<PAGE>
To Our Contract Owners: August 7, 1998
I am pleased to provide you with your Semi-Annual Report for New England
Variable Annuity Fund I. This report reviews the performance of the fund
through the first six months of 1998 and lists the holdings in the portfolio as
of June 30, 1998. The report also contains the complete investment history of
this twenty-seven year old fund on both a year by year and cumulative basis.
The proven long-term investment record of this fund is most impressive. In
addition to the performance of the fund, there are a number of other benefits
to owning your variable annuity. It is ideally suited for retirement planning
since you are provided with a hedge against inflation, a guaranteed minimum
death benefit and variable and fixed payout options, including options that
provide payments for your lifetime. Your annuity contract will also provide for
immediate payment of death proceeds to your named beneficiary without incurring
the long delays and costs of probate.
If you would like more information about this investment opportunity, please
contact your New England representative.
Sincerely,
/s/ Bruce C. Long
Bruce C. Long
President
New England Annuities
NOTE: Investment performance results contained in this report are not a
prediction of future returns and, except for the average annual total returns,
do not reflect the deduction of the maximum 6% sales load, the maximum 3%
administrative charge or 3.5% premium tax, if applicable. If included, these
charges would reduce performance figures. The investment return on and
principal value of your investment will fluctuate, so that your contract may be
worth more or less than you invested.
1
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
INVESTMENT RECORD (Unaudited)
PERCENT CHANGE IN UNIT VALUE*
<TABLE>
<CAPTION>
New England
Variable Annuity
Fund I
<S> <C>
27 years ended June 30, 1998............................. +2,558.0%
20 years ended June 30, 1998............................. +2,573.0%
15 years ended June 30, 1998............................. +679.0%
10 years ended June 30, 1998............................. +341.7%
5 years ended June 30, 1998............................. +158.9%
1 year ended June 30, 1998.............................. +30.8%
6 months ended June 30, 1998............................ +26.4%
</TABLE>
* The percentage figures for the Fund are based upon beginning accumulation
unit values for the periods shown of $1.166948, $1.160406, $3.981815,
$7.022855, $11.979868, $23.711213 and $24.547721, respectively.
The periods selected cover the preceding twenty-seven years, twenty years,
fifteen years, ten years, five years, the past year and the past six months.
The results should be considered in light of the Fund's investment objective
and policies, the characteristics and quality of its portfolio securities, and
the periods selected. Inasmuch as the Fund does not distribute investment
income, the investment record reflects reinvestment of such income. The
investment record for the Fund also reflects charges, at an effective annual
rate of approximately 1.26%, made for investment management and mortality and
expense risks. It also reflects certain other expenses to the Fund, currently
at an annual rate of .07%.
- -------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE TABLE (Unaudited)
<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
</TABLE>
<TABLE>
<CAPTION>
Accumulation %
Date Unit Value Change
<S> <C> <C>
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
December 31, 1997.... 24.547721 +22.3
June 30, 1998........ 31.017984 +26.4
</TABLE>
The above table indicates the accumulation unit value of the Fund on March 25,
1971, the date of the first sale, and on the last valuation date of each
twelve month period from December 31, 1971 through December 31, 1997, and on
June 30, 1998, together with the percentage change in accumulation unit values
during each such period.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Unaudited)
The average annual total return of the Fund on a single purchase payment of
$1,000 for the 1, 5 and 10 year periods ending June 30, 1998 was 16.1%, 18.1%
and 14.6%, respectively, assuming deduction of the 3.5% maximum premium tax.
Assuming no premium tax deduction, the average annual total return on a $1,000
purchase payment for the same periods was 20.3%, 18.9% and 15.0%,
respectively. These performance results represent past performance. These
results reflect the deduction of the maximum sales and administrative load of
9% of the first $46 and 8% of the balance of the purchase payment (after
premium tax, if any).
- -------------------------------------------------------------------------------
2
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO CHANGES
Shares owned at December 31, 1997 compared to shares owned June 30, 1998
<TABLE>
<CAPTION>
NEW SECURITIES ADDED
Shares
------
<S> <C>
Burlington North Santa Fe
Corp...................... 40,000
Carnival Corp.............. 56,000
Daimler Benz AG............ 41,600
Gap, Inc................... 53,000
K Mart Corp................ 217,000
Mattel, Inc................ 100,000
Nokia Corp. ............... 76,500
Wal Mart Stores, Inc. ..... 79,000
Washington Mutual, Inc. ... 82,500
</TABLE>
<TABLE>
<CAPTION>
SECURITIES ELIMINATED
Shares
------
<S> <C>
BankAmerica Corp........ 48,000
Citicorp................ 28,000
Compaq Computer Corp.... 62,000
Deere & Co.............. 54,000
Dell Computer Corp...... 45,700
Delta Air Lines, Inc.... 31,000
Jefferson Pilot Corp. .. 30,000
Eli Lilly & Company..... 57,400
UAL Corp................ 23,600
</TABLE>
3
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS JUNE 30, 1998 (Unaudited)
<TABLE>
<C> <S> <C>
COMMON STOCKS--100.6% OF TOTAL NET ASSETS
<CAPTION>
Value
Shares (Note 2)
------ -----------
<C> <S> <C>
AIRLINES--1.0%
10,000 AMR Corp.*............................................... $ 832,500
-----------
AUTO & RELATED--11.8%
41,600 Daimler Benz AG.......................................... 4,048,200
29,000 Volkswagen AG............................................ 5,574,960
-----------
9,623,160
-----------
BANKS--MONEY CENTER--5.3%
57,000 Chase Manhattan Corp. ................................... 4,303,500
-----------
BANKS--REGIONAL--9.3%
66,000 Bank New York, Inc. ..................................... 4,005,375
82,500 Washington Mutual, Inc. ................................. 3,583,594
-----------
7,588,969
-----------
BEVERAGES & TOBACCO--4.7%
96,000 Philip Morris Companies, Inc. ........................... 3,780,000
-----------
COMPUTER SOFTWARE & SERVICES--6.1%
77,500 Computer Sciences Corp.*................................. 4,960,000
-----------
DRUGS--11.1%
34,000 Pfizer, Inc. ............................................ 3,695,375
77,100 Warner Lambert Co. ...................................... 5,348,812
-----------
9,044,187
-----------
ELECTRONIC & COMMUNICATION EQUIPMENT--6.8%
76,500 Nokia Corp. ............................................. 5,551,031
-----------
ELECTRONIC COMPONENTS--5.5%
53,000 Philips Electronics ..................................... 4,505,000
-----------
FOOD--RETAILERS/WHOLESALERS--5.3%
61,800 Hershey Foods Corp. ..................................... 4,264,200
-----------
FREIGHT TRANSPORTATION--4.8%
40,000 Burlington North Santa Fe Corp. ......................... 3,927,500
-----------
INSURANCE--5.9%
32,750 American International Group, Inc. ...................... 4,781,500
-----------
LEISURE--7.9%
56,000 Carnival Corp. .......................................... 2,219,000
100,000 Mattel, Inc. ............................................ 4,231,250
-----------
6,450,250
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS -- Continued (Unaudited)
COMMON STOCKS -- CONTINUED
Value
Shares (Note 2)
------ -----------
RETAIL--11.1%
217,000 K Mart Corp.*........................................... $ 4,177,250
79,000 Wal Mart Stores, Inc. .................................. 4,799,250
-----------
8,976,500
-----------
TEXTILE & APPAREL--4.0%
53,000 Gap, Inc. .............................................. 3,266,125
-----------
TOTAL COMMON STOCKS
(average cost $67,802,372).............................. 81,854,422
-----------
CORPORATE SHORT-TERM NOTES--0.5% OF TOTAL NET ASSETS
Face
Amount
------
$370,000 American Express Credit Corp., 5.95% due 7/1/98......... 370,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(average cost $370,000)................................. 370,000
-----------
TOTAL INVESTMENTS--101.1%
(average cost $68,172,372).............................. 82,224,422
-----------
Other liabilities in excess of other assets--(1.1%) .... (860,386)
-----------
TOTAL NET ASSETS--100% $81,364,036
===========
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENT OF
ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
ASSETS
<TABLE>
<S> <C>
Investments at value (average cost $68,172,372) (Note 2).......... $82,224,422
Receivable for investments sold................................... 85,713
Dividends and interest receivable................................. 46,944
-----------
Total assets................................................... 82,357,079
-----------
LIABILITIES
Payable for investment advisory fees (Note 4)..................... 21,390
Payable for mortality and expense risks (Note 5).................. 57,935
Payable for other direct expenses (Note 4)........................ 46,188
Payable to bank................................................... 867,530
-----------
Total liabilities.............................................. 993,043
-----------
NET ASSETS......................................................... $81,364,036
===========
Net assets attributable to variable annuity contractholders
2,420,325 accumulation units at $31.02 per unit................... $75,073,616
Annuity reserves (Note 2).......................................... 6,290,420
-----------
$81,364,036
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENT OF
OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
INCOME
Dividends (net of foreign taxes of $152,412)..................... $ 882,042
Interest......................................................... 22,235
-----------
Total income................................................... 904,277
-----------
EXPENSES
Mortality and expense risks (Notes 2 and 5)...................... 366,209
Investment advisory fee (Note 4)................................. 118,554
Other direct expenses (Note 4)................................... 29,239
-----------
Total expenses................................................. 514,002
-----------
NET INVESTMENT INCOME............................................. 390,275
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 3)
Net realized gain from investments sold.......................... 11,875,886
Net change in unrealized appreciation of investments............. 5,902,659
-----------
Net gain on investments........................................ 17,778,545
-----------
Increase in net assets resulting from operations................... $18,168,820
===========
</TABLE>
6
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1998 1997
---------------- ------------
(UNAUDITED)
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss).................... $ 390,275 $ (66,183)
Realized net gain from investments sold......... 11,875,886 20,352,502
Change in unrealized appreciation of invest-
ments.......................................... 5,902,659 (6,048,337)
----------- -----------
Increase in net assets resulting from opera-
tions.......................................... 18,168,820 14,237,982
----------- -----------
CHANGES FROM PRINCIPAL TRANSACTIONS
Purchase payments, less sales and administrative
expenses and applicable premium taxes (Note 4). 77,299 244,397
Contract terminations........................... (7,678,831) (7,408,980)
Annuity payments................................ (383,643) (742,854)
Adjustments to annuity reserves (Note 2)........ (646,802) 213,936
----------- -----------
Decrease in net assets resulting from principal
transactions................................... (8,631,977) (7,693,501)
----------- -----------
Total increase in net assets.................... 9,536,843 6,544,481
NET ASSETS
Beginning of period............................. 71,827,193 65,282,712
----------- -----------
End of period................................... $81,364,036 $71,827,193
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
SUPPLEMENTARY INFORMATION--
Selected Per Unit Data and Ratios
Selected data for an accumulation unit outstanding throughout each year, and
for the six months ended June 30, 1998, and ratios are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $24.55 $20.08 $16.52 $11.90 $12.85 $11.58
--------- --------- --------- --------- --------- ---------
Per unit data
Investment income...... .33 .29 .28 .24 .29 .16
Expenses............... (.19) (.32) (.24) (.19) (.16) (.15)
--------- --------- --------- --------- --------- ---------
Net investment income
(loss)................ .14 (.03) .04 .05 .13 .01
Net realized and
unrealized gain (loss)
on investments........ 6.33 4.50 3.52 4.57 (1.08) 1.26
--------- --------- --------- --------- --------- ---------
Net increase (decrease)
in net asset value.... 6.47 4.47 3.56 4.62 (.95) 1.27
--------- --------- --------- --------- --------- ---------
Net Asset Value, end of
period................ $31.02 $24.55 $20.08 $16.52 $11.90 $12.85
========= ========= ========= ========= ========= =========
Total Return (%)........ 26.4 22.3 21.5 38.9 (7.4) 11.0
Ratios
Ratio of operating
expenses to average
net assets (%)........ 1.33* 1.35 1.34 1.35 1.26 1.26
Ratio of net investment
income to average net
assets (%)............ 1.01* (.09) .22 .34 1.06 .11
Portfolio turnover (%).. 198.63* 209.18 196.25 228.26 139.43 154.15
Number of accumulation
units outstanding at
end of period.......... 2,420,325 2,694,327 3,012,611 3,399,132 4,038,331 4,410,741
</TABLE>
* Computed on an annualized basis.
8
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1.Nature of Operations
New England Variable Annuity Fund I (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund is sold for use with various
retirement plans that are qualified under the Internal Revenue Code, for
individual use, and for use with plans and trusts that are not qualified under
the Internal Revenue Code. The operations of the Fund are part of Metropolitan
Life Insurance Company (the "Insurance Company"). Prior to August 30, 1996,
the Fund was a part of New England Mutual Life Insurance Company ("New England
Mutual"). Effective August 30, 1996, New England Mutual merged into the
Insurance Company. New England Life Insurance Company, a subsidiary of the
Insurance Company, is the designated office for contract-holder services. No
new contracts are being offered at this time, but holders of existing flexible
payment deferred contracts may continue to make purchase payments.
2.Significant Accounting 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
securities exchange or on the NASDAQ national market system are valued at
their last reported sales prices on the principal exchange, or if there was
no reported sale during the day and for over-the-counter securities not so
listed, at the last reported bid prices. Corporate short-term notes are
stated at cost, which approximates fair value.
B. Security transactions and related investment income. Security transactions
are accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Net investment income and
net realized and unrealized gain (loss) on investments are allocated to the
contracts on each valuation date based on each contract's pro rata share of
the net assets of the Fund as of the beginning of the valuation period.
C. Federal income taxes. The Fund is not taxed separately because the
operations of the Fund are part of the total operations of the Insurance
Company. The Insurance Company is taxed as a life insurance company under
the Internal Revenue Code. The Fund will not be taxed as a regulated
investment company under subchapter M of the Code. Under existing federal
income tax law, no taxes are payable on the investment income or on the
capital gains of the Fund.
D. Annuity reserves. Annuity reserves are computed for currently payable
contracts according to the Progressive Annuity Mortality Table. The assumed
interest rate is 3.5% unless the annuitant elects otherwise, in which case
the rate may vary from 0-5%, as regulated by the laws of the respective
states. Charges to annuity reserves for mortality risk and expense risk
experience are reimbursed to the Insurance Company if the reserves required
are less than originally estimated. If additional reserves are required,
the Insurance Company reimburses the variable annuity account.
E. Use of 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 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.
9
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- Continued
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 six months ended June 30, 1998 were
$76,546,028 and $83,912,309, 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 six months ended June 30, 1998, the Fund incurred investment
management fees of $118,554, payable to the Fund's investment adviser, Capital
Growth Management Limited Partnership, an affiliate of the Insurance Company.
The advisory agreement provides for a fee at the annual rate of 0.3066% of the
average net assets of the Fund. Deductions from purchase payments for sales
and administrative expenses, which for the six months ended June 30, 1998,
amounted to $7,521 and $2,795, respectively, were retained by the Insurance
Company.
Effective January 1, 1995, the audit and managers fees have been borne by the
Fund. A charge is deducted daily against the Fund based on estimated audit and
manager fees. This daily charge is reviewed on a quarterly basis and adjusted
as necessary. Any excess or deficiency in the daily charge relative to
incurred expenses is applied to future periods in the quarterly review. For
the six months ended June 30, 1998 the charges to the Fund amounted to $29,239
and actual fees of $24,782 were incurred.
5.Mortality and Expense Risks and Deductions
Although variable annuity payments differ according to the investment
performance of the Fund, they are not affected by mortality or expense
experience because the Insurance Company assumes the expense risk and the
mortality risk under the contracts. The Insurance Company charges the Fund
assets for assuming those risks. For the six months ended June 30, 1998, the
mortality and expense risk charges totaled $366,209.
The expense risk assumed by the Insurance Company is the risk that the
deductions for sales and administrative expenses and for investment advisory
services provided for in the variable annuity contract may prove insufficient
to cover the cost of those items.
The mortality risk assumed by the Insurance Company has two elements: a life
annuity mortality risk and, for deferred annuity contracts, a minimum death
refund risk.
The life annuity mortality risk results from a provision in the contract in
which the Insurance Company agrees to make annuity payments regardless of how
long a particular annuitant or other payee lives and how long all annuitants
or other payees as a class live if payment options involving life
contingencies are chosen. Those annuity payments are determined in accordance
with annuity purchase rate provisions established at the time the contracts
are issued.
Under deferred annuity contracts, the Insurance Company also assumes a minimum
death refund risk by providing that there will be payable, on the death of the
annuitant during the accumulation period, an amount equal to the greater of
(1) the aggregate purchase payments made, without interest, reduced by any
partial surrender, and (2) the value of the contract as of the death valuation
date.
If those deductions are insufficient to cover the cost of the expense and
mortality risks assumed by the Insurance Company, the Insurance Company
absorbs the resulting losses and makes sufficient transfers to the Fund from
its general assets. Conversely, if those deductions are more than sufficient
after the establishment of any contingency reserves deemed prudent or required
by law, the excess is transferred to the Insurance Company.
10
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- Continued
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
underwriter, one as an officer and one as a director.
7.Increase (Decrease) in Accumulation Units
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1998 December 31, 1997
---------------- -----------------
(Unaudited)
<S> <C> <C>
Units purchased............................. 4,192 10,269
Units redeemed.............................. (278,194) (328,553)
--------- ---------
Net decrease............................... (274,002) (318,284)
Units at beginning of period................. 2,694,327 3,012,611
--------- ---------
Units at end of period....................... 2,420,325 2,694,327
========= =========
</TABLE>
11
<PAGE>
New England Variable Annuity Fund I
is a separate account of
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Board of Managers
Frederick K. Zimmermann, Chairman
John J. Arena
John W. Flynn
Anne M. Goggin
Nancy Hawthorne
Joseph M. Hinchey
Robert B. Kittredge
John T. Ludes
Laurens MacLure
Dale Rogers Marshall
Designated Office for Contractholder Services
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116-3700
(617) 578-2000
Investment Adviser
Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Distributor
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Legal Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110-1617
This report has been prepared for the contract owners of the Fund and is
authorized for distribution to prospective investors in the Fund when it is
accompanied or preceded by a current prospectus.
- --------------------------------------------------------------------------------
EQUAL OPPORTUNITY EMPLOYER M/F
New England Financial is the service mark for New England Life Insurance
Company, Boston, MA and related companies.
VA-147-98
[LOGO OF NEW ENGLAND FINANCIAL APPEARS HERE]
- --------------------------------------------------------------------------------
NEW ENGLAND
VARIABLE ANNUITY
FUND I
Semi-Annual Report
June 30, 1998
