<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-11137
811-1930
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 29 [X]
NEW ENGLAND VARIABLE ANNUITY FUND I
(EXACT NAME OF REGISTRANT)
METROPOLITAN LIFE INSURANCE COMPANY
(NAME OF INSURANCE COMPANY)
ONE MADISON AVENUE, NEW YORK, NEW YORK 10010
(ADDRESS OF INSURANCE COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
INSURANCE COMPANY'S TELEPHONE NUMBER: (212) 578-5364
NAME AND ADDRESS OF AGENT FOR SERVICE: COPY TO:
Gary A. Beller, Esq. John M. Loder, Esq.
Metropolitan Life Insurance Company Ropes & Gray
One Madison Avenue One International Place
New York, New York 10010 Boston, Massachusetts 02110-2624
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1997 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2)
The issuer has registered an indefinite amount 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, 1996 on February 25, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-3 CAPTION IN STATEMENT OF ADDITIONAL
ITEM NO. CAPTION IN PROSPECTUS INFORMATION
- -------- --------------------- ----------------------------------
<S> <C> <C>
1 Cover Page
2 Special Terms
3 Highlights
4(a),(b) Per Unit Income and Capital Changes;
Financial Statements
4(c) Fund Performance
5 Description of the Company and the
Fund; Investment Objective, Policies
and Restrictions
6 Description of the Company and the
Fund; Deductions and Expenses
7 Deductions and Expenses
8 Description of the Company and the
Fund; The Variable Annuity Contracts;
Voting Rights
9 The Variable Annuity Contracts
10 The Variable Annuity Contracts
11 The Variable Annuity Contracts; Net Investment Factor
Deductions and Expenses; Cover Page
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 History
19 Investment Objective and Policies
20 Management of the Fund
21 Investment Advisory and Other Services
22 Portfolio Transactions and Brokerage
Commissions
23 The Variable Annuity Contracts;
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
-----------------------------------------------------
Issued by
Metropolitan Life Insurance Company
One Madison Avenue, New York, New York 10010
Designated Office:
New England Life Insurance Company
501 Boylston Street, Boston, Massachusetts 02116
(617) 578-2000
MAY 1, 1997
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 Metropolitan
Life Insurance Company (the "Company"). The investment objective of the Fund
is growth of capital through investment principally in equity securities of a
diversified group of companies and industries.
The contracts were initially issued by New England Mutual Life Insurance
Company ("The New England"), which merged with and into the Company on August
30, 1996, with the Company surviving.
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, 1997, which has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated
herein by reference. The Table of Contents of the Statement of Additional
Information appears on page 23 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, an indirect 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.
Designated Office: The Company's Designated Office for receipt of Purchase
Payments, requests and elections, and communications regarding death of the
Annuitant is New England Life Insurance Company, located at 501 Boylston
Street, Boston, Massachusetts 02116, (617) 578-2000.
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 contracts were initially issued by The New England. On
August 30, 1996, The New England merged with and into the Company. Upon
consummation of the merger, The New England's separate corporate existence
ceased by operation of law, and the Company assumed legal ownership of all of
the assets of The New England, including the Fund and its assets. As a result
of the merger, the Company also has become responsible for all of The New
England's liabilities and obligations, including those created under the
contracts. The contracts have thereby become variable contracts funded by a
separate account of the Company, and each contractholder has thereby become a
policyholder of the Company. The merger is not expected to have any adverse
tax consequences on Contractholders.
THE FUND'S ADVISER -- Capital Growth Management Limited Partnership ("CGM")
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% 6.00% 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)......... 3.00% of first $46 2.00% of first $5,000
2.00% 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......................................................... 0.08%
----
TOTAL ANNUAL EXPENSES................................................ 1.34%
</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 $119 $148 $228
For a single purchase payment deferred con-
tract(6): $93 $119 $147 $228
</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
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income and expenses:
Total investment
income................ $ .28 $ .24 $ .29 $ .16 $ .25 $ .24 $ .16 $ .22 $ .32 $ .12
Operating expenses..... .24 .19 .16 .15 .14 .13 .10 .09 .09 .10
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income.. $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13 $ .23 $ .02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Capital changes:
Net investment income.. $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13 $ .23 $ .02
Net realized and
unrealized gains
(losses) on
investments........... 3.52 4.57 (1.08) 1.26 (.37) 3.35 .34 1.10 (.50) .84
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in
accumulation unit
value................. 3.56 4.62 (.95) 1.27 (.26) 3.46 .40 1.23 (.27) .86
Accumulation unit value
at
beginning of period.... 16.52 11.90 12.85 11.58 11.84 8.38 7.98 6.75 7.02 6.16
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Accumulation unit value
at end of period....... $20.08 $16.52 $11.90 $12.85 $11.58 $11.84 $ 8.38 $ 7.98 $ 6.75 $ 7.02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of operating
expenses to
average net assets (%). 1.34 1.35 1.26 1.26 1.25 1.26 1.26 1.26 1.26 1.26
Ratio of net investment
income to
average net assets (%). .22 .34 1.06 .11 .98 1.11 .69 1.72 3.39 .36
Portfolio turnover (%).. 196.25 228.26 139.43 154.15 171.55 157.43 136.52 206.90 259.70 139.77
Number of accumulation
units
outstanding at end of
period
(in thousands)......... 3,013 3,399 4,038 4,411 5,104 5,499 5,961 6,958 8,657 9,219
</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,
1996. 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, 1996 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, 1996.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
ASSUMING NO
PREMIUM TAX
-----------
<S> <C>
Period Ending December 31, 1996
1 Year................................. 11.8%
5 Years................................ 9.3%
10 Years................................ 11.6%
</TABLE>
<TABLE>
<CAPTION>
ASSUMING MAXIMUM
PREMIUM TAX
OF 2.0%
----------------
<S> <C>
Period Ending December 31, 1996
1 Year.............................. 9.5%
5 Years............................. 8.9%
10 Years............................. 11.4%
</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 is a mutual life insurance company whose principal office is at
One Madison Avenue, New York, N.Y. 10010. The Company was organized in 1866
under the laws of the State of New York and has engaged in the life insurance
business under its present name since 1868. It operates as a life insurance
company in all 50 states, the District of Columbia, Puerto Rico and all prov-
inces of Canada. The Company has over $298 billion in assets under management.
The contracts were initially issued by The New England. On August 30, 1996,
The New England merged with and into the Company, which thereby acquired the
Fund and assumed the liabilities and obligations under the contracts.
New England Life Insurance Company ("NELICO"), which was a subsidiary of The
New England and became a subsidiary of the Company as a result of the merger,
provides administrative services for the contracts and the Fund pursuant to an
administrative services agreement with the Company. These administrative serv-
ices include maintenance of Contractholder records and accounting, valuation,
regulatory and reporting services. NELICO, located at 501 Boylston Street,
Boston, Massachusetts 02116, is the Company's Designated Office for receipt of
Purchase Payments, requests and elections, and communications regarding death
of the Annuitant, as further described below.
The Fund was established in 1969 by The New England as a separate investment
account in accordance with Massachusetts law and is currently a separate in-
vestment account of the Company, subject to New York law. The Fund is regis-
tered as an open-end diversified management investment company under the In-
vestment Company Act of 1940 (the "1940 Act"). The Fund meets the definition
of a "separate account" 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 in accordance with the 1940 Act. 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 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
7
<PAGE>
regular trading on the New York Stock Exchange (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 Factor 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 determination 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
caption "Net Investment Factor" in the Statement of Additional Information. The
Net Investment Factor used to determine current Annuity Unit Values for immedi-
ate contracts will be different from the Net Investment Factor used to deter-
mine current Accumulation Unit Values during the Accumulation Period and Annu-
ity Unit Values during the Annuity Period for deferred contracts because dif-
ferent deductions attributable to mortality risk assumptions are made in re-
spect 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 Des-
ignated Office.
2. Contract Value
The value of a contract during the Accumulation Period is determined by multi-
plying 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 Designated Office
prior to the earlier of the Maturity Date or the death of the Annuitant. Pay-
ment of surrender proceeds normally will be made within seven days, subject to
the Company's right to suspend payments under certain circumstances described
below. 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. Sur-
renders will be based on Accumulation Unit Values next determined after the
surrender request is received at the Company's Designated 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
8
<PAGE>
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 institu-
tions of higher education.
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 Designated Office and the date on which written election of
payment in one sum or under a payment option is received at the Company's Des-
ignated 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 re-
quirements 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-
benefited 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
9
<PAGE>
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 Contractholder. That date is normally the date the
Purchase Payment is applied. Under these contracts, only the Single Life Annu-
ity and Joint Life Annuity Options (see "Annuity Payment Options Available")
are available and only on a variable payment basis. The purchaser of an imme-
diate 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 un-
der the contract. Payment of surrender proceeds will be made in the same man-
ner as under deferred 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
10
<PAGE>
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 expec-
tancy and thus the period of anticipated income payments will be shorter. Un-
der contracts with sex-distinct purchase rates, a given contract value will
purchase a higher basic payment for a male Payee than for a female Payee, re-
flecting 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 bal-
ance 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.
11
<PAGE>
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
payments 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
12
<PAGE>
other requirements which are not enumerated in the contract. Thus, the tax
consequences of the purchase of the contracts by pension plans should be con-
sidered carefully.
Those contracts described in 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 in 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 1995 and 1996, the Fund's portfolio turnover rate was approxi-
mately 228% and 196%, respectively. The rate of the Fund's portfolio turnover
may vary significantly from time to time depending on the volatility of pre-
vailing or anticipated economic and market conditions. Higher levels of port-
folio 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 an agreed upon price and date. The resale price is in excess of
13
<PAGE>
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 oppor-
tunity to earn a return on temporarily available cash at relatively low market
risk. While the underlying security may be a bill, certificate of indebted-
ness, 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 un-
derlying security. In such event, the Fund would attempt to exercise rights
with respect to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of loss,
including (a) possible declines in the value of the underlying security during
the period while the Fund seeks to enforce rights thereto, (b) possible re-
duced levels of income and lack of access to income during this period, and
(c) inability to enforce 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 be 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, 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 services, office space, facilities and equipment, services of exec-
utive and other personnel and all other administrative 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 distribu-
tion agreement. To cover the cost of providing these services, the Company re-
tains 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, (b) fees for mortality and expense risks assumed
and for investment
14
<PAGE>
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.
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
contracts 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").
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>
15
<PAGE>
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 New England and NELICO and mutual funds sponsored by NELICO; cur-
rent and retired agents and general agents of The New England and NELICO and
their 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 ben-
efit 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 August 30, 1996, 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 investment in CGM. CGM
provides discretionary investment services to advisory clients, including
other investment company portfolios.
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
assumptions).
ii. For immediate contracts: .00190% (.6935% on an annual basis consisting of
.5840% for mortality risk assumptions and .1095% for expense risk
assumptions).
The percentage of these deductions will not increase over the life of a
contract.
C. TOTAL EXPENSES
For the year ended December 31, 1996, the Fund's total expenses equalled
1.34% of its average net assets.
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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
16
<PAGE>
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 under
the heading "Special Rules for Annuities Purchased for Annuitants under Re-
tirement Plans Qualifying for Tax-Benefited Treatment." It should be under-
stood that should a tax-benefited retirement plan 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 Section 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 pay-
ments. (Exceptions to this rule are discussed below under "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.
17
<PAGE>
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. New SARSEPs may not be established after
January 1, 1997. Any purchase payments attributable to such contributions are
tax deductible to the employer and are not currently taxable to the
Annuitants for whom the contracts are purchased. The contributions to the
contract and any increase in contract value attributable to such contribu-
tions 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 with respect to the non-working spouse
is $2,000 for tax years beginning January 1, 1997. If covered under an em-
ployer 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 in-
dividual, 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 nondeductible purchase payments. However, the total of deductible
and nondeductible purchase payments may not exceed the limits described above
for deductible payments. For more information concerning contributions to
IRAs, you should obtain a copy of IRS Publication 590 on Individual Retire-
ment Accounts.
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
18
<PAGE>
plan, any contracts purchased with employee contributions remain the sole
property of the employer and may be subject to the general creditors of the
employer. The employer retains all ownership 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 apply (i) to distributions of excess contributions or deferrals;
(ii) to distributions made on account of the Annuitant's death, retirement,
disability or early retirement at or after age 55; (iii) when distribution
from the contract is in the form of an annuity over the life or life expec-
tancy 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
distributions on account of early retirement at or after age 55 or made pur-
suant 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
the later of April 1 of the calendar year following the year in which the An-
nuitant attains age 70 1/2 or the year in which the Annuitant retires. 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 imposed 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
19
<PAGE>
attains age 70 1/2. Minimum distributions under a Section 457 Plan may be
further deferred if the Annuitant remains employed with the sponsoring em-
ployer. Each annual distribution must equal or exceed a "minimum distribution
amount" which is determined by distribution rules under the plan. A penalty
tax of up to 50% of the amount which should be distributed may be imposed by
the Internal Revenue Service for failure to distribute the required minimum
distribution amount. If the Annuitant dies before distributions begin, the
same special distribution rules apply in the case of Section 457 Plans as ap-
ply in the case of Qualified Plans, TSA Plans, IRAs, SEPs, SARSEPs and Gov-
ernmental 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 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.
- -------------------------------------------------------------------------------
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
20
<PAGE>
Fund to meet the obligation for future payments under variable options elected
under the contract divided by (ii) the value of an Accumulation Unit. The num-
ber of votes attributable to a contract during the Annuity 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
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.
21
<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........................... 16
C. Total Expenses........................................................ 16
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS........................... 16
FEDERAL INCOME TAX STATUS................................................ 17
A. Tax Status of the Company and the Fund................................ 17
B. Taxation of the Contracts............................................. 17
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...................................................... 20
VOTING RIGHTS............................................................ 20
</TABLE>
22
<PAGE>
---------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
---------------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HISTORY............................................................. 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-12
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
23
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
---------------------------------------------------
Issued by
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
MAY 1, 1997
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1997 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>
HISTORY................................................................... 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-12
EXPERTS .................................................................. II-12
FINANCIAL STATEMENTS ..................................................... II-13
</TABLE>
II-2
<PAGE>
HISTORY
New England Variable Annuity Fund I (the "Fund") is a separate account of
Metropolitan Life Insurance Company ("MetLife" or the "Company"). The Fund was
originally a separate account of New England Mutual Life Insurance Company
("The New England"), and became a separate account of the Company when The New
England merged with and into the Company on August 30, 1996.
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
securities 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 securities (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 periods 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 assets 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-
distributed bonds, debentures, corporate notes or other evidences of
indebtedness, 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 purposes of this investment restriction;
5. Purchase any security restricted as to disposition under Federal
securities 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 total outstanding voting stock of any one investment company
would be held;
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
warrants.
II-3
<PAGE>
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:
JOHN J. ARENA, Manager, (60).
330 Beacon Street, Boston MA 02116.
Retired; formerly, Vice Chairman of the Board of Directors, Bay Banks, Inc.
and President of BayBank Investment Management, BayBanks, Inc., 1992-1994.
JOHN W. FLYNN, Manager, (57).
791 Main Street, Warren, RI 02885.
Retired; formerly, Vice Chairman, Chief Financial Officer, Fleet Financial
Group, 1990-1993.
ANNE M. GOGGIN*, Manager, (48).
New England Life Insurance Company ("NELICO"), 501 Boylston Street, Boston, MA
02117.
Senior Vice President and Associate General Counsel, NELICO, since 1997; Vice
President, General Counsel, Secretary and Clerk, New England Securities,
since 1993. Previously, Vice President and Counsel, The New England, 1994-
1996; Second Vice President and Counsel, The New England.
NANCY HAWTHORNE, Manager, (46).
Continental Cablevision, Inc., Pilot House, Lewis Wharf, Boston, MA 02110.
Executive Vice President, Enterprise Transformation; formerly, Senior Vice
President and Chief Financial Officer, Continental Cablevision, Inc.
JOSEPH M. HINCHEY, Manager, (72).
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, (71).
217 Waterways Avenue, P.O. Box 518, Boca Grande, FL 33921.
Retired; formerly, Chairman of the Board, HBM/Creamer (advertising agency).
ROBERT B. KITTREDGE, Manager, (76).
21 Sturdivant Street, Cumberland Foreside, ME 04110.
Retired; Trustee, CGM Trust and CGM Capital Development Fund, formerly, Vice
President, General Counsel and Director, Loomis, Sayles & Company,
Incorporated.
JOHN T. LUDES, Manager, (60).
President and Chief Operating Officer, American Brands, 1700 E. Putnam Avenue,
Old Greenwich, CT 06870.
President & Chief Operating Officer since 1995. Formerly, President and CEO,
Acushnet Company 1982-1995.
LAURENS MACLURE, Manager, (72).
183 Sohier Street, Cohasset, MA 02025.
Retired; Trustee, CGM Trust and CGM Capital Development Fund; Director Blue
Cross of Massachusetts (health insurance), formerly, President and Chief
Executive Officer, New England Deaconess Hospital and President, NEDH Corp.
(health care holding company).
DALE ROGERS MARSHALL, Manager, (60).
Wheaton College, 26 East Main Street, Norton, MA 02766.
President, Wheaton College; formerly, Academic Dean, Wellesley College.
- -------
*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>
MARIE C. SWIFT*, Secretary, (43).
NELICO, 501 Boylston Street, Boston, MA 02117.
Counsel and Assistant Secretary, NELICO, since 1992; and Counsel and
Assistant Secretary, The New England, until 1996.
JOSEPH F. TURLEY, Manager, (71).
5680 N. A1A, #304, Indian River Shores, FL 32963.
Retired; Director, The Gillette Company and EG&G, Inc. (diversified technical
company). Formerly President and Chief Operating Officer, The Gillette
Company (manufacturers of personal care products).
FREDERICK K. ZIMMERMANN*, Manager and Chairman, (45).
NELICO, 501 Boylston Street, Boston, MA 02117.
Executive Vice President and Chief Investment Officer, NELICO, since 1996;
Chairman of the Board and President, TNE Advisers, Inc.; Chairman of the
Board and President, New England Pension and Annuity Company; formerly,
Director and Vice President--Investments, NELICO, until 1996; Executive Vice
President (1993-1996) and Chief Investment Officer (1992-1996), The New
England.
- -------
*Indicates a Board member or officer who is deemed an "interested person" as
defined by the Investment Company Act of 1940 (the "1940 Act").
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.
Hawthorne and Marshall and Messrs. Arena, Flynn, Hinchey, Humphrey, Kittredge,
Ludes, MacLure and Turley).
The Audit Committee's responsibilities include review of financial and
accounting 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
independent 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
recommendations 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 compensation of the Managers who are not interested persons of
the Fund. Mr. MacLure currently serves as chairman of the Contract Review and
Governance Committee.
BOARD COMPENSATION. The Fund does not pay any remuneration to officers or
Managers who are interested persons of the Fund.
Each Manager who is not an "interested person" receives for serving as
Manager of the Fund and on the board of New England Zenith Fund a retainer fee
at the annual rate of $20,000, 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. These fees are allocated among the Fund and the series of New England
Zenith Fund based on a formula that takes into account, among other factors,
the net assets of the Fund and each such series of each fund.
During the fiscal year ended December 31, 1996, 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 board. As of
December 31, 1996, there were a total of 14 series of New England Zenith Fund.
II-5
<PAGE>
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM THE FUND AND
AGGREGATE COMPENSATION NEW ENGLAND ZENITH
NAME OF MANAGER FROM THE FUND IN 1996 FUND IN 1996
--------------- ---------------------- ------------------
<S> <C> <C>
John J. Arena........................ $ 909 $14,000
John W. Flynn........................ 909 14,000
Nancy Hawthorne...................... 1,947 28,000
Joseph M. Hinchey.................... 2,034 30,000
Richard S. Humphrey, Jr.............. 1,947 28,000
Robert B. Kittredge.................. 1,947 63,750(a)
John T. Ludes........................ 776 12,000
Laurens MacLure...................... 2,078 66,750(a)
Dale Rogers Marshall................. 1,814 26,000
Joseph F. Turley..................... 1,947 28,000
</TABLE>
- -------
(a) Also includes compensation paid by the portfolios of the 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 02110, serves as investment
adviser to the Fund under an advisory agreement dated August 30, 1996. CGM has
served as the Fund's 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). Prior to August 30, 1996, the Fund paid CGM an advisory fee at the same
rate under a previous advisory agreement. This fee is computed on a daily
basis and is payable monthly. During the years ended December 31, 1994, 1995
and 1996, the Fund paid CGM advisory fees of $173,070, $175,101 and $189,501.
The advisory agreement provides that it shall continue in effect for an
initial 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
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
II-6
<PAGE>
automatically terminate if the Fund shall at any time be required by the
Company to eliminate all reference to the phrase "New England" in its name,
unless 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 the
following other investment company portfolios: CGM American Tax Free Fund, CGM
Capital Development Fund, CGM Mutual Fund, CGM Fixed Income Fund, CGM Realty
Fund, New England Growth Fund (a series of New England Funds Trust I) and the
Capital Growth Series of New England Zenith Fund.
Managers of the Fund may also serve as officers, directors, or trustees of
other investment companies advised by CGM or of other corporate or fiduciary
clients of CGM. Such clients may include some accounts of MetLife and its
affiliates ("MetLife 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 advised by CGM
(including MetLife 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 benefit 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 (indirectly, through its wholly-
owned subsidiary, MetLife New England Holdings, Inc.) a majority limited
partnership interest in NEIC, L.P. and a 100% interest in NEIC, L.P.'s sole
general partner, New England Investment Companies, Inc.
ADMINISTRATIVE AGREEMENT. Under the terms of an administrative agreement
between 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
administrative 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 among the Fund,
the Company and New England Securities. As compensation, the Company retains
the deduction for administrative expenses described in the prospectus under
the heading "Deductions from Purchase Payments for Sales and Administrative
Services and Premium Taxes." For the years 1994, 1995 and 1996 this deduction
amounted to $12,468, $8,245 and $6,484, 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
reserved 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.
ADMINISTRATIVE SERVICES AGREEMENT. Pursuant to an administrative services
agreement between the Company and New England Life Insurance Company
("NELICO"), NELICO serves as the Designated Office for servicing the Contracts
and performs certain other administrative services for the Company relating to
the Fund and the Contracts. NELICO is compensated for these services based on
the expenses it incurs in providing them. NELICO was a wholly-owned subsidiary
of The New England before it merged into the Company, and became a subsidiary
of the Company as a result of the merger.
II-7
<PAGE>
DISTRIBUTION AGREEMENT. New England Securities serves as principal
underwriter for the Fund pursuant to a distribution agreement among the Fund,
the Company and New England Securities. The agreement does not obligate New
England 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 1994, 1995 and 1996, these deductions amounted
to $33,847, $21,952 and $17,197, respectively.
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
pursuant 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 mutual 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 safekeeping and services agreement in accordance with
the terms of the administrative 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. Deloitte &
Touche LLP, 125 Summer Street, Boston, Massachusetts 02110, will serve as the
Fund's independent auditors in 1997.
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
unless, in the judgment of CGM, a more favorable price can be obtained by
carrying 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
quality of the foregoing services, will produce the best price and execution
for the transaction. This does not necessarily mean that the lowest available
brokerage 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 execution 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
selecting a broker which CGM believes will provide best price and execution
for a transaction. These research services include not only a wide variety of
II-8
<PAGE>
reports on such matters as economic and political developments, industries,
companies, 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 servicing 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 1996, brokerage transactions for the Fund aggregating $212,485,166 were
allocated to brokers providing research services and $239,931 in commissions
were paid on these transactions. During 1994, 1995 and 1996 the Fund paid
total brokerage fees of $227,203, $317,889 and $275,771, respectively.
DISTRIBUTION OF CONTRACTS
New England Securities, an indirect subsidiary of the Company, is the
principal underwriter of the contracts. The contracts are no longer offered
for sale, but contractholders may make on-going purchase payments under the
Fund's flexible purchase payment contracts. NELICO'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
retained by New England Securities, to the registered representatives who have
sold the contracts. In 1994, 1995, and 1996 The New England or (after August
30, 1996) the Company paid commissions to those registered representatives
with respect to ongoing purchase payments under the contracts in the amounts
of $42,665, $39,551 and $14,426, respectively.
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 20, 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.
The following percentage change in unit value figures appear in the Fund's
Annual Report for the year ended December 31, 1996.
<TABLE>
<CAPTION>
PERCENT CHANGE IN UNIT VALUE
- ----------------------------
<S> <C>
25 years, 9 months ended December 31, 1996............................. 1,635.1%
20 years ended December 31, 1996....................................... 1,649.9%
15 years ended December 31, 1996....................................... 880.9%
10 years ended December 31, 1996....................................... 226.2%
5 years ended December 31, 1996........................................ 69.7%
1 year ended December 31, 1996......................................... 21.5%
</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
December 31, 1996..................................... 20.079854 +21.5
</TABLE>
ANNUITY PAYMENTS
When a variable payment option is selected, the contract proceeds will be
applied 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
involves 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
prospectus under "Variable Payment Options."
The amount of the basic payment level is determined by applying the
applicable annuity purchase rate to the amount applied to provide the annuity.
This basic payment level is converted into annuity units, the number of which
remains 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
II-10
<PAGE>
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 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
determined 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 following 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
payment 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 Investment 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
expressed 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
assumed interest rates are computed on a consistent basis.
II-11
<PAGE>
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 negative 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 portfolio securities, and (c) fees and expenses of the
Board of Managers, divided by
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
preceding 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
assumptions 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 assumptions 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 New England Variable Annuity Fund I included in
this Statement of Additional Information and the information in the Prospectus
concerning selected per unit data and ratios have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
financial statements of Metropolitan Life Insurance Company ("MetLife") as of
December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, included in this Statement of Additional Information,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, (whose reports express unqualified opinions
and, with respect to MetLife, includes an explanatory paragraph referring to
the changes in the basis of accounting), and are included in reliance upon
such reports of such firm given upon their authority as experts in auditing
and accounting.
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, 1996, 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, 1996, 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, 1996, 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
January 31, 1997
II-13
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF
ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in common stocks at market (average cost
$47,877,709)(Note 2)........................................... $ 62,075,438
Corporate short-term notes (at cost which approximates market).. 3,080,000
------------
Total investments............................................ 65,155,438
------------
Receivable for investments sold................................. 674,185
Dividends and interest receivable............................... 80,861
Receivable from contractholders................................. 3,272
------------
Total assets................................................. 65,913,756
------------
LIABILITIES
Payable for investments purchased............................... 173,430
Payable for investment advisory fees (Note 4)................... 17,813
Payable for mortality and expense risks (Note 5)................ 54,618
Payable for other direct expenses............................... 35,169
Payable to contractholders...................................... 230
Payable to bank................................................. 349,784
------------
Total liabilities............................................ 631,044
------------
NET ASSETS....................................................... $65,282,712
============
Net assets attributable to
variable annuity contractholders 3,012,611 accumulation units at
$20.08 per unit................................................. $60,492,792
Annuity reserves (Note 2)....................................... 4,789,920
------------
$ 65,282,712
============
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
INCOME
Dividends....................................................... $ 892,129
Interest........................................................ 39,777
Other income.................................................... 28,214
------------
Total income.................................................. 960,120
------------
EXPENSES
Mortality and expense risks (Notes 2 and 5)..................... 580,983
Investment advisory fee
(Note 4)....................................................... 189,501
Other direct expenses
(Note 4)....................................................... 53,036
------------
Total expenses................................................ 823,520
------------
NET INVESTMENT INCOME............................................ 136,600
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 3)
Realized net gain from investments sold....................... 6,318,302
Change in unrealized appreciation of investments................ 5,603,280
------------
Net gain on investments....................................... 11,921,582
------------
Increase in net assets resulting from operations.................. $12,058,182
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-14
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income............................... $ 136,600 $ 197,800
Realized net gain from investments sold............. 6,318,302 10,912,465
Change in unrealized appreciation of investments.... 5,603,280 7,289,902
----------- -----------
Net increase in net assets resulting from
operations......................................... 12,058,182 18,400,167
----------- -----------
CHANGES FROM PRINCIPAL TRANSACTIONS
Purchase payments, less sales and administrative
expenses and applicable premium taxes (Note 4)..... 259,763 312,538
Contract terminations............................... (6,873,884) (8,858,774)
Annuity payments.................................... (586,217) (537,648)
Adjustments to annuity reserves (Note 2)............ (158,377) 11,172
----------- -----------
Decrease in net assets derived from principal
transactions....................................... (7,358,715) (9,072,712)
----------- -----------
Total increase...................................... 4,699,467 9,327,455
NET ASSETS
Beginning of year................................... 60,583,245 51,255,790
----------- -----------
End of year......................................... $65,282,712 $60,583,245
=========== ===========
</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,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $16.52 $11.90 $12.85 $11.58 $11.84
--------- --------- --------- --------- ---------
Per unit data
Investment income......... .28 .24 .29 .16 .25
Expenses.................. .24 .19 .16 .15 .14
--------- --------- --------- --------- ---------
Net investment income..... .04 .05 .13 .01 .11
Net realized and
unrealized gain (loss) on
investments.............. 3.52 4.57 (1.08) 1.26 (.37)
--------- --------- --------- --------- ---------
Net increase (decrease) in
net asset value.......... 3.56 4.62 (.95) 1.27 (.26)
--------- --------- --------- --------- ---------
Net Asset Value, end of
period................... $20.08 $16.52 $11.90 $12.85 $11.58
========= ========= ========= ========= =========
Total Return (%)........... 21.5 38.9 (7.4) 11.0 (2.2)
Ratios
Ratio of operating
expenses to average net
assets (%)............... 1.34 1.35 1.26 1.26 1.25
Ratio of investment
income-net to average net
assets (%)............... .22 .34 1.06 .11 .98
Portfolio turnover (%)..... 196.25 228.26 139.43 154.15 171.55
Average commission rate
paid...................... $ 359 -- -- -- --
Number of accumulation
units outstanding at end
of period................. 3,012,611 3,399,132 4,038,331 4,410,741 5,103,553
</TABLE>
II-16
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
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 Metropolitan Life Insur-
ance Company (the "Insurance Company"). Prior to August 30, 1996, the Fund was
part of New England Mutual Life Insurance Company ("The New England"). Effec-
tive August 30, 1996, The New England merged into the Insurance Company. New
England Life Insurance Company, a subsidiary of the Insurance Company, is the
designated office for contractholder services. No new contracts are being of-
fered at this time, but holders of existing flexible payment deferred con-
tracts may continue to make purchase payments.
2. SIGNIFICANT ACCOUNT POLICIES
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, 1996, 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.
E. Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that affect the reported amount of assets and liabili-
ties and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
3. 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, 1996 were
$118,866,657 and $128,838,564, respectively. Gains and losses from sales of
investments are computed on the basis of average cost.
4. ADVISORY AND SERVICE FEES WITH AFFILIATES
During the year ended December 31, 1996, the Fund incurred investment manage-
ment fees of $189,501, payable to the Fund's investment adviser, Capital
Growth Management Limited Partnership, an affiliate of the Insurance Company.
The
II-17
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- -------------------------------------------------------------------------------
advisory agreement provides for a fee at the annual rate of 0.3066% of the av-
erage net assets of the Fund. Deductions from purchase payments for sales and
administrative expenses, which for the year ended December 31, 1996, amounted
to $17,197 and $6,484, respectively, were retained by The New England and the
Insurance Company.
Effective January 1, 1995, the audit and managers fees were borne by the
Fund. These expenses amounted to $53,036 for the year ended December 31, 1996.
5. 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 1996, the mortality and expense risk charges totaled
$580,983.
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.
6. RELATED PARTIES
Two members of the Board of Managers of the Fund are officers of New England
Life Insurance Company. Both members are affiliated with the principal under-
writer, one as an officer and one as a director.
7. INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Units purchased.......................................... 14,895 23,935
Units redeemed........................................... (401,416) (663,134)
--------- ---------
Net decrease............................................ (386,521) (639,199)
Units at beginning of year................................ 3,399,132 4,038,331
--------- ---------
Units at end of year...................................... 3,012,611 3,399,132
========= =========
</TABLE>
II-18
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VARIABLE ANNUITY FUND I
INVESTMENTS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
COMMON STOCKS--
95.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ ----------
<C> <S> <C>
AEROSPACE--5.1%
31,000 Boeing Co.................................................. $3,297,625
----------
AIRLINES--2.3%
24,000 UAL Corp.*................................................. 1,500,000
----------
BANKS--MONEY CENTER--12.8%
37,400 Chase Manhattan Corp. ..................................... 3,337,950
49,000 Citicorp................................................... 5,047,000
----------
8,384,950
----------
BEVERAGES & TOBACCO--4.0%
66,000 Anheuser Busch Companies, Inc. ............................ 2,640,000
----------
COMPUTER SOFTWARE & SERVICES--3.2%
17,000 Compaq Computer Corp.*..................................... 1,262,250
15,000 Dell Computer Corp.*....................................... 796,875
----------
2,059,125
----------
ELECTRONIC COMPONENTS--6.0%
30,000 Intel Corp. ............................................... 3,928,125
----------
FOOD--RETAILERS/WHOLESALERS--9.7%
60,000 Hershey Foods Corp. ....................................... 2,625,000
33,000 Philip Morris Companies, Inc............................... 3,716,625
----------
6,341,625
----------
HOME PRODUCTS & COSMETICS--2.3%
14,000 Procter & Gamble Co. ...................................... 1,505,000
----------
INSURANCE--15.0%
20,000 Aetna Inc.................................................. 1,600,000
66,000 Allstate Corp.............................................. 3,819,750
34,700 American International Group, Inc. ........................ 3,756,275
10,000 Aon Corp. ................................................. 621,250
----------
9,797,275
----------
MISCELLANEOUS--5.6%
51,000 Nike, Inc.................................................. 3,047,250
9,600 United Technologies Corp. ................................. 633,600
----------
3,680,850
----------
OFFICE EQUIPMENT & SUPPLIES--1.7%
7,300 International Business Machines Corp. ..................... 1,102,300
----------
OIL--MAJOR INTEGRATED--9.6%
21,000 British Petroleum Co. PLC.................................. 2,968,875
33,500 Texaco, Inc. .............................................. 3,287,188
-----------
6,256,063
-----------
OIL--SERVICE--13.3%
42,000 Baker Hughes, Inc. ........................................ 1,449,000
60,000 Halliburton Co. ........................................... 3,615,000
36,000 Schlumberger, LTD.......................................... 3,595,500
-----------
8,659,500
-----------
PERIPHERALS--4.5%
74,000 Seagate Technology*........................................ 2,923,000
-----------
TOTAL COMMON STOCKS
(average cost $47,877,709)................................. 62,075,438
-----------
CORPORATE SHORT-
TERM NOTES--4.7% OF
TOTAL NET ASSETS
<CAPTION>
FACE
AMOUNT
------
<C> <S> <C>
$3,080,000 American Express Credit Corp., 6.55% due 1/2/97...... 3,080,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(average cost $3,080,000)............................ 3,080,000
-----------
TOTAL INVESTMENTS--99.8%
(average cost $50,957,709)........................... 65,155,438
-----------
Receivable for investments sold...................... 674,185
Dividends and interest receivable.................... 80,861
Receivable from contractholders...................... 3,272
Liabilities.......................................... (631,044)
-----------
TOTAL NET ASSETS--100%............................... $65,282,712
===========
* Non-income producing security.
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
Metropolitan Life Insurance Company
We have audited the accompanying consolidated balance sheets of Metropolitan
Life Insurance Company (the "Company") as of December 31, 1996 and 1995 and
the related consolidated statements of earnings, equity and cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1996 and 1995 and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 13 to the consolidated financial statements, the
Company has retroactively adopted applicable generally accepted accounting
principles relating to mutual life insurance companies and has changed, as of
December 31, 1994, the method of accounting for fixed maturity investments.
DELOITTE & TOUCHE LLP
New York, New York
April 4, 1997
MLIC-1
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995
----- -------- --------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities: 2,12
Available for Sale, at Estimated Fair Value......... $ 75,039 $ 76,412
Held to Maturity, at Amortized Cost................. 11,322 11,340
Equity Securities..................................... 2,12 2,816 1,749
Mortgage Loans on Real Estate......................... 2,12 18,964 17,216
Policy Loans.......................................... 12 5,842 5,714
Real Estate........................................... 2 7,744 8,761
Real Estate Joint Ventures............................ 4 851 753
Other Limited Partnership Interests................... 4 992 797
Leases and Leveraged Leases........................... 2 1,883 1,503
Short-Term Investments................................ 12 741 1,769
Other Invested Assets................................. 2,692 2,651
-------- --------
Total Investments................................... 128,886 128,665
Cash and Cash Equivalents.............................. 12 2,325 1,930
Deferred Policy Acquisition Costs...................... 7,227 6,508
Accrued Investment Income.............................. 1,611 1,961
Premiums and Other Receivables......................... 2,916 2,533
Deferred Income Taxes Receivable....................... 37 --
Other Assets........................................... 2,094 2,157
Separate Account Assets................................ 43,775 39,384
-------- --------
Total Assets........................................ $188,871 $183,138
======== ========
LIABILITIES AND EQUITY
LIABILITIES
Future Policy Benefits................................. 5 $ 69,223 $ 68,256
Policyholder Account Balances.......................... 5,12 47,674 48,133
Other Policyholder Funds............................... 12 4,179 4,006
Policyholder Dividends Payable......................... 1,817 1,825
Short- and Long-Term Debt.............................. 9,12 5,365 5,580
Income Taxes Payable: 6
Current............................................... 599 827
Deferred.............................................. -- 230
Other Liabilities...................................... 4,632 3,666
Separate Account Liabilities........................... 43,399 38,861
-------- --------
Total Liabilities................................... 176,888 171,384
-------- --------
Commitments and Contingencies (Notes 2, 4 and 10)
EQUITY
Retained Earnings...................................... 10,937 10,084
Net Unrealized Investment Gains........................ 3 1,028 1,646
Foreign Currency Translation Adjustments............... 18 24
-------- --------
Total Equity........................................ 13 11,983 11,754
-------- --------
Total Liabilities and Equity........................ $188,871 $183,138
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
The New York State Insurance Department (the "Department") recognizes only
statutory accounting practices for determining and reporting the financial
condition and results of operations of an insurance company for determining
solvency under the New York Insurance Law. No consideration is given by the
Department to financial statements prepared in accordance with generally
accepted accounting principles in making such determination.
MLIC-2
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
----- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Premiums....................................... 5 $11,462 $11,178 $10,078
Universal Life and Investment-Type Product Pol-
icy Fee Income................................ 1,173 1,105 883
Net Investment Income.......................... 3 8,848 8,711 8,283
Investment Gains, Net.......................... 3 603 199 4
Commissions, Fees and Other Income............. 1,152 741 636
------- ------- -------
Total Revenues................................ 23,238 21,934 19,884
------- ------- -------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.......................... 5 12,525 11,976 11,179
Interest Credited to Policyholder Account Bal-
ances......................................... 2,868 3,143 3,040
Policyholder Dividends......................... 1,728 1,786 1,752
Other Operating Costs and Expenses............. 4,711 4,285 3,500
------- ------- -------
Total Benefits and Other Deductions........... 21,832 21,190 19,471
------- ------- -------
Earnings from Continuing Operations before In-
come Taxes.................................... 1,406 744 413
Income Taxes................................... 6 482 407 380
------- ------- -------
Earnings from Continuing Operations............ 924 337 33
------- ------- -------
Discontinued Operations:
(Loss) Earnings from Discontinued Operations
(Net of Income Tax (Benefit) Expense of $(18)
in 1996, $32 in 1995 and $54 in 1994)........ (52) (54) 81
(Loss) Gain on Disposal of Discontinued Opera-
tions (Net of Income Tax (Benefit) Expense of
$(11) in 1996 and $106 in 1995).............. (19) 416 --
------- ------- -------
(Loss) Earnings from Discontinued Operations... (71) 362 81
------- ------- -------
Net Earnings................................... 13 $ 853 $ 699 $ 114
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-3
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 ,1995 AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1996 1995 1994
----- ------- ------- ------
<S> <C> <C> <C> <C>
Retained Earnings, Beginning of Year........... $10,084 $ 9,385 $9,271
Net Earnings................................... 853 699 114
------- ------- ------
Retained Earnings, End of Year................. 10,937 10,084 9,385
------- ------- ------
Net Unrealized Investment Gains (Losses),
Beginning of Year.............................. 1,646 (955) 259
Cumulative Effect of Accounting Change......... 1 -- -- (1,247)
Change in Unrealized Investment (Losses) Gains. (618) 2,601 33
------- ------- ------
Net Unrealized Investment Gains (Losses), End
of Year........................................ 1,028 1,646 (955)
------- ------- ------
Foreign Currency Translation Adjustments,
Beginning of Year.............................. 24 (2) (17)
Change in Foreign Currency Translation
Adjustments.................................... (6) 26 15
------- ------- ------
Foreign Currency Translation Adjustments, End
of Year........................................ 18 24 (2)
------- ------- ------
Total Equity, End of Year...................... 13 $11,983 $11,754 $8,428
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-4
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Cash Provided by Operating Activities......... $ 3,688 $ 4,823 $ 3,980
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Fixed Maturities................................ 76,117 64,372 47,658
Equity Securities............................... 2,069 694 795
Mortgage Loans on Real Estate................... 2,380 3,182 2,684
Real Estate..................................... 1,948 1,193 688
Real Estate Joint Ventures...................... 410 387 471
Other Limited Partnership Interests............. 178 42 24
Purchases of:
Fixed Maturities................................ (76,225) (66,693) (51,073)
Equity Securities............................... (2,742) (781) (812)
Mortgage Loans on Real Estate................... (4,225) (2,491) (1,465)
Real Estate..................................... (859) (904) (773)
Real Estate Joint Ventures...................... (130) (285) (51)
Other Limited Partnership Interests............. (307) (87) (164)
Net Change in Short-Term Investments............. 1,028 (634) 198
Net Change in Policy Loans....................... (128) (112) (393)
Other, Net....................................... (438) (568) (107)
-------- -------- --------
Net Cash Used by Investing Activities............. (924) (2,685) (2,320)
-------- -------- --------
Cash Flows from Financing Activities:
Policyholder Account Balances
Deposits........................................ 17,167 16,017 15,580
Withdrawals..................................... (19,321) (19,142) (16,876)
Additions to Long-Term Debt...................... -- 692 148
Repayments of Long-Term Debt..................... (284) (389) (334)
Net Increase (Decrease) in Short-Term Debt....... 69 (78) 143
-------- -------- --------
Net Cash Used by Financing Activities............. (2,369) (2,900) (1,339)
-------- -------- --------
Change in Cash and Cash Equivalents............... 395 (762) 321
Cash and Cash Equivalents, Beginning of Year...... 1,930 2,692 2,371
-------- -------- --------
Cash and Cash Equivalents, End of Year............ $ 2,325 $ 1,930 $ 2,692
======== ======== ========
Supplemental Cash Flow Information:
Interest Paid.................................... $ 310 $ 280 $ 257
======== ======== ========
Income Taxes Paid................................ $ 497 $ 283 $ 161
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-5
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Net Earnings......................................... $ 853 $ 699 $ 114
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Change in Deferred Policy Acquisition Costs, Net... (391) (376) (538)
Change in Accrued Investment Income................ 350 (191) (70)
Change in Premiums and Other Receivables........... (106) (29) (458)
Undistributed (Income) Loss of Real Estate Joint
Ventures and Other Limited Partnerships........... 100 (95) 150
Gains from Sale of Investments and Businesses, Net. (573) (721) (4)
Depreciation and Amortization Expenses............. (18) 30 (25)
Interest Credited to Policyholder Account Balances. 2,868 3,143 3,040
Universal Life and Investment-Type Product Policy
Fee Income........................................ (1,173) (1,105) (883)
Change in Future Policy Benefits................... 2,149 2,332 2,089
Change in Other Policyholder Funds................. 181 (66) 65
Change in Policyholder Dividends Payable........... (8) 11 (55)
Change in Income Taxes Payable..................... (134) 327 503
Other, Net......................................... (410) 864 52
------- ------- ------
Net Cash Provided by Operating Activities............ $ 3,688 $ 4,823 $3,980
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
MLIC-6
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries
(collectively, the "Company") principally provide life insurance and annuity
products and pension, pension-related and investment-related services to
individuals, corporations and other institutions. The Company also provides
nonmedical health, disability and property and casualty insurance and offers
investment management, investment advisory, and commercial finance services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The New
York State Insurance Department (the "Department") recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company for determining solvency under
the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with GAAP in making such
determination.
The accompanying consolidated financial statements include the accounts of
MetLife and its subsidiaries, partnerships and joint venture interests in
which MetLife has control. Other equity investments in affiliated companies,
partnerships and joint ventures are generally reported on the equity basis.
Significant intercompany transactions and balances have been eliminated in
consolidation.
Minority interest related to subsidiaries, partnership and joint venture
interests that are consolidated amounted to $149 million and $137 million at
December 31, 1996 and 1995, respectively, and is included in other
liabilities. Minority interest in earnings of $30 million, $22 million and $5
million in 1996, 1995 and 1994, respectively, is included in other operating
costs and expenses.
In August 1996, MetLife completed a merger with New England Mutual Life
Insurance Company ("The New England") whereby The New England was merged
directly into MetLife. The merger was accounted for as a pooling of interest
and, accordingly, the accompanying consolidated financial statements include
the accounts and operations of The New England for all periods.
Prior to 1996, MetLife, as a mutual life insurance company, prepared its
financial statements in conformity with accounting practices prescribed or
permitted by the Department (statutory financial statements), which accounting
practices were considered to be GAAP for a mutual life insurance company. In
1996, MetLife adopted Interpretation No. 40, Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises
(the "Interpretation"), and Statement of Financial Accounting Standards
("SFAS") No. 120, Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Policies (the "Standard"), of the Financial Accounting Standards
Board ("FASB"). The Interpretation and the Standard required mutual life
insurance companies to adopt all standards promulgated by the FASB in their
general purpose financial statements. The financial statements of MetLife for
1995 and 1994 have been retroactively restated to reflect the adoption of all
applicable authoritative GAAP pronouncements. The effect of such adoption,
except for SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," has been reflected in equity at January 1, 1994 (see Note
13).
As of December 31, 1994, the Company adopted SFAS No. 115, which expanded
the use of fair value accounting for those securities that a company does not
have positive intent and ability to hold to maturity. Implementation of SFAS
No. 115 decreased consolidated equity at December 31, 1994, by $1,247 million,
net of deferred income taxes, amounts attributable to participating pension
contractholders and adjustments of deferred policy acquisition costs and
future policy benefits. In 1995, the FASB issued implementation guidance for
SFAS No. 115 and permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 31, 1995, the Company transferred
$3,058 million of securities classified as held to maturity to the available
for sale portfolio. As a result, consolidated equity at December 31, 1995,
increased by
MLIC-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$135 million, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
VALUATION OF INVESTMENTS
Fixed maturity securities for which the Company has the positive intent and
ability to hold to maturity are stated principally at amortized cost and
include bonds and redeemable preferred stock. All other fixed maturity
securities are classified as available for sale and are reported at estimated
fair value. Equity securities are stated principally at estimated fair value
and include common stocks and nonredeemable preferred stocks. Unrealized
investment gains and losses on fixed maturity securities available for sale
and equity securities are reported as a separate component of equity. Such
amounts are net of related deferred income taxes, amounts attributable to
participating pension contractholders and adjustments of deferred policy
acquisition costs and future policy benefits relating to unrealized gains on
available for sale securities. Costs of fixed maturity and equity securities
are adjusted for impairments in value deemed to be other than temporary. All
security transactions are recorded on a trade date basis.
Mortgage loans in good standing are carried at outstanding principal
balances less unaccreted discounts. Mortgage loans are considered impaired
when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contract terms of
the loan agreement. When the Company determines that a loan is impaired, an
allowance for loss is established for the difference between the carrying
value of the mortgage loan and the estimated fair value. Estimated fair value
is based on either the present value of expected future cash flows discounted
at the loan's effective interest rate, the loan's observable market price or
the fair value of the collateral. The provision for losses is reported as a
realized investment loss. Mortgage loans deemed to be uncollectible are
charged against the allowance for losses and subsequent recoveries, if any,
are credited to the allowance for losses.
Investment real estate, including real estate acquired in satisfaction of
debt, is generally stated at depreciated cost (or amortized cost for capital
leases). At the date of foreclosure, real estate acquired in satisfaction of
debt is recorded at estimated fair value. Cost is adjusted for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the investment may not be recoverable. In performing the review for
recoverability, management estimates future cash flows expected from real
estate investments including proceeds on disposition. If the sum of such
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the real estate, an impairment loss is recognized.
Measurement of impairment losses is based on the estimated fair market value
of the real estate, which is generally computed using the present value of
expected future cash flows discounted at a rate commensurate with underlying
risks. Real estate investments that management intends to sell in the near
term are reported at the lower of cost or estimated fair market value less
allowances for the estimated cost of sales. Changes in allowances relating to
real estate to be disposed of and impairments of real estate are reported as
realized investment gains or losses.
Depreciation, including charges relating to capital leases, of real estate
is computed using the straight-line method over the estimated useful lives of
the properties, which generally range from 20 to 40 years or the terms of the
lease, if shorter. Accumulated depreciation and amortization on real estate
was $2,109 million and $2,187 million at December 31, 1996 and 1995,
respectively. Depreciation and amortization expense totaled $348 million, $427
million and $356 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Policy loans are stated at unpaid principal balances. Short-term investments
are stated at amortized cost, which approximates fair value.
The Company acts as the lessor of equipment in both direct financing and
operating lease transactions. At lease commencement, the Company records the
aggregate future minimum lease payments due, the estimated residual value of
the leased equipment and unearned lease income for direct financing leases.
The unearned lease income represents the excess of aggregate future minimum
lease receipts plus the estimated residual value over the cost of the leased
equipment or its net capitalized value. Lease income is recognized over the
term of the lease in a manner which reflects a level yield on the net
investment in the lease. Certain origination fees and costs are deferred and
recognized over the term of the lease using the interest method. For operating
lease transactions, the cost of equipment or its net realizable value is
depreciated on a straight-line basis over its estimated economic life and
lease income is recorded as earned.
MLIC-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company participates in leasing transactions in which it supplies only a
portion of the purchase price, but generally has the entire equity interest in
the equipment and rentals receivable (leveraged leases). These interests,
however, are subordinated to the interests of the lenders supplying the
nonequity portion of the repurchase price. The financing is generally in the
form of long-term debt that provides for no recourse against the Company and
is collateralized by the property. The investment in leveraged leases is
recorded net of the nonrecourse debt. Revenue, including related tax benefits,
is recorded over the term of the lease at a level rate of return. Management
regularly reviews residual values and writes down residuals to expected values
as needed.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenues. Valuation
allowances are netted against asset categories to which they apply and
provisions for losses for investments are included in investment gains and
losses.
PROPERTY AND EQUIPMENT
Property and equipment and leasehold improvements are included in other
assets, and are stated at cost, less accumulated depreciation and
amortization. Depreciation, including charges relating to capitalized leases,
is provided using the straight-line or sum of the years digits methods over
the estimated useful lives of the assets, which generally range from 20 to 40
years for real estate and five to 15 years or the term of the lease, if
shorter, for all other property and equipment. Amortization of leasehold
improvements is provided using the straight-line method over the lesser of the
term of the lease or the estimated useful life of the improvements.
RECOGNITION OF INCOME AND EXPENSES
Premiums from traditional life and annuity policies with life contingencies
are generally recognized as income when due. Benefits and expenses are matched
with such income so as to result in the recognition of profits over the life
of the contract. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium, or limited number of premium payments
due over a significantly shorter period of time than the total period over
which benefits are provided ("limited payment contracts"), premiums are
recorded as income when due with any excess profit deferred and recognized in
income in a constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from nonmedical health contracts are recognized as income on a pro
rata basis over the contract terms.
Premiums from universal life and investment-type contracts are reported as
deposits to policyholder account balances. Revenues from these contracts
consist of amounts assessed during the period against policyholder account
balances for mortality, policy administration and surrender charges. Policy
benefits and claims that are charged to expenses include benefit claims
incurred in the period in excess of related policyholder account balances and
interest credited to policyholder account balances.
Property and liability premiums are generally recognized as revenue on a pro
rata basis over the policy term. Unearned premiums are included in other
liabilities and are computed principally by the monthly pro rata method.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, agency and
policy issue expenses, all of which vary with and are primarily related to the
production of new business, have been deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition testing at the end of each accounting period.
Deferred policy acquisition costs are amortized over 40 years for
participating traditional life and 30 years for universal life and investment-
type products as a constant percentage of estimated gross margins or profits
arising principally from surrender charges and interest, mortality and expense
margins based on historical and anticipated
MLIC-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
future experience, updated regularly. The effects of revisions to experience
on previous amortization of deferred policy acquisition costs are reflected in
earnings in the period estimated gross margins or profits are revised.
For nonparticipating traditional life and annuity policies with life
contingencies, deferred policy acquisition costs are amortized in proportion
to anticipated premiums. Assumptions as to anticipated premiums are estimated
at the date of policy issue and are consistently applied during the life of
the contracts. Deviations from estimated experience are reflected in earnings
in the period such deviations occur. For these contracts, the amortization
periods generally are for the estimated life of the policy.
For nonmedical health insurance contracts, deferred policy acquisition costs
are amortized over the life of the contracts (generally 10 years) in
proportion to anticipated premium revenue at the time of issue.
For property and liability insurance, deferred policy acquisition costs are
amortized over the terms of policies or reinsurance treaties.
VALUE OF INSURANCE BUSINESS ACQUIRED AND GOODWILL
The cost of insurance acquired of $358 million and $381 million at December
31, 1996 and 1995, respectively, and the excess of purchase price over the
fair value of net assets acquired of $17 million and $22 million at December
31, 1996 and 1995, respectively, are included in other assets. The cost of
insurance acquired is being amortized over the expected policy or contract
duration in relation to the present value of estimated gross profits from such
policies and contracts. Accumulated amortization of cost of insurance acquired
was $48 million and $18 million at December 31, 1996 and 1995, respectively,
and related amortization expense was $30 million, $27 million and $2 million
for the years ended December 31, 1996, 1995 and 1994, respectively. The excess
of purchase price over the fair value of assets acquired is being amortized
generally over a 10 year period using the straight-line method. Accumulated
amortization of cost in excess of net assets acquired was $48 million and $43
million at December 31, 1996 and 1995, respectively, and related amortization
expense was $5 million, $5 million and $6 million for the years ended December
31, 1996, 1995 and 1994, respectively.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of net level premium reserves
for death and endowment policy benefits, the liability for terminal dividends
and premium deficiency reserves. The net level premium reserve is calculated
based on the nonforfeiture interest rate, ranging from 2.5 percent to 7.0
percent, and mortality rates guaranteed in calculating the cash surrender
values described in such contracts. Premium deficiency reserves are
established, if necessary, when the liabilities for future policy benefits
plus the present value of expected future gross premiums are insufficient to
provide for expected future policy benefits and expenses after deferred policy
acquisition costs are written off.
Future policy benefit liabilities for traditional annuities during the
accumulation period are equal to accumulated contractholder fund balances and,
after annuitization, are equal to the present value of expected future
payments. Interest rates used in establishing future policy benefit
liabilities range from 2.5 percent to 7.0 percent for life insurance policies
and 6.0 percent to 8.25 percent for annuity contracts.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals.
Benefit liabilities for nonmedical health insurance are calculated using the
net level premium method and assumptions as to future morbidity, withdrawals
and interest, which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of
benefits method and experience assumptions as to claim terminations, expenses
and interest.
For property and liability insurance, the liability for unpaid reported
losses is based on a case by case or overall estimate using the Company's past
experience. A provision is also made for losses incurred but not reported on
the basis of estimates and past experience.
MLIC-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
MetLife and its eligible life insurance and nonlife insurance subsidiaries
file a consolidated federal income tax return. The future tax consequences of
temporary differences between financial reporting and tax basis of assets and
liabilities are measured as of the balance sheet dates and are recorded as
deferred tax assets or liabilities.
SEPARATE ACCOUNT OPERATIONS
Separate Accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business
of the Company. Separate Account assets are subject to general account claims
only to the extent the value of such assets exceeds the Separate Account
liabilities. Separate Account assets and liabilities also include assets and
liabilities relating to unit-linked products sold in the United Kingdom.
Investments held in the Separate Accounts (stated at estimated fair market
value) and liabilities of the Separate Accounts (including participants'
corresponding equity in the Separate Accounts) are reported separately as
assets and liabilities. Deposits to Separate Accounts are reported as
increases in Separate Account liabilities and are not reported in revenues.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
POLICYHOLDER DIVIDENDS
The amount of policyholder dividends to be paid is determined annually by
the Board of Directors. The aggregate amount of policyholder dividends is
related to actual interest, mortality, morbidity and expense experience for
the year and management's judgment as to the appropriate level of statutory
surplus to be retained by the Company.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
CONSOLIDATED STATEMENTS OF CASH FLOWS--NON CASH TRANSACTIONS
For the years ended December 31, 1996, 1995 and 1994, respectively, real
estate of $189 million, $429 million and $273 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned real
estate acquired in satisfaction of debt of $456 million and $649 million,
respectively. During 1995 and 1994, respectively, the company assumed
liabilities of $1,573 million and $88 million and received assets of $1,573
million and $86 million through assumption of certain businesses from other
insurance companies.
DISCONTINUED OPERATIONS
In January 1995, the Company contributed its group medical benefits
businesses to a corporate joint venture, The MetraHealth Companies, Inc.
("MetraHealth"). In October 1995, the Company sold its investment in
MetraHealth to United HealthCare Corporation. For its interest in MetraHealth,
the Company received $485 million face amount of United HealthCare Corporation
convertible preferred stock and $326 million in cash (including additional
consideration of $50 million in 1996). The sale resulted in an aftertax loss
of $36 million in 1996 and an aftertax gain of $372 million in 1995. Operating
losses in 1996 related principally to the finalization of the transfer of
group medical contracts to MetraHealth. The Company also has the right to
receive from United HealthCare Corporation up to approximately $169 million in
cash based on the 1997 consolidated financial results of United HealthCare
Corporation.
During 1995, the company also sold its real estate brokerage, mortgage
banking and mortgage administration operations for an aggregate consideration
of $251 million (including additional cash consideration of $25 million in
1996), resulting in aftertax gains of $17 million in 1996 and $44 million in
1995.
These operations are accounted for as discontinued operations and,
accordingly, are segregated in the accompanying consolidated statements of
earnings.
MLIC-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations and subsidiaries are translated
at the exchange rate in effect at year end. Revenues and benefits and other
expenses are translated at the average rate prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are charged or credited directly to equity.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The cost or amortized cost, gross unrealized gain and loss and estimated
fair value of fixed maturity and equity securities, by category, are shown
below.
HELD TO MATURITY SECURITIES--DECEMBER 31, 1996 (in millions)
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- ------ ----------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies.......... $ 48 $ 3 $ 51
States and political subdivisions... 58 1 59
Foreign governments................. 260 5 265
Corporate........................... 7,520 236 $ 64 7,692
Mortgage-backed securities.......... 689 1 16 674
Other............................... 2,746 85 24 2,807
------- -------- --------- -------
Total bonds........................ 11,321 331 104 11,548
Redeemable preferred stocks.......... 1 -- -- 1
------- -------- --------- -------
Total Fixed Maturities............. $11,322 $ 331 $ 104 $11,549
======= ======== ========= =======
HELD TO MATURITY SECURITIES--DECEMBER 31, 1995 (in millions)
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies.......... $ 63 $ 3 $ 66
States and political subdivisions... 57 -- 57
Foreign governments................. 194 10 204
Corporate........................... 8,039 398 $ 33 8,404
Mortgage-backed securities.......... 860 5 31 834
Other............................... 2,126 128 5 2,249
------- -------- --------- -------
Total bonds........................ 11,339 544 69 11,814
Redeemable preferred stocks.......... 1 -- -- 1
------- -------- --------- -------
Total Fixed Maturities............. $11,340 $544 $ 69 $11,815
======= ======== ========= =======
</TABLE>
MLIC-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AVAILABLE FOR SALE SECURITIES--DECEMBER 31, 1996 (in millions)
<TABLE>
<CAPTION>
GROSS
UNREALIZED
-----------
ESTIMATED
AMORTIZED FAIR
COST GAIN LOSS VALUE
--------- ------ ---- ---------
Fixed Maturities:
Bonds:
<S> <C> <C> <C> <C>
U. S. Treasury securities and obligations of
U. S. government corporations and agencies.. $12,949 $ 901 $128 $13,722
States and political subdivisions............ 536 13 1 548
Foreign governments.......................... 2,597 266 6 2,857
Corporate.................................... 32,520 1,102 294 33,328
Mortgage-backed securities................... 21,200 407 91 21,516
Other........................................ 2,511 90 30 2,571
------- ------ ---- -------
Total bonds.................................. 72,313 2,779 550 74,542
Redeemable preferred stocks................... 500 -- 3 497
------- ------ ---- -------
Total Fixed Maturities....................... $72,813 $2,779 $553 $75,039
======= ====== ==== =======
Equity Securities:
Common stocks................................. $ 1,882 $ 648 $ 55 $ 2,475
Nonredeemable preferred stocks................ 371 51 81 341
------- ------ ---- -------
Total Equity Securities...................... $ 2,253 $ 699 $136 $ 2,816
======= ====== ==== =======
</TABLE>
AVAILABLE FOR SALE SECURITIES--DECEMBER 31, 1995 (in millions)
<TABLE>
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U. S. Treasury securities and obligations
of U. S. government corporations and agencies.... $15,963 $2,194 $ 4 $18,153
States and political subdivisions................. 54 1 -- 55
Foreign governments............................... 1,851 195 -- 2,046
Corporate......................................... 29,742 1,905 124 31,523
Mortgage-backed securities........................ 21,255 707 28 21,934
Other............................................. 1,788 235 7 2,016
------- ------ ---- -------
Total bonds....................................... 70,653 5,237 163 75,727
Redeemable preferred stocks......................... 593 95 3 685
------- ------ ---- -------
Total Fixed Maturities.............................. $71,246 $5,332 $166 $76,412
======= ====== ==== =======
Equity Securities:
Common stocks...................................... $ 1,372 $ 389 $134 $ 1,627
Nonredeemable preferred stocks..................... 167 2 47 122
------- ------ ---- -------
Total Equity Securities........................... $ 1,539 $ 391 $181 $ 1,749
======= ====== ==== =======
</TABLE>
MLIC-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair value of bonds classified as held to
maturity, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1996 (in millions)
Due in one year or less........................ $ 389 $ 391
Due after one year through five years.......... 3,317 3,413
Due after five years through 10 years.......... 5,444 5,562
Due after 10 years............................. 1,482 1,508
------- -------
Subtotal...................................... 10,632 10,874
Mortgage-backed securities..................... 689 674
------- -------
Total........................................ $11,321 $11,548
======= =======
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1996 (in millions)
Due in one year or less........................ $ 1,842 $ 1,844
Due after one year through five years.......... 13,659 13,957
Due after five years through 10 years.......... 15,729 16,228
Due after 10 years............................. 19,883 20,997
------- -------
Subtotal...................................... 51,113 53,026
Mortgage-backed securities..................... 21,200 21,516
------- -------
Total........................................ $72,313 $74,542
======= =======
</TABLE>
Bonds not due at a single maturity date have been included in the above tables
in the year of final maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties.
MORTGAGE LOANS
Mortgage loans are collateralized by properties principally located
throughout the United States and Canada. At December 31, 1996, approximately
16 percent and 7 percent of the properties were located in California and
Illinois, respectively. Generally, the Company (as the lender) requires that a
minimum of one-fourth of the purchase price of the underlying real estate be
paid by the borrower.
The mortgage loan investments were categorized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
DECEMBER 31
Office buildings..................................................... 30% 32%
Retail............................................................... 19% 18%
Residential.......................................................... 16% 17%
Agricultural......................................................... 18% 16%
Other................................................................ 17% 17%
--- ---
Total.............................................................. 100% 100%
=== ===
</TABLE>
Many of the Company's real estate joint ventures have loans with the
Company. The carrying values of such mortgages were $869 million and $1,164
million at December 31, 1996 and 1995, respectively.
MLIC-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mortgage loan valuation allowances and changes thereto are shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
DECEMBER 31 (in millions)
Balance, beginning of year.................................... $466 $483 $569
Additions charged to income................................... 144 107 89
Deductions for writedowns and dispositions.................... (166) (124) (175)
---- ---- ----
Balance, end of year.......................................... $444 $466 $483
==== ==== ====
</TABLE>
Impaired mortgage loans and related valuation allowances are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Impaired mortgage loans with valuation allowances............... $1,677 $2,028
Impaired mortgage loans with no valuation allowances............ 165 389
------ ------
Recorded investment in impaired mortgage loans.................. 1,842 2,417
Valuation allowances............................................ (427) (449)
------ ------
Net impaired mortgage loans..................................... $1,415 $1,968
====== ======
</TABLE>
During the years ended December 31, 1996 and 1995, the Company's average
recorded investment in impaired mortgage loans was $2,113 million and $2,365
million, respectively. Interest income recognized on these impaired mortgage
loans totaled $122 million and $169 million for the years ended December 31,
1996 and 1995, respectively. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a cash basis.
Interest income on loans, where the present value method is used to measure
impairment, is accrued on the net carrying value amount of the loan at the
interest rate used to discount the cash flows.
REAL ESTATE
Real Estate valuation allowances and changes thereto are shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance, beginning of year.................................... $743 $622 $674
Additions charged to income................................... 127 358 82
Deductions for writedowns and dispositions.................... (341) (237) (134)
---- ---- ----
Balance, end of year.......................................... $529 $743 $622
==== ==== ====
</TABLE>
The above table does not include valuation reserves of $118 million, $167
million and $95 million at December 31, 1996, 1995 and 1994, respectively,
relating to investments in real estate joint ventures.
Prior to 1996, the Company established valuation allowances for impaired
real estate investments. During 1996, $150 million of valuation allowances
relating to real estate held for investment were applied as writedowns to
specific properties. The balance in the real estate valuation allowance at
December 31, 1996, relates to properties that management has committed to a
plan of sale. The carrying value, net of valuation allowances, of properties
committed to a plan of sale was $1,844 million at December 31, 1996. Net
investment income relating to such properties was $60 million for the year
ended December 31, 1996.
MLIC-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEASES AND LEVERAGED LEASES
The Company's investment in direct financing leases and leveraged leases is
summarized below.
<TABLE>
<CAPTION>
DIRECT FINANCING LEVERAGED
LEASES LEASES TOTAL
------------------ ------------ --------------
1996 1995 1996 1995 1996 1995
-------- -------- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31 (in millions)
Investment.................... $ 1,247 $ 1,054 $ 507 $298 $1,754 $1,352
Estimated Residual Values..... 238 231 543 445 781 676
-------- -------- ------ ---- ------ ------
Total........................ 1,485 1,285 1,050 743 2,535 2,028
Unearned Income............... (336) (295) (316) (230) (652) (525)
-------- -------- ------ ---- ------ ------
Net Investment................ $ 1,149 $ 990 $ 734 $513 $1,883 $1,503
======== ======== ====== ==== ====== ======
</TABLE>
The investment amounts set forth above are due primarily in monthly
installments. The payment periods generally range from three to eight years,
but in certain circumstances are as long as 20 years. Average yields range
from 7 percent to 12 percent. These receivables are generally collateralized
by the related property.
Scheduled aggregate receipts for the investment and estimated residual values
in direct financing leases are:
<TABLE>
<CAPTION>
DIRECT
FINANCING RESIDUALS TOTAL
--------- --------- ------
<S> <C> <C> <C>
YEAR ENDING DECEMBER 31 (in millions)
1997.............................................. $ 236 $ 20 $ 256
1998.............................................. 209 9 218
1999.............................................. 189 25 214
2000.............................................. 167 26 193
2001.............................................. 128 23 151
Thereafter.......................................... 318 135 453
------ ---- ------
Total............................................... $1,247 $238 $1,485
====== ==== ======
</TABLE>
Historical collection experience indicates that a portion of the above
amounts will be paid prior to contractual maturity. Accordingly, the future
receipts, as shown above, should not be regarded as a forecast of future cash
flow.
FINANCIAL INSTRUMENTS
The Company has a securities lending program whereby large blocks of
securities are loaned to third parties, primarily major brokerage firms.
Company policy requires a minimum of 102 percent of the fair value of the
loaned securities to be separately maintained as collateral for the loans. The
collateral is recorded in memorandum records and is not reflected in the
accompanying consolidated balance sheets. To further minimize the credit risks
related to this lending program, the Company regularly monitors the financial
condition of counterparties to these agreements.
The Company engages in a variety of derivative transactions. Certain
derivatives, such as forwards, futures, options and swaps, which do not
themselves generate interest or dividend income, are acquired or sold in order
to hedge or reduce risks applicable to assets held, or expected to be
purchased or sold, and liabilities incurred or expected to be incurred. The
Company may also sell covered call options for income generation purposes from
time to time. The Company does not engage in trading of these derivatives.
Derivative financial instruments involve varying degrees of market risk
resulting from changes in the volatility of interest rates, foreign currency
exchange rates or market values of the underlying financial instruments. The
Company's risk of loss is typically limited to the fair value of these
instruments and not by the notional or contractual amounts which reflect the
extent of involvement but not necessarily the amounts subject to risk. Credit
risk arises from
MLIC-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the possible inability of counterparties to meet the terms of the contracts.
Credit risk due to counterparty nonperformance associated with these
instruments is the unrealized gain, if any, reflected by the fair value of
such instruments.
During the three year period ended December 31, 1996, the Company employed
several ongoing derivatives strategies. The Company entered into a number of
anticipatory hedges using securities forwards, futures and interest rate swaps
to limit the interest rate exposure of investments expected to be acquired or
sold within one year. The Company also executed swaps and foreign currency
forwards to hedge, including on an anticipatory basis, the foreign currency
risk of foreign currency denominated investments. The Company also used
interest rate swaps and forwards to reduce risks from changes in interest
rates and exposures arising from mismatches between assets and liabilities. In
addition, the Company has used interest rate caps to reduce the market and
interest rate risks relating to certain assets and liabilities.
Income and expenses related to derivatives used to hedge or manage risks are
recorded on the accrual basis as an adjustment to the yield of the related
securities over the periods covered by the derivative contracts. Gains and
losses relating to early terminations of interest rate swaps used to hedge or
manage interest rate risk are deferred and amortized over the remaining period
originally covered by the swap. Gains and losses relating to derivatives used
to hedge the risks associated with anticipated transactions are deferred and
utilized to adjust the basis of the transaction once it has closed. If it is
determined that the transaction will not close, such gains and losses are
included in realized investment gains and losses.
ASSETS ON DEPOSIT
As of December 31, 1996 and 1995, the Company had assets on deposit with
regulatory agencies of $4,062 million and $3,917 million, respectively.
3. INVESTMENT INCOME AND INVESTMENT GAINS
The sources of investment income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Fixed maturities........................................ $6,042 $6,006 $5,682
Equity securities....................................... 60 45 53
Mortgage loans on real estate........................... 1,523 1,501 1,573
Policy loans............................................ 399 394 359
Real estate............................................. 1,647 1,833 1,870
Real estate joint ventures.............................. 21 41 (99)
Other limited partnership interests..................... 70 23 40
Leases and leveraged leases............................. 135 113 92
Cash, cash equivalents and short-term investments....... 214 231 146
Other investment income................................. 281 326 337
------ ------ ------
Gross investment income................................. 10,392 10,513 10,053
Investment expenses..................................... (1,544) (1,802) (1,770)
------ ------ ------
Investment income, net.................................. $8,848 $8,711 $8,283
====== ====== ======
</TABLE>
MLIC-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment gains (losses), including changes in valuation allowances, are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Fixed maturities...................................... $ 234 $ 621 $ (97)
Equity securities..................................... 78 (5) 141
Mortgage loans on real estate......................... (86) (51) (41)
Real estate........................................... 165 (375) (20)
Real estate joint ventures............................ 206 (16) 18
Other limited partnership interests................... 82 117 28
Other................................................. (76) (92) (25)
------ ------ -------
Investment gains, net................................. $ 603 $ 199 $ 4
====== ====== =======
Proceeds from the sales of bonds classified as available for sale during
1996, 1995 and 1994 were $74,580 million, $58,537 million and $43,903 million,
respectively. During 1996, 1995 and 1994, respectively, gross gains of $1,069
million, $1,013 million and $642 million and gross losses of $842 million, $402
million and $719 million were realized on those sales. Proceeds from the sale
of bonds classified as held to maturity during 1996, 1995 and 1994 were $1,281
million, $1,806 million and $1,797 million, respectively. During 1996, 1995 and
1994, respectively, gross gains of $10 million, $17 million and $9 million and
gross losses of $1 million, $4 million and $13 million were realized on those
sales. Sales of held to maturity bonds were principally due to prepayments and
callable features on privately placed bonds.
The net unrealized investment gains (losses), which are included in the
consolidated balance sheets as a component of equity, and the changes for the
corresponding years are summarized as follows:
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
DECEMBER 31 (in millions)
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed maturities.................................... $2,226 $5,166 $(2,328)
Equity securities................................... 563 210 41
Other............................................... 474 380 378
------ ------ -------
3,263 5,756 (1,909)
Amounts of unrealized investment gains (losses) at-
tributable to:
Participating pension contracts..................... (9) (350) (92)
Loss recognition.................................... (1,219) (2,064) (1)
Deferred policy acquisition cost allowances......... (420) (748) 499
Deferred income tax (expense) benefit............... (587) (948) 548
------ ------ -------
Balance, end of year.................................. $1,028 $1,646 $ (955)
====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance, beginning of year:............................ $1,646 $ (955) $ 259
Change in unrealized investment gains (losses)........ (2,493) 7,665 50
Unrealized loss at date of adoption of SFAS No. 115... -- -- (2,449)
Change in unrealized investment gains (losses)
attributable to:
Participating pension contracts...................... 341 (258) (86)
Loss recognition..................................... 845 (2,063) 21
Deferred policy acquisition cost allowances.......... 328 (1,247) 550
Deferred income tax (expense) benefit................ 361 (1,496) 700
------ ------ ------
Balance, end of year................................... $1,028 $1,646 $ (955)
====== ====== ======
</TABLE>
MLIC-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. REAL ESTATE JOINT VENTURES AND OTHER LIMITED PARTNERSHIP INTERESTS
Summarized combined financial information of real estate joint ventures and
other limited partnership interests accounted for under the equity method, in
which the Company has an investment of $10 million or greater and an equity
interest of 10 percent or greater, is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Assets:
Investments in real estate, at depreciated cost.................. $1,030 $1,409
Investments in securities, generally at estimated fair value..... 621 534
Cash and cash equivalents........................................ 37 33
Other............................................................ 1,030 1,005
------ ------
Total assets...................................................... $2,718 $2,981
====== ======
Liabilities:
Borrowed funds--third party...................................... $ 243 $ 264
Borrowed funds--MetLife.......................................... 69 133
Other............................................................ 915 933
------ ------
Total liabilities................................................. 1,227 1,330
------ ------
Partners' Capital................................................. $1,491 $1,651
====== ======
MetLife equity in partners' capital included above................ $ 786 $1,103
====== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Operations:
Revenues of real estate joint ventures...................... $275 $364 $357
Revenues of other limited partnerships interests............ 297 417 287
Interest expense--third party............................... (11) (26) (24)
Interest expense--MetLife................................... (19) (31) (27)
Other expenses.............................................. (411) (501) (499)
---- ---- ----
Net earnings................................................. $131 $223 $ 94
==== ==== ====
MetLife earnings from real estate joint ventures and other
limited partnership interests
included above.............................................. $ 34 $ 28 $ 9
==== ==== ====
</TABLE>
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
In the normal course of business, the Company assumes and cedes insurance
with other insurance companies. The accompanying consolidated statements of
earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Direct premiums...................................... $12,569 $11,944 $11,309
Reinsurance assumed.................................. 508 812 227
Reinsurance ceded.................................... (1,615) (1,578) (1,458)
------- ------- -------
Net premiums earned.................................. $11,462 $11,178 $10,078
======= ======= =======
</TABLE>
Policyholder benefits in the accompanying consolidated statements of
earnings are presented net of reinsurance recoveries of $1,667 million, $1,523
million and $1,328 million for the years ended December 31, 1996, 1995 and
1994, respectively. Premiums and other receivables in the accompanying
consolidated balance sheets include reinsurance recoverables of $700 million
and $458 million at December 31, 1996 and 1995, respectively.
MLIC-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A contingent liability exists with respect to reinsurance ceded should the
reinsurers be unable to meet their obligations.
The Company acquired, in part through reinsurance effective in January 1995,
group life, dental, disability, accidental death and dismemberment, vision and
long-term care insurance businesses for $403 million, $53 million of which was
paid in 1994. In January 1995, the Company received assets with a fair market
value equal to the $1,565 million of liabilities assumed under the reinsurance
agreements. The reinsured contracts converted to Company contracts at policy
anniversary dates.
Activity in the liability for unpaid losses and loss adjustment expenses
relating to property and casualty and group accident and nonmedical health
policies and contracts is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Balance at January 1.................................... $3,296 $2,670 $2,553
Less reinsurance recoverables.......................... 214 104 88
------ ------ ------
Net balance at January 1................................ 3,082 2,566 2,465
------ ------ ------
Incurred related to:
Current year........................................... 2,951 3,420 2,831
Prior years............................................ (114) (68) (75)
------ ------ ------
Total incurred.......................................... 2,837 3,352 2,756
------ ------ ------
Paid related to:
Current year........................................... 1,998 2,053 1,887
Prior years............................................ 791 783 768
------ ------ ------
Total paid.............................................. 2,789 2,836 2,655
------ ------ ------
Net balance at December 31.............................. 3,130 3,082 2,566
Plus reinsurance recoverables.......................... 215 214 104
------ ------ ------
Balance at December 31.................................. $3,345 $3,296 $2,670
====== ====== ======
</TABLE>
The Company has exposure to catastrophes, which are an inherent risk of the
property and casualty insurance business and could contribute to material
fluctuations in the Company's results of operations. The Company uses excess
of loss and quota share reinsurance arrangements to reduce its catastrophe
losses and provide diversification of risk.
6. INCOME TAXES
Income tax expense for U.S. operations has been calculated in accordance
with the provisions of the Internal Revenue Code, as amended (the "Code").
Under the Code, the amount of Federal income tax expense incurred by mutual
life insurance companies includes an equity tax calculated by a prescribed
formula that incorporates a differential earnings rate between stock and
mutual life insurance companies.
MetLife and its eligible subsidiaries file a consolidated U. S. income tax
return and separate income tax returns as required. The Company uses the
liability method of accounting for income taxes. Income tax provisions are
based on income reported for financial statement purposes. Deferred income
taxes arise from the recognition of temporary differences between income
determined for financial reporting purposes and taxable income.
MLIC-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAX EXPENSE (BENEFIT) OF CONTINUING OPERATIONS
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1996 (in millions)
Federal.................................................. $346 $ 66 $412
State and local.......................................... 25 6 31
Foreign.................................................. 27 12 39
---- ---- ----
Total.................................................. $398 $ 84 $482
==== ==== ====
1995 (in millions)
Federal.................................................. $241 $ 65 $306
State and local.......................................... 52 3 55
Foreign.................................................. 22 24 46
---- ---- ----
Total.................................................. $315 $ 92 $407
==== ==== ====
1994 (in millions)
Federal.................................................. $443 $(95) $348
State and local.......................................... 15 (5) 10
Foreign.................................................. 17 5 22
---- ---- ----
Total.................................................. $475 $(95) $380
==== ==== ====
</TABLE>
Reconciliations of the differences between income taxes of continuing
operations computed at the federal statutory tax rates and consolidated
provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Income before taxes........................................ $1,406 $744 $413
Income tax rate............................................ 35% 35% 35%
------ ---- ----
Expected income tax expense at federal statutory income tax
rate....................................................... 492 260 145
Tax effect of:
Tax exempt investment income.............................. (18) (9) (9)
Differential earnings amount.............................. 38 67 206
State and local income taxes.............................. 23 37 5
Foreign operations........................................ (7) 25 3
Tax credits............................................... (15) (15) --
Prior year taxes.......................................... (46) (3) 3
Other, net................................................ 15 45 27
------ ---- ----
Income tax expense......................................... $ 482 $407 $380
====== ==== ====
</TABLE>
The deferred tax asset or liability recorded on the consolidated balance
sheets represents the future tax effects of the temporary differences between
the tax basis of assets and liabilities and their amounts for financial
reporting. Significant components of deferred tax assets relate to
policyholder liabilities and unrealized investment losses. The major items
associated with deferred tax liabilities relate to policy acquisition costs,
the excess of tax over financial statement depreciation, and unrealized
investment gains.
As of December 31, 1996, the net deferred tax asset includes a benefit of
$18 million resulting from foreign net operating loss carryforwards from
several foreign affiliates. This benefit is offset by a valuation allowance of
$18 million. The valuation allowance reflects management's assessment, based
on available information, that it is more likely than not that the deferred
tax asset for foreign net operating loss carryforwards will not be realized.
The benefit will be recognized when management believes that it is more likely
than not that the deferred tax asset is realizable.
As of December 31, 1996, the deferred tax asset includes a benefit of $12
million resulting from U.S. tax basis net operating loss carryforwards of $34
million. Subject to statutory limitations, these carryforwards are available
to offset taxable income through the year 2011.
MLIC-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has defined benefit pension plans covering all eligible
employees and sales representatives of MetLife and certain of its
subsidiaries. The Company is both the sponsor and administrator of these
plans. Retirement benefits are based on years of credited service and final
average earnings history.
Components of the net periodic pension cost for the defined benefit
qualified and nonqualified pension plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Service cost.................................................. $ 77 $ 62 $ 93
Interest cost on projected benefit obligation................. 232 222 216
Actual return on assets....................................... (273) (280) (246)
Net amortization and deferrals................................ (12) (13) (28)
---- ---- ----
Net periodic pension cost..................................... $ 24 $ (9) $ 35
==== ==== ====
</TABLE>
The funded status of the qualified and nonqualified defined benefit pension
plans and a comparison of the accumulated benefit obligation, plan assets and
projected benefit obligation are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31 (in millions)
Actuarial present value of
obligations:
Vested.......................... $2,756 $135 $2,682 $121
Nonvested....................... 38 -- 43 1
------ ---- ------ ----
Accumulated benefit obligation... $2,794 $135 $2,725 $122
====== ==== ====== ====
Projected benefit obligation..... $3,084 $184 $3,047 $166
Plan assets (principally Company
investment contracts) at
contract value.................. 3,495 133 3,236 117
------ ---- ------ ----
Plan assets in excess of (less
than) projected benefit obliga-
tion............................ 411 (51) 189 (49)
Unrecognized prior service cost.. 165 -- 71 (4)
Unrecognized net (loss) gain from
past experience different from
that assumed.................... (5) 38 351 43
Unrecognized net asset at transi-
tion............................ (172) (4) (206) (5)
------ ---- ------ ----
Prepaid (accrued) pension cost at
December 31..................... $ 399 $(17) $ 405 $(15)
====== ==== ====== ====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation ranged from 7.25 percent to 8.0
percent for 1996 and 7.25 percent to 8.5 percent for 1995. The weighted
average assumed rate of increase in future compensation levels ranged from 4.0
percent to 8.0 percent in 1996 and 1995. The assumed long-term rate of return
on assets used in determining the net periodic pension cost ranged from 8.0
percent to 8.5 percent in 1996 and 8.0 percent to 9.5 percent in 1995. In
addition, several other factors, such as expected retirement dates and
mortality, enter into the determination of the actuarial present value of the
accumulated benefit obligation.
SAVINGS AND INVESTMENT PLANS
The Company sponsors savings and investment plans available for
substantially all employees under which the Company matches a portion of
employee contributions. During 1996, 1995 and 1994, the Company contributed
$42 million, $49 million and $53 million, respectively, to the plans.
MLIC-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OTHER POSTRETIREMENT BENEFITS
The Company also provides certain postretirement health care and life
insurance benefits for retired employees through insurance contracts.
Substantially all of the Company's employees may, in accordance with the plans
applicable to such benefits, become eligible for these benefits if they attain
retirement age, with sufficient service, while working for the Company.
The following table sets forth the postretirement health care and life
insurance plans' combined status reconciled with the amount included in the
Company's consolidated balance sheets.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
Accumulated postretirement benefit obligation:
Retirees...................................................... $1,170 $1,223
Fully eligible active employees............................... 135 111
Active employees not eligible to retire....................... 378 366
------ ------
Total........................................................ 1,683 1,700
Plan assets (Company insurance contracts) at contract value.... 897 804
------ ------
Plan assets less than accumulated postretirement benefit obli-
gation........................................................ (786) (896)
Unrecognized net (loss) gain from past experience different
from that assumed and from
changes in assumptions........................................ (20) 108
------ ------
Accrued nonpension postretirement benefit cost at December 31.. $ (806) $ (788)
====== ======
</TABLE>
The components of the net periodic nonpension postretirement benefit cost
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Service cost.................................................. $ 41 $28 $ 43
Interest cost on accumulated postretirement benefit obliga-
tion......................................................... 127 115 122
Actual return on plan assets (Company insurance contracts).... (58) (63) (56)
Net amortization and deferrals................................ 2 (9) (1)
---- --- ----
Net periodic nonpension postretirement benefit cost........... $112 $71 $108
==== === ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9.5 percent in
1996, gradually decreasing to 5.25 percent over 12 years and 10.0 percent in
1995 decreasing to 5.25 percent over 12 years. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation
ranged from 7.0 percent to 7.75 percent at December 31, 1996 and was 7.25
percent at December 31, 1995.
If the health care cost trend rate assumptions were increased 1.0 percent,
the accumulated postretirement benefit obligation as of December 31, 1996
would be increased 9.0 percent. The effect of this change on the sum of the
service and interest cost components of the net periodic postretirement
benefit cost for the year ended December 31, 1996, would be an increase of
13.0 percent.
8. LEASES
LEASE INCOME ON REAL ESTATE
During 1996, 1995 and 1994, the Company received $1,658 million, $1,523
million and $1,538 million, respectively, in lease income related to its
wholly owned real estate portfolio. In accordance with industry practice,
certain of the Company's lease agreements with retail tenants result in income
that is contingent on the level of the tenants' sales revenues. At December
31, 1996, the minimum future rental income on noncancelable operating leases
for wholly owned investments in real estate is $853 million, $783 million,
$695 million, $607 million and $526 million for 1997 and each of the
succeeding four years, respectively, and $1,609 million thereafter.
MLIC-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEASE EXPENSE
The Company has entered into various lease agreements for office space, data
processing and other equipment. Future gross minimum rental payments under
noncancelable leases for 1997 and the succeeding four years are $129 million,
$110 million, $91 million, $70 million and $55 million, respectively, and $74
million thereafter. Minimum future sublease rental income on these
noncancelable leases is $30 million, $25 million, $32 million, $23 million and
$17 million for 1997 and the succeeding four years, respectively, and $45
million thereafter.
9. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
DECEMBER 31 (in millions)
6.300% surplus notes scheduled to mature on November 1, 2003..... $ 396 $ 395
7.000% surplus notes scheduled to mature on November 1, 2005..... 248 248
7.700% surplus notes scheduled to mature on November 1, 2015..... 197 197
7.450% surplus notes scheduled to mature on November 1, 2023..... 296 296
7.875% surplus notes scheduled to mature on February 15, 2024.... 148 148
7.800% surplus notes scheduled to mature on November 1, 2025..... 248 247
Mortgage debt, due 1997 through 2015, interest rates ranging from
7.25% to 10.25%.................................................. 96 187
Other............................................................ 425 627
------ ------
Total long-term debt............................................ 2,054 2,345
Short-term debt.................................................. 3,311 3,235
------ ------
Total........................................................... $5,365 $5,580
====== ======
</TABLE>
Payments of interest and principal on the surplus notes may be made only
with the prior approval of the Superintendent of Insurance of the State of New
York ("Superintendent"). Subject to the prior approval of the Superintendent,
the 7.45 percent surplus notes may be redeemed, as a whole or in part, at the
election of the Company at any time on or after November 1, 2003.
At December 31, 1996, aggregate maturities of the long-term debt based on
required principal payments at maturity for 1997 and the succeeding four years
amounted to $72 million, $22 million, $106 million, $38 million and $9
million, respectively, and $1,828 million thereafter.
As of December 31, 1996, the Company had unused lines of credit under
agreements with various banks having a principal amount of $1,821 million.
10. CONTINGENCIES
Litigation seeking compensatory and/or punitive damages relating to the
marketing by the Company of individual life insurance (including putative
class and individual actions) has been instituted by or on behalf of
policyholders and others, and additional litigation relating to the Company's
life insurance marketing may be commenced in the future. In addition, an
investigation into certain life insurance marketing, which was commenced by
the Office of the United States Attorney for the Middle District of Florida,
in conjunction with a grand jury, as early as 1994, has not been terminated.
Numerous litigation, claims and assessments against the Company, in addition
to the aforementioned, have arisen in the course of the Company's business,
operations and activities. In certain of these matters, including actions with
multiple plaintiffs, very large and/or indeterminate amounts, including
punitive and treble damages, are sought.
While it is not feasible to predict or determine the ultimate outcome of all
pending investigations and legal proceedings or to make a meaningful estimate
of the amount or range of loss that could result from an unfavorable outcome
in all such matters, it is the opinion of the Company's management that their
outcome, after consideration of the provisions made in the Company's financial
statements, is not likely to have a material adverse effect on the Company's
financial position.
MLIC-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Compensation costs...................................... $1,813 $1,607 $1,553
Commissions............................................. 722 853 700
Interest and debt issue costs........................... 311 285 264
Amortization of policy acquisition costs................ 637 684 601
Capitalization of policy acquisition costs.............. (1,028) (1,060) (1,062)
Rent expense, net of sublease........................... 180 184 179
Restructuring charges................................... 18 88 --
Other................................................... 2,058 1,644 1,265
------ ------ ------
Total.................................................. $4,711 $4,285 $3,500
====== ====== ======
</TABLE>
During 1996 and 1995, the Company recorded restructuring charges primarily
related to the consolidation of administration and agency sales force leased
office space and costs relating to workforce reductions.
12. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments presented below
have been determined by the Company using market information available as of
December 31, 1996 and 1995, and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which there
are no available market value quotations.
The estimates presented below are not necessarily indicative of the amounts
the Company could have realized in a market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
<TABLE>
<CAPTION>
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
-------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1996 (in millions)
Assets
Fixed maturities.................................. $86,361 $86,588
Equity securities................................. 2,816 2,816
Mortgage loans on real estate..................... 18,964 19,342
Policy loans...................................... 5,842 5,796
Short-term investments............................ 741 741
Cash and cash equivalents......................... 2,325 2,325
Liabilities
Policyholder account balances..................... 30,470 30,611
Short- and long-term debt......................... 5,365 5,331
Other financial instruments
Interest rate swaps............................... $1,242 -- (14)
Interest rate caps................................ 1,946 20 14
Foreign currency swaps............................ 207 -- (23)
Foreign currency forwards......................... 151 3 3
Covered call options.............................. 25 (2) (2)
Unused lines of credit............................ 1,821 -- 1
</TABLE>
MLIC-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
-------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1995 (in millions)
Assets
Fixed maturities.................................. $87,752 $88,227
Equity securities................................. 1,749 1,749
Mortgage loans on real estate..................... 17,216 18,161
Policy loans...................................... 5,714 5,884
Short-term investments............................ 1,769 1,769
Cash and cash equivalents......................... 1,930 1,930
Liabilities
Policyholder account balances..................... 31,595 31,974
Short- and long-term debt......................... 5,580 5,594
Other financial instruments
Interest rate swaps............................... $2,031 (29) (40)
Interest rate caps................................ 2,711 32 15
Foreign currency swaps............................ 89 -- 4
Foreign currency forwards......................... 121 1 1
Covered call options.............................. 25 (2) (2)
Futures contracts................................. 1,402 (19) --
Unused lines of credit............................ 1,645 -- 1
</TABLE>
For fixed maturities that are publicly traded, estimated fair value was
obtained from an independent market pricing service. Publicly traded fixed
maturities represented approximately 80 percent of the estimated fair value of
the total fixed maturities as of December 31, 1996 and 1995. For all other
bonds, estimated fair value was determined by management, based primarily on
interest rates, maturity, credit quality and average life. Included in fixed
maturities are loaned securities with estimated fair values of $7,293 million
and $8,418 million at December 31, 1996 and 1995, respectively. Estimated fair
values of equity securities were generally based on quoted market prices.
Estimated fair values of mortgage loans were generally based on discounted
projected cash flows using interest rates offered for loans to borrowers with
comparable credit ratings and for the same maturities. Estimated fair values of
policy loans were based on discounted projected cash flows using U.S. Treasury
rates to approximate interest rates and Company experience to project patterns
of loan accrual and repayment. For cash and cash equivalents and short-term
investments, the carrying amount is a reasonable estimate of fair value.
The fair values for policyholder account balances are estimated using
discounted projected cash flows, based on interest rates being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
The estimated fair value of short- and long-term debt was determined using
rates currently available to the Company for debt with similar terms and
remaining maturities.
For interest rate and foreign currency swaps, interest rate caps, foreign
currency forwards, covered call options and futures contracts, estimated fair
value is the amount at which the contracts could be settled based on estimates
obtained from dealers. The estimated fair values of unused lines of credit were
based on fees charged to enter into similar agreements.
MLIC-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STATUTORY FINANCIAL INFORMATION
The FASB Interpretation and the FASB Standard referred to in Note 1 required
mutual life insurance companies to adopt all standards promulgated by the FASB
in their general purpose financial statements. The effect (except for the
adoption of SFAS No. 115 in 1994) of applying the Interpretation and the
Standard is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
DECEMBER 31, 1993
statutory surplus:
MetLife historical...... $ 6,406
The New England
historical.............. 401
Adjustments to conform
statutory accounting
policies................ (315)
-------
6,492
Adjustments to GAAP:
Future policy benefits
and policyholder account
balances................ (3,975)
Deferred policy
acquisition costs....... 6,142
Deferred income taxes... 1,032
Valuation of
investments............. (2,216)
Statutory asset
valuation reserves...... 1,743
Statutory interest
maintenance reserve..... 962
Surplus notes........... (629)
Other, net.............. (38)
-------
January 1, 1994, equity.. $ 9,513
=======
</TABLE>
The following reconciles net change in statutory surplus and statutory
surplus determined in accordance with accounting practices prescribed or
permitted by insurance regulatory authorities with net earnings and equity on
a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31 (in millions)
Net change in statutory surplus:
MetLife historical.......................................... $366 $260 $(102)
The New England historical.................................. -- (8) 231
Adjustments to conform statutory accounting policies........ -- (23) (65)
---- ---- -----
366 229 64
Adjustments to GAAP:
Future policy benefits and policyholder account balances.... (165) (17) (464)
Deferred policy acquisition costs........................... 391 376 461
Deferred income taxes....................................... (74) (97) 47
Valuation of investments.................................... (84) 106 (53)
Statutory asset valuation reserves.......................... 599 30 313
Statutory interest maintenance reserve...................... 19 284 (58)
Surplus notes............................................... -- (622) (148)
Other, net.................................................. (199) 410 (48)
---- ---- -----
Net Earnings................................................ $853 $699 $ 114
==== ==== =====
</TABLE>
MLIC-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
December 31 (in millions).....................................
Statutory surplus:
MetLife historical........................................... $ 7,151 $ 6,564
The New England historical................................... -- 624
Adjustments to conform statutory accounting policies......... -- (403)
------- -------
7,151 6,785
Adjustments to GAAP:
Future policy benefits and policyholder account balances.... (5,742) (6,781)
Deferred policy acquisition costs........................... 7,227 6,508
Deferred income taxes....................................... 264 (28)
Valuation of investments.................................... 610 3,070
Statutory asset valuation reserves.......................... 2,684 2,085
Statutory interest maintenance reserve...................... 1,208 1,189
Surplus notes............................................... (1,393) (1,391)
Other, net.................................................. (26) 317
------- -------
Equity....................................................... $11,983 $11,754
======= =======
</TABLE>
MLIC-28
<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 Post-Effective Amendment on Form N-4:
Statement of Assets and Liabilities as of December 31, 1996.
Statement of Operations for the year ended December 31, 1996.
Statements of Changes in Net Assets for the years ended December 31,
1996 and 1995.
Statement of Supplementary Information--Selected Per Unit Data and
Ratios.
Notes to Financial Statements.
Schedule of Investments as of December 31, 1996.
(2)The following financial statements of the Company are included in Part B
of this Post-Effective Amendment on Form N-4:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Earnings for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Equity for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flow for the years ended December
31, 1996, 1995 and 1994.
Notes to Financial Statements.
(b) Exhibits
(1) (i) Resolutions of the Board of Directors of New England Mutual Life
Insurance Company establishing the Fund are incorporated herein by
reference to the Registration Statement on Form N-3 (No. 333-11137)
filed on August 30, 1996.
(ii) Resolutions of the Board of Directors of the Company adopting the
Fund as a separate account are incorporated herein by reference to the
Registration Statement on Form N-3 (No. 333-11137) filed on August 30,
1996.
(2) Amended and Restated Rules and Regulations of the Fund.
(3) Form of Safekeeping Agreement is incorporated herein by reference to
Registration Statement on Form N-8b-1 (File No. 811-1930) filed on
August 26, 1969 and Amendment No. 1 thereto, filed on September 30,
1970. Amendment to Safekeeping Agreement dated August 29, 1991 is
incorporated herein by reference to Post-Effective Amendment No. 43 to
Registration 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 (No. 2-34420) filed in January, 1980.
(4) Advisory Agreement is incorporated herein by reference to the
Registration Statement on Form N-3 (No. 333-11137) filed on August 30,
1996.
(5) Distribution Agreement is incorporated herein by reference to the
Registration Statement on Form N-3 (No. 333-11137) filed on August 30,
1996.
III-1
<PAGE>
(6) (i) Form of variable annuity contracts are incorporated herein by
reference to Registration Statement on Form N-8b-1 (File No. 811-1930)
filed on August 26, 1969 and Amendment No. 1 thereto, filed on
September 30, 1970.
(ii) Form of Endorsement: Tax-Sheltered 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.
(iii) 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.
(iv) Form of Metropolitan Life Insurance Company Endorsement to New
England Mutual Life Insurance Company variable annuity contract is
incorporated herein by reference to the Registration Statement on
Form N-3 (No. 333-11137) filed on August 30, 1996.
(7) Form of application is incorporated herein by reference to Registration
Statement on Form N-8b-1 (File No. 811-1930) filed on August 26, 1969
and Amendments No. 1 and 2 thereto, filed on September 30, 1970 and
November 30, 1970.
(8) (i) Charter and By-Laws of Metropolitan Life Insurance Company are
incorporated herein by reference to the Registration Statement on
Form N-3 (No. 333-11137) filed on August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-3 (No. 333-11137) filed on August 30,
1996.
(9) None
(10) None
(11) (i) Form of Administrative Agreement is incorporated herein by
reference to Registration Statement on Form N-8b-1 (File No. 811-1930)
filed on August 26, 1969 and Amendment No. 1 thereto, filed on
September 30, 1970.
(ii) Administrative Services Agreement is incorporated herein by
reference to the Registration Statement on Form N-3 (No. 333-11137)
filed on August 30, 1996.
(12) Opinion and Consent of Christopher P. Nicholas, Esq.
(13) (i) Consent of Coopers & Lybrand L.L.P.
(ii) Consent of Deloitte & Touche LLP.
(iii) 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.
(i) Metropolitan Life Insurance Company. Additional Powers of Attorney
are incorporated herein by reference to the Registration Statement on
Form N-3 (No. 333-11137) filed on August 30, 1996.
(ii) Board of Managers of the Fund. Additional Powers of Attorney are
incorporated herein by reference to Post-Effective Amendment No. 48 on
Form N-3 (File No. 2-34420) filed on March 29, 1996.
(27) Financial Data Schedule
III-2
<PAGE>
ITEM 29. DIRECTORS AND OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS & OFFICES POSITIONS & OFFICES
BUSINESS ADDRESS WITH COMPANY WITH REGISTRANT
------------------ ------------------- -------------------
<S> <C> <C>
Curtis H. Barnette................ Director None
Chairman and Chief Executive
Officer
Bethlehem Steel Corporation,
1170 Eighth Avenue
Martin Tower 2118
Bethlehem, PA 18016-7699
Gerald Clark...................... Director None
Senior Executive Vice-President
and
Chief Investment Officer,
Metropolitan Life Insurance
Company,
One Madison Avenue,
New York, NY 10010
Joan Ganz Cooney.................. Director None
Chairman, Executive Committee
Children's Television Workshop
One Lincoln Plaza
New York, NY 10023
Burton A. Dole, Jr. .............. Director None
Chairman of the Board
Nellcor Puritan Bennett,
2200 Faraday Avenue,
Carlsbad, CA 92008-7208
James R. Houghton................. Director None
Retired Chairman of the Board and
Chief Executive Officer,
Corning Incorporated
80 East Market Street, 2nd floor
Corning, NY 14830
Harry P. Kamen.................... Chairman, President, None
Metropolitan Life Insurance Chief Executive Officer
Company & Director
One Madison Avenue
New York, NY 10010
Helene L. Kaplan.................. Director None
Of Counsel, Skadden, Arps, Slate,
Meagher and Flom
919 Third Avenue
New York, NY 10022
Charles M. Leighton............... Director None
Chairman and Chief Executive
Officer,
CHL Group, Inc.,
524 Main Street,
Acton, MA 01720
</TABLE>
III-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS & OFFICES POSITIONS & OFFICES
BUSINESS ADDRESS WITH COMPANY WITH REGISTRANT
------------------ ------------------- -------------------
<S> <C> <C>
Richard J. Mahoney................ Director None
Chairman of the Executive
Committee
Monsanto Company--Mail Zone N3L
800 N. Lindbergh Blvd.
St. Louis, MO 63167
Allen E. Murray................... Director None
Retired Chairman of Board and
Chief Executive Officer
Mobil Corporation
P.O. Box 2072
New York, NY 10163
John J. Phelan, Jr................ Director None
Retired Chairman and Chief
Executive Officer
New York Stock Exchange, Inc.
P.O. Box 312
Mill Neck, NY 11765
John B. M. Place.................. Director None
Former Chairman of the Board
Crocker National Corporation
111 Sutter Street, 4th flr.
San Francisco, CA 94104
Hugh B. Price..................... Director None
President and Chief Executive
Officer
National Urban League, Inc.
500 East 62nd Street
New York, NY 10021
Robert G. Schwartz................ Director None
Retired Chairman of the Board,
President and Chief Executive
Officer
Metropolitan Life Insurance
Company
200 Park Avenue, Suite 5700
New York, NY 10166
Ruth J. Simmons, Ph.D............. Director None
President
Smith College
College Hall 20
Northhampton, MA 01063
William S. Sneath................. Director None
Retired Chairman of the Board
Union Carbide Corporation
41 Leeward Lane
Riverside, CT 06878
William C. Steere, Jr. ........... Director None
Chairman of the Board
and Chief Executive Officer
Pfizer, Inc.
235 East 42nd Street
New York, NY 10016
</TABLE>
III-4
<PAGE>
Set forth below is a list of certain principal officers of Metropolitan
Life. The principal business address of each officer of Metropolitan Life is
One Madison Avenue, New York, New York 10010.
<TABLE>
<CAPTION>
NAME OF OFFICER* POSITION WITH METROPOLITAN LIFE
---------------- -------------------------------
<S> <C>
Harry P. Kamen............... Chairman of the Board, President & Chief Executive
Officer
Gerald Clark................. Senior Executive Vice-President & Chief Investment
Officer
Stewart G. Nagler............ Senior Executive Vice-President & Chief Financial
Officer
Gary A. Beller............... Executive Vice-President and General Counsel
Robert H. Benmosche.......... Executive Vice-President
C. Robert Henrikson.......... Executive Vice-President
Jeffrey J. Hodgman........... Executive Vice-President
David A. Levine.............. Executive Vice-President
John D. Moynahan, Jr......... Executive Vice-President
Catherine A. Rein............ Executive Vice-President
William J. Toppeta........... Executive Vice-President
John H. Tweedie.............. Executive Vice-President
Richard M. Blackwell......... Senior Vice-President
James B. Digney.............. Senior Vice-President
William T. Friedewald........ Senior Vice-President
Ira Friedman................. Senior Vice-President
Frederick P. Hauser.......... Senior Vice-President & Controller
Anne E. Hayden............... Senior Vice-President
Sibyl C. Jacobson............ Senior Vice-President
Joseph W. Jordan............. Senior Vice-President
Nicholar D. Latrenta......... Senior Vice-President
Leland C. Launer, Jr......... Senior Vice-President
Terence I. Lennon............ Senior Vice-President
James L. Lipscomb............ Senior Vice-President
James M. Logan............... Senior Vice-President
Francis P. Lynch............. Senior Vice-President
Dominick A. Prezzano......... Senior Vice-President
Joseph A. Reali.............. Senior Vice-President
Vincent P. Reusing........... Senior Vice-President
Felix Schirripa.............. Senior Vice-President
Robert E. Sollmann, Jr....... Senior Vice-President
Thomas L. Stapleton.......... Senior Vice-President & Tax Director
James F. Stenson............. Senior Vice-President
Stanley J. Talbi............. Senior Vice-President
Richard R. Tarte............. Senior Vice-President
Arthur G. Typermass.......... Senior Vice-President & Treasurer
James A. Valentino........... Senior Vice-President
Judy E. Weiss................ Senior Vice-President and Chief Actuary
Stephen E. White............. Senior Vice-President
Richard F. Wiseman........... Senior Vice-President
Harvey M. Young.............. Senior Vice-President
Louis J. Ragusa.............. Vice-President & Secretary
</TABLE>
- -------
* The principal occupation of each officer, except for Gary A. Beller, Robert
H. Benmosche and Terence I. Lennon, during the last five years has been as
an officer of MetLife or an affiliate thereof. Gary A. Beller has been an
officer of MetLife since November, 1994; prior thereto, he was a Consultant
and Executive Vice-President and General Counsel of the American Express
Company. Robert H. Benmosche has been an officer of MetLife since September,
1995; prior thereto, he was an Executive Vice-President of Paine Webber.
Terence I. Lennon has been an officer of MetLife since March, 1994; prior
thereto, he was Assistant Deputy Superintendent and Chief Examiner of the
New York State Department of Insurance.
III-5
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE COMPANY OR
REGISTRANT.
The registrant is a separate account of Metropolitan Life Insurance Company
under the New York Insurance law. Under said law the assets allocated to the
separate account are the property of Metropolitan Life Insurance Company. No
person has the direct or indirect power to control Metropolitan Life Insurance
Company. As a mutual life insurance company, Metropolitan Life Insurance
Company has no stockholders. Its Board of Directors is elected in accordance
with New York Insurance Law by Metropolitan's policyholders, whose policies or
contracts have been in force for at least one year. Each such policyholder has
only one vote, irrespective of the number of policies or contracts held and
the amount thereof. The following diagram indicates those persons who are
controlled by or under common control with Metropolitan Life Insurance
Company:
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
The following is a list of subsidiaries of Metropolitan Life Insurance
Company ("Metropolitan") as of December 31, 1996. Those entities which are
listed at the left margin (labelled with capital letters) are direct
subsidiaries of Metropolitan. Unless otherwise indicated, each entity which is
indented under another entity is a subsidiary of such indented entity and,
therefore, an indirect subsidiary of Metropolitan. Certain inactive
subsidiaries have been omitted from the Metropolitan Organizational listing.
The voting securities (excluding directors' qualifying shares, if any) of the
subsidiaries listed are 100% owned by their respective parent corporations,
unless otherwise indicated. The jurisdiction of domicile of each subsidiary
listed is set forth in the parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company (Rhode
Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc. (Mississippi)
III-6
<PAGE>
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
(2) MLYC Cogen, Inc. (Delaware)
(3) MCC Yerkes Inc. (Washington)
(4) MetLife Capital, Limited Partnership (Delaware). Partnership
interests in MetLife Capital, Limited Partnership are held by
Metropolitan (90%) and MetLife Capital Corporation (10%).
(5) CLJFinco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware). Partnership
interests in MetLife Capital Credit L.P. are held by
Metropolitan (90%) and CLJ Finco, Inc. (10%).
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
iii. MetLife Financial Acceptance Corporation (Delaware). MetLife
Capital Holdings, Inc. holds 100% of the voting preferred stock of
MetLife Financial Acceptance Corporation. Metropolitan Property
and Casualty Insurance Company holds 100% of the common stock of
MetLife Financial Acceptance Corporation.
iv. MetLife Capital International Ltd. (Delaware).
b. MetLife Investment Management Corporation (Delaware)
i. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments Limited.
c. MetLife Investments Asia Limited (Hong Kong). One share of MetLife
Investments Asia Limited is held by W&C Services, Inc., a nominee of
Metropolitan Asset Management Corporation.
d. GFM International Investors Limited (United Kingdom). The common stock
of GFM International Investors Limited ("GFM") is held by Metropolitan
(99.5%) and by the former CEO of GFM (.5%). GFM is a sub-investment
manager for the International Stock Portfolio of Metropolitan Series
Fund, Inc.
i. GFM Investments Limited (United Kingdom)
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a sub-
investment manager for the Growth, Income, Diversified and Aggressive
Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Energy, Inc. (Massachusetts)
ii. State Street Research Investment Services, Inc. (Massachusetts)
iii. SSRM Management Company (Luxembourg).
III-7
<PAGE>
b. Metric Holdings, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Realty Corp. (Delaware)
(1) Metric Realty Services, Inc. (Delaware). Metric Holdings, Inc.
and Metric Realty Corp. each hold 50% of the common stock of
Metric Realty Services, Inc.
(a) Metric Colorado, Inc. (Colorado). Metric Realty Services,
Inc. holds 80% of the common stock of Metric Colorado, Inc.
(2) Metric AV, Inc.
iii. Metric Realty (Illinois). Metric Realty Corp. and Metric Holdings,
Inc. each hold 50% of the common stock of Metric Realty.
(1) Metric Capital Corporation (California)
(2) Metric Assignor, Inc. (California)
(3) Metric Institutional Realty Advisors, Inc. (California)
(4) Metric Institutional Realty Advisors, L.P. (California). Metric
Realty holds a 99% limited partnership interest and Metric
Institutional Realty Advisors, Inc. holds a 1% interest as
general partner in Metric Institutional Realty Advisors, L.P.
(5) Metric Institutional Apartment Fund II, L.P. (California). Metric
Realty holds a 1% interest as general partner and Metropolitan
holds an approximately 14.6% limited partnership interest in
Metric Institutional Apartment Fund II, L.P.
iv. MetLife Realty Group, Inc. (Delaware)
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. MetLife HealthCare Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
III-8
<PAGE>
3. Morguard Investments Limited (Ontario, Canada) Shares of Morguard
Investments Limited ("Morguard") are held by Metropolitan Life Holdings
Limited (80%) and by employees of Morguard (20%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
5. 3309347 Canada, Inc. (Canada)
H. MetLife (UK) Limited (Great Britain). One share held by Metropolitan Tower
Corp.
1. Albany Life Assurance Company Limited (Great Britain)
a.Albany Pension Managers and Trustees Limited (Great Britain)
2. Albany Home Loans Limited (Great Britain)
3. ACFC Corporate Finance Limited (Great Britain)
4. Metropolitan Unit Trust Managers Limited (Great Britain)
5. Albany International Assurance Limited (Isle of Man)
6. MetLife Group Services Limited (Great Britain)
I. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
J. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
K. Metropolitan Life Seguros de Vida S.A. (Argentina)
L. Metropolitan Life Seguros de Retiro S.A. (Argentina).
M. Met Life Holdings Luxembourg (Luxembourg)
N. Metropolitan Life Holdings, Netherlands BV (Netherlands)
O. MetLife International Holdings, Inc. (Delaware)
P. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
Q. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Associates of New York, Inc. (New York)
b. Cross & Brown Construction Corp. (New York)
c. CBNJ, Inc. (New Jersey)
d. SubBrown Corp. (New York)
R. MetPark Funding, Inc. (Delaware)
S. 2154 Trading Corporation (New York)
III-9
<PAGE>
T. Transmountain Land & Livestock Company (Montana)
U. Met West Agribusiness, Inc. (Delaware)
V. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
W. MetLife Trust Company, National Association. (United States)
X. PESCO Plus, L.C. (Florida). Metropolitan holds a 50% interest in PESCO
Plus, L.C. and an unaffiliated party holds a 50% interest.
1. Public Employees Equities Services Company (Florida)
Y. Benefit Services Corporation (Georgia)
Z. G.A. Holding Corporation (MA)
A.A. TNE-Y, Inc. (DE)
A.B. CRH Companies, Inc. (MA)
A.C. NELRECO Troy, Inc. (MA)
A.D. TNE Funding Corporation (DE)
A.E. L/C Development Corporation (CA)
A.F. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.G. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.H. DPA Holding Corp. (MA)
A.I. Lyon/Copley Development Corporation (CA)
A.J. NEL Partnership Investments I, Inc. (MA)
A.K. New England Life Mortgage Funding Corporation (MA)
A.L. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital
L.P.
A.M. Mercadian Funding L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Funding
L.P.
A.N. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Securities Corporation (MA)
III-10
<PAGE>
b. Hereford Insurance Agency, Inc. (MA)
c. Hereford Insurance Agency of Alabama, Inc. (AL)
d. Hereford Insurance Agency of Minnesota, Inc. (MN)
e. Newbury Insurance Company, Limited (Bermuda)
f. TNE Information Services, Inc. (MA)
g. Exeter Reassurance Company, Ltd. (MA)
h. Omega Reinsurance Corporation (AZ)
i. New England Pension and Annuity Company (DE)
j. TNE Advisers, Inc. (MA)
k. New England Investment Companies, Inc. (MA)
1. New England Investment Companies, L.P. (DE) New England Investment
Companies, Inc. hold a 0.29% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings,
Inc. holds a 54.90% limited partnership interest in New England
Investment Companies, L.P.
a. NEIC Holdings, Inc. (MA)
i. (1) Back Bay Advisors, Inc. (MA)
(2) Back Bay Advisors, L.P. (DE) Back Bay Advisors, Inc. holds
a 1% general partner interest and NEIC Holdings, Inc.
holds a 99% limited partner interest in Back Bay Advisors,
L.P.
ii. Reich & Tang Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE) Reich & Tang Asset
Management Inc. holds a 1% general interest and Reich &
Tang Asset Management, L.P. holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) Reich & Tang Asset Management L.P. Reich & Tang Asset
Management, Inc. holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited partner interest
in Reich & Tang Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE) Reich & Tang Asset
Management, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, L.P. holds a 99% limited
partner interest in Reich & Tang Services, L.P.
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE) Loomis Sayles &
Company, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99% limited
partner interest in Loomis Sayles & Company, L.P.
iv. Westpeak Investment Advisors, Inc. (MA)
(1) Westpeak Investment Advisors, L.P. (DE) Westpeak
Investment Advisors, Inc. holds a 1% general partner
interest and Reich & Tang Asset Management, Inc. holds a
99% limited partner interest in Westpeak Investment
Advisors, L.P.
v. VNSM, Inc. (DE)
(1) Vaughan, Nelson Scarborough & McConnell, L.P. (DE) VNSM,
Inc. holds a 1% general partner interest and Reich & Tang
Asset Management Inc. holds Advisors, L.P. a 99% limited
partner interest in Vaughan, Nelson Scarborough &
McConnell, L.P.
III-11
<PAGE>
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE) MC Management, Inc. holds a 1%
general partner interest and Reich & Tang Asset
Management, Inc. holds a 99% limited partner interest in
MC Management, L.P.
vii. Harris Associates, Inc. (DE)
(1) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner
interest and Harris Associates L.P. holds a 99% limited
partner interest in Harris Associates Securities, L.P.
(2) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general partner
interest and New England Investment Company, L.P. Inc.
holds a 99.67% limited partner interest in Harris
Associates L.P.
(a) Harris Partners, Inc. (DE)
(b) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1% membership interest
and Harris Associates L.P. holds a 99% membership
interest in Harris Partners L.L.C.
(i) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(ii) Perseus Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(iii) Pleiades Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(iv) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(v) SPA Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
viii. Graystone Partners, Inc. (MA)
(1) Graystone Partners, L.P. (DE)
Graystone Partners, Inc. holds a 1% general partner
interest and New England Investment Company, L.P. holds a
99% limited partner interest in Graystone Partners, L.P.
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE)
NEF Corporation holds a 1% general partner interest and
New England Investment Company, L.P. holds a 99% limited
partner interest in New England Funds, L.P.
(2) New England Funds Management, L.P. (DE)
NEF Corporation holds a 1% general partner interest and
New England Investment Company, L.P. holds a 99% limited
partner interest in New England Funds Management, L.P.
l. Capital Growth Management, L.P. (DE)
New England Investment Companies, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
m. AEW Capital Management L.P. (DE)
New England Investment Companies, L.P. holds a 99% limited partner
interest and AEW Capital Management, Inc. holds a 1% general partner
interest in AEW Capital Management, L.P.
III-12
<PAGE>
1. AEW Investment Group, Inc. (MA)
a. BBC Investment Advisors, Inc. (MA)
b. Copley/Ochard Investors, Inc. (MA)
i. Copley/Ochard Investors, L.P. (DE)
Copley/Ochard Investors, Inc. holds a 1% general partner
interest in Copley/Ochard Investors, L.P.
c. AEW Real Estate Advisors, Inc. (MA)
i. AEW Advisors, Inc. (MA)
(1) Copley Management Partnership (MA)
Copley Advisors, Inc. holds a 1% general partner interest
in Copley Management Partnership.
(2) Coptel Associates L.P. (DE)
Copley Advisors, Inc. holds a 1% general partner interest
in Coptel Associates L.P.
(3) CIIF Associates (MA)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates.
(4) CIIF Associates II Limited Partnership (DE)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates II Limited Partnership.
(5) CIIF McInnes Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership
interest in CIIF McInnes Associates.
(6) CIIF Oxnard Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership in
CIIF Oxnard Associates.
(7) CIIF II Crossroads Limited Partnership (DE)
AEW Advisors, Inc. holds a 1% general partnership in CIIF
II Crossroads Limited Partnership.
(8) CIIF II Tech Center Associates L.P. (DE)
AEW Advisors, Inc. holds a 1% general partnership in CIIF
II Tech Center Associates L.P.
(9) CIIF II Tech Center, Inc. (MA)
AEW Advisors, Inc. holds a 5% interest in CIIF II Tech
Center Associates, Inc.
ii. Copley Properties Company, Inc. (MA)
(1) New England Life Pension Properties (MA)
Copley Properties Company, Inc. holds a 1% general partner
interest in New England Life Pension Properties.
iii. Copley Properties Company II, Inc. (MA)
(1)New England Life Pension Properties II (MA)
Copley Properties Company II, Inc. holds a 1% general
partner interest in New England Life Pension Properties II.
iv. Copley Properties Company III, Inc. (MA)
(1) New England Life Pension Properties III (MA)
Copley Properties Company III, Inc. holds a 1% general
partner interest in New England Life Pension Properties
III.
III-13
<PAGE>
v. Copley Securities Corporation (MA)
vi. Copley Margarita Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 0.001% general partner
interest in Copley Margarita Associates L.P.
vii. Fourth Copley Corp. (MA)
(1) New England Life Pension Properties IV (MA)
Fourth Copley Corp. holds a 1% general partner interest
in New England Life Pension Properties IV.
viii. Fifth Copley Corp. (MA)
(1) New England Life Pension Properties V (MA)
Fifth Copley Corp. holds a 1% general partner interest in
New England Life Pension Properties V.
ix. Sixth Copley Corp. (MA)
(1) Copley Pension Properties VI (MA)
Sixth Copley Corp. holds a 1% general partner interest in
Copley Pension Properties VI.
x. Seventh Copley Corp. (MA)
(1) Copley Pension Properties VII (MA)
Seventh Copley Corp. holds a 1% general partner interest
in Copley Pension Properties VII.
xi. Eighth Copley Corp. (MA)
xii. First Income Corp. (MA)
(1) Copley Realty Income Partners 1 (MA)
First Income Corp. holds a 1% general partner interest in
Copley Realty Income Partners 1.
xiii. Second Income Corp. (MA)
(1) Copley Realty Income Partners 2 (MA)
Second Income Corp. holds a 1% general partner interest
in Copley Realty Income Partners 2.
xiv. Third Income Corp. (MA)
(1) Copley Realty Income Partners 3 (MA)
Third Income Corp. holds a 1% general partner interest in
Copley Realty Income Partners 3.
xv. Fourth Income Corp. (MA)
(1) Copley Realty Income Partners 4 (MA)
Fourth Income Corp. holds a 1% general partner interest
in Copley Realty Income Partners 4.
xvi. Third Singleton Corp. (MA)
(1) Copley Business Parks Associates L.P. (MA)
Third Singleton Corp. holds a 1% general partner interest
in Copley Business Parks Associates L.P.
xvii. Fourth Singleton Corp. (MA)
xviii. Fifth Singleton Corp. (MA)
(1) Copley Regional Centers Associates L.P. (MA)
Fifth Singleton Corp. holds a 1% general partner interest
in Copley Regional Centers Associates L.P.
III-14
<PAGE>
xix. Sixth Singleton Corp. (MA)
(1) Copley Commerce Centers Associates L.P. (MA)
Sixth Singleton Corp. holds a 1% general partner
interest in Copley Commerce Centers Associates L.P.
xx. CTR Corp. (MA )
xxi. New England Investment Associates, Inc. (DE)
xxii. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general partner
interest in BCOP Associates L.P.
xxiii. AEW Real Estate Advisors Limited Partnership
AEW Real estate Advisors, Inc. holds a 25% general partner
interest in AEW Real Estate Advisors, Limited Partnership.
d.BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds a 60% general partner interest
in BBC Investment Advisors, Inc. and Back Bay Advisors, L.P.
holds a 40% limited partner interest.
n. AEW Capital Management, Inc. (MA)
(i) Copley Management and Advisors, L.P. (DE)
AEW Capital Management, Inc. holds a 75% limited partner interest
and AEW Investment Group, Inc. holds a 25% general partner interest
in Copley Management and Advisors, L.P.
(a) BBC Investment Advisors, L.P. (DE)
Copley Management Advisors, L.P. holds a 59.4% limited partner
interest, Back Bay Advisors, L.P. holds a 39.6% limited partner
interest and BBC Investment Advisors, Inc. holds a 1% general
partner interest in BBC Investment Advisors, L.P.
2. Copley Public Partners Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and AEW
Investment Group, Inc. holds a 25% general partner interest.
3. AEW Hotel Investment Corporation.
In addition to the entities listed above, Metropolitan (or where
indicated an affiliate) also owns an interest in the following entities,
among others:
(1) CP&S Communications, Inc., a New York corporation, holds federal
radio communications licenses for equipment used in Metropolitan
owned facilities and airplanes. It is not engaged in any business.
(2) Quadreal Corp., a New York corporation, is the fee holder of a parcel
of real property subject to a 999 year prepaid lease. It is wholly
owned by Metropolitan, having been acquired by a wholly owned
subsidiary of Metropolitan in 1973 in connection with a real estate
investment and transferred to Metropolitan in 1988.
(3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns
approximately 18.4% of the outstanding common stock of this company
and has the right to designate 2 of the 5 members of its Board of
Directors.
(4) Metropolitan Structures is a general partnership in which
Metropolitan owns a 50% interest. Metropolitan Structures owns 100%
of the common stock of Cicero/Cermak Corporation, an Illinois
corporation.
(5) Seguros Genesis, S.A., (Mexico), is a Mexican insurer in which
Metropolitan and two of its subsidiaries collectively own a 24.5%
interest and have the right to designate 2 of the 9 members of the
Board of Directors.
III-15
<PAGE>
(6) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance
brokerage company in which Santander Met, S.A., a subsidiary of
Metropolitan in which Metropolitan owns a 50% interest and has the
right to designate 2 of the 4 members of the Board of Directors.
(7) Metropolitan owns varying interests in certain mutual funds
distributed by its affiliates. These ownership interests are
generally expected to decrease as shares of the funds are purchased
by unaffiliated investors.
(8) Metropolitan Lloyds Insurance Company of Texas, an affiliated
association, provides homeowner and related insurance for the Texas
market. It is an association of individuals designated as
underwriters, Metropolitan Lloyds, Inc., a subsidiary of Metropolitan
Property and Casualty Insurance Company ("MET P&C"), serves as the
attorney-in-fact and manages the association.
(9) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in
certain entities are held. A wholly owned subsidiary of Metropolitan
serves as the general partner of the limited partnerships and
Metropolitan directly owns a 99% limited partnership interest in each
MILP. The MILPs have various ownership interests in certain
companies. The various MILPs own, directly or indirectly, more than
50% of the voting stock of the following companies, Coating
Technologies International, Inc.; Dan River, Inc.; Igloo Holdings,
Inc. and its subsidiary, Igloo Products Corp.; Blodgett Holdings,
Inc., and its subsidiaries, GS Blodgett Corporation, GS Blodgett
International Ltd., GS Blodgett Inc., Pitco Frialator, Inc.,
Frialator International Limited, Magikitch'n, Inc., and Cloverleaf
Properties, Inc.; and Briggs Holdings, Inc., and its subsidiary,
Briggs Plumbing Products, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATION CHART DOES NOT INCLUDE REAL ESTATE
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
ITEM 31. NUMBER OF CONTRACTOWNERS
As of March 31, 1997, there were 1,110 owners of tax-qualified contracts and
227 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
officers (including persons who serve at its request as directors, officers, or
trustees of another organization in which it has any interest, as a
shareholder, creditor 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 being 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 of 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
III-16
<PAGE>
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 determined 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
officer, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless
such compromise 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 officer 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 pursuant 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 adjudicated 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
Managers 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 action, 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 indemnification 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
liability 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
Exchange Commission such indemnification may be against public policy as
expressed in the Act and may be, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than 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 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.
III-17
<PAGE>
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
partner, Kenbob, Inc. has not engaged during the past two fiscal years in any
other businesses, professions, vocations or employments of a substantial
nature.
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 OFFICES WITH POSITIONS AND OFFICES
NAME PRINCIPAL UNDERWRITER WITH REGISTRANT
- ---- ------------------------------------------ ---------------------
<S> <C> <C>
Thomas W. McConnell*.... Director, President and CEO None
Frederick K. Chairman of Board, Director Chairman
Zimmermann**...........
Bradley W. Anderson*.... Vice President None
Beverly J. DeWitt**..... Assistant Secretary Assistant Secretary
Anne M. Goggin**........ Vice President, General Counsel, Secretary Manager
and Clerk
Mark F. Greco*.......... Vice President None
Laura A. Hutner*........ Vice President None
Mitchell A. Karman**.... Vice President None
Albert R. Margeson, Senior Vice President None
Jr.*...................
Robert F. Regan***...... Vice President None
Jonathan M. Rozek*...... Vice President None
Andrea M. Ruesch*....... Vice President None
Robert E. Schneider**... Director None
Michael E. Toland*...... Vice President, Chief Compliance Officer, None
Chief Financial Officer, Treasurer,
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
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NET
NAME OF UNDERWRITING COMPENSATION
PRINCIPAL DISCOUNTS & REDEMPTION OR BROKERAGE OTHER
UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
New England Securities
Corporation $14,426 0 0 0
</TABLE>
III-18
<PAGE>
Commissions are paid on behalf of New England Securities Corporation
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) New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(c) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
(e) 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 communication 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) To offer Contracts to participants in the Texas Optional Retirement
Program in reliance upon Rule 6c-7 of the Investment Company Act of
1940 and to comply with paragraphs (a)-(d) of that Rule; 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.
METROPOLITAN LIFE INSURANCE COMPANY REPRESENTS THAT THE FEES AND CHARGES
DEDUCTED UNDER THE CONTRACTS DESCRIBED IN THIS REGISTRATION STATEMENT, IN THE
AGGREGATE, ARE REASONABLE IN RELATION TO THE SERVICES RENDERED, THE EXPENSES
TO BE INCURRED, AND THE RISKS ASSUMED BY METROPOLITAN LIFE INSURANCE COMPANY
UNDER THE CONTRACTS.
III-19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT, NEW ENGLAND VARIABLE ANNUITY
FUND I, CERTIFIES THAT IT MEETS THE REQUIREMENTS OF SECURITIES ACT RULE 485(B)
FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT AND 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 30TH DAY OF APRIL, 1997.
New England Variable Annuity Fund I
By: /s/ Frederick K. Zimmermann+
-----------------------------------
Frederick K. Zimmermann Chairman
of the Board of Managers
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Frederick K. Zimmermann+ Chairman of the
- ----------------------------------- Board of
FREDERICK K. ZIMMERMAN Managers;
Principal
Executive Officer
Member of the
John J. Arena* Board
- -----------------------------------
JOHN J. ARENA
Member of the
John W. Flynn* Board
- -----------------------------------
JOHN W. FLYNN
Anne M. Goggin+ Member of the
- ----------------------------------- Board
ANNE M. GOGGIN
Nancy Hawthorne+ Member of the
- ----------------------------------- Board
NANCY HAWTHORNE
Joseph M. Hinchey+ Member of the
- ----------------------------------- Board
JOSEPH M. HINCHEY
</TABLE>
III-20
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Richard S. Humphrey, Jr.+ Member of the Board
- ------------------------------------
RICHARD S. HUMPHREY, JR.
Robert B. Kittredge+ Member of the Board
- ------------------------------------
ROBERT B. KITTREDGE
Member of the Board
John T. Ludes*
- ------------------------------------
JOHN T. LUDES
Laurens MacLure+ Member of the Board
- ------------------------------------
LAURENS MACLURE
Dale Rogers Marshall+ Member of the Board
- ------------------------------------
DALE ROGERS MARSHALL
Joseph F. Turley+ Member of the Board
- ------------------------------------
JOSEPH F. TURLEY
By: /s/ Marie C. Swift April 30, 1997
--------------------------------
MARIE C. SWIFT
ATTORNEY-IN-FACT
</TABLE>
+ Executed by Marie C. Swift on behalf of those indicated pursuant to Powers of
Attorney filed with Post-Effective Amendment No. 48 on Form N-3 (File No. 2-
34420) on March 29, 1996.
* Executed by Marie C. Swift on behalf of those indicated pursuant to Powers of
Attorney filed herewith.
III-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, METROPOLITAN LIFE INSURANCE COMPANY, CERTIFIES
THAT IT MEETS THE REQUIREMENTS OF SECURITIES ACT RULE 485(B) FOR EFFECTIVENESS
OF THIS REGISTRATION STATEMENT AND HAS CAUSED THIS AMENDMENT TO ITS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF NEW YORK,
AND THE STATE OF NEW YORK ON THIS THE 30TH DAY OF APRIL, 1997.
Metropolitan Life Insurance Company
By: /s/ Gary A. Beller, Esq.
------------------------------------
Gary A. Beller, Esq.
Executive Vice President and
General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Vice-Chairman and
- ----------------------------------- Director
THEODOSSIOS ATHANASSIADES
* Senior Executive Vice-
- ----------------------------------- President and Chief
STEWART G. NAGLER Financial Officer
(Principal Financial
Officer)
* Senior Executive Vice-
- ----------------------------------- President and
FREDERICK P. HAUSER Controller (Principal
Accounting Officer)
* Director
- -----------------------------------
CURTIS H. BARNETTE
* Director
- -----------------------------------
GERALD CLARK
* Director
- -----------------------------------
JOAN GANZ COONEY
</TABLE>
III-22
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director
- ------------------------------------
BURTON A. DOLE, JR.
* Director
- ------------------------------------
JAMES R. HOUGHTON
* Director
- ------------------------------------
HELENE L. KAPLAN
* Director
- ------------------------------------
CHARLES M. LEIGHTON
* Director
- ------------------------------------
RICHARD J. MAHONEY
* Director
- ------------------------------------
ALLEN E. MURRAY
* Director
- ------------------------------------
JOHN J. PHELAN, JR.
* Director
- ------------------------------------
JOHN B. M. PLACE
* Director
- ------------------------------------
HUGH B. PRICE
* Director
- ------------------------------------
ROBERT G. SCHWARTZ
* Director
- ------------------------------------
RUTH J. SIMMONS
* Director
- ------------------------------------
WILLIAM S. SNEATH
Director
- ------------------------------------
WILLIAM C. STEENE, JR.
*By: /s/ Christopher P. Nicholas, Esq. April 30, 1997
-----------------------------------
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
</TABLE>
III-23
<PAGE>
EXHIBIT INDEX
(1) (i) Resolutions of the Board of Directors of New England Mutual Life
Insurance Company establishing the Fund are incorporated herein by
reference to the Registration Statement on Form N-3 (No. 333-11137)
filed on August 30, 1996.
(ii) Resolutions of the Board of Directors of the Company adopting the
Fund as a separate account are incorporated herein by reference to the
Registration Statement on Form N-3 (No. 333-11137) filed on August 30,
1996.
(2) Amended and Restated Rules and Regulations of the Fund.
(3) Form of Safekeeping Agreement is incorporated herein by reference to
Registration Statement on Form N-8b-1 (File No. 811-1930) filed on
August 26, 1969 and Amendment No. 1 thereto, filed on September 30,
1970. Amendment to Safekeeping Agreement dated August 29, 1991 is
incorporated herein by reference to Post-Effective Amendment No. 43 to
Registration 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 (No. 2-34420) filed in January, 1980.
(4) Advisory Agreement is incorporated herein by reference to the
Registration Statement on Form N-3 (No. 333-11137) filed on August 30,
1996.
(5) Distribution Agreement is incorporated herein by reference to the
Registration Statement on Form N-3 No. 333-11137) filed on August 30,
1996.
(6) (i) Form of variable annuity contracts are incorporated herein by
reference to Registration Statement on Form N-8b-1 (File No. 811-1930)
filed on August 26, 1969 and Amendment No. 1 thereto, filed on
September 30, 1970.
(ii) Form of Endorsement: Tax-Sheltered 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.
(iii) 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.
(iv) Form of Metropolitan Life Insurance Company Endorsement to New
England Mutual Life Insurance Company variable annuity contract is
incorporated herein by reference to the Registration Statement on Form
N-3 (No. 333-11137) filed on August 30, 1996.
(7) Form of application is incorporated herein by reference to Registration
Statement on Form N-8b-1 (File No. 811-1930) filed on August 26, 1969
and Amendments No. 1 and 2 thereto, filed on September 30, 1970 and
November 30, 1970.
(8) (i) Charter and By-Laws of Metropolitan Life Insurance Company is
incorporated herein by reference to the Registration Statement on
Form N-3 (No. 333-11137) filed on August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-3 (No. 333-11137) filed on
August 30, 1996.
(9) None
(10) None
(11) (i) Form of Administrative Agreement is incorporated herein by reference
to Registration Statement on Form N-8b-1 (File No. 811-1930) filed on
August 26, 1969 and Amendment No. 1 thereto, filed on September 30,
1970.
<PAGE>
(ii) Administrative Services Agreement is incorporated herein by
reference to the Registration Statement on Form N-3 (No. 333-11137)
filed on August 30, 1996.
(12) Opinion and Consent of Christopher P. Nicholas, Esq.
(13) (i) Consent of Coopers & Lybrand L.L.P.
(ii) Consent of Deloitte & Touche LLP.
(iii) 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
(i) Metropolitan Life Insurance Company. Additional Powers of Attorney
are incorporated herein by reference to the Registration Statement on
Form N-3 (No. 333-11137) filed on August 30, 1996.
(ii) Board of Managers of the Fund. Additional Powers of Attorney are
incorporated herein by reference to Post-Effective Amendment No. 48
on Form N-3 (File No. 2-34420) filed on March 29, 1996.
(27) Financial Data Schedule
<PAGE>
Exhibit 2
NEW ENGLAND VARIABLE ANNUITY FUND I
*********
AMENDED AND RESTATED RULES AND REGULATIONS
Effective October 23, 1996
*********
ARTICLE I. GENERAL
-------
Section 1. Name. The name of this separate investment account shall be New
----
England Variable Annuity Fund I (the "Fund"). The name of the Fund has been
selected by Metropolitan Life Insurance Company (the "Company"), whose
subsidiary, New England Life Insurance Company ("NELICO"), owns such name, and
may be used by the Fund only with the consent of NELICO and the Company, which
reserve the right in their discretion to withdraw such consent at any time. In
the event that such consent is withdrawn, the Fund shall adopt some other name
which shall not include the phrase "New England" as a part thereof. The use of
said name by the Fund shall in no way prevent the Company or NELICO, or any
other separate investment account thereof, or any company affiliated with the
Company or NELICO, or any investment company for which NELICO's subsidiary, New
England Securities Corporation, or any other direct or indirect subsidiary of
the Company, acts as distributor, from using as part of or in connection with
its name, the phrase "New England," with any other words or symbols, in
connection with any other entity or business, whether or not competitive with
the Fund.
Section 2. Office. The office of the Fund shall be at the home office of
------
NELICO, 501 Boylston Street, Boston, Massachusetts.
Section 3. Purpose. The Fund was initially established in accordance with
-------
Massachusetts law as a separate investment account of New England Mutual Life
Insurance Company, which merged with and into the Company on August 30, 1996;
following such merger the Fund operates under New York law as a separate
investment account of the Company within which assets attributable to certain
variable annuity contracts issued by the Company are set aside, held and
invested for the sole benefit of the Contractholders and other persons entitled
to payments under such contracts. Such assets shall be part of the assets of
the Company but shall not be chargeable with liabilities arising out of any
other business conducted by the
<PAGE>
Company and the income and realized and unrealized capital gains or losses of
the Fund shall be credited to or charged against the Fund without regard to
other income and capital gains or losses of the Company.
Assets may also be transferred to the Fund by the Company from its
general assets for any legitimate purpose consistent with applicable law and
such assets (other than those transferred to the Fund in order to support
obligations of the Company under the variable annuity contracts) shall not be
attributable to such variable annuity contracts but shall stand to the credit of
the Company; provided that immediately following any such transfer the value of
such assets (other than those transferred to the Fund in order to support
obligations of the Company under the variable annuity contracts) shall not
exceed the greater of $200,000 or 5% of the total assets of the Fund. The
withdrawal of assets so placed in the Fund by the Company shall be at its sole
discretion, subject to applicable law and to the terms of any undertaking it may
make in connection with the registration of the Fund under the Investment
Company Act of 1940.
Section 4. Alteration of Classification. The Fund is registered and qualified
----------------------------
as an open-end management investment company under the Investment Company Act of
1940. The Fund reserves the right to terminate such registration under the Act,
to the extent permitted by law, or to reorganize and qualify as a unit
investment trust under such Act upon approval of a majority of all votes
entitled to be cast at any meeting of the owners of contracts which depend in
whole or in part on the investment performance of the Fund (the
"Contractholders"), provided that: (1) such reorganization will not result in
any expense chargeable to, or the imposition of any tax upon, the assets of the
Fund or the Contractholders or other payees under the contracts; and (2) the
assets of the unit investment trust will be shares of an open- end management
company sponsored by or affiliated with the Company and having the same
investment objectives as the Fund, except to the extent otherwise approved by a
majority of the votes entitled to be cast at any meeting of the Contractholders.
ARTICLE II. BOARD OF MANAGERS
-----------------
Section 1. Election. A Board of Managers, composed of not more than fifteen
--------
nor less than three Managers, shall be elected at each meeting of
Contractholders called for the purpose of electing Managers. The number of
Managers shall be fixed by vote of the meeting at which they are elected, but
the Contractholders or the Managers may, at any subsequent meeting held for the
purpose, increase (within the limits above specified) the number of Managers as
so fixed and (a) in the case of the Contractholders, elect new Managers to
complete the number
-2-
<PAGE>
so fixed, and (b) in the case of the Managers, fill the vacancy so created in
accordance with Section 6 of this Article II. No Manager need be a
Contractholder. The Managers shall hold office until the next meeting of the
Contractholders called for the purpose of electing Managers and until their
successors are elected and qualified, or until a Manager sooner dies, resigns,
is removed or becomes disqualified.
Section 2. Meetings. Regular meetings of the Board of Managers may be held
--------
without call or notice at such places and at such times as the Board may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Managers. Special
meetings of the Managers may be held at any time and at any place designated in
the call of the meeting, when called by the Chairman of the Board of Managers or
any two or more members of the Board of Managers, sufficient notice thereof
being given to each member by the Secretary or by the person or persons calling
the meeting. It shall be sufficient notice to a member to send notice by mail at
least forty-eight hours or by telegram at least twenty-four hours before the
meeting addressed to him at his usual or last known business or residence
address or to give notice to him in person or by telephone at least twenty-four
hours before the meeting. Notice of a meeting need not be given to any member
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any member who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting. The Chairman of the Board of Managers shall preside at
all meetings of the Board at which he is present, and if he is not present, one
of the members present shall be designated to act as presiding officer.
Section 3. Quorum. A majority of the members of the Board of Managers in
------
office shall constitute a quorum for the transaction of business at any meeting
of the Board. When a quorum is present at any meeting, a majority of the
members present shall decide any question brought before such meeting, except as
otherwise provided by applicable law or these Rules and Regulations. Except as
otherwise required by applicable law, any action required or permitted to be
taken at any meeting of the Managers may be taken without a meeting if a written
consent thereto is signed by all the Managers and such written consent is filed
with the records of the meetings of the Managers. Such consent shall be treated
for all purposes as a vote at a meeting.
Section 4. Officers. From time to time as the Board of Managers shall
--------
determine, the Board of Managers shall elect one of its members to act as
Chairman of the Board of Managers to hold office until his successor is elected
and qualified.
-3-
<PAGE>
As such meeting as they elect a Chairman, the Board of Managers shall
also elect a Secretary and one or more Assistant Secretaries to the Board, who
may or may not be members of the Board of Managers. The Secretary shall have the
power to keep and certify the minutes of the meetings of the Contractholders and
the Board of Managers and portions thereof and all other duties and powers
provided for in these Rules and Regulations or designated by the Board of
Managers. In the absence of the Secretary, an Assistant Secretary shall perform
such duties and have such powers and, in the absence of the Secretary and any
Assistant Secretary, a temporary Secretary may be designated by the Board of
Managers to perform such duties and have such powers. The Board of Managers may
appoint such other officers as it may from time to time deem appropriate. The
Chairman of the Board of Managers, the Secretary and such other officers shall
have and perform such duties and have such other powers as the Board of Managers
shall designate from time to time.
Section 5. Resignations and Removal. Any member of the Board of Managers or
------------------------
the Secretary to the Board or any other officer may resign at any time by
delivering his resignation in writing to the Chairman of or Secretary to the
Board of Managers or to a meeting of the Board of Managers. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. A Manager (including persons elected by the Managers to fill vacancies in
the Board of Managers) may be removed from office (a) with or without cause by
the vote of a majority of all votes entitled to be cast at a meeting of
Contractholders or (b) for cause by a majority of the Managers then in office.
The Board of Managers may remove any officer elected by them with or without
cause by the vote of a majority of the Managers then in office. A Manager or
officer may be removed for cause only after reasonable notice and opportunity to
be heard before the body proposing to remove him. No Manager or officer
resigning or removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal.
Section 6. Vacancies. No person shall serve as a member of the Board of
---------
Managers unless duly elected to that office by the Contractholders, except that
whenever any vacancy shall occur in the Board of Managers by death, resignation
or otherwise (including by an increase in the size of the Board of Managers),
the Board of Managers may appoint a person to fill such vacancy by a vote of a
majority of all the remaining members of the Board, with the person so appointed
to hold office until the next meeting of the Contractholders called for the
purpose of electing Managers and until his successor is elected and qualified
(unless he sooner dies, resigns, is removed or becomes disqualified) if,
immediately after filling such vacancy, at least two-thirds of the members of
the Board of Managers then holding office shall have been elected by the
Contractholders. In the event that at any time less than a majority of the
Board
-4-
<PAGE>
have been so elected, the Board of Managers shall forthwith cause to be held as
promptly as possible, and in any event within sixty days, a meeting of the
Contractholders for the purpose of electing members to fill the existing
vacancies in the Board of Managers. The Board of Managers may fill any vacancy
occurring in the office of Chairman of the Board or Secretary to the Board.
Except as otherwise provided by law, the Board of Managers shall have and may
exercise all its powers notwithstanding the existence of one or more vacancies
in their number.
Section 7. Powers and Duties of Board of Managers. Subject to applicable law,
--------------------------------------
the Board of Managers shall have the following powers, responsibilities and
duties:
a. To select an independent accountant at a meeting held within thirty
days before or ninety days after the beginning of the fiscal year, provided such
selection is made by the vote, cast in person, of a majority of those members of
the Board of Managers of the Fund who are not interested persons of the Fund or
affiliated persons of the Company; and to fill any vacancy due to the death or
resignation of such accountant, by the vote of a majority of those members of
the Board of Managers who are not interested persons of the Fund or affiliated
persons of the Company, cast in person at a meeting called for the purpose of
voting on such action.
b. To approve an initial or amended distribution agreement for the Fund
and to approve the continuance of such an agreement, provided that the terms of
any such agreement and any renewal thereof shall also be approved by the vote of
a majority of those members of the Board of Managers who are not parties to such
agreement or interested persons of any party to such agreement or of the Fund or
affiliated persons of the Company, cast in person at a meeting called for the
purpose of voting on such approval.
c. To approve an initial or amended agreement for investment advisory
services to the Fund, subject to approval by Contractholders as provided in
Section 10 of Article V, and to approve the continuance of such an agreement,
provided that the terms of any such agreement and any renewal thereof shall also
be approved by vote of a majority of those members of the Board of Managers who
are not parties to such agreement or interested persons of any party to such
agreement or of the Fund, cast in person at a meeting called for the purpose of
voting on such approval.
d. To recommend from time to time any changes deemed appropriate in the
fundamental investment policies of the Fund for submission to the
Contractholders at their next
-5-
<PAGE>
meeting, and to make such changes in those investment policies of the Fund not
requiring approval by the Contractholders as the Board deems appropriate.
e. To review periodically the investment portfolio of the Fund to
ascertain that it is being managed in accordance with the investment objectives
and policies of the Fund and the interests of the Contractholders, and to take
such corrective action as may be necessary.
f. To enter into agreements and take any and all actions necessary or
appropriate in the judgment of the Board of Managers in connection with the
operation and management of the Fund and its assets, including such actions as
are necessary or appropriate to comply with any applicable federal or state
statutes or rules.
Section 8. Committees. The Board of Managers may elect by vote of a majority
----------
of the whole Board two or more of its members to constitute an Executive
Committee, which committee shall, except as otherwise required by applicable
law, have and may exercise when the Board is not in session any or all powers of
the Board of Managers in the management of the business and affairs of the Fund.
The Board of Managers likewise may appoint from its number other
committees from time to time, determine the number (but not less than two)
composing such committees, and specify the functions to be performed by such
committees.
Each committee may make rules for the notice and conduct of its meetings
and the keeping of the records thereof. The term of any member of any committee
shall be fixed by the Board of Managers.
ARTICLE III. FEES OF MEMBERS OF BOARD AND OTHERS
-----------------------------------
The Board of Managers shall have power to fix and determine the fee or
fees to be paid to members of the Board of Managers or to any officers or other
persons elected by the Board of Managers or by the Contractholders, on account
of services to the Fund, except that members and officers of the Board of
Managers of the Fund who are also officers, directors or employees of the
Company or any company affiliated with the Company shall not be entitled to any
fee. Any fees so fixed and determined by the Board of Managers shall be subject
to revision or amendment by the Contractholders.
-6-
<PAGE>
ARTICLE IV. INDEMNIFICATION
---------------
The Fund shall indemnify each of the members of its Board of Managers
and officers (including persons who serve at its request as directors, officers
or trustees of another organization in which it has any interest, as a
shareholder, creditor 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 being 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
determined 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
officer, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
compromise 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 officer
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
-7-
<PAGE>
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 pursuant 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 adjudicated 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
Managers may be entitled. As used in this Article, the terms "member" and
"officer" include their respective heirs, executors and administrators, and an
"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 action, 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 indemnification to which Fund personnel other than members and officers may
be entitled by contract or otherwise under law.
ARTICLE V. MEETINGS OF CONTRACTHOLDERS
---------------------------
Section 1. Time and Place of Meetings. Meetings of the Contractholders may be
--------------------------
called by the Chairman of the Board of Managers or by a majority of the Board of
Managers to be held at such times and places as he or they may determine.
Section 2. Notice of Meeting. A written notice stating the place, day and hour
-----------------
of the meeting, and the purpose or purposes for which the meeting is called,
shall be given to each Contractholder who is such as of the record date for the
meeting and no business shall be transacted at the meeting except matters coming
within such purpose. Such notice shall be mailed to the Contractholder's
address as it appears upon the records of the Company not less than twenty days
nor more than ninety days prior to the day of such meeting. Only persons owning
a contract on the record date will be entitled to vote at such meeting. Notice
of any adjourned meeting shall not be required. No call or notice of any
meeting of Contractholders need be given to a Contractholder if a written waiver
of notice, executed before or after the
-8-
<PAGE>
meeting by such Contractholder or his attorney thereunto duly authorized, is
filed with the records of the meeting.
Section 3. Record Date. The record date for any meeting of the Contractholders
-----------
shall be such date within ninety days of the date of the meeting as is
determined by the Board of Managers.
Section 4. Quorum. Forty per cent (40%) of all votes which may be cast by
------
Contractholders represented either in person or by proxy shall constitute a
quorum for the transaction of business at any meeting of the Contractholders.
If a quorum shall not be present, a majority of the votes represented may
adjourn the meeting to some later time. When a quorum is present, the vote of a
majority of the votes represented in person or by proxy shall determine any
question, except as may be otherwise provided by these Rules and Regulations or
by law. "A majority of the votes entitled to be cast" by the Contractholders,
when required by these Rules and Regulations, means (a) 67% or more of the votes
present (in person or by proxy) and entitled to be cast at a meeting if
Contractholders entitled to more than 50% of the outstanding votes of the Fund
are present (in person or by proxy); or (b) more than 50% of all votes which are
entitled to be cast, whichever is less.
Section 5. Order of Business. The Chairman of the Board of Managers shall act
-----------------
as Chairman of each meeting of the Contractholders, and in his absence the
Chairman of the meeting shall be such person as may be designated for such
purpose by the Chairman of the Board of Managers. The order of business at the
meeting shall be determined by the Chairman.
Section 6. Proxies. A Contractholder entitled to vote may vote either in
-------
person or by proxy duly executed in writing by the Contractholder. A proxy for
any meeting shall be valid for any adjournment of such meeting.
Section 7. Voting. The number of votes which a Contractholder may cast shall
------
be determined as of the record date for the meeting. Prior to the commencement
of annuity payments, i.e. during the accumulation period under a deferred
variable annuity contract, the number of votes which a Contractholder may cast
shall be equal to the number of Accumulation Units standing to the credit of his
contract. After annuity payments under a deferred or immediate variable annuity
contract have begun, i.e. during the annuity period, the number of votes which a
Contractholder may cast shall be equal to (i) the amount of assets established
in the Fund to meet the obligation for future payments under variable options
elected under the contract, divided by (ii) the value of an Accumulation Unit.
-9-
<PAGE>
During the accumulation period, the Contractholder will have the sole
right to cast all votes attributable to his contract, subject to the following
provisions. An annuitant who is an employee covered by a contract issued in
connection with an "H.R. 10" plan shall have the right to instruct the
Contractholder as to how all votes attributable to that contract shall be cast.
An annuitant who is an employee covered by a contract issued in connection with
a "corporate pension plan" shall have the right to instruct the Contractholder
as to how the latter shall cast all votes attributable to purchase payments (if
any) made by the annuitant and, to the extent authorized by the terms of the
plan, any additional votes under the contract. An annuitant who is an employee
covered by a contract issued pursuant to Section 403(b) of the Internal Revenue
Code shall be deemed to be the Contractholder for purposes hereof. All other
votes during the accumulation period may be cast by the Contractholder in its
sole discretion.
During the annuity period, the Contractholder shall have the sole right
to cast all votes attributable to his contract, provided, however, that the
annuitant or other payee shall have 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 related to such annuitant
or other payee.
Each Contractholder shall cast the votes with respect to which
instructions from annuitants or other payees have been received in accordance
with such instructions; and votes with regard to which annuitants or other
payees were entitled to instruct the Contractholder but for which the
Contractholder has received no instructions shall be cast by the Contractholder
for or against each proposal to be voted upon only in the same proportion as
votes for which instructions have been received. If no one is entitled to
instruct the Contractholder, or if a Contractholder receives no instructions,
all votes which such Contractholder is entitled to cast may be cast at the
Contractholder's sole discretion.
Each annuitant or other payee having the right to instruct the
Contractholder with respect to any votes shall receive 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 by the Company to the Contractholders,
including such number thereof as are necessary to enable the Contractholder to
distribute copies thereof to all such annuitants and other payees. Neither the
Fund nor the Company shall be under a duty to inquire as to the instructions
received or the authority of the Contractholder to cast votes. Except as the
Fund or the Company has actual knowledge to the contrary, the votes cast by the
Contractholders shall be valid and effective as
-10-
<PAGE>
they affect the Fund, the Company and any others having voting rights with
respect to the Fund.
For purposes of these Rules and Regulations, the Company shall be deemed
a Contractholder with respect to and shall be entitled to cast the votes
attributable to assets in the Fund not attributable to variable annuity
contracts, provided that the Company's votes shall be cast only in the same
manner and proportion in which all other votes are cast.
Cumulative voting for members of the Board of Managers is not
authorized.
Section 8. Tellers. The Chairman shall appoint at least two tellers to
-------
receive, count and report all ballots cast at every meeting of Contractholders
and he may also appoint a committee on qualifications and proxies to inquire and
report to the meeting what Contractholders are present, duly qualified or
properly represented. If the right of any person to vote is questioned, the
Chairman of the meeting shall upon receiving the report of the committee on
qualifications and proxies determine his said right, subject to an appeal from
such decision to the meeting.
Section 9. Voting Authority. Subject to applicable law, the Contractholders
----------------
shall have authority, at any meeting called for that purpose, to:
a. Determine the number of and elect members of the Board of Managers
of the Fund, and fill vacancies in the Board when such action is required under
applicable law;
b. Remove any member of the Board of Managers of the Fund or any
officer elected or appointed by the Board;
c. Ratify the selection of an independent public accountant for the
Fund, and terminate the employment of such independent public accountant;
d. Approve an initial or amended agreement for investment advisory
services for the Fund, approve the continuance of such an agreement in the
absence of approval of such continuance by the Board of Managers of the Fund and
terminate such agreement;
e. Approve an initial or amended distribution agreement for the Fund
and approve the continuance of such an agreement, in the absence of approval of
such agreement or its continuance by the Board of Managers of the Fund; and
-11-
<PAGE>
f. Authorize changes in the fundamental investment policies of the
Fund.
Action with respect to the matters referred to in paragraphs (b), (d),
(e), and the second clause of paragraph (c) shall be by vote of a majority of
the votes entitled to be cast.
ARTICLE VI. VALUATION OF THE ASSETS OF THE FUND
-----------------------------------
Section 1. Valuation of Assets. In determining the total value of the assets
-------------------
of the Fund on any valuation date, securities shall be taken at their market
value and all other assets at fair value, determined as follows:
(1) The market value of each security that is traded on a national
securities exchange shall be determined by the price of the last reported sale
of such security on any of said exchanges on the valuation date. In case there
has been no such sale of such security on such day, and for any security not
traded on a national securities exchange, the market value shall be taken to be
the last reported bid price on the valuation date.
(2) The market value of each security for which market quotations are
not readily available shall be determined by any method which may be selected by
the Board of Managers.
(3) Dividends declared but not yet received and rights in respect of
securities quoted ex-dividends or ex-rights shall be included at the fair value
thereof as determined by any method which may be selected by the Board of
Managers, which may, but need not be, the fair value so determined on the day
the particular securities are first quoted ex-dividends or ex-rights.
(4) The fair value of any other assets of the Fund (or the value of any
of the assets mentioned in paragraphs (1), (2) or (3) in situations not covered
thereby or in the event of the closing of the New York Stock Exchange or any
other circumstances determined by the Board of Managers to make other methods of
valuation advisable) shall be determined by any method which may be selected by
the Board of Managers.
(5) Whenever value or market prices or any other matters are to be
determined hereunder by any method which may be selected by the Board of
Managers, the method selected shall be in accordance with generally accepted
accounting principles.
-12-
<PAGE>
Section 2. Determination Binding. Any determination made in good faith and, so
---------------------
far as accounting matters are involved, in accordance with generally accepted
accounting principles, by or pursuant to the direction of the Board of Managers,
as to the amount of assets, debts, obligations, or liabilities of the Fund, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating such reserves or charges, as to the use,
alteration or cancellation of any reserves or charges (whether or not any debt,
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the price or bid or asked price of any
security owned or held by the Fund, as to the market value of any security or
fair value of any other asset of the Fund, as to the estimated expense to the
Fund in connection with purchases of assets, as to the ability to liquidate
securities in orderly fashion, or as to any other matters relating to the issue,
sale, purchase and/or acquisition or disposition of securities of the Fund,
shall be final, conclusive and binding. The foregoing sentence shall not be
construed to protect any member of the Board of Managers or officer or agent of
the Fund against any liability to the Fund or 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 agency; nor shall the foregoing sentence be construed as a waiver of
compliance with any provisions of the Investment Company Act of 1940 (including,
without limitation, the provisions of Section 47(a) thereof) or with any rule,
regulation, or order promulgated under said Act. Nothing in this section is to
be construed to give the Board of Managers any control or authority over the
determination of liabilities under the variable annuity contracts.
ARTICLE VII. FISCAL YEAR
-----------
The fiscal year of the Fund shall begin on January 1 and end on December
31.
ARTICLE VIII. AMENDMENTS
----------
These Rules and Regulations may be altered, amended or repealed at any
meeting of the Contractholders called for the purpose, of which the notice shall
specify the general purport of the proposed alteration, amendment or repeal and
of the articles to be affected thereby, by vote of the Contractholders. These
Rules and Regulations may also be altered, amended or repealed by vote of a
majority of the Board of Managers then in office, except with respect to any
provision which by law or these Rules and Regulations requires action by the
Contractholders. Action by the Contractholders shall be required to amend,
alter or repeal Article IV or to amend, alter or repeal this Article VIII so as
to increase the power of the
-13-
<PAGE>
Board of Managers or reduce the power of the Contractholders to amend, alter or
repeal these Rules and Regulations. Any provision of these Rules and Regulations
adopted by the Board of Managers may be amended or repealed by the
Contractholders in the above manner.
-14-
<PAGE>
EXHIBIT 12
[METLIFE LETTERHEAD APPEARS HERE]
April 29, 1997
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
This opinion is furnished 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. 333-11137 and 811-1930). This amendment is being
filed by New England Variable Annuity Fund I (the "Fund") with respect to
individual variable annuity contracts (the "Contracts") issued by Metropolitan
Life Insurance Company ("Metropolitan Life").
I have made such examination of the law and examined such corporate records
and such other documents as in my judgment are necessary and appropriate to
enable me to render the following opinion that:
1. Metropolitan Life has been duly organized under the laws of the State
of New York and is a validly existing corporation.
2. The Fund is validly existing as a separate account pursuant to
Section 4240 of Chapter 28 of the Consolidated Laws of New York.
3. The portion of the assets to be held in the Fund equal to the
reserves and other liabilities under the Contracts and under other variable
annuity contracts the purchase payments of which may be allocated to the Fund
is not chargeable with liabilities arising out of any other business
Metropolitan Life may conduct.
4. The Contracts, when issued as contemplated by the Registration
Statement and in compliance with applicable local law, will constitute legal,
validly issued and binding obligations of Metropolitan Life in accordance with
their terms.
1
<PAGE>
I hereby 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,
/s/ Christopher P. Nicholas
-----------------------
Christopher P. Nicholas
Associate General Counsel
cc: Gary A. Beller, Esq.
2
<PAGE>
Exhibit 13(i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 1 to the
Registration Statement on Form N-3 (File No. 333-11137) of our report dated
January 31, 1997, on our audits of the financial statements of New England
Variable Annuity Fund I as of December 31, 1996, and for the indicated periods
then ended, which are included in the Statement of Additional Information. We
also consent to the reference to our Firm under the caption "Experts" in the
"Statement of Additional Information" in this Post-Effective Amendment.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 29, 1997
<PAGE>
Exhibit 13 (ii)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 1 to the Registration
Statement No. 333-11137 of New England Variable Annuity Fund I of Metropolitan
Life Insurance Company (the "Company"), of our report dated April 4, 1997, on
the financial statements of the Company for the years ended December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, appearing in the Statement of Additional Information, which is part of
such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
April 28, 1997
<PAGE>
Exhibit 13 (iii)
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
April 28, 1997
New England Variable Annuity Fund I
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
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. 1 to the Fund's Registration Statement (No. 333-11137)
under the Securities Act of 1933.
Very truly yours,
Ropes & Gray
<PAGE>
Exhibit 17(ii)
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,
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 capacity 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 22nd of January, 1997.
/s/ John J. Arena
-------------------------------
John J. Arena
Member of the Board of Managers
a:\power.doc
<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,
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 capacity 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 22nd of January, 1997.
/s/ John W. Flynn
-----------------
John W. Flynn
Member of the Board of Managers
<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,
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 capacity 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 22nd of January, 1997.
/s/ John T. Ludes
-----------------
John T. Ludes
Member of the Board of Managers
<PAGE>
EXHIBIT 17(i)
POWER OF ATTORNEY
-----------------
Gerald Clark
Director
KNOW ALL MEN BY THESE PRESENTS, that I, a director and officer of
Metropolitan Life Insurance Company, do hereby appoint Gary A. Beller, Louis J.
Ragusa, Richard G. Mandel and Christopher P. Nicholas, and each of them
severally, my true and lawful attorney-in-fact, for me and in my name, place and
stead to execute and file any instrument or document to be filed as part of or
in connection with or in any way related to the Registration Statements and any
and all amendments thereto, filed by said Company under the Securities Act of
1933 and/or the Investment Company Act of 1940, in connection with Metropolitan
Life Separate Account UL, Metropolitan Life Separate Account E, The New England
Variable Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of
------
February, 1997.
/s/ Gerald Clark
----------------------
Signature
<PAGE>
POWER OF ATTORNEY
-----------------
Burton A. Dole, Jr.
Director
KNOW ALL MEN BY THESE PRESENTS, that I, a director of Metropolitan Life
Insurance Company, do hereby appoint Richard M. Blackwell, Christine N.
Markussen, Richard G. Mandel and Christopher P. Nicholas, and each of them
severally, my true and lawful attorney-in-fact, for me and in my name, place and
stead to execute and file any instrument or document to be filed as part of or
in connection with or in any way related to the Registration Statements and any
and all amendments thereto, filed by said Company under the Securities Act of
1933 and/or the Investment Company Act of 1940, in connection with Metropolitan
Life Separate Account UL, Metropolitan Life Separate Account E, The New England
Variable Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of
----
September, 1996.
/s/ Burton A. Dole, Jr.
----------------------------
Signature
<PAGE>
POWER OF ATTORNEY
-----------------
Charles M. Leighton
Director
KNOW ALL MEN BY THESE PRESENTS, that I, a director of Metropolitan Life
Insurance Company, do hereby appoint Richard M. Blackwell, Christine N.
Markussen, Richard G. Mandel and Christopher P. Nicholas, and each of them
severally, my true and lawful attorney-in-fact, for me and in my name, place and
stead to execute and file any instrument or document to be filed as part of or
in connection with or in any way related to the Registration Statements and any
and all amendments thereto, filed by said Company under the Securities Act of
1933 and/or the Investment Company Act of 1940, in connection with Metropolitan
Life Separate Account UL, Metropolitan Life Separate Account E, The New England
Variable Account, New England Variable Annuity Fund I or New England Retirement
Investment Account of said Company, and to have full power and authority to do
or cause to be done in my name, place and stead each and every act and thing
necessary or appropriate in order to effectuate the same, as fully to all
intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, may do or cause to be
done by virtue hereof. Each said attorney-in-fact shall have power to act
hereunder with or without the others.
IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of
---------
September, 1996.
/s/ Charles M. Leighton
------------------------------
Signature
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 50,957,709
<INVESTMENTS-AT-VALUE> 65,155,438
<RECEIVABLES> 84,133
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,913,756
<PAYABLE-FOR-SECURITIES> 173,430
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 457,614
<TOTAL-LIABILITIES> 631,044
<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> 65,282,712
<DIVIDEND-INCOME> 892,129
<INTEREST-INCOME> 39,777
<OTHER-INCOME> 28,214
<EXPENSES-NET> 823,520
<NET-INVESTMENT-INCOME> 136,600
<REALIZED-GAINS-CURRENT> 6,318,302
<APPREC-INCREASE-CURRENT> 5,603,280
<NET-CHANGE-FROM-OPS> 12,058,182
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,895
<NUMBER-OF-SHARES-REDEEMED> (401,416)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,699,467
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 189,501
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 823,520
<AVERAGE-NET-ASSETS> 61,337,460
<PER-SHARE-NAV-BEGIN> 16.52
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 3.52
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.08
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
