<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1999
Registration No. 333-11137
811-1930
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 33 [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 Copy to:
Service:
John M. Loder, Esq.
Gary A. Beller, Esq. Ropes & Gray
Metropolitan Life Insurance Company One International Place
One Madison Avenue Boston, Massachusetts 02110-2624
New York, New York 10010
It is proposed that this filing will become effective (check appropriate
box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1999 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.
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<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
APRIL 30, 1999
This prospectus describes individual variable annuity contracts for
individuals and certain qualified and nonqualified retirement plans. Deferred
contracts can be purchased with either a single payment or flexible payments,
and immediate contracts can be purchased with a single payment. We invest net
purchase payments in New England Variable Annuity Fund I (the "Fund"), a
separate investment account of Metropolitan Life Insurance Company (the
"Company", "we", "us" or "our"). The investment objective of the Fund is
growth of capital through investment primarily in equity securities of a
diversified group of companies and industries.
New England Mutual Life Insurance Company initially issued the contracts.
New England Mutual merged into us on August 30, 1996.
We currently are not offering any new contracts. However, holders of
existing flexible payment deferred contracts may continue to make purchase
payments.
Please read this prospectus carefully and keep it for reference. This
prospectus contains information that you should know before investing. You can
obtain a Statement of Additional Information ("SAI") dated April 30, 1999. The
SAI is filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference in this prospectus. The Table of Contents for the
SAI is on page 22 of this prospectus. For a free copy of the SAI, write to New
England Securities Corporation, 399 Boylston Street, Boston, Massachusetts
02116.
New England Securities Corporation, an indirect subsidiary of the Company,
serves as principal underwriter for the Fund.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CONTRACTS OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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SPECIAL TERMS USED IN THIS PROSPECTUS
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Annuitant: the person on whose life the variable annuity contract is issued
("you" if the contract is not owned by an individual).
Fund: a separate investment account of the Company through which amounts at-
tributable to the variable annuity contracts are aggregated and invested.
Payee: any person entitled to receive payments under the contract. The term
includes (1) an Annuitant, (2) a beneficiary or contingent beneficiary who be-
comes entitled to death proceeds, or (3) you, on surrender or partial surren-
der of the contract.
Contractholder: the person or entity with legal rights of ownership in the
contract ("you").
Deferred Contract: a variable annuity contract in which annuity payments be-
gin on a selected future maturity date.
Immediate Contract: a variable annuity contract in which annuity payments be-
gin at a date agreed upon by us and you. This date is normally the date the
purchase payment is applied.
Purchase Payments: amounts paid to us 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 de-
ducting (1) any applicable state premium taxes and (2) sales and administra-
tive expenses.
Accumulation Period: the period during which amounts are accumulated under a
deferred annuity contract before application under a payment option.
Annuity Period: the period beginning 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 calculate the contract value
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 begin.
Designated Office: Our Designated Office for requests and elections, and com-
munications regarding death of the Annuitant or Contractholder is New England
Life Insurance Company, located at 501 Boylston Street, Boston, Massachusetts
02116, (617) 578-2000. Our Designated Office for the receipt of Purchase Pay-
ments is P.O. Box 75099, Chicago, IL 60675-5099.
2
<PAGE>
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HIGHLIGHTS
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VARIABLE ANNUITY CONTRACTS -- The variable annuity contracts are for use by
individuals and with certain retirement plans that qualify for tax-benefited
treatment.
The basic objective of the contracts is to provide annuity payments that
will tend to conform to changes in the cost of living more closely than a
fixed annuity would. To achieve this goal, annuity payments are based on the
changing values of the Fund's assets.
THE COMPANY -- The contracts were originally issued by New England Mutual.
On August 30, 1996, New England Mutual merged into us. New England Mutual's
separate corporate existence then ended, and we assumed legal ownership of all
of the assets of New England Mutual, including the Fund and its assets. As a
result of the merger, we are responsible for all of New England Mutual's lia-
bilities and obligations, including those created under the contracts. The
contracts now are variable contracts funded by a separate account, and each
Contractholder has become one
of our policyholders. The merger is not expected to have any adverse tax con-
sequences on you or other contractholders.
THE FUND'S ADVISER -- Capital Growth Management Limited Partnership ("CGM")
is investment adviser to the Fund for a fee equal to an annual rate of .3066%
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 if you hold an existing flexible payment deferred contract,
you may continue to make purchase payments. In certain states, a premium tax
charge may be deducted from the purchase payment. (In other states, a premium
tax may be deducted from the contract value when annuity payments begin. The
maximum premium tax is 3.5%.) We then make a deduction for sales and adminis-
trative expenses from each after-tax purchase payment. Such expenses may ag-
gregate up to 9% of the after-tax purchase payment for flexible payment de-
ferred contracts and 8% of the after-tax purchase payment for single purchase
payment deferred or immediate contracts. The deduction from any purchase pay-
ment for sales expenses will not exceed 6% of the after-tax payment. Reduced
sales charges apply in certain cases. (See "Deductions from Purchase Payments
for Sales and Administrative Services and Premium Taxes.")
OTHER DEDUCTIONS -- We are compensated for the mortality and expense risks
associated with the contracts by daily deductions from the Fund's net assets
equal to, on an annual basis, a maximum of .9490% for deferred contracts and
.6935% for immediate contracts. (See "Mortality and Expense Risks and Deduc-
tions.")
SURRENDER OF CONTRACT -- Before annuity payments begin, you may surrender
the contract without charge for its cash value or for other types of early
payment. (See "Surrender (Redemption) Proceeds" under "Accumulation Period
(Deferred Contracts).")
3
<PAGE>
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EXPENSE TABLE
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The following table lists the charges and expenses that you will incur as a
Contractholder. The items listed include charges deducted from purchase
payments and charges assessed against the Fund's assets. The purpose of the
table is to help you understand the various direct and indirect costs and
expenses that you will incur.(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 each
purchase payment 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......................................................... 0.08%
----
TOTAL ANNUAL EXPENSES................................................ 1.34%
</TABLE>
EXAMPLE (5)
There are no extra expenses if you surrender or annuitize your contract. At
the end of the time periods listed below, you would have paid the following
expenses on a $1,000 investment, assuming a 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 you elect to transfer the proceeds of the contract from the Fund
to our 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 us is 3.5%. In
most states, we deduct the premium tax from the contract value when you
elect to begin annuity benefits, rather than from purchase payments when
we receive them. (See "Deductions from Purchase Payments for Sales and
Administrative Services and Premium Taxes.")
(3) We have rounded the percentages shown in the Annual Expenses portion of
the table 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 an immediate contract would be lower than for a
deferred contract. (See "Mortality and Expense Risks and Deductions.")
(5) You should not consider the Example to be 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, we have
rounded all expense amounts to the nearest dollar.
(6) The minimum purchase payment for a single purchase payment contract is
$2,000. However, we are not offering new contracts at this time.
4
<PAGE>
PER UNIT INCOME AND CAPITAL CHANGES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
(The 1997 and 1998 information in this table comes from financial
statements audited by Deloitte & Touche LLP,independent accountants, whose
report accompanies the financial statements of the Fund. The information in
this table relating to each of the three years in the period ended December
31, 1996, comes from financial statements audited by Coopers & Lybrand
L.L.P., independent accountants, whose report accompanies the financial
statements of the Fund.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income and expenses:
Total investment
income................ $ .50 $ .29 $ .28 $ .24 $ .29 $ .16 $ .25 $ .24 $ .16 $ .22
Operating expenses..... .38 .32 .24 .19 .16 .15 .14 .13 .10 .09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income
(loss)................ $ .12 $ (.03) $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Capital changes:
Net investment income
(loss)................ $ .12 $ (.03) $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06 $ .13
Net realized and
unrealized gains
(losses) on
investments........... 7.91 4.50 3.52 4.57 (1.08) 1.26 (.37) 3.35 .34 1.10
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in
accumulation unit
value................. 8.03 4.47 3.56 4.62 (.95) 1.27 (.26) 3.46 .40 1.23
Accumulation unit value
at
beginning of period.... 24.55 20.08 16.52 11.90 12.85 11.58 11.84 8.38 7.98 6.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Accumulation unit value
at end of period....... $32.58 $24.55 $20.08 $16.52 $11.90 $12.85 $11.58 $11.84 $ 8.38 $ 7.98
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of operating
expenses to
average net assets
(%).................... 1.34 1.35 1.34 1.35 1.26 1.26 1.25 1.26 1.26 1.26
Ratio of net investment
income (loss) to
average net assets
(%).................... .44 (.09) .22 .34 1.06 .11 .98 1.11 .69 1.72
Portfolio turnover (%).. 195.15 209.18 196.25 228.26 139.43 154.15 171.55 157.43 136.52 206.90
Number of accumulation
units
outstanding at end of
period
(in thousands)......... 2,220 2,694 3,013 3,399 4,038 4,411 5,104 5,499 5,961 6,958
</TABLE>
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FINANCIAL STATEMENTS
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The financial statements of the Fund and our financial statements are
included in the Statement of Additional Information.
5
<PAGE>
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FUND PERFORMANCE
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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,
1998. Calculations are based on a single investment of $1,000 assumed to be
made at the beginning of each period shown. These calculations reflect the
maximum sales and administrative load of 9% of the first $46 and 8% of the
balance. These calculations do not include any premium tax charges, which
apply in certain states and 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, 1998 to arrive at the contract
value. The average annual total return is the annual compounded rate of return
that would produce the contract value on December 31, 1998.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<S> <C>
Period Ending December 31, 1998
1 Year................................................................. 22.0%
5 Years................................................................ 18.4%
10 Years................................................................ 16.1%
</TABLE>
The Fund's Annual and Semi-Annual Reports also illustrate historical
investment performance 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 the increase in contract value that would occur if you 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>
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DESCRIPTION OF THE COMPANY AND THE FUND
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We are a mutual life insurance company whose principal office is at One Madi-
son Avenue, New York, N.Y. 10010. We were organized in 1866 under the laws of
the State of New York and have engaged in the life insurance business under
our present name since 1868. We operate as a life insurance company in all 50
states, the District of Columbia, Puerto Rico and all provinces of Canada. We
have over $358 billion in assets under management.
The contracts were originally issued by New England Mutual. On August 30,
1996, New England Mutual merged into us, and we acquired the Fund and assumed
the liabilities and obligations under the contracts.
New England Life Insurance Company, which was a subsidiary of New England Mu-
tual and became a subsidiary of us as a result of the merger, provides admin-
istrative services for the contracts and the Fund. These administrative serv-
ices include maintenance of your records and accounting, valuation, regulatory
and reporting services. New England Life, located at 501 Boylston Street, Bos-
ton, Massachusetts 02116, is our designated office for requests and elections,
and communications regarding death of the Annuitant or Contractholder, as fur-
ther described below. Our Designated Office for the receipt of Purchase Pay-
ments is P.O. Box 75099, Chicago, IL, 60675-5099.
New England Mutual established the Fund in 1969 as a separate investment ac-
count under Massachusetts law. The Fund is currently a separate investment ac-
count of ours, subject to New York law. The Fund is registered as an open-end
diversified management investment company under the Investment Company Act of
1940 (the "1940 Act"). The Fund meets the definition of a "separate 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 that we may
conduct. The income and realized and unrealized capital gains or losses of the
Fund must be credited to or charged against the Fund without regard to our
other income and capital gains or losses. The obligations arising under the
variable annuity contracts are general corporate obligations for us.
The Fund is managed by its Board of Managers, which is elected by you and the
other 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, approval by a majority vote of the Contractholders is needed, as
well as any necessary approval of the SEC.
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THE VARIABLE ANNUITY CONTRACTS
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You may make one or more Purchase Payments to the Company. If you have a de-
ferred contract, each Net Purchase Payment is credited to your contract in the
form of Accumulation Units. If you have an immediate contract, the Net Pur-
chase 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. We may, however, limit the amount of Purchase Payments made in any con-
tract year to three times the anticipated annual contribution specified by you
in your contract application. After your first Purchase Payment, you are not
required to make any further payments to keep the contract in force.
B. ACCUMULATION UNIT VALUES, ANNUITY UNIT VALUES AND NET INVESTMENT FACTORS
Accumulation Unit Values are used to value deferred contracts during the Ac-
cumulation Period, as described below in C. 2 of this section under the cap-
tion "Accumulation Period (Deferred Contracts)--Contract Value." Annuity Unit
Values are used to determine the number of Annuity Units credited under a
variable payment option at annuitization and the amounts of payments made pur-
suant to a variable payment option during the Annuity Period. Accumulation
Unit Values and Annuity Unit Values are determined after the close of the New
York Stock Exchange on each day it is open for trading. The calculation is
made by multiplying the current Accumulation Unit Value or Annuity Unit Value,
as the case may be, by the appropriate Net Investment Factor determined as of
the
7
<PAGE>
closing of the New York Stock Exchange on that day. To determine a Net Invest-
ment Factor, the Fund takes into account (1) the investment income paid or ac-
crued on its assets since the previous determination of such Net Investment
Factor, plus or minus realized and unrealized capital gains or losses during
such period, and (2) deductions for any taxes paid or reserved due to the in-
come and realized and unrealized capital gains on assets of the Fund, other ex-
penses 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 In-
vestment Factor used to determine current Annuity Unit Values for immediate
contracts will differ from the Net Investment Factor used to determine current
Accumulation Unit Values during the Accumulation Period and Annuity Unit Values
during the Annuity Period for deferred contracts. This is because we make dif-
ferent deductions for mortality risk assumptions for each type of contract.
To determine the value of the Fund's assets, each security traded on a na-
tional securities exchange or on the NASDAQ national market system is valued at
the last reported sale price on the principal exchange on a given day. If there
has been no reported sale on that day, then the last reported bid price on that
day is used. Any security traded in the over-the-counter market is valued at
the last reported bid price. Any securities or other assets for which current
market quotations are not readily available are valued at fair value as deter-
mined in good faith by CGM acting under the supervision of the Board of Manag-
ers.
C. ACCUMULATION PERIOD (DEFERRED CONTRACTS)
1. How Accumulation Units are Calculated
During the Accumulation Period, each Net Purchase Payment is credited to your
contract in the form of Accumulation Units. The number of Accumulation Units
credited is equal to the Net Purchase Payment divided by the value of an Accu-
mulation Unit next determined following receipt of the Purchase Payment at our
Designated Office.
2. Contract Value
The value of your contract during the Accumulation Period is determined by
multiplying the total number of Accumulation Units credited to your contract by
the current value of an Accumulation Unit (the "Accumulation Unit Value").
3. Surrender (Redemption) Proceeds
While the Annuitant is living, you may surrender your contract for its value
in cash during the Accumulation Period or apply the value under a fixed or
variable payment option during the Accumulation Period. (See "Annuity Payment
Options Available" and "General Limitations on Options.") Your request for sur-
render must be in writing. We must receive your request at our Designated Of-
fice prior to the Maturity Date or the death of the Annuitant (whichever is
earlier). We normally pay surrender proceeds within seven days, subject to our
right to suspend payments under some circumstances described below. You also
may make a partial surrender or withdrawal in the same manner. We are not re-
quired to permit a partial surrender or withdrawal that would reduce the con-
tract value to less than $200. Further, the Federal tax laws impose penalties
upon, and in some cases prohibit, certain premature distributions from the con-
tracts. (See "Federal Income Tax Status.")
When we receive a request for surrender, we will cancel the number of Accumu-
lation Units necessary to equal the dollar amount of the withdrawal. Surrenders
will be based on Accumulation Unit Values next determined after the surrender
request is received at our Designated Office or, if payment is to be made under
a payment option, at a 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 on dates other than weekends or holidays,
. permitted by the rules of the SEC during periods when trading on the ex-
change is restricted,
. an emergency makes it impracticable for the Fund to dispose of its securi-
ties or to determine the value of its net assets fairly, or
. permitted by the SEC for the protection of investors.
No redemption is permitted in connection with a contract issued pursuant to
the Optional Retirement Program of The University of Texas System prior to the
Annuitant's death, retirement, or termination of employment in all institutions
of higher education.
8
<PAGE>
If contracts are issued in connection with retirement plans, you should refer
to each contract and the terms of the applicable plan or trust regarding limi-
tations or restrictions on surrender for cash or other forms of early settle-
ment. You also should pay careful attention to tax consequences. (See "Federal
Income Tax Status.")
4. Death Proceeds
If the Annuitant or Contractholder dies during the Accumulation Period under
a deferred contract, we will pay to the beneficiary the contract's death pro-
ceeds after we receive due proof of death. Death proceeds are equal to the
greater of (1) all Purchase Payments made, without interest, adjusted for any
partial surrenders, and (2) the value of the contract next determined on the
date when due proof of death is received at our Designated Office or the date
on which you make written election of payment at our Designated Office (which-
ever is later). (See restrictions on payment options imposed by Section 72(s)
of the Code, discussed below.)
Death proceeds are paid in cash or applied to one or more of the fixed or
variable methods of payment available (see "Annuity Payment Options Avail-
able"), depending upon the election made by you during your life (or if appli-
cable, the life of the Annuitant). Such an election, particularly in the case
of contracts issued for tax qualified retirement plans, is subject to any ap-
plicable requirements of Federal tax law. If you have not made such an elec-
tion, payment will be in a single sum, unless the beneficiary elects an annu-
ity payment option within 90 days after we receive due proof of the
Annuitant's or Contractholder's death. Whether and when you make such an elec-
tion could affect when you are deemed to have received the contract's death
proceeds under 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 (1) issued after January 18, 1985
and (2) not for use with various tax qualified retirement plans, must have
limitations on the period during which payments from the contract may be made
upon the death of the Contractholder or Annuitant. Please refer to your con-
tract for a description of these limitations. There are rules comparable to
Section 72(s) that govern the timing of payments after the death of the Annui-
tant for tax-benefited retirement plans. (See discussion under heading "Dis-
tributions from the Contract" on page 18 of this prospectus.)
Deferred contracts subject to the law of Texas issued before May 1, 1978 con-
tain a special death benefit provision. Please refer to such contracts for a
description of this provision.
D. ANNUITY PERIOD (DEFERRED AND IMMEDIATE CONTRACTS)
The Annuity Period for a deferred contract begins 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 a contract is used in connection with tax qualified retirement plans,
please refer to the terms of the particular plan. Such plan will ordinarily
provide for a time when benefits must begin, the period during which such pay-
ments may be made, the payment options that may be selected, and the minimum
annual amounts of such payments.
A. DEFERRED CONTRACTS
When you apply for a deferred contract, ordinarily you select (1) a retire-
ment date (Maturity Date) on which we will begin to make annuity payments and
(2) a form of payment option. (See "Annuity Payment Options Available.") You
may select any of the annuity payment options on a fixed or variable basis, or
a combination of both. You may (within the limits of the retirement plan, if
your contract is issued in connection with such a plan) defer the Maturity
Date or change the annuity payment form at any time before annuity payments
would otherwise have begun. You also may surrender the contract in whole or in
part at any time before or on the Maturity Date.
B. IMMEDIATE CONTRACTS
Under immediate contracts, annuity payments begin on a date mutually agreed
upon by us and you, normally the date that the Purchase Payment is applied to
the contract. Only the Single Life Annuity and Joint Life Annuity Options are
available under these contracts, and only on a variable payment basis (see
"Annuity Payment Options Available"). The purchaser of an immediate contract
may, at any time before 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 obli-
9
<PAGE>
gation for future annuity payments under the contract. Payment of surrender
proceeds is made in the same manner as under deferred contracts. (See "Surren-
der (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 variable annuity contracts by an individual.
Except as described below, the contracts use sex-neutral annuity rates if an-
nuity payments under such contracts began after August 1, 1983. Sex-neutral
annuity rates are the applicable male rates, whether the Payee is male or fe-
male. Sex-distinct annuity rates continue to apply only to contracts for which
annuity payments began prior to August 1, 1983. (See "Variable Payment
Options.")
For contracts issued in New York or Oregon for use in situations not involv-
ing an employer-sponsored plan, we will calculate benefits on a sex-distinct
basis.
3. Fixed and Variable Payment Options
When you select an annuity payment option (see "Annuity Payment Options
Available" below), you also may choose to apply annuity proceeds to a fixed
payment option, a variable payment option or a combination of both. If you do
not select a payment option by the Maturity Date, variable payments will be
made while the Payee is living or for ten years, whichever is longer. (See
"Annuity Payment Options Available" below.)
A. FIXED PAYMENT OPTIONS
Fixed payment options are available only under deferred contracts. We will
transfer all proceeds applied under fixed payment options from the Fund to our
general assets. These proceeds will no longer participate in or be affected by
the investment performance of the Fund.
When the option selected involves a life contingency, the applicable annuity
purchase rates vary depending on the particular annuity payment option se-
lected and on the age of the Payee (and, where sex-neutral annuity rates do
not apply, on the sex of the Payee). Annuity purchase rates are used to calcu-
late the first payment received under a payout option.
B. VARIABLE PAYMENT OPTIONS
When a variable payment option is elected under a deferred contract, the pro-
ceeds (or the selected portion thereof) will be applied at the annuity pur-
chase rates that we currently are using 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 our current variable annuity purchase rates.
As in the case of fixed payment options, when the option selected involves a
life contingency, 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 do not apply, on the sex of the Payee). Under the
variable payment options, however, payments may vary from month to month, de-
pending upon the investment performance of the Fund.
We determine the amount of the basic payment level by applying the appropri-
ate annuity purchase rates to the proceeds used to provide the annuity. The
amount of the initial variable annuity payment is the same as the basic pay-
ment level unless the contract is an immediate contract and the initial pay-
ment is due more than 14 days after the Net Purchase Payment is applied. The
older the Payee, the greater the basic payment level, because the Payee's life
expectancy, and thus the period of anticipated income payments, will be short-
er. Under contracts with sex-distinct purchase rates, a given contract value
will require a higher basic payment for a male Payee than for a female Payee,
reflecting the longer life expectancy of females. If you have selected a pay-
ment option that provides for a refund at death of the Payee or that guaran-
tees that payments will be made for a certain period after the death of the
Payee, the contract value will produce a lower basic payment level.
If you select an assumed interest rate, it 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. Conversely, if the net investment performance is less than the
assumed interest rate, the payments will decrease.
Unless otherwise provided, we will assume an annual interest rate of 3.5%. If
a 3.5% rate would trigger a first
10
<PAGE>
payment that is larger than permitted under applicable state law or regula-
tion, then we will select a lower rate. Subject to our consent, and if permit-
ted under applicable state law, you may elect a different annual assumed in-
terest rate, up to 5%.
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.
We will continue to deduct "expense risk" and "mortality risk" charges from
the Fund's assets after the Maturity Date if we make annuity payments under
any variable payment option, including an option not involving a life contin-
gency and under which we bear no mortality risk. (See "Mortality 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 a definite number of years
selected by you up to 30 years.
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
We pay the proceeds in monthly payments during the life of the Payee. This
form of Single Life Annuity option offers the maximum level of monthly pay-
ments under an option, payable over the entire life of the Payee. UNDER THIS
FORM, IT WOULD BE POSSIBLE TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE PAYEE
SHOULD DIE BEFORE THE DUE DATE OF THE SECOND ANNUITY PAYMENT, TWO ANNUITY
PAYMENTS IF THE PAYEE SHOULD DIE BEFORE THE DUE DATE OF THE THIRD ANNUITY
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 elected.
If the Payee should die prior to the end of that period, annuity payments
will continue during the remainder of the period to the designated beneficia-
ry. You may elect the period to 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 lev-
el.
C. JOINT LIFE ANNUITY
i. With No Period Certain
We pay the proceeds in monthly payments during the joint life of the Payee
and a designated joint Payee, and thereafter during the remaining life 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 BEFORE THE DUE
DATE OF THE SECOND ANNUITY PAYMENT, TWO ANNUITY PAYMENTS IF BOTH SHOULD DIE
BEFORE THE DUE DATE OF THE THIRD ANNUITY PAYMENT, AND SO ON.
ii. With 120 Months Certain
This form of Joint Life Annuity option is similar to the form described un-
der i. above, except that the payments are guaranteed for a period of 120
months. If both the Payee and the joint Payee should die before the end of
the period, annuity payments will be continued for the remainder of the pe-
riod 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 life, 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 BEFORE THE DUE DATE OF THE SECOND ANNUITY PAYMENT,
TWO ANNUITY PAYMENTS IF BOTH SHOULD DIE BEFORE THE DUE DATE OF THE THIRD AN-
NUITY PAYMENT, AND SO ON.
D. OTHER METHODS OF PAYMENT
In addition to the annuity payment options described above, you may selecet
other methods of payment if we agree to the method selected.
11
<PAGE>
5. General Limitations on Options
In order to qualify as annuities under Section 72 of the Code, all contracts
(1) issued after January 18, 1985 and (2) not for use with various tax quali-
fied retirement plans, limit the period over which payments from the contracts
may be made on your death. Comparable rules govern the timing of payments af-
ter the death of the Annuitant in the case of tax-benefited retirement plans.
Please refer to the discussion under "Death Proceeds."
After you receive a payment under an option involving a life contingency, you
may not change to another option unless we agree. Once annuity payments under
such options begin, you cannot surrender the contract for a single sum cash
payment. However, 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 con-
tract for a single cash payment equal to the commuted value (which is calcu-
lated based on the Assumed Interest Rate) of all remaining unpaid payments.
Under variable options which do not involve life contingencies (such as the
Payments for Specified Period option), you may surrender the contract for the
current value in cash of the Accumulation Units standing to its credit. Alter-
natively, if the amounts involved are adequate, they may be applied to any
other payment option. Payment or application of surrender proceeds during the
Annuity Period shall be in accordance with the procedures that apply to sur-
renders during the Accumulation Period. (See "Surrender (Redemption) Pro-
ceeds.") The election of any option, particularly in connection with contracts
issued for tax qualified retirement plans, is subject to Federal tax law re-
quirements, which may restrict your selection of beneficiaries and manner of
payment. We recommend that you consult a qualified tax adviser before electing
any option.
Options shall be available only with our consent if the amount to be applied
is less than $2,000. We may change the frequency of your payments to quarter-
ly, semiannually or annually to bring the amount of each periodic payment to
at least $20.
E. OWNERSHIP RIGHTS UNDER THE CONTRACT
During the Annuitant's lifetime, all rights under the contract belong solely
to you unless otherwise provided. Such rights include the right to
. change the beneficiary
. change the payment option
. assign the contract (subject to limitations)
. exercise all other rights, benefits, options and privileges given by the
contract or allowed by us. Transfer of ownership of your contract from a
"pension 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 considered "pension plans" under ERISA and are subject to rules under the
Retirement Equity Act of 1984. These rules require that benefits from con-
tracts purchased by a pension plan and distributed to or owned by a partici-
pant be provided in accordance with certain spousal consent, present value and
other requirements that are not enumerated in the contract. Thus, the tax con-
sequences of the purchase of the contracts by pension plans should be consid-
ered carefully.
Contracts that are used with tax qualified retirement plans (defined below
under "Retirement Plans Offering Federal Tax Benefits") contain restrictions
on transfer or assignment that must be satisfied in order to assure continued
eligibility for the favorable tax treatment. Such favorable tax treatment is
described below under "Federal Income Tax Status." In accordance with these
requirements, you may not change ownership of such a contract, nor may the
contract be sold, assigned or pledged as collateral for a loan or for any
other purpose except under certain limited circumstances. If you are contem-
plating a sale, assignment or pledge of the contract, you should carefully re-
view the contract's provisions and consult a qualified tax adviser.
If contracts are used in connection with retirement plans that do not qualify
for tax-benefited treatment, such plans also may restrict your exercise of
rights.
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
- -------------------------------------------------------------------------------
A. OBJECTIVE AND POLICIES
The investment objective of the Fund is growth of capital through investment
primarily in equity securities of a diversified group of companies and indus-
tries. We will not change the investment objective in any material way without
approval by a majority of the votes attributable to outstanding contracts.
12
<PAGE>
The Fund invests primarily in seasoned issues that 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 believes 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. We cannot es-
timate when or for how long the Fund may employ such a defensive strategy. Al-
so, as a matter of operational policy, the Fund will hold sufficient amounts
of cash and United States Government or other high-grade liquid securities to
meet current expenses and variable annuity contract obligations. Such assets
also may be held for limited periods pending investment in accordance with the
Fund's investment policies.
Primary emphasis in the selection of issues for the Fund's portfolio is given
to those securities that management believes offer a potential for long-term
appreciation. However, this emphasis does not preclude occasional investment
for short-term appreciation. The Fund's portfolio turnover rate was approxi-
mately 196% in 1996, 209% in 1997 and 195% in 1998. The Fund's portfolio turn-
over rate may vary significantly depending on the volatility of prevailing or
anticipated economic and market conditions. Higher levels of portfolio turn-
over may result in higher brokerage costs to the Fund.
The Fund may change these investment policies without your approval.
There are risks inherent in the ownership of any security. There is no assur-
ance that the Fund will achieve its investment objective. Equity securities
are subject to price declines as well as advances, and the prices of such se-
curities can decline while the cost of living is rising. Fixed income securi-
ties are subject to credit risk (the risk that the obligor will default in the
payment of principal and/or interest) 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 to the risk that management may not antici-
pate such changes and, to the extent consistent with the Fund's investment ob-
jective and policies, may not make appropriate changes in the Fund's portfo-
lio. The Fund and the Company depend on the smooth functioning of computer
systems for both internal operations and overall investment performance. Many
computer systems in use today cannot distinguish between the year 1900 and the
year 2000. If computer systems fail to process information properly relating
to the year 2000, the Fund's and the Company's operations and services could
be harmed and the securities in which the Fund invests may not perform as well
as they otherwise might.
CGM, the Company and certain service providers to the Fund have reported that
each expects to modify its systems, as necessary, prior to January 1, 2000 to
address the so-called "year 2000 problem." However, there can be no assurance
that the problems will be corrected, and Fund or Company operations and serv-
ices provided to Contractholders may be affected. Additionally, there can be
no assurance that improperly functioning computers will not affect specific
issuers or broad markets.
The Fund may invest in repurchase agreements. Under these agreements, the
Fund purchases a security subject to the agreement of the seller to repurchase
the security at an agreed upon price and date. The resale price exceeds 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 sub-
ject of the agreement. Repurchase agreements allow the Fund to earn a return
on temporarily available cash at relatively low market risk. While the under-
lying security may be a bill, certificate of indebtedness, note or bond issued
by an agency, authority or instrumentality of the U.S. Government, the obliga-
tion of the seller is not guaranteed by the U.S. Government. As a result,
there is a risk that the seller may fail to repurchase the underlying securi-
ty. In such event, the Fund will attempt to exercise rights with respect to
the underlying security, including possible sale in the market. However, the
Fund may be subject to various delays and risks of loss, including (1) possi-
ble declines in the value of the underlying security while the Fund seeks to
enforce its rights, (2) possible reduced levels of income and lack of access
to income during this period, and (3) inability to enforce rights and expenses
of attempted enforcement.
B. RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may
not be changed without approval by a majority vote of the Contractholders.
Please refer to the Statement of Additional Information for a description of
13
<PAGE>
other investment restrictions. Some of those restrictions are fundamental pol-
icies that may not be changed without Contractholder approval, while others
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
value) 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, although it may in-
vest up to 25% of its total assets (taken at current value) in a single indus-
try;
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" under Treasury Regulations. If there is a con-
flict between the restrictions listed above and the regulations under Section
817(h), the regulations will control. (See discussion of the Section 817(h)
regulations under "Special Rules for Annuities Used by Individuals or With
Plans and Trusts Not Qualifying Under the Code for Tax-Benefited Treatment,"
below.)
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DEDUCTIONS AND EXPENSES
- -------------------------------------------------------------------------------
A. DEDUCTIONS FROM PURCHASE PAYMENTS FOR SALES AND ADMINISTRATIVE SERVICES AND
PREMIUM TAXES
New England Securities is the principal underwriter for the Fund under a dis-
tribution agreement among the Fund, New England Securities and us. We retain
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. Registered representatives of New England Securities
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 us, we
furnish or bear the expense of all legal, actuarial and accounting services,
office space, facilities and equipment, services of executive and other per-
sonnel and all other administrative services necessary or appropriate to carry
on the various functions of the Fund. We do not bear expenses attributable to
sales activities, which are covered by the distribution agreement. To cover
the cost of providing these services, we retain the deduction for administra-
tive 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"): (1) any taxes paid or
reserved for the income and realized and unrealized capital gains on assets of
the Fund, (2) fees for mortality and expense risks assumed and for investment
advisory services, (3) brokerage commissions and taxes, if any, for the pur-
chase or sale of the Fund's portfolio securities, and (4) 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. We may deduct these taxes from Purchase Payments and cur-
rently do so for contracts issued in South Dakota. Certain states may require
or allow us to pay the premium tax when you elect to begin receiving annuity
benefits, rather than when we receive Purchase Payments. In those states we
may deduct the premium tax on the date when annuity payments begin. The maxi-
mum premium tax currently deducted is 3.5%. In the future, we may deduct pre-
mium taxes if required by state insurance tax law, or the applicable premium
tax rates may change.
Surrender of a contract may result in a credit against our premium tax lia-
bility in some states. If this happens, your surrender proceeds will be in-
creased accordingly.
Premium tax rates may be changed by law, administrative interpretations or
court decisions. Premium tax amounts will depend on, among other things, the
state of residence of the Annuitant and state insurance tax law.
Sales and administrative expenses are deducted from each After-tax Purchase
Payment. The remaining amount is the Net Purchase Payment. We expect that the
deductions for sales expenses will cover sales expenses over the life of the
contracts. Any sales expenses not covered by the deduction for sales expenses,
will be recovered from our general account, including any income derived from
the mortality and expense risk deductions (see "Mortality and Expense Risks
and Deductions").
14
<PAGE>
Deductions from each After-tax Purchase Payment for sales and administrative
expenses are set out in the table 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>
- --------------------------------------------------------------------------------
Under contracts sold to the following persons, purchase payments will be sub-
ject to the usual deductions for administrative expenses and premium taxes, if
any, but will not be subject to any deductions for sales expenses:
. certain present and retired employees and certain current and former
directors and trustees (including members of the Board of Managers of the
Fund) of New England Mutual and NELICO and mutual funds sponsored by NELICO
. current and retired agents and general agents of New England Mutual 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
. any retirement plan or trust for the benefit of the persons listed above.
B. DEDUCTIONS FROM FUND ASSETS
1. Investment Advisory Services and Deductions
Capital Growth Management Limited Partnership ("CGM"), One International
Place, Boston, Massachusetts 02110, is the investment adviser to the Fund un-
der an advisory agreement dated August 30, 1996. The agreement 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 a fee at the annual rate of .3066% of the average
daily 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
We assume the "expense risk" and the "mortality risk" under the contracts,
for which we receive deductions from Fund assets.
The "expense risk" is the risk that the deductions for sales and administra-
tive expenses, and the deductions for investment advisory services, may be in-
sufficient to cover the actual cost of such items.
The "mortality risk" has two elements: (1) a "life annuity mortality risk"
and, in the case of deferred contracts, (2) a "minimum death refund risk."
Under the "life annuity mortality risk," we agree to make annuity payments
under options involving life con-
15
<PAGE>
tingencies 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, we also assume 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, we make the following daily deductions from the
Fund's net assets:
(1) For deferred contracts: .00260% (.9490% on an annual basis consisting of
.8395% for mortality risk assumptions and .1095% for expense risk
assumptions).
(2) 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 your
contract.
C. TOTAL EXPENSES
For the year ended December 31, 1998, the Fund's total expenses equalled
1.34% of its average net assets.
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RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS
- -------------------------------------------------------------------------------
The Federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans, which may be funded through the purchase of the
contracts, include:
1. Plans qualified under Section 401(a), 401(k) or 403(a) of the Code
("Qualified Plans");
2. Annuity purchase plans adopted by public school systems and certain tax-
exempt organizations pursuant to Section 403(b) of the Code ("TSA
Plans");
3. Individual retirement accounts adopted by or on behalf of individuals
pursuant to Section 408(a) of the Code and individual retirement
annuities purchased pursuant to Section 408(b) of the Code (both of which
may be referred to as "IRAs"), including simplified employee pension
plans and salary reduction simplified employee pension plans, 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").
You should consult a qualified tax adviser regarding (1) the suitability of
the contracts as a funding vehicle for tax qualified retirement plans, (2) the
rules underlying such plans, and (3) 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 is presented below under
the heading "Special Rules for Annuities Purchased for Annuitants under Re-
tirement Plans Qualifying for Tax-Benefited Treatment." If a tax-benefited re-
tirement plan lost its qualification for tax-exempt status, employees would
lose some of the tax benefits described here.
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 contracts com-
prise the retirement "plan" itself. These contracts will be endorsed, if nec-
essary, to comply with Federal and state legislation governing such plans, and
such endorsements may alter certain contract provisions. Please refer to the
contracts and any endorsements for more complete information.
- -------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS
- -------------------------------------------------------------------------------
This discussion is 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
We are taxed as a life insurance company under the Code. The Fund and its op-
erations are part of our total operations and are not taxed separately. Under
current law, no taxes are payable on the investment income and capital
16
<PAGE>
gains of the Fund. Such income and gains are retained in the Fund and will not
be taxable until the Annuitant or the Annuitant's beneficiary receives annuity
payments or other distributions.
If the law changes so that the assets, investment income or capital gains of
the Fund are subject to taxes, the contracts provide that we may make an ap-
propriate charge or reserve against the assets of the Fund for such taxes.
B. TAXATION OF THE CONTRACTS
The contracts are considered annuity contracts taxed under Section 72 of the
Code. Generally Section 72 provides that you are not taxed on increases in the
value of the contracts until the Annuitant or beneficiary receives annuity
payments. (Exceptions to this rule are discussed below under "Special Rules
for Annuities Used by Individuals or with Plans and Trusts Not Qualifying Un-
der the Code for Tax-Benefited Treatment.")
Under Section 72, to the extent there is an "investment" in an annuity con-
tract, a portion of each annuity payment is excluded from gross income as a
return of such investment. The balance of each annuity payment is includible
in gross income and taxable as ordinary income. In general, contributions made
to an annuity contract that are deductible by the contributor and earnings on
all contributions to the annuity contract will not constitute an "investment"
in the annuity contract under Section 72.
1. Special Rules for Annuities Purchased for Annuitants Under Tax Qualified
Retirement Plans
Below is a summary of the Federal tax laws applicable to contributions to,
and distributions from, retirement plans that qualify for Federal tax bene-
fits. Such plans are defined above under the heading "Retirement Plans Offer-
ing Federal Tax Benefits." The following summary does not include everything
you need to know regarding such tax laws. The Code provisions and the rules
and regulations under the Code regarding retirement trusts and plans, the doc-
uments that must be prepared and executed, and the requirements that must be
met to obtain favorable tax treatment are very complex. If you are thinking
about purchasing a contract for use with a tax qualified retirement plan, you
should consult a qualified tax adviser regarding applicable Federal and state
tax aspects of the contracts and, if applicable, the suitability of the con-
tracts as investments under ERISA.
A. PLAN CONTRIBUTION LIMITATIONS
i. Qualified Plans, SEPs, SARSEPs and Governmental Plans
The law may limit the amount of money you may contribute to Qualified Plans,
SEPs, SARSEPs and Governmental Plans 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 cur-
rently taxable to the Annuitants for whom the contracts are purchased. The
contributions to the contract and any increase in contract value attributable
to such contributions are not taxed 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 in-
cluded in the Annuitant's income to the extent such Purchase Payments do not
exceed the lesser of $10,000 or the "exclusion allowance." The exclusion al-
lowance is a calculation that 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 assist the Annuitant in calculating the ex-
clusion 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
distributions are made from the contract.
iii. IRAs
The maximum tax deductible purchase payment that may be contributed each
year to an IRA is the lesser of $2,000 or 100% of includible compensation if
the taxpayer is not covered under an employer plan. A spousal IRA is avail-
able 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 be-
low age 70 1/2. In the case of a spousal IRA, the maximum tax deductible pur-
chase payment that may be deducted with respect to the non-working spouse is
$2,000 for tax years beginning January 1, 1997. If covered under an employer
plan, taxpayers are permitted to make deductible pur-
17
<PAGE>
chase payments; however, for 1998 the deductions are phased out and eventu-
ally eliminated for taxpayers with an adjusted gross income between $30,000
and $40,000 for an individual, between $50,000 and $60,000 for a married cou-
ple filing jointly and between $0 and $10,000 for a married person filing
separately. A taxpayer may also make nondeductible purchase payments. Howev-
er, the total of deductible and nondeductible purchase payments may not ex-
ceed the limits described above for deductible payments. For more information
concerning contributions to IRAs, you should obtain a copy of IRS Publication
590 on Individual 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 deferred (including earnings
on deferred amounts) are includible in gross income only in the tax year in
which such amounts are paid or made available to the employee or executive or
his/her beneficiary. Once contributed to the plan, any contracts purchased
with 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 any voting and redemption rights
that may accrue to the contract(s) issued under the plan. This rule does not
apply, however, to amounts deferred under a plan maintained by a state or lo-
cal government. Such amounts must be held for the exclusive benefit of the
employee or his/her beneficiary in a trust, custodial account or annuity con-
tract. Under a transitional rule, a plan in existence before August 20, 1996
had until January 1, 1999 to comply with this requirement.
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 of 20%. You
can avoid withholding by arranging a direct transfer of the eligible rollover
distribution to a Qualified Plan, TSA or IRA. After December 31, 1998, permis-
sible hardship withdrawals from TSA and 401(k) Plans will no longer be treated
as "eligible rollover distributions."
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 also be in-
cluded in income in the year of receipt subject to restrictions and penalties
discussed below. 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 (1) to distributions of excess contributions or deferrals; (2)
to distributions made on account of the Annuitant's death, retirement, dis-
ability or early retirement at or after age 55; (3) when distribution from
the contract is in the form of an annuity over the life or life expectancy of
the Annuitant (or joint lives or life expectancies of the Annuitant and his
or her beneficiary); or (4) when distribution is made pursuant to a qualified
domestic relations order. In the case of IRAs, the exceptions for distribu-
tions on account of early retirement at or after age 55 or made pursuant to a
qualified domestic relations order do not apply.
If the Annuitant dies before distributions begin, distributions must be com-
pleted within five years after death, unless payments begin within one year
after death and are made over the life (or life expectancy) of the beneficia-
ry. If the Annuitant's spouse is the beneficiary, distributions need not be-
gin until the Annuitant would have reached age 70 1/2. If the Annuitant dies
after annuity payments have begun, payments must continue to be made at least
as frequently 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 the account holder attaining age 59 1/2, termination of em-
ployment, death or disability. Contributions (but not earnings) made after
December 31, 1988 may however 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 circum-
stances under which transfers to other
18
<PAGE>
investments that qualify for tax-free treatment under Section 403(b) of the
Code may be made.
Annuity payments, periodic payments or annual distributions must begin 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 that should be distributed may be imposed by
the Internal Revenue Service for failure to distribute the required minimum
amount.
ii. Section 457 Plans
When the Annuitant receives a distribution under a contract held under a
Section 457 Plan, such amounts are taxed as ordinary income in the year re-
ceived. The plan must not permit distributions prior to the Annuitant's sepa-
ration from service (except in the case of unforeseen emergency). In addi-
tion, a distribution from a state or local government plan before age 59 1/2
may be subject to an additional penalty tax of 10% of the amount included in
income, unless the Annuitant is otherwise exempt.
Generally, annuity payments, periodic payments or annual distributions must
begin by April 1 of the calendar year following the year in which the Annui-
tant 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 that should be distributed may be imposed by
the Internal Revenue Service for failure to distribute the required minimum
amount. If the Annuitant dies before distributions begin, the same special
distribution rules generally apply in the case of Section 457 Plans as in the
case of Qualified Plans, TSA Plans, IRAs, SEPs, SARSEPs and Governmental
Plans. These rules are discussed above in the immediately preceding section
of this prospectus. An exception to these rules provides that if the benefi-
ciary is other than the Annuitant's spouse, distribution must be completed
within 15 years of death, regardless of the beneficiary's life expectancy.
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 received as annuity payments or as a full
or partial lump sum.
Under Section 72(u) of the Code, however, contracts not held by a natural
person (i.e., those held by a corporation or certain trusts) generally are not
treated as an annuity contract for Federal tax purposes. As a result, an annu-
ity contractholder who is not a natural person must include in income any in-
crease 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" under Treasury Regulations. Failure to do so means that
the contracts would cease to qualify as annuities for Federal tax purposes.
Regulations specifying the diversification requirements have been issued by
the Department of Treasury, and we believe that the Fund complies fully with
these requirements.
Any amount received by 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 10% penalty tax on amounts received under a contract
that are includible in gross income. The penalty tax will not apply to any
amount received under the contract:
. after you have attained age 59 1/2,
. after your death,
. after you have become totally and permanently disabled,
. as one of a series of substantially equal periodic payments made for your
life (or life expectancy) or the joint lives (or life expectancies) of you
and a beneficiary,
. if the contract is purchased under certain types of retirement plans or
arrangements,
. that is allocable to investments in the contract before August 14, 1982, or
. 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
19
<PAGE>
issued by us or our affiliates to the same Contractholder within a calendar
year will be treated as one contract.
3. Tax Withholding
The Code and the laws of some states require tax withholding on distributions
made under annuity contracts, unless the recipient has elected not to have any
amount withheld. We give recipients an opportunity to tell us whether taxes
should be withheld.
- -------------------------------------------------------------------------------
VOTING RIGHTS
- -------------------------------------------------------------------------------
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.
All Contractholders have the right to vote at any meeting of Contractholders,
and the number of votes each Contractholder may cast is determined by refer-
ence to the record date, which is chosen by the Board of Managers and which
must be within 90 days before the date of the meeting. Each Contractholder may
cast (1) on a contract in the Accumulation Period, a number of votes equal to
the number of Accumulation Units credited to the contract and (2), on a con-
tract in the Annuity Period, a number of votes equal to (a) the amount of as-
sets established in the Fund to meet the obligation for future payments under
variable options elected under the contract divided by (b) the value of an Ac-
cumulation Unit. The number of votes attributable to a contract during the An-
nuity Period will tend to decrease over time.
Although you have the sole right to cast all votes attributable to the con-
tract, during the Accumulation Period or the Annuity Period, an Annuitant or
other Payee may have the right to instruct Contractholders how to vote certain
shares associated with the rights or obligations of the Annuitant or other
Payee. Each Annuitant or other Payee, if any, who has the right to instruct a
Contractholder 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 applies. The Fund will provide all notices and proxy materials to the
Contractholders in sufficient number for distribution to all such Annuitants
and other Payees.
20
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECIAL TERMS USED IN THIS PROSPECTUS..................................... 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. How Accumulation Units are Calculated............................... 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
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
E. Ownership Rights Under the Contract.................................... 12
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS........................... 12
A. Objective and Policies................................................. 12
B. Restrictions........................................................... 13
DEDUCTIONS AND EXPENSES................................................... 14
A. Deductions from Purchase Payments for Sales and Administrative Services
and Premium Taxes...................................................... 14
B. Deductions from Fund Assets............................................ 15
1. Investment Advisory Services and Deductions......................... 15
2. Mortality and Expense Risks and Deductions.......................... 15
C. Total Expenses......................................................... 16
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ 16
FEDERAL INCOME TAX STATUS................................................. 16
A. Tax Status of the Company and the Fund................................. 16
B. Taxation of the Contracts.............................................. 17
1. Special Rules for Annuities Purchased for Annuitants Under Tax
Qualified Retirement Plans ......................................... 17
2. Special Rules for Annuities Used by Individuals or With Plans and
Trusts Not Qualifying Under the Code for Tax-Benefited Treatment.... 19
3. Tax Withholding..................................................... 20
VOTING RIGHTS............................................................. 20
</TABLE>
21
<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-13
</TABLE>
---------------------------------------
If you would like to obtain a copy of the Statement of Additional
Information of the Fund, please complete the request form below and mail it
to:
New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Please send a copy of the Statement of Additional
Information of New England Variable Annuity Fund I to:
------------------------------------------------------------------
------------------------------------------------------
Name
------------------------------------------------------
Street
------------------------------------------------------
City State Zip
------------------------------------------------------------------
22
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
---------------------------------------------------
Issued by
METROPOLITAN LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
(PART B)
APRIL 30, 1999
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated April 30, 1999 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.
VA-143SAI-99
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-13
</TABLE>
II-2
<PAGE>
HISTORY
New England Variable Annuity Fund I (the "Fund") is a separate account of
Metropolitan Life Insurance Company ("MetLife" or the "Company"). The Fund was
originally a separate account of New England Mutual Life Insurance Company
("New England Mutual"), and became a separate account of the Company when New
England Mutual 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, (61).
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, (59).
791 Main Street, Warren, RI 02885.
Retired; formerly, Vice Chairman, Chief Financial Officer, Fleet Financial
Group, 1990-1993.
ANNE M. GOGGIN*, Manager, (50).
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,
1993-1999. Formerly, Vice President and Counsel, New England Mutual, 1994-
1996.
NANCY HAWTHORNE, Manager, (48).
60 Hyslop Road, Brookline, MA 02146.
Formerly, Chief Executive Officer and Managing Partner, Hawthorne, Krauss &
Associates; Executive Vice President, Enterprise Transformation Media One;
and Senior Vice President and Chief Financial Officer, Continental
Cablevision, Inc. Director, Perini Corporation, Director, Avid Technologies
and CGV (property and casualty insurance company).
JOSEPH M. HINCHEY, Manager, (74).
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, (78).
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, Inc.
JOHN T. LUDES, Manager, (62).
American Brands, 1700 E. Putnam Avenue, Old Greenwich, CT 06870.
Vice Chairman, American Brands, formerly President & Chief Operating Officer
American Brands 1995-1998; President and CEO, Acushnet Company 1982-1995.
DALE ROGERS MARSHALL, Manager, (62).
Wheaton College, 26 East Main Street, Norton, MA 02766.
President, Wheaton College; formerly, Academic Dean, Wellesley College.
MARIE C. SWIFT, Secretary, (45).
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, New
England Mutual, until 1996.
FREDERICK K. ZIMMERMANN*, Manager and Chairman, (47).
NELICO, 501 Boylston Street, Boston, MA 02117.
Executive Vice President and Chief Investment Officer, NELICO, since 1996;
Chairman of the Board and President, New England Investment Management, 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) of New England Mutual.
- -------
*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 Zimmermann 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 and
Ludes), 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, 1998, 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, 1998, 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 1998 FUND IN 1998
--------------- ---------------------- ------------------
<S> <C> <C>
John J. Arena........................ $1,502 $39,498
John W. Flynn........................ 1,220 31,280
Nancy Hawthorne...................... 1,386 33,614
Joseph M. Hinchey.................... 1,464 37,536
Robert B. Kittredge.................. 1,386 70,614(a)
John T. Ludes........................ 1,220 31,280
Laurens MacLure(b)................... 1,073 60,094(a)
Dale Rogers Marshall................. 1,220 31,280
</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 July 31, 1998.
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 a fee at the annual rate of .3066% of the average daily 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, 1996, 1997 and 1998 the Fund paid
CGM advisory fees of $189,501, $221,842 and $232,028.
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 1996, 1997 and 1998 this deduction
amounted to $6,484, $5,779 and $4,036, 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 New England Mutual 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 1996, 1997 and 1998, these deductions amounted
to $17,197, $15,471 and $10,811, 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 1998, brokerage transactions for the Fund aggregating $254,473,559 were
allocated to brokers providing research services and $272,778 in commissions
were paid on these transactions. During 1996, 1997 and 1998 the Fund paid
total brokerage fees of $275,771, $249,359 and $287,278, 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
1996, 1997 and 1998 New England Mutual 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 $14,426, $16,159 and
$9,087, 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, 1998.
<TABLE>
<CAPTION>
PERCENT CHANGE IN UNIT VALUE
- ----------------------------
<S> <C>
27 years, 9 months ended December 31, 1998............................ +2,714.8%
20 years ended December 31, 1998...................................... +2,659.7%
15 years ended December 31, 1998...................................... +726.0%
10 years ended December 31, 1998...................................... +382.9%
5 years ended December 31, 1998....................................... +153.5%
1 year ended December 31, 1998........................................ +32.7%
</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
December 31, 1998..................................... 32.575691 +32.7
</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, reflects 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 after the New York
Stock Exchange closes on each day on which the 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 deductions from net assets at the following rates 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 of
Metropolitan Life Insurance Company ("MetLife") included in this Statement of
Additional Information and the information in the Prospectus concerning
selected per unit data and ratios have been audited by Deloitte & Touche, LLP,
independent accountants, as stated in their reports appearing herein (whose
reports express unqualified opinions and, with respect to MetLife, includes an
explanatory paragraph referring to a change in the basis of accounting), and
have been so included in reliance upon such reports of such firm given upon
their authority as experts in auditing and accounting.
II-12
<PAGE>
REPORT OF INDEPENDENT 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, 1998, and the related statements of
operations, changes in net assets, and selected per unit data and ratios for
the two 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 selected per unit data and ratios for
each of the three 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 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 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, 1998, 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 audits provide 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, 1998, the
results of its operations, the changes in its net assets, and selected per unit
data and ratios for the two years then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1999
II-13
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments at value (average cost $61,638,694) (Note 2)......... $79,824,366
Receivable from the insurance company............................ 1,029,968
Receivable for investments sold.................................. 168,245
Dividends and interest receivable................................ 78,847
-----------
Total assets.................................................. 81,101,426
-----------
LIABILITIES
Payable for investment purchased................................. 353,212
Payable for investment advisory fees (Note 4).................... 19,965
Payable for mortality and expense risks (Note 5)................. 63,735
Payable for other direct expenses (Note 4)....................... 57,439
Payable to bank.................................................. 877,135
-----------
Total liabilities............................................. 1,371,486
-----------
NET ASSETS........................................................ $79,729,940
===========
Net assets attributable to variable annuity contractholders
2,219,809 accumulation units at $32.58 per unit.................. $72,311,835
Annuity reserves (Note 2)......................................... 7,418,105
-----------
$79,729,940
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
INCOME
Dividends (net of foreign taxes of $152,412)..................... $ 1,283,990
Interest......................................................... 40,480
Other income..................................................... 415
-----------
Total income................................................... 1,324,885
-----------
EXPENSES
Mortality and expense risks (Notes 2 and 5)...................... 714,577
Investment advisory fee (Note 4)................................. 232,028
Other direct expenses (Note 4)................................... 60,309
-----------
Total expenses................................................. 1,006,914
-----------
NET INVESTMENT INCOME............................................. 317,971
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 3)
Net realized gain from investments sold.......................... 11,255,524
Net change in unrealized appreciation of investments............. 10,036,280
-----------
Net gain on investments........................................ 21,291,804
-----------
Increase in net assets resulting from operations................... $21,609,775
===========
</TABLE>
II-14
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the years ended
December 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss)....................... $ 317,971 $ (66,183)
Realized net gain from investments sold............ 11,255,524 20,352,502
Change in unrealized appreciation of investments... 10,036,280 (6,048,337)
------------ -----------
Increase in net assets resulting from operations... 21,609,775 14,237,982
------------ -----------
CHANGES FROM PRINCIPAL TRANSACTIONS
Purchase payments, less sales and administrative
expenses and applicable premium taxes (Note 4).... 320,036 244,397
Contract terminations.............................. (13,539,514) (7,408,980)
Annuity payments................................... (785,818) (742,854)
Adjustments to annuity reserves (Note 2)........... 298,268 213,936
------------ -----------
Decrease in net assets resulting from principal
transactions...................................... (13,707,028) (7,693,501)
------------ -----------
Total increase in net assets....................... 7,902,747 6,544,481
NET ASSETS
Beginning of year.................................. 71,827,193 65,282,712
------------ -----------
End of year........................................ $ 79,729,940 $71,827,193
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-15
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
SUPPLEMENTARY INFORMATION--
Selected Per Unit Data and Ratios
Selected data for an accumulation unit outstanding throughout each year and
ratios are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of year...... $24.55 $20.08 $16.52 $11.90 $12.85
--------- --------- --------- --------- ---------
Per unit data
Investment income...... .50 .29 .28 .24 .29
Expenses............... (.38) (.32) (.24) (.19) (.16)
--------- --------- --------- --------- ---------
Net investment income
(loss)................ .12 (.03) .04 .05 .13
Net realized and
unrealized gain (loss)
on investments........ 7.91 4.50 3.52 4.57 (1.08)
--------- --------- --------- --------- ---------
Net increase (decrease)
in net asset value.... 8.03 4.47 3.56 4.62 (.95)
--------- --------- --------- --------- ---------
Net Asset Value, end of
year.................. $32.58 $24.55 $20.08 $16.52 $11.90
========= ========= ========= ========= =========
Total Return (%)........ 32.7 22.3 21.5 38.9 (7.4)
Ratios
Ratio of operating
expenses to average
net assets (%)........ 1.34 1.35 1.34 1.35 1.26
Ratio of net investment
income to average
net assets (%)........ .44 (.09) .22 .34 1.06
Portfolio turnover (%).. 195.15 209.18 196.25 228.26 139.43
Number of accumulation
units outstanding
at end of year......... 2,219,809 2,694,327 3,012,611 3,399,132 4,038,331
</TABLE>
II-16
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations
New England Variable Annuity Fund I (the "Fund") is registered under the
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 1983-a Mortality Tables. The assumed interest
rate may be 0%, 3.5% or 5% as elected by the annuitant and as regulated by
the laws of the respective states. Adjustments to annuity reserves are
reimbursed to or from the Insurance Company. For contracts payable on or
after January 1, 1998 annuity reserves will be computed according to the
Annuity 2000 Mortality Tables.
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.
II-17
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- Continued
3. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments (other
than short-term securities) for the year ended December 31, 1998 were
$145,557,656 and $159,272,251, respectively. Gains and losses from sales of
investments are computed on the basis of average cost.
4. Advisory and Service Fees With Affiliates
During the year ended December 31, 1998, the Fund incurred investment
management fees of $232,028, 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, 1998,
amounted to $10,811 and $4,036, respectively, were retained by the Insurance
Company.
Effective January 1, 1995, the audit and managers fees have been borne by the
Fund. A charge is deducted daily against the Fund based on estimated audit and
manager fees. This daily charge is reviewed on a quarterly basis and adjusted
as necessary. Any excess or deficiency in the daily charge relative to
incurred expenses is applied to future periods in the quarterly review. For
the year ended December 31, 1998 the charges to the Fund amounted to $60,309
and actual fees of $39,569 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 1998, the mortality and expense risk
charges totaled $714,577.
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.
II-18
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- Continued
6. Related Parties
Two members of the Board of Managers of the Fund are officers of New England
Life Insurance Company. Both members are affiliated with the principal
underwriter, one as an officer and one as a director.
7. Increase (Decrease) in Accumulation Units
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Units purchased.......................................... 14,318 10,269
Units redeemed........................................... (488,836) (328,553)
--------- ---------
Net decrease............................................ (474,518) (318,284)
Units at beginning of period.............................. 2,694,327 3,012,611
--------- ---------
Units at end of period.................................... 2,219,809 2,694,327
========= =========
</TABLE>
II-19
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
COMMON STOCKS--99.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ -----------
<C> <S> <C>
AUTO & RELATED--5.3%
267,000 Volkswagen AG........................................... $ 4,205,250
-----------
BANKS--MONEY CENTER--6.5%
76,500 Chase Manhattan Corp. .................................. 5,206,781
-----------
BANKS--REGIONAL--17.3%
109,500 Bank New York, Inc. .................................... 4,407,375
60,000 BankAmerica Corp. ...................................... 3,607,500
15,000 First Union Corp. ...................................... 912,188
52,000 Firstar Corp. .......................................... 4,849,000
-----------
13,776,063
-----------
BEVERAGES & TOBACCO--11.6%
62,500 Anheuser-Busch Cos, Inc. ............................... 4,101,563
96,000 Philip Morris Companies, Inc. .......................... 5,136,000
-----------
9,237,563
-----------
COMPUTER SOFTWARE & SERVICES--1.9%
23,000 Computer Sciences Corp.*................................ 1,482,062
-----------
ELECTRONIC & COMMUNICATION EQUIPMENT--8.5%
56,300 Nokia Corp. ............................................ 6,780,631
-----------
ELECTRONIC COMPONENTS--14.7%
37,000 Intel Corp. ............................................ 4,386,813
71,000 Micron Technology, Inc.*................................ 3,589,937
44,000 Texas Instruments, Inc. ................................ 3,764,750
-----------
11,741,500
-----------
FREIGHT TRANSPORTATION--4.4%
103,000 Burlington Northern Santa Fe Corp. ..................... 3,476,250
-----------
INSURANCE--13.3%
49,000 American General Corp. ................................. 3,822,000
37,125 American International Group, Inc. ..................... 3,587,203
22,000 Jefferson Pilot Corp. .................................. 1,650,000
26,000 UNUM Corp. ............................................. 1,517,750
-----------
10,576,953
-----------
MICROCOMPUTERS--3.1%
29,000 Sun Microsystems, Inc.*................................. 2,483,125
-----------
OFFICE EQUIPMENT & SUPPLIES--5.5%
24,000 International Business Machines......................... 4,434,000
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-20
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS -- Continued
COMMON STOCKS -- CONTINUED
<TABLE>
<CAPTION>
Value
Shares (Note 2)
------ -----------
<C> <S> <C>
RETAIL--7.0%
69,000 Wal-Mart Stores, Inc. ................................. $ 5,619,188
-----------
TOTAL COMMON STOCKS
(average cost $60,833,694)............................. 79,019,366
-----------
CORPORATE SHORT-TERM NOTES--1.0% OF TOTAL NET ASSETS
<CAPTION>
Face
Amount
------
<C> <S> <C>
$805,000 American Express Credit Corp., 4.85% due 1/4/99........ 805,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(average cost $805,000)................................ 805,000
-----------
TOTAL INVESTMENTS--100.1%
(average cost $61,638,694)............................. 79,824,366
-----------
Other liabilities in excess of other assets--(0.1%).... (94,426)
-----------
TOTAL NET ASSETS--100% $79,729,940
===========
*Non-income producing security.
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-21
<PAGE>
Metropolitan Life Insurance Company
Consolidated Financial Statements
as of December 31, 1998 and 1997 and for the
Years Ended December 31, 1998, 1997 and 1996
and
Independent Auditors' Report
<PAGE>
Independent Auditors' Report
The Board of Directors and Policyholders of
Metropolitan Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Metropolitan
Life Insurance Company and subsidiaries (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of income, equity and
cash flows for each of the three years in the period ended December 31, 1998.
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 Metropolitan
Life Insurance Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1997 the
Company changed the method of accounting for investment income on certain
structured securities.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1999
2
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums............................................... $11,503 $11,278 $11,345
Universal life and investment-type product policy fees. 1,360 1,418 1,243
Net investment income.................................. 10,228 9,491 8,978
Other revenues......................................... 1,965 1,491 1,246
Net realized investment gains.......................... 2,021 787 231
------- ------- -------
27,077 24,465 23,043
------- ------- -------
EXPENSES
Policyholder benefits and claims....................... 12,488 12,234 12,286
Interest credited to policyholder account balances..... 2,731 2,884 2,868
Policyholder dividends................................. 1,653 1,742 1,728
Other expenses......................................... 8,118 5,934 4,755
------- ------- -------
24,990 22,794 21,637
------- ------- -------
Income before provision for income taxes, discontinued
operations and extraordinary item..................... 2,087 1,671 1,406
Provision for income taxes............................. 740 468 482
------- ------- -------
Income before discontinued operations and extraordinary
item.................................................. 1,347 1,203 924
Loss from discontinued operations...................... -- -- 71
------- ------- -------
Income before extraordinary item....................... 1,347 1,203 853
Extraordinary item--demutualization expense............ 4 -- --
------- ------- -------
Net income............................................. $ 1,343 $ 1,203 $ 853
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997 (In millions)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value......... $100,767 $ 92,630
Equity securities, at fair value........................... 2,340 4,250
Mortgage loans on real estate.............................. 16,827 20,193
Real estate and real estate joint ventures................. 6,287 7,080
Policy loans............................................... 5,600 5,846
Other limited partnership interests........................ 964 855
Short-term investments..................................... 1,369 679
Other invested assets...................................... 1,567 4,456
-------- --------
135,721 135,989
Cash and cash equivalents.................................... 3,301 2,911
Accrued investment income.................................... 1,994 1,860
Premiums and other receivables............................... 5,972 3,319
Deferred policy acquisition costs............................ 6,560 6,436
Other........................................................ 3,448 3,641
Separate account assets...................................... 58,350 48,620
-------- --------
$215,346 $202,776
======== ========
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits....................................... $ 72,701 $ 73,848
Policyholder account balances................................ 46,494 48,543
Other policyholder funds..................................... 4,061 3,998
Policyholder dividends payable............................... 947 969
Short-term debt.............................................. 3,585 4,587
Long-term debt............................................... 2,903 2,884
Income taxes payable, current and deferred................... 948 952
Other........................................................ 10,772 4,650
Separate account liabilities................................. 58,068 48,338
-------- --------
200,479 188,769
-------- --------
Commitments and contingencies (Note 9)
Equity:
Retained earnings............................................ 13,483 12,140
Accumulated other comprehensive income....................... 1,384 1,867
-------- --------
14,867 14,007
-------- --------
$215,346 $202,776
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income
----------------------------------------------
Net Foreign Minimum
Unrealized Currency Pension
Comprehensive Retained Investment Translation Liability
Total Income Earnings Gains Adjustment Adjustment
------- ------------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $11,754 $10,084 $ 1,646 $ 24 $ --
Comprehensive income:
Net income............. 853 $ 853 853
------
Other comprehensive
loss:
Unrealized investment
losses, net of
related offsets,
reclassification
adjustments and
income taxes........ (618) (618)
Foreign currency
translation
adjustments......... (6) (6)
------
Other comprehensive
loss.................. (624) (624)
------
Comprehensive income. $ 229
------- ====== ------- ------------- ------------ ------------
Balance at December 31,
1996................... 11,983 10,937 1,028 18 --
Comprehensive income:
Net income............. 1,203 $1,203 1,203
------
Other comprehensive
income:
Unrealized investment
gains, net of
related offsets,
reclassification
adjustments and
income taxes........ 870 870
Foreign currency
translation
adjustments......... (49) (49)
------
Other comprehensive
income................ 821 821
------
Comprehensive income. $2,024
------- ====== ------- ------------- ------------ ------------
Balance at December 31,
1997................... 14,007 12,140 1,898 (31) --
Comprehensive income:
Net income............. 1,343 $1,343 1,343
Other comprehensive
loss:
Unrealized investment
losses, net of
related offsets,
reclassification
adjustments and
income taxes........ (358) (358)
Foreign currency
translation
adjustments......... (113) (113)
Minimum pension
liability
adjustment.......... (12) (12)
------
Other comprehensive
loss.................. (483) (483)
-------
------
Comprehensive income. $ 860
------- ------- ------------- ------------ ------------
======
Balance at December 31,
1998................... $14,867 $13,483 $ 1,540 $ (144) $ (12)
======= ======= ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Metropolitan Life Insurance Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income....................................... $ 1,343 $ 1,203 $ 853
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expenses....... 56 (36) (18)
Gains from sales of investments and
businesses, net............................. (2,629) (1,018) (428)
Change in undistributed income of real estate
joint ventures and other limited partnership
interests................................... (91) 157 (45)
Interest credited to policyholder account
balances.................................... 2,731 2,884 2,868
Universal life and investment-type product
policy fees................................. (1,360) (1,418) (1,243)
Change in accrued investment income.......... (181) (215) 350
Change in premiums and other receivables..... (2,681) (792) (125)
Change in deferred policy acquisition costs,
net......................................... (188) (159) (391)
Change in insurance related liabilities...... 1,493 2,364 2,349
Change in income taxes payable............... 211 (99) (134)
Change in other liabilities.................. 2,390 (206) 902
Other, net................................... (253) 207 (1,250)
-------- -------- --------
Net cash provided by operating activities........ 841 2,872 3,688
-------- -------- --------
Cash flows from investing activities
Sales, maturities and repayments of:
Fixed maturities............................. 57,857 75,346 76,117
Equity securities............................ 3,085 1,821 2,069
Mortgage loans on real estate................ 2,296 2,784 2,380
Real estate and real estate joint ventures... 1,122 2,046 2,358
Other limited partnership interests.......... 146 166 178
Purchases of:
Fixed maturities............................. (67,543) (76,603) (76,225)
Equity securities............................ (854) (2,121) (2,742)
Mortgage loans on real estate................ (2,610) (4,119) (4,225)
Real estate and real estate joint ventures... (423) (624) (989)
Other limited partnership interests.......... (723) (338) (307)
Net change in short-term investments........... (761) 63 1,028
Net change in policy loans..................... 133 17 (128)
Proceeds from sales of businesses.............. 7,372 274 --
Net change in investment collateral............ 3,769 -- --
Other, net..................................... (183) (378) (438)
-------- -------- --------
Net cash provided by (used in) investing
activities...................................... 2,683 (1,666) (924)
-------- -------- --------
Cash flows from financing activities
Policyholder account balances:
Deposits..................................... $ 19,361 $ 16,061 $ 17,167
Withdrawals.................................. (21,706) (18,831) (19,321)
Short-term debt, net........................... (1,001) 1,265 69
Long-term debt issued.......................... 693 989 --
Long-term debt repaid.......................... (481) (104) (284)
-------- -------- --------
Net cash used in financing activities............ (3,134) (620) (2,369)
-------- -------- --------
Change in cash and cash equivalents.............. 390 586 395
Cash and cash equivalents, beginning of year..... 2,911 2,325 1,930
-------- -------- --------
Cash and cash equivalents, end of year........... $ 3,301 $ 2,911 $ 2,325
======== ======== ========
Supplemental disclosures of cash flow
information:
Interest....................................... $ 367 $ 422 $ 310
======== ======== ========
Income taxes................................... $ 579 $ 589 $ 497
======== ======== ========
</TABLE>
Cash paid during the year for:
See accompanying notes to consolidated financial statements.
6
<PAGE>
Metropolitan Life Insurance Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts are in millions unless otherwise stated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (the
"Company") is a leading provider of insurance and financial services to a
broad section of institutional and individual customers. The Company offers
life insurance, annuities and mutual funds to individuals and group insurance
and retirement and savings products and services to corporations and other
institutions.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The New
York State Insurance Department (the "Department") recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company for determining solvency under
the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with GAAP in making such
determination.
The preparation of financial statements 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 revenues and expenses
during the reporting period. The most significant estimates include those used
in determining deferred policy acquisition costs, investment allowances and
the liability for future policyholder benefits. Actual results could differ
from those estimates.
During 1997, management changed to the retrospective interest method of
accounting for investment income on structured notes 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 was not material.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
MetLife and its subsidiaries, partnerships and joint ventures in which MetLife
has a controlling interest. All material intercompany accounts and
transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which it does not have a controlling
interest, but more than a minimal interest, under the equity method of
accounting.
Minority interest relating to consolidated entities included in other
liabilities was $274 and $277 at December 31, 1998 and 1997, respectively.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1998 presentation.
Investments
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income, net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
Mortgage loans on real estate are stated at amortized cost, net of valuation
allowances. Valuation allowances are established for the excess carrying value
of the mortgage loan over its estimated fair value when it is probable that,
based upon current information and events, the Company will be unable to
collect all amounts due under the
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
contractual terms of the loan agreement. Valuation allowances are based upon
the present value of expected future cash flows discounted at the loan's
original effective interest rate or the collateral value if the loan is
collateral dependent. Interest income earned on impaired loans is accrued on
the net carrying value amount of the loan based on the loan's effective
interest rate.
Real estate, including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis
over the estimated useful life of the asset (typically 20 to 40 years). Cost
is adjusted for impairment whenever events or changes in circumstances
indicate the carrying amount of the asset may not be recoverable. Impaired
real estate is written down to estimated fair value with the impairment loss
being included in realized losses on investments. Impairment losses are based
upon the estimated fair value of real estate, which is generally computed
using the present value of expected future cash flows from the real estate
discounted at a rate commensurate with the underlying risks. Real estate
acquired in satisfaction of debt is recorded at estimated fair value at the
date of foreclosure. Valuation allowances on real estate held-for-sale are
computed using the lower of depreciated cost or estimated fair value, net of
disposition costs.
Policy loans are stated at unpaid principal balances.
Short-term investments are stated at amortized cost, which approximates fair
value.
Derivative Instruments
The Company uses derivative instruments to manage market risk through one of
four principal risk management strategies: the hedging of invested assets,
liabilities, portfolios of assets or liabilities and anticipated transactions.
The Company's derivative strategy employs a variety of instruments including
financial futures, financial forwards, interest rate and foreign currency
swaps, floors, foreign exchange contracts, caps and options.
The Company's derivative program is monitored by senior management. The
Company's risk of loss is typically limited to the fair value of its
derivative instruments and not to the notional or contractual amounts of these
derivatives. Risk arises from changes in the fair value of the underlying
instruments and, with respect to over-the-counter transactions, from the
possible inability of counterparties to meet the terms of the contracts. The
Company has strict policies regarding the financial stability and credit
standing of its major counterparties.
The Company's derivative instruments are designated as hedges and are highly
correlated to the underlying risk at contract inception. The Company monitors
the effectiveness of its hedges throughout the contract term using an offset
ratio of 80 to 125 percent as its minimum acceptable threshold for hedge
effectiveness. Derivative instruments that lose their effectiveness are marked
to market through net investment income.
Gains or losses on financial futures contracts entered into in anticipation
of investment transactions are deferred and, at the time of the ultimate
investment purchase or disposition, recorded as an adjustment to the basis of
the purchased assets or to the proceeds on disposition. Gains or losses on
financial futures used in asset risk management are deferred and amortized
into net investment income over the remaining term of the investment. Gains or
losses on financial futures used in portfolio risk management are deferred and
amortized into net investment income or policyholder benefits over the
remaining life of the hedged sector of the underlying portfolio.
Financial forward contracts that are entered into to purchase securities are
marked to fair value through other comprehensive income, similar to the
accounting for the investment security. Such contracts are accounted for at
settlement by recording the purchase of the specified securities at fair
value. Gains or losses resulting from the termination of forward contracts are
recognized immediately as a component of net investment income.
Interest rate and certain foreign currency swaps involve the periodic
exchange of payments without the exchange of underlying principal or notional
amounts. Net receipts or payments are accrued and recognized over the term of
the swap agreement as an adjustment to net investment income or other expense.
Gains or losses resulting from swap terminations are amortized over the
remaining term of the underlying asset or liability. Gains and losses on swaps
and certain foreign forward exchange contracts entered into in anticipation of
investment transactions are deferred and, at the time of the ultimate
investment purchase or disposition, reflected as an adjustment to the basis of
the purchased
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
assets or to the proceeds of disposition. In the event the asset or liability
underlying a swap is disposed of, the swap position is closed immediately and
any gain or loss is recorded as an adjustment to the proceeds from
disposition.
The Company periodically enters into collars, which consist of purchased put
and written call options, to lock in unrealized gains on equity securities.
Collars are marked to market through other comprehensive income, similar to
the accounting for the underlying equity securities. Purchased interest rate
caps and floors are used to offset the risk of interest rate changes related
to insurance liabilities. Premiums paid on floors, caps and options are split
into two components, time value and intrinsic value. Time value is amortized
over the life of the applicable derivative instrument. The intrinsic value and
any gains or losses relating to these derivative instruments adjust the basis
of the underlying asset or liability and are recognized as a component of net
investment income over the term of the underlying asset or liability being
hedged as an adjustment to the yield.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements, which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using either the straight-line or sum-of-the-years-
digits method over the estimated useful lives of the assets. Estimated lives
range from 20 to 40 years for real estate and 5 to 15 years for all other
property and equipment. Accumulated depreciation on property and equipment and
accumulated amortization of leasehold improvements was $1,048 at both December
31, 1998 and 1997. Related depreciation and amortization expense was $95, $103
and $78 for the years ended December 31, 1998, 1997 and 1996, respectively.
Deferred Policy Acquisition Costs
The costs of acquiring new insurance 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 the expected life of the contract for participating
traditional life, universal life and investment-type products. Generally,
deferred policy acquisition costs are amortized in proportion to the present
value of estimated gross margins or profits from investment, mortality,
expense margins and surrender charges. Actual gross margins or profits can
vary from management's estimates resulting in increases or decreases in the
rate of amortization. Management periodically updates these estimates and
evaluates the recoverability of deferred policy acquisition costs. When
appropriate, management revises its assumptions of the estimated gross margins
or profits of these contracts, and the cumulative amortization is re-estimated
and adjusted by a cumulative charge or credit to current operations.
Deferred policy acquisition costs for non-participating traditional life,
non-medical health and annuity policies with life contingencies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Deferred policy acquisition costs for property and liability insurance
contracts, which are primarily comprised of commissions and certain
underwriting expenses, are deferred and amortized on a pro rata basis over the
applicable contract term or reinsurance treaty.
Other Intangible Assets
The excess of cost over the fair value of net assets acquired ("goodwill")
and the value of business acquired are included in other assets. Goodwill is
amortized on a straight-line basis over a period ranging from 10 to 30 years.
The Company continually reviews goodwill to assess recoverability from future
operations using undiscounted cash flows.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Impairments are recognized in operating results if a permanent diminution in
value is deemed to have occurred. The value of business 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.
<TABLE>
<CAPTION>
Value of Business Acquired Goodwill
-------------------------- ----------------
Years Ended December 31 1998 1997 1996 1998 1997 1996
- ----------------------- -------- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Balance at January 1........ $ 498 $ 358 $ 381 $884 $544 $377
Acquisitions.................... 32 176 7 80 387 197
Amortization.................... (55) (36) (30) (59) (47) (30)
-------- -------- -------- ---- ---- ----
Net Balance at December 31...... $ 475 $ 498 $ 358 $905 $884 $544
======== ======== ======== ==== ==== ====
<CAPTION>
December 31 1998 1997 1998 1997
- ----------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulated Amortization........ $ 142 $ 87 $207 $148
======== ======== ==== ====
</TABLE>
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 upon the
nonforfeiture interest rate, ranging from 2% to 7%, 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 5% to 8%. Future policy
benefit liabilities for non-medical 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. Interest rates
used in establishing such liabilities range from 4% to 7%. Future policy
benefit liabilities for disabled lives are estimated using the present value
of benefits method and experience assumptions as to claim terminations,
expenses and interest. Interest rates used in establishing such liabilities
range from 4% to 8%.
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, ranging from 3%
to 17%, less expenses, mortality charges and withdrawals.
The liability for unpaid claims and claim expenses for property and casualty
insurance represents the amount estimated for claims that have been reported
but not settled and claims incurred but not reported. Liabilities for unpaid
claims are estimated based upon the Company's historical experience and other
actuarial assumptions that consider the effects of current developments,
anticipated trends and risk management programs. Revisions of these estimates
are reflected in operations in the year such refinements are made.
Recognition of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated lives
of the policies. When premiums are due over a significantly shorter period
than the period over which benefits are provided, any excess profit is
deferred and recognized into operations in a constant relationship to
insurance in-force or, for annuities, the amount of expected future policy
benefit payments.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Premiums related to non-medical health contracts are recognized on a pro
rata basis over the applicable contract term.
Premiums related to 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 operations include interest credited and benefit claims incurred in
excess of related policyholder account balances.
Premiums related to property and casualty contracts are recognized as
revenue on a pro rata basis over the applicable contract term. Unearned
premiums are included in other liabilities.
Dividends to Policyholders
Dividends to policyholders are determined annually by the Board of
Directors. The aggregate amount of policyholders' dividends is related to
actual interest, mortality, morbidity and expense experience for the year, as
well as management's judgment as to the appropriate level of statutory surplus
to be retained by the Company.
Participating Business
Participating business represented approximately 21% and 22% of the
Company's life insurance in-force, and 81% and 87% of the number of life
insurance policies in-force, at December 31, 1998 and 1997, respectively.
Participating policies represented approximately 39% and 40%, 41% and 41%, and
40% and 44% of gross and net life insurance premiums for the years ended
December 31, 1998, 1997 and 1996, respectively.
Income Taxes
MetLife and its includable life insurance and non-life insurance
subsidiaries file a consolidated U.S. Federal income tax return 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 based upon a
prescribed formula that incorporates a differential earnings rate between
stock and mutual life insurance companies. 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 and liabilities.
Reinsurance
The Company has reinsured certain of its life insurance and property and
casualty insurance contracts with other insurance companies under various
agreements. Amounts due from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. Policy and contract liabilities are reported
gross of reinsurance credits.
Separate Accounts
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 (stated at estimated fair value) and liabilities of
the separate accounts are reported separately as assets and liabilities.
Deposits to separate accounts, investment income and realized and unrealized
gains and losses on the investments of the separate accounts accrue directly
to contractholders and, accordingly, are not reflected in the Company's
consolidated statements of income and cash flows. Mortality, policy
administration and surrender charges to all separate accounts are included in
revenues.
Foreign Currency Translation
Balance sheet accounts of foreign operations are translated at the exchange
rates in effect at each year-end and income and expense accounts are
translated at the average rates of exchange prevailing during the year. The
local currencies of foreign operations are generally the functional
currencies. Translation adjustments are charged or
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
credited directly to other comprehensive income. Gains and losses from foreign
currency transactions are reported in other expenses and were insignificant
for all years presented.
Extraordinary Item--Demutualization Expense
On November 24, 1998, the Board of Directors authorized management to
develop a plan to convert from a mutual life insurance company to a stock life
insurance company (the "demutualization"). A final plan to convert to a
publicly traded stock company is subject to the approval of the Board of
Directors, the policyholders and the New York Superintendent of Insurance
("Superintendent"). The Department has not yet reviewed or approved any
materials relating to the demutualization.
The accompanying consolidated statements of income reflect an extraordinary
charge of $4 (net of income taxes of $2) for the year ended December 31, 1998
related to costs associated with the demutualization.
Application of Accounting Pronouncements
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance
and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7").
SOP 98-7 provides guidance on the method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, defined in the SOP
as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts
for which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires,
among other things, that all derivatives be recognized in the consolidated
balance sheets as either assets or liabilities and measured at fair value. The
corresponding derivative gains and losses should be reported based upon the
hedge relationship, if such a relationship exists. Changes in the fair value
of derivatives that are not designated as hedges or that do not meet the hedge
accounting criteria in SFAS 133 are required to be reported in income. The
Company is required to adopt SFAS 133 as of January 1, 2000. The Company is in
the process of quantifying the impact of SFAS 133 on its consolidated
financial statements.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities ("SOP 98-5"). SOP 98-5 broadly defines start-up activities. SOP 98-
5 requires costs of start-up activities and organization costs to be expensed
as incurred. The Company is required to adopt SOP 98-5 as of January 1, 1999.
Adoption of SOP 98-5 is not expected to have a material effect on the
Company's consolidated financial statements.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-
1 provides guidance for determining when an entity should capitalize or
expense external and internal costs of computer software developed or obtained
for internal use. The Company is required to adopt SOP 98-1 as of January 1,
1999. Adoption of SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial statements.
In December 1997, the AICPA issued SOP 97-3, Accounting for Insurance and
Other Enterprises for Insurance Related Assessments ("SOP 97-3"). SOP 97-3
provides guidance on accounting by insurance and other enterprises for
assessments related to insurance activities including recognition, measurement
and disclosure of guaranty fund and other insurance related assessments. The
Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP
97-3 is not expected to have a material effect on the Company's consolidated
financial statements.
In 1998, the Company adopted SFAS 131, Disclosures About Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for reporting financial information and related disclosures about
products and services, geographic areas and major customers relating to
operating segments in annual financial statements. Adoption of SFAS 131 had no
effect on the Company's consolidated financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Adoption of
SFAS 130 had no effect on the Company's consolidated financial statements.
In 1998, the Company adopted the provisions of SFAS 125 which were deferred
by SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125. The deferred provisions provide accounting and reporting
standards related to repurchase agreements, dollar rolls, securities lending
and similar transactions. Adoption of the provisions had the effect of
increasing assets and liabilities by $3,769 at December 31, 1998 and
increasing revenues and expenses by $266 for the year ended December 31, 1998.
2. INVESTMENTS
The components of net investment income were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities........................... $ 6,563 $ 6,445 $ 6,042
Equity securities.......................... 78 50 60
Mortgage loans on real estate.............. 1,572 1,684 1,523
Real estate and real estate joint ventures. 1,529 1,718 1,668
Policy loans............................... 387 368 399
Other limited partnership interests........ 196 302 215
Cash, cash equivalents and short-term
investments 187 169 214
Other...................................... 841 368 401
-------- ------- --------
11,353 11,104 10,522
Less: Investment expenses.................. 1,125 1,613 1,544
-------- ------- --------
$10,228 $ 9,491 $ 8,978
======== ======= ========
Net realized investment gains, including changes in valuation allowances,
were as follows:
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities........................... $ 573 $ 118 $ 234
Equity securities.......................... 994 224 101
Mortgage loans on real estate.............. 23 56 (86)
Real estate and real estate joint ventures. 424 446 371
Other limited partnership interests........ 13 12 (129)
Sale of subsidiaries....................... 531 139 --
Other...................................... 71 23 (33)
-------- ------- --------
2,629 1,018 458
Amounts allocable to:
Future policy benefit loss recognition... (300) (126) (203)
Deferred policy acquisition costs........ (240) (70) (4)
Participating pension contracts.......... (68) (35) (20)
-------- ------- --------
$ 2,021 $ 787 $ 231
======== ======= ========
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of net unrealized investment gains, included in accumulated
other comprehensive income, were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities............................. $ 4,809 $ 4,766 $ 2,226
Equity securities............................ 832 1,605 563
Other invested assets........................ 125 294 474
------- ------- -------
5,766 6,665 3,263
------- ------- -------
Amounts allocable to:
Future policy benefit loss recognition..... (2,248) (2,189) (1,219)
Deferred policy acquisition costs.......... (902) (1,147) (420)
Participating pension contracts............ (212) (312) (9)
Deferred income taxes........................ (864) (1,119) (587)
------- ------- -------
(4,226) (4,767) (2,235)
------- ------- -------
$ 1,540 $ 1,898 $ 1,028
======= ======= =======
The changes in net unrealized investment gains were as follows:
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at January 1......................... $ 1,898 $ 1,028 $ 1,646
Unrealized investment gains (losses) during
the year.................................... (899) 3,402 (2,493)
Unrealized investment (gains) losses relating
to:
Future policy benefit loss recognition..... (59) (970) 845
Deferred policy acquisition costs.......... 245 (727) 328
Participating pension contracts............ 100 (303) 341
Deferred income taxes........................ 255 (532) 361
------- ------- -------
Balance at December 31....................... $ 1,540 $ 1,898 $ 1,028
======= ======= =======
Net change in unrealized investment gains.... $ (358) $ 870 $ (618)
======= ======= =======
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fixed Maturities and Equity Securities
Fixed maturities and equity securities at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross
Cost or Unrealized Estimated
Amortized ------------ Fair
Cost Gain Loss Value
--------- ------- ---- ---------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies................................. $ 6,640 $ 1,117 $ 10 $ 7,747
States and political subdivisions......... 597 26 -- 623
Foreign governments....................... 3,435 254 88 3,601
Corporate................................. 46,377 2,471 260 48,588
Mortgage and asset-backed securities 26,456 569 46 26,979
Other..................................... 12,438 1,069 293 13,214
------- ------- ---- --------
95,943 5,506 697 100,752
Redeemable preferred stocks............... 15 -- -- 15
------- ------- ---- --------
$95,958 $ 5,506 $697 $100,767
======= ======= ==== ========
Equity Securities:
Common stocks............................. $ 1,286 $ 923 $ 77 $ 2,132
Nonredeemable preferred stocks............ 222 4 18 208
------- ------- ---- --------
$ 1,508 $ 927 $ 95 $ 2,340
======= ======= ==== ========
Fixed maturities and equity securities at December 31, 1997 were as follows:
<CAPTION>
Gross
Cost or Unrealized Estimated
Amortized ------------ Fair
Cost Gain Loss Value
--------- ------- ---- ---------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and obligations
of U. S. government
corporations and agencies................ $ 8,708 $ 1,010 $ 2 $ 9,716
States and political subdivisions......... 486 22 -- 508
Foreign governments....................... 3,420 371 52 3,739
Corporate................................. 41,012 2,337 291 43,058
Mortgage and asset-backed securities...... 22,370 579 21 22,928
Other..................................... 11,374 929 134 12,169
------- ------- ---- --------
87,370 5,248 500 92,118
Redeemable preferred stocks............... 494 19 1 512
------- ------- ---- --------
$87,864 $ 5,267 $501 $ 92,630
======= ======= ==== ========
Equity Securities:
Common stocks............................. $ 2,444 $ 1,716 $105 $ 4,055
Nonredeemable preferred stocks............ 201 5 11 195
------- ------- ---- --------
$ 2,645 $ 1,721 $116 $ 4,250
======= ======= ==== ========
</TABLE>
The Company held foreign currency derivatives with notional amounts of $716
and $408 to hedge the exchange rate risk associated with foreign bonds at
December 31, 1998 and 1997, respectively. The Company also held options with
fair values of $(11) and $33 to hedge the market value of common stocks at
December 31, 1998 and 1997, respectively.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, fixed maturities held by the Company that were below
investment grade or not rated by an independent rating agency totaled $8,289.
At December 31, 1998, non-income producing fixed maturities were
insignificant.
The amortized cost and estimated fair value of bonds at December 31, 1998,
by contractual maturity date, are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less............................... $ 2,380 $ 2,462
Due after one year through five years................. 17,062 17,527
Due after five years through 10 years................. 23,769 24,714
Due after 10 years.................................... 26,276 29,070
-------- --------
69,487 73,773
Mortgage and asset-backed securities.................. 26,456 26,979
-------- --------
$ 95,943 $100,752
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above table in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Sales of fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities classified as available-for-
sale:
Proceeds..................................... $43,828 $67,454 $67,239
Gross realized gains......................... $ 928 $ 672 $ 1,067
Gross realized losses........................ $ 355 $ 558 $ 842
Fixed maturities classified as held-to-
maturity:
Proceeds..................................... $ -- $ 352 $ 1,281
Gross realized gains......................... $ -- $ 5 $ 10
Gross realized losses........................ $ -- $ 1 $ 1
Equity securities:
Proceeds..................................... $ 3,085 $ 1,821 $ 2,069
Gross realized gains......................... $ 1,125 $ 293 $ 150
Gross realized losses........................ $ 131 $ 69 $ 49
</TABLE>
During 1997, fixed maturities with an amortized cost of $11,682 were
transferred from held-to-maturity to available-for-sale. Other comprehensive
income at the date of reclassification was increased by $198 excluding the
effects of deferred income taxes and policyholder related amounts.
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
Securities Lending Program
The Company participates in securities lending programs whereby large blocks
of securities are loaned to third parties, primarily major brokerage firms.
The Company requires a minimum of 102% of the fair value of the loaned
securities to be separately maintained as collateral for the loans. Securities
with a cost or amortized cost of $4,005 and $6,068 and estimated fair value of
$4,552 and $6,653 were on loan under the program at December 31, 1998 and
1997, respectively. The Company is liable for cash collateral of $3,769 at
December 31, 1998. This liability is included in other liabilities. Rebates of
$266 were paid and accrued on the cash collateral for the year ended
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998. The rebates paid and accrued during 1998 are included in
other operating costs and expenses. Security collateral is returnable on short
notice and is not reflected in the consolidated financial statements.
Statutory Deposits
The Company had investment assets on deposit with regulatory agencies of
$466 and $4,695 as of December 31, 1998 and 1997, respectively.
Mortgage Loans on Real Estate
Mortgage loans were categorized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
---------------- ----------------
Amount Percent Amount Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial mortgage loans.................... $12,503 74% $14,945 73%
Agriculture mortgage loans................... 4,256 25% 3,753 18%
Residential mortgage loans................... 241 1% 272 1%
Other loans.................................. -- -- 1,512 8%
------- ------ ------- -----
17,000 100% 20,482 100%
====== =====
Less: Valuation allowances................... 173 289
------- -------
$16,827 $20,193
======= =======
Mortgage loans on real estate are collateralized by properties primarily
located throughout the United States. At December 31, 1998, approximately 15%,
9% and 7% of the properties were located in California, New York 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.
Certain of the Company's real estate joint ventures have mortgage loans with
the Company. The carrying values of such mortgages were $606 and $725 at
December 31, 1998 and 1997, respectively.
Changes in mortgage loan valuation allowances were as follows:
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Balance at January 1......................... $ 289 $ 469 $ 491
Additions.................................... 40 61 144
Deductions for writedowns and dispositions... (130) (241) (166)
Deductions for disposition of affiliates..... (26) -- --
------- ------ -------
Balance at December 31....................... $ 173 $ 289 $ 469
======= ====== =======
A portion of the Company's mortgage loans on real estate was impaired and
consisted of the following:
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C> <C> <C>
Impaired mortgage loans with valuation
allowances.................................. $ 823 $1,231
Impaired mortgage loans without valuation
allowances.................................. 375 306
------- ------
1,198 1,537
Less: Valuation allowances................... 149 250
------- ------
$ 1,049 $1,287
======= ======
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The average recorded investment in impaired mortgage loans on real estate
was $1,282, $1,680 and $2,113 for the years ended December 31, 1998, 1997 and
1996, respectively. Interest income on impaired mortgages was $109, $110 and
$119 for the years ended December 31, 1998, 1997 and 1996, respectively.
Restructured mortgage loans on real estate were $1,036 and $1,207 at
December 31, 1998 and 1997, respectively. Interest income of $74, $91 and $135
was recognized on restructured loans for the years ended December 31, 1998,
1997 and 1996, respectively. Gross interest income that would have been
recorded in accordance with the original terms of such loans amounted to $87,
$116 and $198 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Mortgage loans on real estate with scheduled payments 60 days (90 days for
agriculture mortgages) or more past due or in foreclosure had an amortized
cost of $65 and $255 as of December 31, 1998 and 1997, respectively.
Real Estate and Real Estate Joint Ventures
Real estate and real estate joint ventures consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- ------
<S> <C> <C>
Real estate and real estate joint ventures held-for-
investment............................................ $ 6,301 $6,731
Impairments............................................ (408) (407)
------- ------
5,893 6,324
------- ------
Real estate and real estate joint ventures held-for-
sale.................................................. 546 915
Impairments............................................ (119) (49)
Valuation allowance.................................... (33) (110)
------- ------
394 756
------- ------
$ 6,287 $7,080
======= ======
</TABLE>
Accumulated depreciation on real estate was $2,065 and $2,030 at December
31, 1998 and 1997, respectively. Related depreciation expense was $282, $338
and $348 for the years ended December 31, 1998, 1997 and 1996, respectively.
Real estate and real estate joint ventures were categorized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
--------------- --------------
Amount Percent Amount Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
Office..................................... $ 4,265 68% $4,730 67%
Retail..................................... 640 10% 804 11%
Apartments................................. 418 7% 406 6%
Land....................................... 313 5% 346 5%
Agriculture................................ 195 3% 214 3%
Other...................................... 456 7% 580 8%
------- --- ------ ---
$ 6,287 100% $7,080 100%
======= === ====== ===
</TABLE>
The Company's real estate holdings are primarily located throughout the
United States. At December 31, 1998, approximately 23%, 23% and 12% of the
Company's real estate holdings were located in New York, California and Texas,
respectively.
Changes in real estate and real estate joint ventures held-for-sale
valuation allowance were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1.... $ 110 $ 661 $ 924
Additions charged
(credited) to
operations............. (5) (76) 127
Deductions for
writedowns and
dispositions........... (72) (475) (390)
-------- -------- --------
Balance at December 31.. $ 33 $ 110 $ 661
======== ======== ========
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Investment income (expense) relating to impaired real estate and real estate
joint ventures held-for-investment was $105, $28 and $(10) for the years ended
December 31, 1998, 1997 and 1996, respectively. Investment income relating to
real estate and real estate joint ventures held-for-sale was $3, $11 and $70
for the years ended December 31, 1998, 1997 and 1996, respectively. The
carrying value of non-income producing real estate and real estate joint
ventures was insignificant at December 31, 1998 and 1997, respectively.
The Company owned real estate acquired in satisfaction of debt of $154 and
$218 at December 31, 1998 and 1997, respectively.
Direct Financing and Leveraged Leases
Direct financing and leveraged leases, included in other invested assets,
consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
Direct Financing Leveraged
Leases Leases Total
----------------- -------------- --------------
1998 1997 1998 1997 1998 1997
----------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Investment................... $ -- $ 1,137 $1,067 $ 851 $1,067 $1,988
Estimated residual values.... -- 183 607 641 607 824
------- --------- ------ ------ ------ ------
-- 1,320 1,674 1,492 1,674 2,812
Unearned income.............. -- (261) (471) (428) (471) (689)
------- --------- ------ ------ ------ ------
Net investment............... $ -- $ 1,059 $1,203 $1,064 $1,203 $2,123
======= ========= ====== ====== ====== ======
</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% to 12%. These receivables are generally collateralized by the related
property.
3. DERIVATIVE INSTRUMENTS
The table below provides a summary of the carrying value, notional amount
and current market or fair value of derivative financial instruments (other
than equity options) held at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------------- -------------------------------------
Current Market or Current Market or
Fair Value Fair Value
------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carrying Notional Carrying Notional
Value Amount Assets Liabilities Value Amount Assets Liabilities
-------- -------- ------ ----------- -------- -------- ------ -----------
Financial futures....... $ 3 $ 2,190 $ 8 $ 6 $ 10 $ 2,262 $ 17 $ 7
Foreign exchange
contracts.............. -- 136 -- 2 -- 150 2 --
Interest rate swaps..... (9) 1,621 17 50 (11) 1,464 9 28
Foreign currency swaps.. (1) 580 3 62 -- 258 3 30
Caps.................... -- 8,391 -- -- -- 1,545 13 --
Options (fixed income).. -- -- -- -- 2 275 -- 2
-------- -------- ------ ----------- -------- -------- ------ -----------
Total contractual
commitments............ $ (7) $ 12,918 $ 28 $ 120 $ 1 $ 5,954 $ 44 $ 67
======== ======== ====== =========== ======== ======== ====== ===========
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of the notional amounts by derivative type
and strategy as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1997 Terminations/ December 31, 1998
Notional Amount Additions Maturities Notional Amount
----------------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Financial futures....... $2,262 $25,073 $(25,145) $ 2,190
Foreign exchange
contracts.............. 150 1,231 (1,245) 136
Interest rate swaps..... 1,464 788 (631) 1,621
Foreign currency swaps.. 258 386 (64) 580
Caps.................... 1,545 8,250 (1,404) 8,391
Options (fixed income).. 275 -- (275) --
------ ------- -------- -------
Total contractual
commitments............ $5,954 $35,728 $(28,764) $12,918
====== ======= ======== =======
BY STRATEGY
Liability hedging....... $1,860 $ 8,419 $ (1,538) $ 8,741
Invested asset hedging.. 817 1,666 (1,619) 864
Portfolio hedging....... 2,787 25,643 (25,600) 2,830
Anticipated transaction
hedging................ 490 -- (7) 483
------ ------- -------- -------
Total contractual
commitments............ $5,954 $35,728 $(28,764) $12,918
====== ======= ======== =======
</TABLE>
The following table presents the notional amounts of derivative financial
instruments by maturity at December 31, 1998:
<TABLE>
<CAPTION>
Remaining Life
---------------------------------------
<S> <C> <C> <C> <C> <C>
After Five
After One Years After
One Year Year Through Through Ten Ten
or Less Five Years Years Years Total
-------- ------------ ----------- ----- -------
Financial futures.............. $2,190 $ -- $ -- $ -- $ 2,190
Foreign exchange contracts..... 136 -- -- -- 136
Interest rate swaps............ 470 774 162 215 1,621
Foreign currency swaps......... 39 182 343 16 580
Caps........................... 1,875 6,496 20 -- 8,391
-------- ------------ ----------- ----- -------
Total contractual commitments.. $4,710 $ 7,452 $ 525 $ 231 $12,918
======== ============ =========== ===== =======
</TABLE>
In addition to the derivative instruments above, the Company uses equity
option contracts as invested asset hedges. There were 92 thousand and 7
million equity option contracts outstanding with carrying values of $(11) and
$27 and market values of $(11) and $33, as of December 31, 1998 and 1997,
respectively. The outstanding contracts have a remaining life of one year or
less as of December 31, 1998.
4. REINSURANCE
The Company assumes and cedes insurance with other insurance companies. The
Company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The amounts in the consolidated
statements of income are presented net of reinsurance ceded.
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 diversify its risk
portfolio.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Direct premiums............................... $12,763 $12,728 $12,452
Reinsurance assumed........................... 409 360 508
Reinsurance ceded............................. (1,669) (1,810) (1,615)
------- ------- -------
Net premiums.................................. $11,503 $11,278 $11,345
======= ======= =======
Reinsurance recoveries netted against
policyholder benefits........................ $ 1,751 $ 1,648 $ 1,667
======= ======= =======
</TABLE>
Reinsurance recoverables, included in other receivables, were $2,956 and
$1,511 at December 31, 1998 and 1997, respectively. Reinsurance and ceded
commissions payables, included in other liabilities, were $105 and $158 at
December 31, 1998 and 1997, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to property and casualty and group accident and non-medical
health policies and contracts:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................... $ 3,655 $ 3,345 $ 3,296
Reinsurance recoverables..................... (229) (215) (214)
------- ------- -------
Net balance at January 1....................... 3,426 3,130 3,082
------- ------- -------
Incurred related to:
Current year................................. 2,726 2,855 2,951
Prior years.................................. (245) 88 (114)
------- ------- -------
2,481 2,943 2,837
------- ------- -------
Paid related to:
Current year................................. (1,967) (1,832) (1,998)
Prior years.................................. (853) (815) (791)
------- ------- -------
(2,820) (2,647) (2,789)
------- ------- -------
Balance at December 31......................... 3,087 3,426 3,130
Add: Reinsurance recoverables................ 233 229 215
------- ------- -------
Balance at December 31......................... $ 3,320 $ 3,655 $ 3,345
======= ======= =======
</TABLE>
5. INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ 821 $424 $346
State and local..................................... 60 10 25
Foreign............................................. 99 26 27
------ ---- ----
980 460 398
------ ---- ----
Deferred:
Federal............................................. (178) (26) 66
State and local..................................... (8) 9 6
Foreign............................................. (54) 25 12
------ ---- ----
(240) 8 84
------ ---- ----
Provision for income taxes............................ $ 740 $468 $482
====== ==== ====
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reconciliations of the income tax provision at the U.S. statutory rate to
the provision for income taxes as reported were as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------
1998 1997 1996
------ ------ ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate................ $ 730 $ 585 $492
Tax effect of:
Tax exempt investment income...................... (40) (30) (18)
Goodwill.......................................... 5 9 --
Surplus tax....................................... 18 (40) 38
State and local income taxes...................... 31 15 23
Foreign operations................................ 12 7 (7)
Tax credits....................................... (25) (15) (15)
Prior year taxes.................................. 4 (2) (46)
Sale of subsidiaries.............................. (19) (41) --
Other, net........................................ 24 (20) 15
------ ------ ----
Provision for income taxes.......................... $ 740 $ 468 $482
====== ====== ====
Deferred income taxes represent the tax effect of the differences between
the book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C> <C>
Deferred income tax assets:
Policyholder liabilities and receivables.......... $3,239 $3,174
Net operating losses.............................. 22 33
Employee benefits................................. 174 187
Non-deductible liabilities........................ 441 162
Other, net........................................ 158 223
------ ------
4,034 3,779
Less: Valuation allowance......................... 21 24
------ ------
4,013 3,755
------ ------
Deferred income tax liabilities:
Investments....................................... 1,417 1,118
Deferred policy acquisition costs................. 1,774 1,890
Net unrealized investment gains................... 864 1,119
Other, net........................................ 18 100
------ ------
4,073 4,227
------ ------
Net deferred income tax liability................... $ (60) $ (472)
====== ======
</TABLE>
Foreign net operating loss carryforwards generated a deferred income tax
benefit of $21. The Company has recorded a valuation allowance related to
these tax benefits. The valuation allowance reflects management's assessment,
based on available information, that it is more likely than not that the
deferred income tax asset for foreign net operating loss carryforwards will
not be realized. The benefit will be recognized at such time management
believes that it is more likely than not that the portion of the deferred
income tax asset is realizable.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The sources of deferred income tax expense (benefit) and their tax effects
were as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Policyholder liabilities and receivables............... $ (65) $(93) $ 27
Net operating losses................................... 11 5 (19)
Investments............................................ 230 245 (6)
Deferred policy acquisition costs...................... (116) (51) 55
Employee benefits...................................... 13 (40) (4)
Non-deductible liabilities............................. (279) (66) (24)
Change in valuation allowances......................... (3) 10 4
Other, net............................................. (31) (2) 51
----- ---- ----
$(240) $ 8 $ 84
===== ==== ====
</TABLE>
The Company has been audited by the Internal Revenue Service for the years
through and including 1993. The Company is being audited for the years 1994,
1995 and 1996. The Company believes that any adjustments that might be
required for open years will not have a material effect on the Company's
consolidated financial statements.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. EMPLOYEE BENEFIT PLANS
Pension Benefit and Other Benefit 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 upon years of
credited service and final average earnings history.
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.
<TABLE>
<CAPTION>
December 31,
------------------------------------
Pension Benefits Other Benefits
------------------ ----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning
of year................................. $ 3,523 $ 3,268 $ 1,763 $ 1,773
Service cost............................. 88 73 31 30
Interest cost............................ 254 244 114 122
Actuarial gain........................... 205 160 (74) (57)
Divestitures, curtailments and
terminations............................ 24 (9) (13) 2
Change in benefits....................... 12 6 -- (2)
Benefits paid............................ (245) (219) (113) (105)
-------- -------- ------- -------
Projected benefit obligation at end of
year.................................... 3,861 3,523 1,708 1,763
-------- -------- ------- -------
Change in plan assets:
Contract value of plan assets at
beginning of year....................... 3,982 3,628 1,004 897
Actual return on plan assets............. 671 566 171 128
Employer contribution.................... 15 7 61 84
Benefits paid............................ (245) (219) (113) (105)
Other payments........................... (100) -- -- --
-------- -------- ------- -------
Contract value of plan assets at end of
year.................................... 4,323 3,982 1,123 1,004
-------- -------- ------- -------
Over (under) funded...................... 462 459 (585) (759)
Unrecognized net asset at transition..... (95) (140) -- --
Unrecognized net actuarial gains......... (81) (109) (322) (171)
Unrecognized prior service cost.......... 144 150 (3) (2)
-------- -------- ------- -------
Prepaid (accrued) benefit cost........... $ 430 $ 360 $ (910) $ (932)
======== ======== ======= =======
Qualified plan prepaid pension cost...... $ 546 $ 516 $ -- $ --
Non-qualified plan accrued pension cost.. (116) (156) -- --
-------- -------- ------- -------
Prepaid benefit cost..................... $ 430 $ 360 $ -- $ --
======== ======== ======= =======
</TABLE>
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plan Total
--------------- ------------------ -------------
1998 1997 1998 1997 1998 1997
------- ------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected benefit
obligation................ $ 3,638 $ 3,170 $ 223 $ 353 $3,861 $3,523
Aggregate contract value of
plan assets (principally
Company contracts)........ 4,323 3,831 -- 151 4,323 3,982
------- ------- --------- --------- ------ ------
Over (under) funded........ $ 685 $ 661 $ (223) $ (202) $ 462 $ 459
======= ======= ========= ========= ====== ======
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The assumptions used in determining the aggregate projected benefit
obligation and aggregate contract value for the pension and other benefits
were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- --------------------
Weighted average assumptions as of
December 31, 1998 1997 1998 1997
- ---------------------------------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Discount rate...................... 7%-7.25% 7.25%-7.75% 7% 7.25%-7.75%
Expected return on plan assets..... 8.5% 8.75% 7.25%-9% 8.75%
Rate of compensation increase...... 4.5%-8.5% 4.5%-8.5% n/a n/a
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was 6.5% per year for pre-
Medicare eligible claims and 6% for Medicare eligible claims in 1998. The
assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 9% in 1997,
gradually decreasing to 5.25% over 5 years.
Assumed health care cost trend rates may have a significant effect on the
amounts reported for health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One One
Percent Percent
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost
components........................................... $ 16 $ 18
Effect on accumulated postretirement benefit
obligation........................................... $124 $183
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------- ----------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................ $ 88 $ 73 $ 77 $ 31 $ 30 $ 41
Interest cost........................... 254 244 232 114 122 127
Expected return on plan assets.......... (330) (318) (273) (79) (66) (58)
Amortization of prior actuarial (gain)
loss................................... (11) (5) (12) (12) (4) 2
Curtailment (credit) cost............... (10) -- -- 4 -- --
----- ----- ----- ---- ---- ----
Net periodic benefit cost (credit)...... $ (9) $ (6) $ 24 $ 58 $ 82 $112
===== ===== ===== ==== ==== ====
</TABLE>
Savings and Investment Plans
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $43, $44 and $42 for the years ended December 31,
1998, 1997 and 1996, respectively.
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon 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 and subrental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
Gross
Rental Sublease Rental
Income Income Payments
------ -------- --------
<S> <C> <C> <C>
1999...................................... $1,213 $10 $126
2000...................................... 1,150 11 109
2001...................................... 1,052 11 94
2002...................................... 942 10 72
2003...................................... 787 9 51
Thereafter................................ 2,636 35 242
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- ------
<S> <C> <C>
MetLife:
6.300% surplus notes due 2003.................................. $ 397 $ 397
7.000% surplus notes due 2005.................................. 249 249
7.700% surplus notes due 2015.................................. 198 198
7.450% surplus notes due 2023.................................. 296 296
7.875% surplus notes due 2024.................................. 148 148
7.800% surplus notes due 2025.................................. 248 248
Other.......................................................... 207 436
------- ------
1,743 1,972
------- ------
Investment Related:
Exchangeable subordinated debt, interest based on LIBOR plus
factors, due 1999........................................... 212 374
Exchangeable subordinated debt, interest rates ranging from
4.90% to 6.18%, due 2001
and 2002.................................................... 371 --
------- ------
583 374
------- ------
Total MetLife.................................................... 2,326 2,346
------- ------
Nvest:
7.060% senior notes due 2003................................... 110 110
7.290% senior notes due 2007................................... 160 160
------- ------
270 270
------- ------
Other Companies:
Fixed rate notes, interest rates ranging from 6.96% to 8.51%,
maturity dates ranging from 1999 to 2008 179 --
Floating rate notes, interest based on LIBOR plus factors...... -- 146
Other.......................................................... 128 122
------- ------
307 268
------- ------
Total long-term debt............................................. 2,903 2,884
Total short-term debt............................................ 3,585 4,587
------- ------
$ 6,488 $7,471
======= ======
</TABLE>
Short-term debt consisted of commercial paper with a weighted average
interest rate of 5.31% and 5.75% and a weighted average maturity of 44 and 71
days as of December 31, 1998 and 1997, respectively.
The Company maintains an unsecured credit facility of $2,000 under which
bank loans and other short-term debt are drawn. This facility is maintained
for general corporate purposes and to provide additional support to the
Company's commercial paper program. At December 31, 1998 there were no
outstanding borrowings under the facility.
Payments of interest and principal on the surplus notes, subordinated to all
other indebtedness, may be made only with the prior approval of the
Superintendent. Subject to the prior approval of the Superintendent, the 7.45%
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.
The exchangeable subordinated debt is payable in cash or by the delivery of
the underlying common stock collateral owned by the Company. The value
ascribed to the common stock at the date of delivery is the greater of the
market value at the date of the debt issuance or date of delivery. The debt
provides for additional interest if the market value of the common stock
appreciates above certain levels at the date of delivery as compared with the
market value at the date of issuance.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The aggregate maturities of long-term debt are $413 in 1999, $45 in 2000,
$191 in 2001, $221 in 2002, $527 in 2003 and $1,518 thereafter.
Interest expense related to the Company's outstanding indebtedness was $333,
$344 and $311, for the years ended December 31, 1998, 1997 and 1996,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company and certain of its subsidiaries are currently defendants in
approximately 400 lawsuits, including over 40 putative or certified class
action lawsuits, raising allegations of improper marketing and sales of
individual life insurance or annuities (hereafter "sales practices claims").
Two of these putative class actions are filed in Canada and the remainder are
filed in the United States. These cases are brought by or on behalf of
policyholders and others and allege, among other claims, that individual life
insurance policies were improperly sold in replacement transactions or with
inadequate or inaccurate disclosure concerning the period for which premiums
would be payable, or were misleadingly sold as savings or retirement plans.
The classes proposed in the pending class actions are defined broadly enough,
in the aggregate, to include a substantial number of active and lapsed
policyholders who purchased individual life insurance policies from the
Company during the 1980's and 1990's. In California, Ohio and West Virginia,
courts have certified or deemed certifiable classes on behalf of policyholders
in those states who allegedly did not receive proper notice of replacement. A
Federal Court in Massachusetts has certified a mandatory class involving
certain former policyholders of New England Mutual Life Insurance Company
which merged into the Company in 1996. The United States Court of Appeals
remanded the case to the trial court for further consideration. A number of
the sales practices claims pending in federal courts have been consolidated as
a multidistrict proceeding for pre-trial purposes in the United States
District Court for the Western District of Pennsylvania and, as to former New
England Mutual Life Insurance Company policyholders, in the United States
District Court in Massachusetts. In another case, a New York federal court has
certified or conditionally certified some subclasses of purchasers of the
Company's policies and annuity contracts outside the United States. While most
of these cases are in the early stages of litigation, they seek substantial
damages, including in some cases punitive and treble damages and attorneys'
fees. Additional litigation relating to the Company's marketing and sale of
individual life insurance may be commenced in the future.
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 or annuities, including
investigations of alleged improper replacement transactions and alleged
improper sales of insurance with inaccurate or inadequate disclosures as to
the period for which premiums would be payable. Over the past several years, a
number of investigations by other regulatory authorities have been resolved by
the Company for monetary payments and certain other relief.
The Company is also a defendant in numerous lawsuits seeking compensatory
and punitive damages for personal injuries allegedly caused by exposure to
asbestos or asbestos-containing products. The Company has never engaged in the
business of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products. Rather, these lawsuits, currently numbering in
the thousands, have principally been based upon allegations relating to
certain research, publication and other activities of one or more of the
Company's employees during the period from the 1920's through approximately
the 1950's and alleging that the Company learned or should have learned of
certain health risks posed by asbestos and, among other things, improperly
publicized or failed to disclose those health risks. Legal theories asserted
against the Company have included negligence, intentional tort claims and
conspiracy claims concerning the health risks associated with asbestos. While
the Company believes it has meritorious defenses to these claims, and has not
suffered any adverse judgments in respect thereof, most of the cases have been
resolved by settlements. The Company intends to continue to exercise its best
judgment regarding settlement or defense of such cases. The number of such
cases that may be brought or the aggregate amount of any liability that may
ultimately be incurred by the Company is uncertain. Significant portions of
amounts paid in settlement of such cases have been funded with proceeds from a
previously resolved dispute with its primary, umbrella and first level excess
liability insurance carriers. The Company is presently in litigation with
several of its excess liability insurers regarding amounts payable under the
Company's policies with respect to coverage for these claims.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company believes that the claims and the amount of damages asserted in
the aforementioned sales practices and asbestos personal injury litigations
are without merit, and it intends to continue to defend its interests
vigorously.
During 1998, the Company obtained certain excess reinsurance and insurance
policies providing coverage for risks associated primarily with sales
practices claims and claims for personal injuries caused by exposure to
asbestos or asbestos-containing products. In 1998, the Company recorded a
charge of $1,715, included in other expenses, for related insurance and
reinsurance premiums and for potential liabilities related to certain of these
claims.
Various litigation, claims and assessments against the Company, in addition
to the aforementioned and those otherwise provided for in the Company's
consolidated 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 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, it is the opinion of the Company's
management that their outcomes, after consideration of available insurance and
reinsurance and the provisions made in the Company's consolidated financial
statements, are not likely to have a material adverse effect on the Company's
financial position. However, given the large and/or indeterminable amounts
sought in certain of these matters and the inherent unpredictability of
litigation, it is possible that an adverse outcome in certain matters could,
from time to time, have a material adverse effect on the Company's operating
results in particular quarterly or annual periods.
Year 2000
The Year 2000 issue is the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant costs associated with additional mainframe capacity necessary to
accommodate a four-digit year field. As a result, any of the Company's
computer systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in major
system failures or miscalculations. The Company has conducted a comprehensive
review of its computer systems to identify the systems that could be affected
by the Year 2000 issue and has developed and implemented a plan to resolve the
issue. The Company currently believes that, with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company's computer systems. However,
if such modifications and conversions are not completed on a timely basis, the
Year 2000 issue may have a material impact on the operations of the Company.
Furthermore, even if the Company completes such modifications and conversions
on a timely basis, there can be no assurance that the failure by vendors or
other third parties to solve the Year 2000 issue will not have a material
impact on the operations of the Company. The Company estimates the total cost
to resolve its Year 2000 problem to be approximately $210 (unaudited) of which
approximately $149 has been incurred through December 31, 1998.
Guaranty Funds
Under insurance guaranty fund laws in each state, the District of Columbia
and Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company pursuant to these laws may
be used as credits for a portion of the Company's premium taxes. The Company
paid guaranty fund assessments of $35, $23 and $25 in 1998, 1997 and 1996,
respectively, of which $24, $20 and $19 were estimated to be credited against
future premium taxes.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. OTHER EXPENSES
Other expenses were comprised of the following:
<TABLE>
<CAPTION>
Years ended December
31,
------------------------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Compensation.................................. $ 2,478 $2,072 $ 1,813
Commissions................................... 902 766 722
Interest and debt issue costs................. 379 453 311
Amortization of policy acquisition costs...... 587 771 633
Capitalization of policy acquisition costs.... (1,025) (1,000) (1,028)
Rent, net of sublease......................... 155 179 183
Minority interest............................. 67 56 30
Restructuring charge.......................... 81 -- --
Other......................................... 4,494 2,637 2,091
------- ------ -------
$ 8,118 $5,934 $ 4,755
======= ====== =======
</TABLE>
11. DISCONTINUED OPERATIONS
The 1996 loss from discontinued operations resulted from the finalization of
the transfer of certain group medical contracts in connection with the
Company's disposal of its group medical benefits business during 1995. The
components of discontinued operations for the year ended December 31, 1996
were as follows:
<TABLE>
<S> <C>
Loss from discontinued operations, net of
income tax benefit of $18........................................ $ 52
Loss on disposal of discontinued operations, net of
income tax benefit of $11........................................ 19
----
Loss from discontinued operations................................. $ 71
====
</TABLE>
12. CONSOLIDATED CASH FLOW INFORMATION
During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial
financing company) and substantially all of its Canadian and Mexican insurance
operations, which resulted in realized investment gains of $531. During 1997,
the Company sold its United Kingdom insurance operations, which resulted in a
realized investment gain of $139. Such sales caused a reduction in assets by
$10,663 and $4,342 and liabilities by $3,691 and $4,207 in 1998 and 1997,
respectively.
In 1997, the Company also 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.
Real estate of $69, $151 and $189 was acquired in satisfaction of debt for
the years ended December 31, 1998, 1997 and 1996, respectively.
13. FAIR VALUE INFORMATION
The estimated fair values of financial instruments have been determined by
using available market information and the valuation methodologies described
below. Considerable judgment is often required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein
may not necessarily be indicative of amounts that could be realized in a
current market exchange. The use of different assumptions or valuation
methodologies may have a material effect on the estimated fair value amounts.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Amounts related to the Company's financial instruments were as follows:
<TABLE>
<CAPTION>
Estimated
Notional Carrying Fair
Amount Value Value
December 31, 1998 -------- -------- ---------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $ $100,767 $100,767
Equity securities................................. 2,340 2,340
Mortgage loans on real estate..................... 16,827 17,793
Policy loans...................................... 5,600 6,143
Short-term investments............................ 1,369 1,369
Cash and cash equivalents......................... 3,301 3,301
Mortgage loan commitments......................... 472 -- 14
Liabilities:
Policyholder account balances..................... 37,088 37,304
Short-term debt................................... 3,585 3,585
Long-term debt.................................... 2,903 2,995
<CAPTION>
Estimated
Notional Carrying Fair
Amount Value Value
December 31, 1997 -------- -------- ---------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $ $ 92,630 $ 92,630
Equity securities................................. 4,250 4,250
Mortgage loans on real estate..................... 20,193 21,084
Policy loans...................................... 5,846 6,110
Short-term investments............................ 679 679
Cash and cash equivalents......................... 2,911 2,911
Mortgage loan commitments......................... 334 -- 4
Liabilities:
Policyholder account balances..................... 37,034 37,265
Short-term debt................................... 4,587 4,587
Long-term debt.................................... 2,884 2,939
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
Fixed Maturities and Equity Securities
The fair value of fixed maturities and equity securities are based upon
quotations published by applicable stock exchanges or received from other
reliable sources. For securities in which the market values were not readily
available, fair values were estimated using quoted market prices of comparable
investments.
Mortgage Loans on Real Estate and Mortgage Loan Commitments
Fair values for mortgage loans on real estate and mortgage loan commitments
are estimated by discounting expected future cash flows using current interest
rates for similar loans with similar credit risk.
Policy Loans
Fair values for policy loans are estimated by discounting expected future
cash flows using U.S. treasury rates to approximate interest rates and the
Company's past experiences to project patterns of loan accrual and repayment
characteristics.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents and Short-term Investments
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
Policyholder Account Balances
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based upon interest rates currently being offered
for similar contracts with maturities consistent with those remaining for the
agreements being valued.
Short-term and Long-term Debt
The fair values of short-term and long-term debt are determined by
discounting expected future cash flows, using risk rates currently available
for debt with similar terms and remaining maturities.
Derivative Instruments
The fair value of derivative instruments, including financial futures,
financial forwards, interest rate and foreign currency swaps, floors, foreign
exchange contracts, caps and options are based upon quotations obtained from
dealers or other reliable sources. See Note 3 for derivative fair value
disclosures.
14. STATUTORY FINANCIAL INFORMATION
The reconciliation of MetLife's statutory surplus and net change in
statutory surplus, determined in accordance with accounting practices
prescribed or permitted by insurance regulatory authorities, with equity and
net income determined in conformity with generally accepted accounting
principles were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C> <C>
Statutory surplus..................................... $ 7,388 $ 7,378
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... (6,830) (6,807)
Deferred policy acquisition costs................... 6,560 6,438
Deferred income taxes............................... 295 (242)
Valuation of investments............................ 3,981 3,474
Statutory asset valuation reserves.................. 3,381 3,854
Statutory interest maintenance reserve.............. 1,486 1,261
Surplus notes....................................... (1,595) (1,555)
Other, net.......................................... 201 206
------- -------
Equity................................................ $14,867 $14,007
======= =======
<CAPTION>
Years ended December
31,
-----------------------
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
Net change in statutory surplus....................... $ 10 $ 227 $ 366
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... 127 (38) (165)
Deferred policy acquisition costs................... 224 149 391
Deferred income taxes............................... 234 62 (74)
Valuation of investments............................ 1,158 (387) (84)
Statutory asset valuation reserves.................. (461) 1,136 599
Statutory interest maintenance reserve.............. 312 53 19
Other, net.......................................... (261) 1 (199)
------- ------- -----
Net income............................................ $ 1,343 $ 1,203 $ 853
======= ======= =====
</TABLE>
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
15. SEPARATE ACCOUNTS
Separate accounts reflect two categories of risk assumption: non-guaranteed
separate accounts totaling $39,490 and $32,893 at December 31, 1998 and 1997,
respectively, in which the policyholder assumes the investment risk, and
guaranteed separate accounts totaling $18,578 and $15,445 at December 31, 1998
and 1997, respectively, in which MetLife contractually guarantees either a
minimum return or account value to the policyholder.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees and totaled $413, $287 and $216 in 1998, 1997 and 1996, respectively.
Guaranteed separate accounts consisted primarily of Met Managed Guaranteed
Interest Contracts and participating close out contracts. The average interest
rate credited on these contracts was 7% at December 31, 1998. The assets that
support these liabilities were comprised of $16,639 in fixed maturities as of
December 31, 1998. The portfolios are segregated from other investments and
are managed to minimize liquidity and interest rate risk. In order to minimize
the risk of disintermediation associated with early withdrawals, these
investment products carry a graded surrender charge as well as a market value
adjustment.
16. OTHER COMPREHENSIVE INCOME
The following tables set forth the reclassification adjustments required for
the years ended December 31, 1998, 1997 and 1996 to avoid double-counting in
comprehensive income items that are included as part of net income for the
current year that have been reported as a part of other comprehensive income
in the current or prior year:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Holding gains (losses) on investments arising during
the year........................................... $ 1,556 $ 4,479 $(1,494)
Income tax effect of holding gains or losses........ (646) (1,698) 550
Transfer of securities from held-to-maturity to
available-for-sale:
Holding gains on investments...................... -- 198 --
Income tax effect................................. -- (75) --
Reclassification adjustments:
Realized holding gains included in current year
net income....................................... (2,043) (868) (367)
Amortization of premium and discount on
investments...................................... (411) (406) (631)
Realized holding gains (losses) allocated to other
policyholder amounts............................. 608 231 227
Income tax effect................................. 766 394 285
Allocation of holding (gains) losses on investments
relating to other
policyholder amounts............................... (322) (2,231) 1,286
Income tax effect of allocation of holding gains and
losses to other
policyholder amounts............................... 134 846 (474)
------- ------- -------
Net unrealized investment (losses) gains............ (358) 870 (618)
------- ------- -------
Foreign currency translation adjustments arising
during the year.................................... (115) (46) (6)
Reclassification adjustment for sale of investment
in foreign operation............................... 2 (3) --
------- ------- -------
Foreign currency translation adjustment............. (113) (49) (6)
------- ------- -------
Minimum pension liability adjustment................ (12) -- --
------- ------- -------
Other comprehensive (loss) income................... $ (483) $ 821 $ (624)
======= ======= =======
</TABLE>
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
17. RESTRUCTURING
During 1998, the Company restructured headquarters operations and
consolidated certain agencies and other operations. The impacts of these
actions on a segment basis are as follows:
<TABLE>
<CAPTION>
Severance
and Related Facility
Number of Termination Consolidation
Positions Costs Costs Total
--------- ----------- ------------- -----
<S> <C> <C> <C> <C>
Individual............................ 488 $15 $16 $31
Institutional......................... 320 8 2 10
Auto & Home........................... 357 4 -- 4
Corporate and Other................... 1,102 30 6 36
----- --- --- ---
2,267 $57 $24 $81
===== === === ===
</TABLE>
These programs are expected to be completed by the third quarter of 1999. As
of December 31, 1998, $28 of these restructuring costs had been paid and the
unpaid balance was $53.
18. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers in the
United States, Canada, Central America, South America, Europe and Asia. The
Company's business is divided into six segments: Individual, Institutional,
Auto & Home, International, Asset Management and Corporate. These segments are
managed separately because they either provide different products and
services, require different strategies or have different technology
requirements.
Individual offers a wide variety of individual insurance and investment
products, including life insurance, annuities and mutual funds. Institutional
offers a broad range of group insurance and retirement and savings products
and services, including group life insurance, non-medical health insurance
such as short and long-term disability, long-term care and dental insurance
and other insurance products and services. Auto & Home provides insurance
coverages including private passenger automobile, homeowners and personnel
excess liability insurance. International provides life insurance, accident
and health insurance, annuities and retirement and savings products to both
individuals and groups, and auto and homeowners coverage to individuals. Asset
Management provides a broad variety of asset management products and services
to individuals and institutions such as mutual funds for savings and
retirement needs, commercial real estate advisory and management services, and
institutional and retail investment management. Through its Corporate segment,
the Company reports items that are not allocated to any of the business
segments.
Set forth in the tables below is certain financial information with respect
to the Company's operating segments for the years ended December 31, 1998,
1997 and 1996. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies, except for the
method of capital allocation. The Company allocates capital to each segment
based upon an internal capital allocation system that allows the Company to
more effectively manage its capital. The Company has divested operations that
did not meet targeted rates of return, including its medical insurance
operations, commercial leasing business, and insurance operations in the
United Kingdom and substantially all of its Canadian operations. The Company
evaluates the performance of each operating segment based upon income or loss
from operations before provision for income taxes and non-recurring items
(e.g. items of unusual or infrequent nature). The Company allocates non-
recurring items to the Corporate segment.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1998 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,381 $ 5,101 $1,403 $ 618 $ -- $ -- $ -- $11,503
Universal life and
investment-type product
policy fees 817 475 -- 68 -- -- -- 1,360
Net investment income... 5,501 3,864 81 343 76 808 (445) 10,228
Other revenues.......... 523 574 36 33 814 35 (50) 1,965
Net realized investment
gains.................. 663 552 122 117 -- 683 (116) 2,021
Policyholder benefits
and claims............. 4,659 6,373 869 597 -- (10) -- 12,488
Interest credited to
policyholder account
balances............... 1,443 1,199 -- 89 -- -- -- 2,731
Policyholder dividends.. 1,447 142 -- 64 -- -- -- 1,653
Other expenses.......... 2,609 1,592 546 352 799 2,632 (412) 8,118
Income before provision
for income taxes....... 1,727 1,260 227 77 91 (1,096) (199) 2,087
Income after provision
for income taxes....... 1,091 833 161 56 47 (675) (166) 1,347
Total assets............ 103,974 88,356 2,771 3,432 1,165 20,652 (5,004) 215,346
Deferred policy
acquisition costs...... 6,255 43 57 205 -- -- -- 6,560
Separate account assets. 23,038 35,286 -- 26 -- -- -- 58,350
Policyholder
liabilities............ 71,989 49,045 1,477 2,043 -- 1 (352) 124,203
Separate account
liabilities............ $23,013 $35,029 $ -- $ 26 $ -- $ -- $ -- $58,068
</TABLE>
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1997 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,327 $ 4,689 $1,354 $ 908 $ -- $ -- $ -- $11,278
Universal life and
investment-type product
policy fees............ 855 426 -- 137 -- -- -- 1,418
Net investment income... 4,754 3,754 71 504 87 895 (574) 9,491
Other revenues.......... 338 357 25 54 682 19 16 1,491
Net realized investment
gains.................. 356 45 9 142 -- 326 (91) 787
Policyholder benefits
and claims............. 4,597 5,934 834 869 -- -- -- 12,234
Interest credited to
policyholder account
balances............... 1,428 1,319 -- 137 -- -- -- 2,884
Policyholder dividends.. 1,340 305 -- 97 -- -- -- 1,742
Other expenses.......... 2,384 1,178 520 497 679 1,118 (442) 5,934
Income before provision
for income taxes....... 881 535 105 145 90 122 (207) 1,671
Income after provision
for income taxes....... 603 339 74 126 52 210 (201) 1,203
Total assets............ 95,990 83,481 2,542 7,412 1,147 18,494 (6,290) 202,776
Deferred policy
acquisition costs...... 5,912 40 56 428 -- -- -- 6,436
Separate account assets. 17,368 30,732 -- 520 -- -- -- 48,620
Policyholder
liabilities............ 70,686 49,550 1,509 5,615 -- 1 (3) 127,358
Separate account
liabilities............ $17,345 $30,473 $ -- $ 520 $ -- $ -- $ -- $48,338
</TABLE>
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Auto
At or for the year ended & Asset Consolidation/
December 31, 1996 Individual Institutional Home International Management Corporate Elimination Total
- ------------------------ ---------- ------------- ------ ------------- ---------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,559 $ 4,676 $1,316 $ 794 $-- $ -- $ -- $11,345
Universal life and
investment-type product
policy fees............ 729 375 -- 139 -- -- -- 1,243
Net investment income... 4,604 3,446 71 523 60 761 (487) 8,978
Other revenues.......... 74 475 26 37 495 89 50 1,246
Net realized investment
gains (losses) ....... 282 28 24 13 -- (112) (4) 231
Policyholder benefits
and claims............. 4,690 6,006 891 700 -- (1) -- 12,286
Interest credited to
policyholder account
balances 1,354 1,358 -- 156 -- -- -- 2,868
Policyholder dividends.. 1,333 284 -- 111 -- -- -- 1,728
Other expenses.......... 2,019 1,008 490 418 498 706 (384) 4,755
Income before provision
for income taxes....... 852 344 56 121 57 33 (57) 1,406
Income after provision
for income taxes....... 511 217 34 86 47 85 (56) 924
Total assets............ 86,042 75,872 2,801 11,714 901 18,900 (6,954) 189,276
Deferred policy
acquisition costs...... 6,495 29 56 647 -- -- -- 7,227
Separate account assets. 12,403 27,715 -- 3,645 -- -- -- 43,763
Policyholder
liabilities............ 67,220 48,253 1,562 6,045 -- 1 (55) 123,026
Separate account
liabilities............ $12,386 $27,368 $ -- $3,645 $-- $ -- $ -- $43,399
</TABLE>
The individual segment includes an equity ownership interest in Nvest
Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has
been included within the asset management segment due to the types of products
and strategies employed by the entity. The individual segment's equity in
earnings of Nvest, which is included in net investment income, was $49, $45
and $43 for the years ended December 31, 1998, 1997 and 1996, respectively.
The investment in Nvest was $252, $216 and $152 at December 31, 1998, 1997 and
1996, respectively.
Net investment income and net realized investment gains are based upon the
actual results of each segment's specifically identifiable asset portfolio.
Other costs and operating costs were allocated to each of the segments based
upon: (i) a review of the nature of such costs, (ii) time studies analyzing
the amount of employee compensation costs incurred by each segment, and (iii)
cost estimates included in the Company's product pricing.
The consolidation/elimination column includes the elimination of all
intersegment amounts and the individual segment's ownership interest in Nvest.
The principal component of the intersegment amounts related to intersegment
loans, which bore interest at rates commensurate with related borrowings.
Revenues derived from any customer did not exceed 10% of consolidated
revenues. Revenues from U.S. operations were $25,643, $22,664 and $21,762 for
the years ended December 31, 1998, 1997 and 1996, respectively, which
represented 96%, 93% and 94%, respectively, of consolidated revenues.
35
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
-----------------------------------
PART C. OTHER INFORMATION
-----------------
ITEM 28. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
(1) The following financial statements of the Registrant are included in
Part B of this Post-Effective Amendment on Form N-3:
Statement of Assets and Liabilities as of December 31, 1998.
Statement of Operations for the year ended December 31, 1998.
Statements of Changes in Net Assets for the years ended December 31,
1998 and 1997.
Statement of Supplementary Information - Selected Per Unit Data and
Ratios.
Notes to Financial Statements.
Portfolio of Investments as of December 31, 1998.
(2) The following financial statements of the Company are included in Part
B of this Post-Effective Amendment on Form N-3:
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Equity for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.
Notes to Consolidated 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.
III-1
<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 is incorporated herein by reference to
Post-Effective Amendment No. 3 to Registration Statement on Form N-3
(File No. 333-11137) filed on May 1, 1998.
Custodian Fee Schedule is incorporated herein by reference to Post-
Effective Amendment No. 3 to Registration Statement on Form N-3 (File
No. 333-11137) filed on May 1, 1998.
(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 is incorporated herein by
reference to Post-Effective Amendment No. 3 to Registration Statement
on Form N-3 (File No. 333-11137) filed on May 1, 1998.
(ii) Additional forms of variable annuity contract are incorporated
herein by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-3 (No. 333-11137) filed on February
16, 1999.
(iii) Form of Endorsement: Tax-Sheltered Annuity is incorporated
herein by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-3 (No. 333-11137) filed on February
16, 1999.
(iv) Form of Endorsement: Individual Retirement Annuity is
incorporated herein by reference to Post-Effective Amendment No. 4 to
the Registration Statement on Form N-3 (No. 333-11137) filed on
February 16, 1999.
(v) 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.
(vi) Form of Endorsement: (Settlement Option Table).
III-2
<PAGE>
(7) Forms of application are incorporated herein by reference to Post-
Effective Amendment No. 4 to the Registration Statement on Form N-3
(No. 333-11137) filed on February 16, 1999.
(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 is incorporated herein by
reference to Post-Effective Amendment No. 3 to Registration Statement
on Form N-3 (File No. 333-11137) filed on May 1, 1998.
(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 Deloitte & Touche LLP.
(ii) Consent of Ropes & Gray.
(14) None.
(15) None.
(16) Schedule for computation of performance quotations is incorporated
herein by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-3 (File No. 333-11137) filed on May 1, 1998.
(17) Powers of Attorney.
(i) Metropolitan Life Insurance Company. 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 Robert H.
Benmosche, Jon F. Danski and Stewart G. Nagler whose
III-3
<PAGE>
powers of attorney were filed with Post-Effective Amendment No. 23 of
the Registration Statement of Metropolitan Life Separate Account E
(File No. 2-90380) filed April 3, 1998.
(ii) Board of Managers of the Fund.
(27) Financial Data Schedule.
ITEM 29. DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address Insurance Company with Registrant
<S> <C> <C>
Curtis H. Barnette Director None
Chairman and Chief
Executive Officer
Bethlehem Steel Corporation
1170 Eighth Avenue
Martin Tower 2118
Bethlehem, PA 18016-7699
Robert H. Benmosche Chairman of the Board, President None
Metropolitan Life Insurance and Chief Executive Officer
Company
One Madison Avenue
New York, NY 10010
Gerald Clark Vice-Chairman of the Board and None
Metropolitan Life Insurance Chief Investment Officer
Company
One Madison Avenue
New York, NY 10010
Joan Ganz Cooney Director None
Chairman, Executive Committee
Children's Television Workshop
One Lincoln Plaza
New York, NY 10023
</TABLE>
III-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address Insurance Company with Registrant
<S> <C> <C>
Burton A. Dole, Jr. Director None
Retired Chairman, President and
Chief Executive Officer
Puritan Bennett
P.O. Box 208
Pauma Valley, CA 92061
James R. Houghton Director None
Retired Chairman of the Board
Corning Incorporated
80 East Market Street 2nd Floor
Corning, NY 14830
Harry P. Kamen Retired Chairman and Chief None
Metropolitan Life Insurance Executive Officer
Company
200 Park Avenue, Suite 5700
New York, NY 10166
Helene L. Kaplan Director None
Of Counsel, Skadden, Arps
Slate Meagher and Flom
919 Third Avenue
New York, NY 10022
Charles H. Leighton Director None
Retired Chairman of the Board
CML Group, Inc.
P.O. Box 247
Bolton, MA 01740
Allen E. Murray Director None
Retired Chairman of the Board and
Chief Executive Officer
Mobil Corporation
375 Park Avenue, Suite 2901
New York, NY 10152
</TABLE>
III-5
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address Insurance Company with Registrant
<S> <C> <C>
Stewart G. Nagler Vice-Chairman of the Board and None
Metropolitan Life Insurance Chief Financial Officer
Company
One Madison Avenue
New York, NY 10010
John J. Phelan, Jr. Director None
Retired Chairman and Chief
Executive Officer
New York Stock Exchange, Inc.
P. O. Box 312
Mill Neck, NY 11765
Hugh B. Price Director None
President and Chief Executive
Officer
National Urban League, Inc.
120 Wall Street, 7th & 8th Floors
New York, NY 10005
Robert G. Schwartz Retired Chairman of the Board, None
Metropolitan Life Insurance President and Chief Executive
Company Officer
200 Park Avenue, Suite 5700
New York, NY 10166
Ruth J. Simmons, PH.D. Director None
President
Smith College
College Hall 20
North Hampton, MA 01063
William C. Steere, Jr. Director None
Chairman of the Board and Chief
Executive Officer
Pfizer, Inc.
235 East 42nd Street
New York, NY 10017
</TABLE>
III-6
<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 Position with Company Position with Registrant
<S> <C> <C>
Robert H. Benmosche Chairman of the Board, President and Chief None
Executive Officer
Gary A. Beller Senior Executive Vice-President and General None
Counsel
Gerald Clark Vice-Chairman of the Board and Chief None
Investment Officer
Stewart C. Nagler Vice-Chairman of the Board and Chief None
Financial Officer
C. Robert Hendrickson Senior Executive Vice-President None
William J. Toppeta Senior Executive Vice-President None
John H. Tweedie Senior Executive Vice-President None
Jeffrey J. Hodgman Executive Vice-President None
Terence I. Lennon Executive Vice-President None
David A. Levene Executive Vice-President None
Judy E. Weiss Executive Vice-President and Chief Actuary None
Richard M. Blackwell Senior Vice-President None
Alexander D. Brunini Senior Vice-President None
Jon F. Danski Senior Vice-President and Controller None
James B. Digney Senior Vice-President None
William T. Friedewald, M.D. Senior Vice-President None
Ira Friedman Senior Vice-President None
Anne E. Hayden Senior Vice-President None
Sibyl C. Jacobson Senior Vice-President None
Joseph W. Jordan Senior Vice-President None
Kernan F. King Senior Vice-President None
Nicholas D. Latrenta Senior Vice-President None
Leland C. Launer, Jr. Senior Vice-President None
Gary E. Lineberry Senior Vice-President None
James L. Lipscomb Senior Vice-President None
William D. Livesey Senior Vice-President None
James M. Logan Senior Vice-President None
Eugene Marks, Jr. Senior Vice-President None
William R. Prueter Senior Vice-President None
</TABLE>
III-7
<PAGE>
<TABLE>
<CAPTION>
Name Position with Company Position with Registrant
<S> <C> <C>
Joseph A. Reali Senior Vice-President None
Vincent P. Reusing Senior Vice-President None
Felix Schirripa Senior Vice-President None
Robert E. Sollmann, Jr. Senior Vice-President None
Thomas L. Stapleton Senior Vice-President & Tax Director None
James F. Stenson Senior Vice-President None
Stanley J. Talbi Senior Vice-President None
Richard R. Tartre Senior Vice-President None
James A. Valentino Senior Vice-President None
Lisa Weber Senior Vice-President None
William J. Wheeler Senior Vice-President and Treasurer None
Anthony J. Williamson Senior Vice-President None
Louis J. Ragusa Vice-President and Secretary None
</TABLE>
The principle 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 One Madison Avenue, New York, New York 10010.
ITEM 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE INSURANCE
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 outline indicates those persons who are controlled by or
under common control with Metropolitan Life Insurance Company:
III-8
<PAGE>
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1998
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1998. 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. Metropolitan Direct Property and Casualty Insurance Company
(Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc. (Mississippi)
III-9
<PAGE>
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc.
(North Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
4. Metropolitan Asset Management Corporation (Delaware)
(a.) MetLife Capital, Limited Partnership (Delaware) Partnership
interests in MetLife Capital, Limited Partnership are held by
Metropolitan (90%) and Metropolitan Asset Management Corporation
(10%).
(i.) MetLife Capital Credit L.P. (Delaware).
Partnership interests in MetLife Capital Credit L.P. are held by
Metropolitan (90%) and Metropolitan Asset Management
Corporation (10%).
(1) MetLife Capital CFLI Holdings, LLC (DE)
(a.) MetLife Capital CFLI Leasing, LLC (DE)
b. 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.
c. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments Limited.
d. 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 Investments Limited (Delaware)
b. 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)
III-10
<PAGE>
c. 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)
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)
b. Security First Insurance Agency, Inc. (MA)
c. Security First 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)
i. Security First Financial Agency, Inc. (TX)
10. Natiloportem Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
III-11
<PAGE>
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. 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. MetLife Saengmyoung Insurance Company Ltd. (Korea).
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) Shares of P.T. MetLife Sejahtera are held
by Metropolitan (80%) and by an entity (20%) unaffiliated with Metropolitan.
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.
III-12
<PAGE>
S. Metropolitan Life Seguros de Vida S.A. (Uruguay). One share of Metropolitan
Life Seguros de Vida S.A. is held by Alejandro Miller Artola, a nominee of
Metropolitan Life Insurance Company.
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
U. Hyatt Legal Plans, Inc. (Delaware)
1. Hyatt Legal Plans of Florida, Inc. (Fl)
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%.
W. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. CBNJ, Inc. (New Jersey)
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)
2. Farmers National Marketing Group, LLC (Iowa) Ownership of membership
interests in Farmers National Marketing Group, LLC is as follows:
Farmers National Company (50%) and an entity unaffiliated with
Metropolitan (50%).
A.B. MetLife Trust Company, National Association. (United States)
A.C. Benefit Services Corporation (Georgia)
A.D. G.A. Holding Corporation (MA)
A.E. TNE-Y, Inc. (DE)
A.F. CRH., Inc. (MA)
A.G. NELRECO Troy, Inc. (MA)
A.H. TNE Funding Corporation (DE)
A.I. L/C Development Corporation (CA)
A.J. Boylston Capital Advisors, Inc. (MA)
III-13
<PAGE>
1. New England Portfolio Advisors, Inc. (MA)
A.K. 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.L. New England Life Mortgage Funding Corporation (MA)
A.M. 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.N. 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.O. Tower Resources Group, Inc. (DE)
A.P. MetLife New England Holdings, Inc. (DE)
1. Fulcrum Financial Advisors, Inc. (MA)
2. 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)
(1) First Connect Insurance Network, Inc. (DE)
(2) Interative Financial Solutions, Inc. (MA)
iv. N.L. Holding Corp. (Del)(NY)
(1) Nathan & Lewis Securities, Inc. (NY)
(2) Nathan & Lewis Associates, Inc. (NY)
(a) Nathan and Lewis Insurance Agency of Massachusetts, Inc. (MA)
(b) Nathan and Lewis Associates of Texas, Inc. (TX)
(3) Nathan & Lewis Associates--Arizona, Inc. (AZ)
(4) Nathan & Lewis of Nevada, Inc. (NV)
(5) Nathan and Lewis Associates Ohio, Incorporated (OH)
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)
3. Nvest Corporation (MA)
a. Nvest, L.P. (DE) Nvest Corporation holds a 1.69% general partnership
interest and MetLife New England Holdings, Inc. 3.19% general
partnership interest in Nvest, L.P.
b. Nvest Companies, L.P. (DE) Nvest Corporation holds a 0.0002% general
partnership interest in Nvest Companies, L.P. Nvest, L.P. holds a
14.64% general partnership interest in Nvest Companies, L.P.
Metropolitan holds a 46.23% limited partnership interest in Nvest
Companies, L.P.
i. Nvest Holdings, Inc. (DE)
III-14
<PAGE>
(1) Back Bay Advisors, Inc. (MA)
(a) 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.
(2) R & T Asset Management, Inc. (MA)
(a) Reich & Tang Distributors, Inc. (DE)
(b) 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 R & T
Asset Management, L.P.
(c) Reich & Tang Services, Inc. (DE)
(3) Loomis, Sayles & Company, Inc. (MA)
(a) 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.
(4) Westpeak Investment Advisors, Inc. (MA)
(a) 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.
(i) Westpeak Investment Advisors Australia Limited Pty.
(5) Vaughan, Nelson Scarborough & McCullough (DE)
(a) Vaughan, Nelson Scarborough & McCullough, 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 & McCullough, L.P.
(i) VNSM Trust Company
(6) MC Management, Inc. (MA)
(a) 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.
III-15
<PAGE>
(7) Harris Associates, Inc. (DE)
(a) 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.
(b) 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.
(i) Harris Partners, Inc. (DE)
(ii) 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.
(1) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1%
general partner interest
(2) Perseus Partners L.P. (DE) Harris Partners L.L.C. holds
a 1% general partner interest
(3) Pleiades Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general
partner interest
(4) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general partner
interest
(5) SPA Partners L.P. (DE) Harris Partners L.L.C. holds a 1%
general partner interest
(8) Graystone Partners, Inc. (MA)
(a) 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.
(9) NEF Corporation (MA)
(a) 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.
(b) New England Funds Management, L.P. (DE) NEF
Corporation holds a 1% general partner interest and
III-16
<PAGE>
NEIC Operating Partnership, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
(10) New England Funds Service Corporation
(11) AEW Capital Management, Inc. (DE)
(a) 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.
ii. Nvest Associates, Inc.
iii. 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.
iv. 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.
v. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner interest
in Capital Growth Management, L.P.
vi. Nvest Partnerships, LLC ( )
vii. 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 II Corporation ( )
(2) AEW Partners III, Inc. ( )
(3) AEW TSF, Inc. ( )
(4) AEW Exchange Management, LLC
(5) AEWPN, LLC ( )
(6) 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.
ii. AEW Real Estate Advisors, Inc. (MA)
1. AEW Advisors, Inc. (MA)
III-17
<PAGE>
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.
ii. 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.
iii. CREA Investors Santa Fe Springs, Inc. (MA)
(7) 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.
(8) 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.
(9) 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.
(10) 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.
III-18
<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) Metropolitan owns, via its subsidiary, AFORE Genesis Metropolitan S.A. de
C.V., approximately 61.7% of SIEFORE Genesis S.A. de C.V., a mutual fund.
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) Metropolitan directly owns 100% of the non-voting preferred stock of Nathan
and Lewis Associates Ohio, Incorporated, an insurance agency. 100% of the voting
common stock of this company is held by an individual who has agreed to vote
such shares at the direction of N.L. Holding Corp. (DEL), an indirect wholly
owned subsidiary of Metropolitan.
9) 100% of the capital stock of Hereford Insurance Agency of Oklahoma, Inc.
(OK) is owned by an officer. New England Life Insurance Company controls the
issuance of additional stock and has certain rights to purchase such officer's
shares.
10) 100% of the capital stock of Fairfield Insurance Agency of Texas, Inc. (TX)
is owned by an officer. New England Life Insurance Company controls the issuance
of additional stock and has certain rights to purchase such officer's shares.
III-19
<PAGE>
11) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in certain
entities are held. A wholly owned subsidiary of Metropolitan serves as the
general partner of the limited partnerships and Metropolitan directly owns a 99%
limited partnership interest in each MILP. The MILPs have various ownership
interests in certain companies. The various MILPs own, directly or indirectly,
100% 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.
Item 31. Number of Contractowners
As of March 31, 1999, there were 702 owners of tax-qualified contracts and 159
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.
III-20
<PAGE>
"As to any matter disposed of by a compromise payment by such member or officer,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Fund, after notice that it
involves such indemnification, (a) by a disinterested majority of the members of
the Board of Managers then in office; or (b) by a majority of the disinterested
members of the Board of Managers then in office; or (c) by any disinterested
person or persons to whom the question may be referred by the Board of Managers,
provided that in the case of approval pursuant to clause (b) or (c) there has
been obtained an opinion in writing of independent legal counsel to the effect
that such member or officer appears to have acted in good faith in the
reasonable belief that his action was in the best interests of the Fund and that
such indemnification would not protect such member or officer against any
liability to the Fund or its Contractholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office; or (d)
by the Contractholders holding a majority of the votes at the time entitled to
vote for members of the Board of Managers, exclusive of the votes of any
interested member or officer. Approval by the Board of Managers pursuant to
clause (a) or (b) or by any disinterested person or persons pursuant to clause
(c) of this paragraph shall not prevent the recovery from any officer or member
of any amount paid to him in accordance with either of such clauses as
indemnification if such officer or member is subsequently adjudicated by a court
of competent jurisdiction not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Fund or to have been
liable to the Fund or its Contractholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
"The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any member or officer of the Board of Managers
may be entitled. As used in this Article, the terms "member" and "officer"
include their respective heirs, executors and administrators, and "interested"
member or officer is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending, and a "disinterested person" is a person
against whom none of such actions, suits or other proceedings or another action,
suit or other proceeding on the same or similar grounds is then or had been
pending. Nothing contained in this Article shall affect any rights to
indemnification to which Fund personnel other than members and officers may be
entitled by contract or otherwise under law."
In addition, the Registrant's investment adviser maintains a professional
liability insurance policy with maximum coverage of $15 million under which the
Registrant and its managers are named insureds.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to managers, and affiliated persons of the Registrant, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification may be against public policy as expressed in the
Act and may be, therefore, unenforceable. In the event that a claim for
indemnification against such
III-21
<PAGE>
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 Life 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>
Name Positions and Offices with Positions and Offices with
Principal Underwriter Registrant
<S> <C> <C>
Thomas W. McConnell* Director, President and CEO None
Frederick K. Zimmermann** Chairman of Board, Director Chairman of the Board,
President and Manager
Bradley W. Anderson* Vice President None
Molly M. Diggins** Vice President, General Counsel, None
Secretary and Clerk
Mark A. Greco* Vice President and Chief None
Operating Officer
Laura A. Hutner* Vice President None
Mitchell A. Karman** Vice President None
John Peruzzi** Assistant Vice President and None
Controller
</TABLE>
III-22
<PAGE>
<TABLE>
<CAPTION>
Name Positions and Offices with Positions and Offices with
Principal Underwriter Registrant
<S> <C> <C>
Robert F. Regan*** Vice President None
Jonathan M. Rozek* Vice President None
Andrea M. Ruesch* Vice President None
Larry Thiel* Vice President None
Michael E. Toland* Vice President, Chief Compliance None
Officer, Chief Financial
Officer, Treasurer, Assistant
Secretary and Assistant Clerk
H. James Wilson** Director None
Principal Business Address: *399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02116
***500 Boylston Street, Boston, MA 02116
</TABLE>
(c)
<TABLE>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Underwriting
Name of Principal Discounts and Compensation
Underwriter Commissions Redemption or Brokerage Other Compensation
Annuitization Commissions
New England
Securities $9,087 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
III-23
<PAGE>
(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
(e) Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Item 36. Management Services
Not applicable
Item 37. Undertakings
Registrant hereby makes the following undertakings:
(1) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
contained in the registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be accepted;
(2) To include either (a) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information or (b) a postcard or similar written
communication affixed to or included in the prospectus that the applicant can
remove to send for a Statement of Additional Information;
(3) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form N-3 promptly upon
written or oral request;
(4) To offer Contracts to participants in the Texas Optional Retirement Program
in reliance upon Rule 6c-7 of the Investment Company Act of 1940 and to comply
with paragraphs (a)-(d) of that Rule; and
(5) To comply with and rely upon the Securities and Exchange Commission No-
Action Letter to the American Council of Life Insurance, dated November 28,
1988, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment Company Act
of 1940.
Metropolitan Life Insurance Company represents that the fees and charges
deducted under the Contracts described in this Registration Statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses to
be incurred, and the risks assumed by Metropolitan Life Insurance Company under
the Contracts.
III-24
<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 caused this Amendment to the
Registration Statement to be signed on its behalf, in the City of Boston, and
the Commonwealth of Massachusetts on the 26th day of April, 1999.
NEW ENGLAND VARIABLE ANNUITY FUND I
By: /s/ 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Frederick K. Zimmermann* Chairman of the Board of Managers; April 26, 1999
- ---------------------------------------- Principal Executive Officer
Frederick K. Zimmermann
John J. Arena* Member of the Board April 26, 1999
- ----------------------------------------
John J. Arena
John W. Flynn* Member of the Board April 26, 1999
- ----------------------------------------
John W. Flynn
Anne M. Goggin* Member of the Board April 26, 1999
- ----------------------------------------
Anne M. Goggin
Nancy Hawthorne* Member of the Board April 26, 1999
- ----------------------------------------
Nancy Hawthorne
Joseph M. Hinchey* Member of the Board April 26, 1999
- ----------------------------------------
Joseph M. Hinchey
</TABLE>
III-25
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Robert B. Kittredge* Member of the Board April 26, 1999
- ----------------------------------------
Robert B. Kittredge
John T. Ludes* Member of the Board April 26, 1999
- ----------------------------------------
John T. Ludes
Dale Rogers Marshall* Member of the Board April 26, 1999
- ----------------------------------------
Dale Rogers Marshall
</TABLE>
By: /s/ Michele H. Abate April 26, 1999
Michele H. Abate
* Executed by Michele H. Abate, Esq. on behalf of those indicated pursuant to
Powers-of-attorney filed herewith.
III-26
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Depositor, Metropolitan Life Insurance Company, certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this Amendment to the Registration Statement and has caused this Amendment to
the Registration Statement to be signed on its behalf, in the City of Boston,
and the Commonwealth of Massachusetts on the 26th day of April 1999.
Metropolitan Life Insurance Company
By: /s/ GARY A. BELLER, ESQ.
-------------------------
GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Attest: /s/ Cheryl D. Martino
----------------------
Cheryl D. Martino
Assistant Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE Title Date
<S> <C> <C>
* Chairman of the Board, President and
- ------------------------------------------- Chief Executive Officer April 26, 1999
ROBERT H. BENMOSCHE (Principal Executive Officer)
* Vice-Chairman and
- ------------------------------------------- Chief Financial Officer (Principal April 26, 1999
STEWART G. NAGLER Financial Officer)
* Senior Vice President and Controller
- ------------------------------------------- (Principal Accounting Officer) April 26, 1999
JON F. DANSKI
* Director
- ------------------------------------------- April 26, 1999
CURTIS H. BARNETTE
</TABLE>
III-27
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
<S> <C> <C>
Vice Chairman and Chief Investment
* Officer April 26, 1999
- -------------------------------------------
GERALD CLARK
* Director April 26, 1999
- -------------------------------------------
JOAN GANZ COONEY
* Director April 26, 1999
- -------------------------------------------
BURTON A. DOLE, JR.
* Director April 26, 1999
- -------------------------------------------
JAMES R. HOUGHTON
* Director April 26, 1999
- -------------------------------------------
HARRY P. KAMEN
* Director April 26, 1999
- -------------------------------------------
HELENE L. KAPLAN
* Director April 26, 1999
- -------------------------------------------
CHARLES H. LEIGHTON
* Director April 26, 1999
- -------------------------------------------
ALLEN E. MURRAY
* Director April 26, 1999
- -------------------------------------------
JOHN J. PHELAN, JR.
* Director April 26, 1999
- -------------------------------------------
HUGH B. PRICE
</TABLE>
III-28
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
<S> <C> <C>
* Director April 26, 1999
- -------------------------------------------
ROBERT G. SCHWARTZ
* Director April 26, 1999
- -------------------------------------------
RUTH J. SIMMONS
Director April 26, 1999
- -------------------------------------------
WILLIAM C. STEERE, JR.
April 26, 1999
/s/ CHRISTOPHER P. NICHOLAS, ESQ.
- -------------------------------------------
CHRISTOPHER P. NICHOLAS, ESQ.
ATTORNEY-IN-FACT
</TABLE>
Metropolitan Life Insurance Company. Executed by Christopher P. Nicholas on
behalf of those indicated pursuant to Powers of Attorney. 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 Robert H. Benmosche, Jon F. Danski and Stewart G.
Nagler whose powers of attorney were filed with the Post-Effective Amendment No.
23 of the Registration Statement of Metropolitan Life Separate Account E (File
No. 2-90380) filed April 3, 1998.
III-29
<PAGE>
Exhibit Index
-------------
(1) (i) Resolutions of the Board of Directors of New England Mutual Life
Insurance Company establishing the Fund are incorporated herein by
reference to 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 is incorporated herein by reference to
Post-Effective Amendment No. 3 to Registration Statement on Form N-3
(File No. 333-11137) filed on May 1, 1998.
Custodian Fee Schedule is incorporated herein by reference to Post-
Effective Amendment No. 3 to Registration Statement on Form N-3 (File
No. 333-11137) filed on May 1, 1998.
(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 is incorporated herein by
reference to Post-Effective Amendment No. 3 to Registration Statement
on Form N-3 (File No. 333-11137) filed on May 1, 1998.
(ii) Additional forms of variable annuity contract are incorporated
herein by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-3 (No. 333-11137) filed on February
16, 1999.
(iii) Form of Endorsement: Tax-Sheltered Annuity is incorporated
herein by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-3 (No. 333-11137) filed on February
16, 1999.
(iv) Form of Endorsement: Individual Retirement Annuity is
incorporated herein by reference to Post-Effective Amendment No. 4 to
the Registration Statement on Form N-3 (No. 333-11137) filed on
February 16, 1999.
(v) Form of Metropolitan Life Insurance Company Endorsement to New
England Mutual Life Insurance Company variable annuity contract is
incorporated herein
<PAGE>
by reference to the Registration Statement on Form N-3 (No. 333-11137)
filed on August 30, 1996.
(vi) Form of Endorsement: (Settlement Option Table).
(7) Forms of application are incorporated herein by reference to Post-
Effective Amendment No. 4 to the Registration Statement on Form N-3
(No. 333-11137) filed on February 16, 1999.
(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 is incorporated herein by
reference to Post-Effective Amendment No. 3 to Registration Statement
on Form N-3 (File No. 333-11137) filed on May 1, 1998.
(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 Deloitte & Touche LLP.
(ii) Consent of Ropes & Gray.
(14) None.
(15) None.
(16) Schedule for computation of performance quotations is incorporated
herein by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-3 (File No. 333-11137) filed on May 1, 1998.
(17) Powers of Attorney.
(i) Metropolitan Life Insurance Company. 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
-2-
<PAGE>
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 Robert H. Benmosche, Jon F. Danski and
Stewart G. Nagler whose powers of attorney were filed with Post-
Effective Amendment No. 23 of the Registration Statement of
Metropolitan Life Separate Account E (File No. 2-90380) filed April 3,
1998.
(ii) Board of Managers of the Fund
(27) Financial Data Schedule.
-3-
<PAGE>
P-835-84 Exhibit 6(vi)
Endorsement
MODIFICATION OF ANNUITY UNITS AND ANNUITY UNIT VALUE SECTION
As of the Date of Issue of this Contract, in the Annuity Units and Annuity Unit
Value section, the following change is made:
"The basis of such credit shall be rates based on the Assumed Interest Rate
specified on the first page of the Contract; and on mortality: using a 60/40
male/female weighting; based on the Individual Annuitant Mortality Table for
1983; and with projection on Scale G to the year 1985."
is substituted for
"The basis of such credit shall be rates determined according to the Male Group
Annuity Table for 1951, with Projection on Scale C to the year 1970 and with
female ages set back 5 years, and interest at the Assumed Interest Rate
specified on the first page of the Contract."
New England Mutual Life Insurance Company
501 Boylston Street, Boston, Massachusetts
/s/ John A. Fibiger /s/ Kernan F. King
President Secretary
<PAGE>
EXHIBIT 12
[METLIFE LETTERHEAD APPEARS HERE]
April 26, 1999
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.
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
<PAGE>
Exhibit 13(i)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 5 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 reports dated February 10, 1999 and February 4, 1999
appearing in the Statement of Additional Information (which expressed
unqualified opinions and, with respect to the Company, includes an
explanatory paragraph referring to the change in the basis of accounting),
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 26, 1999
<PAGE>
Exhibit 13 (ii)
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
April 22, 1999
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. 5 to the Fund's Registration Statement (No. 333-11137)
under the Securities Act of 1933.
Very truly yours,
Ropes & Gray
<PAGE>
Exhibit 17(ii)
NEW ENGLAND VARIABLE ANNUITY FUND I
POWER OF ATTORNEY
-----------------
We, the undersigned members of the Board of Managers of New England
Variable Annuity Fund I, hereby severally constitute and appoint Anne M. Goggin,
Peter H. Duffy, Thomas M. Lenz, John F. Guthrie, Jr. and Michele H. Abate and
each of them singly, our true and lawful attorneys, with full power to them and
each of them to sign, for us, and in our names and in the capacities indicated
below, any and all registration statements and any and all amendments thereto to
be filed with the Securities and Exchange Commission, pursuant to the Securities
Act of 1933 and/or the Investment Company Act of 1940, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys to any and
all such registration statements and amendments thereto.
Witness our hands on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John J. Arena Member of the Board of
- ------------------------------------------ Managers March 5, 1999
John J. Arena
/s/ John W. Flynn Member of the Board of
- ------------------------------------------ Managers March 5, 1999
John W. Flynn
/s/ Nancy Hawthorne Member of the Board of
- ------------------------------------------ Managers March 5, 1999
Nancy Hawthorne
/s/ Joseph M. Hinchey Member of the Board of
- ------------------------------------------ Managers March 5, 1999
Joseph M. Hinchey
/s/ Robert B. Kittredge Member of the Board of
- ------------------------------------------ Managers March 5, 1999
Robert B. Kittredge
/s/ John T. Ludes Member of the Board of
- ------------------------------------------ Managers March 5, 1999
John T. Ludes
/s/ Dale Rogers Marshall Member of the Board of
- ------------------------------------------ Managers March 5, 1999
Dale Rogers Marshall
</TABLE>
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
POWER OF ATTORNEY
-----------------
I, the undersigned member of the Board of Managers of New England Variable
Annuity Fund I, hereby severally constitute and appoint Frederick K. Zimmermann,
Peter H. Duffy, Thomas M. Lenz, John F. Guthrie, Jr. and Michele H. Abate and
each of them singly, my true and lawful attorneys, with full power to them and
each of them to sign, for me, and in my name and in the capacities indicated
below, any and all registration statements and any and all amendments thereto to
be filed with the Securities and Exchange Commission, pursuant to the Securities
Act of 1933 and/or the Investment Company Act of 1940, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
such registration statements and amendments thereto.
Witness my hand on the 5th of March, 1999.
/s/ Anne M. Goggin
--------------------------
Anne M. Goggin
Manager
2
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
POWER OF ATTORNEY
-----------------
I, the undersigned member of the Board of Managers of New England Variable
Annuity Fund I, hereby severally constitute and appoint Anne M. Goggin, Peter H.
Duffy, Thomas M. Lenz, John F. Guthrie, Jr. and Michele H. Abate and each of
them singly, my true and lawful attorneys, with full power to them and each of
them to sign, for me, and in my name and in the capacities indicated below, any
and all registration statements and any and all amendments thereto to be filed
with the Securities and Exchange Commission, pursuant to the Securities Act of
1933 and/or the Investment Company Act of 1940, hereby ratifying and confirming
my signature as it may be signed by my said attorneys to any and all such
registration statements and amendments thereto.
Witness my hand on the 5th of March, 1999.
/s/ Frederick K. Zimmermann
----------------------------
Frederick K. Zimmermann
Chairman of the Board of Managers
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 61,638,694
<INVESTMENTS-AT-VALUE> 79,824,366
<RECEIVABLES> 1,277,060
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81,101,426
<PAYABLE-FOR-SECURITIES> 353,212
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,018,274
<TOTAL-LIABILITIES> 1,371,486
<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> 79,729,940
<DIVIDEND-INCOME> 1,283,990
<INTEREST-INCOME> 40,480
<OTHER-INCOME> 415
<EXPENSES-NET> 1,006,914
<NET-INVESTMENT-INCOME> 317,971
<REALIZED-GAINS-CURRENT> 11,255,524
<APPREC-INCREASE-CURRENT> 10,036,280
<NET-CHANGE-FROM-OPS> 21,609,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,318
<NUMBER-OF-SHARES-REDEEMED> (488,836)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,902,747
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 232,028
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,006,914
<AVERAGE-NET-ASSETS> 74,602,429
<PER-SHARE-NAV-BEGIN> 24.55
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 7.91
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.58
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
