<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
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. 3 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 31 [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)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) 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)
Title of Securities Being Registered: Individual Variable Annuity Contracts.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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, 1998
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, 1998, 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 22 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. In certain states a premium tax charge may
be deducted from the purchase payment. (In other states where a premium tax
applies it may be deducted from the contract value on the date annuity
payments begin. The maximum premium tax is 3.5%.) Deductions are then made
from each after-tax purchase payment for sales and administrative expenses.
Such expenses may aggregate up to 9% of the after-tax purchase payment for
flexible payment deferred contracts and 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)(2)..................... 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
</TABLE>
ANNUAL EXPENSES
(as a percentage of average net assets)(3)
<TABLE>
<S> <C>
Management Fee......................................................... 0.31%
Expense Risk Fee....................................................... 0.11%
Mortality Risk Fee(4).................................................. 0.84%
Other Expenses......................................................... 0.09%
----
TOTAL ANNUAL EXPENSES................................................ 1.35%
</TABLE>
EXAMPLE (5)
There are no extra expenses if you surrender or annuitize your contract. At
the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
For a flexible purchase payment deferred con-
tract: $93 $120 $148 $229
For a single purchase payment deferred con-
tract(6): $93 $119 $148 $229
</TABLE>
- -------
NOTES:
(1) All charges and expenses apply for the duration of the contracts, except
that the mortality and expense risk fees do not apply during the annuity
period if the Contractholder elects to transfer the proceeds of the
contract from the Fund to the Company's general assets. (See "Fixed
Payment Options.")
(2) Premium taxes are not charged in all states and vary in amount from state
to state. The maximum premium tax currently deducted by the Company is
3.5%. In most states, the premium tax is 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. 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 1997 has been derived from
financial statements audited by Deloitte & Touche LLP,independent
accountants, whose report thereon accompanies the financial statements of
the Fund. The information in this table relating to each of the four years
in the period ended December 31, 1996, 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
------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income and expenses:
Total investment
income................ $ .29 $ .28 $ .24 $ .29 $ .16 $ .25 $ .24 $ .16 $ .22 $ .32
Operating expenses..... .32 .24 .19 .16 .15 .14 .13 .10 .09 .09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income
(loss)................ $ (.03) $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13 $ .23
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Capital changes:
Net investment income
(loss)................ $ (.03) $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13 $ .23
Net realized and
unrealized gains
(losses) on
investments........... 4.50 3.52 4.57 (1.08) 1.26 (.37) 3.35 .34 1.10 (.50)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in
accumulation unit
value................. 4.47 3.56 4.62 (.95) 1.27 (.26) 3.46 .40 1.23 (.27)
Accumulation unit value
at
beginning of period.... 20.08 16.52 11.90 12.85 11.58 11.84 8.38 7.98 6.75 7.02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Accumulation unit value
at end of period....... $24.55 $20.08 $16.52 $11.90 $12.85 $11.58 $11.84 $ 8.38 $ 7.98 $ 6.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of operating
expenses to
average net assets
(%).................... 1.35 1.34 1.35 1.26 1.26 1.25 1.26 1.26 1.26 1.26
Ratio of net investment
income (loss) to
average net assets
(%).................... (.09) .22 .34 1.06 .11 .98 1.11 .69 1.72 3.39
Portfolio turnover (%).. 209.18 196.25 228.26 139.43 154.15 171.55 157.43 136.52 206.90 259.70
Number of accumulation
units
outstanding at end of
period
(in thousands)......... 2,694 3,013 3,399 4,038 4,411 5,104 5,499 5,961 6,958 8,657
</TABLE>
----------------------------------------------------------------------------
FINANCIAL STATEMENTS
----------------------------------------------------------------------------
The financial statements of the Fund and of the Company may be found in
the Statement of Additional Information.
5
<PAGE>
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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,
1997. Calculations are based on a single investment of $1,000 assumed to be
made at the beginning of each period shown. The illustration deducts the
maximum sales and administrative load of 9% of the first $46 and 8% of the
balance. It assumes that no premium tax charges have been deducted, which
apply in certain states, and which would reduce the results shown. 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, 1997 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, 1997.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<S> <C>
Period Ending December 31, 1997
1 Year.............................. 12.4%
5 Years............................. 14.3%
10 Years............................. 12.4%
</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 $303 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 or on the NASDAQ national market system 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 or on the NASDAQ national market system but traded in
the over-the-counter market is valued at the last reported bid price. Any secu-
rities or other assets for which current market quotations are not readily
available are valued at fair value as determined in good faith by CGM acting
under the supervision of the Board of Managers.
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 invests primarily in seasoned issues which trade on national or re-
gional stock exchanges or in the over-the-counter market. Current income is
not an important factor in the selection of equity securities. Income and re-
alized capital gains from portfolio investments are reinvested.
The Fund's portfolio normally consists principally of common stocks and secu-
rities convertible into or carrying rights to purchase common stocks. However,
during periods when management considers that economic or market conditions
make it advisable, a substantial portion of the Fund's assets may be held tem-
porarily 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 a defensive
strategy. Also, as a matter of operational policy the Fund will keep suffi-
cient amounts of cash and United States Government or other high-grade liquid
securities on hand to meet current expenses and variable annuity contract ob-
ligations, and such assets may also be kept on hand for limited periods pend-
ing 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 is given to those securities believed by
management to offer a potential for long-term appreciation. However, this em-
phasis does not preclude occasional investment for short-term appreciation. In
the years 1996 and 1997, the Fund's portfolio turnover rate was approximately
196% and 209%, respectively. The rate of the Fund's portfolio turnover may
vary significantly from time to time depending on the volatility of prevailing
or anticipated economic and market conditions. Higher levels of portfolio
turnover may result in higher brokerage costs to the Fund.
The Fund may change the foregoing investment policies without Contractholder
approval.
It must be recognized that there are risks inherent in the ownership of any
security and that there can be no assurance that the investment objective of
the Fund will be achieved. Equity securities are subject to price declines as
well as advances, and the prices of such securities can decline while the cost
of living is rising. Fixed income securities are subject to credit risk (the
risk that the obligor will default in the payment of principal and/or inter-
est) and to market risk (the risk that the market value of the securities will
change as a result of changes in market rates of interest). The value of the
Fund's investments is subject to risks of changing economic conditions and the
risk inherent in management's ability to anticipate such changes and, to the
extent consistent with the Fund's investment objective and policies, to make
appropriate changes in the Fund's portfolio.
The Fund may invest in repurchase agreements. Under these agreements the Fund
purchases a security subject to the agreement of the seller to repurchase the
security at an
13
<PAGE>
agreed upon price and date. The resale price is in excess of the purchase
price and reflects an agreed upon market rate unrelated to the coupon rate on
the purchased security. Repurchase agreements can be regarded as loans by the
Fund to the seller, collateralized by the securities that are the subject of
the agreement. Repurchase agreements afford the Fund the opportunity to earn a
return on temporarily available cash at relatively low market risk. While the
underlying security may be a bill, certificate of indebtedness, note or bond
issued by an agency, authority or instrumentality of the U.S. Government, the
obligation of the seller is not guaranteed by the U.S. Government and there is
a risk that the seller may fail to repurchase the underlying security. In such
event, the Fund would attempt to exercise rights with respect to the under-
lying security, including possible disposition in the market. However, the
Fund may be subject to various delays and risks of loss, including (a) possi-
ble declines in the value of the underlying security during the period while
the Fund seeks to enforce rights thereto, (b) possible reduced levels of in-
come and lack of access to income during this period, and (c) inability to en-
force rights and expenses of attempted enforcement.
B. RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may
not be changed without approval by a majority vote of the Contractholders.
Reference should 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
14
<PAGE>
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.
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 South
Dakota. Certain states may require or permit the Company to pay the premium
tax when the Contractholder elects to commence annuity benefits rather than
when Purchase Payments are received. In those states the Company may deduct
the premium tax on the date when annuity payments are to begin. The maximum
premium tax currently deducted by the Company is 3.5%. 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>
Portion of Deduction Deduction for
Total After-Tax for Sales Administrative Total
Purchase Payment Expenses Expenses Deduction
<S> <C> <C> <C>
First $46 6.0% 3.0% 9.0%
Balance 6.0% 2.0% 8.0%
Deductions Applicable to Single Purchase Payment Contracts
<CAPTION>
Portion of Deduction Deduction for
Total After-Tax for Sales Administrative Total
Purchase Payment Expenses Expenses Deduction
<S> <C> <C> <C>
First $ 5,000 6.00% 2.00% 8.0%
Next 95,000 3.75% 0.25 4.0
Balance 1.75 0.25 2.0
</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. Nvest Companies, L.P., an affiliate of the Compa-
ny, owns a 50% limited partnership investment in CGM. CGM provides discretion-
ary investment services to advisory clients, including other investment com-
pany 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, 1997, the Fund's total expenses equalled
1.35% of its average net assets.
- -------------------------------------------------------------------------------
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
- -------------------------------------------------------------------------------
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
individual variable annuity contracts described in this prospectus, include:
1. Plans qualified under Section 401(a), 401(k) or 403(a) of the Code
("Qualified Plans");
2. Annuity purchase plans adopted by public school systems and certain tax-
exempt organizations
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 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 $10,000 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, for 1998 the deductions are phased out and eventually eliminated, on
a pro rata basis, for adjusted gross income between $30,000 and $40,000 for
an individual, between $50,000 and $60,000 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 de-
scribed above for deductible payments. For more information concerning con-
tributions to IRAs, you should obtain a copy of IRS Publication 590 on Indi-
vidual Retirement 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 $8,000. 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-7
Independent Accountants........................................... II-8
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS.................... II-8
DISTRIBUTION OF CONTRACTS........................................... II-8
CALCULATION OF PERFORMANCE DATA..................................... II-9
ANNUITY PAYMENTS.................................................... II-10
NET INVESTMENT FACTOR............................................... II-12
EXPERTS............................................................. II-12
FINANCIAL STATEMENTS................................................ II-17
</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, 1998
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 1998 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-7
Independent Accountants ................................................ II-8
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS ......................... II-8
DISTRIBUTION OF CONTRACTS ................................................ II-8
CALCULATION OF PERFORMANCE DATA .......................................... II-9
ANNUITY PAYMENTS ......................................................... II-10
NET INVESTMENT FACTOR .................................................... II-12
EXPERTS .................................................................. II-12
FINANCIAL STATEMENTS ..................................................... II-17
</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, (58).
791 Main Street, Warren, RI 02885.
Retired; formerly, Vice Chairman, Chief Financial Officer, Fleet Financial
Group, 1990-1993.
ANNE M. GOGGIN*, Manager, (49).
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. Formerly, Vice President and Counsel, The New England, 1994-1996;
Second Vice President and Counsel, The New England.
NANCY HAWTHORNE, Manager, (47).
Pilot House, Lewis Wharf, Boston, MA 02110.
Chief Executive Officer and Managing Partner, Hawthorne, Krass & Associates;
formerly, Executive Vice President, Enterprise Transformation; and Senior
Vice President and Chief Financial Officer, Continental Cablevision, Inc.
Director, Fluid Technologies and Commercial Union Assurance Co.
JOSEPH M. HINCHEY, Manager, (73).
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.
ROBERT B. KITTREDGE, Manager, (77).
21 Sturdivant Road, 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, (61).
American Brands, 1700 E. Putnam Avenue, Old Greenwich, CT 06870.
President & Chief Operating Officer American Brands since 1995. Formerly,
President and CEO, Acushnet Company 1982-1995.
LAURENS MACLURE, Manager, (73).
183 Sohier Street, Cohasset, MA 02025.
Retired; Trustee, CGM Trust and CGM Capital Development Fund; Director Blue
Cross of Massachusetts (health insurance).
DALE ROGERS MARSHALL, Manager, (61).
Wheaton College, 26 East Main Street, Norton, MA 02766.
President, Wheaton College; formerly, Academic Dean, Wellesley College.
MARIE C. SWIFT, Secretary, (43).
NELICO, 501 Boylston Street, Boston, MA 02117.
Second Vice President and Counsel since 1998; formerly, Counsel and Assistant
Secretary, NELICO, 1992-1998; and Counsel and Assistant Secretary, The New
England, until 1996.
FREDERICK K. ZIMMERMANN*, Manager and Chairman, (46).
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 who is an "interested person" as defined by the
Investment Company Act of 1940 (the "1940 Act").
II-4
<PAGE>
COMMITTEES OF THE BOARD. The Managers have delegated certain authority to an
Executive Committee consisting of Messrs. Arena, Hinchey and Zimmerman and
other authority to the Audit Committee or the Contract Review and Governance
Committee. The latter two committees currently have the same members (Mses.
Hawthorne and Marshall and Messrs. Arena, Flynn, Hinchey, Kittredge, Ludes,
and MacLure), all of whom are Managers who are not interested persons of the
Fund.
The Executive Committee is authorized to exercise broad decision-making
responsibility, on behalf of the Fund's Board of Managers, with respect to
issues that require immediate response and for which it is difficult or
impractical to contact all of the members of the Board within the time frame
required for the decision.
The Audit Committee reviews financial and accounting controls and
procedures; recommends the selection of the independent accountants; reviews
the scope of the audit; reviews financial statements and audit reports; and
reviews 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. Arena 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" of the Fund also serves as
trustee and member of the same committees of New England Zenith Fund and for
serving in all capacities receives an aggregate retainer fee at the annual
rate of $20,000 and aggregate attendance fees of $2,500 for each board meeting
attended. In addition, the chairman of the Contract Review and Governance
Committee receives a retainer at the annual rate of $6,000, and the chairman
of the Audit Committee receives a retainer at the annual rate of $4,000. 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 New England Zenith Fund.
During the fiscal year ended December 31, 1997, 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 Board of Trustees of New
England Zenith Fund. As of December 31, 1997, there were a total of 14 series
of New England Zenith Fund.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM THE FUND AND
AGGREGATE COMPENSATION NEW ENGLAND ZENITH
NAME OF MANAGER FROM THE FUND IN 1997 FUND IN 1997
--------------- ---------------------- ------------------
<S> <C> <C>
John J. Arena........................ $2,050 $36,750
John W. Flynn........................ 2,030 36,000
Nancy Hawthorne...................... 1,896 34,000
Joseph M. Hinchey.................... 1,951 36,000
Richard S. Humphrey, Jr.(b).......... 1,763 32,000
Robert B. Kittredge.................. 2,030 73,000(a)
John T. Ludes........................ 1,763 32,000
Laurens MacLure...................... 1,979 74,000(a)
Dale Rogers Marshall................. 1,763 32,000
Joseph F. Turley(b).................. 1,763 32,000
</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.
(b) Retired from service as a manager of Fund effective December 31, 1997.
II-5
<PAGE>
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). This fee is computed on a daily basis and is payable monthly. During
the years ended December 31, 1995 1996 and 1997 the Fund paid CGM advisory
fees of $175,101, $189,501, and $221,842.
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
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 Focus
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
II-6
<PAGE>
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.
Nvest Companies, L.P. ("Nvest Companies"), owns a 50% limited partnership
interest in CGM. The Company owns directly and indirectly, through its wholly-
owned subsidiary, MetLife New England Holdings, Inc. a majority limited
partnership interest in Nvest Companies and, through MetLife New England
Holdings, Inc. ("MetLife Holdings"), a 100% interest in Nvest Companies'
managing general partner, Nvest Corporation. Nvest Companies' advising general
partner, Nvest, L.P., is a publicly traded company listed on the New York
Stock Exchange. Nvest Corporation is the sole general partner of Nvest, L.P.
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 1995, 1996 and 1997 this deduction
amounted to $8,245, $6,484, and $5,779, 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 an indirect
subsidiary of the Company through MetLife Holdings as a result of the merger.
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 1995, 1996 and 1997, these deductions amounted
to $21,952, $17,197 and $15,471, 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 broad. 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
II-7
<PAGE>
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 Deloitte &
Touche LLP, 125 Summer Street, Boston, Massachusetts 02110. Deloitte & Touche
LLP 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. Coopers &
Lybrand L.L.P. served as the Fund's independent auditors prior to 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
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 1997, brokerage transactions for the Fund aggregating $250,336,663 were
allocated to brokers providing research services and $224,401 in commissions
were paid on these transactions. During 1995, 1996 and 1997 the Fund paid
total brokerage fees of $317,889, $275,771 and $249,359, respectively.
DISTRIBUTION OF CONTRACTS
New England Securities Corporation, 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
II-8
<PAGE>
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
1995, 1996, and 1997 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 $39,551, $14,426 and
$16,159, 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, 1997.
<TABLE>
<CAPTION>
PERCENT CHANGE IN UNIT VALUE
- ----------------------------
<S> <C>
26 years, 9 months ended December 31, 1997............................. 2,021.1%
20 years ended December 31, 1997....................................... 2,177.4%
15 years ended December 31, 1997....................................... 654.4%
10 years ended December 31, 1997....................................... 249.8%
5 years ended December 31, 1997........................................ 112.0%
1 year ended December 31, 1997......................................... 22.3%
</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
December 31, 1997..................................... 24.547721 +22.3
</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 Deloitte & Touche, LLP, 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, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, 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.
The statement of changes in net assets of New England Variable Annuity Fund
I, for the year ended December 31, 1996, and selected per unit data and ratios
for each of the four years in the period ended December 31, 1996, have been
incorporated 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.
II-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
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 (the "Fund"), including the schedule of
portfolio investments, as of December 31, 1997, and the related statements of
operations, changes in net assets, and selected per unit data and ratios for
the years 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 audit. The statement of changes in net assets for
the year ended December 31, 1996 and selected per unit data and ratios for
each of the four years ended December 31, 1996 were audited by other auditors
whose report dated January 31, 1997 expressed an unqualified opinion on those
statements.
We conducted our audit 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 and
selected per unit data and ratios are free of material misstatement. An audit
includes examining, 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, 1997, by correspondence with the
custodian and brokers. Where replies were not received, we performed other
auditing procedures. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and selected per unit data and
ratios referred to above present fairly, in all material respects, the
financial position of New England Variable Annuity Fund I as of December 31,
1997, the results of its operations, the changes in its net assets, and
selected per unit data and ratios for the year then ended, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 13, 1998
II-13
<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 statement of changes in net assets of New England
Variable Annuity Fund I, for the year ended December 31, 1996, and selected
per unit data and ratios for each of the four years in the period ended
December 31, 1996. This financial statement and selected per unit data and
ratios are the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement and selected per unit data
and ratios 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 statement of changes in net
assets and selected per unit data and ratios are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statement of changes in net assets and selected per unit data and
ratios. We believe that our audits of the statement of changes in net assets
and selected per unit data and ratios provide a reasonable basis for our
opinion.
In our opinion, the financial statement and selected per unit data and
ratios referred to above present fairly, in all material respects, the changes
in net assets of New England Variable Annuity Fund I for the year ended
December 31, 1996, and selected per unit data and ratios for each of the four
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 31, 1997
II-14
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENT OF
ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments at value (average cost $64,662,766) (Note 2)......... $72,812,158
Receivable for investments sold.................................. 1,071,155
Dividends and interest receivable................................ 51,677
Other Assets..................................................... 2,106
-----------
Total assets.................................................. 73,937,096
-----------
LIABILITIES
Payable for investments purchased................................ 1,926,824
Payable for investment advisory fees (Note 4).................... 19,777
Payable for mortality and expense risks (Note 5)................. 53,443
Payable for other direct expenses................................ 43,706
Payable to bank.................................................. 66,153
-----------
Total liabilities............................................. 2,109,903
-----------
NET ASSETS........................................................ $71,827,193
===========
Net assets attributable to variable annuity contractholders
2,694,327 accumulation units at $24.55 per unit.................. $66,139,576
Annuity reserves (Note 2)......................................... 5,687,617
-----------
$71,827,193
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENT OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
INCOME
Dividends net of foreign taxes of $4,492......................... $ 847,536
Interest......................................................... 49,933
Other income..................................................... 26
-----------
Total income................................................... 897,495
-----------
EXPENSES
Mortality and expense risks
(Notes 2 and 5)................................................. 680,361
Investment advisory fee
(Note 4)........................................................ 221,842
Other direct expenses
(Note 4)........................................................ 61,475
-----------
Total expenses................................................. 963,678
-----------
NET INVESTMENT LOSS............................................... (66,183)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 3)
Net realized gain from investments sold.......................... 20,352,502
Net change in unrealized appreciation of investments............. (6,048,337)
-----------
Net gain on investments........................................ 14,304,165
-----------
Increase in net assets resulting from operations................... $14,237,982
===========
</TABLE>
II-15
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss)........................ $ (66,183) $ 136,600
Realized net gain from investments sold............. 20,352,502 6,318,302
Change in unrealized appreciation of investments.... (6,048,337) 5,603,280
----------- -----------
Increase in net assets resulting from operations.... 14,237,982 12,058,182
----------- -----------
CHANGES FROM PRINCIPAL TRANSACTIONS
Purchase payments, less sales and administrative
expenses and applicable premium taxes (Note 4)..... 244,397 259,763
Contract terminations............................... (7,408,980) (6,873,884)
Annuity payments.................................... (742,854) (586,217)
Adjustments to annuity reserves (Note 2)............ 213,936 (158,377)
----------- -----------
Decrease in net assets resulting from principal
transactions....................................... (7,693,501) (7,358,715)
----------- -----------
Total increase in net assets........................ 6,544,481 4,699,467
NET ASSETS
Beginning of year................................... 65,282,712 60,583,245
----------- -----------
End of year......................................... $71,827,193 $65,282,712
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-16
<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,
---------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of year.................. $20.08 $16.52 $11.90 $12.85 $11.58
--------- --------- --------- --------- ---------
Per unit data
Investment income........ .29 .28 .24 .29 .16
Expenses................. .32 .24 .19 .16 .15
--------- --------- --------- --------- ---------
Net investment income
(loss).................. (.03) .04 .05 .13 .01
Net realized and
unrealized gain
(loss) on investments... 4.50 3.52 4.57 (1.08) 1.26
--------- --------- --------- --------- ---------
Net increase (decrease)
in net asset
value................... 4.47 3.56 4.62 (.95) 1.27
--------- --------- --------- --------- ---------
Net Asset Value, end of
year.................... $24.55 $20.08 $16.52 $11.90 $12.85
========= ========= ========= ========= =========
Total Return (%).......... 22.3 21.5 38.9 (7.4) 11.0
Ratios
Ratio of operating
expenses to average net
assets (%).............. 1.35 1.34 1.35 1.26 1.26
Ratio of net investment
income to average net
assets (%).............. (.09) .22 .34 1.06 .11
Portfolio turnover (%).... 209.18 196.25 228.26 139.43 154.15
Number of accumulation
units outstanding at end
of year.................. 2,694,327 3,012,611 3,399,132 4,038,331 4,410,741
</TABLE>
II-17
<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
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.
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, 1997 were
$147,977,214 and $152,917,589, respectively. Gains and losses from sales of
investments are computed on the basis of average cost.
II-18
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4.Advisory and Service Fees With Affiliates
During the year ended December 31, 1997, the Fund incurred investment
management fees of $221,842, payable to the Fund's investment adviser, Capital
Growth Management Limited Partnership, an affiliate of the Insurance Company.
The advisory agreement provides for a fee at the annual rate of 0.3066% of the
average net assets of the Fund. Deductions from purchase payments for sales
and administrative expenses, which for the year ended December 31, 1997,
amounted to $15,471 and $5,779, 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 semi-annual basis and
adjusted as necessary. Any excess or deficiency in the daily charge relative
to incurred expenses is applied to future periods in the semi-annual review.
For the year ended December 31, 1997 the charges to the Fund amounted to
$61,475 and actual fees of $59,596 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. During 1997, the mortality and expense risk
charges totaled $680,361.
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.
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.
II-19
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
7.Increase (Decrease) in Accumulation Units
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Units purchased.......................................... 10,269 14,895
Units redeemed........................................... (328,553) (401,416)
--------- ---------
Net decrease............................................ (318,284) (386,521)
Units at beginning of year................................ 3,012,611 3,399,132
--------- ---------
Units at end of year...................................... 2,694,327 3,012,611
========= =========
</TABLE>
II-20
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<C> <S> <C>
COMMON STOCKS--99.5% OF TOTAL NET ASSETS
<CAPTION>
VALUE
SHARES (NOTE 2)
------ -----------
<C> <S> <C>
AIRLINES--14.2%
33,500 AMR Corp.*................................................ $ 4,304,750
31,000 Delta Air Lines, Inc. .................................... 3,689,000
23,600 UAL Corp.*................................................ 2,183,000
-----------
10,176,750
-----------
AUTO & RELATED--4.8%
31,000 Volkswagen AG............................................. 3,444,720
-----------
BANKS--MONEY CENTER--9.8%
32,000 Chase Manhattan Corp. .................................... 3,504,000
28,000 Citicorp.................................................. 3,540,250
-----------
7,044,250
-----------
BANKS--REGIONAL--9.7%
60,000 Bank New York, Inc. ...................................... 3,468,750
48,000 BankAmerica Corp. ........................................ 3,504,000
-----------
6,972,750
-----------
BEVERAGES & TOBACCO--5.9%
94,200 Philip Morris Companies, Inc. ............................ 4,268,438
-----------
COMPUTER SOFTWARE & SERVICES--15.4%
62,000 Compaq Computer Corp. .................................... 3,499,125
45,000 Computer Sciences Corp.*.................................. 3,757,500
45,700 Dell Computer Corp.*...................................... 3,838,800
-----------
11,095,425
-----------
DRUGS--16.1%
57,400 Eli Lilly & Company....................................... 3,996,475
51,100 Pfizer, Inc. ............................................. 3,810,144
30,200 Warner Lambert Co. ....................................... 3,744,800
-----------
11,551,419
-----------
ELECTRONIC COMPONENTS--4.2%
50,000 Philips Electronics....................................... 3,025,000
-----------
FOOD--RETAILERS/WHOLESALERS--6.3%
72,500 Hershey Foods Corp. ...................................... 4,490,469
-----------
INSURANCE--8.7%
35,750 American International Group, Inc. ....................... 3,887,812
30,000 Jefferson Pilot Corp. .................................... 2,336,250
-----------
6,224,062
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-21
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS -- CONTINUED
<TABLE>
<C> <S> <C>
COMMON STOCKS -- CONTINUED
<CAPTION>
VALUE
SHARES (NOTE 2)
------ -----------
<C> <S> <C>
MACHINERY--4.4%
54,000 Deere & Co. ........................................ $ 3,148,875
-----------
TOTAL COMMON STOCKS
(average cost $63,292,766).......................... 71,442,158
-----------
CORPORATE SHORT-TERM NOTES--1.9% OF TOTAL NET ASSETS
<CAPTION>
FACE
AMOUNT
------
<C> <S> <C>
$1,370,000 Chevron USA Inc., 6.75% due 1/2/98.................. 1,370,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(average cost $1,370,000)........................... 1,370,000
-----------
TOTAL INVESTMENTS--101.4%
(average cost $64,662,766).......................... 72,812,158
-----------
Other liabilities in excess of other assets--(1.4%)
................................................... (984,965)
-----------
TOTAL NET ASSETS--100% $71,827,193
===========
*Non-income producing security.
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-22
<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, 1997 and 1996 and
the related consolidated statements of earnings, equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996 and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the company
has changed the method of accounting for investment income on certain
structured securities.
Deloitte & Touche LLP
New York, New York
February 12, 1998, except for Note 17,
as to which the date is March 12, 1998
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- -------- --------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed Maturities:.................................... 2,15
Available for Sale, at Estimated Fair Value........ $ 92,630 $ 75,039
Held to Maturity, at Amortized Cost................ -- 11,322
Equity Securities.................................... 2,15 4,250 2,816
Mortgage Loans on Real Estate........................ 2,15 20,247 18,964
Policy Loans......................................... 15 5,846 5,842
Real Estate.......................................... 2 6,111 7,498
Real Estate Joint Ventures........................... 4 680 851
Other Limited Partnership Interests.................. 4 855 1,004
Leases and Leveraged Leases.......................... 2 2,123 1,763
Short-Term Investments............................... 15 705 741
Other Invested Assets................................ 2,338 2,692
-------- --------
Total Investments.................................. 135,785 128,532
Cash and Cash Equivalents.............................. 15 2,871 2,325
Deferred Policy Acquisition Costs...................... 6,436 7,227
Accrued Investment Income.............................. 1,860 1,611
Premiums and Other Receivables......................... 5 3,280 2,916
Deferred Income Taxes Recoverable...................... 6 -- 37
Other Assets........................................... 3,055 2,340
Separate Account Assets................................ 48,620 43,763
-------- --------
Total Assets........................................... $201,907 $188,751
======== ========
LIABILITIES AND EQUITY
Liabilities
Future Policy Benefits................................. 5 $ 72,125 $ 69,115
Policyholder Account Balances.......................... 15 48,533 47,674
Other Policyholder Funds............................... 4,681 4,758
Policyholder Dividends Payable......................... 1,373 1,348
Short- and Long-Term Debt.............................. 9,15 7,203 5,257
Income Taxes Payable:.................................. 6
Current.............................................. 480 599
Deferred............................................. 472 --
Other Liabilities...................................... 4,695 4,618
Separate Account Liabilities........................... 48,338 43,399
-------- --------
Total Liabilities...................................... 187,900 176,768
-------- --------
Commitments and Contingencies (Notes 2 and 10)
Equity
Retained Earnings...................................... 12,140 10,937
Net Unrealized Investment Gains........................ 3 1,898 1,028
Foreign Currency Translation Adjustments............... (31) 18
-------- --------
Total Equity........................................... 16 14,007 11,983
-------- --------
Total Liabilities and Equity........................... $201,907 $188,751
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, AND 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Premiums...................................... 5 $11,299 $11,462 $11,178
Universal Life and Investment-Type Product
Policy Fee Income............................ 1,458 1,243 1,177
Net Investment Income......................... 3 9,475 8,993 8,837
Investment Gains (Losses), Net................ 3 798 231 (157)
Commissions, Fees and Other Income............ 1,344 1,256 834
------- ------- -------
Total Revenues............................ 24,374 23,185 21,869
------- ------- -------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits......................... 5 12,328 12,399 11,915
Interest Credited to Policyholder Account Bal-
ances........................................ 2,874 2,868 3,143
Policyholder Dividends........................ 1,720 1,728 1,786
Other Operating Costs and Expenses............ 11 5,759 4,784 4,281
------- ------- -------
Total Benefits and Other Deductions....... 22,681 21,779 21,125
------- ------- -------
Earnings from Continuing Operations Before In-
come Taxes................................... 1,693 1,406 744
Income Taxes.................................. 6 476 482 407
------- ------- -------
Earnings from Continuing Operations........... 1,217 924 337
------- ------- -------
Discontinued Operations: 13
Loss from Discontinued Operations (Net of
Income Tax (Benefit) Expense of $(8) in
1997, $(18) in 1996 and $32 in 1995)....... (14) (52) (54)
(Loss) Gain on Disposal of Discontinued Op-
erations (Net of Income Tax (Benefit) Ex-
pense of $(11) in 1996 and $106 in 1995)... -- (19) 416
------- ------- -------
(Loss) Earnings from Discontinued Operations.. (14) (71) 362
------- ------- -------
Net Earnings.................................. 16 $ 1,203 $ 853 $ 699
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ------- ------- -------
<S> <C> <C> <C> <C>
Retained Earnings, Beginning of Year.......... $10,937 $10,084 $ 9,385
Net Earnings.................................. 1,203 853 699
------- ------- -------
Retained Earnings, End of Year................ 12,140 10,937 10,084
------- ------- -------
Net Unrealized Investment Gains (Losses), Be-
ginning of Year.............................. 1,028 1,646 (955)
Change in Unrealized Investment Gains (Loss-
es).......................................... 3 870 (618) 2,601
------- ------- -------
Net Unrealized Investment Gains, End of Year.. 1,898 1,028 1,646
------- ------- -------
Foreign Currency Translation Adjustments, Be-
ginning of Year.............................. 18 24 (2)
Change in Foreign Currency Translation Adjust-
ments........................................ (49) (6) 26
------- ------- -------
Foreign Currency Translation Adjustments, End
of Year...................................... (31) 18 24
------- ------- -------
Total Equity, End of Year..................... 16 $14,007 $11,983 $11,754
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Earnings $ 1,203 $ 853 $ 699
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
<CAPTION>
Change in Deferred Policy Acquisition Costs, Net. (159) (391) (376)
<S> <C> <C> <C>
Change in Accrued Investment Income.............. (215) 350 (191)
Change in Premiums and Other Receivables......... (819) (106) (29)
Change in Undistributed Income of Real Estate
Joint Ventures and Other
Limited Partnership Interests................... 163 (45) (221)
Gains from Sales of Investments and Businesses,
Net............................................. (1,029) (428) (595)
Depreciation and Amortization Expenses........... 516 (18) 30
Interest Credited to Policyholder Account Bal-
ances........................................... 2,874 2,868 3,143
Universal Life and Investment-Type Product Policy
Fee Income...................................... (1,458) (1,243) (1,177)
Change in Future Policy Benefits................. 1,641 2,149 2,332
Change in Other Policyholder Funds............... 88 181 (66)
Change in Income Taxes Payable................... (99) (134) 327
Other, Net....................................... 512 (348) 947
-------- -------- --------
Net Cash Provided by Operating Activities.......... 3,218 3,688 4,823
-------- -------- --------
Cash Flows from Investing Activities
Sales, Maturities and Repayments of:
Fixed Maturities................................ 75,346 76,117 64,372
Equity Securities............................... 1,821 2,069 694
Mortgage Loans on Real Estate................... 2,381 2,380 3,182
Real Estate..................................... 1,875 1,948 1,193
Real Estate Joint Ventures...................... 205 410 387
Other Limited Partnership Interests............. 166 178 42
Leases and Leveraged Leases..................... 192 102 123
Purchases of:
Fixed Maturities................................ (76,603) (76,225) (66,693)
Equity Securities............................... (2,121) (2,742) (781)
Mortgage Loans on Real Estate................... (4,119) (4,225) (2,491)
Real Estate..................................... (387) (859) (904)
Real Estate Joint Ventures...................... (72) (130) (285)
Other Limited Partnership Interests............. (338) (307) (87)
Assets to be Leased............................. (738) (585) (383)
Net Change in Short-Term Investments.............. 37 1,028 (634)
Net Change in Policy Loans........................ 17 (128) (112)
Other, Net........................................ 442 45 (308)
-------- -------- --------
Net Cash Used by Investing Activities.............. (1,896) (924) (2,685)
-------- -------- --------
Cash Flows from Financing Activities
Policyholder Account Balances:
Deposits....................................... 16,061 17,167 16,017
Withdrawals.................................... (18,831) (19,321) (19,142)
Additions to Long-Term Debt....................... 828 -- 692
Repayments of Long-Term Debt...................... (99) (284) (389)
Net Increase (Decrease) in Short-Term Debt........ 1,265 69 (78)
-------- -------- --------
Net Cash Used by Financing Activities.............. (776) (2,369) (2,900)
-------- -------- --------
Change in Cash and Cash Equivalents................ 546 395 (762)
Cash and Cash Equivalents, Beginning of Year....... 2,325 1,930 2,692
-------- -------- --------
Cash and Cash Equivalents, End of Year............. $ 2,871 $ 2,325 $ 1,930
======== ======== ========
Supplemental Cash Flow Information
Interest Paid.................................... $ 422 $ 310 $ 280
======== ======== ========
Income Taxes Paid................................ $ 589 $ 497 $ 283
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNLESS OTHERWISE INDICATED, ALL AMOUNTS ARE IN MILLIONS OF DOLLARS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries
(collectively, the "company") provide life insurance and annuity products and
pension, pension-related and investment-related products and 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 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 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. Minority
interest relating to certain consolidated entities amounted to $277 and $149
at December 31, 1997 and 1996, respectively, and is included in other
liabilities. Significant intercompany transactions and balances have been
eliminated in consolidation.
Prior years' amounts have been reclassified to conform to the 1997
presentation.
On December 31, 1995, the company reclassified (under one-time accounting
implementation guidance) to available for sale certain held to maturity
securities. On July 1, 1997, the company reclassified to available for sale
all securities classified as held to maturity on that date as management
concluded that all securities are now available for sale. As a result,
consolidated equity at July 1, 1997 and December 31, 1995 increased by $198
and $135, respectively, excluding the effects of deferred income taxes,
amounts attributable to participating pension contracts, and adjustments of
deferred policy acquisition costs and future policy benefit loss recognition.
During 1997 management changed to the retrospective interest method of
accounting for investment income on structured note securities in accordance
with authoritative guidance issued in late 1996. As a result, net investment
income increased by $175. The cumulative effect of this accounting change on
prior years' income is not material.
VALUATION OF INVESTMENTS
SECURITIES--As mentioned above, during 1997 management reclassified all of
the company's fixed maturity securities to available for sale. Accordingly, as
of December 31, 1997, all of the company's investment securities are carried
at estimated fair value. Prior to this reclassification, certain fixed
maturity securities (principally bonds and redeemable preferred stock) were
carried at amortized cost. Unrealized investment gains and losses on
investment securities are recorded directly as a separate component of equity
net of related deferred income taxes, amounts attributable to participating
pension contracts and adjustments of deferred policy acquisition costs and
future policy benefit loss recognition. Costs of securities are adjusted for
impairments in value considered other than temporary. Such adjustments are
recorded as realized investment losses.
All security transactions are recorded on a trade date basis.
MORTGAGE LOANS in good standing are carried at amortized cost. A provision
is made for a realized investment loss (and a corresponding allowance is
established) when it becomes probable that the company will be unable to
collect all amounts due under the terms of the loan agreement. The provision
generally is equal to the excess of the carrying value of the mortgage loan
over its estimated fair value. Estimated fair value is based on either the
present value of
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
Mortgage loans considered to be uncollectible are charged against the
allowance and subsequent recoveries are credited to the allowance. Interest
income earned on loans where the collateral value is used to measure
impairment is recorded on a cash basis. Interest income earned 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.
POLICY LOANS are stated at unpaid principal balances.
INVESTMENT REAL ESTATE is generally stated at depreciated cost. Real estate
acquired in satisfaction of debt is recorded at estimated fair value at the
date of foreclosure. If events or changes in circumstances indicate that the
carrying amount of the investment exceeds its expected future cash flows, a
realized investment loss is recorded for the impairment. 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 the allowance relating to real estate to
be disposed of and impairments of real estate are reported as realized
investment gains or losses.
Depreciation of real estate is computed evenly over the estimated useful
lives of the properties (20 to 40 years).
LEASES AND LEVERAGED LEASES--The company is 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 and the
estimated residual value of the leased equipment less the 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. 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 evenly over its estimated economic life.
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 purchase 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.
SHORT-TERM INVESTMENTS are stated at amortized cost, which approximates fair
value.
INVESTMENT RESULTS
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenues. Valuation
allowances are deducted from asset categories to which they apply and
provisions for losses for investments are included in investment gains and
losses. Investment gains and losses are reduced by amounts attributable to
participating pension contracts and adjustments of deferred policy acquisition
costs and future policy benefit loss recognition.
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.
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 evenly or using sum of the years digits method over the lesser of
estimated useful lives of the assets or, where
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
appropriate, the term of the lease. Estimated lives range from 20 to 40 years
for real estate and 5 to 15 years for all other property and equipment.
Amortization of leasehold improvements is provided evenly over the lesser of
the term of the lease or the estimated useful life of the improvements.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business that vary with and are primarily related
to the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over 40 years for participating traditional life and 30 years for universal
life and investment-type products. Amortization is recorded based on 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 future experience). Changes to amounts previously
amortized are reflected in earnings in the period related estimates 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 made at
the date of policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in earnings when
they 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 estimated 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.
OTHER INTANGIBLE ASSETS
The value of insurance acquired and the excess of purchase price over the
fair value of net assets acquired are included in other assets. The value of
insurance acquired is amortized over the expected policy or contract duration
in relation to the present value of estimated gross profits from such policies
and contracts. The excess of purchase price over the fair value of net assets
acquired is amortized evenly over 10 years.
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of (a) net level premium
reserves for death and endowment policy benefits (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), (b) the liability for terminal dividends, and (c) premium
deficiency reserves, which are established 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 are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 6.0 percent to 8.25
percent.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values, which consist of 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. Revisions of estimates are
reflected in net earnings in the year such refinements are made.
RECOGNITION OF INCOME AND EXPENSE
Premiums from traditional life and annuity policies with life contingencies
are recognized as income when due. Benefits and expenses are matched with such
income resulting in the recognition of profits over the life of the contract.
This match is accomplished through the provision for future policy benefits
and the deferral and subsequent amortization of policy acquisition costs.
Premiums due over a significantly shorter period than the total period over
which benefits are provided are recorded as income when due with any excess
profit deferred and recognized as 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 term.
Premiums from universal life and investment-type contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality, policy
administration and surrender charges. Amounts that are charged to expense
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.
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.
INCOME TAXES
MetLife and its eligible life insurance and nonlife insurance subsidiaries
file a consolidated U.S. federal income tax return and separate income tax
returns as required. The future tax consequences of temporary differences
between financial reporting and tax bases of assets and liabilities are
measured as of the balance sheet dates and are recorded as deferred income 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.
Investments held in the Separate Accounts (stated at estimated fair 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.
DISCONTINUED OPERATIONS
Certain operations have been discontinued and, accordingly, are segregated
in the consolidated statements of earnings.
<PAGE>
NOTES TO 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.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 125 Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
and SFAS No. 127 Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125 provide accounting and reporting standards relating to
transfers of security interests, repurchase agreements, dollar rolls,
securities lending and similar transactions which will be effective in 1998.
The company believes that the application of these standards will not have a
material impact on the company's results of operations, financial position or
liquidity.
SFAS No. 130 Reporting Comprehensive Income establishes standards for
reporting and presentation of comprehensive income and its components and will
be effective in 1998. Comprehensive income, which includes all changes to
equity except those resulting from investments by owners or distributions to
owners, was $2,024, $229 and $3,326 in 1997, 1996 and 1995, respectively.
Consolidated statements of comprehensive income have not been presented, as
the company has not determined the individual amounts to be displayed in such
statements.
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, were as
follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- -----------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Available for Sale Securities:
Fixed Maturities:
Bonds:
U. S. Treasury securities and
obligations of U. S. government
corporations and agencies............ $ 10,619 $ 1,511 $ 2 $ 12,128
States and political subdivisions..... 486 22 -- 508
Foreign governments................... 3,420 371 52 3,739
Corporate............................. 41,191 2,343 290 43,244
Mortgage-backed securities............ 22,191 572 21 22,742
Other................................. 9,463 428 134 9,757
-------- --------- ------ --------
Total bonds......................... 87,370 5,247 499 92,118
Redeemable preferred stocks............. 494 19 1 512
-------- --------- ------ --------
Total fixed maturities.............. $ 87,864 $ 5,266 $ 500 $ 92,630
======== ========= ====== ========
Equity Securities:
Common stocks........................... $ 2,444 $ 1,716 $ 105 $ 4,055
Nonredeemable preferred stocks.......... 201 5 11 195
-------- --------- ------ --------
Total equity securities............. $ 2,645 $ 1,721 $ 116 $ 4,250
======== ========= ====== ========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- --------- ------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Available for Sale Securities:
Fixed Maturities:
Bonds:
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>
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Held to Maturity Securities:
Fixed Maturities:
Bonds:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions 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
======= ======== ======== =======
</TABLE>
The amortized cost and estimated fair value of bonds, by contractual
maturity, were as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
DECEMBER 31, 1997
Due in one year or less.............................. $ 1,916 $ 1,927
Due after one year through five years................ 15,830 16,260
Due after five years through 10 years................ 23,023 24,067
Due after 10 years................................... 24,410 27,122
------- -------
Subtotal........................................... 65,179 69,376
Mortgage-backed securities........................... 22,191 22,742
------- -------
Total.............................................. $87,370 $92,118
======= =======
</TABLE>
Bonds not due at a single maturity date have been included in the above table
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MORTGAGE LOANS
Mortgage loans are collateralized by properties principally located
throughout the United States and Canada. At December 31, 1997, approximately
15 percent, 7 percent and 6 percent of the properties were located in
California, Illinois and Florida, 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>
1997 1996
---- ----
<S> <C> <C>
DECEMBER 31
Office buildings................................................ 32% 30%
Retail.......................................................... 16% 19%
Residential..................................................... 15% 16%
Agricultural.................................................... 18% 18%
Other........................................................... 19% 17%
---- ----
Total......................................................... 100% 100%
==== ====
</TABLE>
Many of the company's real estate joint ventures have mortgage loans with
the company. The carrying values of such mortgages were $753 and $869 at
December 31, 1997 and 1996, respectively.
Mortgage loan valuation allowances and changes thereto were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1............................... $ 444 $ 466 $ 483
Additions charged to income...................... 61 144 107
Deductions for writedowns and dispositions....... (241) (166) (124)
------ ------ ------
Balance, December 31............................. $ 264 $ 444 $ 466
====== ====== ======
Impaired mortgage loans and related valuation allowances were as follows:
<CAPTION>
1997 1996
------ ------
<S> <C> <C> <C>
DECEMBER 31
Impaired mortgage loans with valuation allow-
ances........................................... $1,231 $1,677
Impaired mortgage loans with no valuation allow-
ances........................................... 306 165
------ ------
Recorded investment in impaired mortgage loans... 1,537 1,842
Valuation allowances............................. (250) (427)
------ ------
Net impaired mortgage loans...................... $1,287 $1,415
====== ======
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Average recorded investment in impaired mortgage
loans........................................... $1,680 $2,113 $2,365
====== ====== ======
</TABLE>
Interest income on impaired mortgage loans recorded on a cash basis totaled
$110 , $122 and $169 for the years ended December 31, 1997, 1996 and 1995,
respectively.
REAL ESTATE
Accumulated depreciation on real estate was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1................................ $2,109 $2,187 $2,757
Depreciation expense.............................. 332 348 427
Deductions for dispositions....................... (475) (426) (997)
------ ------ ------
Balance, December 31.............................. $1,966 $2,109 $2,187
====== ====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Real estate valuation allowances and changes thereto were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1................................... $ 529 $ 743 $ 622
(Credited) charged to income......................... (52) 127 358
Deductions for writedowns and dispositions........... (436) (341) (237)
----- ----- -----
Balance, December 31................................. $ 41 $ 529 $ 743
===== ===== =====
</TABLE>
The above table does not include valuation allowances of $55, $118 and $167
at December 31, 1997, 1996 and 1995, respectively, relating to investments in
real estate joint ventures.
Prior to 1996, the company established valuation allowances for all impaired
real estate investments including real estate held for investment. During
1996, $150 of allowances relating to real estate held for investment were
applied as writedowns to specific properties. During 1997, allowances of $94
relating to real estate held for sale were applied as writedowns to specific
properties. The balances in the real estate valuation allowances at December
31, 1997 and 1996, relate to properties that management has committed to a
plan of sale. The carrying values, net of valuation allowances, of properties
committed to a plan of sale were $206 and $1,844 at December 31, 1997 and
1996, respectively. Net investment income relating to such properties was $8
and $60 for the years ended December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, the company owned real estate acquired in
satisfaction of debt of $218 and $456, respectively.
LEASES AND LEVERAGED LEASES
The company's investment in direct financing leases and leveraged leases was
as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING LEVERAGED
LEASES LEASES TOTAL
-------------- ------------- --------------
1997 1996 1997 1996 1997 1996
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31
Investment................ $1,137 $1,247 $ 851 $ 387 $1,988 $1,634
Estimated residual values. 183 238 641 543 824 781
------ ------ ------ ----- ------ ------
Total................... 1,320 1,485 1,492 930 2,812 2,415
Unearned income........... (261) (336) (428) (316) (689) (652)
------ ------ ------ ----- ------ ------
Net investment............ $1,059 $1,149 $1,064 $ 614 $2,123 $1,763
====== ====== ====== ===== ====== ======
</TABLE>
The investment amounts set forth above are generally due 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 were as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING RESIDUALS TOTAL
--------- --------- ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
1998......................................... $ 229 $ 14 $ 243
1999......................................... 211 19 230
2000......................................... 192 25 217
2001......................................... 147 19 166
2002......................................... 114 22 136
Thereafter................................... 244 84 328
------ ---- ------
Total........................................ $1,137 $183 $1,320
====== ==== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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
flows.
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
consolidated balance sheets. To further minimize the credit risks related to
this lending program, the company regularly monitors the financial condition
of the borrowers.
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 also may occasionally sell covered call options. The company does not
engage in trading of 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 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, 1997, the company employed
several ongoing derivatives strategies. The company entered into a number of
anticipatory hedge agreements 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 expense 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, 1997 and 1996, the company had assets on deposit with
regulatory agencies of $4,695 and $4,062, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NET INVESTMENT INCOME AND INVESTMENT GAINS
The sources of net investment income were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Fixed maturities............................ $ 6,455 $ 6,042 $ 6,006
Equity securities........................... 50 60 45
Mortgage loans on real estate............... 1,684 1,523 1,501
Policy loans................................ 368 399 394
Real estate................................. 1,566 1,647 1,833
Real estate joint ventures.................. 42 21 41
Other limited partnership interests......... 302 215 149
Leases and leveraged leases................. 131 135 113
Cash, cash equivalents and short-term in-
vestments.................................. 169 214 231
Other investment income..................... 235 281 326
------- ------- -------
Gross investment income..................... 11,002 10,537 10,639
Investment expenses......................... (1,527) (1,544) (1,802)
------- ------- -------
Investment income, net...................... $ 9,475 $ 8,993 $ 8,837
======= ======= =======
Investment gains (losses), including changes in valuation allowances, were as
follows:
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Fixed maturities............................ $ 118 $ 234 $ 621
Equity securities........................... 224 78 (5)
Mortgage loans on real estate............... 56 (86) (51)
Real estate................................. 249 165 (375)
Real estate joint ventures.................. 117 61 (142)
Other limited partnership interests......... 103 82 117
Other....................................... 162 (76) (92)
------- ------- -------
Subtotal................................ 1,029 458 73
Investment gains relating to:
Participating pension contracts........... (35) (20) --
Amortization of deferred policy acquisi-
tion costs............................... (70) (4) (78)
Future policy benefit loss recognition.... (126) (203) (152)
------- ------- -------
Net investment gains (losses)............... $ 798 $ 231 $ (157)
======= ======= =======
Sales of bonds were as follows:
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Bonds classified as available for sale
Proceeds.................................. $72,396 $74,580 $58,537
Gross realized gains...................... 691 1,069 1,013
Gross realized losses..................... 584 842 402
Bonds classified as held to maturity
Proceeds.................................. $ 352 $ 1,281 $ 1,806
Gross realized gains...................... 5 10 17
Gross realized losses..................... 1 1 4
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
DECEMBER 31
Balance, comprised of:
Unrealized investment gains on:
Fixed maturities.......................... $4,766 $2,226 $ 5,166
Equity securities......................... 1,605 563 210
Other..................................... 294 474 380
------ ------ -------
6,665 3,263 5,756
------ ------ -------
Amounts allocable to:
Participating pension contracts............. 312 9 350
Loss recognition............................ 2,189 1,219 2,064
Deferred policy acquisition cost............ 1,147 420 748
Deferred income taxes....................... 1,119 587 948
------ ------ -------
4,767 2,235 4,110
------ ------ -------
Total................................... $1,898 $1,028 $ 1,646
====== ====== =======
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1............................ $1,028 $1,646 $ (955)
Unrealized investment gains (losses) during
year......................................... 3,402 (2,493) 7,665
Unrealized investment (gains) losses allocable
to:
Participating pension contracts............. (303) 341 (258)
Loss recognition............................ (970) 845 (2,063)
Deferred policy acquisition costs........... (727) 328 (1,247)
Deferred income taxes......................... (532) 361 (1,496)
------ ------ -------
Balance, December 31.......................... $1,898 $1,028 $ 1,646
====== ====== =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. JOINT VENTURES AND OTHER LIMITED PARTNERSHIPS
Combined financial information for real estate joint ventures and other
limited partnership interests accounted for under the equity method, in which
the company has an investment of at least $10 and an equity interest of at
least 10 percent, was as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Assets:
Investments in real estate, at depreciated cost........ $ 938 $1,030
Investments in securities, at estimated fair value..... 717 621
Cash and cash equivalents.............................. 141 37
Other.................................................. 984 1,030
------ ------
Total assets......................................... 2,780 2,718
------ ------
Liabilities:
Borrowed funds--third party............................ 384 243
Borrowed funds--MetLife................................ 136 69
Other.................................................. 678 915
------ ------
Total liabilities.................................... 1,198 1,227
------ ------
Partners' capital........................................ $1,582 $1,491
====== ======
MetLife equity in partners' capital included above....... $ 822 $ 786
====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Operations:
Revenues of real estate joint ventures......... $ 291 $ 275 $ 364
Revenues of other limited partnership inter-
ests.......................................... 276 297 417
Interest expense--third party.................. (25) (11) (26)
Interest expense--MetLife...................... (16) (19) (31)
Other expenses................................. (396) (411) (501)
----- ----- -----
Net earnings..................................... $ 130 $ 131 $ 223
===== ===== =====
MetLife earnings from real estate joint ventures
and other limited partnership interests included
above........................................... $ 59 $ 34 $ 28
===== ===== =====
</TABLE>
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The company assumes and cedes insurance with other insurance companies. The
consolidated statements of earnings are presented net of reinsurance ceded.
The effect of reinsurance on premiums earned was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Direct premiums............................ $12,749 $12,569 $11,944
Reinsurance assumed........................ 360 508 812
Reinsurance ceded.......................... (1,810) (1,615) (1,578)
------- ------- -------
Net premiums earned........................ $11,299 $11,462 $11,178
======= ======= =======
Reinsurance recoveries netted against
policyholder benefits..................... $ 1,689 $ 1,667 $ 1,523
======= ======= =======
</TABLE>
Premiums and other receivables in the consolidated balance sheets include
reinsurance recoverables of $1,579 and $700 at December 31, 1997 and 1996,
respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance at January 1........................... $3,345 $3,296 $2,670
Reinsurance recoverables..................... (215) (214) (104)
------ ------ ------
Net balance at January 1....................... 3,130 3,082 2,566
------ ------ ------
Incurred related to:
Current year................................. 2,855 2,951 3,420
Prior years.................................. 88 (114) (68)
------ ------ ------
Total incurred............................. 2,943 2,837 3,352
------ ------ ------
Paid related to:
Current year................................. 1,832 1,998 2,053
Prior years.................................. 815 791 783
------ ------ ------
Total paid................................. 2,647 2,789 2,836
------ ------ ------
Net balance at December 31..................... 3,426 3,130 3,082
Plus reinsurance recoverables................ 229 215 214
------ ------ ------
Balance at December 31......................... $3,655 $3,345 $3,296
====== ====== ======
</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.
The income tax expense (benefit) of continuing operations was as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1997
Federal......................................... $432 $(26) $406
State and local................................. 10 9 19
Foreign......................................... 26 25 51
---- ---- ----
Total......................................... $468 $ 8 $476
==== ==== ====
1996
Federal......................................... $346 $ 66 $412
State and local................................. 25 6 31
Foreign......................................... 27 12 39
---- ---- ----
Total......................................... $398 $ 84 $482
==== ==== ====
1995
Federal......................................... $241 $ 65 $306
State and local................................. 52 3 55
Foreign......................................... 22 24 46
---- ---- ----
Total......................................... $315 $ 92 $407
==== ==== ====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reconciliations of the differences between income taxes of continuing
operations computed at the federal statutory tax rates and consolidated
provisions for income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Earnings from continuing operations before
income taxes................................... $1,693 $1,406 $744
Income tax rate................................. 35% 35% 35%
------ ------ ----
Expected income tax expense at federal statutory
income tax rate................................ 593 492 260
Tax effect of:
Tax exempt investment income.................. (30) (18) (9)
Goodwill...................................... 9 -- --
Differential earnings amount.................. (40) 38 67
State and local income taxes.................. 15 23 37
Foreign operations............................ 7 (7) 25
Tax credits................................... (15) (15) (15)
Prior year taxes.............................. (2) (46) (3)
Sale of subsidiary............................ (41) -- --
Other, net.................................... (20) 15 45
------ ------ ----
Income taxes.................................... $ 476 $ 482 $407
====== ====== ====
</TABLE>
The deferred income tax assets or liabilities recorded at December 31, 1997
and 1996 represent the net temporary differences between the tax bases of
assets and liabilities and their amounts for financial reporting. The
components of the net deferred income tax asset or liability were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Deferred income tax assets:
Policyholder liabilities and receivables........ $3,010 $2,889
Net operating loss carryforwards................ 33 38
Other, net...................................... 938 698
------ ------
Total gross deferred income tax assets........ 3,981 3,625
Less valuation allowance........................ 24 14
------ ------
Deferred income tax assets, net of valuation al-
lowance.......................................... 3,957 3,611
------ ------
Deferred income tax liabilities:
Investments..................................... 1,227 848
Deferred policy acquisition costs............... 1,890 1,940
Net unrealized capital gains.................... 1,119 587
Other, net...................................... 193 199
------ ------
Total deferred income tax liabilities......... 4,429 3,574
------ ------
Net deferred income tax (liability) asset......... $ (472) $ 37
====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The sources of deferred income tax expense (benefit) and their tax effects
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Policyholder liabilities and receivables........... $(109) $ 53 $(105)
Net operating loss carryforwards................... 5 (19) 89
Investments........................................ 382 50 199
Deferred policy acquisition costs.................. (51) 55 49
Change in valuation allowance...................... 10 4 (6)
Other, net......................................... (229) (59) (134)
----- ----- -----
Total............................................ $ 8 $ 84 $ 92
===== ===== =====
The valuation allowance for the tax benefits of net operating loss
carryforwards reflects management's assessment, based on available information,
that it is more likely than not that the deferred income tax asset for 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 income tax asset is realizable. U.S. tax basis net operating loss
carryforwards of $15 are available, subject to statutory limitation, to offset
taxable income through the year 2012.
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The company is both the sponsor and administrator of defined benefit pension
plans covering all eligible employees and sales representatives of MetLife and
certain of its subsidiaries. Retirement benefits are based on years of credited
service and final average earnings history.
Components of the net periodic pension (credit) cost for the defined benefit
qualified and nonqualified pension plans were as follows:
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Service cost....................................... $ 73 $ 77 $ 62
Interest cost on projected benefit obligation...... 244 232 222
Actual return on assets............................ (318) (273) (280)
Net amortization and deferrals..................... (5) (12) (13)
----- ----- -----
Net periodic pension (credit) cost................. $ (6) $ 24 $ (9)
===== ===== =====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31
Actuarial present value of
obligations:
Vested.................... $2,804 $ 251 $2,668 $223
Nonvested................. 33 2 36 2
------ ----- ------ ----
Accumulated benefit obliga-
tion...................... $2,837 $ 253 $2,704 $225
====== ===== ====== ====
Projected benefit obliga-
tion...................... $3,170 $ 353 $2,958 $310
Plan assets (principally
company investment
contracts) at contract
value 3,831 151 3,495 133
------ ----- ------ ----
Plan assets in excess of
(less than) projected
benefit obligation........ 661 (202) 537 (177)
Unrecognized prior service
cost...................... 125 25 139 26
Unrecognized net (gain)
loss from past experience
different from that
assumed................... (130) 21 (27) 60
Unrecognized net asset at
transition................ (140) -- (176) --
------ ----- ------ ----
Prepaid (accrued) pension
cost at December 31....... $ 516 $(156) $ 473 $(91)
====== ===== ====== ====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation ranged from 7.25 percent to 7.75
percent for 1997 and 7.25 percent to 8.0 percent for 1996. The weighted
average assumed rate of increase in future compensation levels ranged from 4.5
percent to 8.5 percent in 1997 and from 4.0 percent to 8.0 percent in 1996.
The assumed long-term rate of return on assets used in determining the net
periodic pension cost was 8.75 percent in 1997 and ranged from 8.0 percent to
8.5 percent in 1996. 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 1997, 1996 and 1995, the company contributed
$44, $42 and $49, respectively, to the plans.
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 components of the net periodic nonpension postretirement benefit cost
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Service cost......................................... $ 31 $ 41 $ 28
Interest cost on accumulated postretirement benefit
obligation.......................................... 122 127 115
Actual return on plan assets (company insurance
contracts).......................................... (66) (58) (63)
Net amortization and deferrals....................... (5) 2 (9)
---- ---- ----
Net periodic nonpension postretirement benefit cost.. $ 82 $112 $ 71
==== ==== ====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
1997 1996
------ ------
<S> <C> <C>
DECEMBER 31
Accumulated postretirement benefit obligation:
Retirees............................................. $1,251 $1,228
Fully eligible active employees...................... 115 145
Active employees not eligible to retire.............. 397 400
------ ------
Total............................................... 1,763 1,773
Plan assets (company insurance contracts) at contract
value................................................ 1,004 897
------ ------
Plan assets less than accumulated postretirement
benefit obligation................................... (759) (876)
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions.... (173) (60)
------ ------
Accrued nonpension postretirement benefit cost at
December 31.......................................... $ (932) $ (936)
====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9.0 percent in
1997, gradually decreasing to 5.25 percent over five years and generally 9.5
percent in 1996 decreasing to 5.25 percent over 12 years. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation ranged from 7.25 percent to 7.75 percent at December 31, 1997 and
7.0 percent to 7.75 percent at December 31, 1996.
If the health care cost trend rate assumptions were increased 1.0 percent,
the accumulated postretirement benefit obligation as of December 31, 1997
would be increased 6.75 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, 1997, would be an increase of 9.7
percent.
8. LEASES
RENTAL INCOME ON REAL ESTATE OWNED AND LEASE EXPENSE
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. Additionally, the company, as lessee,
has entered into various lease and sublease agreements for office space, data
processing and other equipment. Future minimum rental income, gross minimum
rental payments and minimum sublease rental income relating to these lease
agreements were as follows:
<TABLE>
<CAPTION>
GROSS
RENTAL RENTAL SUBLEASE
INCOME PAYMENTS INCOME
------ -------- --------
<S> <C> <C> <C>
DECEMBER 31
1998.......................................... $ 697 $146 $55
1999.......................................... 657 127 52
2000.......................................... 604 103 50
2001.......................................... 560 82 44
2002.......................................... 496 59 36
2003 and thereafter........................... 2,724 103 68
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
SCHEDULED
MATURITY 1997 1996
--------- ------ ------
<S> <C> <C> <C>
DECEMBER 31
Surplus notes:
6.300% 2003 $ 397 $ 396
7.000% 2005 249 248
7.700% 2015 198 197
7.450% 2023 296 296
7.875% 2024 148 148
7.800% 2025 248 248
Floating rate notes, interest rates
based on LIBOR................................. 1999-2007 358 49
Fixed rate notes, interest rates ranging from
5.80%-10.50%................................... 1998-2007 519 135
Zero coupon Eurobonds........................... 1999 79 71
Other........................................... 124 158
------ ------
Total long-term debt............................ 2,616 1,946
Short-term debt................................. 4,587 3,311
------ ------
Total........................................... $7,203 $5,257
====== ======
</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, in whole or in part, at the
election of the company at any time on or after November 1, 2003.
At December 31, 1997, aggregate maturities of the long-term debt based on
required principal payments at maturity for 1998 and the succeeding four years
amounted to $80, $377, $178, $9 and $11, respectively, and $1,979 thereafter.
10. CONTINGENCIES
The company is currently a defendant in numerous state and federal lawsuits
(including individual suits and putative class actions) raising allegations of
improper marketing of individual life insurance. Litigation seeking
compensatory and/or punitive damages relating to the marketing by the company
of individual life insurance (including putative class and individual actions)
continues to be brought by or on behalf of policyholders and others. These
cases, most of which are in the early stages of litigation, seek substantial
damages, including in some cases claims for punitive and treble damages and
attorneys' fees, and raise, among other claims, allegations that individual
life insurance policies were improperly sold in replacement transactions or
with inadequate or inaccurate disclosure as to the period for which premiums
would be payable, or were misleadingly sold as savings or retirement plans.
Putative classes have been certified, conditionally or subject to appeal, in
state court actions covering certain policyholders in California and West
Virginia; class certification has been denied in a state court action in Ohio
thus far. A number of the federal cases alleging improper marketing of
individual life insurance have been consolidated in the United States District
Court for the Western District of Pennsylvania and the United States District
Court in Massachusetts for pretrial proceedings. Additional litigation
relating to the company's marketing of individual life insurance may be
commenced in the future. The company is vigorously defending itself in these
actions.
Regulatory authorities in a small number of states, including both insurance
departments and attorneys general, have ongoing investigations of the
company's sales of individual life insurance, including investigations of
alleged improper replacement transactions and alleged improper sales of
insurance with inaccurate or inadequate disclosures
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
as to the period for which premiums would be payable. In addition, an
investigation by the Office of the United States Attorney for the Middle
District of Florida, which commenced in 1994, into certain of the retirement
and savings plan selling allegations that have been a subject of regulatory
inquiries, has not been closed.
In addition to the foregoing matters, the company is a defendant in a large
number of asbestos lawsuits relating to allegations regarding certain
research, advice and publication activity that occurred decades ago. While the
company believes that it has significant defenses to these claims and has
effected settlements in many of these cases and has prevailed in certain
cases, it is not possible to predict the number of such cases that may be
brought or the aggregate amount of any liability that may ultimately be
incurred by the company.
Various litigation, claims and assessments against the company, in addition
to the aforementioned and those otherwise provided for in the company's
financial statements, have arisen in the course of the company's business,
including in connection with its activities as an insurer, employer, investor
and taxpayer. Further, state insurance regulatory authorities and other state
authorities regularly make inquiries and conduct investigations concerning the
company's compliance with applicable insurance and other laws and regulations.
In certain of the matters referred to above, 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.
11. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Compensation costs............................. $2,072 $1,813 $1,607
Commissions.................................... 766 722 853
Interest and debt issue costs.................. 453 311 285
Amortization of policy acquisition costs....... 771 633 606
Capitalization of policy acquisition costs..... (1,000) (1,028) (1,060)
Rent expense, net of sublease.................. 179 180 184
Restructuring charges.......................... -- 18 88
Minority interest.............................. 51 30 22
Other.......................................... 2,467 2,105 1,696
------ ------ ------
Total.......................................... $5,759 $4,784 $4,281
====== ====== ======
</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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER INTANGIBLE ASSETS
The value of business acquired and the excess of purchase price over the
fair value of net assets acquired and changes thereto were as follows:
<TABLE>
<CAPTION>
EXCESS OF PURCHASE PRICE
OVER FAIR VALUE OF
VALUE OF BUSINESS ACQUIRED NET ASSETS ACQUIRED
---------------------------- ----------------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net Balance, January 1.. $ 358 $ 381 $ 6 $ 544 $ 377 $ 413
Acquisitions............ 176 7 396 387 197 221
Dispositions............ -- -- -- -- -- (236)
Amortization............ (36) (30) (21) (47) (30) (21)
-------- -------- -------- -------- -------- --------
Net balance, December
31..................... $ 498 $ 358 $ 381 $ 884 $ 544 $ 377
======== ======== ======== ======== ======== ========
<CAPTION>
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31
Accumulated amortiza-
tion................... $ 87 $ 51 $ 21 $ 148 $ 101 $ 71
======== ======== ======== ======== ======== ========
</TABLE>
13. 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 face amount of United HealthCare Corporation
convertible preferred stock and $326 in cash (including additional
consideration of $50 in 1996). The sale resulted in an aftertax loss of $36 in
1996 and an aftertax gain of $372 in 1995. Operating losses in 1997 and 1996
related principally to the finalization of the transfer of group medical
contracts to 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 (including additional cash consideration of $25 in 1996), resulting in
aftertax gains of $17 in 1996 and $44 in 1995.
14. CONSOLIDATED CASH FLOWS INFORMATION
During 1997 the company acquired assets of $3,777 and assumed liabilities of
$3,347 through the acquisition of certain insurance and noninsurance
companies. The aggregate purchase prices were allocated to the assets and
liabilities acquired based upon their estimated fair values. During 1997 the
company also reduced assets and liabilities by $4,342 and $4,207,
respectively, through the sale of certain insurance operations, resulting in a
pretax gain of $139. During 1995 the company also reduced assets and
liabilities by $919 and $413, respectively, through the sale of its real
estate brokerage, mortgage banking and mortgage administration operations.
During 1997 the company assumed liabilities of $227 and received assets of
$227 and during 1995 the company assumed liabilities of $1,573 and received
assets of $1,573 through assumption of certain businesses from other insurance
companies.
For the years ended December 31, 1997, 1996 and 1995, respectively, real
estate of $151, $189 and $429 was acquired in satisfaction of debt.
During 1997 and 1995, fixed maturity securities with an amortized cost of
$11,682 and $3,058, respectively, were transferred from held to maturity to
available for sale.
15. 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, 1997 and 1996, 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The estimates presented below were 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>
NOTIONAL CARRYING ESTIMATED
AMOUNT VALUE FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1997
Assets:
Fixed maturities................................ $92,630 $92,630
Equity securities............................... 4,250 4,250
Mortgage loans on real estate................... 20,247 21,133
Policy loans.................................... 5,846 6,110
Short-term investments.......................... 705 705
Cash and cash equivalents....................... 2,871 2,871
Liabilities:
Policyholder account balances................... 36,433 36,664
Short- and long-term debt....................... 7,203 7,258
Other financial instruments:
Interest rate swaps............................. $1,464 (1) (19)
Interest rate caps.............................. 1,545 16 12
Foreign currency swaps.......................... 254 -- (28)
Foreign currency forwards....................... 150 -- --
Covered call options............................ 88 (31) (31)
Other options................................... 565 -- (2)
Futures contracts............................... 2,262 10 10
Unused lines of credit.......................... 2,310 -- 2
<CAPTION>
NOTIONAL CARRYING ESTIMATED
AMOUNT VALUE FAIR VALUE
-------- -------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1996
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....................... 5,257 5,223
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>
Estimated fair values were determined as follows: publicly traded fixed
maturities (approximately 78 percent of the estimated fair value of total
fixed maturities) from an independent market pricing service; all other bonds
at estimated fair value determined by management (based primarily on interest
rates, maturity, credit quality and average life); equity securities, on
quoted market prices; mortgage loans, based on discounted projected cash flows
using interest rates offered for loans to borrowers with comparable credit
ratings and for the same maturities; policy loans, based on
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
discounted projected cash flows using U.S. Treasury rates to approximate
interest rates and company experience to project patterns of loan accrual and
repayment; cash and cash equivalents and short-term investments, at carrying
amount, which is considered to be a reasonable estimate of fair value.
Included in fixed maturities are loaned securities with estimated fair
values of $6,537 and $7,293 at December 31, 1997 and 1996, respectively.
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, other 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.
16. STATUTORY FINANCIAL INFORMATION
The reconciliation of the 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 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ---- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net change in statutory surplus...................... $ 227 $366 $229
Adjustments for GAAP:
Future policy benefits and policyholder account
balances.......................................... (445) (165) (17)
Deferred policy acquisition costs.................. 159 391 376
Deferred income taxes.............................. 62 (74) (97)
Valuation of investments........................... (387) (84) 106
Statutory asset valuation reserves................. 1,170 599 30
Statutory interest maintenance reserve............. 53 19 284
Surplus notes...................................... -- -- (622)
Other, net......................................... 364 (199) 410
------ ---- ----
Net earnings..................................... $1,203 $853 $699
====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
DECEMBER 31
Statutory surplus..................................... $ 7,378 $ 7,151
Adjustments for GAAP:
Future policy benefits and policyholder account bal-
ances (7,305) (5,742)
Deferred policy acquisition costs................... 6,436 7,227
Deferred income taxes............................... (242) 264
Valuation of investments............................ 3,474 610
Statutory asset valuation reserves.................. 3,854 2,684
Statutory interest maintenance reserve.............. 1,261 1,208
Surplus notes....................................... (1,396) (1,393)
Other, net.......................................... 601 (26)
------- -------
Equity............................................ $14,061 $11,983
======= =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
17. SUBSEQUENT EVENT
On March 12, 1998 the company reached an agreement, subject to regulatory
approval, to sell substantially all of its Canadian operations to a
nonaffiliated life insurance company at a gain. Financial information for the
Canadian operations was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31
Total revenue......................................... $ 969 $ 920 $903
Total benefits and other deductions................... 831 802 804
Net earnings.......................................... 87 83 22
<CAPTION>
1997 1996
----- -----
<S> <C> <C> <C>
DECEMBER 31
Total assets.......................................... 5,881 5,826
Total equity.......................................... 957 917
</TABLE>
<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-3:
Statement of Assets and Liabilities as of December 31, 1997.
Statement of Operations for the year ended December 31, 1997.
Statement of Changes in Net Assets for the years ended December 31,
1997 and 1996.
Statement of Supplementary Information - Selected Per Unit Data and
Ratios.
Notes to Financial Statements.
Schedule of Investments as of December 31, 1997.
(2) The following financial statements of the Company are included in Part
B of this Post-Effective Amendment on Form N-3:
Consolidated Balance Sheet as of December 31, 1997 and 1996.
Consolidated Statements of Earnings for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statement of Equity for the years ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Cash Flow for the years ended December 31,
1997, 1996 and 1995.
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 Registration Statement on Form N-3 (No. 333-11137) filed
on August 30, 1996.
<PAGE>
(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 are incorporated
herein by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-3 (File No. 333-11137) filed on April
30, 1997.
(3) Form of Safekeeping Agreement.
Custodian Fee Schedule.
(4) Advisory Agreement is incorporated herein by reference to Registration
Statement on Form N-3 (File No. 333-11137) filed on August 30, 1996.
(5) Distribution Agreement is incorporated herein by reference to
Registration Statement on Form N-3 (File No. 333-11137) filed on August
30, 1996.
(6) (i) Form of variable annuity contract.
(ii) Form of Endorsement: Tax-Sheltered Annuity.
(iii) Form of Endorsement: Individual Retirement Annuity.
(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.
(8) (i) Charter and By-Laws of Metropolitan Life Insurance Company are
incorporated herein by reference to Registration Statement on
Form N-3 (No. 333-11137) filed August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-3 (File No. 333-11137) filed on
August 30, 1996.
(9) None
(10) None
(11) (i) Form of Administrative Agreement.
<PAGE>
(ii) Administrative Services Agreement is incorporated by reference to
the Registration Statement on Form N-3 (File No. 333-11137) filed
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.
(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 (File No. 333-11137) filed on August 30, 1996, except for
Gerald Clark, Burton A. Dole and Charles M. Leighton whose powers of
attorney were filed with Post-Effective Amendment No. 1 to the
Registration Statement (File No. 333-11137) filed April 30, 1997 and
William C. Steere, Jr. whose power of attorney was filed in with Post-
Effective Amendment No. 5 to the Registration Statement of Separate
Account UL (File No. 33-47927) on April 30, 1997 and Robert H. Benmoshe
whose power of attorney was filed with the Registration Statement of
Metropolitan Life Separate Account UL (File No. 333-40161) filed
November 13, 1997 and Jon F. Danski whose power of attorney was filed
with Pre-Effective Amendment to the Registration Statement of
Metropolitan Life Separate Account UL (File No. 333-40161) filed April
2, 1998.
(ii) Board of Managers of the Fund. 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, except for John J. Arena,
John W. Flynn and John T. Ludes whose powers of attorney were filed
with Post-Effective Amendment No. 1 to the Registration Statement (File
No. 333-11137) filed April 30, 1997.
(27) Financial Data Schedule.
<PAGE>
ITEM 29. DIRECTORS AND OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
---- ---------------------- ---------------------
<S> <C> <C>
Curtis H. Barnette................ Chairman and Chief Director
Executive Officer
Bethlehem Steel Corporation
1170 Eighth Avenue
Martin Tower 2118
Bethlehem, PA 18016-7699
Robert H. Benmosche............... President and Chief President, Chief
Operating Officer Operating Officer
Metropolitan Life and Director
Insurance Company
One Madison Avenue
New York, N.Y. 10010
Gerald Clark...................... Senior Executive Vice- Senior Executive
President and Chief Vice President and
Investment Officer Chief Investment
Metropolitan Life Officer, Director
Insurance Company
One Madison Avenue
New York, NY 10010
Joan Ganz Cooney.................. Chairman, Executive Committee, Director
Children's Television Workshop
One Lincoln Plaza
New York, NY 10023
Burton A. Dole, Jr. .............. Retired Chairman Director
President and Chief
Executive Officer
Puritan Bennett
2200 Faraday Avenue
Carlsbad, CA 92008-7208
James R. Houghton................. Retired Chairman of the Board, Director
Corning Incorporated
80 East Market Street
2nd floor
Corning, NY 14830
Harry P. Kamen.................... Chairman and Chief Chairman, Chief
Executive Officer Executive Officer
Metropolitan Life and Director
Insurance Company
One Madison Avenue
New York, NY 10010
Helene L. Kaplan.................. Of Counsel, Skadden, Director
Arps, Slate, Meagher and Flom
919 Third Avenue
New York, NY 10022
Charles M. Leighton............... Retired Chairman Director
CML Group, Inc.
524 Main Street
Acton, MA 01720
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES
NAME BUSINESS ADDRESS WITH DEPOSITOR
------------------ ----------------------- ----------------------
<S> <C> <C>
Allen E. Murray................... Retired Chairman of Board Director
and Chief Executive
Officer
Mobil Corporation
375 Park Avenue Suite 2901
New York, NY 10163
Stewart G. Nagler................. Senior Executive Vice Senior Executive
President and Chief Vice President
Financial Officer Chief Financial
Metropolitan Life Officer and
Insurance Company Director
One Madison Avenue
New York, NY 10010
John J. Phelan, Jr................ Retired Chairman and Director
Chief Executive Officer
New York Stock Exchange, Inc.
P.O. Box 312
Mill Neck, NY 11765
Hugh B. Price..................... President and Chief Director
Executive Officer
National Urban League, Inc.
12 Wall Street
New York, NY 10005
Robert G. Schwartz................ Retired Chairman of the Director
Board, President and
Chief Executive Officer
Metropolitan Life
Insurance Company
200 Park Avenue, Suite 5700
New York, NY 10166
Ruth J. Simmons, Ph.D............. President Director
Smith College
College Hall 20
Northhampton, MA 01063
William C. Steere, Jr. ........... Chairman of the Board Director
and Chief Executive Officer
Pfizer, Inc.
235 East 42nd Street
New York, NY 10017
</TABLE>
<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 and Chief Executive Officer
Robert H. Benmosche.......... President and Chief Operating Officer
Gary A. Beller............... Senior Executive Vice-President and General
Counsel
Gerald Clark................. Senior Executive Vice-President & Chief Investment
Officer
Stewart G. Nagler............ Senior Executive Vice-President & Chief Financial
Officer
C. Robert Henrikson.......... Senior Executive Vice-President
Catherine A. Rein............ Senior Executive Vice-President
William J. Toppeta........... Senior Executive Vice-President
Jeffrey J. Hodgman........... Executive Vice-President
Terence I. Lennon............ Executive Vice-President
David A. Levene.............. Executive Vice-President
John D. Moynahan, Jr......... Executive Vice-President
John H. Tweedie.............. Executive Vice-President
Judy E. Weiss................ Executive Vice-President and Chief Actuary
Richard M. Blackwell......... Senior Vice-President
Alexander D. Brunini......... Senior Vice-President
Jon F. Danski................ Senior Vice-President
James B. Digney.............. Senior Vice-President
William T. Friedewald M.D.... Senior Vice-President
Ira Friedman................. Senior Vice-President
Anne E. Hayden............... Senior Vice-President
Sibyl C. Jacobson............ Senior Vice-President
Joseph W. Jordan............. Senior Vice-President
Kernan F. King............... Senior Vice-President
Nicholas D. Latrenta......... Senior Vice-President
Leland C. Launer, Jr......... Senior Vice-President
Gary E. Lineberry............ Senior Vice-President
James L. Lipscomb............ Senior Vice-President
William Livesey.............. Senior Vice-President
James M. Logan............... Senior Vice-President
Eugene Marks................. 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 and Tax Director
James F. Stenson............. Senior Vice-President
Stanley J. Talbi............. Senior Vice-President
Richard R. Tarte............. Senior Vice-President
James A. Valentino........... Senior Vice-President
Lisa Weber................... Senior Vice-President
William J. Wheeler........... Senior Vice-President and Treasurer
Anthony J. Williamson........ Senior Vice-President
Louis J. Ragusa.............. Vice-President & Secretary
</TABLE>
- -------
* The principal occupation of each officer, except the following officers
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. Richard R. Tartre has been an officer of Metropolitan Life since
January 13, 1997, prior thereto he was President and CEO of Astra Management
Corp. William J. Wheeler became an officer of Metropolitan Life since October
13, 1997; prior thereto he was Senior Vice-President, Investment Banking of
Donaldson, Lufkin and Jenrette. Lisa Weber has been an officer of Metropolitan
Life since March 16, 1998; prior thereto she was a Director of Diversity
Strategy and Development and an Associate Director of Human Resources of
PaineWebber. Jon F. Danski has been an officer of Metropolitan Life since
March 25, 1998; prior thereto he was Senior Vice-President, Controller and
General Auditor at ITT Corporation. The business address of each officer is
1 Madison Avenue, New York, New York 10010.
<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:
<PAGE>
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1997
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1997. 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)
f. MetLife Healthcare Holdings, 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)
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)
C-3
<PAGE>
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%).
(i) MetLife Capital CFLI Holdings, LLC (DE)
(1) MetLife Capital CFLI Leasing, LLC
(DE)
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
(8) MetLife Capital Funding Corp. III (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
90% of outstanding equity interest in Metlife
Capital Financial Corporation held directly
by Metropolitan Life Insurance Company.
C-4
<PAGE>
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 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.
5. SSRM Holdings, Inc. (Delaware)
a. GFM International Investors Ltd. (United Kingdom).
b. GFM International Investors, Inc. (United Kingdom).
i. GFM Investments Limited (United Kingdom)
c. 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 Investment Services, Inc.
(Massachusetts)
d. SSR Realty Advisors, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Property Management, Inc. (Delaware)
(1) Metric Realty (Delaware). SSR Realty Advisors, Inc.
and Metric Property Management, Inc. each hold 50% of
the common stock of Metric Realty.
(a) 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.
(2) Metric Colorado, Inc. (Colorado). Metric Property
Management, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
iii. Metric Capital Corporation (California)
iv. Metric Assignor, Inc. (California)
v. SSR AV, Inc. (Delaware)
C-5
<PAGE>
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. Security First Group, Inc. (DE)
a. Security First Life Insurance Company (DE)
(i) Security First Life Insurance Company of Arizona (AZ)
b. Security First Insurance Agency, Inc. (MA)
c. Security First Financial Insurance Agency, Inc. (NV)
d. Security First Group of Ohio, Inc. (OH)
e. Security First Financial, Inc. (DE)
f. Security First Investment Management Corporation (DE)
g. Security First Management Corporation (DE)
h. Security First Real Estate, Inc. (DE)
10. Natiloportem 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)
C-6
<PAGE>
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (72%) and by employees of Morguard
(28%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
H. 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)
I. 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.
C-7
<PAGE>
J. Metropolitan Life Seguros de Vida S.A. (Argentina)
K. Metropolitan Life Seguros de Retiro S.A. (Argentina).
L. Met Life Holdings Luxembourg (Luxembourg)
M. Metropolitan Life Holdings, Netherlands BV (Netherlands)
N. MetLife International Holdings, Inc. (Delaware)
O. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
P. Metropolitan Marine Way Investments Limited (Canada)
Q. P.T. MetLife Sejahtera (Indonesia)
R. Seguros Genesis S.A. (Mexico) Metropolitan holds 85.49%, Metropolitan Tower
Corp. holds 7.31% and Metropolitan Asset Management Corporation holds 7.20%
of the common stock of Seguros Genesis S.A.
S. AFORE Genesis Metropolitan S.A. de C.V. (Mexico)
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
U. Hyatt Legal Plans, Inc. (Delaware)
V. One Madison Merchandising L.L.C. (Connecticut) Ownership of membership
interests in One Madison Merchandising L.L.C. is as follows: Metropolitan
owns 99% and Metropolitan Tower Corp. owns 1%.
C-8
<PAGE>
W. 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. Subrown Corp. (New York)
X. MetPark Funding, Inc. (Delaware)
Y. 2154 Trading Corporation (New York)
Z. Transmountain Land & Livestock Company (Montana)
AA. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-9
<PAGE>
A.B. MetLife Trust Company, National Association. (United States)
A.C. 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)
A.D. Benefit Services Corporation (Georgia)
A.E. G.A. Holding Corporation (MA)
A.F. TNE-Y, Inc. (DE)
A.G. CRH., Inc. (MA)
A.H. NELRECO Troy, Inc. (MA)
A.I. TNE Funding Corporation (DE)
A.J. L/C Development Corporation (CA)
A.K. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.L. 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.M. DPA Holding Corp. (MA)
A.N. Lyon/Copley Development Corporation (CA)
A.O. NEL Partnership Investments I, Inc. (MA)
A.P. New England Life Mortgage Funding Corporation (MA)
A.Q. 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.R. 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.S. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Life Holdings, Inc. (DE)
i. New England Securities Corporation (MA)
1. Hereford Insurance Agency, Inc. (MA)
2. Hereford Insurance Agency of Alabama, Inc. (AL)
3. Hereford Insurance Agency of Minnesota, Inc. (MN)
4. Hereford Insurance Agency of Ohio, Inc. (OH)
5. Hereford Insurance Agency of New Mexico, Inc. (NM)
ii. TNE Advisers, Inc. (MA)
iii. TNE Information Services, Inc. (MA)
b. Exeter Reassurance Company, Ltd. (MA)
c. Omega Reinsurance Corporation (AZ)
d. New England Pension and Annuity Company (DE)
e. Newbury Insurance Company, Limited (Bermuda)
2. New England Investment Companies, Inc. (MA)
a. New England Investment companies, L.P. (DE) New England Investment
Companies, Inc. holds a 1.7% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings,
Inc. holds a 3.3% general partnership interest in New England
Investment Companies, L.P.
3. NEIC Operating Partnership, L.P.
New England Investment Companies, L.P. holds a 14.2% general
partnership Interest and New England Investment Companies, Inc.
holds a 0.00002% general Partnership Interest in NEIC operating
Partnership, L.P. Metropolitan holds a 46.3% Limited Partnership
Interest in NEIC Operating Partnership, L.P.
a. NEIC Holdings, Inc. (MA)
i. Back Bay Advisors, Inc. (MA)
(1) 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. R & T Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
R & T Asset Management Inc.
holds a 1% general interest and
R & T Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) R & T Asset Management L.P.
R & T Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in &
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
R & T Asset Management, Inc.
holds a 1% general partner interest and
R & T 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
R & T 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 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 a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McConnell, L.P.
a. Breen Trust Company
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and R & T 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 NEIC Operating Partnership,
L.P. 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
NEIC Operating Partnership, 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 NEIC Operating
Partnership, 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
NEIC Operating Partnership, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
x. New England Investment Associates, Inc.
xi. Snyder Capital Management, Inc.
(1) Snyder Capital Management, L.P. NEIC Operating
Partnership holds a 99.5% limited partnership
interest and Snyder Capital Management Inc. holds a
0.5% general partnership interest.
xii. Jurika & Voyles, Inc.
(1) Jurika & Voyles, L.P NEIC Operating Partnership,
L.P. holds a 99% limited partnership interest and
Jurika & Voyles, Inc. holds a 1% general partnership
interest.
b. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
c. AEW Capital Management, Inc. (DE)
i. AEW Securities, L.P. (DE) AEW Capital Management, Inc. holds
a 1% general partnership and AEW Capital Management, L.P.
holds a 99% limited partnership interest in AEW Securities,
L.P.
d. 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.
1. AEW Investment Group, Inc. (MA)
a. Copley Public Partnership Holding, L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75%
limited partnership interest in Copley Public Partnership
Holding, L.P.
b. AEW Management and Advisors L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75% limited
partnership interest in AEW Management and Advisors L.P.
i. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds 60% of the voting securities
and Back Bay Advisors, L.P. holds 40% of the voting securities
of BBC Investment Advisors, Inc.
1. BBC Investment Advisors, L.P. (MA)
BBC Investment Advisors, Inc. holds a 1% general partnership interest
and AEW Management and Advisors, L.P. holds a 59.4% limited
partnership interest and Back Bay Advisors, L.P. holds a 39.6% limited
partnership interest in BBC Investment Advisors, L.P.
ii. AEW Real Estate Advisors, Inc. (MA)
1. AEW Advisors, Inc. (MA)
2. Copley Properties Company, Inc. (MA)
3. Copley Properties Company II, Inc. (MA)
4. Copley Properties Company III, Inc. (MA)
5. Fourth Copley Corp. (MA)
6. Fifth Copley Corp. (MA)
7. Sixth Copley Corp. (MA)
8. Seventh Copley Corp. (MA).
9. Eighth Copley Corp. (MA).
10. First Income Corp. (MA).
11. Second Income Corp. (MA).
12. Third Income Corp. (MA).
13. Fourth Income Corp. (MA).
14. Third Singleton Corp. (MA).
15. Fourth Singleton Corp. (MA)
16. Fifth Singleton Corp. (MA)
17. Sixth Singleton Corp. (MA).
18. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
iii. CREA Western Investors I, Inc. (MA)
1. CREA Western Investors I, L.P. (DE)
CREA Western Investors I, Inc. holds a 24.28% general
partnership interest and Copley Public Partnership Holding,
L.P. holds a 57.62% limited partnership interest in CREA
Western Investors I, L.P.
iv. CREA Investors Santa Fe Springs, Inc. (MA)
2. Copley Public Partnership 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 and
CREA Western Investors I, L.P holds a 57.62% Limited Partnership
interest.
3. AEW Real Estate Advisors, Limited Partnership (MA)
AEW Real Estate Advisors, Inc. holds a 25% general partnership interest
and AEW Capital Management, L.P. holds a 75% limited partnership
interest in AEW Real Estate Advisors, Limited Partnership.
4. AEW Hotel Investment Corporation (MA)
a. AEW Hotel Investment, Limited Partnership (MA)
AEW Hotel Investment Corporation holds a 1% general
partnership interest and AEW Capital Management, L.P. holds a
99% limited partnership interest in AEW Hotel Investment,
Limited Partnership.
5. Aldrich Eastman Global Investment Strategies, LLC (DE)
AEW Capital Management, L.P. holds a 25% membership interest and an
unaffiliated third party holds a 75% membership interest in Aldrich
Eastman Global Investment Strategies, LLC.
C-10
<PAGE>
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.
5) 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% mt ST, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
C-11
<PAGE>
6) 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.
7) 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.
8) 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's ownership
interests in certain companies. The various MILPs own, directly or indirectly,
more than 50% of the voting stock of the following company: Coating
Technologies International, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATIONAL 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.
C-12
<PAGE>
Item 31. Number of Contractowners
------------------------
As of March 31, 1998, there were 988 owners of tax-qualified contracts and 212
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 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,
<PAGE>
(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 $10 million under which the
Registrant and its managers are named insureds.
<PAGE>
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.
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 Officer's
Name Principal Underwriter Officers with Registrant
---- ------------------------ ------------------------
<S> <C> <C>
Thomas W. McConnell* President, Director and None
Chief Executive Officer
</TABLE>
<PAGE>
Frederick K. Zimmerman** Chairman of the Board, Chairman of the Board,
Director President and Trustee
Michael E. Toland** Vice President, Chief None
Financial Officer,
Treasurer, Assistant
Secretary, Assistant Clerk
and Chief Financial Officer
John Peruzzi* Assistant Vice President and None
Controller
Anne M. Goggin** Vice President, General Trustee
Counsel, Secretary and Clerk
Mark F.Greco* Vice President and Chief None
Operating Officer
Bradley Anderson* Vice President and Chief None
Operating Officer
Laura A. Hutner* Vice President None
Mitchell A. Karman** Vice President None
Robert F. Regan*** Vice President None
Jonathan M. Rozek* Vice President None
Larry Thiel* Vice President None
Robert E. Schneider** Director None
Principal Business Address: *399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02116
***500 Boylston Street, Boston, MA 02116
(c)
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net
Name of Underwriting Compensation
Principal Discounts and Redemption or Brokerage Other
Underwriter Commissions Annuitization Commissions Compensation
----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
New England
Securities $16,159 0 0 0
Corporation
</TABLE>
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;
<PAGE>
(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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, New England Variable Annuity Fund I, certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
Amendment to the Registration Statement and has duly caused this amendment to
its Registration Statement to be signed on its behalf, in the City of Boston,
and Commonwealth of Massachusetts on this 30th day of April, 1998.
NEW ENGLAND VARIABLE ANNUITY FUND I
By: Frederick K. Zimmermann+
---------------------------------
Frederick K. Zimmermann
Chairman of the Board of Managers
As required by the Securities Act of 1933, this Post-Effective Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Frederick K. Zimmermann+ Chairman of the Board of Managers;
- ---------------------------- Principal Executive Officer
Frederick K. Zimmermann
John J. Arena* Member of the Board
- ----------------------------
John J. Arena
John W. Flynn* Member of the 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
Robert B. Kittredge+ Member of the Board
- ----------------------------
Robert B. Kittredge
<PAGE>
Signature Title Date
--------- ----- ----
John T. Ludes* Member of the Board
- ----------------------------
John T. Ludes
Laurens MacLure+ Member of the Board
- ----------------------------
Laurens MacLure
Dale Rogers Marshall+ Member of the Board
- ----------------------------
Dale Rogers Marshall
By: /s/ Marie C. Swift April 30, 1998
----------------------
Marie C. Swift
+ 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 with Post-Effective Amendment No. 1 on Form N-3
(File No. 333-11137) on April 30, 1997.
<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 30TH DAY OF APRIL, 1998.
Metropolitan Life Insurance Company
By: /S/ GARY A. BELLER
----------------------------------
GARY A. BELLER, ESQ.
SENIOR 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 INDICATED, ON THE DATES INDICATED.
SIGNATURE Title Date
--------- ----- ----
* Chairman, Chief Executive Officer
- ----------------------- and Director (Principal Executive
HARRY P. KAMEN Officer) April 30, 1998
* President, Chief Operating Officer
- ----------------------- and Director April 30, 1998
ROBERT H. BENMOSCHE
* Senior Executive Vice-President and
- ----------------------- Chief Financial Officer (Principal
STEWART G. NAGLER Financial Officer) and Director April 30, 1998
* Senior Vice President and Controller
- ----------------------- (Principal Accounting Officer) April 30, 1998
JON F. DANSKI
* Director April 30, 1998
- -----------------------
CURTIS H. BARNETTE
* Director April 30, 1998
- -----------------------
GERALD CLARK
<PAGE>
* Director April 30, 1998
- -----------------------
JOAN GANZ COONEY
* Director April 30, 1998
- -----------------------
BURTON A. DOLE, JR.
* Director April 30, 1998
- -----------------------
JAMES R. HOUGHTON
* Director April 30, 1998
- -----------------------
HELENE L. KAPLAN
* Director April 30, 1998
- -----------------------
CHARLES M. LEIGHTON
* Director April 30, 1998
- -----------------------
ALLEN E. MURRAY
* Director April 30, 1998
- -----------------------
JOHN J. PHELAN, JR.
* Director April 30, 1998
- -----------------------
HUGH B. PRICE
* Director April 30, 1998
- -----------------------
ROBERT G. SCHWARTZ
<PAGE>
SIGNATURE Title Date
--------- ----- ----
* Director April 30, 1998
- -----------------------
RUTH J. SIMMONS
* Director April 30, 1998
- -----------------------
WILLIAM C. STEERE, JR.
/s/ CHRISTOPHER P. NICHOLAS April 30, 1998
- -----------------------------
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
<PAGE>
EXHIBIT INDEX
(Page on
Exhibit executed
No. Description copy only)
------- ----------- ----------
(b)(1)(i) Resolutions of the Board of Directors
of New England Mutual Life Insurance
Company establishing the Fund are
incorporated herein by reference to
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 are incorporated herein by
reference to Post-Effective Amendment No. 1
to the Registration Statement on Form N-3
(File No. 333-11137) filed on April 30, 1997.
(3) Form of Safekeeping Agreement.
Custodian Fee Schedule.
(4) Advisory Agreement is incorporated herein
by reference to Registration Statement on
Form N-3 (File No. 333-11137) filed on
August 30, 1996.
(5) Distribution Agreement is incorporated herein
by reference to Registration Statement on
Form N-3 (File No. 333-11137) filed on
August 30, 1996.
(6) (i) Form of variable annuity contract.
(ii) Form of Endorsement: Tax-Sheltered Annuity.
(iii) Form of Endorsement: Individual Retirement Annuity.
(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.
<PAGE>
(8) (i) Charter and By-Laws of Metropolitan Life Insurance Company are
incorporated herein by reference to Registration Statement on Form
N-3 (No. 333-11137) filed August 30, 1996.
(ii) By-Laws Amendment is incorporated herein by reference to the
Registration Statement on Form N-3 (File No. 333-11137) filed on
August 30, 1996.
(9) None
(10) None
(11) (i) Form of Administrative Agreement.
(ii) Administrative Services Agreement is incorporated by reference to
the Registration Statement on Form N-3 (File No. 333-11137) filed
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.
(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 (File No. 333-11137) filed on August 30, 1996, except for
Gerald Clark, Burton A. Dole and Charles M. Leighton whose powers of
attorney were filed with Post-Effective Amendment No. 1 to the
Registration Statement (File No. 333-11137) filed April 30, 1997 and
William C. Steere, Jr. whose power of attorney was filed in with Post-
Effective Amendment No. 5 to the Registration Statement of Separate
Account UL (File No. 33-47927) on April 30, 1997 and Robert H. Benmoshe
whose power of attorney was filed with the Registration Statement of
Metropolitan Life Separate Account UL (File No. 333-40161) filed
November 13, 1997 and Jon F. Danski whose power of attorney was filed
with Pre-Effective Amendment to the Registration Statement of
Metropolitan Life Separate Account UL (File No. 333-40161) filed April
2, 1998.
(ii) Board of Managers of the Fund. 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, except for John J. Arena,
John W. Flynn and John T. Ludes whose powers of attorney were filed
with Post-Effective Amendment No. 1 to the Registration Statement (File
No. 333-11137) filed April 30, 1997.
(27) Financial Data Schedule.
u:\VA1-III.em
<PAGE>
1
Exhibit 3
SAFEKEEPING AGREEMENT
---------------------
AGREEMENT made this ______________ day of ________________, 1970 by and
between New England Life Variable Annuity Fund I (the "Fund"), a separate
investment account established pursuant to Chapter 175 of the Massachusetts
General Laws and a registered investment company under the Investment Company
Act of 1940 (the "1940 Act") and New England Mutual Life Insurance Company, a
Massachusetts corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the parties desire that the Fund shall, in accordance with the
applicable provisions of and rules under the 1940 Act, maintain its securities
and similar investments in its own custody and deposit such investments in the
safekeeping of, or in a vault or other depository maintained by, the Company,
whose functions and physical facilities are supervised by the Massachusetts
Insurance Department; and
WHEREAS, the parties wish to enter into an agreement under the terms of
which the Fund shall designate the Company, and the latter shall act as
Safekeeping Agent for the securities and similar investments of the Fund:
NOW, THEREFORE, in consideration of the covenants and mutual promises of
the parties made to each other, it is hereby covenanted and agreed as follows:
1. The Fund, in accordance with a vote of its Board of Managers, hereby
designates the Company as the Safekeeping Agent for the Fund's securities and
similar
<PAGE>
2
investments pursuant to the 1940 Act and the rules and regulations of the
Securities and Exchange Commission thereunder.
2. As Safekeeping Agent, the Company shall:
a. Accept and hold all securities and similar investments (hereinafter
referred to as "property") of the Fund deposited with it and maintain such
property in its safekeeping or in a vault or other depository maintained by it
except for securities on loans which are collateralized to the extent of their
full market value, or securities hypothecated, pledged, or placed in escrow for
the account of the Fund in connection with a loan or other transaction
authorized by specific resolution of its Board of Managers, or securities in
transit in connection with the sale, exchange, redemption, maturity or
conversion, exercise of warrants or rights, assents to changes in the terms of
securities, or other transactions necessary or appropriate in the ordinary
course of business relating to the management of securities;
b. Receive and collect all income and principal payable, and receive
and retain all securities or similar investments distributable as a dividend, in
respect of property held for the account of the Fund, and conduct transactions
incidental thereto, all in accordance with applicable instructions from the Fund
or its agent;
c. Deposit in the absence of other instructions, all monies received
by or for the Fund in such checking account maintained by and in the name of the
Fund as the Fund, or its agent, shall designate;
d. Receive property being purchased by or for the Fund and make
payment therefor for the account of the Fund pursuant to instructions from Fund
or its agent;
<PAGE>
3
e. In general and in other instances, act and proceed with respect
to the property held for the Fund in accordance with the instructions of the
Fund or its agent, and in the absence of specific instructions, hold the
property in safekeeping for the Fund.
3. All property held by the Company for safekeeping hereunder shall be
physically segregated at all times from other property of the Company and
property held by the Company for others; and the same shall be in readily
identifiable form in a separate depository box or section of a vault, and proper
marking shall be maintained thereon or on the envelopes or like containers
showing that the same is held for the account of the Fund.
4(a). Except as hereinafter in this Section 4 provided or as otherwise
provided by law, no person shall have access to the property deposited in
accordance herewith other than such persons as are authorized by a resolution of
the Board of Managers of the Fund. The Board of Managers of the Fund shall
designate by resolution from time to time not more than five persons who shall
be members of the Board of Managers, officers or responsible employees of the
Fund authorized to have such access. Access shall be had only by two or more of
such persons jointly, at least one of whom shall be an officer.
(b). Access to such property shall be permitted to properly authorized
officers and employees of the Company. Access shall also be permitted, jointly
with any two of the aforementioned members of the Board of Managers, officers or
employees of the Fund or with any such authorized officer or employee of the
Company, to an independent public accountant for the purpose of any examination
of the property deposited hereunder required by the rules and regulations of the
Securities and Exchange Commission.
<PAGE>
4
(c). As of the date hereof, the vault of the Company in which the
property of the Fund will be maintained is located in a portion of the Home
Office space of the Company which is leased to and subleased back from the New
England Merchants National Bank of Boston (the "Bank"), a national banking
association organized under the laws of the United States, the functions and
physical facilities of which are regulated by the Federal banking authorities.
Under the procedures of the Company, which shall not be changed without the
written consent of the Fund, access to the securities in the vault by officers
and employees of the Company is limited to officers and employees of its Audit
Administration and Treasury Administration who have been specifically authorized
by or under authority of a vote of its Board of Directors, and at least two
persons, one from each Administration, must be present before access can be
obtained. Representatives of the Bank are not permitted to have access to the
vault.
(d). Such property shall at all times be subject to inspection by the
Securities and Exchange Commission through its authorized employees or agents,
and by authorized representatives of the Insurance Commissioners of the states
in which the Company does business, accompanied unless otherwise directed by
order of the Commission or the Insurance Commissioners, by one or more of the
aforementioned authorized representatives of the Fund or of the Company.
5. Each person, when depositing such property in or withdrawing
property from the depository which the Company maintains in compliance with the
terms of this Agreement, or when ordering the withdrawal or delivery of such
property from the safekeeping of the Company, shall sign a notation in respect
of such deposit, withdrawal or order which shall show (1) the date and time of
the deposit, withdrawal or order, (2)
<PAGE>
5
the title and amount of the property deposited, withdrawn or ordered to be
withdrawn, and an identification thereof by a certificate number or otherwise,
(3) the manner of acquisition of the property deposited, or the purpose for
which it has been withdrawn or has been ordered to be withdrawn, and (4) if
withdrawn and delivered to another person, the name of such person. A copy of
such notation shall be transmitted by the Company to an officer or a member of
the Board of Managers of the Fund, designated by the Board of Managers, who
shall not be a person designated to have access to the property of the Fund held
in safekeeping by the Company. Such notation shall be on serially-numbered forms
and shall be preserved for at least one year.
6. Such property shall be verified by complete examination of an
independent public accountant retained by the Fund at least three times during
each fiscal year, at least two of which times shall be chosen by said accountant
without prior notice to the Fund. A certificate of such accountant, stating
that he has made an examination of the property and describing the nature and
extent of the examination shall be transmitted to the Securities and Exchange
Commission by the accountant promptly after such examination.
7. The Company shall not be entitled to receive any separate compensation
for its services performed hereunder, it being understood for this purpose that
said services are part of the services for which the Company shall receive the
compensation provided for by the Administrative Agreement between the Company
and the Fund dated the date hereof.
8. This Agreement may be terminated upon thirty (30) days' notice in
writing by either party to the other. It may be amended or supplemented in
writing by mutual
<PAGE>
6
agreement of the parties, provided the same shall not be in violation of any law
or regulation including those administered by the Securities and Exchange
Commission and the state Insurance Commissioners.
IN WITNESS WHEREOF the parties have executed this Agreement on the day and
year first above written.
NEW ENGLAND LIFE VARIABLE ANNUITY FUND I
By
--------------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
By
--------------------------------------------
<PAGE>
Exhibit 3(ii)
State Street Bank and Trust Company
Custodian Fee Schedule
New England Life Variable Annuity Fund I
New England Life Variable Annuity Fund II
- ------------------------------------------------------------------------
I. Portfolio Valuation per month $100
II. Portfolio Accounting and Income Collection per month $300
III. Custody of Securities per month $100
IV. For each Portfolio Trade per trade $ 12
a. A purchase transaction will be billed for each purchase lot.
b. A sell transaction will be charged by delivery; a delivery
being defined as one trade date, one security and one broker.
V. Out-of-pocket expenses such as legal, communication, transmittal cost,
postage, forms, envelopes and supplies will be charged additionally.
The above fees apply to each Variable Annuity Fund separately. As heretofore, a
surcharge of 8% will apply to the above fees.
New England Life Variable Annuity Fund I
New England Life Variable Annuity Fund II
By: Charles T. Wallis Date: March 19, 1979
State Street Bank and Trust Company
By: RJ Delmar Date: March 7, 1979
Vice President
<PAGE>
Exhibit 6(i)
Ten Day Right to Return Policy. The Owner may return this Policy for any reason
within 10 days after its receipt by delivering it or mailing it to the Company
or to the agent through whom it was purchased. Immediately upon such delivery
or mailing the Policy will be deemed void from the beginning and any premium
paid will be refunded.
P-638-75
New England Life Chartered in 1835
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
Agrees to Pay
A. Variable Annuity Payments to the ANNUITANT beginning on the MATURITY DATE,
if the ANNUITANT is then living, and continuing pursuant to the PAYMENT
OPTION specified below, the dollar amount of payments being determined as
set forth in this Contract; or
B. The Death Proceeds, determined in accordance with the Death Proceeds
provision of this Contract, to the BENEFICIARY on receipt of due proof that
the death of the ANNUITANT occurred before the MATURITY DATE.
CONTRACT NUMBER DATE OF ISSUE
ANNUITANT SINGLE PURCHASE PAYMENT
DATE OF BIRTH MATURITY DATE
SEX PAYMENT OPTION
FUND BENEFICIARY
OWNER
The provisions hereinafter set forth are hereby made a part of this Contract.
Signed at the Home Office, 501 Boylston Street, Boston, Massachusetts
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
<PAGE>
/s/ Kernan F. King Secretary /s/ John A. Fibiger President
CONTRACT SUMMARY
This is a Participating Single Purchase Payment Deferred Variable Annuity
Contract. Values are payable at death before, or upon surrender on or before,
the Maturity Date.
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON
THE INVESTMENT PERFORMANCE OF A SEPARATE INVESTMENT ACCOUNT, ARE VARIABLE
AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
V2-70A
BENEFITS FOR YOU
Purchase Payment
The Single Purchase Payment is due on the Date of Issue and is payable to
the Company at the Home Office in exchange for a receipt signed by the Secretary
or an Assistant Secretary.
Fund
The Fund, the title of which is specified on the first page of the
Contract, is a separate investment account established by the Company pursuant
to Massachusetts law. Values of the Contract prior to the Maturity Date and
amounts held or payable under the Variable Payment Options depend on the
investment performance of the Fund and are variable. The portion of the assets
of the Fund equal to the reserves and other contract liabilities with respect to
the Fund shall not be chargeable with liabilities arising out of any other
business the Company may conduct.
Guarantees
Neither annuity payments nor any other values under this Contract will be
adversely affected by actual expense and mortality experience.
Dividends: Distribution of Surplus
While in force prior to the Maturity Date, this Contract shall be credited
with such share of surplus, or dividend, if any, as may be apportioned thereto
annually at the end of the contract year by the Company. Any such dividends are
expected to accrue, if at all, in later contract years, as a result of more
favorable expense and mortality experience than assumed. It is anticipated that
any such dividends will be modest in amount. Each dividend shall be credited as
a net purchase payment in the form of additional Accumulation Units, unless
payment in cash is requested.
Periodic Reports
Except when a Fixed Payment Option is in effect, the Company will
periodically furnish the Owner a report containing such information as may be
required by applicable Federal or state laws, including, as of a date
<PAGE>
not more than two months prior to the date of mailing, the number of
Accumulation Units, if any, credited to the Contract, the dollar value of each
such Accumulation Unit, and the investments held in the Fund. This information
will be furnished semi-annually after the first contract year, or more often as
required by applicable Federal or state laws.
VALUES OF THE CONTRACT
Valuation Date and Valuation Period
A Valuation Date is each day that the New York Stock Exchange is open for
business and ends as of the close of trading on the New York Stock Exchange.
Each Valuation Date, together with any immediately preceding day or consecutive
days which are not Valuation Dates, shall constitute a Valuation Period.
Net Investment Factor
The Net Investment Factor applicable to this Contract for any Valuation
Period shall be the sum of the gross investment rate for such period and
1.0000000, less a deduction of .0000344 for each day of the Valuation Period.
The gross investment rate for any Valuation Period shall be (a) divided by
(b) where
(a) is the investment income of the Fund for the Valuation Period, plus
capital gains minus capital losses for the period, whether realized or
unrealized, less deductions of: (1) any taxes which would be incurred
by all assets of the Fund irrespective of the source of such assets, or
amounts set aside by the Company as a reserve for such taxes, arising
from the income and realized and unrealized capital gains on assets of
the Fund, (2) brokerage commissions and taxes, if any, in connection
with the purchase or sale of securities for the account of the Fund and
chargeable to the Fund, and (3) fees and expenses of the Board of
Managers of the Fund, including the auditing of Fund assets as required
by the Investment Company Act of 1940; and
(b) is the value of the total assets of the Fund at the beginning of the
Valuation Period less any assets set aside by the Company within the
Fund as a reserve for taxes described in (a) (1) above.
The gross investment rate may be positive or negative. The determination
by the Company of the gross investment rate will be conclusive upon the Owner of
this Contract, any assignee, the Annuitant and any Beneficiary or other payee
under this Contract.
Net Purchase Payment
The after-tax purchase payment is the amount of the Single Purchase Payment
reduced by any applicable state premium tax. The net purchase payment is the
after-tax purchase payment reduced by 8% of the first $5,000, plus 4% of the
next $95,000, plus 2% of any balance of such after-tax purchase payment.
Accumulation Units and Accumulation Unit Value
The net purchase payment will be credited in the form of Accumulation Units
as of the date of receipt of the Single Purchase Payment at the Home Office or,
if later, the date the application for the Contract is approved by the Company
at its Home Office. The number of Accumulation Units credited will be equal to
the amount of the net purchase payment divided by the Accumulation Unit Value as
of such date.
The Accumulation Unit Value was set at $1.00 on the date on which assets
were first placed in the Fund. The Accumulation Unit Value as of any Valuation
Date thereafter is determined by multiplying the Accumulation
<PAGE>
Unit Value as of the immediately preceding Valuation Date by the Net Investment
Factor for the Valuation Period then ended. Accordingly, since Accumulation Unit
Values depend upon the investment performance of the Fund, they may increase or
decrease from Valuation Date to Valuation Date. The Accumulation Unit Value as
of any date other than a Valuation Date is equal to its value as of the next
succeeding Valuation Date.
Contract Value
On or before the Maturity Date, the contract value shall be the number of
Accumulation Units standing to the credit of this Contract multiplied by the
applicable Accumulation Unit Value.
Proceeds: How to determine the amount payable.
Proceeds payable under this Contract are determined by the following
provisions. Payments under this Contract shall be made by the Company at its
Home Office.
Surrender Proceeds
At any time on or before the Maturity Date while the Annuitant is living,
this Contract may be surrendered for its contract value, effective as of the
Surrender Date. The Surrender Date is the date on which written request in
proper form for surrender and payment in one sum or under one of the Payment
Options is received at the Home Office of the Company, or, if payment is to be
made under a Payment Option, such later date as may be specified in the request.
A partial surrender may be made on the same basis, except that a partial
surrender which would result in a remaining contract value of less than $500
shall be permitted only with the consent of the Company. In connection with
such partial surrender, any Accumulation Units resulting from dividends shall
first be terminated, unless otherwise requested; then Accumulation Units
resulting from the Single Purchase Payment shall be terminated, and for the
purpose of determining the amount of death proceeds the portion of the Single
Purchase Payment attributable to such Accumulation Units shall be determined as
provided in the Death Proceeds provision. One sum surrender proceeds will be
paid within seven days after the Surrender Date; provided, however, that the
Company may defer such payment when so permitted under applicable Federal laws,
rules and regulations governing the redemption of variable annuities.
Death Proceeds
The proceeds payable upon the death before the Maturity Date if the
Contract has not been surrendered shall be an amount equal to the greater of (a)
the Single Purchase Payment, without interest, increased by the value of any
existing Accumulation Units resulting from dividends and reduced by the portions
of the Single Purchase Payment attributable to any partial surrenders, and (b)
the contract value as of the Death Valuation Date. The Death Valuation Date is
the Valuation Date coincident with, or, if no Valuation Date coincides, the
Valuation Date next following the later of (i) the date on which due proof of
death is received at the Home Office of the Company, and (ii) the date on which
a written election of payment in proper form in one sum or under one of the
Payment Options is first received at the Home Office of the Company; provided
that if no such written election has been received at the Home Office by the end
of a 90 day period following receipt at the Home Office of due proof of death,
payment in one sum shall be deemed to have been elected on the last day of such
period. For the purpose of determining the amount of death proceeds as defined
above, the portion of the Single Purchase Payment attributable to a partial
surrender shall be (a) the Single Purchase Payment less the portions of the
Single Purchase Payment attributable to all previous partial surrenders,
multiplied by (b) a fraction of which the numerator is the partial surrender
proceeds exclusive of values resulting from dividends, and the denominator is
the total contract value as of the Surrender Date exclusive of values resulting
from dividends. The Company has the right to require surrender of the Contract
at the time of claim for the death proceeds. The death proceeds shall be paid
in accordance with the beneficiary provisions.
Maturity Proceeds
<PAGE>
If the Annuitant is living on the Maturity Date and the Contract has not
been surrendered, the maturity proceeds shall then become payable. The maturity
proceeds shall be the contract value as of the Maturity Date. The maturity
proceeds will automatically be used to provide monthly payments pursuant to the
Payment Option specified on the first page of the Contract, with the Annuitant
as Payee, unless application of the proceeds under a different Payment Option
has been elected. Prior to the Maturity Date the Owner may change the election
of the Payment Option to become operative on the Maturity Date.
Maturity Date
The Maturity Date is that specified on the first page of the Contract,
except that prior to the Maturity Date the Owner may elect that it be deferred
to a date not later than the last day that the age of the Annuitant at nearest
birthday is 75.
PAYMENT OPTIONS
Options: When available.
The whole or part of the proceeds of this Contract may be made payable
under any one of the Options in accordance with the provisions hereinafter set
forth, except as may be otherwise agreed upon with the Company.
The Options shall be available only with the consent of the Company (a) if
the amount applicable thereto is less than $2,000 or (b) if an Option is elected
by, or if payments under an Option are to be made to, a corporation,
partnership, association or fiduciary, or (c) if the Contract is assigned other
than to the Company. If necessary to bring the amount of each periodic payment
to at least $20, the Company may change the period of payment to quarterly,
semi-annual or annual.
Variable Payment Options
Option 1: Variable income for a specified period of years.
Variable monthly payments for a definite number of years, not exceeding 30.
The proceeds applied will be held in the Fund as a decreasing number of
Accumulation Units. The initial number of Accumulation Units will be equal to
the proceeds applied divided by the Accumulation Unit Value as of the date of
such application. As each payment is made, a number of Accumulation Units will
be terminated such that the value thereof is equal to such payment.
Option 2: Variable life income.
Variable monthly payments (a) during the lifetime of the Payee; or (b) for
a certain period of 10 or 20 years, as may be elected, and thereafter during the
lifetime of the Payee.
Option 3: Variable life income with special certain period.
Variable monthly payments for a certain period of the nearest whole number
of months equal to the amount applied under this Option divided by the dollar
amount of the initial monthly payment, and thereafter during the lifetime of the
Payee.
Option 4: Investment Option.
The proceeds applied will be held in the Fund as a fixed number of
Accumulation Units during the lifetime of the Payee or such other period as may
be agreed upon with the Company. The number of Accumulation Units
<PAGE>
will be equal to the proceeds applied divided by the Accumulation Unit Value as
of the date of such application. At the death of the Payee, or at the end of the
period agreed upon, the value shall be paid in one sum.
Option 5: Specified amount of income until proceeds exhausted.
The proceeds applied will be held in the Fund as a decreasing number of
Accumulation Units and payments will be made in such amounts, and at such times
as may be agreed upon with the Company, continuing until the amount held is
exhausted, the final payment being for the balance only. The initial number of
Accumulation Units will be equal to the proceeds applied divided by the
Accumulation Unit Value as of the date of such application. As each payment is
made, a number of Accumulation Units will be terminated such that the value
thereof is equal to such payment.
Option 6: Variable life income based on two lives.
Variable monthly payments (a) during the joint lifetime of two Payees with
two-thirds of the amount of monthly income that would be payable if both Payees
were living continuing during the balance of the lifetime of the survivor; or
(b) during the joint lifetime of two Payees and continuing during the balance of
the lifetime of the survivor; or (c) during the joint lifetime of two Payees and
continuing during the balance of the lifetime of the survivor, but in any event
until payments have been made under this Option for 10 years.
Amount of Monthly Income: Variable Payment Options 1, 2, 3 and 6.
Rates for the initial monthly payment under Variable Payment Option 1 shall
be based on the applicable Assumed Interest Rate. Under Variable Payment
Options 2, 3 and 6, rates for the initial monthly payments thereunder shall be
based on the applicable Assumed Interest Rate and the mortality assumptions
which are in use by the Company at the time the proceeds are applied to such
Option, but in no event shall such initial monthly payment be less than that
based on the mortality assumptions specified in the table on page 6 and the
applicable Assumed Interest Rate. The dollar amount of the initial monthly
payment is determined by dividing the proceeds applied by 1,000 and multiplying
the result by the monthly payment per $1,000 shown in the table. The dollar
amount of the second and each subsequent monthly payment is variable and is
determined by multiple applicable number of Annuity Units by the Annuity Unit
Value as of the latest Valuation Date which is at least 14 days prior to the
date such payment is due.
Annuity Units and Annuity Unit Value.
The number of Annuity Units credited under Options 1, 2, 3 and 6 is
determined by dividing the amount of the initial monthly payment under the
Option by the applicable Annuity Unit Value as of the date of the initial
monthly payment. This number of Annuity Units remains fixed thereafter during
the annuity payment period, except that at the death of the first Payee under
Option 6(a), the number of Annuity Units decreases to two-thirds of the number
previously credited.
The Annuity Unit Value depends on the Assumed Interest Rate elected and on
the Net Investment Factor. The Annuity Unit Values were set at $1.00 on the
date on which assets were first placed in the Fund. An Annuity Unit Value as of
any Valuation Date thereafter is equal to the corresponding Annuity Unit Value
as of the immediately preceding Valuation Date multiplied by the Net Investment
Factor for the Valuation Period then ended, and further multiplied by the
Assumed Interest Factor for each day of the Valuation Period. Accordingly,
since Annuity Unit Values depend upon the investment performance of the Fund,
they may increase or decrease from Valuation Date to Valuation Date. The
Annuity Unit Value as of any date other than a Valuation Date is equal to its
value as of the next succeeding Valuation Date.
The Assumed Interest Rate and the Assumed Interest Factor which is derived
therefrom are specified on page 6, except that if such Assumed Interest Rate
would result in a larger initial monthly payment than is permitted under
applicable state law or regulation, the Company will select a lower Assumed
Interest Rate and corresponding Assumed Interest Factor to be applicable in
order to comply with such law or regulation. Subject to the consent of
<PAGE>
the Company and if permitted under applicable state law, a different Assumed
Interest Rate and corresponding Assumed Interest Factor not in excess of 5% per
annum compounded annually may be elected.
Dividends: Distribution of surplus.
Variable Payment Options shall be credited with any dividends apportioned
thereto by the Company. It is anticipated that any such dividends will be
modest in amount.
Fixed Payment Options
In lieu of the Variable Payment Options set forth herein, the whole or part
of the proceeds may be made payable under guaranteed Payment Options which do
not participate in the investment performance of the Fund. Such Fixed Payment
Options shall be based on the provisions and rates offered by the Company on the
Date of Issue of this Contract under fixed contracts issued to a similar class
of annuitants. The amount applied under a Fixed Payment Option will be
transferred from the Fund to the Company's general assets, and the Company will
make payments thereunder out of its general assets pursuant to the Fixed Payment
Option elected.
General Provisions
Payment Options becoming operative by application of the surrender
proceeds, death proceeds or maturity proceeds shall become operative on the
Surrender Date, Death Valuation Date or Maturity Date respectively. The initial
payment under Options 1, 2, 3 and 6 shall become due when the Option becomes
operative.
Payments under Options 2, 3 and 6 shall be based upon the sex of the Payee
and the age of the Payee when the Option becomes operative and shall be subject
to satisfactory proof of the age of the Payee. When payment is contingent upon
survival of the Payee, the Company may defer any payment until the Company has
been furnished with satisfactory evidence that such Payee is living.
If the Payee under Option 2 or 3, one of the Payees under Option 6, dies
within 30 days after the Option becomes operative, there shall become due and
payable the amount applied to said Option less any payment made thereunder, and
such amount shall be payable in such manner as may then be agreed upon (a) to
the surviving Payee in the case of Option 6, or (b) to the next succeeding Payee
in the case of Option 2 or 3, provided that if no such Payee be designated, the
payment shall be made to the executors or administrators of the original Payee.
The provisions which apply to change of beneficiary shall also apply to any
election or change of election of an Option. An Option may be elected to become
operative if the death of the Annuitant occurs prior to the Maturity Date, but
if no such election is in effect, the beneficiary entitled to the proceeds may
then make the election for his or her own benefit.
After an Option becomes operative it may not be changed to another Option
unless otherwise agreed upon with the Company at the time of election. However,
if Option 1, 4 or 5 is operative, such Option may be terminated by written
request to the Home Office of the Company, and the value of any remaining
Accumulation Units may be paid in one sum or, if the one sum value is at least
$2,000, may be made payable under one of the other Payment Options.
Except as otherwise provided, (a) at the death of the Payee under Option 4
or 5, the value of any remaining Accumulation Units shall be paid in one sum,
and (b) at the death of the Payee under Option 1, 2 or 3 of the surviving Payee
under Option 6, any unpaid certain payments shall be paid, as they become due,
to the next succeeding Beneficiary or other Payee, provided that if no such
Payee be designated, the value of any remaining Accumulation Units under Option
1 or the then present value of any unpaid certain payments under Option 2, 3 or
6 shall be paid in one sum to the executors or administrators of the last
survivor of all Payees. Following the death of the Payee under Option 1, 2 or 3
or of the surviving Payee under Option 6, any Payee designated to receive any
unpaid certain payments shall have the right, while entitled to payment, to
receive in one sum the value of any remaining Accumulation Units under Option 1
or the then present value of all remaining unpaid certain payments under Option
2, 3 or 6.
Any unpaid certain payments under Option 2, 3 or 6 shall be commuted at the
Assumed Interest Rate with each remaining payment being assumed to be equal to
the number of Annuity Units multiplied by the applicable Annuity Unit Value.
<PAGE>
The amount of a one sum payment payable by reason of the death of the Payee
shall be determined as of the date on which due proof of death is received at
the Home Office of the Company. The amount of any other one sum payment shall
be determined as of the date the request therefor is received, and will be paid
within seven days thereafter; provided, however, that the Company may defer such
payment when so permitted under applicable Federal laws, rules and regulations
governing the redemption of variable annuities.
When payment is contingent upon the survival of the Payee, the liability of
the Company shall terminate with the last payment due prior to the death (a) of
the Payee under Option 2 or 3, or (b) the surviving Payee under Option 6. The
payment in one sum of the value of any remaining Accumulation Units under Option
1, 4 or 5 or of the present value of any unpaid certain payments under Option 2,
3 or 6 shall terminate the liability of the Company.
Adjustment of Benefit in Case of Incorrect Age or Sex
If either the age or sex of any Payee under Option 2, 3 or 6 is incorrect,
the amount payable by the Company hereunder shall be that which the proceeds
would have provided for the correct age and sex. Any overpayments by the
Company on account of such error, with interest thereon at the rate of five per
cent per annum compounded annually, shall be charged against the current and
next succeeding payment or payments to be made by the Company, and any
underpayments by the Company shall be adjusted in like manner and credited with
the next succeeding payment.
Anticipation or Alienation
Except to the extent provided in this Contract or prescribed by law or
otherwise agreed upon with the Company, no Payee shall have any right to assign,
alienate, anticipate or commute any payments under this Contract, to make
withdrawals of proceeds or to make any change in the provisions elected; and
except as otherwise prescribed by law, no payment shall be subject to the debts,
contracts or engagements of any Payee nor to any judicial process to levy upon
or attach the same for the payment thereof.
DOLLAR AMOUNT OF THE INITIAL MONTHLY PAYMENT FOR EACH $1000 OF
PROCEEDS APPLIED
OPTION 1
Variable Income for a specified period of years
<TABLE>
<CAPTION>
Years Payment Years Payment Years Payment Years Payment Years Payment Years Payment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 84.65 6 15.35 11 9.09 16 6.76 21 5.56 26 4.84
2 43.05 7 13.38 12 8.46 17 6.47 22 5.39 27 4.73
3 29.19 8 11.90 13 7.94 18 6.20 23 5.24 28 4.63
4 22.27 9 10.75 14 7.49 19 5.97 24 5.09 29 4.53
5 18.12 10 9.83 15 7.10 20 5.75 25 4.96 30 4.45
</TABLE>
<PAGE>
OPTION 2
Variable life income
Age of Payee
Nearest (b) Certain
Birthday (a) Life Period
Male Female Annuity 10 Years 20 years
50 55 4.63 4.59 4.44
51 56 4.72 4.66 4.50
52 57 4.81 4.75 4.56
53 58 4.90 4.84 4.63
54 59 5.00 4.93 4.69
55 60 5.11 5.03 4.76
56 61 5.22 5.13 4.83
57 62 5.35 5.24 4.90
58 63 5.48 5.35 4.97
59 64 5.62 5.47 5.04
60 65 5.76 5.60 5.11
61 66 5.92 5.74 5.18
62 67 6.10 5.88 5.25
63 68 6.28 6.03 5.31
64 69 6.48 6.19 5.37
65 70 6.70 6.36 5.43
66 71 6.93 6.53 5.48
67 72 7.19 6.72 5.52
68 73 7.46 6.91 5.57
69 74 7.76 7.10 5.60
70 75 8.08 7.30 5.63
71 76 8.44 7.51 5.66
72 77 8.83 7.72 5.68
73 78 9.26 7.92 5.70
74 79 9.72 8.12 5.71
75 80 10.23 8.32 5.72
<PAGE>
OPTION 3
Variable life income with special certain period
Age of Payee
Nearest Certain
Birthday Period
Male Female Payment Years Months
50 55 4.46 18 8
51 56 4.52 18 5
52 57 4.61 18 1
53 58 4.69 17 9
54 59 4.76 17 6
55 60 4.85 17 2
56 61 4.95 16 10
57 62 5.05 16 6
58 63 5.15 16 2
59 64 5.26 15 10
60 65 5.38 15 6
61 66 5.49 15 2
62 67 5.62 14 10
63 68 5.75 14 6
64 69 5.92 14 1
65 70 6.06 13 9
66 71 6.21 13 5
67 72 6.41 13 0
68 73 6.58 12 8
69 74 6.80 12 3
70 75 6.99 11 11
71 76 7.25 11 6
72 77 7.46 11 2
73 78 7.75 10 9
74 79 8.00 10 5
75 80 8.32 10 0
<PAGE>
OPTION 6
Variable life income based on two lives
(a) Joint life income with
2/3 to survivor
Age
Nearest Age Nearest Birthday
Birthday Male
Female 55 60 65 70 75
50 4.43 4.61 4.81 5.03 5.28
55 4.63 4.85 5.09 5.35 5.63
60 4.87 5.13 5.42 5.73 6.08
65 5.13 5.44 5.81 6.21 6.64
70 5.42 5.81 6.27 6.79 7.36
75 5.73 6.21 6.79 7.48 8.26
80 6.08 6.64 7.36 8.26 9.34
(b) Joint life income with
full amount to survivor
Age
Nearest Age Nearest Birthday
Birthday Male
Female 55 60 65 70 75
50 4.05 4.12 4.17 4.21 4.23
55 4.25 4.36 4.45 4.52 4.57
60 4.45 4.63 4.78 4.90 4.99
65 4.63 4.90 5.16 5.37 5.53
70 4.78 5.16 5.55 5.92 6.22
75 4.90 5.37 5.92 6.50 7.05
80 4.99 5.53 6.22 7.05 7.94
(c) Joint life income with
10 year certain period
Age
Nearest Age Nearest Birthday
Birthday Male
Female 55 60 65 70 75
50 4.04 4.11 4.16 4.20 4.22
55 4.24 4.35 4.44 4.51 4.55
60 4.44 4.62 4.77 4.89 4.96
<PAGE>
65 4.62 4.89 5.14 5.34 5.48
70 4.77 5.14 5.52 5.86 6.12
75 4.89 5.34 5.86 6.39 6.84
80 4.96 5.48 6.12 6.84 7.51
The rates shown above are based on an Assumed Interest Rate of 3.5% per annum
and, with respect to Options 2, 3 and 6, on mortality according to the Male
Group Annuity Table for 1951 with Projection on Scale C to the year 2000 and
with female ages set back 5 years. Based on the specified Assumed Interest
Rate, the Assumed Interest Factor is .9999058. Rates for a different Assumed
Interest Rate, or for ages not shown, or for two males or two females under
Option 6, will be furnished by the Company upon request.
GENERAL PROVISIONS
Beneficiary and Ownership Provisions
The following provisions shall determine the rights of Beneficiaries and
Owners, except as otherwise specifically provided.
An individual, a fiduciary, a partnership or a corporation may be named as
Beneficiary or as Owner of this Contract. No individual named as Beneficiary
shall be entitled to receive payments unless he shall survive the Annuitant.
The interest as Beneficiary or as Owner of a fiduciary, partnership or
corporation shall inure to the successors or assigns thereof.
Naming your Beneficiary
A numbered sequence may be used to name successive Beneficiaries. The
Beneficiary entitled to receive payment at the death of the Annuitant shall be
that surviving Beneficiary designated in the lowest number of the sequence. If
more than one individual is named as Beneficiary under a number of the sequence,
or without a numbered sequence, whether such designation be by name or as a
class or both, those Beneficiaries surviving the Annuitant shall be entitled to
receive payment in equal shares. If the Annuitant dies before the Maturity Date
and no Beneficiary then entitled to payment survives the Annuitant, the proceeds
of the Contract shall be payable to the Owner, or, if the Annuitant was the
Owner, to his executors or administrators. Every request for change of
Beneficiary must be in written form satisfactory to the Company and shall take
effect as of the date of such request, but only upon receipt of the request at
the Home Office of the Company whether or not the Annuitant be then living;
provided that the liability of the Company shall be discharged to the extent of
any payment made prior to such receipt and shall not be increased by reason of
such change.
The rights of the Owner - Transferring ownership.
The Owner shall have the right before the Maturity Date and prior to the
death of the Annuitant, to assign the Contract as collateral security, to sell,
assign and transfer the Contract, and to receive every benefit, and to exercise
every right or option created by the Contract or permitted by the Company,
including the right to designate in writing a payee other than the Annuitant to
receive the income payments; and the rights of the Annuitant and of any
Beneficiary shall be subject to any interest so created. The Owner shall also
have the right to change the Beneficiary at any time prior to the death of the
Annuitant. A numbered sequence may be used to name successive Owners. The
Owner from time to time shall be the surviving Owner designated in the lowest
number of the sequence. Upon the death of the last surviving designated Owner,
the Owner shall be the executors or administrators of such survivor. If more
than one individual is named as Owner under a number of the sequence or without
a numbered sequence, whether such designation be by name or as a class or both,
the Owner from time to time shall be the surviving Owners or Owner so
designated, jointly if more than one. Upon the death of the last surviving
joint Owner, the Owner in the absence of a designation in a higher number of the
sequence shall be the
<PAGE>
executors or administrators of such survivor. Transfer of Ownership may be made
by assignment or by request, as well as by enumeration of successive Owners.
Such transfer by assignment shall revoke the designation of all Beneficiaries
and Owners previously named, and the assignee shall be the Beneficiary and
Owner. No assignment shall be binding on the Company unless in writing nor until
the original or a duplicate thereof is received at the Home Office of the
Company. No responsibility for the validity or effect of assignments will be
assumed by the Company. Every request for transfer must be in written form
satisfactory to the Company and shall take effect as of the date of such
request, but only upon receipt of the request at the Home Office of the Company,
whether or not the Owner or the Annuitant be then living; provided that the
liability of the Company shall be discharged to the extent of any payment made
prior to such receipt and shall not be increased by reason of such transfer.
The foregoing paragraph notwithstanding, if this Contract is issued in
connection with (i) a plan or trust qualifying under Section 401 or 403(a), or
(ii) an annuity purchase plan adopted pursuant to Section 403(b), of the
Internal Revenue Code, the ownership provisions are restricted as follows.
Ownership of this 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, to any
person other than the Company except by an Owner who is either the trustee of a
trust described in Section 401(a) and exempt from tax under Section 501(a) of
the Internal Revenue Code or the custodian of a custodian account treated as
such a trust. However, an Owner who is the trustee or administrator of any plan
or trust under (i) above may assign the Contract to an employee upon termination
of employment. As used in this paragraph, references to sections of the
Internal Revenue Code mean such sections as now or hereafter amended, or any
corresponding provisions of prior or subsequent Federal revenue laws.
Definitions of words used.
The term "children" in the designation of Beneficiaries shall mean only
lawful children of a person. The term "issue" in the designation of
Beneficiaries shall mean only lawful children of a person and lawful children of
such children. In all cases, posthumous and legally adopted children shall be
included. The phrase "provision for issue" in the designation of Beneficiaries
shall mean that if the Beneficiary so designated does not survive the Annuitant,
the payment to which he would have been entitled if living shall be made to his
then living issue in equal shares per stirpes. Unless otherwise indicated by
the context, any relationship descriptive of a Beneficiary or Owner shall be the
relationship to the Annuitant. In determining the identity of any Beneficiaries
or Owners designated as a class, the Company shall be entitled to rely on an
affidavit of any Beneficiary, Owner or other responsible person.
Contract
This Contract is issued in consideration of the application and of the
payment of the Single Purchase Payment. The first contract year begins on the
Date of Issue, and each successive contract year begins on the anniversary of
this date.
This Contract and the application, a copy of which is attached to and made
a part of this Contract, constitute the entire contract between the parties.
All statements made by or in behalf of the Annuitant shall be deemed
representations and not warranties; and no such statement shall be used in
defense to a claim unless contained in the application and unless a copy of such
application is attached to this Contract when issued. No endorsement or
alteration of this Contract and no waiver of any of its provisions shall be
valid unless made in writing by the Company and signed by its President, Vice-
President, Secretary or Assistant Secretary; and no other person shall have
authority to bind the Company in any manner.
Incontestability
This Contract shall be incontestable after one year from its Date of Issue.
<PAGE>
ENDORSEMENTS
To be made only by the Company at its Home Office
<PAGE>
This is a Participating Single Purchase Payment Deferred Variable Annuity
Contract. Values are payable at death before, or upon surrender on or before,
the Maturity Date.
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT PERFORMANCE OF A SEPARATE INVESTMENT ACCOUNT, ARE VARIABLE AND ARE
NOT GUARANTEED AS TO DOLLAR AMOUNT.
V2-70A
Voting Rights
The Owner of this Contract has the right to vote, either in person or by
proxy, at meetings of the owners of variable annuity contracts which depend
on the investment performance of the Fund. Information as to the number of
votes attributable to this Contract will be supplied in advance of each
meeting.
The Owner of this Contract is also a member of the New England Mutual Life
Insurance Company and is entitled to one vote, either in person or by
proxy, at any and all meetings of said Company. The Annual Meetings of the
Company are held at its Home Office on the third Wednesday of March, in
each year, at eleven o'clock A.M.
y:wd221.em
<PAGE>
Exhibit 7
Agency No.
----------------
For Company Use Only
No.
-----------------------
- --------------------------
Pension No.
----------------
Part 1 - Application to the New England Mutual Life
Insurance Company for an Annuity
- ------------------------------------------------------------------------
Name of
Annuitant
(Print name as it should appear in contract)
- ------------------------------------------------------------------------
Questions below pertain to Annuitant unless otherwise indicated.
1. Type of Annuity (check one in each) a: Deferred or Immediate
b: Variable or Fixed
2. Address (include street and number, city, state and zip code)
a. Residence
-------------------------------------------------------------------
b. Business
-------------------------------------------------------------------
3. Payment Notice Address
Annuitant at 2.a. at 2.b.
Other than Annuitant (give name and address)
---------------------------------------------
4. Social Security or Employer Identification No.
Annuitant
------------------------------------
First Owner
----------------------------------
5. Birthplace
----------------------------------------------------
(City) (State or Country)
6. Citizen of
----------------------------------------------------
7. Birth Date
----------------------------------------------------
(Month) (Day) (Year)
8. Sex Male Female
9. Marital Status Married Single Widowed Divorced Separated
<PAGE>
10. Basis of Annuity Plan
Qualified Pension or Profit Sharing Plan (401(k))
Individual Retirement Annuity Plan ( Rollover)
Government Deferred Compensation Plan
Tax-Sheltered Annuity
Non-Qualified Individual
Other (specify)
--------------------------------------
11. Purchase payment mode Single Annual Quarterly Monthly
MSA No. Other (specify)
------------------------- --------------
12. Amount (Check and complete only one)
Gross payment including
Riders at mode shown in 11 $
----------------
Monthly income to Annuitant $
----------------
13. Maturity Date (if no date is shown, Maturity Date will be Annuitant's
70th birthday)
----------------------------------------------
(Month) (Day) (Year)
14. Method of payment to Annuitant -- Note: Payment Option to be Life Income,
10 Years Certain, unless otherwise specified
----------------------------
15. Disability Benefit Rider Yes (Answer a thru d) No
a. Any other negotiations for disability insurance pending or
contemplated? Yes No
(If Yes, explain on back)
b. Any intent to travel or reside outside USA?
(If Yes, explain on back) Yes No
c. Any participation in SCUBA diving, skydiving, hang gliding, or motor
racing within past 3 years, or any intent to participate in these
activities? Yes No
(If Yes, complete Avocation Questionnaire)
d. Occupation (Be explicit)
----------------------------------------------
16. Any insurance or annuity in this or any other company which has been
or will be replaced as a result of this Application? (If Yes, explain on
back and give name of company) Yes No
APP-528-87 Rev Continued on Reverse Side
2
<PAGE>
- -------------------------------------------------------------------------------
Receipt -- Do Not Destroy
Received ______________________________________________________________dollars
in connection with an application to New England Mutual Life Insurance Company
for an annuity
contract on
--------------------------------------------------------------------
Countersigned ___________________ 19 ____
New England Mutual Life Insurance Company
Secretary /s/ James A. Gallaher
- -----------------------------
Agent
3
<PAGE>
- ------------------------------------------------------------------------------
17. Beneficiary (include relation to Annuitant)
(1) Primary (2) Secondary
--------------------------- ----------------------------------
18. Is Annuitant to own the contract? Yes No
If No, name the Owner (include relation to Annuitant) (Note: A numbered
sequence may be used to name successive Owners)
----------------------------
19. Dividend Option:
-----------------------------------------------------------
20. Any special requests
(Attach memo if more space needed)
Home Office Use: Additions and Amendments
21. Amount paid with this Application
$
---------------------------------------------
22. Second Annuitant (Immediate Joint Annuities Only)
------------------------------------ ------------------------------
Name (Print name as it should appear Relation to Annuitant
in contract)
If Application is for a Variable Annuity, answer questions 23 and 24.
23. Account Allocation (whole %)
____% Capital Growth
____% Back Bay Advisors Bond Income
____% Back Bay Advisors Money Market
____% Westpeak Stock Index
____% Back Bay Advisors Managed
____% Loomis Sayles Avanti Growth
____% Westpeak Value Growth
4
<PAGE>
____% Fidelity VIP Equity-Income
____% Fidelity VIP Overseas
____% Loomis Sayles Small Cap
____% Salomon Brothers U.S. Government
____% Loomis Sayles Balanced
____% Alger Equity Growth
____% CS First Boston Strategic Equity Opportunities
____% Draycott International Equity
____% Venture Value
____% Salomon Brothers Strategic Bond Opportunities
____% Fixed Account
(Minimum 10% in each selected account.)
24. Suitability Statement by Applicant
a. Did you receive the prospectus? Yes No
(If Yes, give date of prospectus ____________)
b. Do you understand that the contract value and annuity payments when
based on the investment experience of a separate investment account may
increase or decrease depending on the contract's investment return?
Yes No
c. Do you believe that this contract will meet your financial objectives?
Yes No
- -------------------------------------------------------------------------------
General. To the best of my knowledge and belief, the answers recorded are true
and complete. In those states where written consent is required by law, my
agreement in writing is required to any entry made by the Company in "Additions
and Amendments" as to: (a) age; or (b) type of annuity; or (c) riders; or (d)
amounts; or (e) rate class.
When the Contract Takes Effect. The contract will take effect as of the latest
of: (a) the date of this Application, (b) the date of the first purchase payment
and the first premium for any riders are paid and (c) any date of issue that is
requested; provided that this Application can be approved by the Company as
submitted and with respect to any riders which involve an insurance risk that at
the time of payment there has been a change in insurability as represented in
this Application since the date of the Application.
Signed at (City and State)________________________ Date ______________ 19____
- -------------- ----------------- ----------------------------
Agent Annuitant Applicant if other than
Annuitant
Accepted by the Company at the Home Office: _____________ Date ________________
5
<PAGE>
1
Exhibit 11(i)
ADMINISTRATIVE AGREEMENT
------------------------
AGREEMENT made this _______________ day of _______________ 1970, by and
between New England Life Variable Annuity Fund I (the "Fund"), a separate
investment account established pursuant to Chapter 175 of the Massachusetts
General Laws and a registered investment company under the Investment Company
Act of 1940 (the "Act") and New England Mutual Life Insurance Company, a
Massachusetts corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Fund and the Company wish to enter into an agreement under the
terms of which the Company will perform all administrative functions with
respect to the Fund and the variable annuity contracts which depend in whole or
in party upon the investment performance of the Fund (the "variable annuity
contracts") other than the services provided for in the Advisory Agreement
between the Fund and Loomis, Sayles & Company, Incorporated, (the "Adviser") the
Distribution Agreement between and among the Fund, the Company and NEL Equity
Services Corporation (the "Distributor") and the Safekeeping Agreement between
the Fund and the Company, (the foregoing agreements being hereinafter referred
to as the "related Fund agreements");
NOW, THEREFORE, in consideration of the covenants and mutual promises of
the parties made to each other, it is hereby covenanted and agreed as follows:
1. The Company will provide or provide for, and bear the cost of, all
necessary or appropriate information, facilities and services,
other than the services to be provided or paid for by others under
the terms
<PAGE>
2
of the related Fund agreements, in connection with the
administration of the variable annuity contracts and the Fund,
including but not limited to:
(a) all legal, actuarial and accounting (other than audits of Fund
assets required by the Act) services;
(b) office space in the offices of the Company or such other place
or places as may be agreed upon from time to time, and all
necessary office supplies, facilities and equipment;
(c) necessary executive and other personnel for managing the
affairs of the Fund, including personnel to perform clerical,
bookkeeping, accounting, stenographic and other office
functions;
(d) compensation and reimbursement of expense, if any, of members
of the Board of Managers of the Fund who are directors,
officers or employees of the Company or any affiliated person
of the Company;
(e) meetings of variable annuity Contractholders and members of
the Board of Managers of the Fund;
(f) receipt of all amounts representing purchase payments for
variable annuity contracts and allocation of such amounts in
accordance with the provisions thereof;
(g) maintenance of books of account and other records of all
transactions relating to the Fund as may be necessary or
<PAGE>
3
appropriate to reflect clearly the assets and liabilities
thereof and to identify and distinguish the same at all times
from the assets and liabilities arising out of other business
of the Company.
2. Notwithstanding the provisions of Section 1 or any other section
hereof, the Company shall not be obligated to pay, and the Fund shall pay: (i)
any taxes which would be incurred by all assets of the Fund irrespective of the
source of such assets or amounts set aside by the Company as a reserve therefor,
arising from the income and realized and unrealized capital gains on Fund assets
(it being understood that with respect to Fund assets not attributable to
variable annuity contracts, any such applicable taxes will not affect the value
of accumulation units or annuity units under the contracts); (ii) brokerage
commissions and taxes, if any, in connection with the purchase or sale of
securities for the account of the Fund and chargeable to the Fund; (iii) amounts
payable to the Adviser under the terms of the Advisory Agreement between the
Fund and the Adviser; (iv) charges and expenses of independent accountants
retained to audit the assets of the Fund as required by the Act; and (v) fees
and expenses of members of the Board of Managers who are not directors, officers
or employees of the Company or any affiliated person of the Company;
3. As compensation for the services performed and expense incurred, as
described above, the Company shall receive all amounts deducted as
administrative expenses from purchase payments made by Contractholders under the
several types of variable annuity contracts, as specified in such contracts and
in the prospectus with respect to them forming part of the registration
statement filed with the Securities and
<PAGE>
4
Exchange Commission under the Securities Act of 1933. It is understood that the
Company assumes the risk that the above compensation for its services may not
prove sufficient to cover its actual expenses in connection therewith and that
the Company also assumes certain mortality risks with respect to the contracts.
The Company's compensation for assuming such risks shall be included in and
limited to the periodic charges for mortality and expense risks assumed made
against the assets of the Fund as described in said contracts and prospectus.
4. The Fund shall cause its books and accounts to be audited periodically
as required by the Act but in any event not less than once each year by a
reputable, independent public accountant or organization of public accountants
who shall render a report to the Fund.
5. The services of the Company hereunder are not deemed to be exclusive
and the Company shall be free to render similar services to others, including
without implied limitation such other separate investment accounts as are now or
hereafter established by the Company, so long as its services hereunder are not
impaired or interfered with thereby.
6. It is understood that any of the variable annuity Contractholders,
members of the Board of Managers, officers, employees and agents of the Fund may
be a policyholder, director, officer, employee or agent of, or be otherwise
interested in, the Company, any affiliated person of the Company, any
organization in which the Company may have an interest or any organization which
may have an interest in the Company; that the Company, any such affiliated
person or any such organization may have an interest in the Fund; and that the
existence of any such dual interest shall not affect the
<PAGE>
5
validity hereof or of any transaction hereunder except as otherwise provided in
the articles of organization or by-laws of the Company or the rules and
regulations of the Fund, respectively, or by specific provisions of applicable
law.
7. The Company owns the name "New England Life" and the ship logos, both
of which may be used by the Fund only with the consent of the Company, which
reserves the right in its discretion to withdraw such consent at any time.
Subject to such right, and on the conditions hereinafter provided, the Company
consents to the use by the Fund of the name "New England Life Variable Annuity
Fund I" or any other name embodying the phrase "New England Life" and of the
Company's ship logos, in such form as the Company shall in writing approve, so
long as,
(a) this Agreement, and the Advisory Agreement between the Fund and
the Adviser, and the Distribution Agreement between and among the
Fund, the Company and the Distributor, shall remain in full force
and
(b) the Fund shall fully perform, fulfill and comply with all
provisions of this Agreement and of said Advisory Agreement and
Distribution Agreement expressed herein or therein to be
performed, fulfilled or complied with by it.
No such name or logos shall be used by the Fund at any time or in any place or
for any purpose or under any conditions except as in this section provided. The
foregoing authorization by the Company to the Fund to use said phrase and logos
as part of or in connection with a business or other name is not exclusive of
the right of the Company itself to use, or authorize others to use, the same;
the Fund acknowledges and agrees that,
<PAGE>
6
as between the Company and the Fund, the Company has the exclusive right so to
use, or authorize others to use, said phrase and logos; and the Fund agrees to
take such action as may reasonably be requested by the Company to give full
effect to the provisions of this section (including, without limitation,
consenting to such use of said phrase or logos). Without limiting the generality
of the foregoing, the Fund agrees that, upon any termination of this Agreement
or of said Advisory Agreement or Distribution Agreement by any party or upon the
violation of any of the provisions of any of said Agreements by the Fund, the
Fund will, at the request of the Company made within six months after the
Company has knowledge of such termination or violation, terminate the use of the
logos and change the name of the Fund so as to eliminate all reference, if any,
to "New England Life", and will not thereafter employ said logos in any way or
transact any business in a name containing the phrase "New England Life", in any
form or combination whatsoever, or designate itself as the same entity as or
successor to an entity of such name, or otherwise use said logos or the phrase
"New England Life" or any other reference to the Company. Such covenants on the
part of the Fund shall be binding upon it, the members of its Board of Managers
and its officers, variable annuity Contractholders, creditors and all other
persons claiming under or through it.
8. This Agreement may be terminated without the payment of any penalty
upon thirty (30) days' written notice by either party to the other. It may be
amended or supplemented in writing by mutual agreement of the parties, provided
the same shall not be in violation of any law or regulation including those
administered by the Securities and Exchange Commission and the State Insurance
Commissioners.\
<PAGE>
7
9. This Agreement shall be governed by and construed in accordance with
the laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND LIFE VARIABLE ANNUITY FUND I
By
-----------------------------------------
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
By
-----------------------------------------
<PAGE>
EXHIBIT 12
[METLIFE LETTERHEAD APPEARS HERE]
April 29, 1998
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. 3 to the
Registration Statement on Form N-3 (File No. 333-11137) of our report dated
January 31, 1997, on our audits of the statement of changes in net assets and
selected per unit data and ratios of New England Variable Annuity Fund I for the
indicated periods ended December 31, 1996, 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 28, 1998
<PAGE>
Exhibit 13(i)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 3 to the Registration
Statement No. 333-11137 of New England Variable Annuity Fund I (the "Separate
Account") of Metropolitan Life Insurance Company (the "Company") of our report
dated February 13, 1998 on the financial statements of the Separate Account for
the year ended December 31, 1997, and of our report dated February 12, 1998,
except for note 17, as to which the date is March 12, 1998, on the financial
statements of the Company for the years ended December 31, 1997 and 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
Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 28, 1998
<PAGE>
Exhibit 13 (ii)
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
April 28, 1998
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. 3 to the Fund's Registration Statement (No. 333-11137)
under the Securities Act of 1933.
Very truly yours,
Ropes & Gray
<PAGE>
EXHIBIT 16
VARIABLE ANNUITY FUND I WORKPAPERS Page I
EQUITY PORTFOLIO AVERAGE
MARKET 1993
- --------------------------------------------------------------------------------
MASTER FILE SUMMARY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DEFERRED
DEFERRED PAY-IN MARKET
DATE PAY-IN UNITS VALUE TOTAL VALUES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1992 5,090,984.722 58,938,121.40 62,601,099.07
January 29, 1993 5,032,648.081 58,838,188.44 62,679,867.81
February 26, 1993 4,894,572.906 55,330,249.12 59,005,872.41
March 31, 1993 4,774,351.660 56,400,476.07 60,203,027.41
April 30, 1993 4,736,897.988 55,002,140.45 58,704,091.16
May 28, 1993 4,711,028.382 56,758,677.23 60,562,269.07
June 30, 1993 4,665,374.861 55,890,575.01 59,634,817.51
---------------------------------------------------
Total 7 Months 33,905,858.600 $397,158,472. $423,391,044.44
- --------------------------------------------------------------------------------
Average 7 Months 4,843,694.086 $ 56,736,918.25 $ 60,484,434.92
- --------------------------------------------------------------------------------
July 30, 1993 4,629,916.479 55,487,317.38 59,197,133.76
August 31, 1993 4,598,302.702 56,348,829.06 60,103,960.74
September 30, 1993 4,536,554.381 56,265,985.75 60,148,570.10
October 29, 1993 4,472,980.623 57,626,880.97 61,629,401.05
November 30, 1993 4,409,686.270 55,427,569.21 59,293,697.86
December 31, 1993 4,395,635.983 56,486,458.66 60,320,593.53
---------------------------------------------------
Total 13 Months 60,948,935.038 $734,801,468.75 $784,084,401.48
---------------------------------------------------
Average 13 Months 4,688,379.618 $ 56,523,189.90 $ 60,314,184.73
---------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percent Change in Unit Value:
12.850577 -1.157298
22 years, 9 months ended = 1010.4%
-----------------------------------
12/31/93 1.157298
12.850577 -1.180390
15 years ended 12/31/93 988.7%
-------------------------=
1.180390
12.850577 -3.943886
10 years ended 12/31/93 225.8%
--------------------------=
3.943886
12.850577 -6.745649
5 years ended 12/31/93 90.5%
--------------------------=
6.745649
12.850577 -11.576959
1 year ended 12/31/93 = 11.0%
-----------------------------------------------
11.576959
12.850577 -11.979868
</TABLE>
<PAGE>
6 months ended 12/31/93_________________________= 7.3%
11.979868
<PAGE>
VARIABLE ANNUITY FUND I WORKPAPERS Page 2
PORTFOLIO AVERAGE
MARKET 1993
- -------------------------------------------------------------------------------
GIR - PORTFOLIO
APPRAISAL
DATE MARKET VALUE*
- -------------------------------------------------------------------------------
December 31, 1992 61,784,625.00
January 29, 1993 61,707,625.00
February 26, 1993 58,635,125.00
March 31, 1993 59,090,250.00
April 30, 1993 57,358,862.50
May 28, 1993 59,354,037.50
June 30, 1993 57,920,975.00
---------------
Total 7 Months $415,851,500.00
---------------
Average 7 Months $ 59,407,357.14
---------------
July 30, 1993 57,277,671.77
August 31, 1993 58,493,150.00
September 30, 1993 59,340,900.00
October 29, 1993 60,805,400.00
November 30, 1993 58,246,787.50
December 31, 1993 59,107,600.00
---------------
Total 13 Months $769,123,009.27
---------------
Average 13 Months $ 59,163,308.41
---------------
*Includes long-term U.S. Government securities, excludes short-term
U.S. Treasury notes and bills, corporate short-term notes and
repurchase agreements.
<PAGE>
VARIABLE ANNUITY FUND I WORKPAPERS Page 3
PER UNIT CHANGES
December 31, 1993
- --------------------------------------------------------------------------------
A. DEFERRED PAY-IN MARKET VALUE 734,801,468.75
- --------------------------------= --------------= 93.71458830%
TOTAL FUND VALUES 784,084,401.48
B. INVESTMENT INCOME X A 822,037.04 93.71458830% 770,368.63
C. INVEST. ADV. FEE X A 184,657.64 93.71458830% 173,051.15
D. MORTALITY & EXP. RISK
AVERAGE NET ASSETS
**DEFERRED PAY-IN XRATE 56,523,189.90 0.9490% 536,405.07
PER UNIT DATA:
TOTAL INVESTMENT INCOME B. 770,368.63 $0.16
------------------------- ------------
AVERAGE DEFERRED PAY-IN UNITS 4,688,379.62
TOTAL EXPENSES C. + D. 709,456.22 0.15
----------------------------- ------------
AVERAGE DEFERRED PAY-IN UNITS 4,688,379.62
----
INVESTMENT INCOME-NET 0.01
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT 1.26
----
NET INCREASE (DECREASE) IN NET ASSET VALUE 1.27
ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD 11.58
-----
ACCUMULATION UNIT VALUE AT END OF PERIOD $12.85
=====
OPERATING EXPENSES (C. + D.) TO 709,456.22
*RATIO OF ---------------------------- = ------------ = 1.26%
TO AVERAGE NET ASSETS (%) 56,523,189.90
INVESTMENT INCOME-NET (B.-C.-D) 60,912.41
*RATIO OF ------------------------------- = ----------- = 0.11%
TO AVERAGE NET ASSETS (%) 56,523,189.90
PORTFOLIO PURCHASES OR
SALES PROCEEDS WHICHEVER
*PORTFOLIO IS LOWER 91,201,468
TURNOVER (%) ---------------------- = ------------- = 154.15%
PORTFOLIO AVERAGE MARKET 59,163,308.41
NUMBER OF ACCUMULATION UNIT OUTSTANDING AT END OF PERIOD 4,410,741
*Annualized
"Annualized rate .9490% (six months .4745%)
<PAGE>
Variable Annuity Fund I Annual Report
<TABLE>
<CAPTION>
Pre-Tax After-Tax
12/31/92 to 12/31/93
<S> <C> <C>
single Premium 1,000.00 1,000.00
- - 2.0% Tax 0.00 20.00
- - 9% of 1st $46 4.14 4.14
- - 8% of Remainder 76.32 74.72
---------- ----------
919.54 901.14
/ 12/31/92 AUV 11.576959 11.576959
---------- ----------
Number of units 79.4284578 77.8390940
X 12/31/93 AUV 12.850577 12.850577
---------- ----------
20.7015 1,020.2715 1,000.2773
/ 1,000 - 1 2.07% 0.03%
<CAPTION>
12/30/88 to 12/31/93
<S> <C> <C>
Single Premium 1,000.00 1,000.00
- - 2.0% Tax 0.00 20.00
- - 9% of 1st $46 4.14 4.14
- - 8% of Remainder 76.32 74.72
---------- ----------
919.54 901.14
/ 12/31/88 AUV 6.745649 6.745649
---------- ----------
Number of Units 136.316016 133.588332
x 12/31/93 AUV 12.850577 12.850577
---------- ----------
1,751.7395 1,716.6872
/ 1,000 1.7517 1.7167
5h Root -1 11.86% 11.41%
<CAPTION>
12/31/83 to 12/31/93
<S> <C> <C>
Single Premium 1,000.00 1,000.00
- - 2.0% Tax 0.00 20.00
- - 9% of 1st $46 4.14 4.14
- - 8% of Remainder 76.32 74.72
---------- ----------
919.54 901.14
/ 12/31/83 AUV 3.943886 3.943886
---------- ----------
Number of Units 233.155826 228.490377
x 12/31/93 AUV 12.850577 12.850577
---------- ----------
2,996.1869 2,936.2332
/ 1,000 2.9962 2.9362
l0th Root -1 11.60% 11.37%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 64,662,766
<INVESTMENTS-AT-VALUE> 72,812,158
<RECEIVABLES> 1,122,832
<ASSETS-OTHER> 2,106
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73,937,096
<PAYABLE-FOR-SECURITIES> 1,926,824
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 183,079
<TOTAL-LIABILITIES> 2,109,903
<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> 71,827,193
<DIVIDEND-INCOME> 847,536
<INTEREST-INCOME> 49,933
<OTHER-INCOME> 25
<EXPENSES-NET> 963,677
<NET-INVESTMENT-INCOME> (66,183)
<REALIZED-GAINS-CURRENT> 20,352,502
<APPREC-INCREASE-CURRENT> (6,048,337)
<NET-CHANGE-FROM-OPS> 14,237,982
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,269
<NUMBER-OF-SHARES-REDEEMED> (328,553)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,544,481
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221,842
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 963,677
<AVERAGE-NET-ASSETS> 71,506,171
<PER-SHARE-NAV-BEGIN> 20.08
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 4.50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.55
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
