Swift and
John F. Guthrie, Jr. and each of them singly, our true and lawful attorneys
with full power to them and to each of them to sign, for us, and in our names
and in the capacities indicated below, any and all registration statements,
amendments or reports to be filed with the Securities and Exchange Commission,
pursuant to the Securities Act of 1933 and/or the Investment Company Act of
1940, hereby ratifying and confirming our signatures as they may be signed by
our said attorneys to any and all such registration statements, amendments or
reports.
Witness our hands on the date set forth below.
SIGNATURE TITLE DATE
Member of the May 31, 1995
Nancy Hawthorne Board of Managers
- -----------------------------------
NANCY HAWTHORNE
Member of the May 31, 1995
Joseph M. Hinchey Board of Managers
- -----------------------------------
JOSEPH M. HINCHEY
Member of the May 31, 1995
Richard S. Humphrey, Jr. Board of Managers
- -----------------------------------
RICHARD S. HUMPHREY, JR.
Member of the May 31, 1995
Robert B. Kittredge Board of Managers
- -----------------------------------
ROBERT B. KITTREDGE
Member of the May 31, 1995
Laurens MacLure Board of Managers
- -----------------------------------
LAURENS MACLURE
Member of the May 31, 1995
Dale Rogers Marshall Board of Managers
- -----------------------------------
DALE ROGERS MARSHALL
Member of the May 31, 1995
Joseph F. Turley Board of Managers
- -----------------------------------
JOSEPH F. TURLEY
1
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
POWER OF ATTORNEY
I, the undersigned member of the Board of Managers of New England Variable
Annuity Fund I, hereby severally constitute and appoint Anne M. Goggin,
Beverly J. DeWitt, Marie C. Swift and John F. Guthrie, Jr. and each of them
singly, my true and lawful attorneys with full power to them and to each of
them to sign, for me, and in my name and in the capacities indicated below,
any and all registration statements, amendments or reports to be filed with
the Securities and Exchange Commission, pursuant to the Securities Act of 1933
and/or the Investment Company Act of 1940, hereby ratifying and confirming my
signature as it may be signed by my said attorneys to any and all such
registration statements, amendments or reports.
Witness my hand on the 31st of May, 1995.
/s/ Frederick K. Zimmermann
----------------------------------------
Frederick K. Zimmermann
Chairman of the Board of Managers
2
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
POWER OF ATTORNEY
I, the undersigned member of the Board of Managers of New England Variable
Annuity Fund I, hereby severally constitute and appoint Frederick K.
Zimmermann, Beverly J. DeWitt, Marie C. Swift and John F. Guthrie, Jr. and
each of them singly, my true and lawful attorneys with full power to them and
to each of them to sign, for me, and in my name and in the capacities
indicated below, any and all registration statements, amendments or reports to
be filed with the Securities and Exchange Commission, pursuant to the
Securities Act of 1933 and/or the Investment Company Act of 1940, hereby
ratifying and confirming my signature as it may be signed by my said attorneys
to any and all such registration statements, amendments or reports.
Witness my hand on the 31st of May, 1995.
/s/ Anne M. Goggin
----------------------------------------
Anne M. Goggin
Member of the Board of Managers
3
