<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
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. 6 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 34 [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 May 1, 2000 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
MAY 1, 2000
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 May 1, 2000. The
SAI, which contains additional information about the Fund, 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.
For any tax qualified account, e.g. 401(k) plan or IRA, the tax deferred
accrual feature is provided by the tax qualified retirement plan. Therefore,
there should be reasons other than tax deferral for acquiring an annuity
contract within a qualified plan.
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......................................................... 0.04%
----
TOTAL ANNUAL EXPENSES................................................ 1.30%
</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 $118 $146 $224
For a single purchase payment deferred con-
tract(6): $92 $118 $145 $224
</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, 1998 and 1999 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 two 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
------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income and expenses:
Total investment
income................ $ .60 $ .50 $ .29 $ .28 $ .24 $ .29 $ .16 $ .25 $ .24 $ .16
Operating expenses..... .44 .38 .32 .24 .19 .16 .15 .14 .13 .10
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income
(loss)................ $ .16 $ .12 $ (.03) $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Capital changes:
Net investment income
(loss)................ $ .16 $ .12 $ (.03) $ .04 $ .05 $ .13 $ .01 $ .11 $ .11 $ .06
Net realized and
unrealized gains
(losses) on
investments........... 5.54 7.91 4.50 3.52 4.57 (1.08) 1.26 (.37) 3.35 .34
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in
accumulation unit
value................. 5.70 8.03 4.47 3.56 4.62 (.95) 1.27 (.26) 3.46 .40
Accumulation unit value
at
beginning of period.... 32.58 24.55 20.08 16.52 11.90 12.85 11.58 11.84 8.38 7.98
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Accumulation unit value
at end of period....... $38.28 $32.58 $24.55 $20.08 $16.52 $11.90 $12.85 $11.58 $11.84 $ 8.38
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of operating
expenses to
average net assets
(%).................... 1.30 1.34 1.35 1.34 1.35 1.26 1.26 1.25 1.26 1.26
Ratio of net investment
income (loss) to
average net assets
(%).................... .48 .44 (.09) .22 .34 1.06 .11 .98 1.11 .69
Portfolio turnover (%).. 204.32 195.15 209.18 196.25 228.26 139.43 154.15 171.55 157.43 136.52
Number of accumulation
units
outstanding at end of
period
(in thousands)......... 1,805 2,220 2,694 3,013 3,399 4,038 4,411 5,104 5,499 5,961
</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,
1999. 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, 1999 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, 1999.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<S> <C>
Period Ending December 31, 1999
1 Year................................................................. 8.1%
5 Years................................................................ 24.2%
10 Years................................................................ 16.0%
</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 wholly-owned subsidiary of MetLife, Inc., a publicly traded company.
Our main office is located at One Madison Avenue, New York, N.Y. 10010. We
were formed in 1868 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 approximately $420 billion of assets
under management as of December 31, 1999 on a pro forma basis, including the
acquisition of GenAmerica Corp.
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.
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 intends to hold sufficient
amounts of cash and United States Government or other high-grade liquid secu-
rities to meet current expenses and variable annuity contract obligations.
Such assets also may be held for limited periods pending investment in accor-
dance 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 195% in 1998 and 204% in 1999. The Fund's portfolio turnover rate may
vary significantly depending on the volatility of prevailing or anticipated
economic and market conditions. Higher levels of portfolio turnover may result
in higher brokerage costs to the Fund.
The Fund may change its investment objective and 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 or other factors). The Fund may also invest in real estate
investment trusts ("REITs"). REITs are generally categorized as equity REITs
or mortgage REITs, although some REITs have characteristics of both classifi-
cations. Equity REITs invest directly in real property and receive income from
rent collection and sale of those properties. These REITs may decline in value
when the property they own declines in value. Mortgage REITs invest in real
estate mortgages and receive income from interest payments on those mortgages.
These REITs are particularly subject to credit risk and market risk, although
equity REITs are also sensitive to market risk.
The value of the Fund's investments is subject to risks of changing economic
conditions and to the risk that management may not anticipate such changes
and, to the extent consistent with the Fund's investment objective and poli-
cies, may not make appropriate changes in the Fund's portfolio.
The Fund may invest in repurchase agreements. Under these agreements, the
Fund purchases a security subject to the agreement of the seller to repurchase
the security at an agreed upon price and date. The resale price 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.
The Fund may invest in American Depositary Receipts ("ADRs"). In addition to
the risks associated with securities generally, ADR's present additional
risks.
Changes in foreign countries' laws may harm the performance and liquidity of
investments underlying ADR's in those countries. Additionally, many countries
have less stringent financial reporting requirements than the United States,
so it may be difficult to obtain information to evaluate the business poten-
tial of foreign issuers.
13
<PAGE>
News and events unique to particular regions and foreign countries will af-
fect non-U.S. markets and issuers. These same events may not affect the U.S.
economy or similar issuers located in the United States in the same manner. As
a result, movements in the prices of foreign securities may not correlate with
the prices of U.S. securities.
As many investments in foreign countries are denominated in foreign curren-
cies, changes in the value of those countries' currencies relative to the U.S.
dollar may affect the value of those investments. These changes may occur in
response to events unrelated to the value of the security in the issuer's home
country.
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
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 securities (other than (i) securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities and (ii) securities of
a registered investment company) if, as a result of such purchase, more than
25% of the total assets of the Fund (as of the time of investment) would be
invested in any one industry except to the extent permitted by applicable law,
regulation or order; or
2. Borrow money, except to the extent permitted by applicable law, regula-
tion or order.
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.
14
<PAGE>
Surrender of a contract may result in a credit against our premium tax liabil-
ity in some states. If this happens, your surrender proceeds will be increased
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").
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 under
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 serv-
ices, 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 company
portfolios.
15
<PAGE>
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 contingencies regardless of how long a particular
Annuitant or other Payee lives and regardless of how long all Annuitants or
other Payees as a class live.
Under deferred contracts, 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, 1999, the Fund's total expenses equalled
1.30% 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.
16
<PAGE>
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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 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 $10,500 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.
17
<PAGE>
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 purchase payments; however,
for 2000 the deductions are phased out and eventually eliminated, on a pro
rata basis, for taxpayers with an adjusted gross income between $32,000 and
$42,000 for an individual, between $52,000 and $62,000 for the covered spouse
of a married couple filing jointly and between $0 and $10,000 for a married
person filing separately. A taxpayer may also make nondeductible purchase
payments. However, the total of deductible and nondeductible purchase pay-
ments may not exceed the limits described above for deductible payments. For
more information concerning contributions to IRAs, you should obtain a copy
of IRS Publication 590 on Individual 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 are no longer 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
usually 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 included 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 investment. Distributions or withdrawals prior to age 59 1/2 may be sub-
ject 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,
disability 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, distri-
18
<PAGE>
butions need not begin 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 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,
19
<PAGE>
. 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 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.
NEITHER THE FUND NOR THE COMPANY SHALL BE UNDER A DUTY TO INQUIRE AS TO (1)
THE RECEIPT BY A CONTRACT-HOLDER OF INSTRUCTIONS FROM PERSONS, IF ANY, WHO MAY
HAVE THE RIGHT TO INSTRUCT THE CONTRACTHOLDER WITH RESPECT TO VOTES ATTRIBUT-
ABLE TO THE CONTRACTHOLDER'S CONTRACT, (2) THE VALIDITY OR EFFECT OF ANY VOT-
ING INSTRUCTIONS RECEIVED BY A CONTRACTHOLDER OR (3) THE AUTHORITY OF THE
CONTRACTHOLDER TO CAST VOTES. Except as the Fund or the Company has actual
knowledge to the contrary, the votes cast by the Contractholders shall be
valid and effective as they affect the Fund, the Company and any others having
voting rights with respect to the Fund.
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........................................................... 14
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.......................... 16
C. Total Expenses......................................................... 16
RETIREMENT PLANS OFFERING FEDERAL TAX BENEFITS............................ 16
FEDERAL INCOME TAX STATUS................................................. 17
A. Tax Status of the Company and the Fund................................. 17
B. Taxation of the Contracts.............................................. 17
1. Special Rules for Annuities Purchased for Annuitants Under 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-7
Advisory Agreement................................................ II-7
Administrative Agreement.......................................... II-8
Distribution Agreement............................................ II-8
Safekeeping of Securities......................................... II-9
Independent Accountants........................................... II-9
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS.................... II-9
DISTRIBUTION OF CONTRACTS........................................... II-10
CALCULATION OF PERFORMANCE DATA..................................... II-10
ANNUITY PAYMENTS.................................................... II-11
NET INVESTMENT FACTOR............................................... II-13
EXPERTS............................................................. II-13
FINANCIAL STATEMENTS................................................ II-14
</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)
MAY 1, 2000
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information relates to the Prospectus dated May 1, 2000 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-170-99
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-7
Advisory Agreement ..................................................... II-7
Administrative Agreement ............................................... II-8
Distribution Agreement ................................................. II-8
Safekeeping of Securities............................................... II-9
Independent Accountants ................................................ II-9
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS ......................... II-9
DISTRIBUTION OF CONTRACTS ................................................ II-10
CALCULATION OF PERFORMANCE DATA .......................................... II-10
ANNUITY PAYMENTS ......................................................... II-11
NET INVESTMENT FACTOR .................................................... II-13
EXPERTS .................................................................. II-13
FINANCIAL STATEMENTS ..................................................... II-14
</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 securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under certain federal securities laws;
2. Purchase or sell real estate, except that, consistent with its
investment policies, the Fund may purchase securities of issuers which deal
in real estate, securities which are secured by interests in real estate,
and securities which represent interests in real estate, and it may acquire
and dispose of real estate or interests in real estate acquired through the
exercise of its rights as a holder of debt obligations secured by real
estate or interests therein;
3. Purchase or sell commodities or commodity contracts, except that,
consistent with its investment policies, the Fund may purchase and sell
financial futures contracts and options and may enter into swap agreements,
foreign exchange contracts and other financial transactions not requiring
the delivery of physical commodities;
4. Make loans, except by purchasing debt obligations in which the Fund
may invest consistent with its investment policies, by entering into
repurchase agreements, by lending its portfolio securities, or as otherwise
permitted by applicable law, regulation or order;
5. Issue any senior securities except to the extent permitted by
applicable law, regulation or order. (For purposes of this restriction,
collateral arrangements with respect to any type of swap, option, forward
contract or future contract and collateral arrangements with respect to
initial and variation margin are not deemed to involve the issuance of a
senior security).
The investment restrictions set forth in paragraphs 1 through 5 below may be
changed by the Board of Managers of the Fund without Contractholder approval.
II-3
<PAGE>
The Fund will not:
1. Invest in securities of other investment companies except to the
extent permitted by applicable law, regulation or order;
2. Invest more than 15% of the value of the net assets of the Fund in
illiquid securities (as of the time of investment), including variable
amount master demand notes (if such notes provide for prepayment penalties)
and repurchase agreements with remaining maturities in excess of seven
days. (If, through a change in security values or net assets, or due to
other circumstances, the value of illiquid securities held by the Fund
exceeds 15% of the value of the net assets of the Fund, the Fund shall
consider appropriate steps to protect liquidity);
3. Sell securities short or purchase any securities on margin, except to
the extent permitted by applicable law, regulation or order;
4. With respect to 75% of its total assets, invest in the securities of
any issuer if, immediately after such investment, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer;
provided that this limitation does not apply to obligations issued or
guaranteed as to interest or principal by the U.S. government or its
agencies or instrumentalities, or to securities of any registered
investment company; or
5. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer (as of the time of
acquisition).
AMERICAN DEPOSITARY RECEIPTS--The Fund may invest in foreign equity
securities by purchasing American Depositary Receipts ("ADRs"). ADRs are
instruments issued by a bank that represent an interest in equity securities
held by arrangement with the bank. ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. ADRs are traded on domestic exchanges or in the U.S. over-the-counter
market and, generally, are in registered form.
ADRs can be either "sponsored" or "unsponsored." Sponsored ADRs are issued
by banks in cooperation with the issuer of the underlying equity securities.
Unsponsored ADRs are arranged without involvement by the issuer of the
underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored ADRs.
To the extent the Fund acquires ADRs through banks that do not have a
contractual relationship with the foreign issuer of the security underlying
the ADR to issue and service such ADR (unsponsored), there may be an increased
possibility that the Fund would not become aware of and be able to respond to
corporate actions such as stock splits or rights offerings involving the
foreign issuer in a timely manner. In addition, the lack of information may
result in inefficiencies in the valuation of such instruments. Investment in
ADRs does not eliminate the risks inherent in investing in securities of non-
U.S. issuers. The market value of ADRs is dependent upon the market value of
the underlying securities and fluctuations in the relative value of the
currencies in which the ADRs receipts and the underlying securities are
quoted. However, as ADRs are quoted in U.S. dollars, the Fund may avoid
currency risks during the settlement period for purchases and sales.
MANAGEMENT OF THE FUND
The Board of Managers and the officers of the Fund and their addresses, ages
at May 1, 2000 and principal occupations during the past five years are as
follows:
JOHN J. ARENA, Manager, (62).
330 Beacon Street, Boston MA 02116.
Retired; formerly, Vice Chairman of the Board of Directors, Bay Banks, Inc.
and President of BayBank Investment Management, 1992-1994.
EDWARD A. BENJAMIN*, Manager, (62).
71 Sierra Rosa Loop, Santa Fe, NM 87501
Retired; formerly, Partner, Ropes & Gray (law firm); Director, Precision
Optics Corporation (optics manufacturer).
II-4
<PAGE>
MARY ANN BROWN*, Manager, (48).
New England Life Insurance Company, 501 Boylston Street, Boston, MA 02117.
President, New England Products and Services, New England Financial;
formerly, President and Chief Executive Officer, Atlantic International
Reinsurance Company; formerly, Director, Swiss Reinsurance Company; formerly,
Principal, Tillinghast/Towers Perrin (consulting).
JOHN W. FLYNN, Manager, (60).
791 Main Street, Warren, RI 02885.
Retired; formerly, Vice Chairman, Chief Financial Officer, Fleet Financial
Group (bank holding company), 1990-1993.
ANNE M. GOGGIN*, Manager and Chairman, (51).
New England Life Insurance Company ("NELICO"), 501 Boylston Street, Boston, MA
02117.
Senior Vice President and Associate General Counsel, NELICO; Chairman of the
Board and President, New England Investment Management, Inc. ("NEIM");
formerly, Vice President, General Counsel, Secretary and Clerk, New England
Securities, 1993-1999.
NANCY HAWTHORNE, Manager, (49).
60 Hyslop Road, Brookline, MA 02146.
Chairman of the Board, WorldClinic (a distance medicine company); Director,
Perini Corporation (construction); Director, Avid Technologies (computer
software company); Director, CGU (property and casualty insurance company);
formerly, Chief Executive Officer and Managing Partner, Hawthorne, Krauss and
Associates (corporate financial advisor); formerly, Chief Financial Officer
and Executive Vice President, Continental Cablevision, subsequently renamed
MediaOne (cable television company).
JOHN T. LUDES, Manager, (63).
American Brands, 1700 E. Putnam Avenue, Old Greenwich, CT 06870.
Vice Chairman, American Brands (consumer products company); formerly,
President & Chief Operating Officer, Fortune Brands (global conglomerate),
1995-1998; formerly, President and CEO, Acushnet Company (sporting goods
manufacturing), 1982-1995.
DALE ROGERS MARSHALL, Manager, (63).
Wheaton College, 26 East Main Street, Norton, MA 02766.
President, Wheaton College; formerly, Academic Dean, Wellesley College.
THOMAS M. LENZ, Secretary, (41).
NELICO, 501 Boylston Street, Boston, MA 02117.
Secretary; Counsel, NELICO; Secretary, Clerk and General Counsel, NEIM (since
December 1998); formerly, Vice President, State Street Bank and Trust Company
from 1996 until December 1998; Senior Vice President U.S./Offshore Product
Development and Associate General Counsel, Signature Financial Group, Inc.
prior to 1996.
- -------
*Indicates a Board member who is an "interested person" as defined by the
Investment Company Act of 1940 (the "1940 Act").
COMMITTEES OF THE BOARD. The Managers have delegated certain authority to an
Executive Committee consisting of Messrs. Arena and Flynn and Ms. Goggin 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 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.
II-5
<PAGE>
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. Flynn 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 other than Mr. Benjamin.
Each Manager who is not an "interested person" of the Fund and Mr. Benjamin
also serves as trustee and member of the same committees of New England Zenith
Fund, a registered investment company, 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, 1999, 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, 1999, there were a total of 16 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 1999 FUND IN 1999
--------------- ---------------------- ------------------
<S> <C> <C>
John J. Arena........................ $1,524 $43,500
Edward A. Benjamin(b)................ 216 7,500
John W. Flynn........................ 1,280 36,000
Nancy Hawthorne...................... 1,433 37,500
Joseph M. Hinchey(c)................. 1,161 36,500
Robert B. Kittredge(c)............... 1,433 74,500(a)
John T. Ludes........................ 1,226 35,000
Dale Rogers Marshall................. 1,433 37,500
</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) Mr. Benjamin is an interested person of the Fund because until December
1998 he was a partner of Ropes & Gray, a law firm that acted as counsel to
the Fund, the Company, and certain of their affiliates.
(c) Retired from service as a manager of the Fund effective December 31, 1999.
CODE OF ETHICS. The Fund and CGM have each adopted a Code of Ethics which
establish procedures for the detection and prevention of certain conflicts of
interest, including activities by which persons having knowledge of the
investment intentions of the Fund might take advantage of that knowledge for
their own benefit. Although each Code of Ethics does not prohibit employees
who have knowledge of the investments and investment intentions of the Fund
from engaging in personal securities investing, it does regulate such personal
securities investing so that conflicts of interest may be avoided.
II-6
<PAGE>
Each Code of Ethics can be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-202-942-8090. Each Code of Ethics
is available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov and copies of each Code of Ethics may be obtained by paying
a duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
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, 1997, 1998 and 1999 the Fund paid
CGM advisory fees of $221,842, $232,028 and $229,509.
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, Nvest Growth Fund (a series of Nvest Funds Trust I) and
the Capital Growth Series of New England Zenith Fund.
II-7
<PAGE>
Managers of the Fund may also serve as officers, directors, or trustees of
other investment companies advised by CGM or of other corporate or fiduciary
clients of CGM. Such clients may include some accounts of MetLife and its
affiliates ("MetLife accounts"). The other investment companies and clients
served by CGM sometimes invest in securities in which the Fund also invests.
If the Fund and such other investment companies, or clients advised by CGM
(including MetLife accounts) desire to buy or sell the same portfolio
securities at about the same time, purchases and sales will be allocated to
the extent practicable on a pro rata basis in proportion to the amounts
desired to be purchased or sold for each. It is recognized that in some cases
the practices described in this paragraph could have a detrimental effect on
the price or amount of the securities which the Fund purchases or sells. In
other cases, however, it is believed that these practices may benefit the
Fund. It is the opinion of the Board of Managers that the desirability of
retaining CGM as adviser to the Fund outweighs the disadvantages, if any,
which might result from these practices.
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 1997, 1998 and 1999 this deduction
amounted to $5,779, $4,036 and $4,540 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 1997, 1998 and 1999 these deductions amounted to
$15,471, $10,811 and $9,949 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.
II-8
<PAGE>
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
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 1999, brokerage transactions for the Fund aggregating $261,699,680 were
allocated to brokers providing research services and $315,387 in commissions
were paid on these transactions. During 1997, 1998, and 1999 the Fund paid
total brokerage fees of $249,359, $287,278 and $412,177 respectively.
II-9
<PAGE>
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 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 1997, 1998, and 1999 the Company paid commissions
to those registered representatives with respect to ongoing purchase payments
under the contracts in the amounts of $16,159, $9,087 and $14,151,
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, 1999.
<TABLE>
<CAPTION>
PERCENT CHANGE IN UNIT VALUE
- ----------------------------
<S> <C>
28 years, 9 months ended December 31, 1999............................ +3,207.7%
20 years ended December 31, 1999...................................... +2,721.6%
15 years ended December 31, 1999...................................... +971.4%
10 years ended December 31, 1999...................................... +379.4%
5 years ended December 31, 1999....................................... +221.7%
1 year ended December 31, 1999........................................ +17.5%
</TABLE>
II-10
<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
December 31, 1999..................................... 38.279606 +17.5
</TABLE>
ANNUITY PAYMENTS
When a variable payment option is selected, the contract proceeds will be
applied at annuity purchase rates, which vary depending on the particular
option selected and the age of the payee (and, where sex-neutral annuity rates
are not applicable, on the sex of the payee when the payment option selected
involves a life contingency). The impact of the choice of option and the sex
and age of the payee on the level of annuity payments is described in the
prospectus under "Variable Payment Options."
The amount of the basic payment level is determined by applying the
applicable annuity purchase rate to the amount applied to provide the annuity.
This basic payment level is converted into annuity units, the number of which
remains constant. Each monthly annuity payment is in an amount equal to that
number of annuity units multiplied by the value of the applicable annuity unit
as of the date of payment. The values of annuity units will change from day to
day, depending upon the investment performance of the Fund.
The selection of an assumed interest rate will affect both the basic payment
level and the amount by which subsequent payments increase or decrease. The
basic payment level is calculated on the assumption that the Net
II-11
<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-12
<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 and have
been so included in reliance upon such reports of such firm given upon their
authority as experts in auditing and accounting.
II-13
<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, 1999, and the related statements of
operations for the year then ended, changes in net assets for the two years
then ended, and selected per unit data and ratios for the three 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 two
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, 1999, 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, 1999, the
results of its operations for the year then ended, the changes in its net
assets for the two years then ended, and selected per unit data and ratios for
the three years then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 2000
II-14
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENT OF
ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments at value (average cost $64,182,814)(Note 2).......... $76,380,356
Receivable for investments sold.................................. 2,800,165
Dividends and interest receivable................................ 66,668
-----------
Total assets.................................................. 79,247,189
-----------
LIABILITIES
Payable for investments purchased................................ 1,725,116
Payable for investment advisory fees (Note 4).................... 19,207
Payable for mortality and expense risks (Note 5)................. 56,071
Payable for other direct expenses (Note 4)....................... 30,705
Payable to bank.................................................. 149,250
-----------
Total liabilities............................................. 1,980,349
-----------
NET ASSETS........................................................ $77,266,840
===========
Net assets attributable to variable annuity contractholders
1,805,042 accumulation units at $38.28 per unit.................. $69,096,281
Annuity reserves (Note 2)......................................... 8,170,559
-----------
$77,266,840
===========
</TABLE>
STATEMENT OF
OPERATIONS
For the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
INCOME
Dividends (net of foreign tax credit of $76,204)................. $ 1,292,135
Interest......................................................... 43,877
-----------
Total income................................................... 1,336,012
-----------
EXPENSES
Mortality and expense risks (Notes 2 and 5)...................... 668,188
Investment advisory fee (Note 4)................................. 229,509
Other direct expenses (Note 4)................................... 36,197
-----------
Total expenses................................................. 933,894
-----------
NET INVESTMENT INCOME............................................ 402,118
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (Note 3)
Net realized gain from investments sold.......................... 17,597,004
Net change in unrealized depreciation of investments............. (5,988,129)
-----------
Net gain on investments.......................................... 11,608,875
-----------
Increase in net assets resulting from operations.................. $12,010,993
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-15
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income..................... $ 402,118 $ 317,971
Realized net gain from investments sold... 17,597,004 11,255,524
Change in unrealized appreciation
(depreciation) of investments............ (5,988,129) 10,036,280
---------------- ----------------
Increase in net assets resulting from
operations............................... 12,010,993 21,609,775
---------------- ----------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Purchase payments, less sales and
administrative expenses and applicable
premium taxes (Note 4)................... 388,326 320,036
Contract terminations..................... (14,269,358) (13,539,514)
Annuity payments.......................... (921,771) (785,818)
Adjustments to annuity reserves (Note 2).. 328,710 298,268
---------------- ----------------
Decrease in net assets resulting from
principal transactions................... (14,474,093) (13,707,028)
---------------- ----------------
Total increase (decrease) in net assets... (2,463,100) 7,902,747
NET ASSETS
Beginning of year......................... 79,729,940 71,827,193
---------------- ----------------
End of year............................... $ 77,266,840 $ 79,729,940
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-16
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
SUPPLEMENTARY INFORMATION--
Selected Per Unit Data and Ratios
Selected data for an accumulation unit outstanding throughout each year and
ratios are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of year...... $32.58 $24.55 $20.08 $16.52 $11.90
--------- --------- --------- --------- ---------
Per unit data
Investment income...... .60 .50 .29 .28 .24
Expenses............... (.44) (.38) (.32) (.24) (.19)
--------- --------- --------- --------- ---------
Net investment income
(loss)................ .16 .12 (.03) .04 .05
Net realized and
unrealized gain on
investments........... 5.54 7.91 4.50 3.52 4.57
--------- --------- --------- --------- ---------
Net increase in net
asset value........... 5.70 8.03 4.47 3.56 4.62
--------- --------- --------- --------- ---------
Net Asset Value, end of
year.................. $38.28 $32.58 $24.55 $20.08 $16.52
========= ========= ========= ========= =========
Total Return (%)........ 17.5 32.7 22.3 21.5 38.9
Ratios
Ratio of operating
expenses to average
net assets (%)........ 1.30 1.34 1.35 1.34 1.35
Ratio of net investment
income to average net
assets (%)............ .48 .44 (.09) .22 .34
Portfolio turnover (%).. 204.32 195.15 209.18 196.25 228.26
Number of accumulation
units outstanding at
end of year............ 1,805,042 2,219,809 2,694,327 3,012,611 3,399,132
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-17
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS
1.Nature of Operations
New England Variable Annuity Fund I (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund is sold for use with various retirement
plans that are qualified under the Internal Revenue Code, for individual use,
and for use with plans and trusts that are not qualified under the Internal
Revenue Code. The operations of the Fund are part of Metropolitan Life
Insurance Company (the "Insurance Company"). Prior to August 30, 1996, the Fund
was a part of New England Mutual Life Insurance Company ("New England Mutual").
Effective August 30, 1996, New England Mutual merged into the Insurance
Company. New England Life Insurance Company, a subsidiary of the Insurance
Company, is the designated office for contract-holder services. No new
contracts are being offered at this time, but holders of existing flexible
payment deferred contracts may continue to make purchase payments.
2.Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund.
A. Security valuation. Investments in common stocks traded on a national
securities exchange or on the NASDAQ national market system are valued at
their last reported sales prices on the principal exchange, or if there was
no reported sale during the day and for over-the-counter securities not so
listed, at the last reported bid prices. Corporate short-term notes are
stated at cost, which approximates fair value.
B. Security transactions and related investment income. Security transactions
are accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Net investment income and net
realized and unrealized gain (loss) on investments are allocated to the
contracts on each valuation date based on each contract's pro rata share of
the net assets of the Fund as of the beginning of the valuation period.
C. Federal income taxes. The Fund is not taxed separately because the
operations of the Fund are part of the total operations of the Insurance
Company. The Insurance Company is taxed as a life insurance company under
the Internal Revenue Code. The Fund will not be taxed as a regulated
investment company under subchapter M of the Code. Under existing federal
income tax law, no taxes are payable on the investment income or on the
capital gains of the Fund.
D. Annuity reserves. Annuity reserves are computed for currently payable
contracts according to the 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-18
<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, 1999 were
$151,690,496 and $166,573,380, 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, 1999, the Fund incurred investment
management fees of $229,509, 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, 1999, amounted
to $14,489, 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, 1999 the charges to the Fund amounted to $36,197.
5.Mortality and Expense Risks
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 1999, the mortality and expense risk
charges totaled $668,188.
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, adjusted for 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-19
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- Continued
6.Related Parties
The Chairman of the Board of Managers and one manager of the Fund are also
officers of New England Life Insurance Company.
7.Increase (Decrease) in Accumulation Units
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Units purchased.......................................... 28,117 14,318
Units redeemed........................................... (442,884) (488,836)
--------- ---------
Net decrease............................................ (414,767) (474,518)
Units at beginning of year................................ 2,219,809 2,694,327
--------- ---------
Units at end of year...................................... 1,805,042 2,219,809
========= =========
</TABLE>
8.Contract Owner Meetings for 1999 (Unaudited)
At a Special Meeting of Contractholders of New England Variable Annuity Fund I
held on October 15, 1999, sufficient votes were represented to constitute a
quorum, and Contractholders voted to approve the following proposals:
1.To fix the number of members of the Board of Managers at ten members.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
------------ ------------- --------------- ------------
<S> <C> <C> <C>
1,047,744.62 20,213.03 20,664.33 1,088,622.00
</TABLE>
2.To elect a Board of Managers:
<TABLE>
<CAPTION>
MANAGERS VOTED FOR WITHHELD VOTES TOTAL VOTES
- -------- ------------ -------------- ------------
<S> <C> <C> <C>
John J. Arena.......................... 1,071,070.01 17,551.99 1,088,622.00
Edward A. Benjamin..................... 1,071,070.01 17,551.99 1,088,622.00
Mary Ann Brown......................... 1,071,070.01 17,551.99 1,088,622.00
John W. Flynn.......................... 1,071,070.01 17,551.99 1,088,622.00
Anne M. Goggin......................... 1,071,070.01 17,551.99 1,088,622.00
Nancy Hawthorne........................ 1,071,070.01 17,551.99 1,088,622.00
Joseph M. Hinchey...................... 1,071,070.01 17,551.99 1,088,622.00
Robert B. Kittredge.................... 1,071,070.01 17,551.99 1,088,622.00
John T. Ludes.......................... 1,071,070.01 17,551.99 1,088,622.00
Dale Rogers Marshall................... 1,071,070.01 17,551.99 1,088,622.00
</TABLE>
II-20
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
NOTES TO FINANCIAL STATEMENTS -- Continued
3. To replace the fundamental investment objective of the Fund with an
otherwise identical, non-fundamental investment objective.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
975,148.34 92,333.62 21,140.03 1,088,622.00
</TABLE>
4. To approve or disapprove certain changes to the fundamental investment
restrictions of the Fund in order to adopt a set of standardized investment
restrictions.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
------------ ------------- --------------- ------------
<S> <C> <C> <C>
1,004,555.02 49,824.66 34,242.31 1,088,622.00
</TABLE>
4a.Eliminate fundamental investment restriction relating to investments of a
single issuer.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
978,940.53 82,497.90 27,183.55 1,088,622.00
</TABLE>
4b. Revise the fundamental investment restriction relating to concentration of
investment in one industry.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
986,679.57 77,695.39 24,247.03 1,088,622.00
</TABLE>
4c. Revise the fundamental restriction relating to borrowings.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
968,259.19 99,262.75 21,100.05 1,088,622.00
</TABLE>
4d. Revise the fundamental investment restriction relating to underwriting of
securities.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
988,333.68 78,870.80 21,417.51 1,088,622.00
</TABLE>
4e. Eliminate the fundamental investment restriction relating to the purchase
of restricted securities.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
988,578.36 77,762.87 22,280.76 1,088,622.00
</TABLE>
4f. Revise the fundamental investment restriction relating to investments in
real estate.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
994,166.63 71,796.43 22,658.93 1,088,622.00
</TABLE>
4g. Revise the fundamental investment restriction relating to investments in
commodities.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
995,724.11 71,797.82 21,100.05 1,088,622.00
</TABLE>
4h. Revise the fundamental investment restriction relating to making loans.
<TABLE>
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED VOTES TOTAL VOTES
---------- ------------- --------------- ------------
<S> <C> <C> <C>
975,719.49 83,772.11 29,130.39 1,088,622.00
</TABLE>
II-21
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<C> <S> <C>
COMMON STOCKS--98.0% OF TOTAL NET ASSETS
<CAPTION>
VALUE
SHARES (NOTE 2)
------- -----------
<C> <S> <C>
ALUMINIUM--8.6%
38,000 Alcan Aluminium, Ltd. .................................. $ 1,565,125
60,900 Alcoa, Inc. ............................................ 5,054,700
-----------
6,619,825
-----------
BEVERAGES & TOBACCO--4.8%
52,500 Anheuser-Busch Cos, Inc. ............................... 3,720,937
-----------
COMPUTER SOFTWARE & SERVICES--2.7%
22,000 Computer Sciences Corp.* ............................... 2,081,750
-----------
CONSUMER DURABLES--6.8%
39,020 Koninklijke Philips Electron ........................... 5,267,700
-----------
ELECTRONIC & COMMUNICATION EQUIPMENT--4.1%
16,800 Nokia Corp. ............................................ 3,192,000
-----------
ELECTRONIC COMPONENTS--8.6%
56,500 Micron Technology, Inc.* ............................... 4,392,875
23,100 Texas Instruments, Inc. ................................ 2,237,812
-----------
6,630,687
-----------
FOOD--RETAILERS/WHOLESALERS--2.6%
42,000 Hershey Foods Corp. .................................... 1,995,000
-----------
HOTELS & RESTAURANTS--6.6%
38,500 McDonald's Corp. ....................................... 1,552,031
91,000 Tricon Global Restaurants, Inc.* ....................... 3,514,875
-----------
5,066,906
-----------
INSURANCE--4.2%
68,000 AFLAC, Inc. ............................................ 3,208,750
-----------
LEISURE--3.6%
183,500 Mirage Resorts, Inc.* .................................. 2,809,844
-----------
LIGHT CAPITAL GOODS--7.2%
26,800 Applied Materials, Inc.* ............................... 3,395,225
32,900 Teradyne, Inc.* ........................................ 2,171,400
-----------
5,566,625
-----------
MACHINERY--2.2%
40,000 Deere & Co. ............................................ 1,735,000
-----------
METALS & MINING--4.9%
160,000 Inco Ltd.* ............................................. 3,760,000
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-22
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
PORTFOLIO OF INVESTMENTS -- Continued
<TABLE>
<C> <S> <C>
COMMON STOCKS -- CONTINUED
<CAPTION>
VALUE
SHARES (NOTE 2)
-------- -----------
<C> <S> <C>
MICROCOMPUTERS--5.3%
40,000 Apple Computer, Inc.* ................................. $ 4,112,500
-----------
OIL--MAJOR INTEGRATED--1.7%
19,500 Total Fina ............................................ 1,350,375
-----------
REAL ESTATE INVESTMENT TRUSTS--8.7%
42,900 Apartment Investment & Management Co. ................. 1,707,956
52,500 Boston Properties, Inc. ............................... 1,634,063
65,500 General Growth Properties, Inc. ....................... 1,834,000
48,000 Vornado Realty Trust .................................. 1,560,000
-----------
6,736,019
-----------
RETAIL--3.2%
61,000 CVS Corp. ............................................. 2,436,188
-----------
STEEL--4.9%
109,000 Pohang Iron & Steel Ltd. .............................. 3,815,000
-----------
TELEPHONE--7.3%
11,500 Telecomunicacoes Brasileiras .......................... 1,477,750
37,000 Telefonos de Mexico ................................... 4,162,500
-----------
5,640,250
-----------
TOTAL COMMON STOCKS
(average cost $63,547,814)............................. 75,745,356
-----------
CORPORATE SHORT-TERM NOTES--0.8% OF TOTAL NET ASSETS
<CAPTION>
FACE
AMOUNT
--------
<C> <S> <C>
$635,000 American Express Credit Corp., 4.25% due 1/3/00 ....... 635,000
-----------
TOTAL CORPORATE SHORT-TERM NOTES
(average cost $635,000)................................ 635,000
-----------
TOTAL INVESTMENTS--98.8%
(average cost $64,182,814)............................. 76,380,356
-----------
Other assets in excess of other liabilities--1.2% ..... 886,484
-----------
TOTAL NET ASSETS--100% $77,266,840
===========
*Non-income producing security.
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-23
<PAGE> 1
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
METROPOLITAN LIFE INSURANCE COMPANY
Independent Auditors' Report................................
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997..........................
Consolidated Balance Sheets at December 31, 1999 and 1998...
Consolidated Statements of Equity for the years ended
December 31, 1999, 1998 and 1997..........................
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997..........................
Notes to Consolidated Financial Statements..................
</TABLE>
<PAGE> 2
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, 1999 and 1998, and the related consolidated statements of income,
equity and cash flows for each of the three years in the period ended December
31, 1999. 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, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 7, 2000
<PAGE> 3
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $12,088 $11,503 $11,278
Universal life and investment-type product policy fees...... 1,438 1,360 1,418
Net investment income....................................... 9,816 10,228 9,491
Other revenues.............................................. 2,154 1,994 1,491
Net realized investment gains (losses) (net of amounts
allocable to other accounts of $(67), $608 and $231,
respectively)............................................. (70) 2,021 787
------- ------- -------
25,426 27,106 24,465
------- ------- -------
EXPENSES
Policyholder benefits and claims (excludes amounts directly
related to net realized investment gains (losses) of
$(21), $368 and $161, respectively)....................... 13,105 12,638 12,403
Interest credited to policyholder account balances.......... 2,441 2,711 2,878
Policyholder dividends...................................... 1,690 1,651 1,742
Other expenses (excludes amounts directly related to net
realized investment gains (losses) of $(46), $240 and $70,
respectively)............................................. 6,755 8,019 5,771
------- ------- -------
23,991 25,019 22,794
------- ------- -------
Income before provision for income taxes and extraordinary
item...................................................... 1,435 2,087 1,671
Provision for income taxes.................................. 593 740 468
------- ------- -------
Income before extraordinary item............................ 842 1,347 1,203
Extraordinary item -- demutualization expense............... 225 4 --
------- ------- -------
Net income.................................................. $ 617 $ 1,343 $ 1,203
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value........ $ 96,981 $100,767
Equity securities, at fair value.......................... 2,006 2,340
Mortgage loans on real estate............................. 19,739 16,827
Real estate and real estate joint ventures................ 5,649 6,287
Policy loans.............................................. 5,598 5,600
Other limited partnership interests....................... 1,331 1,047
Short-term investments.................................... 3,055 1,369
Other invested assets..................................... 1,501 1,484
-------- --------
135,860 135,721
Cash and cash equivalents................................... 2,789 3,301
Accrued investment income................................... 1,725 1,994
Premiums and other receivables.............................. 6,681 5,972
Deferred policy acquisition costs........................... 8,492 6,538
Deferred income taxes....................................... 603 --
Other....................................................... 4,141 3,752
Separate account assets..................................... 64,941 58,068
-------- --------
$225,232 $215,346
======== ========
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits...................................... $ 73,582 $ 72,701
Policyholder account balances............................... 45,901 46,494
Other policyholder funds.................................... 4,498 4,061
Policyholder dividends payable.............................. 974 947
Short-term debt............................................. 4,208 3,585
Long-term debt.............................................. 2,514 2,903
Current income taxes payable................................ 548 403
Deferred income taxes payable............................... -- 545
Other....................................................... 14,376 10,772
Separate account liabilities................................ 64,941 58,068
-------- --------
211,542 200,479
-------- --------
Commitments and contingencies (Note 9)
Equity:
Retained earnings........................................... 14,100 13,483
Accumulated other comprehensive income (loss)............... (410) 1,384
-------- --------
13,690 14,867
-------- --------
$225,232 $215,346
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
-----------------------------------------
NET FOREIGN MINIMUM
UNREALIZED CURRENCY PENSION
COMPREHENSIVE RETAINED INVESTMENT TRANSLATION LIABILITY
TOTAL INCOME (LOSS) EARNINGS GAINS (LOSSES) ADJUSTMENT ADJUSTMENT
----- ------------- -------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997....... $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)
Comprehensive loss:
Net income..................... 617 $ 617 617
-------
Other comprehensive loss:
Unrealized investment losses,
net of related offsets,
reclassification
adjustments and income
taxes...................... (1,837) (1,837)
Foreign currency translation
adjustments................ 50 50
Minimum pension liability
adjustment................. (7) (7)
-------
Other comprehensive loss..... (1,794) (1,794)
-------
Comprehensive loss............. $(1,177)
=======
------- ------- ------- ----- ----
Balance at December 31, 1999..... $13,690 $14,100 $ (297) $ (94) $(19)
======= ======= ======= ===== ====
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 617 $ 1,343 $ 1,203
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expenses.................. 173 56 (36)
(Gains) losses from sales of investments and businesses,
net................................................... 137 (2,629) (1,018)
Change in undistributed income of real estate joint
ventures and other limited partnership interests...... (322) (91) 157
Interest credited to policyholder account balances...... 2,441 2,711 2,878
Universal life and investment-type product policy
fees.................................................. (1,438) (1,360) (1,418)
Change in accrued investment income..................... 269 (181) (215)
Change in premiums and other receivables................ (619) (2,681) (792)
Change in deferred policy acquisition costs, net........ (389) (188) (159)
Change in insurance related liabilities................. 2,248 1,481 2,364
Change in income taxes payable.......................... 22 251 (99)
Change in other liabilities............................. 857 2,390 (206)
Other, net.............................................. (131) (260) 213
-------- -------- --------
Net cash provided by operating activities................... 3,865 842 2,872
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales, maturities and repayments of:
Fixed maturities........................................ 73,120 57,857 75,346
Equity securities....................................... 760 3,085 1,821
Mortgage loans on real estate........................... 1,992 2,296 2,784
Real estate and real estate joint ventures.............. 1,062 1,122 2,046
Other limited partnership interests..................... 469 146 166
Purchases of:
Fixed maturities........................................ (72,253) (67,543) (76,603)
Equity securities....................................... (410) (854) (2,121)
Mortgage loans on real estate........................... (4,395) (2,610) (4,119)
Real estate and real estate joint ventures.............. (341) (423) (624)
Other limited partnership interests..................... (465) (723) (338)
Net change in short-term investments...................... (1,577) (761) 63
Net change in policy loans................................ 2 133 17
Purchase of businesses, net of cash received.............. (2,972) -- (430)
Proceeds from sales of businesses......................... -- 7,372 135
Net change in investment collateral....................... 2,692 3,769 --
Other, net................................................ (73) (183) 191
-------- -------- --------
Net cash provided by (used in) investing activities......... (2,389) 2,683 (1,666)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits................................................ 18,428 19,361 16,061
Withdrawals............................................. (20,650) (21,706) (18,831)
Short-term debt, net...................................... 623 (1,002) 1,265
Long-term debt issued..................................... 44 693 989
Long-term debt repaid..................................... (433) (481) (104)
-------- -------- --------
Net cash used in financing activities....................... (1,988) (3,135) (620)
-------- -------- --------
Change in cash and cash equivalents......................... (512) 390 586
Cash and cash equivalents, beginning of year................ 3,301 2,911 2,325
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 2,789 $ 3,301 $ 2,911
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 388 $ 367 $ 422
======== ======== ========
Income taxes.............................................. $ 587 $ 579 $ 589
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
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.
PLAN OF REORGANIZATION
On September 28, 1999, the board of directors of MetLife adopted, pursuant
to the New York Insurance Law, a plan of reorganization, and subsequently
adopted amendments to the plan, pursuant to which MetLife proposes to convert
from a mutual life insurance company to a stock life insurance company and
become a wholly-owned subsidiary of MetLife, Inc. The plan was approved by
MetLife's voting policyholders on February 7, 2000. The plan will become
effective at such time as the New York Superintendent of Insurance
("Superintendent") approves it based on finding, among other things, that the
plan is fair and equitable to policyholders. The plan requires an initial public
offering of common stock and provides for other capital raising transactions on
the effective date of the plan.
On the date the plan of reorganization becomes effective, each
policyholder's membership interest will be extinguished and each eligible
policyholder will be entitled to receive, in exchange for that interest, trust
interests representing shares of common stock of MetLife, Inc. to be held in a
trust, cash or an adjustment to their policy values in the form of policy
credits, as provided in the plan. In addition, when MetLife demutualizes,
MetLife's Canadian branch will make cash payments to holders of certain policies
transferred to Clarica Life Insurance Company ("Clarica Life") in connection
with the sale of a substantial portion of MetLife's Canadian operations in 1998.
See Note 9.
The plan of reorganization requires that MetLife establish and operate a
closed block for the benefit of holders of certain individual life insurance
policies of MetLife. Assets will be allocated to the closed block in an amount
that is expected to produce cash flows which, together with anticipated revenue
from the policies included in the closed block, are reasonably expected to be
sufficient to support obligations and liabilities relating to these policies,
including, but not limited to, provisions for the payment of claims and certain
expenses and taxes, and for the continuation of policyholder dividend scales in
effect for 1999, if the experience underlying such dividend scales continues,
and for appropriate adjustments in such scales if the experience changes. The
closed block assets, the cash flows generated by the closed block assets and the
anticipated revenues from the policies in the closed block will benefit only the
holders of these policies included in the closed block. To the extent that, over
time, cash flows from the assets allocated to the closed block and claims and
other experience relating to the closed block are, in the aggregate, more or
less favorable than assumed in establishing the closed block, total dividends
paid to the closed block policyholders in the future may be greater than or less
than which would have been paid to these policyholders if the policyholder
dividend scales in effect for 1999 had been continued. Any cash flows in excess
of amounts assumed will be available for distribution over time to closed block
policyholders and will not be available to stockholders. The closed block will
continue in effect until the last policy in the closed block is no longer in
force.
<PAGE> 8
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accounting principles to account for the participating policies
included in the closed block will be those used prior to the date of the
demutualization. However, a policyholder dividend obligation will be established
for earnings that will be paid to policyholders as additional dividends in the
amounts described below, unless these earnings are offset by future unfavorable
experience in the closed block. Although all of the cash flows of the closed
block are for the benefit of closed block policyholders, the excess of closed
block liabilities over closed block assets at the effective date will represent
the estimated maximum future contributions from the closed block expected to be
reported in income as the contribution from the closed block after income taxes.
The contribution from the closed block will be recognized in income over the
period the policies and contracts in the closed block remain in force.
Management believes that over time the actual cumulative contributions from the
closed block will approximately equal the expected cumulative contributions, due
to the effect of dividend changes. If, over the period the closed block remains
in existence, the actual cumulative contribution from the closed block is
greater than the expected cumulative contribution from the closed block, the
expected cumulative contribution will be recognized in income with the excess
recorded as a policyholder dividend obligation, because the excess of the actual
cumulative contribution from the closed block over the expected cumulative
contribution will be paid to closed block policyholders as additional
policyholder dividends unless offset by future unfavorable experience of the
closed block. If over such period, the actual cumulative contribution from the
closed block is less than the expected cumulative contribution from the closed
block, the actual contribution will be recognized in income. However, dividends
in the future may be changed, which would be intended to increase future actual
contribution until the actual contribution equal the expected cumulative
contribution.
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 dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. 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.
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 majority voting interest or general partner interest with limited removal
rights by limited partners. 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 related to consolidated entities included in other
liabilities was $245 and $274 at December 31, 1999 and 1998, respectively.
<PAGE> 9
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1999 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 (loss), 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 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.
<PAGE> 10
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (loss), similar to
the accounting for the investment security. Such contracts are accounted for at
settlement by recording the purchase of the specified securities at the
contracted 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 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 (loss), 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.
<PAGE> 11
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 of property and
equipment and accumulated amortization on leasehold improvements was $1,130 and
$1,098 at December 31, 1999 and 1998, respectively. Related depreciation and
amortization expense was $103, $116 and $103 for the years ended December 31,
1999, 1998 and 1997, 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 with interest 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. Interest rates are based on rates in effect at
the inception of the contracts. 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
lives of the contracts. Deviations from estimated experience are included in
operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Deferred policy acquisition costs related to internally replaced contracts
are expensed at date of replacement.
Deferred policy acquisition costs for property and casualty 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.
On September 28, 1999, the Company's Board of Directors adopted a plan of
reorganization. Consequently, in the fourth quarter of 1999, the Company was
able to commit to state insurance regulatory authorities that it would establish
investment sub-segments to further align investments with the traditional
individual life business of the Individual segment. As a result, future
dividends for the traditional individual life business will be determined based
on the results of the new investment sub-segments. Additionally, estimated
future gross margins used to determine amortization of deferred policy
acquisition costs and the amount of unrealized investment gains and losses
relating to these products are based on investments in the new sub-segments.
Using the investments in the sub-segments to determine estimated gross margins
and unrealized investment gains and losses increased 1999 amortization of
deferred policy acquisition costs by $56 (net of income taxes of $32) and
decreased other comprehensive loss in 1999 by $123 (net of income taxes of $70).
<PAGE> 12
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding deferred policy acquisition costs is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1.................................. $ 6,538 $6,436 $7,227
Capitalized during the year........................... 1,160 1,025 1,000
------- ------ ------
Total............................................ 7,698 7,461 8,227
------- ------ ------
Amortization allocated to:
Net realized investment gains (losses).............. (46) 240 70
Unrealized investment gains (losses)................ (1,628) (216) 727
Other expenses...................................... 862 587 771
------- ------ ------
Total amortization............................... (812) 611 1,568
------- ------ ------
Dispositions and other................................ (18) (312) (223)
------- ------ ------
Balance at December 31................................ $ 8,492 $6,538 $6,436
======= ====== ======
</TABLE>
Amortization of deferred policy acquisition costs is allocated to (1)
realized investment gains and losses to provide consolidated statement of income
information regarding the impact of such gains and losses on the amount of the
amortization, (2) unrealized investment gains and losses to provide information
regarding the amount of deferred policy acquisition costs that would have been
amortized if such gains and losses had been realized and (3) other expenses to
provide amounts related to the gross margins or profits originating from
transactions other than investment gains and losses.
Realized investment gains and losses related to certain products have a
direct impact on the amortization of deferred policy acquisition costs.
Presenting realized investment gains and losses net of related amortization of
deferred policy acquisition costs provides information useful in evaluating the
operating performance of the Company. This presentation may not be comparable to
presentations made by other insurers.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired ("goodwill")
and other intangible assets, including 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.
Impairments are recognized in operating results if a permanent diminution in
value is deemed to have occurred. Other intangible assets are amortized over the
expected policy or contract duration in relation to the present value of
estimated gross profits from such policies and contracts.
<PAGE> 13
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GOODWILL OTHER INTANGIBLE ASSETS
-------------------- --------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net Balance at January 1.............. $404 $359 $136 $1,006 $1,055 $ 767
Acquisitions.......................... 237 67 240 156 39 355
Amortization.......................... (30) (22) (17) (114) (88) (67)
---- ---- ---- ------ ------ ------
Net Balance at December 31............ $611 $404 $359 $1,048 $1,006 $1,055
==== ==== ==== ====== ====== ======
DECEMBER 31
Accumulated amortization.............. $118 $ 88 $ 392 $ 278
==== ==== ====== ======
</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 3% to 10%, 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 3% 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 3% to 10%. 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 3% to
10%.
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 2%
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 included 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.
<PAGE> 14
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED 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 products 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 MetLife and its insurance subsidiaries.
DIVIDEND RESTRICTIONS
MetLife, when it converts from a mutual life insurance company to a stock
life insurance company, may be restricted as to the amounts it may pay as
dividends to MetLife, Inc. Under the New York Insurance Law, the Superintendent
has broad discretion to determine whether the financial condition of a stock
life insurance company would support the payment of dividends to its
shareholders. The Department has established informal guidelines for the
Superintendent's determinations which focus upon, among other things, the
overall financial condition and profitability of the insurer under statutory
accounting practices.
PARTICIPATING BUSINESS
Participating business represented approximately 19% and 21% of the
Company's life insurance in-force, and 84% and 81% of the number of life
insurance policies in-force, at December 31, 1999 and 1998, respectively.
Participating policies represented approximately 42% and 44%, 39% and 40%, and
41% and 41% of gross and net life insurance premiums for the years ended
December 31, 1999, 1998 and 1997, 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. MetLife will not be subject to the equity tax when it
converts to a stock life insurance company. The future tax consequences of
temporary differences between financial reporting and tax bases of assets and
liabilities are measured at 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
<PAGE> 15
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Deferred policy acquisition costs are reduced by amounts recovered under
reinsurance contracts. Amounts received from reinsurers for policy
administration are reported in other revenues.
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. See Note 6.
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 the functional currencies unless the local
economy is highly inflationary. Translation adjustments are charged or credited
directly to other comprehensive income (loss). Gains and losses from foreign
currency transactions are reported in other expenses and were insignificant for
all years presented.
EXTRAORDINARY ITEM -- DEMUTUALIZATION EXPENSE
The accompanying consolidated statements of income include extraordinary
charges of $225 (net of income taxes of $35) and $4 (net of income taxes of $2)
for the years ended December 31, 1999 and 1998, respectively, related to costs
associated with the demutualization.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position
("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. Adoption of SOP
98-5 did not have a material effect on the Company's consolidated financial
statements.
Effective January 1, 1999, the Company adopted 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. Adoption of the provisions of SOP 98-1 had the effect of
increasing other assets by $82 at December 31, 1999.
Effective January 1, 1999, the Company adopted 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
<PAGE> 16
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assessments. Adoption of SOP 97-3 did not have a material effect on the
Company's consolidated financial statements.
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities ("SFAS 125") which were
deferred by SFAS 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 other
revenues and other expenses by $266 for the year ended December 31, 1998.
During 1997, the Company changed to the retrospective interest method of
accounting for investment income on structured notes in accordance with Emerging
Issues Task Force Consensus No. 96-12, Recognition of Interest Income and
Balance Sheet Classification of Structured Notes. This accounting change
increased 1997 net investment income by $175, which included an immaterial
amount related to prior years.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 ("SFAS 137"). SFAS 137 defers the provisions of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133") until January 1, 2001. 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 in the process of quantifying the impact of SFAS 133 on its
consolidated financial statements.
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.
<PAGE> 17
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENTS
The components of net investment income were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities.................................... $ 6,766 $ 6,563 $ 6,445
Equity securities................................... 40 78 50
Mortgage loans on real estate....................... 1,479 1,572 1,684
Real estate and real estate joint ventures.......... 1,426 1,529 1,718
Policy loans........................................ 340 387 368
Other limited partnership interests................. 199 196 302
Cash, cash equivalents and short-term investments... 173 187 169
Other............................................... 501 841 368
------- ------- -------
10,924 11,353 11,104
Less: Investment expenses........................... 1,108 1,125 1,613
------- ------- -------
$ 9,816 $10,228 $ 9,491
======= ======= =======
</TABLE>
Net realized investment gains (losses), including changes in valuation
allowances, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities........................................ $(538) $ 573 $ 118
Equity securities....................................... 99 994 224
Mortgage loans on real estate........................... 28 23 56
Real estate and real estate joint ventures.............. 265 424 446
Other limited partnership interests..................... 33 13 12
Sales of businesses..................................... -- 531 139
Other................................................... (24) 71 23
----- ------ ------
(137) 2,629 1,018
Amounts allocable to:
Future policy benefit loss recognition................ -- (272) (126)
Deferred policy acquisition costs..................... 46 (240) (70)
Participating contracts............................... 21 (96) (35)
----- ------ ------
$ (70) $2,021 $ 787
===== ====== ======
</TABLE>
Realized investment gains (losses) have been reduced by (1) additions to
future policy benefits resulting from the need to establish additional
liabilities due to the recognition of investment gains, (2) deferred policy
acquisition cost amortization to the extent that such amortization results from
realized investment gains and losses, and (3) additions to participating
contractholder accounts when amounts equal to such investment gains and losses
are credited to the contractholders' accounts. This presentation may not be
comparable to presentations made by other insurers.
<PAGE> 18
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net unrealized investment gains (losses), included in
accumulated other comprehensive income (loss), were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities.................................... $(1,828) $ 4,809 $ 4,766
Equity securities................................... 875 832 1,605
Other invested assets............................... 165 154 294
------- ------- -------
(788) 5,795 6,665
------- ------- -------
Amounts allocable to:
Future policy benefit loss recognition............ (249) (2,248) (2,189)
Deferred policy acquisition costs................. 697 (931) (1,147)
Participating contracts........................... (118) (212) (312)
Deferred income taxes............................... 161 (864) (1,119)
------- ------- -------
491 (4,255) (4,767)
------- ------- -------
$ (297) $ 1,540 $ 1,898
======= ======= =======
</TABLE>
The changes in net unrealized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1.................................. $ 1,540 $1,898 $1,028
Unrealized investment gains (losses) during the
year................................................ (6,583) (870) 3,402
Unrealized investment (gains) losses relating to:
Future policy benefit loss recognition.............. 1,999 (59) (970)
Deferred policy acquisition costs................... 1,628 216 (727)
Participating contracts............................. 94 100 (303)
Deferred income taxes................................. 1,025 255 (532)
------- ------ ------
Balance at December 31................................ $ (297) $1,540 $1,898
======= ====== ======
Net change in unrealized investment gains (losses).... $(1,837) $ (358) $ 870
======= ====== ======
</TABLE>
<PAGE> 19
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturities and equity securities at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---- ---- ----------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $ 5,990 $ 456 $ 147 $ 6,299
States and political subdivisions.... 1,583 4 45 1,542
Foreign governments.................. 4,090 210 94 4,206
Corporate............................ 47,505 585 1,913 46,177
Mortgage and asset-backed
securities......................... 27,396 112 847 26,661
Other................................ 12,235 313 462 12,086
------- ------ ------ -------
98,799 1,680 3,508 96,971
Redeemable preferred stocks............. 10 -- -- 10
------- ------ ------ -------
$98,809 $1,680 $3,508 $96,981
======= ====== ====== =======
Equity Securities:
Common stocks........................... $ 980 $ 921 $ 35 $ 1,866
Nonredeemable preferred stocks.......... 151 -- 11 140
------- ------ ------ -------
$ 1,131 $ 921 $ 46 $ 2,006
======= ====== ====== =======
</TABLE>
Fixed maturities and equity securities at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ----------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---- ---- ----------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $ 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
======= ====== ==== ========
</TABLE>
<PAGE> 20
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company held foreign currency derivatives with notional amounts of
$4,002 and $716 to hedge the exchange rate risk associated with foreign bonds at
December 31, 1999 and 1998, respectively. The Company also held options with
fair values of $(11) to hedge the market value of common stocks at December 31,
1998.
At December 31, 1999, fixed maturities held by the Company that were below
investment grade or not rated by an independent rating agency had an estimated
fair value of $8,813. At December 31, 1999, non-income producing fixed
maturities were insignificant.
The amortized cost and estimated fair value of bonds at December 31, 1999,
by contractual maturity date, are shown below:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less............................... $ 3,180 $ 3,217
Due after one year through five years................. 18,152 18,061
Due after five years through ten years................ 23,755 23,114
Due after ten years................................... 26,316 25,918
------- -------
71,403 70,310
Mortgage and asset-backed securities.................. 27,396 26,661
------- -------
$98,799 $96,971
======= =======
</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 securities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Securities classified as available-for-sale:
Proceeds.......................................... $59,852 $46,913 $69,275
Gross realized gains.............................. $ 605 $ 2,053 $ 965
Gross realized losses............................. $ 911 $ 486 $ 627
Fixed maturities classified as held-to-maturity:
Proceeds.......................................... $ -- $ -- $ 352
Gross realized gains.............................. $ -- $ -- $ 5
Gross realized losses............................. $ -- $ -- $ 1
</TABLE>
Gross realized losses above exclude writedowns recorded during 1999 for
permanently impaired available-for-sale securities of $133.
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.
<PAGE> 21
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SECURITIES LENDING PROGRAM
The Company participates in securities lending programs whereby large
blocks of securities, which are returnable to the Company on short notice and
included in investments, 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 $6,458 and $4,005 and estimated fair value of
$6,391 and $4,552 were on loan under the program at December 31, 1999 and 1998,
respectively. The Company was liable for cash collateral under its control of
$6,461 and $3,769 at December 31, 1999 and 1998, respectively. This liability is
included in other liabilities. Security collateral on deposit from securities
borrowers is returnable to them 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
$476 and $466 at December 31, 1999 and 1998, respectively.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans were categorized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1999 1998
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial mortgage loans.................. $14,931 75% $12,503 74%
Agricultural mortgage loans................ 4,816 24% 4,256 25%
Residential mortgage loans................. 82 1% 241 1%
------- --- ------- ---
19,829 100% 17,000 100%
=== ===
Less: Valuation allowances................. 90 173
------- -------
$19,739 $16,827
======= =======
</TABLE>
Mortgage loans on real estate are collateralized by properties primarily
located throughout the United States. At December 31, 1999, approximately 16%,
8% and 8% 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 $547 and $606 at
December 31, 1999 and 1998, respectively.
<PAGE> 22
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in mortgage loan valuation allowances were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1................................. $ 173 $ 289 $ 469
Additions............................................ 40 40 61
Deductions for writedowns and dispositions........... (123) (130) (241)
Deductions for disposition of affiliates............. -- (26) --
----- ----- -----
Balance at December 31............................... $ 90 $ 173 $ 289
===== ===== =====
</TABLE>
A portion of the Company's mortgage loans on real estate was impaired and
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1999 1998
---- ----
<S> <C> <C>
Impaired mortgage loans with valuation allowances.......... $540 $ 823
Impaired mortgage loans without valuation allowances....... 437 375
---- ------
977 1,198
Less: Valuation allowances................................. 83 149
---- ------
$894 $1,049
==== ======
</TABLE>
The average investment in impaired mortgage loans on real estate was
$1,134, $1,282 and $1,680 for the years ended December 31, 1999, 1998 and 1997,
respectively. Interest income on impaired mortgages was $101, $109 and $110 for
the years ended December 31, 1999, 1998 and 1997, respectively.
The investment in restructured mortgage loans on real estate was $980 and
$1,140 at December 31, 1999 and 1998, respectively. Interest income of $80, $74
and $91 was recognized on restructured loans for the years ended December 31,
1999, 1998 and 1997, respectively. Gross interest income that would have been
recorded in accordance with the original terms of such loans amounted to $92,
$87 and $116 for the years ended December 31, 1999, 1998 and 1997, respectively.
Mortgage loans on real estate with scheduled payments of 60 days (90 days
for agriculture mortgages) or more past due or in foreclosure had an amortized
cost of $44 and $65 at December 31, 1999 and 1998, respectively.
<PAGE> 23
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REAL ESTATE AND REAL ESTATE JOINT VENTURES
Real estate and real estate joint ventures consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Real estate and real estate joint ventures
held-for-investment....................................... $5,440 $6,301
Impairments................................................. (289) (408)
------ ------
5,151 5,893
------ ------
Real estate and real estate joint ventures held-for-sale.... 719 546
Impairments................................................. (187) (119)
Valuation allowance......................................... (34) (33)
------ ------
498 394
------ ------
$5,649 $6,287
====== ======
</TABLE>
Accumulated depreciation on real estate was $2,235 and $2,065 at December
31, 1999 and 1998, respectively. Related depreciation expense was $247, $282 and
$338 for the years ended December 31, 1999, 1998 and 1997, respectively.
Real estate and real estate joint ventures were categorized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Office........................................ $3,846 68% $4,265 68%
Retail........................................ 587 10% 640 10%
Apartments.................................... 474 8% 418 7%
Land.......................................... 258 5% 313 5%
Agriculture................................... 96 2% 195 3%
Other......................................... 388 7% 456 7%
------ --- ------ ---
$5,649 100% $6,287 100%
====== === ====== ===
</TABLE>
The Company's real estate holdings are primarily located throughout the
United States. At December 31, 1999, approximately 25%, 24% and 10% 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,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1....................................... $ 33 $110 $ 661
Additions charged (credited) to operations................. 36 (5) (76)
Deductions for writedowns and dispositions................. (35) (72) (475)
---- ---- -----
Balance at December 31..................................... $ 34 $ 33 $ 110
==== ==== =====
</TABLE>
Investment income related to impaired real estate and real estate joint
ventures held-for-investment was $61, $105 and $28 for the years ended December
31, 1999, 1998 and 1997, respectively. Investment income related to real estate
and real estate joint ventures held-for-sale
<PAGE> 24
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was $14, $3 and $11 for the years ended December 31, 1999, 1998 and 1997,
respectively. The carrying value of non-income producing real estate and real
estate joint ventures was $22 and $1 at December 31, 1999 and 1998,
respectively.
The Company owned real estate acquired in satisfaction of debt of $47 and
$154 at December 31, 1999 and 1998, respectively.
Real estate of $37, $69 and $151 was acquired in satisfaction of debt
during the years ended December 31, 1999, 1998 and 1997, respectively.
LEVERAGED LEASES
Leveraged leases, included in other invested assets, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Investment............................................... $1,016 $1,067
Estimated residual values................................ 559 607
------ ------
1,575 1,674
Unearned income.......................................... (417) (471)
------ ------
$1,158 $1,203
====== ======
</TABLE>
The investment amounts set forth above are generally due in monthly
installments. The payment periods generally range from four to 15 years, but in
certain circumstances are as long as 30 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, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ------------------------------------------
CURRENT MARKET CURRENT MARKET
OR FAIR VALUE OR FAIR VALUE
CARRYING NOTIONAL -------------------- CARRYING NOTIONAL --------------------
VALUE AMOUNT ASSETS LIABILITIES VALUE AMOUNT ASSETS LIABILITIES
-------- -------- ------ ----------- -------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial futures.................. $ 27 $ 3,140 $37 $ 10 $ 3 $ 2,190 $ 8 $ 6
Foreign exchange contracts......... -- -- -- -- -- 136 -- 2
Interest rate swaps................ (32) 1,316 11 40 (9) 1,621 17 50
Foreign currency swaps............. -- 4,002 26 103 (1) 580 3 62
Caps............................... 1 12,376 3 -- -- 8,391 -- --
---- ------- --- ---- --- ------- --- ----
Total contractual commitments...... $ (4) $20,834 $77 $153 $(7) $12,918 $28 $120
==== ======= === ==== === ======= === ====
</TABLE>
<PAGE> 25
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the notional amounts by derivative
type and strategy at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 TERMINATIONS/ DECEMBER 31, 1999
NOTIONAL AMOUNT ADDITIONS MATURITIES NOTIONAL AMOUNT
----------------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Financial futures................... $ 2,190 $18,259 $17,309 $ 3,140
Foreign exchange contracts.......... 136 702 838 --
Interest rate swaps................. 1,621 429 734 1,316
Foreign currency swaps.............. 580 3,501 79 4,002
Caps................................ 8,391 5,860 1,875 12,376
------- ------- ------- -------
Total contractual commitments....... $12,918 $28,751 $20,835 $20,834
======= ======= ======= =======
BY STRATEGY
Liability hedging................... $ 8,741 $ 5,865 $ 2,035 $12,571
Invested asset hedging.............. 864 4,288 937 4,215
Portfolio hedging................... 2,830 13,920 14,729 2,021
Anticipated transaction hedging..... 483 4,678 3,134 2,027
------- ------- ------- -------
Total contractual commitments....... $12,918 $28,751 $20,835 $20,834
======= ======= ======= =======
</TABLE>
The following table presents the notional amounts of derivative financial
instruments by maturity at December 31, 1999:
<TABLE>
<CAPTION>
REMAINING LIFE
-------------------------------------------------------------------
ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS
OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS TOTAL
-------- ------------------ ----------------- --------------- -----
<S> <C> <C> <C> <C> <C>
Financial futures......... $3,140 $ -- $ -- $ -- $ 3,140
Interest rate swaps....... 833 483 -- -- 1,316
Foreign currency swaps.... 7 3,371 503 121 4,002
Caps...................... 3,426 8,930 20 -- 12,376
------ ------- ---- ---- -------
Total contractual
commitments............. $7,406 $12,784 $523 $121 $20,834
====== ======= ==== ==== =======
</TABLE>
In addition to the derivative instruments above, the Company uses equity
option contracts as invested asset hedges. There were ninety-two thousand equity
option contracts outstanding with a carrying value of $(11) and a market value
of $(11) at December 31, 1998.
4. 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.
<PAGE> 26
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts related to the Company's financial instruments were as follows:
<TABLE>
<CAPTION>
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 1999 AMOUNT VALUE FAIR VALUE
- ----------------- -------- -------- ----------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $96,981 $96,981
Equity securities................................. 2,006 2,006
Mortgage loans on real estate..................... 19,739 19,452
Policy loans...................................... 5,598 5,618
Short-term investments............................ 3,055 3,055
Cash and cash equivalents......................... 2,789 2,789
Mortgage loan commitments......................... $465 -- (7)
Liabilities:
Policyholder account balances..................... 37,170 36,893
Short-term debt................................... 4,208 4,208
Long-term debt.................................... 2,514 2,466
Investment collateral............................. 6,451 6,451
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 1998 AMOUNT VALUE FAIR VALUE
- ----------------- -------- -------- ----------
<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.................... 37,448 37,664
Short-term debt.................................. 3,585 3,585
Long-term debt................................... 2,903 3,006
Investment collateral............................ 3,769 3,769
</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 are estimated by discounting
expected future cash flows, using current interest rates for similar loans with
similar credit risk. For mortgage loan commitments, the estimated fair value is
the net premium or discount of the commitments.
<PAGE> 27
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 on 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 AND INVESTMENT COLLATERAL
The fair values of short-term and long-term debt and investment collateral
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.
5. 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 postemployment benefits and 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 the
<PAGE> 28
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
postretirement 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
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year.... $3,920 $3,573 $1,708 $1,763
Service cost....................................... 100 90 28 31
Interest cost...................................... 271 257 107 114
Actuarial (gains) losses........................... (260) 212 (281) (74)
Divestitures, curtailments and terminations........ (22) 24 10 (13)
Change in benefits................................. -- 12 -- --
Benefits paid........................................ (272) (248) (89) (113)
------ ------ ------ ------
Projected benefit obligation at end of year.......... 3,737 3,920 1,483 1,708
------ ------ ------ ------
Change in plan assets:
Contract value of plan assets at beginning of year... 4,403 4,056 1,123 1,004
Actuarial return on plan assets.................... 575 680 141 171
Employer contribution.............................. 20 15 24 61
Benefits paid...................................... (272) (248) (89) (113)
Other payments..................................... -- (100) -- --
------ ------ ------ ------
Contract value of plan assets at end of year......... 4,726 4,403 1,199 1,123
------ ------ ------ ------
Over (under) funded.................................. 989 483 (284) (585)
------ ------ ------ ------
Unrecognized net asset at transition................. (66) (98) -- --
Unrecognized net actuarial gains..................... (564) (78) (487) (322)
Unrecognized prior service cost...................... 127 145 (2) (2)
------ ------ ------ ------
Prepaid (accrued) benefit cost....................... $ 486 $ 452 $ (773) $ (909)
====== ====== ====== ======
Qualified plan prepaid pension cost.................. $ 632 $ 568 $ -- $ --
Non-qualified plan accrued pension cost.............. (146) (116) -- --
------ ------ ------ ------
Prepaid benefit cost................................. $ 486 $ 452 $ -- $ --
====== ====== ====== ======
</TABLE>
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED
QUALIFIED PLAN PLAN TOTAL
---------------- -------------- ----------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected benefit
obligation...................... $3,482 $3,697 $ 255 $ 223 $3,737 $3,920
Aggregate contract value of plan
assets (principally Company
contracts)...................... 4,726 4,403 -- -- 4,726 4,403
------ ------ ----- ----- ------ ------
Over (under) funded............... $1,244 $ 706 $(255) $(223) $ 989 $ 483
====== ====== ===== ===== ====== ======
</TABLE>
<PAGE> 29
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED 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
---------------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions at
December 31,
Discount rate....................... 6.25% - 7.75% 6.5% - 7.25% 6% - 7.75% 7%
Expected rate of return on plan
assets............................ 8% - 10.5% 8.5% - 10.5% 6% - 9% 7.25% - 9%
Rate of compensation increase....... 4.5% - 8.5% 4.5% - 8.5% N/A N/A
</TABLE>
The assumed health care cost trend rates used in measuring the accumulated
nonpension postretirement benefit obligation were 6.5% for pre-Medicare eligible
claims and 6% for Medicare eligible claims in both 1999 and 1998.
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 PERCENT ONE PERCENT
INCREASE DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components.... $ 14 $ 11
Effect of accumulated postretirement benefit obligation.... $134 $111
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
--------------------- ------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................... $ 100 $ 90 $ 74 $ 28 $ 31 $ 30
Interest cost.............................. 271 257 247 107 114 122
Expected return on plan assets............. (363) (337) (324) (89) (79) (66)
Amortization of prior actuarial gains...... (6) (11) (5) (11) (13) (4)
Curtailment (credit) cost.................. (17) (10) -- 10 4 --
----- ----- ----- ---- ---- ----
Net periodic benefit cost (credit)......... $ (15) $ (11) $ (8) $ 45 $ 57 $ 82
===== ===== ===== ==== ==== ====
</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 $45, $43 and $44 for the years ended December 31, 1999,
1998 and 1997, respectively.
6. SEPARATE ACCOUNTS
Separate accounts reflect two categories of risk assumption: non-guaranteed
separate accounts totaling $47,618 and $39,490 at December 31, 1999 and 1998,
respectively, for which the policyholder assumes the investment risk, and
guaranteed separate accounts totaling $17,323 and $18,578 at December 31, 1999
and 1998, respectively, for which MetLife contractually guarantees either a
minimum return or account value to the policyholder.
<PAGE> 30
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $485, $413 and $287 for the years ended December 31, 1999, 1998 and
1997, respectively. Guaranteed separate accounts consisted primarily of Met
Managed Guaranteed Interest Contracts and participating close out contracts. The
average interest rates credited on these contracts were 6.5% and 7% at December
31, 1999 and 1998, respectively. The assets that support these liabilities were
comprised of $16,874 and $16,639 in fixed maturities at December 31, 1999 and
1998, respectively. 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.
7. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<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
7.785% surplus notes due 2024.......................... 148 148
7.800% surplus notes due 2025.......................... 248 248
Other.................................................... 130 207
------ ------
1,666 1,743
------ ------
Investment related:
Floating rate debt, interest based on LIBOR............ -- 212
Exchangeable debt, interest rates ranging from 4.90% to
5.80%, due 2001 and 2002............................ 369 371
------ ------
369 583
------ ------
Total MetLife............................................ 2,035 2,326
------ ------
Nvest:
7.060% senior notes due 2003........................... 110 110
7.290% senior notes due 2007........................... 160 160
------ ------
270 270
------ ------
Other Affiliated Companies:
Fixed rate notes, interest rates ranging from 6.96% to
8.51%, maturity dates ranging from 2000 to 2008..... 170 179
Other.................................................. 39 128
------ ------
209 307
------ ------
Total long-term debt..................................... 2,514 2,903
Total short-term debt.................................... 4,208 3,585
------ ------
$6,722 $6,488
====== ======
</TABLE>
<PAGE> 31
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Short-term debt consisted of commercial paper with a weighted average
interest rate of 6.05% and 5.31% and a weighted average maturity of 74 and 44
days at December 31, 1999 and 1998, respectively.
The Company maintains unsecured credit facilities aggregating $7,000
(five-year facility of $1,000 expiring in April 2003; 364-day facility of $1,000
expiring in April 2000; 364-day facility of $5,000 expiring in September 2000).
Both $1,000 facilities bear interest at LIBOR plus 20 basis points. The $5,000
facility bears interest at various rates under specified borrowing scenarios.
The facilities can be used for general corporate purposes and also provide
backup for the Company's commercial paper program. At December 31, 1999, there
were no outstanding borrowings under any of the facilities.
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.
Each issue of investment related debt is payable in cash or by delivery of
an underlying security owned by the Company. The amount payable at maturity of
the debt is greater than the principal of the debt if the market value of the
underlying security appreciates above certain levels at the date of debt
repayment as compared to the market value of the underlying security at the date
of debt issuance.
The aggregate maturities of long-term debt are $93 in 2000, $194 in 2001,
$210 in 2002, $415 in 2003, $126 in 2004 and $1,477 thereafter.
Interest expense related to the Company's outstanding indebtedness was
$358, $333 and $344 for the years ended December 31, 1999, 1998 and 1997,
respectively.
8. ACQUISITIONS AND DISPOSITIONS
In 1999 and 1997, respectively, the Company acquired assets of $4,832 and
$3,777 and assumed liabilities of $1,860 and $3,347 through the acquisition of
certain insurance and non-insurance operations. The aggregate purchase prices
were allocated to the assets and liabilities acquired based on their estimated
fair values.
During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial
financing company) and a substantial portion of its Canadian and Mexican
insurance operations, which resulted in a realized investment gain 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 of $10,663 and $4,342 and liabilities of $3,691 and $4,207 in 1998 and
1997, respectively.
See Note 16 for information regarding the Company's acquisition of
GenAmerica Corporation.
9. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is currently a defendant in approximately 500 lawsuits raising
allegations of improper marketing and sales of individual life insurance
policies or annuities. These lawsuits are generally referred to as "sales
practices claims".
<PAGE> 32
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 28, 1999, after a fairness hearing, the United States District
Court for the Western District of Pennsylvania approved a class action
settlement resolving a multidistrict litigation proceeding involving alleged
sales practices claims. The settlement class includes most of the owners of
permanent life insurance policies and annuity contracts or certificates issued
pursuant to individual sales in the United States by Metropolitan Life Insurance
Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life
Insurance Company between January 1, 1982 and December 31, 1997. This class
includes owners of approximately six million in-force or terminated insurance
policies and approximately one million in-force or terminated annuity contracts
or certificates.
In addition to dismissing the consolidated class actions, the District
Court's order also bars sales practices claims by class members for sales by the
defendant insurers during the class period, effectively resolving all pending
class actions against these insurers. The defendants are in the process of
having these claims dismissed.
Under the terms of the order, only those class members who excluded
themselves from the settlement may continue an existing, or start a new, sales
practices lawsuit against Metropolitan Life Insurance Company, Metropolitan
Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for
sales that occurred during the class period. Approximately 20,000 class members
elected to exclude themselves from the settlement. Over 400 of the approximately
500 lawsuits noted above are brought by individuals who elected to exclude
themselves from the settlement.
The settlement provides three forms of relief. General relief, in the form
of free death benefits, is provided automatically to class members who did not
exclude themselves from the settlement or who did not elect the claim evaluation
procedures set forth in the settlement. The claim evaluation procedures permit a
class member to have a claim evaluated by a third party under procedures set
forth in the settlement. Claim awards made under the claim evaluation procedures
will be in the form of policy adjustments, free death benefits or, in some
instances, cash payments. In addition, class members who have or had an
ownership interest in specified policies will also automatically receive
deferred acquisition cost tax relief in the form of free death benefits. The
settlement fixes the aggregate amounts that are available under each form of
relief.
The Company expects that the total cost of the settlement will be
approximately $957. This amount is equal to the amount of the increase in
liabilities for the death benefits and policy adjustments and the present value
of expected cash payments to be provided to included class members, as well as
attorneys' fees and expenses and estimated other administrative costs, but does
not include the cost of litigation with policyholders who are excluded from the
settlement. The Company believes that the cost of the settlement will be
substantially covered by available reinsurance and the provisions made in its
consolidated financial statements, and thus will not have a material adverse
effect on its business, results of operations or financial position. The Company
has not yet made a claim under those reinsurance agreements and, although there
is a risk that the carriers will refuse coverage for all or part of the claim,
the Company believes this is very unlikely to occur. The Company believes it has
made adequate provision in its consolidated financial statements for all
probable losses for sales practices claims, including litigation costs involving
policyholders who are excluded from the settlement.
The class action settlement does not resolve nine purported or certified
class actions currently pending against New England Mutual Life Insurance
Company with which the Company merged in 1996. Eight of those actions have been
consolidated as a multidistrict proceeding for pre-trial purposes in the United
States District Court in Massachusetts. That Court certified a mandatory class
as to those claims. Following an appeal of that certification, the United States
<PAGE> 33
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Court of Appeals remanded the case to the District Court for further
consideration. The Company is negotiating a settlement with class counsel.
The class action settlement also does not resolve three putative sales
practices class action lawsuits which have been brought against General American
Life Insurance Company. These lawsuits have been consolidated in a single
proceeding in the United States District Court for the Eastern District of
Missouri. General American Life Insurance Company and counsel for plaintiffs
have negotiated a settlement in principle of this consolidated proceeding.
General American Life Insurance Company has not reached agreement with
plaintiffs' counsel on the attorneys' fees to be paid. However, negotiations are
ongoing.
In addition, the class action settlement does not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
Insurance Company in Canada. The class action settlement also does not resolve a
certified class action with conditionally certified subclasses against
Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company,
Metropolitan Tower Life Insurance Company and various individual defendants
alleging improper sales abroad. That lawsuit is pending in a New York federal
court.
In the past, the Company has resolved some individual sales practices
claims through settlement, dispositive motion or, in a few instances, trial.
Most of the current cases seek substantial damages, including in some cases
punitive and treble damages and attorneys' fees. Additional litigation relating
to the Company's marketing and sales of individual life insurance may be
commenced in the future.
Regulatory authorities in a small number of states, including both
insurance departments and one state attorney general, as well as the National
Association of Securities Dealers, Inc., have ongoing investigations or
inquiries relating to the Company's sales of individual life insurance policies
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, the Company has resolved a number of investigations
by other regulatory authorities for monetary payments and certain other relief,
and may continue to do so in the future.
MetLife 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. MetLife 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 MetLife's employees
during the period from the 1920s through approximately the 1950s and alleging
that MetLife 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 MetLife have included
negligence, intentional tort claims and conspiracy claims concerning the health
risks associated with asbestos. While MetLife believes it has meritorious
defenses to these claims, and has not suffered any adverse judgments in respect
of these claims, most of the cases have been resolved by settlements. MetLife
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 MetLife may ultimately incur is
uncertain.
Significant portions of amounts paid in settlement of such cases have been
funded with proceeds from a previously resolved dispute with MetLife's primary,
umbrella and first level excess liability insurance carriers. MetLife is
presently in litigation with several of its excess
<PAGE> 34
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liability insurers regarding amounts payable under its policies with respect to
coverage for these claims. The trial court has granted summary judgment to these
insurers. MetLife has appealed. There can be no assurances regarding the outcome
of this litigation or the amount and timing of recoveries, if any, from these
excess liability insurers. MetLife's asbestos-related litigation with these
insurers should have no effect on recoveries under the excess insurance policies
described below.
The Company has recorded, in other expenses, charges of $499 ($317
after-tax), $1,895 ($1,203 after-tax) and $300 ($190 after-tax) for the years
ended December 31, 1999, 1998 and 1997, respectively, for sales practices claims
and claims for personal injuries caused by exposure to asbestos or
asbestos-containing products. The 1999 charge was principally related to the
settlement of the multidistrict litigation proceeding involving alleged improper
sales practices, accruals for sales practices claims not covered by the
settlement and other legal costs. The 1998 charge was comprised of $925 and $970
for sales practices claims and asbestos-related claims, respectively. The
Company recorded the charges for sales practices claims based on preliminary
settlement discussions and the settlement history of other insurers.
Prior to the fourth quarter of 1998, the Company established a liability
for asbestos-related claims based on settlement costs for claims that the
Company had settled, estimates of settlement costs for claims pending against
the Company and an estimate of settlement costs for unasserted claims. The
amount for unasserted claims was based on management's estimate of unasserted
claims that would be probable of assertion. A liability is not established for
claims which management believes are only reasonably possible of assertion.
Based on this process, the accrual for asbestos-related claims at December 31,
1997 was $386. Potential liabilities for asbestos-related claims are not easily
quantified, due to the nature of the allegations against the Company, which are
not related to the business of manufacturing, producing, distributing or selling
asbestos or asbestos-containing products, adding to the uncertainty as to the
number of claims that may be brought against the Company.
During 1998, the Company decided to pursue the purchase of excess insurance
to limit its exposure to asbestos-related claims. In connection with the
negotiations with the casualty insurers to obtain this insurance, the Company
obtained information that caused management to reassess the accruals for
asbestos-related claims. This information included:
- Information from the insurers regarding the asbestos-related claims
experience of other insureds, which indicated that the number of claims
that were probable of assertion against the Company in the future was
significantly greater than it had assumed in its accruals. The number of
claims brought against the Company is generally a reflection of the
number of asbestos-related claims brought against asbestos defendants
generally and the percentage of those claims in which the Company is
included as a defendant. The information provided to the Company relating
to other insureds indicated that the Company had been included as a
defendant for a significant percentage of total asbestos-related claims
and that it may be included in a larger percentage of claims in the
future, because of greater awareness of asbestos litigation generally by
potential plaintiffs and plaintiffs' lawyers and because of the
bankruptcy and reorganization or the exhaustion of insurance coverage of
other asbestos defendants; and that, although volatile, there was an
upward trend in the number of total claims brought against asbestos
defendants.
- Information derived from actuarial calculations the Company made in the
fourth quarter of 1998 in connection with these negotiations, which
helped to frame, define and quantify this liability. These calculations
were made using, among other things, current information regarding the
Company's claims and settlement experience (which reflected the Com-
<PAGE> 35
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pany's decision to resolve an increased number of these claims by
settlement), recent and historic claims and settlement experience of
selected other companies and information obtained from the insurers.
Based on this information, the Company concluded that certain claims that
previously were considered as only reasonably possible of assertion were now
probable of assertion, increasing the number of assumed claims to approximately
three times the number assumed in prior periods. As a result of this
reassessment, the Company increased its liability for asbestos-related claims to
$1,278 at December 31, 1998.
During 1998, the Company paid $1,407 of premiums for excess of loss
reinsurance agreements and excess insurance policies, consisting of $529 for the
excess of loss reinsurance agreements for sales practices claims and excess
mortality losses and $878 for the excess insurance policies for asbestos-related
claims.
The Company obtained the excess of loss reinsurance agreements to provide
reinsurance with respect to sales practices claims made on or prior to December
31, 1999 and for certain mortality losses in 1999. These reinsurance agreements
have a maximum aggregate limit of $650, with a maximum sublimit of $550 for
losses for sales practices claims. This coverage is in excess of an aggregate
self-insured retention of $385 with respect to sales practices claims and $506,
plus the Company's statutory policy reserves released upon the death of
insureds, with respect to life mortality losses. At December 31, 1999, the
subject losses under the reinsurance agreements due to sales practices claims
and related counsel fees from the time the Company entered into the reinsurance
agreements did not exceed that self-insured retention. The maximum sublimit of
$550 for sales practices claims was within a range of losses that management
believed were reasonably possible at December 31, 1998. Each excess of loss
reinsurance agreement for sales practices claims and mortality losses contains
an experience fund, which provides for payments to the Company at the
commutation date if experience is favorable at such date. The Company accounts
for the aggregate excess of loss reinsurance agreements as reinsurance; however,
if deposit accounting were applied, the effect on the Company's consolidated
financial statements in 1998, 1999 and 2000 would not be significant.
Under reinsurance accounting, the excess of the liability recorded for
sales practices losses recoverable under the agreements of $550 over the premium
paid of $529 results in a deferred gain of $21 which is being amortized into
income over the settlement period from January 1999 through April 2000. Under
deposit accounting, the premium would be recorded as an other asset rather than
as an expense, and the reinsurance loss recoverable and the deferred gain would
not have been recorded. Because the agreements also contain an experience fund
which increases with the passage of time, the increase in the experience fund in
1999 and 2000 under deposit accounting would be recognized as interest income in
an amount approximately equal to the deferred gain that will be amortized into
income under reinsurance accounting.
The excess insurance policies for asbestos-related claims provide for
recovery of losses up to $1,500, which is in excess of a $400 self-insured
retention ($878 of which was recorded as a recoverable at December 31, 1999 and
1998). The asbestos-related policies are also subject to annual and per-claim
sublimits. Amounts are recoverable under the policies annually with respect to
claims paid during the prior calendar year. Although amounts paid in any given
year that are recoverable under the policies will be reflected as a reduction in
the Company's operating cash flows for that year, management believes that the
payments will not have a material adverse effect on the Company's liquidity.
Each asbestos-related policy contains an experience fund and a reference fund
that provides for payments to the Company at the commutation date if experience
under the policy to such date has been favorable, or pro rata reductions from
time to
<PAGE> 36
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
time in the loss reimbursements to the Company if the cumulative return on the
reference fund is less than the return specified in the experience fund.
A purported class action suit involving policyholders in 32 states has been
filed in a Rhode Island state court against MetLife's subsidiary, Metropolitan
Property and Casualty Insurance Company, with respect to claims by policyholders
for the alleged diminished value of automobiles after accident-related repairs.
A similar "diminished value" allegation was made recently in a Texas Deceptive
Trade Practices Act letter and lawsuit which involve a Metropolitan Property and
Casualty Company policyholder. A purported class action has been filed against
Metropolitan Property and Casualty Insurance Company and its subsidiary,
Metropolitan Casualty Insurance Company, in Florida by a policyholder alleging
breach of contract and unfair trade practices with respect to Metropolitan
Casualty Insurance Company allowing the use of parts not made by the original
manufacturer to repair damaged automobiles. These suits are in the early stages
of litigation and Metropolitan Property and Casualty Insurance Company and
Metropolitan Casualty Insurance Company intend to vigorously defend themselves
against these suits. Similar suits have been filed against several other
personal lines property and casualty insurers.
The United States, the Commonwealth of Puerto Rico and various hotels and
individuals have sued MetLife Capital Corporation, a former subsidiary of the
Company, seeking damages for clean up costs, natural resource damages, personal
injuries and lost profits and taxes based upon, among other things, a release of
oil from a barge which was being towed by the M/V Emily S. In connection with
the sale of MetLife Capital, the Company acquired MetLife Capital's potential
liability with respect to the M/V Emily S lawsuit. MetLife Capital had entered
into a sale and leaseback financing arrangement with respect to the M/V Emily S.
The plaintiffs have taken the position that MetLife Capital, as the owner of
record of the M/V Emily S, is responsible for all damages caused by the barge,
including the oil spill. The governments of the United States and Puerto Rico
have claimed damages in excess of $150. At a mediation, the action brought by
the United States and Puerto Rico was conditionally settled, provided that the
governments have access to additional sums from a fund contributed to by oil
companies to help remediate oil spills. The Company can provide no assurance
that this action will be settled in this manner.
Three putative class actions have been filed by Conning Corporation
shareholders alleging that the Company's announced offer to purchase the
publicly-held Conning shares is inadequate and constitutes a breach of fiduciary
duty (see Note 16). The Company believes the actions are without merit, and
expects that they will not materially affect its offer to purchase the shares.
A civil complaint challenging the fairness of the plan of reorganization
and the adequacy and accuracy of the disclosures to policyholders regarding the
plan has been filed in New York Supreme Court for Kings County on behalf of an
alleged class consisting of the policyholders of MetLife who should have
membership benefits in MetLife and were and are eligible to receive notice, vote
and receive consideration in the demutualization. The complaint seeks to enjoin
or rescind the plan and seeks other relief. The defendants named in the
complaint are MetLife and the individual members of its board of directors and
MetLife, Inc. MetLife believes that the allegations made in the complaint are
wholly without merit, and intends to vigorously contest the complaint.
Various litigation, claims and assessments against the Company, in addition
to those discussed above and those otherwise provided for in the Company's
consolidated financial statements, have arisen in the course of the Company's
business, including, but not limited to, in connection with its activities as an
insurer, employer, investor, investment advisor and taxpayer. Further, state
insurance regulatory authorities and other Federal and state authorities
regularly
<PAGE> 37
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
make inquiries and conduct investigations concerning the Company's compliance
with applicable insurance and other laws and regulations.
In some of the matters referred to above, very large and/or indeterminate
amounts, including punitive and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, 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 consolidated financial position.
However, given the large and/or indeterminate 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 or cash flows in particular
quarterly or annual periods.
TRANSFERRED CANADIAN POLICIES
In July 1998, MetLife sold a substantial portion of its Canadian operations
to Clarica Life. As part of that sale, a large block of policies in effect with
MetLife in Canada were transferred to Clarica Life, and the holders of the
transferred Canadian policies became policyholders of Clarica Life. Those
transferred policyholders are no longer policyholders of MetLife and, therefore,
are not entitled to compensation under the plan of reorganization. However, as a
result of a commitment made in connection with obtaining Canadian regulatory
approval of that sale, if MetLife demutualizes, its Canadian branch will make
cash payments to those who are, or are deemed to be, holders of those
transferred Canadian policies. The payments, which will be recorded in other
expenses in the same period as the effective date of the plan, will be
determined in a manner that is consistent with the treatment of, and fair and
equitable to, eligible policyholders of MetLife. The amount of the payment is
dependent upon the initial public offering price of common stock to be issued on
the effective date of the plan of demutualization.
YEAR 2000
The Year 2000 issue was 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 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 implemented a plan to resolve the issue. There can be no
assurances that the Year 2000 plan of the Company or that of its vendors or
third parties have resolved all Year 2000 issues. Further, there can be no
assurance that there will not be any future system failure or that such failure,
if any, will not have a material impact on the operations of the Company.
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
<PAGE> 38
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
2000......................................... $ 817 $13 $156
2001......................................... 740 12 135
2002......................................... 689 11 111
2003......................................... 612 9 90
2004......................................... 542 9 69
Thereafter................................... 2,032 27 299
</TABLE>
10. INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................... $643 $668 $370
State and local........................................... 24 60 10
Foreign................................................... 4 99 26
---- ---- ----
671 827 406
---- ---- ----
Deferred:
Federal................................................... (78) (25) 28
State and local........................................... 2 (8) 9
Foreign................................................... (2) (54) 25
---- ---- ----
(78) (87) 62
---- ---- ----
Provision for income taxes.................................. $593 $740 $468
==== ==== ====
</TABLE>
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,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate........................ $502 $730 $585
Tax effect of:
Tax exempt investment income.............................. (39) (40) (30)
Surplus tax............................................... 125 18 (40)
State and local income taxes.............................. 18 31 15
Tax credits............................................... (5) (25) (15)
Prior year taxes.......................................... (31) 4 (2)
Sale of businesses........................................ -- (19) (41)
Other, net................................................ 23 41 (4)
---- ---- ----
Provision for income taxes.................................. $593 $740 $468
==== ==== ====
</TABLE>
<PAGE> 39
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes represent the tax effect of the differences between
the book and tax basis of assets and liabilities. Net deferred income tax assets
and liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Deferred income tax assets:
Policyholder liabilities and receivables............... $3,042 $3,108
Net operating losses................................... 72 22
Net unrealized investment losses....................... 161 --
Employee benefits...................................... 192 174
Litigation related..................................... 468 312
Other.................................................. 242 158
------ ------
4,177 3,774
Less: Valuation allowance.............................. 72 21
------ ------
4,105 3,753
------ ------
Deferred income tax liabilities:
Investments............................................ 1,472 1,529
Deferred policy acquisition costs...................... 1,967 1,887
Net unrealized investment gains........................ -- 864
Other.................................................. 63 18
------ ------
3,502 4,298
------ ------
Net deferred income tax asset (liability)................ $ 603 $ (545)
====== ======
</TABLE>
Foreign net operating loss carryforwards generated deferred income tax
benefits of $72 and $21 at December 31, 1999 and 1998, respectively. 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 when management believes that it is more likely than not that the
portion of the deferred income tax asset is realizable.
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.
11. 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's life insurance operations participate in reinsurance in order
to limit losses, minimize exposure to large risks and to provide additional
capacity for future growth. During
<PAGE> 40
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998, the Company began reinsuring, under yearly renewal term policies, 90
percent of the mortality risk on universal life policies issued after 1983. The
Company also reinsures 90 percent of the mortality risk on term life insurance
policies issued after 1995 under yearly renewal term policies and coinsures 100
percent of the mortality risk in excess of $25 and $35 on single and joint
survivorship policies, respectively.
During 1997, the Company obtained a 100 percent coinsurance policy to
provide coverage for contractual payments generated by certain portions of the
Company's non-life contingency long-term guaranteed interest contracts and
structured settlement lump sum contracts issued during the periods 1991 through
1993. The policy was amended in 1998 to include structured settlement lump sum
payments issued during the period 1983 through 1990, 1994 and 1995. Reinsurance
recoverables under the contract, which has been accounted for as a financing
transaction, were $1,372 and $1,374 at December 31, 1999 and 1998, respectively.
See Note 9 for information regarding certain excess of loss reinsurance
agreements providing coverage for risks associated primarily with sales
practices claims.
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 limit its maximum loss, provide
greater diversification of risk and minimize exposure to larger risks. The
Company's reinsurance program is designed to limit a catastrophe loss to no more
than 10% of the Auto & Home segment's statutory surplus.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Direct premiums..................................... $13,249 $12,763 $12,728
Reinsurance assumed................................. 484 409 360
Reinsurance ceded................................... (1,645) (1,669) (1,810)
------- ------- -------
Net premiums........................................ $12,088 $11,503 $11,278
======= ======= =======
Reinsurance recoveries netted against policyholder
benefits.......................................... $ 1,626 $ 1,744 $ 1,648
======= ======= =======
</TABLE>
The effects of reinsurance with GenAmerica Corporation ("GenAmerica") were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Premiums ceded to GenAmerica.............................. $108 $113 $61
==== ==== ===
Reinsurance recoveries from GenAmerica netted against
policyholder benefits................................... $ 74 $ 28 $24
==== ==== ===
</TABLE>
Reinsurance recoverables, included in other receivables, were $2,898 and
$3,134 at December 31, 1999 and 1998, respectively, of which $5 and $5,
respectively, were recoverable from GenAmerica. Reinsurance and ceded
commissions payables, included in other liabilities, were $148 and $105 at
December 31, 1999 and 1998, respectively.
<PAGE> 41
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1................................ $ 3,320 $ 3,655 $ 3,345
Reinsurance recoverables.......................... (233) (229) (215)
------- ------- -------
Net balance at January 1............................ 3,087 3,426 3,130
------- ------- -------
Acquisition of business............................. 204 -- --
------- ------- -------
Incurred related to:
Current year...................................... 3,129 2,726 2,855
Prior years....................................... (16) (245) 88
------- ------- -------
3,113 2,481 2,943
------- ------- -------
Paid related to:
Current year...................................... (2,128) (1,967) (1,832)
Prior years....................................... (759) (853) (815)
------- ------- -------
(2,887) (2,820) (2,647)
------- ------- -------
Balance at December 31.............................. 3,517 3,087 3,426
Add: Reinsurance recoverables..................... 272 233 229
------- ------- -------
Balance at December 31.............................. $ 3,789 $ 3,320 $ 3,655
======= ======= =======
</TABLE>
12. OTHER EXPENSES
Other expenses were comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Compensation........................................ $ 2,590 $ 2,478 $ 2,078
Commissions......................................... 937 902 766
Interest and debt issue costs....................... 405 379 453
Amortization of policy acquisition costs (excludes
amortization of $(46), $240 and $70, respectively,
related to realized investment gains and
(losses))......................................... 862 587 771
Capitalization of policy acquisition costs.......... (1,160) (1,025) (1,000)
Rent, net of sublease income........................ 239 155 179
Minority interest................................... 55 67 56
Restructuring charge................................ -- 81 --
Other............................................... 2,827 4,395 2,468
------- ------- -------
$ 6,755 $ 8,019 $ 5,771
======= ======= =======
</TABLE>
During 1998, the Company recorded charges of $81 to restructure
headquarters operations and consolidate certain agencies and other operations.
These costs have been fully paid at December 31, 1999.
<PAGE> 42
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STATUTORY FINANCIAL INFORMATION
The reconciliations 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,
------------------
1999 1998
---- ----
<S> <C> <C>
Statutory surplus........................................... $ 7,630 $ 7,388
GAAP adjustments for:
Future policy benefits and policyholder account
balances............................................... (4,167) (6,830)
Deferred policy acquisition costs......................... 8,381 6,560
Deferred income taxes..................................... 886 (190)
Valuation of investments.................................. (2,102) 3,981
Statutory asset valuation reserves........................ 3,189 3,381
Statutory interest maintenance reserves................... 1,114 1,486
Surplus notes............................................. (1,602) (1,595)
Other, net................................................ 361 686
------- -------
Equity...................................................... $13,690 $14,867
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net change in statutory surplus......................... $ 242 $ 10 $ 227
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... 556 127 (38)
Deferred policy acquisition costs..................... 379 224 149
Deferred income taxes................................. 154 234 62
Valuation of investments.............................. 473 1,158 (387)
Statutory asset valuation reserves.................... (226) (461) 1,136
Statutory interest maintenance reserves............... (368) 312 53
Other, net............................................ (593) (261) 1
----- ------ ------
Net income.............................................. $ 617 $1,343 $1,203
===== ====== ======
</TABLE>
<PAGE> 43
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the reclassification adjustments required
for the years ended December 31, 1999, 1998 and 1997 to avoid double-counting in
other comprehensive income (loss) items that are included as part of net income
for the current year that have been reported as a part of other comprehensive
income (loss) in the current or prior year:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Holding (losses) gains on investments arising during the
year...................................................... $(6,314) $ 1,493 $ 4,257
Income tax effect of holding gains or losses................ 2,262 (617) (1,615)
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) losses included in current year
net income............................................. 38 (2,013) (844)
Amortization of premium and discount on investments....... (307) (350) (209)
Realized holding (losses) gains allocated to other
policyholder amounts................................... (67) 608 231
Income tax effect......................................... 120 729 312
Allocation of holding losses (gains) on investments relating
to other policyholder amounts............................. 3,788 (351) (2,231)
Income tax effect of allocation of holding gains and losses
to other policyholder amounts............................. (1,357) 143 846
------- ------- -------
Net unrealized investment (losses) gains.................... (1,837) (358) 870
------- ------- -------
Foreign currency translation adjustments arising during the
year...................................................... 50 (115) (46)
Reclassification adjustment for sale of investment in
foreign operation......................................... -- 2 (3)
------- ------- -------
Foreign currency translation adjustment..................... 50 (113) (49)
------- ------- -------
Minimum pension liability adjustment........................ (7) (12) --
------- ------- -------
Other comprehensive income (loss)........................... $(1,794) $ (483) $ 821
======= ======= =======
</TABLE>
15. 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 personal excess liability
insurance. International provides life insurance, accident and health insurance,
annuities and retirement and savings
<PAGE> 44
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1999, 1998
and 1997. 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 commercial leasing business
(Corporate segment) and substantial portions of its Canadian operations
(International segment), and insurance operations in the United Kingdom
(International segment). 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 (primarily consisting of sales practices
claims and claims for personal injuries caused by exposure to asbestos or
asbestos-containing products) and prior to its sale in 1998, the results of
MetLife Capital Holdings, Inc. to the Corporate segment.
<TABLE>
<CAPTION>
AUTO
AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/
DECEMBER 31, 1999 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL
- ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,289 $ 5,525 $1,751 $ 523 $ -- $ -- $ -- $ 12,088
Universal life and
investment-type
product policy fees... 888 502 -- 48 -- -- -- 1,438
Net investment income... 5,346 3,755 103 206 80 605 (279) 9,816
Other revenues.......... 558 629 21 12 803 59 72 2,154
Net realized investment
gains (losses)........ (14) (31) 1 1 -- (41) 14 (70)
Policyholder benefits
and claims............ 4,625 6,712 1,301 463 -- -- 4 13,105
Interest credited to
policyholder account
balances.............. 1,359 1,030 -- 52 -- -- -- 2,441
Policyholder
dividends............. 1,509 159 -- 22 -- -- -- 1,690
Other expenses.......... 2,719 1,589 514 248 795 1,031 (141) 6,755
Income (loss) before
provision for income
taxes and
extraordinary item.... 855 890 61 5 88 (408) (56) 1,435
Income (loss) after
provision for income
taxes before
extraordinary item.... 555 567 56 21 51 (358) (50) 842
Total assets............ 109,401 88,127 4,443 4,381 1,036 19,834 (1,990) 225,232
Deferred policy
acquisition costs..... 8,049 106 93 244 -- -- -- 8,492
Separate account
assets................ 28,828 35,236 -- 877 -- -- -- 64,941
Policyholder
liabilities........... 72,956 47,781 2,318 2,187 -- 6 (293) 124,955
Separate account
liabilities........... 28,828 35,236 -- 877 -- -- -- 64,941
</TABLE>
<PAGE> 45
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED 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................ $ 4,323 $ 5,159 $1,403 $ 618 $ -- $ -- $ -- $ 11,503
Universal life and
investment-type
product policy fees... 817 475 -- 68 -- -- -- 1,360
Net investment income... 5,480 3,885 81 343 75 682 (318) 10,228
Other revenues.......... 474 575 36 33 817 111 (52) 1,994
Net realized investment
gains................. 659 557 122 117 -- 679 (113) 2,021
Policyholder benefits
and claims............ 4,606 6,416 1,029 597 -- (10) -- 12,638
Interest credited to
policyholder account
balances.............. 1,423 1,199 -- 89 -- -- -- 2,711
Policyholder
dividends............. 1,445 142 -- 64 -- -- -- 1,651
Other expenses.......... 2,577 1,613 386 352 799 2,601 (309) 8,019
Income (loss) before
provision for income
taxes and
extraordinary item.... 1,702 1,281 227 77 93 (1,119) (174) 2,087
Income (loss) after
provision for income
taxes before
extraordinary item.... 1,069 846 161 56 49 (691) (143) 1,347
Total assets............ 103,614 88,741 2,763 3,432 1,164 20,852 (5,220) 215,346
Deferred policy
acquisition costs..... 6,194 82 57 205 -- -- -- 6,538
Separate account
assets................ 23,013 35,029 -- 26 -- -- -- 58,068
Policyholder
liabilities........... 71,571 49,406 1,477 2,043 -- 1 (295) 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 78 700 (370) 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 1,003 869 -- -- -- 12,403
Interest credited to
policyholder account
balances............... 1,422 1,319 -- 137 -- -- -- 2,878
Policyholder dividends... 1,340 305 -- 97 -- -- -- 1,742
Other expenses........... 2,394 1,178 351 497 679 966 (294) 5,771
Income before provision
for income taxes....... 877 535 105 145 81 79 (151) 1,671
Income after provision
for income taxes....... 599 339 74 126 45 163 (143) 1,203
Total assets............. 95,323 83,473 2,542 7,412 1,136 18,641 (5,745) 202,782
Deferred policy
acquisition costs...... 5,912 40 56 428 -- -- -- 6,436
Separate account assets.. 17,345 30,473 -- 520 -- -- -- 48,338
Policyholder
liabilities............ 70,686 49,547 1,509 5,615 -- 1 -- 127,358
Separate account
liabilities............ 17,345 30,473 -- 520 -- -- -- 48,338
</TABLE>
<PAGE> 46
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $48, $49 and $45 for
the years ended December 31, 1999, 1998 and 1997, respectively. The investment
in Nvest was $196, $252 and $216 at December 31, 1999, 1998 and 1997,
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: (1) a review of the nature of such costs, (2) time studies analyzing the
amount of employee compensation costs incurred by each segment, and (3) 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 $24,637, $25,643 and $22,664 for
the years ended December 31, 1999, 1998 and 1997, respectively, which
represented 97%, 96% and 93%, respectively, of consolidated revenues.
16. SUBSEQUENT EVENTS
On January 6, 2000, the Company acquired GenAmerica for $1.2 billion. In
connection with this acquisition, the Company incurred $900 of short-term debt.
GenAmerica is a holding company which includes General American Life Insurance
Company, 48.3% of the outstanding shares of Reinsurance Group of America ("RGA")
common stock, a provider of reinsurance, and 61.0% of the outstanding shares of
Conning Corporation common stock, an asset manager. On January 18, 2000, the
Company announced that it had proposed to acquire all of the outstanding shares
of Conning common stock not already owned by it for $10.50 per share in cash, or
approximately $55. At December 31, 1999, the Company owned 9.6% of the
outstanding shares of RGA common stock which were acquired on November 24, 1999
for $125. Subsequent to the GenAmerica acquisition, the Company owned 57.9% of
the outstanding shares of RGA common stock. Total assets, revenues and net loss
of GenAmerica were $23,594, $3,916 and $(174), respectively, at or for the year
ended December 31, 1999.
As part of the acquisition agreement, in September 1999 the Company assumed
$5,752 of General American Life funding agreements and received cash of $1,926
and investment assets with a market value of $3,826. In October 1999, as part of
the assumption arrangement, the holders of General American Life funding
agreements aggregating $5,136 elected to have the Company redeem the funding
agreements for cash. General American Life agreed to pay the Company a fee of
$120 in connection with the assumption of the funding agreements. The fee will
be considered as part of the purchase price to be allocated to the fair value of
assets and liabilities acquired. The Company also agreed to make a capital
contribution of $120 to General American Life after the completion of the
acquisition.
At the date of the acquisition agreement, the Company and GenAmerica were
parties to a number of reinsurance agreements. In addition, as part of the
acquisition, the Company entered into agreements effective as of July 25, 1999,
which coinsured new and certain existing business of General American Life and
some of its affiliates. See Note 11.
<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, 1999.
Statement of Operations for the year ended December 31, 1999.
Statements of Changes in Net Assets for the years ended December 31,
1999 and 1998.
Statement of Supplementary Information - Selected Per Unit Data and
Ratios.
Notes to Financial Statements.
Portfolio of Investments as of December 31, 1999.
(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, 1999 and 1998.
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Equity for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
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) (i) 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.
(ii) Amended and Restated Rules and Regulations of the Fund, dated
July 28, 1999.
(3) (i) 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.
(ii) 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.
(iii) Additional Form of Safekeeping Agreement and Amendment to
Agreement.
(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.
III-2
<PAGE>
(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 (File No. 333-11137) filed on August 30, 1996.
(vi) Form of Endorsement: (Settlement Option Table) is incorporated
herein by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-3 (File No. 333-11137) filed on April 26, 1999.
(7) Forms of application are incorporated herein by reference to Post-
Effective Amendment No. 4 to the Registration Statement on Form N-3
(File 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
(File 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.
(iii) Amended and Restated Charter and By-Laws of Metropolitan Life
Insurance Company.
(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.
III-3
<PAGE>
(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 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. Power of Attorney for Virginia M. Wilson is incorporated
herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement of Metropolitan Life Separate Account (File No.
333-80547) filed November 1, 1999.
(ii) Board of Managers of the Fund.
(18) Code of Ethics of Registrant, Investment Adviser and Principal
Underwriter.
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
</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>
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
Burton A. Dole, Jr. Director None
Retired Chairman, President and
Chief Executive Officer
Nellcor Puritan Bennett
2200 Faraday Avenue
Carlsbad, CA 92008-7208
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
</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>
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.
524 Main Street
Bolton, MA 01720
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
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
</TABLE>
III-6
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address Insurance Company with Registrant
<S> <C> <C>
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 10016
</TABLE>
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
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
Gary A. Beller Senior Executive Vice-President and General None
Counsel
James H. Benson President, Individual Business, Chief None
Executive Officer and President, New England
Life Insurance Company
C. Robert Hendrickson Senior Executive Vice-President None
Richard A. Liddy Senior Executive Vice-President None
</TABLE>
III-7
<PAGE>
<TABLE>
<CAPTION>
Name Position with Company Position with Registrant
<S> <C> <C>
Catherine A. Rein Senior Executor Vice-President; President None
and Chief Executive Officer of Metropolitan
Property and Casualty Insurance Company
William J. Toppeta Senior Executive Vice-President None
John H. Tweedie Senior Executive Vice-President None
Lisa Weber Senior Vice-President None
Judy E. Weiss Executive Vice-President and Chief Actuary None
Virginia M. Wilson Senior Vice President and Controller 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. 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.
Virginia M. Wilson joined MetLife in 1999; prior thereto, she was a Senior Vice
President and Controller of Transamerica Life Companies and an Audit Partner
with Deloitte & Touche. Richard A. Liddy is Senior Executive Vice President of
General American, a subsidiary of MetLife. 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.
Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife,
Inc. a publicly traded company. 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 APRIL 3, 2000
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan"). It is expected that Metropolitan will become a wholly-owned
subsidiary of MetLife, Inc. on or about April 7, 2000. MetLife, Inc. will become
a publicly-traded company at that time. 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)
h. Economy Fire & Casualty Company
i. Economy Preferred Insurance Company
j. Economy Premier Assurance Company
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)
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)
<PAGE>
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.
e. MetLife Investment, S.A. 23rd Street Investment, Inc. holds one
share of MetLife Investments Limited and MetLife Investments,
S.A.
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a
sub-investment manager for the Growth, Income, Diversified
and Aggressive Growth Portfolios of Metropolitan Series
Fund, Inc.
i. State Street Research Investment Services, Inc.
(Massachusetts)
<PAGE>
b. 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.
(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. 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 Financial Agency, Inc. (TX)
9. Natiloportem Holdings, Inc. (Delaware)
a. Services Administrativos Gen, S.A. de CV One Share of Servicos
Administrativos Gen. S.A. de C.V. is held by a nominee of
Natiloportem Holdings, Inc.
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
<PAGE>
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. 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.
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)
<PAGE>
U. MetLife (India) Ltd.
V. Hyatt Legal Plans, Inc. (Delaware)
1. Hyatt Legal Plans of Florida, Inc. (Fl)
W. 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%.
X. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. CBNJ, Inc. (New Jersey)
Y. MetPark Funding, Inc. (Delaware)
Z. Transmountain Land & Livestock Company (Montana)
AA. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
A.B. MetLife Trust Company, National Association. (United States)
A.C. Benefit Services Corporation (Georgia)
A.D. G.A. Holding Corporation (MA)
A.E. MetLife, Inc.
A.F. CRH., Co, Inc. (MA)
A.G. 334 Madison Euro Investments, Inc.
A.H. Park Twenty Three Investments Company 1% Voting Control of Park Twenty
Three Investment Company is held by St. James Fleet Investments Two
Limited
a. Convent Stution Euro Investments Four Company 1% voting control of
Convert Stution Euro Investments Four Company is held by 334 Madison
Euro Investments, Inc. as nominee for Park Twenty Three Investments
Company.
A.I. L/C Development Corporation (CA)
A.J. One Madison Investments (Cayco) Limited 1% Voting Control of One Madison
Investment (Cayco) Limited is held by Convent Station Euro Investments
Four Company.
A.K. New England Portfolio Advisors, Inc. (MA)
A.L. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.M. New England Life Mortgage Funding Corporation (MA)
A.N. 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.O. 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.P. St. James Fleet Investments two Limited.
<PAGE>
A.Q. 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)
(6) Hereford Insurance Agency of Wyoming, Inc.
(7) Hereford Insurance Agency of Oklahoma, Inc.
ii. TNE Information Services, Inc. (MA)
(1) First Connect Insurance Network, Inc. (DE)
(2) Interative Financial Solutions, Inc. (MA)
iii. 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)
iv. New England Securities Corporation
v. New England Investment Management Inc.
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)
A.R. General American Life
1. General American Life Insurance Company
a. GenAm Benefits Life Insurance Company
b. Paragon Life Insurance Company
c. Security Equity Life Insurance Company
d. Cova Corporation
i. Cova Financial Services Life Insurance Company
(1) Cova Financial Life Insurance Company
(2) First Cova Life Insurance Company
ii. Cova Investment Advisory Corporation
(1) Cova Investment Advisory Corporation
(2) Cova Investment Allocution Corporation
(3) Cova Life Sales Company
(4) Cova Life Administration Services Company
e. General Life Insurance Company
i. General Life Insurance Company of America
f. Equity Intermediary Company
i. Reinsurance Group of America, Incorporated
1. Reinsurance Company of Missouri Incorporated
a. RGA Reinsurance Company
b. Fairfield Management Group, Inc.
i. Reinsurance Partners, Inc.
ii. Great Rivers Reinsurance Management, Inc.
iii. RGA (U.K.) Underwriting Agency Limited
2. Triad Re, Ltd
3. RGA Americas Reinsurance Company, Ltd.
4. RGA Reinsurance Company (Barbados) Ltd.
(a) RGA/Swiss Financial Group, L.L.C.
5. RGA International Ltd.
(a) RGA Financial Products Limited
(b) RGA Canada Management Company, Ltd.
(i) RGA Life Reinsurance Company of Canada
6. Benefit Resource Life Insurance Company (Bermuda) Ltd.
7. RGA Holdings Limited
(a) RGA Managing Agency Limited
(b) RGA Capital Limited
8. RGA South African Holdings (Pty) Ltd.
(a) RGA Reinsurance Company of South Africa Limited
9. RGA Australian Holdings Pty Limited
(a) RGA Reinsurance Company of Australia Limited
10. General American Argentina Seguros
11. RGA Argentina, S.A.
12. RGA Sudamerica, S.A.
(a) RGA Reinsurance
(b) BHIF American Seguros de Vida, S.A.
g. GenAm Holding Company
i. NaviSys Incorporated
ii. NaviSys Illustration Solutions, Inc.
iii. NaviSys Asia Pacifica Limited
iv. NaviSys de Mexico S.A. de C.V.
99% of the shares of NaviSys de Mexico S.A. de C.V. are held
by NaviSys Incorporated and 1% is held by General American
Life Insurance Company.
v. NaviSys Enterprise Solutions, Inc.
vi. Red Oak Realty Company
vii. White Oak Royalty Company
viii. GenMark Incorporated
(a) Stan Mintz Associates, Inc.
(b) GenMark Insurance Agency of Alabama, Inc.
(c) GenMark Insurance Agency of Massachusetts, Inc.
(d) GenMark Insurance Agency of Ohio, Inc.
(e) GenMark Insurance Agency of Texas, Inc.
ix. Conning Corporation
(a) Conning, Inc.
(i) Conning & Company
(1) Conning Asset Management Company
2. Collaborative Strategies, Inc.
3. Virtual Finances.Com, Inc.
4. Missouri Reinsurance (Barbados) Inc.
5. GenAmerican Capital I
6. GenAmerican Management
7. Walnut Street Securities, Inc.
a. WSS Insurance Agency of Alabama, Inc.
b. WSS Insurance Agency of Massachusetts, Inc.
c. WSS Insurance Agency of Ohio, Inc.
d. WSS Insurance Agency of Texas, Inc.
e. Walnut Street Advisers, Inc.
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
partnerhship 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)
(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) Reich & Tang Asset Management
R & T Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in &
Asset Management, L.P.
(c) Reich & Tang Services, Inc. (DE)
<PAGE>
(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.
(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
<PAGE>
(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
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 ( )
<PAGE>
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)
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.
<PAGE>
(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.
A.R. General American Life
1. General American Life Insurance Company
a. GenAm Benefits Life Insurance Company
b. Paragon Life Insurance Company
c. Security Equity Life Insurance Company
d. Cova Corporation
i. Cova Financial Services Life Insurance Company
(1) Cova Financial Life Insurance Company
(2) First Cova Life Insurance Company
ii. Cova Investment Advisory Corporation
(1) Cova Investment Advisory Corporation
(2) Cova Investment Allocution Corporation
(3) Cova Life Sales Company
(4) Cova Life Administration Services Company
e. General Life Insurance Company
i. General Life Insurance Company of America
f. Equity Intermediary Company
i. Reinsurance Group of America, Incorporated
1. Reinsurance Company of Missouri Incorporated
a. RGA Reinsurance Company
b. Fairfield Management Group, Inc.
i. Reinsurance Partners, Inc.
ii. Great Rivers Reinsurance Management, Inc.
iii. RGA (U.K.) Underwriting Agency Limited
2. Triad Re, Ltd
3. RGA Americas Reinsurance Company, Ltd.
4. RGA Reinsurance Company (Barbados) Ltd.
(a) RGA/Swiss Financial Group, L.L.C.
5. RGA International Ltd.
(a) RGA Financial Products Limited
(b) RGA Canada Management Company, Ltd.
(i) RGA Life Reinsurance Company of Canada
6. Benefit Resource Life Insurance Company (Bermuda) Ltd.
7. RGA Holdings Limited
(a) RGA Managing Agency Limited
(b) RGA Capital Limited
8. RGA South African Holdings (Pty) Ltd.
(a) RGA Reinsurance Company of South Africa Limited
9. RGA Australian Holdings Pty Limited
(a) RGA Reinsurance Company of Australia Limited
10. General American Argentina Seguros
11. RGA Argentina, S.A.
12. RGA Sudamerica, S.A.
(a) RGA Reinsurance
(b) BHIF American Seguros de Vida, S.A.
g. GenAm Holding Company
i. NaviSys Incorporated
ii. NaviSys Illustration Solutions, Inc.
iii. NaviSys Asia Pacifica Limited
iv. NaviSys de Mexico S.A. de C.V.
99% of the shares of NaviSys de Mexico S.A. de C.V. are held
by NaviSys Incorporated and 1% is held by General American
Life Insurance Company.
v. NaviSys Enterprise Solutions, Inc.
vi. Red Oak Realty Company
vii. White Oak Royalty Company
viii. GenMark Incorporated
(a) Stan Mintz Associates, Inc.
(b) GenMark Insurance Agency of Alabama, Inc.
(c) GenMark Insurance Agency of Massachusetts, Inc.
(d) GenMark Insurance Agency of Ohio, Inc.
(e) GenMark Insurance Agency of Texas, Inc.
ix. Conning Corporation
(a) Conning, Inc.
(i) Conning & Company
(1) Conning Asset Management Company
2. Collaborative Strategies, Inc.
3. Virtual Finances.Com, Inc.
4. Missouri Reinsurance (Barbados) Inc.
5. GenAmerican Capital I
6. GenAmerican Management
7. Walnut Street Securities, Inc.
a. WSS Insurance Agency of Alabama, Inc.
b. WSS Insurance Agency of Massachusetts, Inc.
c. WSS Insurance Agency of Ohio, Inc.
d. WSS Insurance Agency of Texas, Inc.
e. Walnut Street Advisers, Inc.
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.
<PAGE>
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.
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's 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.
<PAGE>
Item 31. Number of Contractowners
As of March 31, 2000, there were 636 owners of tax-qualified contracts and 136
owners of non-qualified contracts offered by Registrant.
Item 32. Indemnification
Article IV of the Registrant's Amended and Restated Rules and Regulations
provides for the indemnification of its directors and officers as follows:
"The Fund shall indemnify each of the members its Board of Managers and officers
(including persons who serve at its request as directors, officers, or trustees
of another organization in which it has any interest, as a shareholder, creditor
or otherwise) against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees, reasonably incurred by him in connection with the
defense or disposition of any action, suit or other proceeding, whether civil or
criminal before any court or administrative or legislative body, in which he may
be or may have been involved as a party or otherwise or with which he may be or
may have been threatened, while in office or thereafter, by reason of any
alleged act or omission as a member or officer or by reason of his being or
having been such a member or officer, except with respect to any matter as to
which he shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Fund and except that no member or
officer shall be indemnified against any liability to the Fund or its
Contractholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Expenses, including counsel fees, so
incurred by any such member or officer may be paid by the Fund in advance of the
final disposition of any such action, suit or proceeding on the condition that
the amounts so paid shall be repaid to the Fund if it is ultimately determined
that indemnification of such expenses is not authorized under this Article.
"As to any matter disposed of by a compromise payment by such member or officer,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Fund, after notice that it
involves such indemnification, (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
III-9
<PAGE>
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 an
"interested" member or officer is one against whom the action, suit or other
proceeding in question or another action, suit or other proceeding on the same
or similar grounds is then or had been pending, and a "disinterested person" is
a person against whom none of such actions, suits or other proceedings or
another action, suit or other proceeding on the same or similar grounds is then
or had been pending. Nothing contained in this Article shall affect any rights
to indemnification to which Fund personnel other than members and officers may
be entitled by contract or otherwise under law."
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 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
III-10
<PAGE>
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* Chairman of the Board, Director, None
President and CEO
Bradley W. Anderson* Vice President None
Steven J. Brash*** Assistant Treasurer None
Mary M. Diggins** Vice President, General Counsel, None
Secretary and Clerk
Thom A. Faria** Director None
Mark A. Greco* Vice President and Chief Operating None
Officer
Gregory M. Harrison*** Assistant Treasurer None
Laura A. Hutner* Vice President None
Mitchell A. Karman** Vice President None
Rebecca Kovatch* Vice President None
Joanne Logue** Vice President None
Genevieve Martin* Vice President None
John Peruzzi** Assistant Vice President and None
Controller
Robert F. Regan** Vice President None
Jonathan M. Rozek* Vice President None
Andrea M. Ruesch* 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
</TABLE>
III-11
<PAGE>
Principal Business Address: *399 Boylston Street, Boston, MA 02116
**501 Boylston Street, Boston, MA 02116
***MetLife - One Madison Avenue, New York, NY
---------------------------------------------
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation
Name of Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commissions Other Compensation
<S> <C> <C> <C> <C>
New England
Securities $14,150.54 0 0 0
Corporation
</TABLE>
Commissions are paid on behalf of New England Securities Corporation directly to
agents who are registered representatives of the principal underwriter.
Item 35. Location of Accounts and Records
The following companies will maintain possession of the documents required by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder:
(a) Registrant
(b) New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(c) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
(e) Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
III-12
<PAGE>
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-13
<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, 2000.
NEW ENGLAND VARIABLE ANNUITY FUND I
By: /s/ Anne M. Goggin
------------------
Anne M. Goggin
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>
Chairman of the Board of Managers April 26, 2000
Anne M. Goggin* and Principal Executive Officer
- ----------------------------------------
Anne M. Goggin
April 26, 2000
John J. Arena* Member of the Board
- ----------------------------------------
John J. Arena
April 26, 2000
Edward J. Benjamin* Member of the Board
- ----------------------------------------
Edward J. Benjamin
April 26, 2000
Mary Ann Brown* Member of the Board
- ----------------------------------------
Mary Ann Brown
April 26, 2000
John W. Flynn* Member of the Board
- ----------------------------------------
John W. Flynn
April 26, 2000
Nancy Hawthorne* Member of the Board
- ----------------------------------------
Nancy Hawthorne
</TABLE>
III-14
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
John T. Ludes* Member of the Board April 26, 2000
- -----------------------------------
John T. Ludes
Dale Rogers Marshall* Member of the Board April 26, 2000
- -----------------------------------
Dale Rogers Marshall
</TABLE>
By: /s/ Michele H. Abate April 26, 2000
----------------
Michele H. Abate
* Executed by Michele H. Abate, Esq. on behalf of those indicated pursuant to
Powers-of-attorney filed herewith.
III-15
<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, 2000.
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, 2000
- ------------------------------------ (Principal Executive Officer)
ROBERT H. BENMOSCHE
Vice Chairman and Chief Investment
* Officer April 26, 2000
- ------------------------------------
GERALD CLARK
Vice-Chairman and
* Chief Financial Officer (Principal April 26, 2000
- ------------------------------------ Financial Officer)
STEWART G. NAGLER
Senior Vice-President and
* Controller (Principal Accounting April 26, 2000
- ------------------------------------ Officer)
VIRGINIA M. WILSON
* Director April 26, 2000
- ------------------------------------
CURTIS H. BARNETTE
</TABLE>
III-16
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
<S> <C> <C>
* Director April 26, 2000
- ------------------------------------
JOAN GANZ COONEY
* Director April 26, 2000
- ------------------------------------
BURTON A. DOLE, JR.
* Director April 26, 2000
- ------------------------------------
JAMES R. HOUGHTON
* Director April 26, 2000
- ------------------------------------
HARRY P. KAMEN
* Director April 26, 2000
- ------------------------------------
HELENE L. KAPLAN
* Director April 26, 2000
- ------------------------------------
CHARLES H. LEIGHTON
* Director April 26, 2000
- ------------------------------------
ALLEN E. MURRAY
* Director April 26, 2000
- ------------------------------------
JOHN J. PHELAN, JR.
* Director April 26, 2000
- ------------------------------------
HUGH B. PRICE
</TABLE>
III-17
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE Title Date
<S> <C> <C>
* Director April 26, 2000
- -------------------------------------------
RUTH J. SIMMONS
Director April 26, 2000
- -------------------------------------------
WILLIAM C. STEERE, JR.
April 26, 2000
/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 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. Power of Attorney for Virginia M. Wilson is
incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registration Statement of Metropolitan Life Separate Account (File No. 333-
80547) filed November 1, 1999.
III-18
<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) (i) 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.
(ii) Amended and Restated Rules and Regulations of the Fund, dated July
28, 1999.
(3) (i) 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.
(ii) 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.
(iii) Additional Form of Safekeeping Agreement and Amendment to
Agreement.
(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-1
<PAGE>
(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) is incorporated
herein by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-3 (No. 333-11137) filed on April 26, 1999.
(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.
(iii) Amended and Restated Charter and By-Laws of Metropolitan Life
Insurance Company.
(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.
III-2
<PAGE>
(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 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. Power of Attorney for Virginia M. Wilson is incorporated
herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement of Metropolitan Life Separate Account (File No.
333-80547) filed November 1, 1999.
(ii) Board of Managers of the Fund.
(18) Code of Ethics of Registrant, Investment Adviser and Principal
Underwriter.
III-3
<PAGE>
Exhibit 2(ii)
NEW ENGLAND VARIABLE ANNUITY FUND I
*********
AMENDED AND RESTATED RULES AND REGULATIONS
Effective July 28, 1999
*********
ARTICLE I. GENERAL
-------
Section 1. Name. The name of this separate investment account shall be
----
New England Variable Annuity Fund I (the "Fund"). The name of the Fund has been
selected by Metropolitan Life Insurance Company (the "Company"), whose
subsidiary, New England Life Insurance Company ("NELICO"), owns such name, and
may be used by the Fund only with the consent of NELICO and the Company, which
reserve the right in their discretion to withdraw such consent at any time.
In the event that such consent is withdrawn, the Fund shall adopt some other
name which shall not include the phrase "New England" as a part thereof. The use
of said name by the Fund shall in no way prevent the Company or NELICO, or any
other separate investment account thereof, or any company affiliated with the
Company or NELICO, or any investment company for which NELICO's subsidiary,
New England Securities Corporation, or any other direct or indirect subsidiary
of the Company, acts as distributor, from using as part of or in connection with
its name, the phrase "New England," with any other words or symbols, in
connection with any other entity or business, whether or not competitive with
the Fund.
Section 2. Office. The office of the Fund shall be at the home office of
------
NELICO, 501 Boylston Street, Boston, Massachusetts.
Section 3. Purpose. The Fund was initially established in accordance with
-------
Massachusetts law as a separate investment account of New England Mutual Life
Insurance Company, which merged with and into the Company on August 30, 1996;
following such merger the Fund operates under New York law as a separate
investment account of the Company within which assets attributable to certain
variable annuity contracts issued by the Company are set aside, held and
invested for the sole benefit of the Contractholders and other persons entitled
to payments under such contracts. Such assets shall be part of the assets of
the Company but shall not be chargeable with liabilities arising out of any
other business conducted by the Company and the income and realized and
unrealized capital gains or losses of the Fund shall be credited to or charged
against the Fund without regard to other income and capital gains or losses of
the Company.
Assets may also be transferred to the Fund by the Company from its general
assets for any legitimate purpose consistent with applicable law and such assets
(other than those
<PAGE>
transferred to the Fund in order to support obligations of the Company under the
variable annuity contracts) shall not be attributable to such variable annuity
contracts but shall stand to the credit of the Company; provided that
immediately following any such transfer the value of such assets (other than
those transferred to the Fund in order to support obligations of the Company
under the variable annuity contracts) shall not exceed the greater of $200,000
or 5% of the total assets of the Fund. The withdrawal of assets so placed in the
Fund by the Company shall be at its sole discretion, subject to applicable law
and to the terms of any undertaking it may make in connection with the
registration of the Fund under the Investment Company Act of 1940.
Section 4. Alteration of Classification. The Fund is registered and qualified
----------------------------
as an open-end management investment company under the Investment Company Act of
1940. The Fund reserves the right to terminate such registration under the Act,
to the extent permitted by law, or to reorganize and qualify as a unit
investment trust under such Act upon approval of a majority of all votes
entitled to be cast at any meeting of the owners of contracts which depend in
whole or in part on the investment performance of the Fund (the
"Contractholders"), provided that: (1) such reorganization will not result in
any expense chargeable to, or the imposition of any tax upon, the assets of the
Fund or the Contractholders or other payees under the contracts; and (2) the
assets of the unit investment trust will be shares of an open-end management
company sponsored by or affiliated with the Company and having the same
investment objectives as the Fund, except to the extent otherwise approved by a
majority of the votes entitled to be cast at any meeting of the Contractholders.
ARTICLE II. BOARD OF MANAGERS
-----------------
Section 1. Election. A Board of Managers, composed of not more than fifteen
--------
nor less than three Managers, shall be elected at each meeting of
Contractholders called for the purpose of electing Managers. The number of
Managers shall be fixed by vote of the meeting at which they are elected, but
the Contractholders or the Managers may, at any subsequent meeting held for the
purpose, increase (within the limits above specified) the number of Managers as
so fixed and (a) in the case of the Contractholders, elect new Managers to
complete the number so fixed, and (b) in the case of the Managers, fill the
vacancy so created in accordance with Section 6 of this Article II. No Manager
need be a Contractholder. The Managers shall hold office until the next meeting
of the Contractholders called for the purpose of electing Managers and until
their successors are elected and qualified, or until a Manager sooner dies,
resigns, is removed or becomes disqualified.
Section 2. Meetings. Regular meetings of the Board of Managers may be held
--------
without call or notice at such places and at such times as the Board may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Managers. Special
meetings of the Managers may be held at any time and at any place designated in
the call of the meeting, when called by the Chairman of the Board of Managers or
any two or more members of the Board of Managers, sufficient notice thereof
being given to each member by the Secretary or by the person or persons calling
the meeting. It shall be
<PAGE>
sufficient notice to a member to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting addressed to him at
his usual or last known business or residence address or to give notice to him
in person or by telephone at least twenty-four hours before the meeting. Notice
of a meeting need not be given to any member if a written waiver of notice,
executed by him before or after the meeting, is filed with the records of the
meeting, or to any member who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him. Neither notice of a
meeting nor a waiver of a notice need specify the purposes of the meeting. The
Chairman of the Board of Managers shall preside at all meetings of the Board at
which he is present, and if he is not present, one of the members present shall
be designated to act as presiding officer.
Section 3. Quorum. A majority of the members of the Board of Managers in
------
office shall constitute a quorum for the transaction of business at any meeting
of the Board. When a quorum is present at any meeting, a majority of the
members present shall decide any question brought before such meeting, except as
otherwise provided by applicable law or these Rules and Regulations. Except as
otherwise required by applicable law, any action required or permitted to be
taken at any meeting of the Managers may be taken without a meeting if a written
consent thereto is signed by all the Managers and such written consent is filed
with the records of the meetings of the Managers. Such consent shall be treated
for all purposes as a vote at a meeting.
Section 4. Officers. From time to time as the Board of Managers shall
--------
determine, the Board of Managers shall elect one of its members to act as
Chairman of the Board of Managers to hold office until his successor is elected
and qualified.
As such meeting as they elect a Chairman, the Board of Managers shall also
elect a Secretary and one or more Assistant Secretaries to the Board, who may or
may not be members of the Board of Managers. The Secretary shall have the power
to keep and certify the minutes of the meetings of the Contractholders and the
Board of Managers and portions thereof and all other duties and powers provided
for in these Rules and Regulations or designated by the Board of Managers. In
the absence of the Secretary, an Assistant Secretary shall perform such duties
and have such powers and, in the absence of the Secretary and any Assistant
Secretary, a temporary Secretary may be designated by the Board of Managers to
perform such duties and have such powers. The Board of Managers may appoint
such other officers as it may from time to time deem appropriate. The Chairman
of the Board of Managers, the Secretary and such other officers shall have and
perform such duties and have such other powers as the Board of Managers shall
designate from time to time.
Section 5. Resignations and Removal. Any member of the Board of Managers or
------------------------
the Secretary to the Board or any other officer may resign at any time by
delivering his resignation in writing to the Chairman of or Secretary to the
Board of Managers or to a meeting of the Board of Managers. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. A Manager (including persons elected by the Managers to fill vacancies in
the Board of Managers) may be removed from office (a) with or without cause by
the vote of a majority of all votes entitled to be cast at a meeting of
Contractholders or (b) for cause by a
<PAGE>
majority of the Managers then in office. The Board of Managers may remove any
officer elected by them with or without cause by the vote of a majority of the
Managers then in office. A Manager or officer may be removed for cause only
after reasonable notice and opportunity to be heard before the body proposing to
remove him. No Manager or officer resigning or removed shall have any right to
any compensation for any period following his resignation or removal, or any
right to damages on account of such removal.
Section 6. Vacancies. No person shall serve as a member of the Board of
---------
Managers unless duly elected to that office by the Contractholders, except that
whenever any vacancy shall occur in the Board of Managers by death, resignation
or otherwise (including by an increase in the size of the Board of Managers),
the Board of Managers may appoint a person to fill such vacancy by a vote of a
majority of all the remaining members of the Board, with the person so appointed
to hold office until the next meeting of the Contractholders called for the
purpose of electing Managers and until his successor is elected and qualified
(unless he sooner dies, resigns, is removed or becomes disqualified) if,
immediately after filling such vacancy, at least two-thirds of the members of
the Board of Managers then holding office shall have been elected by the
Contractholders. In the event that at any time less than a majority of the
Board have been so elected, the Board of Managers shall forthwith cause to be
held as promptly as possible, and in any event within sixty days, a meeting of
the Contractholders for the purpose of electing members to fill the existing
vacancies in the Board of Managers. The Board of Managers may fill any vacancy
occurring in the office of Chairman of the Board or Secretary to the Board.
Except as otherwise provided by law, the Board of Managers shall have and may
exercise all its powers notwithstanding the existence of one or more vacancies
in their number.
Section 7. Powers and Duties of Board of Managers. Subject to applicable law,
--------------------------------------
the Board of Managers shall have the following powers, responsibilities and
duties:
a. To select an independent accountant at a meeting held within thirty
days before or ninety days after the beginning of the fiscal year, provided such
selection is made by the vote, cast in person, of a majority of those members of
the Board of Managers of the Fund who are not interested persons of the Fund or
affiliated persons of the Company; and to fill any vacancy due to the death or
resignation of such accountant, by the vote of a majority of those members of
the Board of Managers who are not interested persons of the Fund or affiliated
persons of the Company, cast in person at a meeting called for the purpose of
voting on such action.
b. To approve an initial or amended distribution agreement for the Fund
and to approve the continuance of such an agreement, provided that the terms of
any such agreement and any renewal thereof shall also be approved by the vote of
a majority of those members of the Board of Managers who are not parties to such
agreement or interested persons of any party to such agreement or of the Fund or
affiliated persons of the Company, cast in person at a meeting called for the
purpose of voting on such approval.
<PAGE>
c. To approve an initial or amended agreement for investment advisory
services to the Fund, subject to approval by Contractholders as provided in
Section 10 of Article V, and to approve the continuance of such an agreement,
provided that the terms of any such agreement and any renewal thereof shall also
be approved by vote of a majority of those members of the Board of Managers who
are not parties to such agreement or interested persons of any party to such
agreement or of the Fund, cast in person at a meeting called for the purpose of
voting on such approval.
d. To recommend from time to time any changes deemed appropriate in the
fundamental investment policies of the Fund for submission to the
Contractholders at their next meeting, and to make such changes in those
investment policies of the Fund not requiring approval by the Contractholders as
the Board deems appropriate.
e. To review periodically the investment portfolio of the Fund to
ascertain that it is being managed in accordance with the investment objectives
and policies of the Fund and the interests of the Contractholders, and to take
such corrective action as may be necessary.
f. To enter into agreements and take any and all actions necessary or
appropriate in the judgment of the Board of Managers in connection with the
operation and management of the Fund and its assets, including such actions as
are necessary or appropriate to comply with any applicable federal or state
statutes or rules.
Section 8. Committees. The Board of Managers may elect by vote of a majority
----------
of the whole Board two or more of its members to constitute an Executive
Committee, which committee shall, except as otherwise required by applicable
law, have and may exercise when the Board is not in session any or all powers of
the Board of Managers in the management of the business and affairs of the Fund.
The Board of Managers likewise may appoint from its number other committees
from time to time, determine the number (but not less than two) composing such
committees, and specify the functions to be performed by such committees.
Each committee may make rules for the notice and conduct of its meetings
and the keeping of the records thereof. The term of any member of any committee
shall be fixed by the Board of Managers.
ARTICLE III. FEES OF MEMBERS OF BOARD AND OTHERS
-----------------------------------
The Board of Managers shall have power to fix and determine the fee or fees
to be paid to members of the Board of Managers or to any officers or other
persons elected by the Board of Managers or by the Contractholders, on account
of services to the Fund, except that members and officers of the Board of
Managers of the Fund who are also officers, directors or employees of the
Company or any company affiliated with the Company shall not be entitled to any
fee.
<PAGE>
Any fees so fixed and determined by the Board of Managers shall be subject to
revision or amendment by the Contractholders.
ARTICLE IV. INDEMNIFICATION
---------------
The Fund shall indemnify each of the members of its Board of Managers and
officers (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest, as a shareholder,
creditor or otherwise) against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by him in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or legislative body, in
which he may be or may have been involved as a party or otherwise or with which
he may be or may have been threatened, while in office or thereafter, by reason
of any alleged act or omission as a member or officer or by reason of his being
or having been such a member or officer, except with respect to any matter as to
which he shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Fund and except that no member or
officer shall be indemnified against any liability to the Fund or its
Contractholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Expenses, including counsel fees, so
incurred by any such member or officer may be paid by the Fund in advance of the
final disposition of any such action, suit or proceeding on the condition that
the amounts so paid shall be repaid to the Fund if it is ultimately determined
that indemnification of such expenses is not authorized under this Article.
As to any matter disposed of by a compromise payment by such member or
officer, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
compromise shall be approved as in the best interests of the Fund, after notice
that it involves such indemnification, (a) by a disinterested majority of the
members of the Board of Managers then in office; or (b) by a majority of the
disinterested members of the Board of Managers then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Board of Managers, provided that in the case of approval pursuant to clause (b)
or (c) there has been obtained an opinion in writing of independent legal
counsel to the effect that such member or officer appears to have acted in good
faith in the reasonable belief that his action was in the best interests of the
Fund and that such indemnification would not protect such member or officer
against any liability to the Fund or its Contractholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office; or (d) by the Contractholders holding a 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
<PAGE>
indemnification if such officer or member is subsequently adjudicated by a court
of competent jurisdiction not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Fund or to have been
liable to the Fund or its Contractholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any member or officer of the Board of Managers
may be entitled. As used in this Article, the terms "member" and "officer"
include their respective heirs, executors and administrators, and an
"interested" member or officer is one against whom the action, suit or other
proceeding in question or another action, suit or other proceeding on the same
or similar grounds is then or had been pending, and a "disinterested person" is
a person against whom none of such actions, suits or other proceedings or
another action, suit or other proceeding on the same or similar grounds is then
or had been pending. Nothing contained in this Article shall affect any rights
to indemnification to which Fund personnel other than members and officers may
be entitled by contract or otherwise under law.
ARTICLE V. MEETINGS OF CONTRACTHOLDERS
---------------------------
Section 1. Time and Place of Meetings. Meetings of the Contractholders may be
--------------------------
called by the Chairman of the Board of Managers or by a majority of the Board of
Managers to be held at such times and places as he or they may determine.
Section 2. Notice of Meeting. A written notice stating the place, day and hour
-----------------
of the meeting, and the purpose or purposes for which the meeting is called,
shall be given to each Contractholder who is such as of the record date for the
meeting and no business shall be transacted at the meeting except matters coming
within such purpose. Such notice shall be mailed to the Contractholder's
address as it appears upon the records of the Company not less than twenty days
nor more than ninety days prior to the day of such meeting. Only persons owning
a contract on the record date will be entitled to vote at such meeting. Notice
of any adjourned meeting shall not be required. No call or notice of any
meeting of Contractholders need be given to a Contractholder if a written waiver
of notice, executed before or after the meeting by such Contractholder or his
attorney thereunto duly authorized, is filed with the records of the meeting.
Section 3. Record Date. The record date for any meeting of the Contractholders
-----------
shall be such date within ninety days of the date of the meeting as is
determined by the Board of Managers.
Section 4. Quorum. Thirty per cent (30%) of all votes which may be cast by
------
Contractholders represented either in person or by proxy shall constitute a
quorum for the transaction of business at any meeting of the Contractholders.
If a quorum shall not be present, a majority of the votes represented may
adjourn the meeting to some later time. When a quorum is present, the vote of a
<PAGE>
majority of the votes represented in person or by proxy shall determine any
question, except as may be otherwise provided by these Rules and Regulations or
by law. "A majority of the votes entitled to be cast" by the Contractholders,
when required by these Rules and Regulations, means (a) 67% or more of the votes
present (in person or by proxy) and entitled to be cast at a meeting if
Contractholders entitled to more than 50% of the outstanding votes of the Fund
are present (in person or by proxy); or (b) more than 50% of all votes which are
entitled to be cast, whichever is less.
Section 5. Order of Business. The Chairman of the Board of Managers shall act
-----------------
as Chairman of each meeting of the Contractholders, and in his absence the
Chairman of the meeting shall be such person as may be designated for such
purpose by the Chairman of the Board of Managers. The order of business at the
meeting shall be determined by the Chairman.
Section 6. Proxies. A Contractholder entitled to vote may vote either in
-------
person or by proxy duly executed in writing by the Contractholder. A proxy for
any meeting shall be valid for any adjournment of such meeting.
Section 7. Voting. The number of votes which a Contractholder may cast shall
------
be determined as of the record date for the meeting. Prior to the commencement
of annuity payments, i.e. during the accumulation period under a deferred
variable annuity contract, the number of votes which a Contractholder may cast
shall be equal to the number of Accumulation Units standing to the credit of his
contract. After annuity payments under a deferred or immediate variable annuity
contract have begun, i.e. during the annuity period, the number of votes which a
Contractholder may cast shall be equal to (i) the amount of assets established
in the Fund to meet the obligation for future payments under variable options
elected under the contract, divided by (ii) the value of an Accumulation Unit.
Neither the Fund nor the Company shall be under a duty to inquire as to (1)
the receipt by a Contractholder of instructions from persons, if any, who may
have the right to instruct the Contractholder with respect to votes attributable
to the Contractholder's contract, (2) the validity or effect of any voting
instructions received by a Contractholder or (3) the authority of the
Contractholder to cast votes. Except as the Fund or the Company has actual
knowledge to the contrary, the votes cast by the Contractholders shall be valid
and effective as they affect the Fund, the Company and any others having voting
rights with respect to the Fund.
For purposes of these Rules and Regulations, the Company shall be deemed a
Contractholder with respect to and shall be entitled to cast the votes
attributable to assets in the Fund not attributable to variable annuity
contracts, provided that the Company's votes shall be cast only in the same
manner and proportion in which all other votes are cast.
Cumulative voting for members of the Board of Managers is not authorized.
<PAGE>
Section 8. Tellers. The Chairman shall appoint at least two tellers to
-------
receive, count and report all ballots cast at every meeting of Contractholders
and he may also appoint a committee on qualifications and proxies to inquire and
report to the meeting what Contractholders are present, duly qualified or
properly represented. If the right of any person to vote is questioned, the
Chairman of the meeting shall upon receiving the report of the committee on
qualifications and proxies determine his said right, subject to an appeal from
such decision to the meeting.
Section 9. Voting Authority. Subject to applicable law, the Contractholders
----------------
shall have authority, at any meeting called for that purpose, to:
a. Determine the number of and elect members of the Board of Managers of
the Fund, and fill vacancies in the Board when such action is required under
applicable law;
b. Remove any member of the Board of Managers of the Fund or any officer
elected or appointed by the Board;
c. Ratify the selection of an independent public accountant for the Fund,
and terminate the employment of such independent public accountant;
d. Approve an initial or amended agreement for investment advisory
services for the Fund, approve the continuance of such an agreement in the
absence of approval of such continuance by the Board of Managers of the Fund and
terminate such agreement;
e. Approve an initial or amended distribution agreement for the Fund and
approve the continuance of such an agreement, in the absence of approval of such
agreement or its continuance by the Board of Managers of the Fund; and
f. Authorize changes in the fundamental investment policies of the Fund.
Action with respect to the matters referred to in paragraphs (b), (d), (e),
and the second clause of paragraph (c) shall be by vote of a majority of the
votes entitled to be cast.
ARTICLE VI. VALUATION OF THE ASSETS OF THE FUND
-----------------------------------
Section 1. Valuation of Assets. In determining the total value of the assets
-------------------
of the Fund on any valuation date, securities shall be taken at their market
value and all other assets at fair value, determined as follows:
(1) The market value of each security that is traded on a national
securities exchange shall be determined by the price of the last reported sale
of such security on any of said exchanges on the valuation date. In case there
has been no such sale of such security on such
<PAGE>
day, and for any security not traded on a national securities exchange, the
market value shall be taken to be the last reported bid price on the valuation
date.
(2) The market value of each security for which market quotations are not
readily available shall be determined by any method which may be selected by the
Board of Managers.
(3) Dividends declared but not yet received and rights in respect of
securities quoted ex-dividends or ex-rights shall be included at the fair value
thereof as determined by any method which may be selected by the Board of
Managers, which may, but need not be, the fair value so determined on the day
the particular securities are first quoted ex-dividends or ex-rights.
(4) The fair value of any other assets of the Fund (or the value of any of
the assets mentioned in paragraphs (1), (2) or (3) in situations not covered
thereby or in the event of the closing of the New York Stock Exchange or any
other circumstances determined by the Board of Managers to make other methods of
valuation advisable) shall be determined by any method which may be selected by
the Board of Managers.
(5) Whenever value or market prices or any other matters are to be
determined hereunder by any method which may be selected by the Board of
Managers, the method selected shall be in accordance with generally accepted
accounting principles.
Section 2. Determination Binding. Any determination made in good faith and, so
---------------------
far as accounting matters are involved, in accordance with generally accepted
accounting principles, by or pursuant to the direction of the Board of Managers,
as to the amount of assets, debts, obligations, or liabilities of the Fund, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating such reserves or charges, as to the use,
alteration or cancellation of any reserves or charges (whether or not any debt,
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the price or bid or asked price of any
security owned or held by the Fund, as to the market value of any security or
fair value of any other asset of the Fund, as to the estimated expense to the
Fund in connection with purchases of assets, as to the ability to liquidate
securities in orderly fashion, or as to any other matters relating to the issue,
sale, purchase and/or acquisition or disposition of securities of the Fund,
shall be final, conclusive and binding. The foregoing sentence shall not be
construed to protect any member of the Board of Managers or officer or agent of
the Fund against any liability to the Fund or Contractholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office or agency; nor shall the foregoing sentence be construed as a waiver of
compliance with any provisions of the Investment Company Act of 1940 (including,
without limitation, the provisions of Section 47(a) thereof) or with any rule,
regulation, or order promulgated under said Act. Nothing in this section is to
be construed to give the Board of Managers any control or authority over the
determination of liabilities under the variable annuity contracts.
<PAGE>
ARTICLE VII. FISCAL YEAR
-----------
The fiscal year of the Fund shall begin on January 1 and end on
December 31.
ARTICLE VIII. AMENDMENTS
----------
These Rules and Regulations may be altered, amended or repealed at any
meeting of the Contractholders called for the purpose, of which the notice shall
specify the general purport of the proposed alteration, amendment or repeal and
of the articles to be affected thereby, by vote of the Contractholders. These
Rules and Regulations may also be altered, amended or repealed by vote of a
majority of the Board of Managers then in office, except with respect to any
provision which by law or these Rules and Regulations requires action by the
Contractholders. Action by the Contractholders shall be required to amend,
alter or repeal Article IV or to amend, alter or repeal this Article VIII so as
to increase the power of the Board of Managers or reduce the power of the
Contractholders to amend, alter or repeal these Rules and Regulations. Any
provision of these Rules and Regulations adopted by the Board of Managers may be
amended or repealed by the Contractholders in the above manner.
<PAGE>
Exhibit 3(iii)
SAFEKEEPING AND SERVICES AGREEMENT
----------------------------------
AGREEMENT made as of the th day of March, 1979 by and between NEW
ENGLAND LIFE VARIABLE ANNUITY FUND I (hereinafter called the "Fund"), a separate
investment account of New England Mutual Life Insurance Company ("New England
Life") established pursuant to Chapter 175 of the General Laws of Massachusetts,
having its principal place of business at Boston, Massachusetts, 02117, and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation, having
its principal place of business at Boston, Massachusetts, 02110 (hereinafter
called "State Street").
WITNESSETH THAT:
----------------
In consideration of the mutual agreements herein contained, the Fund and
State Street, intending to be legally bound, hereby agree as follows:
I. SAFEKEEPING AGENT
-----------------
1. Appointment. The Fund, which maintains its securities and other
-----------
investments in its own custody pursuant to applicable provisions of and rules
under the Investment Company Act of 1940, agrees to and does hereby appoint
State Street its Safekeeping Agent for such securities and other investments
subject to the provisions hereof, and likewise agrees to deliver to State Street
certified or authenticated copies of the vote of the Board of Managers
appointing State Street to act in the capacities covered by this Agreement and
authorizing the signing of this Agreement and copies of such votes of its Board
of Managers, contracts and other documents as may be required by State Street in
the performance of its duties hereunder.
2. Endorsement. All securities delivered to State Street (other than
-----------
in bearer form) shall be properly endorsed and in form for transfer or in the
name of State Street or of a nominee of State Street or in the name of the Fund
or of a nominee of the Fund.
3. Powers and Duties. As Safekeeping Agent, State Street shall have
-----------------
and perform the following powers and duties:
- 2-
<PAGE>
A. Safekeeping. To keep safely in a separate account the
-----------
securities of the Fund and on behalf of the Fund, from time to time, to receive
delivery of certificates for safekeeping and to keep such certificates
physically segregated at all times from those of any other person. State Street
shall maintain records of all receipts, deliveries and locations of such
securities, together with a current inventory thereof and shall conduct periodic
physical inspections of certificates representing bonds and other securities
held by it under this Agreement in such manner as State Street shall determine
from time to time to be advisable in order to verify the accuracy of such
inventory. With respect to securities held by any agent appointed pursuant to
Paragraph 5 of Section III hereof, State Street may rely upon certificates from
such agent as to the holdings of such agent, it being understood that such
reliance in no way relieves State Street of its responsibilities under this
Agreement. State Street will promptly report to the Fund the result of such
inspections, indicating any shortages or discrepancies uncovered thereby, and
take appropriate action to remedy any such shortages or discrepancies.
B. Use of Federal Reserve Book-Entry System. Notwithstanding
----------------------------------------
any other provision of the Agreement, it is expressly understood and agreed
that State Street is authorized in the performance of its duties hereunder to
deposit all or any part of the securities owned by the Fund in the book-entry
system of the Federal Reserve Banks (hereinafter called the "system") and to
use the facilities of such system, all as provided for under the provisions of
Rule 17f-4 under the Investment Company Act of 1940 as from time to time in
effect. Without limiting the generality of the foregoing, it is agreed that the
following provisions shall apply thereto:
(1) State Street may keep securities of the Fund in the system
provided that such securities are represented in an account
("Account") of State Street (or its agent) in the system which
shall not include any assets of State Street (or such agent) other
than assets held as a fiduciary, custodian or otherwise for
customers. The records of State Street at all times during the
regular business hours of State Street (or such agent) shall be
open for inspection by duly authorized officers, employees or
agents of the Fund, employees and agents of the Securities and
Exchange Commission and by authorized
- 3 -
<PAGE>
representatives of the Insurance Commissioners of the jurisdictions
in which New England Life does business. Where securities are
transferred to the Fund's account, State Street shall, by book
entry or otherwise, identify as belonging to the Fund a quantity of
securities in a fungible bulk of securities, (i) registered in the
name of State Street or its nominee or (ii) shown on State Street's
account on the books of a Federal Reserve Bank.
(2) State Street (or its agent) shall pay for securities purchased
for the account of the Fund upon (i) receipt of advice from the
system that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of State Street (or
its agent) to reflect such payment and transfer for the account of
the Fund. State Street (or its agent) shall transfer securities
sold for the account of the Fund upon (a) receipt of advice from
the system that payment for securities sold has been transferred to
the Account, and (b) the making of an entry on the records of State
Street (or its agent) to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the system or
transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by State Street and provided
to the Fund at its request.
(3) State Street shall send to the Fund a confirmation, as defined
by Rule 17f-4 under the Investment Company Act of 1940, of all
transfers to or from the system for the account of the Fund.
(4) State Street shall promptly send to the fund any report it
receives from the appropriate Federal Reserve Bank on its system of
internal accounting control. State Street shall send, and cause any
agent to send, to the Fund at such times as the Fund may reasonably
require such reports on its own system of internal accounting
control.
- 4 -
<PAGE>
(5) Anything to the contrary in this Agreement notwithstanding,
State Street shall be liable to the Fund for any loss or damage to
such Fund resulting from use of the system by reason of any
negligence, misfeasance or misconduct of State Street (or any of
its agents) or of any of its (or their) employees or from any
failure of State Street (or any such agent) to enforce effectively
such rights as it may have against the system; at the election of
the Fund, it shall be entitled to be subrogated to the rights of
State Street (or its agent) in any claim against the system or any
other person which State Street may have as a consequence of any
such loss or damage if and to the extent that the Fund has not been
made whole for any such loss or damage.
(6) Notwithstanding anything to the contrary in this Agreement, any
agent appointed by State Street to carry out any of the provisions
of this Paragraph 3-B of Section I must first be approved by vote
of the Board of Managers of the Fund.
C. Registered Name, Nominee. To register securities of the Fund
------------------------
held by State Street in the name of the Fund or of any nominee of the Fund or in
the name of State Street or of any nominee of State Street or in the name of any
agent or any nominee of such agent pursuant to Paragraph 5 of Section III
hereof.
D. Purchases. Upon receipt of proper instructions, and insofar as
---------
cash is available for the purpose, to pay for and receive all securities
purchased for the account of the Fund, payment being made only upon receipt of
the securities by State (or any agent appointed by State Street pursuant to
Paragraph 5 of Section III hereof as State Street's agent for this purpose),
registered as provided in Paragraph 3-C of Section I hereof or in form for
transfer satisfactory to State Street, or in the case of repurchase agreements
entered into between the Fund and a bank located in Boston, delivery of the
receipt evidencing purchase by the Fund of securities owned by State Street or
such other bank along with written evidence of the agreement by State Street or
other bank to repurchase such securities from the Fund, provided, however, that
in the case of repurchase agreements extending not more than seven days entered
into between the Fund and bank not located in Boston, State Street
- 5 -
<PAGE>
is specifically authorized to treat such bank as though State Street had
appointed it as agent pursuant to Paragraph 5 of Section III hereof for the
limited purpose of receiving and holding documents evidencing such repurchase
agreements and evidencing the segregation on the books and records of the bank
of the specific securities purchased under or collateralizing such repurchase
agreement and State Street shall not be liable for failure of such bank to
fulfill any representations that it has effected such segregation, provided,
further, however, that State Street and the Fund agree to use their best efforts
to insure receipt by State Street of copies of such documentation for each such
transaction as promptly as possible. All securities accepted by State Street
shall be accompanied by payment of, or a "due bill" for, any dividends, interest
or other distributions of the issuer, due the purchaser. Except as otherwise
provided with respect to repurchase agreements in this Paragraph 3-D of Section
I hereof, in any and every case of a purchase of securities for the account of
the Fund where payment is made by State Street in advance of receipt of the
securities purchased, State Street shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received by
State Street.
E. Exchanges. Upon receipt of proper instructions, to exchange
---------
securities or interim receipts or temporary securities held by it or by any
agent appointed by it pursuant to Paragraph 5 of Section III hereof for the
account of the Fund for other securities alone or for other securities and cash,
and to expend cash insofar as cash is available, in connection with any merger,
consolidation, reorganization, recapitalization, split-up of shares, changes of
par value, conversion or in connection with the exercise of warrants,
subscription or purchase rights, or otherwise; to deposit any such securities
and cash in accordance with the terms of any reorganization or protective plan
or otherwise, and to deliver securities to the designated depository or other
receiving agent in response to tender offers or similar offers to purchase
received in writing. Except as instructed by proper instructions received in
timely enough fashion for State Street to act thereon prior to any expiration
date (which shall be presumed to be three business days prior to such date
unless State Street has advised the Fund of a different period) and giving full
details of the time and method of submitting securities in response to any
tender
- 6 -
<PAGE>
or similar offer, exercising any subscription or purchase right on making any
exchange pursuant to this Paragraph and subject to State Street having fulfilled
its obligations under Paragraph 3-L of Section I hereof pertaining to notices or
announcements, State Street shall be under no obligation regarding any tender or
similar offer, subscription or purchase right or exchange except to exercise its
best efforts. When such securities are in the possession of an agent appointed
by State Street pursuant to Paragraph 5 of Section III hereof, the proper
instructions referred to in the preceding sentence must be received by State
Street in timely enough fashion (which shall be presumed to be four business
days unless State Street has advised the Fund of a different period) for State
Street to notify the agent in sufficient time to permit such agent to act prior
to any expiration date.
F. Sales. Upon receipt of proper instructions and upon receipt of
-----
payment therefor to make delivery of securities which have been sold for the
account of the Fund. All such payments are to be made in cash, by a certified
check upon or a treasurer's or cashier's check of a bank, by effective bank wire
transfer through the Federal Reserve Wire System or, if appropriate, outside of
the Federal Reserve Wire System and subsequent credit to an account of the Fund
maintained pursuant to Paragraph 1 of Section II hereof, or, in case of delivery
through a stock clearing company, by book-entry credit by the stock clearing
company in accordance with the then current street custom.
G. Purchases by Issuer. Upon receipt of proper instructions, to
-------------------
release and deliver securities owned by the Fund to the Issuer thereof or its
agent when such securities are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or other consideration is to
be delivered to State Street.
H. Changes of Name and Denomination. Upon receipt of proper
--------------------------------
instructions, to release and deliver securities owned by the Fund to the Issuer
thereof or its agent for transfer into the name of the Fund or State Street or a
nominee of either, or for exchange for a different number of bonds,
certificates, or other evidence representing the same aggregate face amount or
number of units bearing the same interest rate,
- 7 -
<PAGE>
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to State Street.
I. Street Delivery. Upon receipt of proper instructions, which in
---------------
the case of registered securities may be standing instructions, to release and
deliver securities owned by the Fund to the broker selling the same for
examination in accordance with the then current "street delivery" custom.
J. Release of Securities for Use as Collateral. Upon receipt of
-------------------------------------------
proper instructions, to release securities belonging to the Fund to any bank or
trust company for the purpose of pledge or hypothecation to secure any loan
incurred by the Fund; provided, however, that securities shall be released only
upon payment to State Street of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization, further securities may be released for that purpose.
Upon receipt of proper instructions, to pay such loan upon redelivery to it of
the securities pledged or hypothecated therefor and upon surrender of the note
or notes evidencing the loan.
K. Release or Delivery of Securities for other Purposes. Upon
----------------------------------------------------
receipt of proper instructions, to release or deliver any securities held by it
for the account of the Fund for any other purpose.
L. Proxies, Notices, Etc. Promptly to deliver or mail to the
---------------------
Fund, all forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to the securities, and upon receipt of
proper instructions to execute and deliver or cause its nominee to execute and
deliver such proxies or other authorizations as may be required. Neither State
Street nor its nominee shall vote upon any of the securities or execute any
proxy to vote thereon or give any consent to take any other action with respect
thereto (except as otherwise herein provided) unless ordered to do so by proper
instructions.
M. Miscellaneous. In general, to attend to all nondiscretionary
-------------
details in connection with the sale, exchange, substitution, purchase, transfer
or other dealing with such securities or property of the Fund except as
otherwise from time to time directed by proper instructions. State Street shall
render to the Fund an
- 8 -
<PAGE>
itemized statement of the securities for which it is accountable to the Fund
under this Agreement as of the end of each month, as well as a list of all
security transactions that remain unsettled at such time.
II. Services
--------
1. Bank Accounts. State Street shall establish one or more bank
-------------
accounts in which cash of the Fund may be maintained. Such account or accounts
shall be established in the banking department of State Street, shall be in the
name of the Fund, and shall be subject to draft or order by State Street acting
pursuant to proper instructions or to draft or order by representatives of New
England Life acting as agent for the Fund. If requested by the Fund, State
Street shall furnish the Fund, not later than twenty (20) calendar days after
the last business day of each month, a statement reflecting the current status
of its internal reconciliation of the closing balance as of that day in all
accounts described in this Paragraph to the balance shown on the daily cash
report for that day rendered to the Fund.
2. Collections. Unless otherwise instructed by receipt of proper
-----------
instructions, to collect, receive and deposit in the bank account or accounts
maintained pursuant to Paragraph 1 of Section II hereof all income and other
payments with respect to the securities held hereunder, and to execute ownership
and other certificates and affidavits for all Federal and State tax purposes in
connection with the collection of bond and note coupons, and to do all other
things necessary or proper in connection with the collection of such income, and
without waiving the generality of the foregoing, to:
(1) present for payment on the date of payment all coupons and other
income items requiring presentation;
(2) present for payment all securities which may mature or be called,
redeemed, retired or otherwise become payable on the date such
securities become payable;
(3) endorse and deposit for collection, in the name of the Fund,
checks, drafts or other negotiable instruments on the same day as
received.
- 9 -
<PAGE>
In any case in which State Street does not receive any such due and unpaid
income within a reasonable time after it has made proper demands for the same
(which shall be presumed to consist of at least three demand letters and at
least one telephonic demand), it shall so notify the Fund in writing, including
copies of all demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await proper
instruction; State Street shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its satisfaction. It
shall also notify the Fund as soon as reasonably practicable whenever income due
on securities is not collected in due course.
3. Stock Dividends, Rights, Etc. To receive and collect all stock
----------------------------
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.
4. Other Proper Purposes. Upon receipt of proper instructions, to make or
---------------------
cause to be made, insofar as cash is available, disbursements for any purpose.
5. Records. To create, maintain and retain all records relating to its
-------
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, particularly
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable Federal and
State tax laws and any other law or administrative rules or procedures which may
be applicable to the Fund. All records maintained by the Bank in connection
with the performance of its duties under this Agreement will remain the property
of the Fund and in the event of termination of this Agreement will be delivered
in accordance with the terms of Paragraph 11 of Section III hereof.
6. Accounts. To keep books of account and render statements, including
--------
daily, interim monthly and such other financial statements, or copies thereof
from time to time as requested by the Secretary or any member of the Board of
Mangers of the Fund.
7. Appraisals. To compute and determine in such manner and at such time
----------
as may be mutually agreed upon by the Fund and State Street, the market value of
a unit of the Fund, or of the assets of or of a
- 10 -
<PAGE>
particular type of assets of the Fund, and promptly to notify the Fund of the
result of such computation and determination.
8. Miscellaneous. To assist generally in the preparation of routine
-------------
reports to contractholders of the Fund, to the Securities and Exchange
Commission, including Forms N-1R and N-1Q, to State "Blue Sky" authorities and
to others, in the auditing of accounts, and in other matters of like nature.
III. GENERAL MATTERS
---------------
1. Proper Instructions. State Street shall be deemed to have received
-------------------
proper instructions upon receipt of written instructions signed by a majority of
the Board of Managers of the Fund or by one or more person or persons as the
Board of Managers shall have from time to time authorized to give the particular
class of instructions in question. Different persons may be authorized to give
instructions for different purposes. A certified copy of a vote or action of
the Board of Managers of the Fund may be received and accepted by State Street
as conclusive evidence of the authority of any such person or persons to act and
may be considered as in full force and effect until receipt of written notice to
the contrary. Such instructions may be general or specific in terms.
2. Investments, Limitations. In performing its duties generally, and more
------------------------
particularly in connection with the purchase, sale and exchange of securities
made by or for the Fund, State Street may take cognizance of the provisions of
any documents delivered to it pursuant to Paragraph I of Section I hereof;
however, except as otherwise expressly provided herein, it may assume unless and
until notified in writing to the contrary that instructions purporting to be
proper instructions received by it are not in conflict with or in any way
contrary to any provisions of the constituent documents of the Fund or any votes
or proceedings of the Board of Managers of the Fund.
3. Indemnification. State Street, as Safekeeping Agent, shall be entitled
---------------
to receive and act upon advice of counsel (who may be counsel for the Fund) and
shall be without liability for any action reasonably taken or thing reasonably
done pursuant to such advice, provided that such action is not in violation of
- 11 -
<PAGE>
applicable Federal or State laws or regulations, and shall be kept indemnified
by the Fund and be without liability for any action taken or thing done by it in
carrying out the terms and provisions of this Agreement in good faith and
without negligence. In order that the indemnification provision contained in
this Paragraph 3 of Section III shall apply, however, it is understood that if
in any case the Fund may be asked to indemnify or save State Street harmless,
the Fund shall be fully and promptly advised of all pertinent facts concerning
the situation in question, and it is further understood that State Street will
use all reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Fund. The Fund shall have the option to
defend State Street against any claim which may be the subject of this
indemnification, and in the event that the Fund so elects it will so notify
State Street, and thereupon the Fund shall take over complete defense of the
claim, and State Street shall in such situations initiate no further legal or
other expenses for which it shall seek indemnification under this Paragraph 3 of
Section III. State Street shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify State Street
except with the Fund's prior written consent.
4. Expense Reimbursement. State Street shall be entitled to receive from
---------------------
the Fund on demand reimbursement for its cash disbursements, expenses and
charges in connection with its duties as Safekeeping Agent as aforesaid, but
excluding salaries and usual overhead expenses.
5. Appointment of Agents. State Street, as Safekeeping Agent, may at any
---------------------
time or times appoint (and may at any time remove) any other bank or company
whose functions and physical facilities are supervised by Federal or State
authority as its agent to carry out such of the provisions of this Agreement as
State Street may from time to time direct, provided, however, that the
appointment of such agent shall not relieve State Street of any of its
responsibilities under this Agreement.
6. Reliance on Documents. So long as and to the extent that it is in the
---------------------
exercise of reasonable care, State Street, as Safekeeping Agent, shall not be
responsible for the title, validity or genuineness of any property or evidence
of title thereto received by it or delivered by it pursuant to this Agreement,
and shall be
- 12 -
<PAGE>
protected in acting upon any instructions, notice, request, consent, certificate
or other instrument or paper reasonably believed by it to be genuine and to have
been properly executed in accordance with Paragraph 3 of Section I hereof and
shall, except as otherwise specifically provided in this Agreement, be entitled
to receive as conclusive proof of any fact or matter required to be ascertained
by it hereunder a certificate signed by any Manager or the Secretary of the Fund
or any person authorized by the Managers.
7. Access. Subject to security requirements of State Street applicable to
------
its own employees having access to similar records within State Street and such
regulations as to the conduct of such monitors as may be reasonably imposed by
State Street after prior consultation with a Manager of the Fund, the books and
records of State Street pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by the Board of Managers of,
attorneys for, and auditors employed by, the Fund, and by authorized
representatives of the Insurance Commissioners of the jurisdictions in which New
England Life does business. In addition, and subject to Paragraph 3-B of
Section I hereof, the Board of Managers of the Fund may designate by vote not
more than five persons who shall be Managers, Officers or responsible employees
of the Fund, who may have access to the securities and other investments held by
State Street under this Agreement. A certified copy of any such vote shall
promptly be forwarded to State Street.
8. Record-Keeping. State Street shall maintain such records as will
--------------
enable the Fund to comply with the requirements of all Federal and State Laws
and regulations applicable to the Fund with respect to the matters covered by
this Agreement.
9. Compensation. The Fund shall pay to State Street for services rendered
------------
under this Agreement the compensation set forth on Exhibit A hereto until a
different compensation schedule shall be agreed upon in writing between the
parties.
10. Effective Period, Termination and Amendment, and Interpretive and
-----------------------------------------------------------------
Additional Provisions. This Agreement shall become effective as of the date of
- ---------------------
its execution, shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto
- 13 -
<PAGE>
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid, to the other party, such termination to take effect not
sooner than sixty (60) days after the date of such delivery or mailing;
provided, however, that the Fund shall not amend or terminate this Agreement in
contravention of any applicable Federal or State laws or regulations, or any
provision of any constituent document of the Fund and further provided, that the
Fund may at any time by action of its Board of Managers substitute another bank
or trust company for State Street by giving notice as above to State Street.
In connection with the operation of this Agreement, State Street and the
Fund may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement, any such interpretive or
additional provisions to be signed by both parties and annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable Federal or State laws or regulations, or any provision of any
consitutent document of the Fund. No interpretive or additional provisions made
as provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
11. Successor Safekeeping Agent. Upon termination hereof, the Fund shall
---------------------------
pay to State Street such compensation as may be due as of the date of such
termination and shall likewise reimburse State Street for its costs, expenses
and disbursements incurred prior to such termination in accordance with
Paragraph 4 of Section III hereof and such reasonable costs, expenses and
disbursements as may be incurred by State Street in connection with such
termination.
If a successor Safekeeping Agent is appointed by the Board of Managers of
the Fund, State Street shall, upon termination, deliver to such successor at the
office of State Street, duly endorsed and in form for transfer, all securities
then held hereunder and all funds or other properties of the Fund deposited with
or held by it hereunder.
In the event that no written order designating a successor Safekeeping
Agent shall have been delivered to State Street on or before the date when such
termination shall become effective, then State Street shall have
- 14 -
<PAGE>
the right to deliver to a bank or trust company doing business in Boston,
Massachusetts, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report of not less than
$25,000,000, all securities, funds, and other properties held by State Street
and all instruments held by State Street and all instruments held by it relative
thereto and all other property held by it under this Agreement. Thereafter,
such bank or trust company shall be the successor of State Street under this
Agreement.
In the event that securities, funds, and other properties remain in the
possession of State Street after the date of termination hereof owing to failure
of the Board of Managers to appoint a successor Safekeeping Agent, State Street
shall be entitled to fair compensation for its services during such period and
the provisions of this Agreement relating to the duties and obligations of State
Street shall remain in full force and effect.
12. Use of Name. The Fund shall not circulate any printed matter which
-----------
contains any reference to State Street without the prior written approval of
State Street, excepting solely such printed matter as merely identifies State
Street as Safekeeping Agent. The Fund will submit printed matter requiring
approval to State Street in draft form, allowing sufficient time for review by
State Street and its counsel prior to any deadline for printing.
13. Choice of Law. This instrument is executed and delivered in the
-------------
Commonwealth of Massachusetts and shall be subject to and be construed according
to the laws of said Commonwealth.
14. Notices. Notices and other writings delivered or mailed postage
-------
prepaid to the Fund at 501 Boylston Street, Boston, Massachusetts 02117 or to
State Street at 225 Franklin Street, Boston, Massachusetts 02110 or to such
other address as the Fund or State Street may hereafter specify, shall be deemed
to have been properly delivered or given hereunder to the respect address.
15. Liability. It is understood and expressly stipulated that neither the
---------
holders of contracts in the Fund nor the Managers of the Fund shall be
personally liable hereunder.
16. Successors. This Agreement shall be binding on and shall inure to the
----------
benefit of the Fund and State Street and their respective successors.
- 15 -
<PAGE>
17. Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by a duly authorized representative as
of the day and year first above written.
NEW ENGLAND LIFE VARIABLE ANNUITY FUND I
ATTEST:
By: ____________________________ By: _______________________________________
ATTEST: STATE STREET BANK AND TRUST COMPANY
________________________________ ___________________________________________
Assistant Secretary Vice President
<PAGE>
AMENDMENT TO SAFEKEEPING AND SERVICES AGREEMENT
THIS AMENDMENT TO SAFEKEEPING AND SERVICES AGREEMENT made as of this ______
day of _________, 1982 by and between NEW ENGLAND LIFE VARIABLE ANNUITY FUND I
(hereinafter called the "Fund"), a separate investment account of New England
Mutual Life Insurance Company ("New England Life") established pursuant to
Chapter 175 of the General Laws of Massachusetts, having its principal place of
business at Boston, Massachusetts, 02117 and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts banking corporation, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110 (hereinafter
called "State Street).
WITNESSETH THAT:
It is mutually agreed that the SAFEKEEPING AND SERVICES AGREEMENT between
the Fund and State Street made as of March, 1979, as amended to date (the
"Agreement"), is hereby amended and supplemented as follows:
1. Subparagraph B of Paragraph 3 of Article I of the Agreement is hereby
amended and restated to read in its entirety as follows:
"B. Deposit of Fund Assets in Securities Systems. State Street may
--------------------------------------------
deposit and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, each of which is referred to herein as "a Securities
System" in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(i) State Street may keep securities of the Fund in a Securities
System provided that such securities are represented in an account
("Account") of State Street in the Securities System which shall not
include any assets of State Street other than assets held as a fiduciary,
custodian or otherwise for customers;
(ii) The record of State Street with respect to securities of the
Fund which are maintained in a Securities System shall identify by book-
entry those securities belonging to the Fund;
(iii) State Street shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of State Street to reflect such payment and transfer
for the account of the Fund. State Street shall transfer securities sold or
loaned for the account of the Fund upon (i) receipt of advice from the
Securities System that payment or collateral for such securities has been
transferred to the Account, and (ii) the making of an entry on the records
of State Street to reflect such transfer and payment for the account of the
Fund. Copies of all advices from the Securities System of transfers of
securities for the account of the Fund shall identify the Fund, be
maintained for the Fund by State Street and be provided to the Fund at its
request. State Street shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transaction in the Securities System for the account
of the Fund on the next business day;
(iv) All books and records maintained by State Street which relate to
the Fund's participation in a Securities System will at all times during
State Street's regular business hours be open to the inspection of the
Fund's duly authorized employees or agents, and the Fund will be furnished
with all the information in respect of the services rendered to it as it
may require.
<PAGE>
(v) State Street shall promptly provide the Fund with any report
obtained by State Street on the Securities System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Securities System;
(vi) State Street shall have received as required by Rule 17f-4 under
the Investment Company Act of 1940 (a) a certificate of the Secretary or
Assistant Secretary of the Fund to the effect that the Directors of the
Fund have approved the initial use by the Fund of each such Securities
System and more than one year shall not have elapsed since the date of such
approval or (b) if more than one year shall have elapsed since the date of
such initial approval by the Directors, State Street shall have received a
certificate of the Secretary or Assistant Secretary of the Fund to the
effect that the Directors of the Fund have reviewed the continued use by
the Fund of each such Securities System and not more than one year shall
have elapsed since the date of such review;
(vii) Anything to the contrary in this Contract notwithstanding, State
Street shall be liable to the Fund for any loss or damage to the Fund
resulting from use of the Securities System by reason of any negligence,
misfeasance or misconduct of State Street or any of its agents or any of
its or their employees or from failure of State Street or any such agent to
enforce effectively such rights as it may have against the Securities
System; at the election of the Fund, it shall be entitled to be subrogated
to the rights of State Street with respect to any claim against the
Securities System or any other person which State Street may have as a
consequence of any such loss or damage if and to the extent that the Fund
has not been made whole for any such loss or damage."
It is further agreed that this Amendment to Agreement may be executed in
two or more counterparts, each of which shall be deemed an original.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by a duly authorized officer as of the
day and year first above written.
ATTEST: NEW ENGLAND LIFE VARIABLE ANNUITY FUND I
________________________________ ____________________________________________
ATTEST: STATE STREET BANK AND TRUST COMPANY
________________________________ ____________________________________________
Assistant Secretary Vice President
<PAGE>
Exhibit 8(iii)
AMENDED AND RESTATED CHARTER OF
METROPOLITAN LIFE INSURANCE COMPANY
Under
Sections 1206 and 7312 of the Insurance Law
and Section 807 of the Business Corporation Law
The undersigned, being the Chairman of the Board, President and Chief
Executive Officer and the Secretary of Metropolitan Life Insurance Company,
respectively, hereby certify that:
1. The name of the corporation is Metropolitan Life Insurance
Company.
2. The corporation was incorporated on May 4, 1866 under the name
"National Travelers Insurance Company." The name of the corporation was changed
to "Metropolitan Life Insurance Company" on March 24, 1868.
3. The Charter of the corporation is hereby amended, as authorized by
Sections 1206 and 7312 of the Insurance Law of New York (the "Insurance Law")
and Section 801 of the Business Corporation Law of New York, in connection with
the reorganization of the corporation from a mutual life insurance company to a
stock life insurance company pursuant to Section 7312 of the Insurance Law (a)
to establish the capital of the corporation in the amount of $10,000,000 and to
authorize shares of Common Stock, par value $.01 per share, as the shares of the
corporation, (b) to change references in the Charter from "mutual" to "stock"
and from "policyholders" to "shareholders", and (c) to eliminate classes of
directors and to provide that each director will be elected for a one-year term.
4. The amendment and restatement of the Charter was authorized by the
affirmative vote of at least two-thirds of all votes cast on ________, 1999 by
policyholders entitled to vote on the plan of reorganization of the corporation
pursuant to Section 7312 of the Insurance Law.
5. The text of the Charter, as amended by the filing of this Amended
and Restated Charter, is hereby restated to read in full as follows:
<PAGE>
ARTICLE I
CORPORATE NAME
The name of the corporation shall continue to be "Metropolitan Life
Insurance Company." The corporation may use, in the transaction of any or all of
its business and affairs in Canada, including the exercise of any or all of its
rights, such name or such name expressed in the French language. Such name when
so expressed shall be "La Metropolitaine, compagnie d'assurance vie."
ARTICLE II
PLACE OF BUSINESS
The corporation shall be located and have its principal place of
business in the Borough of Manhattan, City of New York, County of New York, and
State of New York.
ARTICLE III
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of the shareholders of the corporation for the
election of directors and for the transaction of such other business as properly
may come before such meeting shall be held on the fourth Tuesday of April, or
otherwise, within 60 days thereafter, as the Board may determine, provided that
the Superintendent of Insurance of the State of New York (or any governmental
officer, body or authority that succeeds the Superintendent as the primary
regulator of the corporation's insurance business under applicable law) is given
notice of the date determined by the Board prior to such date, at such place,
either within or without the State of New York, as may be fixed from time to
time by resolution of the Board and set forth in the notice or waiver of notice
of the meeting.
2
<PAGE>
ARTICLE IV
BUSINESS OF THE CORPORATION
The business of the corporation and the kinds of insurance to be
undertaken by it are:
(1) "life insurance," meaning every insurance upon the lives
of human beings, and every insurance appertaining thereto,
including the granting of endowment benefits, additional
benefits in the event of death by accident, additional
benefits to safeguard the contract from lapse, accelerated
payments of part or all of the death benefit or a special
surrender value upon diagnosis (A) of terminal illness
defined as a life expectancy of twelve months or less, or
(B) of a medical condition requiring extraordinary medical
care or treatment regardless of life expectancy, or upon
(C) certification by a licensed health care practitioner
of any condition which requires continuous care for the
remainder of the insured's life in an eligible facility or
at home when the insured is chronically ill as defined by
Section 7702(B) of the Internal Revenue Code and
regulations thereunder, provided the accelerated payments
qualify under Section 101(g)(3) of the Internal Revenue
Code and all other applicable sections of federal law in
order to maintain favorable tax treatment or provide a
special surrender value, upon total and permanent
disability of the insured, and optional modes of
settlement of proceeds. "Life insurance" also includes
additional benefits to safeguard the contract against
lapse in the event of unemployment of the insured. Amounts
paid the insurer for life insurance and proceeds applied
under optional modes of settlement or under dividend
options may be allocated by the insurer to one or more
separate accounts pursuant to Section 4240 of the
Insurance Law;
(2) "annuities," meaning all agreements to make periodical
payments for a period certain or where the making or
continuance of all or some of a series of such payments,
or the amount of any such payment, depends upon the
continuance of human life, except payments made under the
authority of paragraph one hereof. Amounts paid the
insurer to provide annuities and proceeds applied under
optional modes of settlement or under dividend options may
be allocated by the insurer to one or more separate
accounts pursuant to Section 4240 of the Insurance Law;
and
3
<PAGE>
(3) "accident and health insurance," meaning (i) insurance
against death or personal injury by accident or by any
specified kind or kinds of accident and insurance against
sickness, ailment or bodily injury, including insurance
providing disability benefits pursuant to article nine of
the workers' compensation law, except as specified in item
(ii) hereof; and (ii) non-cancellable disability
insurance, meaning insurance against disability resulting
from sickness, ailment or bodily injury (but excluding
insurance solely against accidental injury) under any
contract which does not give the insurer the option to
cancel or otherwise terminate the contract at or after one
year from its effective date or renewal date.
as heretofore authorized by and under this Charter and paragraphs 1, 2 and 3 of
Section 1113(a) of the Insurance Law; together with such reinsurance business
(in addition to reinsurance of the kinds of insurance business hereinabove
stated) as may be permitted to the corporation by Section 1114 of said Law;
together with such business in which the corporation may be authorized to engage
pursuant to any amendment to paragraphs 1, 2 and 3 of Section 1113(a) or Section
1114 of said Law which may be hereafter adopted; and together with any other
kind or kinds of business to the extent reasonably ancillary or necessarily or
properly incidental to the kinds of insurance business which the corporation is
so authorized to do.
The corporation shall also have the general rights, powers and
privileges now or hereafter granted by the Insurance Law or any other law to
stock life insurance companies having power to do the kinds of business
hereinabove referred to and any and all other rights, powers and privileges of a
corporation, as the same may now or hereafter be declared by applicable law.
ARTICLE V
CORPORATE POWERS
Section 1. The business of the corporation shall be managed under the
direction of its Board, by committees thereof and by such officers and agents as
the Board or such committees may empower.
4
<PAGE>
Section 2. The Board shall consist of not less than thirteen
directors (except for vacancies temporarily unfilled) nor more than thirty
directors, as may be determined by the Board by resolution adopted by a majority
of the authorized number of directors immediately prior to such determination.
Not less than one- third of the directors shall be persons who are not officers
or employees of the corporation or of any entity controlling, controlled by, or
under common control with the corporation, and who are not beneficial owners of
a controlling interest in the voting stock of the corporation or any such entity
("Outside Directors").
Section 3. The Board shall have power to make and prescribe such
ByLaws, rules and regulations for the transaction of the business of the
corporation and the conduct of its affairs, not inconsistent with the laws of
the State of New York and this Charter as may be deemed expedient, and to amend
or repeal such By-Laws, rules and regulations, except as otherwise provided in
such By-Laws.
Section 4. The Board shall have the power to declare by by-law what
number of directors shall constitute a quorum for the transaction of business;
provided, however, that such number shall be no less than a majority of the
authorized number of directors, at least one of whom shall be an Outside
Director.
Section 5. The Board shall elect or appoint a Chairman, a Chief
Executive Officer, a President, one or more Vice-Presidents, a Chief Financial
Officer, a Secretary, a Treasurer, a Controller and a General Counsel and such
other officers as it may deem appropriate, except that officers of the rank of
Vice-President and below may be elected or appointed by the Compensation
Committee of the Board. Officers shall have such powers and perform such duties
as may be authorized by the By-Laws or by or pursuant to authorization of the
Board or the Chief Executive Officer.
5
<PAGE>
ARTICLE VI
ELECTION OF DIRECTORS AND OFFICERS
Section 1. The directors of the corporation shall be elected by the
shareholders as prescribed by law and the By-Laws of the corporation. The
officers of the corporation shall be elected or appointed as provided in the
By-Laws of the corporation. Each director shall be at least 18 years old, at all
times a majority of the directors shall be citizens and residents of the United
States and not less than three shall be residents of the State of New York.
Section 2. Vacancies in the Board, including vacancies resulting
from any increase in the authorized number of directors or the removal of any
director, except a removal of a director without cause, shall be filled by a
vote of the Board until the next annual meeting of shareholders of the
corporation, except that if the number of directors then in office is less than
a quorum, such vacancies may be filled by a vote of a majority of directors then
in office.
ARTICLE VII
LIABILITY OF DIRECTORS
No director shall be personally liable to the corporation or any of
its shareholders or any of its policyholders for damages for any breach of duty
as a director; provided, however, that the foregoing provision shall not
eliminate or limit:
(i) the liability of a director if a judgment or other final
adjudication adverse to the director establishes that the
director personally gained in fact a financial profit or
other advantage to which he or she was not legally
entitled or establishes that the director's acts or
omissions were in bad faith or involved intentional
misconduct or were acts or omissions (a) which the
director knew or reasonably should have known violated the
Insurance Law or (b) which violated a specific
6
<PAGE>
standard of care imposed on directors directly, and not by
reference, by a provision of the Insurance Law (or any
regulations promulgated thereunder), or (c) which
constituted a knowing violation of any other law; or
(11) the liability of a director for any act or omission prior
to April 26, 1990.
ARTICLE VIII
STOCK
The amount of capital of the corporation shall be $10,000,000 and
shall consist of 1,000,000,000 authorized shares of Common Stock, par value $.01
per share.
ARTICLE IX
DURATION
The duration of the corporation shall be perpetual.
7
<PAGE>
AMENDED AND RESTATED
BY-LAWS OF METROPOLITAN LIFE INSURANCE COMPANY
ARTICLE I
SHAREHOLDERS
Section 1.1 Annual Meetings. The annual meeting of the shareholders
of the corporation for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held on the
fourth Tuesday of April, or otherwise, within 60 days thereafter, as the Board
may determine, provided that the Superintendent of Insurance of the State of New
York (or any governmental officer, body or authority that succeeds the
Superintendent as the primary regulator of the corporation's insurance business
under applicable law) is given notice of the date determined by the Board prior
to such date, at such place, either within or without the State of New York, as
may be fixed from time to time by resolution of the Board and set forth in the
notice or waiver of notice of the meeting.
Section 1.2 Special Meetings. Special meetings of the shareholders
may be called at any time by the Chief Executive Officer (or, in the event of
such Chief Executive Officer's absence or disability, by the President), or by
the Board. A special meeting shall be called by the Chief Executive Officer (or,
in the event of such Chief Executive Officer's absence or disability, by the
President), or by the Secretary, immediately upon receipt of a written request
therefor by shareholders holding in the aggregate not less than 25% of the
outstanding shares of the corporation at the time entitled to vote at any
meeting of the shareholders, which request shall state the purpose or purposes
of such meeting. If such officers shall fail to call such meeting within 20 days
after receipt of such request, any shareholder executing such request may call
such meeting. Such special meetings of the shareholders shall be held at such
places, within or without the State of New York, as shall be specified in the
respective notices or waivers of notice thereof.
Section 1.3 Notice of Meetings. The Secretary or any Assistant
Secretary shall cause written notice of the place, date and hour of each meeting
of the shareholders, and, in the case of a special meeting, the purpose or
purposes for which such meeting is called and by or at whose direction such
notice is being issued, to be given personally or by first class mail, not fewer
than ten nor more than sixty days before the date of the meeting.
8
Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
No notice of any meeting of shareholders need be given to any
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the shareholders need be
specified in a written waiver of notice. The attendance of any shareholder, in
person or by proxy, at a meeting of shareholders shall constitute a waiver of
notice of such meeting, except when the shareholder attends a meeting for the
express purpose of objecting, prior to the conclusion of the meeting, to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 1.4 Quorum. Except as otherwise required by law or by the
Charter, the presence in person or by proxy of the holders of record of a
majority of the votes of shares entitled to vote at any meeting of shareholders
shall constitute a quorum for the transaction of business at such meeting. When
a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any shareholders.
Section 1.5 Voting. Every holder of record of shares entitled to vote
at a meeting of shareholders shall be entitled to one vote for each share
standing in such shareholder's name on the books of the corporation on the
record date set therefor. Except as otherwise required by law or by the Charter
or by Section 1.7 hereof (regarding the election of directors), any corporate
action shall be authorized by a majority of the votes cast in favor of or
against such action by the holder of record of shares represented at any meeting
at which a quorum is present. An abstention shall not constitute a vote cast.
Section 1.6 Proxies. Every shareholder entitled to vote at any
meeting of the shareholders or to express consent to or dissent from corporate
action without a meeting may, in any legally valid manner, authorize another
person or persons to vote at any such meeting and express such consent or
dissent for such shareholder by proxy. No such proxy shall be voted or acted
upon after the expiration of eleven months from the date of such proxy, unless
such proxy provides for a longer period. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except in those cases where applicable
law provides that a proxy shall be irrevocable.
Section 1.7 Election and Term of Directors. The directors shall be
elected at each annual meeting of the shareholders to hold office until the next
annual meeting of shareholders. Each director shall hold office until the
expiration of the term for which he or she is elected and until such director's
successor has been duly elected and qualified, or until his or her earlier
death, resignation or removal. At each annual meeting of the share holders of
the corporation, at which a quorum is present, the directors shall be elected by
a plurality of the votes cast by the holders of shares entitled to vote in such
election.
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Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
Section 1.8 Organization; Procedure. The Board shall determine whom
from among the officer directors shall preside at the meeting of shareholders.
The order of business and all other matters of procedure at every meeting of
shareholders may be determined by such presiding officer. The Secretary, or in
the event of the Secretary's absence or disability, an Assistant Secretary or,
in the Assistant Secretary's absence, an appointee of the presiding officer,
shall act as Secretary of the meeting.
Section 1.9 Consent of Shareholders in Lieu of Meeting. Whenever the
vote of shareholders at a meeting thereof is required or permitted to be taken
for or in connection with any corporate action, by law, by the Charter or by
these By-Laws, the meeting and vote of shareholders may be dispensed with, if
all of the shareholders who would have been entitled to vote upon the action if
such meeting were held shall consent in writing to such corporate action being
taken.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Regular Board Meetings. Regular meetings of the Board for
the transaction of any business shall be held at such times and places, either
within or without the State of New York, as may be fixed from time to time by
resolution of the Board; provided, however, that at least one regular meeting of
the Board shall be held in each calendar year. One regular meeting of the Board
in each calendar year shall be designated as the Annual Organization Meeting.
Except as otherwise required by law or these ByLaws, notice of regular meetings
need not be given.
Section 2.2 Special Board Meetings, Waiver of Notice. Special
meetings of the Board shall be held whenever called by the chief executive
officer or by any three directors. Notice of each such special meeting shall be
mailed to each director at such director's residence or usual place of business
or other address filed with the Secretary for such purpose, or shall be sent to
such director by any form of telecommunication, or be delivered or given to such
director personally or by telephone, not later than the second day preceding the
day on which such meeting is to be held. Notice of any meeting of the Board need
not, however, be given to any director who submits a signed waiver of notice,
whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice. Every such
notice shall state the time, place and purpose of the meeting.
Section 2.3 Participation by Telephone. Any one or more members of
the Board or any committee thereof may participate in any meeting of the Board
or such committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time.
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Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
Participation by such means shall constitute presence in person at a meeting of
the Board or such committee for quorum and voting purposes.
Section 2.4 Action Without a Meeting. Any action which is required or
permitted to be taken by the Board or any committee thereof may be taken without
a meeting if all members of the Board or such committee consent in writing to
the adoption of a resolution authorizing the action; provided, however, that the
Annual Organization Meeting of the Board may not be conducted by such unanimous
written consent. The resolution and the written consents thereto by the members
of the Board or such committee shall be filed with the minutes of the
proceedings of the Board or committee.
Section 2.5 Number, Quorum and Adjournments. The Board shall consist
of not less than thirteen directors (except for vacancies temporarily unfilled)
nor more than thirty directors, as may be determined by the Board by resolution
adopted by a majority of the authorized number of directors immediately prior to
any such determination. The authorized number of directors of the corporation
may be increased or decreased at any time by a vote of the majority of the
authorized number of directors immediately prior to such vote; provided,
however, that no such decrease in the authorized number of directors shall
shorten the term of any incumbent director. Not less than one-third of the
directors shall be persons who are not officers or employees of the corporation
or of any entity controlling, controlled by, or under common control with the
corporation and who are not beneficial owners of a controlling interest in the
voting stock of the corporation or any such entity ("Outside Directors"). At any
meeting of the Board, the presence of at least a majority of the authorized
number of directors, at least one of whom shall be an Outside Director, shall
constitute a quorum for the transaction of business. Except as otherwise
provided by law or these By-Laws, the vote of a majority of the directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the Board. A majority of the directors present, whether or not a
quorum shall be present, may adjourn any meeting. Notice of the time and place
of an adjourned meeting of the Board shall be given if and as determined by a
majority of the directors present at the time of the adjournment.
Section 2.6 Presiding Officer. The Board shall determine whom from
among the officer directors shall preside at meetings of the Board. In the event
of the absence or disability of all such officer directors, the Board shall
select one of its members present to preside.
Section 2.7 Board Vacancies. Any vacancy in the Board, including any
vacancy resulting from any increase in the authorized number of directors or the
removal of any director, except a removal of a director without cause, shall be
filled by a vote of the Board until the next annual meeting of shareholders of
the corporation and until such director's successor shall have been elected and
qualified; provided, however, that if the
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Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
number of directors then in office is less than a quorum, any vacancy may be
filled by a vote of a majority of directors then in office.
ARTICLE III
COMMITTEES
Section 3.1 Standing Committees. The Board shall have the following
standing committees, each consisting of not less than five directors, as shall
be determined by the Board:
Executive Committee
Investment Committee
Compensation Committee
Audit Committee
Nominating and Corporate Governance Committee
Section 3.2 Designation of Members and Chairmen of Standing
Committees. At its first meeting following the annual meeting of shareholders of
the corporation, the Board shall, by resolution adopted by a majority of the
then authorized number of directors, designate from among the directors the
members of the standing committees and from among the members of each such
committee a chairman thereof, which members shall serve as such, at the pleasure
of the Board, so long as they shall continue in office as directors, until the
meeting following the next annual meeting of shareholders of the corporation and
thereafter until the appointment of their successors. Each member of the Audit
Committee, the Compensation Committee and the Nominating and Corporate
Governance Committee shall be an Outside Director, and not less than one-third
of the members of each other committee shall be Outside Directors. The Board may
by similar resolution designate one or more directors as alternate members of
such committees, who may replace any absent member or members at any meeting of
such committees; provided, however, that the membership of the committee shall
satisfy the preceding sentence following such designation. Vacancies in the
membership or chairmanship of any standing committee may be filled in the same
manner as original designations at any regular or special meeting of the Board,
and the chief executive officer may designate from among the remaining members
of any standing committee whose chairmanship is vacant a chairman who shall
serve until a successor is designated by the Board.
Section 3.3 Notices of Times of Meetings of Standing Committees and
Presiding Officers. Meetings of each standing committee shall be held upon call
of the chief executive officer, or upon call of the chairman of such standing
committee or two members of such standing committee. Meetings of each standing
committee may also be held at such other times as it may determine. Meetings of
a standing committee shall be
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Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
held at such places and upon such notice as it shall determine or as shall be
specified in the calls of such meetings. Any such chairman, if present, or such
member or members of each committee as may be designated by the chief executive
officer, shall preside at meetings thereof or, in the event of the absence or
disability of any thereof or failing such designation, the committee shall
select from among its members present a presiding officer.
Section 3.4 Quorum. At each meeting of any standing committee there
shall be present to constitute a quorum for the transaction of business at least
a majority of the members but in no event less than three members, at least one
of whom shall be an Outside Director. Subject to the preceding sentence, any
alternate member who is replacing an absent member shall be counted in
determining whether a quorum is present. The vote of a majority of the members
present at a meeting of any standing committee at the time of the vote, if a
quorum is present at such time, shall be the act of such committee.
Section 3.5 Standing Committee Minutes. Each of the standing
committees shall keep minutes of its meetings which shall be reported to the
Board at its regular meetings and, if called for by the Board, at any special
meeting.
Section 3.6 Executive Committee. The Executive Committee shall make
recommendations to the Board with respect to the policyholder dividend and
surplus policies and practices of the corporation and, during the intervals
between meetings of the Board, except as otherwise provided in Section 3.12,
shall have and may exercise the authority of the Board in the management of the
property, business and affairs of the corporation, including the authority to
declare dividends in respect of the corporation's stock.
Section 3.7 Investment Committee. The Investment Committee, subject
to and as may be provided in any resolution of the Board, shall have and may
exercise the authority of the Board with respect to the management of the assets
of the corporation, including purchases and sales thereof, the manner of
designating depositaries for all monies received by the corporation, which shall
be deposited in the name of the corporation, and the manner of disposition of
the funds of the corporation so deposited.
Section 3.8 Compensation Committee. The Compensation Committee shall
recommend to the Board the selection of all principal officers (as determined by
the Committee) and such other officers as the Committee may determine to elect
or appoint as officers, shall evaluate the performance and recommend to the
Board the compensation of such principal officers and such other officers as the
Committee may determine, and shall recommend to the Board any plan to issue
options for the purchase of shares of the corporation's stock to its officers or
employees. Except as otherwise provided in any resolution of the Board, the
Committee shall have and may exercise all the authority of the Board with
respect to compensation, benefits and personnel administration of the
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Metropolitan Life Insurance Company
<PAGE>
employees of the corporation and may elect or appoint officers as provided in
Section 4.2 of these By-Laws.
Section 3.9 Audit Committee. The Audit Committee shall have and may
exercise the authority of the Board: to recommend to the Board the selection of
the corporation's independent certified public accountants; to review the scope,
plans and results relating to the internal and external audits of the
corporation and its financial statements; and to review the financial condition
of the corporation. Except as otherwise provided in any resolution of the Board,
the Committee shall have and may exercise the authority of the Board: to monitor
and evaluate the integrity of the corporation's financial reporting processes
and procedures; to assess the significant business and financial risks and
exposures of the corporation and to evaluate the adequacy of the corporation's
internal controls in connection with such risks and exposures, including, but
not limited to, accounting and audit controls over cash, securities, receipts,
disbursements and other financial transactions; and to review the corporation's
policies on ethical business conduct and monitor compliance therewith.
Section 3.10 Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committee shall nominate candidates for
Director for election by shareholders and for filling vacancies on the Board,
and may recommend to the Board any plan to issue options for the purchase of
shares of the corporation's stock to its non-employee directors. Except as
otherwise provided in any resolution of the Board, the Committee shall review
and make recommendations to the Board with respect to the organization,
structure, size, composition and operation of the Board and its Committees,
including, but not limited to, the compensation for non-employee directors and
shall review and make recommendations with respect to other corporate governance
matters and matters that relate to the corporation's status as a member of a
publicly-traded group of companies.
Section 3.11 Special Committees. The Board may, by resolution adopted
by a majority of the then authorized number of directors, designate special
committees, each consisting of three or more directors of the corporation, which
committees, except as otherwise prescribed by law or by Section 3.12, shall have
and may exercise the authority of the Board to the extent provided in the
resolutions designating such committees. Nothing herein shall be deemed to
prevent the chief executive officer from appointing one or more special
committees of directors for the purpose of advising the chief executive officer;
provided, however, that no such committee shall have or may exercise any
authority of the Board.
Section 3.12 Limitations of the Authority of Committees.
Notwithstanding any other provisions of these By-Laws, no committee shall have
authority as to the following matters:
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Metropolitan Life Insurance Company
<PAGE>
(1) the submission to shareholders of any action that needs
shareholder approval under applicable law;
(2) the filling of vacancies in the Board or in any committee;
(3) the fixing of compensation of the directors for serving on the
Board or on any committee;
(4) the amendment or repeal of these By-Laws or adoption of new
By-Laws; and
(5) the amendment or repeal of any resolution of the Board which by
its terms shall not be so amendable or repealable.
ARTICLE IV
OFFICERS
Section 4.1 Chief Executive Officer. The Board shall determine whom
from among the officer directors shall act as Chief Executive Officer.
Subject to the control of the Board and to the extent not otherwise
prescribed by these By-Laws, the Chief Executive Officer shall supervise the
carrying out of the policies adopted or approved by the Board, shall manage the
business of the Company and shall possess such other powers and perform such
other duties as may be incident to the office of chief executive officer.
Section 4.2 Other Officers. In addition to the Chief Executive
Officer, the Board shall elect or appoint a Chairman, a President, one or more
Vice-Presidents, a Chief Financial Officer, a Secretary, a Treasurer, a
Controller and a General Counsel, and such other officers as it may deem
appropriate, except that officers of the rank of Vice-President and below may be
elected or appointed by the Compensation Committee of the Board. Officers other
than the Chief Executive Officer shall have such powers and perform such duties
as may be authorized by these By-Laws or by or pursuant to authorization of the
Board or the Chief Executive Officer.
All officers shall hold office at the pleasure of the Board.
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Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
ARTICLE V
EXECUTION OF PAPERS
Section 5.1 Instruments. Any officer, or any employee or agent
designated for the purpose by the Chief Executive Officer, or a designee of the
Chief Executive Officer, shall have power to execute all instruments in writing
necessary or desirable for the corporation to execute in the transaction and
management of its business and affairs (including, without limitation, contracts
and agreements, transfers of bonds, stocks, notes and other securities, proxies,
powers of attorney, deeds, leases, releases, satisfactions and instruments
entitled to be recorded in any jurisdiction, but excluding, to the extent
otherwise provided for in these By-Laws, authorizations for the disposition of
the funds of the corporation deposited in its name and policies, contracts,
agreements, amendments and endorsements of, for or in connection with insurance
or annuities) and to affix the corporate seal.
Section 5.2 Disposition of Funds. All funds of the corporation
deposited in its name shall be subject to disposition by check or other means,
in such manner as the Investment Committee may determine.
Section 5.3 Policies. All policies, contracts, agreements, amendments
and endorsements, executed by the corporation as insurer, of, for or in
connection with insurance or annuities shall bear such signature or signatures
of such officer or officers as may be designated for the purpose by the Board.
Section 5.4 Facsimile Signatures. All instruments necessary or
desirable for the corporation to execute in the transaction and management of
its business and affairs, including those set forth in Sections 5.2 and 5.3 of
these By-Laws, may be executed by use of or bear facsimile signatures as and to
the extent authorized by the Board or a committee thereof or the chief executive
officer. If any officer or employee whose facsimile signature has been placed
upon any form of instrument shall have ceased to be such officer or employee
before an instrument in such form is issued, such instrument may be issued with
the same effect as if such person had been such officer or employee at the time
of its issue.
ARTICLE VI
CAPITAL STOCK
Section 6.1 Certificates of Shares. Every holder of shares in the
corporation shall be entitled to have a certificate (unless such shares shall be
uncertificated shares) signed by, or in the name of the corporation by (i) the
Chairman of the Board, the President or a Vice-President, and (ii) by the
Treasurer or an Assistant Treasurer, or the
16
Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
Secretary or an Assistant Secretary, certifying the number of shares owned by
him or her in the corporation. Such certificate shall be in such form as the
Board may determine, to the extent consistent with applicable provisions of law,
the Charter and these By-Laws. Within a reasonable time after the issuance of
uncertificated shares, the corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth or
stated on certificates.
Section 6.2 Lost, Stolen or Destroyed Certificates. The Board may
direct that a new certificate be issued in place of any certificate previously
issued by the corporation alleged to have been lost, stolen or destroyed, upon
delivery to the Board of an affidavit of the owner or owners of such
certificate, setting forth such allegation. The Board may require the owner of
such lost, stolen or destroyed certificate, or such owner's legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of any such new
certificate.
Section 6.3 Transfers of Stock; Registered Shareholders. Shares of
stock of the corporation shall be transferable only upon the books of the
corporation kept for such purpose upon surrender to the corporation or its
transfer agent or agents of a certificate (unless such shares shall be
uncertificated shares) representing shares, duly endorsed or accompanied by
appropriate evidence of succession, assignment or authority to transfer. Within
a reasonable time after the transfer of uncertificated shares, the corporation
shall send to the registered owner thereof a written notice containing the
information required to be set forth or stated on certificates.
The Board, subject to these By-laws, may make such rules, regulations
and conditions as it may deem expedient concerning the subscription for, issue,
transfer and registration of, shares of stock. Except as otherwise provided by
law, the corporation, prior to due presentment for registration of transfer, may
treat the registered owner of shares as the person exclusively entitled to vote,
to receive notifications, and otherwise to exercise all the rights and powers of
an owner.
Section 6.4 Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
or corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than fifty days prior to any other
action.
Section 6.5 Transfer Agent and Registrar. The Board may appoint one
or more transfer agents and one or more registrars, and may require all
certificates representing
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Metropolitan Life Insurance Company
<PAGE>
shares to bear the signature of any such transfer agents or registrar. The same
person may act as transfer agent and registrar for the corporation.
Section 6.6 Dividends. Subject to any applicable provisions of law
and the Charter, dividends or other distributions upon the outstanding shares of
the corporation may be declared by the Board at any regular or special meeting
of the Board, or by the Executive Committee as provided in Section 3.6, and any
such dividend or distribution may be paid in cash, property, bonds or shares of
the corporation, including the bonds or shares of other corporations, except as
limited by applicable law.
ARTICLE VII
GENERAL
Section 7.1 Indemnification of Directors and Officers. To the full
extent permitted by the laws of the State of New York, the corporation shall
indemnify any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that such person,
or such person's testator or intestate,
(1) is or was a director or officer of the corporation, or
(2) serves or served another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any
capacity at the request of the corporation, and also is or was a
director or officer of the corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred
in connection with or as a result of such action or
proceeding, or any appeal therein.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 8.1 Amendments. These By-Laws or any of them may be amended,
altered or repealed by the Board at any regular or special meeting if written
notice setting forth the proposed amendment, alteration or repeal shall have
been mailed to all directors at least five days before the meeting or upon the
affirmative vote by the holders of a majority of the outstanding shares;
provided, however, that Section 7.1 of these By-Laws may not be amended, altered
or repealed by the Board or the shareholders so as to affect adversely any then
existing rights of any director or officer.
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Amended and Restated By-Laws
Metropolitan Life Insurance Company
<PAGE>
EXHIBIT 12
[METLIFE LETTERHEAD APPEARS HERE]
April 26, 2000
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. 6 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 7, 2000 appearing in the Statement of Additional Information,
which is part of such Registration Statement.
We also consent to the reference to us under the headings "Per Unit Income and
Capital Changes" and "Experts" in such Registration Statement.
Deloitte & Touche LLP
Boston, Massachusetts
April 26, 2000
<PAGE>
Exhibit 13 (ii)
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
April 25, 2000
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. 6 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 Michele H. Abate, Peter
H. Duffy, Anne M. Goggin, John F. Guthrie, Jr., Thomas M. Lenz, and Marie C.
Swift 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 of New England Variable
Annuity Fund I 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 Manager February 1, 2000
- ------------------------------------------
John J. Arena
/s/Edward A. Benjamin Manager February 1, 2000
- ------------------------------------------
Edward A. Benjamin
/s/ Mary Ann Brown Manager February 1, 2000
- ------------------------------------------
Mary Ann Brown
/s/ John W. Flynn Manager February 1, 2000
- ------------------------------------------
John W. Flynn
/s/ Nancy Hawthorne Manager February 1, 2000
- ------------------------------------------
Nancy Hawthorne
/s/ John T. Ludes Manager February 1, 2000
- ------------------------------------------
John T. Ludes
/s/ Dale Rogers Marshall Manager February 1, 2000
- ------------------------------------------
Dale Rogers Marshall
</TABLE>
(May be executed in counterparts.)
<PAGE>
NEW ENGLAND VARIABLE ANNUITY FUND I
POWER OF ATTORNEY
-----------------
I, the undersigned Chairman of the Board of Managers of New England
Variable Annuity Fund I, hereby severally constitute and appoint Michele H.
Abate, Peter H. Duffy, John F. Guthrie, Jr., Thomas M. Lenz, and Marie C. Swift
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 of New England Variable Annuity Fund
I 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 1st of February, 2000.
/s/ Anne M. Goggin
------------------
Anne M. Goggin
Chairman of the Board
<PAGE>
Exhibit 18
NEW ENGLAND ZENITH FUND
NEW ENGLAND VARIABLE ANNUITY FUND I
CODE OF ETHICS
--------------
(Adopted: October 27, 1999)
In order to ensure that all acts, practices and courses of business engaged in
by personnel of the above Funds reflect high standards and comply with the
requirements of Section 17(j) of the Investment Company Act of 1940 (the
"Investment Company Act") and Rule 17j-1 thereunder, the Board of Trustees and
Managers of each Fund has determined that such Fund shall adopt this Code of
Ethics.
The following general fiduciary principles shall govern the personal investment
activities of all Access Persons.
Each Access Person shall:
. At all times, place the interests of each Fund before his or her personal
interests;
. Conduct all personal securities transactions in a manner consistent with this
Code, so as to avoid any actual or potential conflicts of interest, or an
abuse of position of trust and responsibility; and
. Not take any inappropriate advantage of his or her position with or on behalf
of either Fund.
1. Definitions
a. "Fund" or "Funds" means one or more of New England Zenith Fund and its
series and New England Variable Annuity Fund I.
b. "Access Person" of a Fund means any trustee, manager, director,
officer, general partner or Advisory Person of that Fund.
c. "Adviser" means each investment adviser (including subadvisers) of a
Fund.
d. "Advisory Person" of a Fund means (i) any employee of that Fund or of
any company in a control relationship to that Fund, who, in connection
with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of a Covered
Security by that Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to that Fund who obtains
information concerning recommendations made to that Fund with regard
to the purchase or sale of Covered Securities.
1
<PAGE>
e. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell such Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
f. "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16(a) of the Securities Exchange Act of 1934 (the "1934
Act") and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership shall apply
to all Covered Securities which an Access Person has or acquires. For
a description of the method of interpreting beneficial ownership for
purposes of the provisions of Section 16(a) of the 1934 Act, See
Appendix A.
g. "Code Compliance Officer" of a Fund means the Secretary of the Fund or
such other individual as the Board of Trustees or Managers may from
time to time appoint.
h. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act.
i. "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act, except that it shall not
include: (i) direct obligations of the Government of the United
States; (ii) shares of registered open-ended investment companies; and
(iii) bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements.
j. "Covered Security held or to be acquired" by a Fund means any Covered
Security which, within the most recent 15 days, (i) is or has been
held by the Fund; or (ii) is being or has been considered by the Fund
or its Adviser for purchase by the Fund.
k. "Disinterested Trustee" or "Disinterested Manager" means a Trustee or
Manager of a Fund who is not an "interested person" of that Fund
within the meaning of Section 2(a)(19) of the Investment Company Act.
l. "Exempt Transactions" means those transactions described in Section 2
of this Code.
m. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of sections 13 or 15(d) of the Securities and Exchange Act of 1934.
2
<PAGE>
n. "Limited Offering" means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to sections 4(2) or 4(6)
under the Securities Act of 1933.
o. "Purchase or sale of a Covered Security" includes, inter alia, the
writing or purchase of an option to purchase or sell that Covered
Security.
p. "Underwriter" means New England Securities Corporation.
2. Exempt Transactions
"Exempt Transactions" shall mean, and the prohibitions of Section 3 of this
Code shall not apply to:
a. Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
b. Purchases or sales which are non-volitional on the part of either the
Access Person or the Fund.
c. Purchases which are part of an automatic dividend reinvestment plan.
d. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
e. Purchase or sales in a discretionary investment advisory account, in
which an Access Person has a beneficial ownership interest (either
alone or with others), managed by a registered investment adviser who
is not a member of the Access Person's family if the Access Person did
not have knowledge of the transactions until after the transactions
had been executed.
3. Prohibitions
No Access Person of a Fund shall purchase or sell, directly or indirectly,
any Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership and which
he or she knows or should have known at the time of such purchase or sale:
a. is being considered for purchase or sale by the Fund; or
b. is being purchased or sold by the Fund.
3
<PAGE>
4. Quarterly Transaction Reporting
a. Except as set forth in Section 4(b) of this Code with respect to
Disinterested Trustees or Managers, every Access Person of a Fund
shall report to the Fund's Code Compliance Officer the information
described in:
i) Section 4(c) of this Code with respect to transactions in any
Covered Security in which such Access Person has, or by reason of
such transaction acquires, any direct or indirect beneficial
ownership in the security; and
ii) Section 4(d) of this Code with respect to accounts established by
the Access Person in which any Covered Security was held during
the quarter for the direct or indirect investment benefit of the
Access Person;
provided, however, that an Access Person shall not be required to make
a report with respect to Exempt Transactions.
b. A Disinterested Trustee or Manager of a Fund need only report a
transaction in a Covered Security pursuant to Section 4(a) of this
Code if he or she, at the time of that transaction, knew or, in the
ordinary course of fulfilling his or her official duties as a Trustee
or Manager of the Fund, should have known that, on the day of the
transaction or within 15 days immediately preceding or following that
day, a security of the same class was purchased or sold by the Fund or
was being considered by the Fund or an Advisory Person of the Fund for
purchase or sale by the Fund.
c. Every report required pursuant to Section 4(a)(i) shall be made not
later than 10 days after the end of the calendar quarter in which the
transaction to which the report relates was effected and shall contain
the following information:
i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares, and the
principal amount of each Covered Security involved;
ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
iii) The price of the Covered Security at which the transaction was
effected;
iv) The name of the broker, dealer or bank with or through whom the
transaction was effected;
v) The date the report is submitted by the Access Person; and
4
<PAGE>
vi) Identification of factors potentially relevant to a conflict of
interest analysis, of which the Access Person is aware, including
the existence of any substantial economic relationship between
his or her transactions and transactions of securities held or to
be acquired by the Fund.
Each Access Person (other than a Disinterested Trustee or Manager)
shall provide the Code Compliance Officer with copies of each broker
trade confirmation or account statement related to a transaction
required to be reported under this Code. Each such Access Person need
not include in his or her report under this Section 4(c) the
information required by subsections (i) through (vi) hereof relating
to a particular transaction in a Covered Security to the extent that
such information is contained in a broker trade confirmation or
account statement received by the Code Compliance Officer on or before
the date such report is due. The Access Person must ensure that for
each of his or her transactions in a Covered Security, each item of
information required under subsections (i) through (iv) hereof is
received by the Code Compliance Officer (whether by delivery of broker
trade confirmations and account statements or by submission of a
report to the Code Compliance Officer).
d. Every report required pursuant to Section 4(a)(ii) shall be made not
later than 10 days after the end of the calendar quarter during which
an account established by an Access Person held any Covered Securities
for the direct or indirect benefit of the Access Person and shall
contain the following information:
i) The name of the broker, dealer, or bank with whom the Access
Person established the account;
ii) The date the account was established; and
iii) The date the report is submitted by the Access Person.
e. If an Access Person is required to file a report pursuant to each of
Sections 4(a)(i) and 4(a)(ii), that Access Person may combine the
information required by Sections 4(e) and 4(f) in a single report.
f. Any report filed pursuant to this Article 4 may contain a statement
that the report shall not be construed as an admission by the person
making such report that he or she has any direct or indirect
beneficial ownership in the security to which the report relates.
5. Initial and Annual Holding Reports
a. Every Access Person of a Fund, other than a Disinterested Trustee or
Manager of a Fund, shall report to the Fund's Code Compliance Officer
the information described in:
5
<PAGE>
i) Section 5(b) of this Code with respect to his or her initial
holdings; and
ii) Section 5(c) of this Code with respect to his or her annual
holdings.
b. Every report required pursuant to Section 5(a)(i) shall be made not
later than 10 days after the person becomes an Access Person and shall
contain the following information:
i) The title, number of shares, and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person;
ii) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person as of the
date the person became an Access Person; and
iii) The date that the report is submitted by the Access Person.
c. Every report required pursuant to Section 5(a)(ii) shall contain the
following information:
i) The title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership;
ii) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held for
the direct or indirect benefit of the Access Person; and
iii) The date that the report was submitted by the Access Person.
d. Any report filed pursuant to this Article 5 may contain a statement
that the report may not be construed as an admission by the person
making such report that he or she may have any direct or indirect
beneficial ownership in the security to which the report relates.
e. Every Access Person of a Fund, including Disinterested Trustees and
Managers of a Fund, shall certify annually that he or she has read and
understands this Code and recognizes that he or she is subject to this
Code. Each Access Person shall at the same time also certify that he
or she has complied with the requirements of this Code and that he or
she has filed the reports required by this Code and that such reports
are, to such Access Person's knowledge, true and complete.
6
<PAGE>
6. Other Conflicts
a. Access Persons (other than Disinterested Trustees or Managers of a
Fund) are prohibited from serving on the board of directors of any
publicly-traded company unless such Access Person had identified such
board service to the Code Compliance Officer before the date of
adoption by the Board of Trustees or Managers, as applicable, of this
Code.
b. Access Persons (other than Disinterested Trustees or Managers of a
Fund) are prohibited from acquiring securities in an Initial Public
Offering.
c. Access Persons (other than Disinterested Trustees or Managers of a
Fund) may not acquire securities in a Limited Offering without the
prior approval of the Code Compliance Officer. It is understood that
such approval will only be granted in limited circumstances (such as
in connection with a family-owned business). Such prior approval
shall include the Code Compliance Officer's reasons supporting a
decision to approve the acquisition of Covered Securities offered in
the Limited Offering.
d. Access Persons of a Fund may not receive any gift or other thing of
more than de minimis value from any person or entity that does
business with a Fund. A one-time ticket to a sporting or theatrical
event with a face-value of less than $100 and non-recurring meals or
entertainment functions that are part of standard business practice of
the service provider shall be considered de minimis.
e. Access Persons (other than Disinterested Trustees or Managers of a
Fund) may not profit on the purchase and sale, or sale and purchase,
of the same (or equivalent) security within 60 calendar days. Any
profits realized on such short-term trades are required to be
disgorged.
7. Procedures
a. The Code Compliance Officer shall prepare an annual report to each
Fund's Board of Trustees or Managers that
i) describes any issues arising under this Code since the last
report to the Board of Trustees of Managers, including, but not
limited to, information about material violations of this Code
and a summary of sanctions imposed by the Code Compliance Officer
or the Board of Trustees or Managers in response to the material
violations;
ii) certifies that the Fund has adopted procedures reasonably
necessary to prevent the Access Person from violating this Code;
and
iii) identifies any recommended changes in existing restrictions or
procedures based upon the Code Compliance Officer's experience
under the Code, evolving industry practices, or developments in
applicable laws or regulations.
7
<PAGE>
b. The Code Compliance Officer shall identify all Access Persons who are
required to make reports pursuant to Section 4 or 5 of this Code and
inform those Access Persons of their reporting obligations. The Code
Compliance Officer will, no less frequently than quarterly, identify
any new Access Persons of the Funds and inform such persons of their
reporting obligations under this Code.
c. The Code Compliance Officer will review each report required to be
made pursuant to Sections 4 and 5 of this Code. The Code Compliance
Officer shall forward each report to the Treasurer of the Zenith Fund,
or a representative of New England Life Insurance Company (or any
successor entity) in the case of New England Variable Annuity Fund I,
and he or she (or his or her designee) shall compare the transaction
against the trading records of the Funds and report back to the Code
Compliance Officer.
d. The Code Compliance Officer will report any material violation of this
Code to the Board of Trustees or Managers of the Fund at the next
regularly scheduled Board meeting following the Code Compliance
Officer's discovery. The Code Compliance Officer or the Board of
Trustees or Managers of the Fund may impose such sanctions as it deems
appropriate, including, inter alia, a letter of censure or suspension
or termination of the relationship to the Fund. In addition to any
sanctions imposed by the Code Compliance Officer or the Board of
Trustees or Managers of the Fund, all profits realized by an Access
Person of the Fund in violation of any restriction of this Code shall
be immediately paid over to the Fund, which profits the Fund shall
contribute to charity.
8. Recordkeeping Requirements
The Code Compliance Officer, on behalf of each Fund, will maintain the
following records at the principal place of business of each Fund and make
such records available to the Securities Exchange Commission and any
representative of the Commission at any time and from time to time for
reasonable periodic, special or other examination:
a. A copy of the Code of Ethics for the Fund and each Adviser of the Fund
that is in effect, or at any time within the past five years was in
effect, to be maintained in an easily acceptable place;
b. A record of any violation of this Code of Ethics and of any action
taken as a result of the violation, to be maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which such violation occurs;
c. A copy of each report made by an Access Person as required by Sections
4 or 5 of this Code, to be maintained for at least five years after
the end of the fiscal year in
8
<PAGE>
which the report was made or the information was provided, and for the
first two years in an easily accessible place;
d. A list of all persons who currently or within the past five years is
or was an Access Person or a Code Compliance Officer, to be maintained
in an easily accessible place;
e. A copy of each certification and report required by Section 7(a) of
this Code, to be maintained for at least five years after the end of
the fiscal year in which such report is made, and for the first two
years in an easily accessible place; and
f. A record of any decision, and the reasons supporting the decision, to
approve the acquisition by an Access Person of Covered Securities in a
Limited Offering pursuant to Section 6(c) of this Code, to be
maintained for at least five years after the end of the fiscal year in
which the approval is granted.
9
<PAGE>
EXHIBIT A
---------
to
New England Zenith Fund
New England Variable Annuity Fund I
CODE OF ETHICS
For purposes of the attached Code of Ethics, "beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether a person is
subject to the provisions of Section 16(a) of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all Covered Securities
that an Access Person has or acquires. Securities held in the name of another
should be considered as "beneficially" owned by an Access Person where such
person enjoys "benefits substantially equivalent to ownership".
The Securities and Exchange Commission has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances, transactions by these immediate
family members ordinarily result in the Access Person obtaining benefits
substantially equivalent to ownership, e.g., application of the income derived
from such securities to maintain a common home, to meet expenses that such
person otherwise would meet from other sources, or the ability to exercise a
controlling influence over the purchase, sale or voting of such securities. An
Access Person also is regarded as the beneficial owner of securities held in the
name of a spouse, minor children or other person, even though he or she does not
obtain therefrom the aforementioned benefits of ownership, if he or she can vest
or revest title in himself or herself at once or at some future time. Moreover,
the fact that the holder is a relative or a spouse and sharing the same home as
an Access Person may in itself indicate that the Access Person would obtain
benefits substantially equivalent to those of ownership from securities held in
the name of such relative. Thus, absent countervailing facts, it is expected
that securities held by relatives who share the same home as an Access Person
will be treated as being beneficially owned by the Access Person.
The term "beneficial ownership" of securities would include not only ownership
of securities held by an Access Person for his or her own benefit, whether in
bearer form or registered in his name or otherwise, but also ownership of
securities held for his or her benefit by others (regardless of whether or how
they are registered) such as custodians, brokers, executors, administrators, or
trustees (including trusts in which he or she has only a remainder interest),
and securities held for his or her account by pledges, securities owned by a
partnership in which he or she is a member, if he may exercise a controlling
influence over the purchase, sale or voting of such securities held for his
account by pledges, securities owned by a partnership in which he or she is a
member, if he or she may exercise a controlling influence over the purchase,
sale or
A-1
<PAGE>
voting of such securities and securities owned by any corporation.
Correspondingly, this term would exclude securities held by an Access Person for
the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an Access Person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
An Access Person also may be regarded as the beneficial owner of securities held
in the name of another person, if by reason of any contract, understanding,
relationship, agreement, or other arrangement, he obtains therefrom benefits
substantially equivalent to those of ownership.
A-2
<PAGE>
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
CODE
(As revised March 1, 2000)
PART I - BUSINESS PRACTICES
Understanding as to Clients' Accounts, Company Records, etc.
Clients' accounts are the property of Capital Growth Management and not of any
individual member of the firm. This applies to all clients for whom the firm
acts as investment counsel or adviser, regardless of how or through whom the
client relationship originated and regardless of who may be the individual
consultant on a particular client's affairs.
You agree that, upon the termination of your employment, you will not take with
you any of our records, correspondence, files, forms, documents or data of any
nature whatsoever pertaining to our clients, procedures, or research activities,
and that you will not prepare or take with you any copies of the same, and that
you will not, before or after termination of your employment, make any of such
records or other information or data available to any other person or firm.
All information in our files pertaining to the clients of the firm or our forms,
procedures, research or counseling activities is confidential property of the
firm.
Client Information
Our relationship with clients is entirely confidential and no disclosure of the
name or of any detail of the personal circumstances of a client shall be made to
anyone not a member of the firm without the specific permission of the client.
Outside Affiliations
No member of the firm shall become an officer, trustee or director of any
company whose shares are publicly traded (except an investment company managed
by Capital Growth Management or a Capital Growth Management affiliate) without
the advance approval of the Chairman or President of the General Partner of
Capital Growth Management. Capital Growth Management cannot be in the position
of receiving or being able to receive inside information. Therefore, exceptions
will be made only in extremely unusual situations.
No member of the firm shall accept an appointment as an executor, administrator,
trustee, guardian or conservator (other than in family situations) without
approval by the Chairman or President of the General Partner of Capital Growth
Management.
Gifts from Third Parties
In order to avoid a conflict of interest, the impairment of the impartial
discharge of your responsibilities to our clients, or any other difficulty or
embarrassment, you shall not accept any gift presented on your own behalf, on
the firm's behalf, or on behalf of any member of your family or any other person
<PAGE>
designated by you from any person with whom the firm does business, including
brokers, securities salesmen, clients, or vendors of any kind. The only
exception to this restriction shall be for occasional small gifts of de minimis
value which present no possibility of influencing your judgment.
Publishing Articles and Books
You shall not publish any book or article bearing on investments or finance or
allied subjects except with the specific approval of the Chairman or President
of the General Partner of Capital Growth Management. This also applies to public
talks or interviews.
Use of Inside Information
You agree to adhere to the firm's Statement of Policy on Inside Information
which should be read in conjunction with this Code.
PART II - PERSONAL SECURITIES TRANSACTIONS
The primary purpose of the Capital Growth Management Code is to protect the
interests of all our clients. Our Code is very important to each member of the
firm in maintaining the high standards and reputation of Capital Growth
Management and guarding against an inadvertent violation of the securities laws
which might jeopardize your future in the investment business.
There are two points in particular that should be constantly kept in mind.
1. Capital Growth Management holds itself out as a professional investment
counsel firm which provides unbiased advice - that is, advice based solely on
the merits of the individual investment and undiluted by any conflicts of
interest which could prejudice the investment decision in any way. Thus, the
very nature of our business requires that the main thrust of our Code be the
elimination of any conflicts that could jeopardize our unbiased investment
approach.
2. The second point we stress is the fiduciary nature of the relationship with
our clients. This fiduciary relationship has been stressed by the SEC and state
and federal courts, including the U.S. Supreme Court, and is highlighted in
ERISA. Capital Growth Management is considered to be a fiduciary with respect to
all its investment counsel clients, including both ERISA and non-ERISA accounts.
This means that the same standards that are uniformly applied to trustees,
guardians and other fiduciaries are applied to Capital Growth Management in its
client relationships. These standards oblige Capital Growth Management to act
honestly and fairly in all respects in our dealings with clients and to serve
their interests with undivided loyalty.
You are obliged to put the interests of the Capital Growth Management clients
before your own personal interests. This is an obligation we all assume as
members of an investment counsel firm.
This rule has particular significance with reference to the flow of investment
information our personnel receive from brokers. Such brokerage information is
the property of Capital Growth Management and is to be used for the benefit of
the Capital Growth Management clientele. It should not be used for the personal
<PAGE>
advantage of the individual member of the firm who receives such information if
such use conflicts with the interests of Capital Growth Management clients. This
is a clear principle of law resulting from the fiduciary nature of our client
relationship and our obligation to serve clients with undivided loyalty.
I. Basic Philosophy
Capital Growth Management recognizes the fundamental value to its clients in
developing an organization of sound, experienced and practical investment
people. The actual experience of investing one's own capital, whether it be
small or large, is a valuable means of learning firsthand the opportunities,
risks and characteristics of the investment markets. Therefore, Capital Growth
Management encourages sound, personal investment by members of the firm.
On the other hand, Capital Growth Management as a firm must make certain that
there is no abuse of our responsibilities to clients or to the reputation and
professional standing of our organization or any of its members.
In formulating the Capital Growth Management Code, we have made every effort to
produce a framework which will adequately protect the interests of our clients
and our firm, while at the same time permitting as much freedom as we believe
reasonable and permissible for the firm's individual members in carrying out
their own personal investments.
II. Securities Transactions Covered by the Code
1. Employees of Capital Growth Management
The restrictions of the Capital Growth Management Code are applicable to the
securities transactions of all employees of Capital Growth Management.
The restrictions of the Capital Growth Management Code also apply to directors,
officers and general partners of Capital Growth Management and its General
Partner, and all individuals in a control relationship to Capital Growth
Management who obtain information concerning investment recommendations to the
CGM Funds or any other registered investment company advised by Capital Growth
Management. References in this Code to CGM employees include all other persons
to whom this Code applies.
Capital Growth Management will identify and inform all persons subject to the
reporting requirements under this Code.
2. Employee Accounts
The Code applies to securities transactions for all accounts in which you have a
"beneficial interest", except any such account where you have no influence or
control over investments.
Whether you have a "beneficial interest" in an account will be determined
pursuant to Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and
interpretative releases of the Securities and Exchange Commission. Under these
rules a beneficial interest in securities exists whenever you derive any
economic benefit from the income from the securities or whenever you can
exercise a controlling influence over the purchase, sale or voting of the
securities. You may also have a beneficial interest in securities if you have
the opportunity to indirectly participate in profits from the securities
<PAGE>
through, among other things, trusts, partnerships, or immediate family members.
Accordingly, you are normally considered to have a beneficial interest in:
a. Securities owned by you, whether or not registered in your name.
b. Securities held in a trust, estate or other account in which you, your
spouse, minor children or other relatives who share the same home with you have
a (direct or indirect) present or future interest in the income or principal.
c. Securities owned by your spouse or minor children.
d. Securities owed by other relatives who share the same home with you.
e. Securities in the name of another person where you can obtain title to the
securities at once or at some future time.
3. Fund Trustees
The Code does not apply to trustees of the mutual funds managed by Capital
Growth Management who are not employees of our firm. The restrictions on the
securities transactions of the outside Fund trustees and the requirements for
filing reports of their transactions are governed by the Codes of Ethics of the
Funds.
III. The Rule of Reason, Conscience and Integrity
The primary rule of the Capital Growth Management Code is the Rule of Reason,
Conscience and Integrity. You have the responsibility of carrying out your own
personal transactions to ensure that you are not benefiting in your personal
investments at the expense of any Capital Growth Management client and that you
are not in any way taking advantage of or "trading" on the knowledge you may
have of the market impact of transactions carried out by Capital Growth
Management for any of its clients.
Using your own conscience as a person of integrity, you should be the best judge
in regard to compliance with this basic approach to personal investing.
This rule imposes a stricter standard upon members of Capital Growth Management
than the general standard of federal and state laws, which prohibit any act,
practice or course of business which would operate as a fraud or deceit upon
clients.
IV. Specific Restrictions on all Purchase and Sale Transactions
In addition to the Rule of Reason, Conscience and Integrity, the following
specific restrictions in this Section IV applies to all securities transactions
for accounts subject to the Code, except the exempt transactions which follow
the rule:
NO EMPLOYEE OF CAPITAL GROWTH MANAGEMENT MAY PURCHASE A SECURITY IF SECURITIES
OF THE SAME ISSUER ARE HELD IN ANY OF THE FIRM'S CLIENT ACCOUNTS. The Employee
is required to determine whether or not securities of the same issuer are held
in any client account or whether there is a pending "buy" order prior to
engaging in any trading for his or her own account. For employees located at the
222 Berkeley Street offices, this determination shall take the form of written
verification from Leslie Lake. If the employee already holds a security at the
time that securities of the same issuer are purchased for a client account, he
<PAGE>
or she may not sell such security for his or her own account until either (i) at
least seven days after all securities of the same issuer are purchased for any
client account (i.e., seven days after all pending "buy" orders of securities of
the same issuer for all client accounts have been completed), or (ii) client
accounts no longer hold any securities of the same issuer.
Because it is important for Capital Growth Management to avoid even the
appearance of impropriety, the preceding restriction applies to all employees,
whether or not they are actively involved in portfolio management, securities
analysis or trading on behalf of clients.
ADDITIONAL RESTRICTION FOR PORTFOLIO MANAGERS: A Portfolio Manager may not buy
or sell a security within seven calendar days before or after any Fund which he
or she manages trades in the security.
This Section IV applies to all types of securities transactions, provided the
following securities or transactions are exempted from this general rule:
* Purchases or sales of direct obligations of the Government of the United
States, shares of registered open-end investment companies, bankers'
acceptances, bank certificates of deposit or commercial paper;
* Purchases which are part of an automatic dividend reinvestment plan;
* Purchases effected upon the exercise of rights issued by an issuer pro rata to
all holders of a class of its securities, to the extent such rights were
acquired from such issuer; and
* Purchases and sales of publicly traded securities of any issuers whose total
market capitalization is less than $100 million (which issuers are, as a class,
considered to be inappropriate investments for the funds managed by the firm).
Any prohibition against purchase or sale of a security in this Section IV
includes a prohibition against the short sale of the security, the purchase or
sale of a bond or preferred stock which is convertible into that security or the
purchase or sale of an option, warrant, or other right to purchase or sell that
security.
V. Additional Restrictions
The following additional restrictions have been adopted for specific types of
transactions for the reasons indicated below. These prohibitions apply to direct
investments, short sales and options trading in such securities.
1. No employee may purchase securities issued by any company the principal
business of which is brokerage, underwriting or investment banking except for
companies on the following list (which shall be updated from time to time):
Bear Stearns
Donaldson, Lufkin & Jenrette
Edwards, A.G.
Jefferies Group
Lehman Brothers
Merrill Lynch
Morgan Stanley Dean Witter
Paine Webber
Schwab, Charles
<PAGE>
Solomon-Smith Barney
Reason: To avoid investments which might influence the selection of brokers for
client transactions. The companies listed above are those whose capitalizations
are sufficiently high and whose brokerage or underwriting activities are
sufficiently large so as to mitigate concerns about improper influence.
2. No employee may participate as a purchaser or acquire beneficial ownership
of any security in an initial public offering of securities. For this purpose
"initial public offering" means an offering of securities registered under the
Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934.
Reason: to avoid use or the appearance of the use of brokerage business for our
clients to obtain favorable treatment from brokers distributing new issues.
3. No employee may participate as a purchaser or acquire beneficial ownership
of any security in any private offering of securities. Where the employee
already has a holding of such securities, he or she need not divest such
holdings, but shall play no role in any further consideration by Capital Growth
Management of any investment in such issuer. For this purpose "private offering"
means an offering that is exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) or 4(6) of the Act, Regulation A under the Act, or
Rule 504, 505 or 506 under the Act.
Reason: to avoid a conflict of interest between the employee entering into or
holding such investment and clients of Capital Growth Management both at the
time that the investment is made available to the employee and at the time that
an investment in the same issuer is being considered for client accounts.
4. No employee may participate in any investment club, hedge fund, limited
partnership, or other private investment pool, unless such employee: (i)
receives the advance approval of the Chairman or President of the General
Partner of Capital Growth Management, and (ii) verifies in writing that such
employee does not provide investment advice to such investment pool or its
participants, or that such investment pool has agreed to become subject to all
of the requirements of this Code.
Reason: the same restrictions which apply to your personal trading must apply to
the investment pool, unless your involvement is entirely passive.
5. No employee may invest in either a public or private real estate investment
trust ("REIT") unless such employee receives the written approval of the
Chairman and President of the General Partner of Capital Growth Management in
advance of such investment. The President and the Chairman of Capital Growth
Management may not invest in REIT's without the other's written approval in
advance of such investment. The Review Officer shall report to the Board of
Trustees of each of CGM Trust and CGM Capital Development Fund at least
quarterly concerning all purchases and sales of REIT's by employees of Capital
Growth Management during the prior year.
Reason: A substantial portion of CGM Realty Fund's portfolio is invested in
REIT's; this restriction is designed to minimize the possibility of a conflict
of interest with the investment strategy of this fund.
<PAGE>
All profits realized in violation of any restriction in this Code shall be
immediately paid over to Capital Growth Management, which shall, in its
discretion, allocate such profits among its clients, or contribute them to
charity. Any such profits shall be calculated net of any federal, state, local,
or foreign taxes paid or payable on the profits.
VI. Disclosure Requirements and Reports
Each employee must comply with the reporting requirements described below. For
purposes of this Section VI, the term "security" includes stocks, bonds, notes,
partnership interests, options, warrants, debentures, puts and calls on
securities, mining interests, ADRs, and any other interest or instrument
commonly known as a "security." However, the term "security" does not include:
* direct obligations of the Government of the United States,
* bankers' acceptances,
* bank certificates of deposit,
* commercial paper,
* high quality short-term debt instruments,
* repurchase agreements, and
* shares of registered open-end investment companies, i.e. mutual funds.
Any report made pursuant to this Section VI may contain a statement that the
report shall not be construed as an admission that you have any direct or
indirect beneficial ownership in a security to which the report relates and no
report shall be considered as an admission that any transaction reported
constitutes a violation of the Code. Reports need not be made with respect to
accounts where you have no direct or indirect influence or control over
investments.
1. Initial Reports
All new employees shall supply the Review Officer with a list of all brokerage
and banking accounts in which any securities are held for the employee's direct
or indirect beneficial interest and the securities held in each such account
(including the names of the brokerage firms or banks and the title, number of
shares and principal amount of each security beneficially owned). In addition,
new employees shall affirm that they have no affiliations or positions with a
public company not permitted by this Code.
This initial report shall be submitted by each employee no later than ten days
after becoming an employee and shall contain the date the report is submitted by
the employee.
2. Monthly Reports
Within ten days following the end of each month, you must file a signed
securities transaction form with the Review Officer. On that form you must
report the security transactions carried out during the month for all accounts
in which you have a "beneficial interest", except accounts where you have no
direct or indirect influence or control over investments. The monthly reports
shall contain (a) the date of the transaction, (b) the title, interest rate and
maturity date (if applicable), number of shares and principal amount of each
security, (c) the nature of the transaction (i.e., purchase, sale, other), (d)
the price of the security at which the transaction was effected and (e) the name
of the brokerage firm or bank through which the transaction was effected.
<PAGE>
The monthly report also must contain, with respect to any account you
established in which securities were held during the month for your direct or
indirect benefit, the (a) name of the brokerage firm or bank with which you
established the account and (b) the date the account was established.
These monthly reports must be submitted by every employee of Capital Growth
Management and must contain the date the report is submitted by the employee.
Monthly reports must be filed whether or not any security transactions have been
carried out. In instances where there have been no transactions, that fact
should be so noted.
Employees shall keep copies of all broker confirmations and statements for all
accounts in which they have a beneficial interest, and shall be prepared to
supply them to the Review Officer upon request.
3. Annual Report
On an annual basis, no later than 20 days after each December 31st, each
employee shall supply the Review Officer with an annual report containing: (a)
the title, number of shares and principal amount of each security in which the
employee has any direct or indirect beneficial ownership and (b) the name of any
brokerage firm or bank with which the employee maintains an account in which any
securities are held for the direct or indirect benefit of the employee. In the
annual report each employee shall either certify that he or she has fully
complied with this Code or shall fully disclose any and all failures to do so.
The information contained in the annual report must be current as of a date no
more than 30 days before the report is submitted and must contain the date the
report is submitted by the employee.
VII. Review and Enforcement
Mr. Kemp serves as the Review Officer for this Code. Mr. Heebner shall serve as
Alternate Review Officer for Mr. Kemp.
It will be the responsibility of the Review Officer to review these transactions
promptly with the objective of catching at an early date any conflict with the
specific rules or general principles and philosophy of this Code. It will be the
Review Officer's responsibility to use common sense and judgment in regard to
the character and nature of individual securities transactions as reported, to
point out at once any apparent violation to the individual, and to take
appropriate action.
You cannot participate in a determination of whether you have committed a
violation of this Code or of the imposition of any resulting sanction. If a
contemplated securities transaction may apparently conflict with the provisions
of this Code, you should contact the Review Officer prior to going ahead with
the transaction. Information submitted in the initial, monthly, and annual
reports will be treated as confidential by the Review Officer, provided it may
be made available to the Securities and Exchange Commission and other government
agencies.
An employee shall report to the Review Officer any failure on his or her part to
comply with this Code immediately upon occurrence.
If you believe that adherence to any of the restrictions in Sections IV or V of
the Code will cause you a serious and undue hardship because of unusual personal
<PAGE>
circumstances (e.g., the need to raise cash to pay an extraordinary medical
expense) you may submit a request for an exemption in writing to the Review
Officer. The Review Officer's determination will be final. Such relief from the
requirements of the Code will be granted only rarely.
VIII. Maintenance of Records
Capital Growth Management will maintain the following records at its principal
place of business, to the extent and in the manner set forth below, and will
make such records available to the Securities and Exchange Commission or any
representative thereof at any time and from time to time for reasonable
periodic, special or other examination:
1. A copy of each Capital Growth Management Code which is, or any time within
the past five years has been, in effect shall be preserved in an easily
accessible place.
2. A record of any violation of such Code, and of any action taken as a result
of such violation, shall be preserved in an easily accessible place for a period
of not less than five years following the end of the fiscal year in which the
violation occurs.
3. A copy of each report made under this Code shall be preserved for a period
of not less than five years from the end of the fiscal year in which it is made,
the first two years in an easily accessible place.
4. A list of all persons who are, or within the past five years have been,
required to make reports pursuant to this Code or who are or were responsible
for reviewing these reports shall be maintained in an easily accessible place.
5. A copy of each report concerning this Code furnished by Capital Growth
Management to the Board of any Fund pursuant to the Investment Company Act shall
be maintained for at least five years after the end of the fiscal year in which
it is made, the first two years in an easily accessible place.
6. A record of any decisions, and the reasons supporting the decisions, to
approve the acquisition of securities under Section VII of this Code shall be
maintained for at least five years after the end of the fiscal year in which the
approval is granted.
IX. Amendments and Reporting to Funds
Any material change to this Code of Ethics must be approved by the Boards of
Trustees of the CGM Funds and any other registered investment company advised by
Capital Growth Management, including a majority of trustees who are not
interested persons of Capital Growth Management, no later than six months after
adoption of the material change.
No less frequently than annually, Capital Growth Management must furnish to the
Boards of Trustees of the CGM Funds and any other registered investment company
advised by Capital Growth Management a report that:
1. describes any issues arising under this Code of Ethics or procedures of
Capital Growth Management since the last report to the Board, including, but not
limited to, information about material violations of this Code of Ethics or
procedures and sanctions imposed in response to the material violations; and
<PAGE>
2. certifies that Capital Growth Management has adopted procedures reasonably
necessary to prevent its employees from violating this Code of Ethics.
<PAGE>
New England Securities Corporation (NES) Code of Ethics under Rule 17j-1 of the
Investment Company Act of 1940
As principal underwriter for certain funds ("Funds") offered in connection with
variable products issued by its parent company, certain officers of NES are
deemed to be access persons under Rule 17j-1 of the Investment Company Act. NES
prohibits each access person from purchasing or selling, directly or indirectly,
any security in which the access person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which he or she knows
or should have known at the time of such purchase or sale: (i) is being
considered for purchase or sale by a Fund; or (ii) is being purchased or sold by
a Fund. This prohibition does not apply to:
. Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control;
. Purchases or sales which are non-volitional on the part of either the
access person or a Fund;
. Purchases which are part of an automatic dividend reinvestment plan;
. Purchases effected upon the exercise of rights issued by an issuer pro
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rata to all holders of a class of its securities, to the extent such
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rights were acquired from such issuer, and sales of such rights so
acquired; and
. Purchase or sales in a discretionary investment advisory account, in
which an access person has a beneficial ownership interest (either
alone or with others), managed by a registered investment adviser who
is not a member of the access person's family if the access person did
not have knowledge of the transactions until after the transactions
had been executed.
NES further requires that (i) all access persons comply with the quarterly and
annual reporting requirements of Rule 17j-1, and (ii) its compliance and/or
legal officers review and maintain all such reports in accordance with the
applicable provisions of the Rule.
