-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UUSE9OKwjDISqCj63TOBouP9TzOecRHguw0Id07aI/U7eyJ7ijn4z+QoZsN/KjNm OMqL/V/RTUiL96K0zOo8ug== /in/edgar/work/20000918/0000912057-00-041723/0000912057-00-041723.txt : 20000923 0000912057-00-041723.hdr.sgml : 20000923 ACCESSION NUMBER: 0000912057-00-041723 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000918 EFFECTIVENESS DATE: 20000918 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-57320 FILM NUMBER: 724657 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-06025 FILM NUMBER: 724658 BUSINESS ADDRESS: STREET 1: 1 MADISON AVE STREET 2: METROPOLITAN LIFE INSURANCE CO CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2125788717 MAIL ADDRESS: STREET 1: 1 MADISON AVENUE STREET 2: LAW DEPARTMENT AREA 7 G CITY: NEW YORK STATE: NY ZIP: 10010 485BPOS 1 a2023826z485bpos.txt 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2000 REGISTRATION NO. 33-57320 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ POST-EFFECTIVE AMENDMENT NO. 10 To FORM S-6 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------ METROPOLITAN LIFE SEPARATE ACCOUNT UL (Exact name of trust) METROPOLITAN LIFE INSURANCE COMPANY (Name of depositor) 1 MADISON AVENUE, NEW YORK, NEW YORK 10010 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) ------------------------------ GARY A. BELLER, ESQ. SENIOR EXECUTIVE VICE-PRESIDENT AND GENERAL COUNSEL METROPOLITAN LIFE INSURANCE COMPANY 1 MADISON AVENUE NEW YORK, NEW YORK 10010 (NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE) ------------------------------ COPIES TO: GARY O. COHEN, ESQ. AND THOMAS C. LAUERMAN, ESQ. FREEDMAN, LEVY, KROLL & SIMONDS 1050 CONNECTICUT AVENUE, N.W. WASHINGTON, D.C. 20036 ------------------------ It is proposed that the filing will become effective (check appropriate box) / / immediately upon filing pursuant to paragraph (b) of Rule 485 /X/ on September 15, 2000, pursuant to paragraph (b) of Rule 485 / / 60 days after filing pursuant to paragraph (a) of Rule 485 / / on (date) pursuant to paragraph (a) of Rule 485 ------------------------ This filing is made in reliance on Rule 6c-3 and 6e-3(T) under the Investment Company Act of 1940 to register an indefinite amount of interests in Metropolitan Life Separate Account UL which funds certain variable universal life insurance policies. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- METROPOLITAN LIFE SEPARATE ACCOUNT UL METROPOLITAN LIFE INSURANCE COMPANY CROSS-REFERENCE TABLE
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS - --------------------------------------- ---------------------- 1................................. Cover Page 2................................. SUMMARY; METLIFE 3................................. Inapplicable 4................................. SALES AND ADMINISTRATION OF THE POLICIES; METLIFE; SUMMARY 5, 6, 7........................... SEPARATE ACCOUNT UL; THE FUNDS 8................................. FINANCIAL STATEMENTS 9................................. Inapplicable 10(a).............................. OTHER POLICY PROVISIONS; POLICY RIGHTS 10(c), 10(d)....................... SUMMARY; POLICY BENEFITS; POLICY RIGHTS; PAYMENT AND ALLOCATION OF PREMIUMS; THE FIXED ACCOUNT; OTHER POLICY PROVISIONS 10(e).............................. PAYMENT AND ALLOCATION OF PREMIUMS--Policy Termination and Reinstatement 10(f).............................. VOTING RIGHTS 10(g)(1)-(3), 10(h)(1)-(3)......... RIGHTS WE RESERVE 10(g)(4), 10(h)(4)................. Inapplicable 10(i).............................. POLICY BENEFITS; PAYMENT AND ALLOCATION OF PREMIUMS; ISSUING A POLICY 11................................. SUMMARY; SEPARATE ACCOUNT UL; THE FUNDS 12(a).............................. Cover Page 12(b), 12(e)....................... Inapplicable 12(c), 12(d)....................... SEPARATE ACCOUNT UL; THE FUNDS 13(a), 13(b), 13(c), 13(d)......... SUMMARY--Table of Charges and Expenses, CHARGES AND DEDUCTIONS; SEPARATE ACCOUNT UL; THE FUNDS; POLICY BENEFITS; OTHER POLICY PROVISIONS 13(e).............................. SALES AND ADMINISTRATION OF THE POLICIES 13(f), 13(g)....................... Inapplicable 14................................. ISSUING A POLICY; SALES AND ADMINISTRATION OF THE POLICIES 15................................. PAYMENT AND ALLOCATION OF PREMIUMS 16................................. SEPARATE ACCOUNT UL; THE FUNDS 17(a), 17(b)....................... Captions referenced under Items 10(c), 10(d), 10(e) and 10(i) above 17(c).............................. Inapplicable 18(a), 18(c)....................... SEPARATE ACCOUNT UL; THE FUNDS 18(b), 18(d)....................... Inapplicable 19................................. SALES AND ADMINISTRATION OF THE POLICIES; VOTING RIGHTS; REPORTS 20(a), 20(b)....................... RIGHTS WE RESERVE; SEPARATE ACCOUNT UL; THE FUNDS 20(c), 20(d), 20(e), 20(f)......... Inapplicable 21(a), 21(b)....................... POLICY RIGHTS--Loan Privileges; PAYMENT AND ALLOCATION OF PREMIUMS; OTHER POLICY PROVISIONS 21(c), 22.......................... Inapplicable 23................................. SALES AND ADMINISTRATION OF THE POLICIES
I-1
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS - --------------------------------------- ---------------------- 24................................. PAYMENT AND ALLOCATION OF PREMIUMS; OTHER POLICY PROVISIONS 25................................. METLIFE 26................................. CHARGES AND DEDUCTIONS 27................................. METLIFE 28................................. MANAGEMENT 29................................. Inapplicable 30, 31, 32, 33, 34................. Inapplicable 35................................. GETTING MORE INFORMATION 36, 37............................. Inapplicable 38................................. SALES AND ADMINISTRATION OF THE POLICIES 39................................. METLIFE; SALES AND ADMINISTRATION OF THE POLICIES 40(a).............................. Inapplicable 40(b).............................. SEPARATE ACCOUNT UL; THE FUNDS; CHARGES AND DEDUCTIONS 41(a).............................. SUMMARY; METLIFE; SALES AND ADMINISTRATION OF THE POLICIES 41(b), 41(c), 42, 43............... Inapplicable 44(a).............................. SEPARATE ACCOUNT UL; THE FUNDS; POLICY BENEFITS--Cash Value 44(b).............................. Inapplicable 44(c).............................. CHARGES AND DEDUCTIONS 45................................. Inapplicable 46................................. Captions referenced under Item 44 above 47................................. Captions referenced under Items 10(c) and 16 above 48, 49............................. Inapplicable 50................................. SEPARATE ACCOUNT UL; THE FUNDS 51(a), 51(b)....................... SUMMARY; METLIFE; POLICY BENEFITS; POLICY RIGHTS 51(c), 51(d), 51(e)................ Captions referenced under Item 10(i) above 51(f).............................. PAYMENT AND ALLOCATION OF PREMIUMS--Policy Termination and Reinstatement 51(g).............................. Captions referenced under Items 10(i) and 13 above 51(h), 51(j)....................... Inapplicable 51(i).............................. SALES AND ADMINISTRATION OF THE POLICIES 52(a), 52(c)....................... RIGHTS WE RESERVE 52(b), 52(d)....................... Inapplicable 53(a).............................. FEDERAL TAX MATTERS 53(b), 54 through 58............... Inapplicable 59................................. FINANCIAL STATEMENTS
I-2 Flexible Premium Variable Life MetLife Flexible Premium Variable Life - -------------------------------------------------------------------- September 18, 2000 Flexible Premium Variable Life Prospectuses - - Prospectus For Flexible Premium Variable Life Insurance Policies issued by Metropolitan Life Insurance Company - - Fund Prospectuses [LOGO] PROSPECTUS FOR METFLEX, A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ("POLICY") ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY ("METLIFE") SEPTEMBER 18, 2000 The Policy is designed to provide: - - Life insurance coverage - - Flexible premium payments - - A choice among three death benefit options - - A method of financing certain deferred compensation plans, post-retirement benefits and payroll deduction programs - - Funding options for allocating premium payments to and transferring cash value among a fixed interest account and the Metropolitan Life Separate Account UL investment divisions which invest in the following corresponding fund ("Fund") portfolios: Metropolitan Series Fund, Inc. portfolios: STATE STREET RESEARCH AGGRESSIVE GROWTH NEUBERGER BERMAN PARTNERS MID CAP VALUE STATE STREET RESEARCH DIVERSIFIED SCUDDER GLOBAL EQUITY STATE STREET RESEARCH GROWTH T. ROWE PRICE LARGE CAP GROWTH STATE STREET RESEARCH AURORA SMALL CAP VALUE* T. ROWE PRICE SMALL CAP GROWTH STATE STREET RESEARCH INCOME LEHMAN BROTHERS-REGISTERED TRADEMARK- AGGREGATE STATE STREET RESEARCH MONEY MARKET BOND INDEX PUTNAM INTERNATIONAL STOCK (FORMERLY SANTANDER METLIFE STOCK INDEX INTERNATIONAL STOCK) MORGAN STANLEY EAFE-REGISTERED TRADEMARK- INDEX PUTNAM LARGE CAP GROWTH* RUSSELL 2000 INDEX-REGISTERED TRADEMARK- HARRIS OAKMARK LARGE CAP VALUE METLIFE MID CAP STOCK INDEX* JANUS MID CAP LOOMIS SAYLES HIGH YIELD BOND The Janus Aspen Series portfolios: JANUS ASPEN GROWTH The Invesco Variable Investment Funds, Inc. ("VIF") funds: INVESCO VIF--HIGH YIELD INVESCO VIF--REAL ESTATE OPPORTUNITY INVESCO VIF--EQUITY INCOME (FORMERLY INVESCO VIF--REALTY) The Franklin Templeton Variable Insurance Products Trust funds: TEMPLETON INTERNATIONAL SECURITIES--CLASS 1 FRANKLIN SMALL CAP--CLASS 2* (FORMERLY TEMPLETON INTERNATIONAL FUND) New England Zenith Fund series*: DAVIS VENTURE VALUE MFS RESEARCH MANAGERS LOOMIS SAYLES SMALL CAP BACK BAY ADVISORS BOND INCOME ALGER EQUITY GROWTH WESTPEAK GROWTH AND INCOME MFS INVESTORS Alliance Variable Products Series Fund, Inc. portfolios*: GROWTH AND INCOME--CLASS B PREMIER GROWTH--CLASS B TECHNOLOGY--CLASS B COVA Series Trust portfolios*: LARGE CAP STOCK (Managed by J.P. Morgan Investment Management, Inc.) Fidelity Variable Insurance Products Fund I portfolios*: GROWTH--SERVICE CLASS Fidelity Variable Insurance Products Fund II portfolios*: CONTRAFUND-REGISTERED TRADEMARK---SERVICE CLASS ASSET MANAGER GROWTH-REGISTERED TRADEMARK---SERVICE CLASS
- ------------ * Available on or about September 30, 2000. A WORD ABOUT RISK: This Prospectus discusses the risks associated with purchasing the Policy. Other prospectuses discuss the risks associated with investment in the Fund described therein. These prospectuses are being provided to you in addition to this Prospectus because each of the Separate Account UL investment divisions identified above invests solely in a corresponding "Portfolio" of a Fund. This Prospectus is not valid unless you also receive or have received current Fund prospectuses. The purchase of the Policy involves risk. You could lose money. You might have to pay additional amounts of premium to avoid losing the life insurance protection you purchased through a Policy. HOW TO LEARN MORE: Before purchasing a Policy, read the information in this Prospectus and in the prospectus for each Fund. Keep these prospectuses for future reference. Neither the Securities and Exchange Commission ("SEC") nor any state securities authority has approved or disapproved these securities, nor have they determined if this Prospectus is accurate or complete. This Prospectus does not constitute an offering in any jurisdiction where such offering may not lawfully be made. Any representation otherwise is a criminal offense. Interests in the Separate Account and the Fixed Account are not deposits or obligations of, or insured or guaranteed by, the U.S. government, any bank or other depository institution including the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board or any other agency or entity or person. We do not authorize any representations about this offering other than as contained in this Prospectus or its supplements or in our authorized supplemental sales material. METROPOLITAN LIFE INSURANCE COMPANY MAIN OFFICE: 1 MADISON AVE. NEW YORK, NY 10010 (732) 602-6400
TABLE OF CONTENTS FOR THIS PROSPECTUS
PAGE IN THIS SUBJECT PROSPECTUS - ------- ---------- Summary............................................ 3 MetLife............................................ 10 Separate Account UL................................ 11 The Fixed Account.................................. 11 The Funds.......................................... 12 Issuing a Policy................................... 12 Policy Benefits.................................... 13 Policy Rights...................................... 18 Payment and Allocation of Premiums................. 22 Charges and Deductions............................. 24 Federal Tax Matters................................ 26 Showing Performance................................ 27 Rights We Reserve.................................. 28 Other Policy Provisions............................ 28 Sales and Administration of the Policies........... 29 Voting Rights...................................... 30 Reports............................................ 31 Illustration of Policy Benefits.................... 31 Getting More Information........................... 31 Legal, Accounting and Actuarial Matters............ 32 Management......................................... 32 Financial Statements............................... 35
SUMMARY This summary gives an overview of the Policy and is qualified by the more detailed information in the balance of this Prospectus and the Policy. MetLife issues the Policies. We offer the Policies to employers, employer sponsored plans, or other organizations or individuals associated with such employers, plans or organizations. We designed the Policies for financing non-qualified deferred compensation plans, other post-employment benefits, certain employer sponsored payroll deduction programs or other purposes. In addition to the base Policy, optional insurance benefits may also be added to your coverage. PREMIUMS The Policy allows flexibility in making premium payments. The Policy will remain in force as long as the cash surrender value is large enough to cover one monthly deduction, regardless of whether or not premium payments have been made. 3 CASH VALUE Your cash value in the Policy reflects your premium payments, the charges we deduct, interest we credit if you have cash value in our fixed interest account, any investment experience you have in our Separate Account, as well as your loan and withdrawal activity. MetLife doesn't guarantee the investment performance of the Separate Account UL investment divisions and you should consider your risk tolerance before selecting any of these funding options. TRANSFERS AND SYSTEMATIC INVESTMENT STRATEGIES You may transfer cash value among the funding options, subject to certain limits. You may also choose among four systematic investment strategies: the Equity Generator-SM-, the Equalizer-SM-, the Allocator-SM-, and the Rebalancer-SM-. SPECIFIED FACE AMOUNT OF INSURANCE Within certain limits, you may choose your specified face amount of insurance when the Policy is issued. You may also change the amount at any time after the first Policy year, subject to our rules and procedures. DEATH BENEFIT OPTIONS Generally, you have a choice among three options. These range from an amount equal to the specified face amount to an amount equal to the specified face amount plus the policy cash value at the date of death. SURRENDERS, PARTIAL WITHDRAWALS AND LOANS Within certain limits, you may take partial withdrawals and loans from the Policy. You may also surrender your Policy for its cash surrender value. TAX TREATMENT In most cases, you will not pay income taxes on withdrawals or surrenders or at the Final Date of the Policy, until your cumulative withdrawn amounts exceed the cumulative premiums you have paid. If your Policy is a modified endowment contract, you will pay income taxes on loans and withdrawals to the extent of any gains (which is generally the excess of cash value over the premiums paid). In this case, an additional 10% tax may also apply. If the Policy is part of a collateral assignment equity split dollar arrangement with an employer, any increases in cash value that are not due to premium payments may be taxed annually. The death benefit may be subject to Federal and state estate taxes, but your beneficiary will generally not be subject to income tax on the death benefit. As with any taxation matter, you should consult with and rely on the advice of your own tax advisor. 4 TABLE OF CHARGES AND EXPENSES This table shows, subject to state approval, the charges and expenses that you pay under your Policy. See "Charges and Deductions," below for more information about your Policy's charges: TYPE OF CHARGE OR EXPENSE AMOUNT OF CHARGE OR EXPENSE Charges we deduct from each premium payment Sales charge: For Policies issued prior to May 1, 1996 or in connection with certain employer sponsored plans effective prior to August 1, 2000, up to 1% of each premium payment; For all other Polices(1), - POLICY YEARS 1 TO 10--up to 9% of premiums paid (we currently charge 6.5%) - POLICY YEARS 11 AND LATER--up to 3% of premiums paid, until the total of payments in each such Policy year equals the annual target premium(2) for that year. - There is no sales charge for payments in excess of the annual target premium(2) in any Policy year. Charge for average expected state 2.25% of each premium payment taxes attributable to premiums: Charge for expected federal taxes 1.2% of each premium payment attributable to premiums: Administrative charge: Up to 1.05% of each premium payment. We reduce the charge to .05% on the portion of any premiums paid in a Policy year above the annual target premium(2). Monthly Deduction from your Policy's cash value Cost of term insurance charges: Amount varies depending on the specifics of your Policy(3) Mortality and expense risk charge: For Policies issued prior to May 1, 1996, or in connection with certain employer sponsored plans effective prior to August 1, 2000, the charge is currently equivalent to an effective annual rate of up to .60% of the cash value in the Separate Account. We intend to reduce this charge after Policy year 9 to .30%. For all other Policies, the charge is currently equivalent to an effective annual rate of up to .48% of the cash value in the Separate Account. We intend to reduce this charge after Policy year 9 to .36% and after Policy year 20 to .30%. We may increase this charge to not more than .90% at any time. Underwriting charge: (applies only if A one time charge of up to $3 per you request an increase in your thousand dollars of increase. specified face amount) Charges for optional rider As specified in the form of each rider. benefits(4):
5 TYPE OF CHARGE OR EXPENSE AMOUNT OF CHARGE OR EXPENSE Transfer charge: We do not charge for the first six transfers in a Policy year; we charge $25 for each additional transfer you make in a Policy year.
- --------------- (1) Except in certain states, if you surrender your Policy during the first three Policy years (first five Policy years for Policies issued on or after August 1, 2000), we will refund any sales charges deducted within 365 days prior to the date the request for surrender is received at our Designated Office. (2) See "Annual Target Premium" under "Charges and Deductions" for a detailed discussion of the determination of the annual target premium. For some Policies, an increase or decrease in the specified face amount will result in a proportionate increase or decrease in the annual target premium. This could, in turn, increase or decrease sales and administrative charges. (3) See "Cost of Term Insurance" under "Charges and Deductions" for a more detailed discussion of factors affecting this charge. If you would like, we will provide you with an illustration of the impact of these and other charges under the Policy based on various assumptions. (4) Except for the interim term insurance rider, the charge for which is paid for separately. FUND INVESTMENT MANAGEMENT FEES AND DIRECT EXPENSES The investment manager of each of the Funds receives an investment management fee. Each of the Funds also incurs direct expenses (see the Fund Prospectus and Statement of Additional Information referred to therein for each Fund). You bear indirectly your proportionate share of the fees and expenses of the Portfolios of each Fund that correspond to the Separate Account investment divisions you are using. The following sets forth the fees and expenses for each Portfolio, expressed as a percentage of average net assets, for the year ending 12/31/99 for all Portfolios of each Fund. The percentages in the table are before taking into account the expense reimbursements referred to in the footnotes that follow the table.
MANAGEMENT OTHER TOTAL PORTFOLIOS FEE 12B-1 FEES EXPENSES ANNUAL EXPENSES State Street Research Money Market .25% 0 .17% .42% Neuberger Berman Partners Mid Cap Value(a)(b) .70% 0 .48% 1.18% Lehman Brothers-Registered Trademark-Aggregate Bond Index .25% 0 .15% .40% Janus Mid Cap .67% 0 .04% .71% State Street Research Income .32% 0 .06% .38% State Street Research Aggressive Growth(a) .70% 0 .04% .74% State Street Research Diversified(a) .43% 0 .03% .46% Loomis Sayles High Yield Bond .70% 0 .24% .94% MetLife Stock Index .25% 0 .04% .29% Russell 2000-Registered Trademark- Index(e) .25% 0 .64% .89% Harris Oakmark Large Cap Value(a)(b) .75% 0 .40% 1.15%
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MANAGEMENT OTHER TOTAL PORTFOLIOS FEE 12B-1 FEES EXPENSES ANNUAL EXPENSES T. Rowe Price Small Cap Growth(a) .52% 0 .09% .61% T. Rowe Price Large Cap Growth(a)(b) .69% 0 .62% 1.31% State Street Research Growth(a) .47% 0 .04% .51% Scudder Global Equity .67% 0 .20% .87% Morgan Stanley EAFE-Registered Trademark-Index(g) .30% 0 1.47% 1.77% Putnam International Stock .90% 0 .22% 1.12% Invesco VIF-High Yield(j)(k) .60% 0 .48% 1.08% Templeton International Securities-Class 1(i) .69% 0 .19% .88% Janus Aspen Growth(h) .65% 0 .02% .67% Invesco VIF-Equity Income(j)(k) .75% 0 .44% 1.19% Invesco VIF-Real Estate Opportunity(j)(k) .90% 0 8.87% 9.77% Davis Venture Value(c) .75% 0 .06% .81% Putnam Large Cap Growth(d) .80% 0 .59% 1.39% MetLife Mid Cap Stock Index(d) .25% 0 .65% .90% Loomis Sayles Small Cap(c)(f) .90% 0 .10% 1.00% State Street Research Aurora Small Cap Value(d) .85% 0 .23% 1.08% Alger Equity Growth(c) .75% 0 .05% .80% MFS Investors(c)(l) .75% 0 1.28% 2.03% MFS Reasearch Managers(c)(l) .75% 0 1.28% 2.03% Back Bay Advisors Bond Income(c) .40% 0 .08% .48% Westpeak Growth and Income(c) .68% 0 .06% .74% Franklin Small Cap-- Class 2(p)(q) .55% .25% .27% 1.07% Alliance Growth and Income--Class B(p) .63% .25% .09% .97% Alliance Premier Growth--Class B(p) 1.00% .25% .04% 1.29% Alliance Technology-- Class B(o)(p) 1.00% .25% .27% 1.52% Large Cap Stock(n) .65% 0 .11% .76% Fidelity VIP Growth-- Service Class(m)(p) .58% .10% .09% .77% Fidelity VIP Contrafund--Service Class(m)(p) .58% .10% .10% .78% Fidelity VIP Asset Manager Growth--Service Class(m)(p) .58% .10% .14% .82%
- --------------- (a) The Metropolitan Series Fund directed certain portfolio trades to brokers who paid a portion of the Fund's expenses. In addition, the Fund has entered into arrangements with its custodian 7 whereby credits realized as a result of this practice were used to reduce a portion of each Portfolio's custodian fees. These expense reductions are reflected in the table following (q) below. (b) During 1999, we paid all expenses (other than management fees, brokerage commissions, taxes, interest, extraordinary and non-recurring expenses) (hereinafter "Expenses") in excess of .20% of the average net assets for each of these Portfolios. This subsidy ceases when each Portfolio's total assets reach $100 million or on November 8, 2000, whichever comes first. This expense reimbursement is reflected in the table following (q) below. It states our estimate of the effect of the anticipated reimbursement of Expenses for the entire current year. (c) New England Investment Management, Inc. ("NEIM") pays MetLife for providing administrative services. You do not bear these fees. NEIM absorbs the fees payable to MetLife. (d) These Portfolios began operations on July 5, 2000, except for the Putnam Large Cap Growth Portfolio which began operations on May 1, 2000. We will pay all expenses in excess of .20% of the average net assets for each of these Portfolios until each Portfolio's total assets reach $100 million, or until July 4, 2002, whichever comes first. Therefore, the Expenses for these Portfolios will be lower than those indicated in the table above. The table following (q) below shows estimated first year expenses for these Portfolios after expense reimbursement. (e) We ceased subsidizing Expenses for this Portfolio during 1999. The expense information in the above table has been restated to reflect current expenses as if they had been in effect all year. Beginning on February 22, 2000, we began to pay all Expenses in excess of .30% of the average net assets for the Russell 2000-Registered Trademark- Index Portfolio until the Portfolio's total assets reach $200 million or until April 30, 2001, whichever comes first. This expense reimbursement is reflected in the table following (q) below and is stated as if it was in effect for the entire current year. (f) During fiscal year 1999, this Portfolio's management fee was 1.00% of the Portfolio's average net assets. On January 1, 2000, this fee was reduced to 0.90%. NEIM pays all expenses other than brokerage costs, interest, taxes or other extraordinary expenses in excess of 1.00% of the average net assets of this Portfolio. Without this expense cap, the Portfolio's expenses in fiscal 1999 would have been 1.10%. (g) We pay all Expenses in excess of .25% the average net assets for the Morgan Stanley EAFE-Registered Trademark-Index Portfolio until the Portfolio's total assets reach $100 million, or until November 8, 2000, whichever comes first. After such date, MetLife will continue to pay all Expenses in excess of .40% of the Portfolio's average net assets until the Portfolio's assets reach $200 million, or until April 30, 2001, whichever comes first. These expense reimbursements are reflected in the table following (q) below. It states our estimate of the effect of these anticipated reimbursements of expenses for the entire current year. (h) Expenses are based upon expenses for the fiscal year ended December 31, 1999, restated to reflect a reduction in the management fee. All expenses are shown without the effect of expense offset arrangements. (i) On February 8, 2000, the shareholders approved a merger and reorganization that combined this fund with the Templeton International Equity Fund, effective May 1, 2000. The shareholders of that fund have approved new management fees, which apply to the combined fund effective May 1, 2000. The table above shows restated total expenses based on the new fees and the assets of the fund as of December 31, 1999, and not the assets of the combined fund. However, if the table reflected both the new fees and the combined assets, the fund's expenses after May 1, 2000 would be estimated as: Management fees, .65%; Other expenses, .20%; and Total Annual Expenses, .85%. (j) The actual total expenses for the Invesco VIF-High Yield Fund, the Invesco VIF-Equity Income Fund and the Invesco VIF-Real Estate Opportunity Fund were lower than the figure shown below because their custodian fees were reduced under expense offset arrangements. (k) Certain expenses of the Invesco VIF-High Yield Fund, the Invesco VIF-Equity Income Fund and the Invesco VIF-Real Estate Opportunity Fund were absorbed voluntarily by INVESCO in order to ensure that expenses for these Funds did not exceed 1.05%, 1.15% and 1.35%, respectively, of the Fund's average net assets pursuant to a commitment between each Fund and INVESCO. These commitments may be changed at any time following consultation with the board of directors. These expense absorption arrangements are reflected in the table following (q) below. (l) In fiscal year 1999, NEIM voluntarily agreed to reduce its fees or to bear the operating expenses (excluding brokerage costs, interest, taxes, or other extraordinary expenses) of the Portfolio in excess of an annual expense limit of .90% of the Portfolio's average daily net assets, subject to the obligation of the Portfolio to repay NEIM such expenses in future years, if any, when the Portfolio's total operating expenses fall below this stated expense limit; such deferred 8 expenses may be charged to the Portfolio in a subsequent year to the extent the charge does not cause the total operating expenses in such subsequent year to exceed the .90% expense limit; provided, however, that the Portfolio is not obligated to repay any expense paid by NEIM more than two years after the end of the fiscal year in which such expense was incurred. (m) Fidelity Management & Research Company or the Fund has entered into varying arrangements with third parties who either paid or reduced a portion of the class' expenses. A portion of the brokerage commissions that the fund pays is used to reduce the fund's expenses. In addition, through arrangement with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce custodian expenses. (n) COVA currently reimburses the Portfolio for all operating expenses (exclusive of the management fees) in excess of approximately .10%. COVA pays MetLife for providing administrative services. You do not bear these fees. COVA absorbs the fees payable to MetLife. (o) For fiscal year 1999, Alliance reimbursed the Portfolio for all expenses in excess of 1.20%. This limit is no longer in effect. (p) The fund has a distribution or 12b-1 plan that is described in the fund's prospectus. (q) On February 8, 2000, a merger and reorganization was approved that combined the assets of the fund with a similar fund of Templeton Variable Products Series Fund, effective May 1, 2000. On February 8, 2000, fund shareholders approved new management fees, which apply to the combined fund effective May 1, 2000. The table shows estimated total expenses based on the new fees and assets of the fund as of December 31, 1999 and not the assets of the combined fund. However, if the table reflected both the new fees and the combined assets, the fund's expenses after May 1, 2000 would be estimated as: Management Fee, 0.55%; 12b-1 fees, 0.25%; other expenses, 0.27%; and Total Annual Expenses, 1.07%.
OTHER TOTAL ANNUAL EXPENSES EXPENSES AFTER AFTER EXPENSE EXPENSE PORTFOLIO REIMBURSEMENT REIMBURSEMENT State Street Research Diversified .02% .45% Neuberger Berman Partners Mid Cap Value .06% .76% Harris Oakmark Large Cap Value .19% .94% State Street Research Aggressive Growth .02% .72% T. Rowe Price Large Cap Growth .24% .93% Russell 2000-Registered Trademark- Index .30% .55% State Street Research Growth .02% .49% T. Rowe Price Small Cap Growth .09% .61% Morgan Stanley EAFE-Registered Trademark- Index .36% .66% Invesco VIF-High Yield .47% 1.07% Invesco VIF-Equity Income .42% 1.17% Invesco VIF-Real Estate Opportunity 1.02% 1.92% Putnam Large Cap Growth .20% 1.00% MetLife Mid Cap Stock Index .20% .45% State Street Research Aurora Small Cap Value .20% 1.05% MFS Investors .15% .90% MFS Research Managers .15% .90% Alliance Technology .09% 1.20%* Large Cap Stock .10% .75% Fidelity VIP Growth--Service Class .07% .75% Fidelity VIP Contrafund--Service Class .07% .75% Fidelity VIP Asset Manager Growth--Service Class .13% .81%
- --------------- * Total annual expenses after reimbursement for this Portfolio includes reimbursement of a portion of the investment management fee charged to the Portfolio by the investment manager. This reimbursement in 1999 reduced the 1.00% fee set forth in the table before (a) above to .86%. 9 OTHER Please refer to "Federal Tax Matters-Our taxation" and "Policy Benefits--Cash Value Transfers" for a description of certain charges that we currently do not impose but may impose in the future. METLIFE Metropolitan Life Insurance Company ("MetLife") is a wholly-owned subsidiary of MetLife, Inc., a publicly traded company. Our main office is located at One Madison Avenue, New York, New York 10010. MetLife was formed under the laws of New York State in 1868. Headquartered in New York City, we are a leading provider of insurance and financial services to a broad spectrum of individual and group customers. MetLife had $429 billion of assets under management as of March 31, 2000. This includes assets managed by the Nvest Companies. MetLife has agreed to sell its interests in these companies. MetLife provides individual insurance and investment products to approximately 9 million households in the United States. MetLife also provides group insurance and invesment products to corporations and other institutions employing over 33 million employees and members. We have listed out directors and certain key officers under "Management," and our financial information under "Financial Statements," below. GIVING US REQUESTS, INSTRUCTIONS OR NOTIFICATIONS (SIDEBAR) YOU CAN CONTACT US AT OUR DESIGNATED OFFICE. (END SIDEBAR) CONTACTING US: You can communicate all of your requests, instructions and notifications to us by contacting us in writing at our Designated Office. We may require that certain requests, instructions and notifications be made on forms that we provide. These include: changing your beneficiary; taking a Policy loan; changing your death benefit option; taking a partial withdrawal; surrendering your Policy; making transfer requests (including elections with respect to the systematic investment strategies) or changing your premium allocations. Our Designated Office is our home office at 1 Madison Avenue, New York, NY 10010. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. WHEN YOUR REQUESTS, INSTRUCTIONS AND NOTIFICATIONS BECOME EFFECTIVE: - - Generally, requests, premium payments and other instructions and notifications are effective on the Date of Receipt. In those cases, the effective time is at the end of the Valuation Period during which we receive them at our Designated Office. (Some exceptions to this general rule are noted below and elsewhere in this Prospectus.) - A Valuation period is the period between two successive Valuation Dates. It begins at the close of regular trading on the New York Stock Exchange on a Valuation Date and ends at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. The close of regular trading is 4:00 p.m., Eastern Time on most days. - A Valuation Date is: - Each day on which the New York Stock Exchange is open for trading. - Other days, if we think that there has been a sufficient degree of trading in a Fund's portfolio securities that the current net asset value of its shares might be materially affected. 10 - - The end of the free look period is the effective time of the premium allocation instructions you make in your Policy application (and any changes in allocation or transfer requests you make on or before the end of the free look period). Your Investment Start Date is the date the first net premium is applied to the Fixed Account and/or the Separate Account and is the later of (1) the Date of Policy and (2) the Date of Receipt of your first premium payment. - - The effective date of your Systematic Investment Strategies will be that set forth in the strategy chosen. SEPARATE ACCOUNT UL We established the Separate Account under New York law on December 13, 1988. The Separate Account receives premium payments from the Policy described in this Prospectus and other variable life insurance policies that we issue. We have registered the Separate Account as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). The assets in the Separate Account legally belong to us, but they are held solely for the benefit of investors in the Separate Account and no one else, including our other creditors. We will keep an amount in the Separate Account that at least equals the value of our commitments to policy owners that are based on their investments in the Separate Account. We can also keep charges that we deduct and other excess amounts in the Separate Account or we can transfer the excess out of the Separate Account. (SIDEBAR) EACH SEPARATE ACCOUNT INVESTMENT DIVISION INVESTS IN A CORRESPONDING PORTFOLIO OF A FUND. (END SIDEBAR) The Separate Account has subdivisions, called "investment divisions." Each investment division invests its assets exclusively in shares of a corresponding Portfolio of a Fund. We can add new investment divisions to or eliminate investment divisions from the Separate Account. You can designate how you would like your net premiums and cash value to be allocated among the available investment divisions and our Fixed Account. Amounts you allocate to each investment division receive the investment experience of the investment division, and you bear this investment risk. THE FIXED ACCOUNT The Fixed Account is part of our general assets that are not in any legally- segregated separate accounts. Amounts in the Fixed Account are credited with interest at an effective annual rate of 4%. We may also credit excess interest on such amounts. Different excess interest rates may apply to different amounts based upon when such amounts were allocated to the Fixed Account. Any partial amounts we remove from the Fixed Account (such as any portion of your Policy's monthly deduction that is allocable to the Fixed Account) will be taken from the most recently allocated amounts first. Any excess interest rate will be credited for at least 12 months before a new rate is credited. We can delay transfers, withdrawals, surrender and payment of Policy loans from the Fixed Account for up to 6 months. Since the Fixed Account is not registered under the federal securities laws, this Prospectus contains only limited information about the Fixed Account. The Policy gives you more information on the operation of the Fixed Account. 11 THE FUNDS (SIDEBAR) YOU SHOULD CAREFULLY REVIEW THE INVESTMENT OBJECTIVES, STRATEGIES, AND RISKS OF EACH PORTFOLIO WHICH ARE CONTAINED IN THE PROSPECTUS FOR EACH FUND YOU HAVE ALSO RECEIVED. (END SIDEBAR) Each of the Funds is a "series" type of mutual fund, which is registered as an open-end management investment company under the 1940 Act. Each Fund is divided into Portfolios, each of which represents a different class of stock in which a corresponding investment division of the Separate Account invests. You should read each Fund prospectus that you have also received. They contain information about each Fund and its Portfolios, including the investment objectives, strategies, risks and investment advisers that are associated with each Portfolio. They also contain information on our different separate accounts and those of our affiliates, that invest in each Fund and the risks related thereto. Some of the Portfolios have names and investment objectives that are very similar to certain publicly available mutual funds that are managed by the same money managers. These Portfolios are not those publicly available mutual funds and will not have the same performance. Different performance will result from such factors as different implementation of investment policies, different cash flows into and out of the Portfolios, different fees and different sizes. Our arrangements with certain of the unaffiliated Fund sponsors provide that they or one of their affiliates will pay us based on a percentage (up to 0.25% on an annual basis) of the net assets of a Portfolio attributable to the Policies. The fees are not charged to you, the Separate Account or the Portfolio. As of the end of each Valuation Period, we purchase and redeem Fund shares for the Separate Account at their net asset value without any sales or redemption charges. These purchases and redemptions reflect the amount of any of the following transactions that take effect at the end of the Valuation Period: - - The allocation of net premiums to the Separate Account. - - Dividends and distributions on Fund shares that are reinvested as of the dates paid (which reduces the value of each share of the Fund, increases the number of Fund shares outstanding, but has no affect on the cash value in the Separate Account). - - Policy loans and loan repayments allocated to the Separate Account. - - Transfers to and among investment divisions. - - Withdrawals and surrenders taken from the Separate Account. ISSUING A POLICY If you want to own a Policy, then you must complete an application, which must be received by the Designated Office. We reserve the right to reject an application for any reason permitted by law, and our acceptance of an application is subject to our underwriting rules. We may choose one of three types of underwriting when selling Policies. We decide which type to use based on the total number of eligible possible insureds for whom you can purchase a Policy and the percentage of those insureds for whom you actually purchase a Policy. The three types of underwriting are: - - Guaranteed Issue--requires the least evidence of insurability and rating classification - - Simplified Underwriting--requires more evidence of insurability and rating classification 12 - - Full Underwriting--requires the most evidence of insurability and rating classification An insured who is a standard risk under Simplified Underwriting or Guaranteed Issue may have a higher cost of term insurance rate than would apply to the same insured under Full Underwriting. (SIDEBAR) WE WILL ISSUE A POLICY TO YOU AS OWNER. YOU WILL HAVE ALL THE RIGHTS UNDER THE POLICY INCLUDING THE ABILITY TO NAME A NEW OWNER OR CONTINGENT OWNER. (END SIDEBAR) Generally, we will issue a Policy only for insureds that are age 70 or less (although we may decide to permit an insured that is older) that have provided evidence of insurability that we find acceptable. An "insured" is the person upon whose life we issue the Policy. For the purpose of computing the insured's age under the Policy, we start with the insured's age on the Date of Policy which is set forth in the Policy. Age under the Policy at any other time is then computed using that issue age and adding the number of full Policy years completed. The Date of Policy is usually the date the Policy application is approved. We use the Date of Policy to calculate the Policy years (and Policy months and monthly anniversaries). We may permit a Date of Policy that is earlier than the date the application is approved if there have been no material misrepresentations in the application in order to preserve a younger age for the insured. - - You may request that your Date of Policy be the same date the planned periodic premium is received. In these cases, you would incur a charge for insurance protection before insurance coverage starts. However, the earlier Date of Policy gives you the potential advantage of having the premium applied to the Separate or Fixed Account on an earlier date if a payment is received. Insurance coverage under the Policy will generally begin at the time the application is approved. For coverage to be effective, the insured's health must be the same as stated in the application and, in most states, the insured must not have sought medical advice or treatment after the date of the application. POLICY BENEFITS This discussion generally does not take into account the effect of obtaining a portion of the insurance coverage under the yearly renewable term rider. This rider may be more economical in some cases than taking the full amount under the Policy. See "Optional Benefits Added by Rider." INSURANCE PROCEEDS If the Policy is in force, we will pay your beneficiary the insurance proceeds as of the end of the Valuation Period that includes the insured's date of death. We will pay this amount after we receive documents that we request as due proof of the insured's death. The beneficiary can receive the death benefit in a single sum or under an income plan described below. You may make this choice during the insured's lifetime. If no selection is made we will place the amount in an account to which we will credit interest, and the beneficiary will have immediate access to all or part of that amount. The beneficiary has one year from the date the insurance proceeds are paid to change the selection from a single sum payment to an income plan, as long as we have made no payments from the interest-bearing account. If the 13 terms of the income plan permit the beneficiary to withdraw the entire amount from the plan, the beneficiary can also name contingent beneficiaries. The insurance proceeds equal: - - The death benefit under the death benefit option or minimum death benefit that is then in effect; plus - - Any additional insurance proceeds provided by rider; minus - - Any unpaid Policy loans and accrued interest thereon, and any due and unpaid charges accruing during a grace period. DEATH BENEFIT OPTIONS (SIDEBAR) THE POLICY GENERALLY OFFERS A CHOICE OF THREE DEATH BENEFIT OPTIONS. (END SIDEBAR) You can choose among three options. You select which option you want in the Policy application. The three options are: - - Option A: The death benefit is a level amount and equals the specified face amount of the Policy - - Option B: The death benefit varies and equals the specified face amount of the Policy plus the cash value on the date of death. - - Option C: The death benefit varies and equals the specified face amount of the Policy plus the amount by which the Policy premiums paid exceeds withdrawals made. You have the flexibility to include, at Policy issue, a yearly renewable term rider. This rider is generally not available with Policies issued prior to May 1, 1996 or in connection with certain employer sponsored plans effective prior to August 1, 2000. There are issues that you should consider in choosing your death benefit option. For example, under Options B and C, the cash value or other amounts are added to the specified face amount. Therefore, the death benefit will generally be greater under these options than under Option A, for Policies with the same specified face amount and premium payments. By the same token, the cost of insurance will generally be greater under Options B and C than under Option A. You can change your death benefit option after the first Policy year, provided that: (SIDEBAR) YOU CAN GENERALLY CHANGE YOUR DEATH BENEFIT OPTION. (END SIDEBAR) - - Your cash surrender value after the change would be enough to pay at least two monthly deductions. - - The specified face amount continues to be no less than the minimum we allow after a decrease. - - The total premiums you have paid do not exceed the then current maximum premium limitations permitted under Internal Revenue Service rules. - - You provide evidence satisfactory to us of the insured's insurability, as we may require. Any change will be effective on the monthly anniversary on or immediately following the Date of Receipt of the request (or following the date we approve it if we require evidence of insurability). A change in death benefit option will cause us to automatically increase or decrease your specified face amount so that the amount of the death benefit is not changed on the effective date of the new death benefit option. 14 Before you change your death benefit option you should consider the following: - - If the term insurance portion of your death benefit changes, as it may with a change from Option A to B or C and vice versa, the term insurance charge will also change. This will affect your cash value and, in some cases, the death benefit levels. - - If your specified face amount changes because of the change in death benefit option, consider also the issues presented by changing your specified face amount that are described under "Specified Face Amount," below. These issues include the possibility: that your Policy would become a modified endowment contract; that you would receive a taxable distribution; and of changes in the maximum premium amounts that you can pay. MINIMUM DEATH BENEFIT In no event will the Policy death benefit (plus the proceeds under any yearly renewable term rider on the insured's life) be lower than the minimum amount required to maintain the Policy as life insurance under the federal income tax laws. We determine this minimum by applying either the: I. Cash Value Accumulation Test or II. Guideline Premium/Cash Value Corridor Test. You choose the Cash Value Accumulation Test or the Guideline Premium/Cash Value Corridor Test before we issue your Policy. Before choosing between these two tests you should consider the following: - - The Cash Value Accumulation Test may allow you to pay a greater amount in premiums for the same amount of death benefit under federal income tax laws and still qualify as life insurance. You should ask for an illustration comparing results under both tests. - - Increases in death benefits by operation of the Cash Value Accumulation Test will result in a higher monthly cost of term insurance. Such increases can also occur under the Guideline Premium/Cash Value Corridor Test, although this is less likely. SPECIFIED FACE AMOUNT (SIDEBAR) YOU CAN GENERALLY INCREASE OR DECREASE YOUR POLICY'S SPECIFIED FACE AMOUNT. (END SIDEBAR) The specified face amount is the basic amount of insurance specified in your Policy. The Minimum Initial Specified Face amount is the smallest amount of specified face amount for which a Policy may be issued. Currently this amount is $100,000. You should consider whether to take all of your coverage as specified face amount or whether to take some coverage, if available, under our yearly renewable term insurance benefit (see "Optional Benefits Added by Rider"). Generally, you may change your specified face amount at any time after the first Policy year. Any change will be effective on: the monthly anniversary on or next following the (a) Date of Receipt of your request; or (b) if we require evidence of insurability, the date we approve your request. No reduction may decrease the specified face amount below the Minimum Initial Specified Face Amount during the first five Policy years or one half that amount thereafter. These minimums also apply to decreases that result from partial withdrawals or changes in death benefit options. If there have been previous specified face amount increases, any decreases in specified 15 face amount will be made in the following order: (i) the specified face amount provided by the most recent increase; (ii) the next most recent increases successively; and (iii) the initial specified face amount. You may increase the specified face amount only if the cash surrender value after the change is large enough to cover at least two monthly deductions based on your most recent cost of term insurance charge. Any increase may require that we receive additional evidence of insurability that is satisfactory to us. We may also impose a one-time underwriting charge. Before you change your specified face amount you should consider the following: - - The term insurance portion of your death benefit will likely change and so will the term insurance charge. This will affect the insurance charges, cash value and, in some cases, death benefit levels. - - Reducing your specified face amount in the first 15 Policy years may result in our returning an amount to you which could then be taxed on an income first basis. - - The amount of additional premiums that the tax laws permit you to pay into your Policy may increase or decrease. The additional amount you can pay without causing your Policy to be a modified endowment contract for tax purposes may also increase or decrease. - - In some circumstances, the Policy could become a modified endowment contract. - - For Policies issued on or after May 1, 1996 in connection with other than certain employer sponsored plans effective prior to August 1, 2000, the sales charge and the administration charge may change. CASH VALUE (SIDEBAR) YOUR POLICY IS DESIGNED TO ACCUMULATE CASH VALUE. (END SIDEBAR) Your Policy's cash value equals: - - The Fixed Account cash value, plus - - The Policy Loan Account cash value, plus - - The Separate Account cash value. Your Policy's cash surrender value equals your cash value minus any outstanding Policy loans (plus accrued interest). The Separate Account cash value allocated to each investment division is calculated as follows: - - On your Investment Start Date, the Policy's cash value in an investment division will equal the portion of any net premium allocated to the investment division, reduced by the portion of any monthly deductions allocated to the Policy's cash value in that investment division. - - Thereafter, at the end of each Valuation Period the cash value in an investment division will equal: - The cash value in the investment division at the beginning of the Valuation Period; plus - All net premiums, loan repayments and cash value transfers into the investment division during the Valuation Period; minus - All partial cash withdrawals, loans and cash value transfers out of the investment division during the Valuation Period; minus - The portion of the any charges and deductions allocated to the cash value in the investment division during the Valuation Period; plus - The net investment return for the Valuation Period on the amount of cash value in the investment division at the beginning of the Valuation Period. The net investment return currently equals the rate of increase 16 or decrease in the net asset value per share of the underlying Fund Portfolio over the Valuation Period, adjusted upward to take appropriate account of any dividends and other distributions paid by the Portfolio during the period. The net investment return could in the future be reduced by a charge for taxes that we have the right to impose. BENEFIT AT FINAL DATE The Final Date is the Policy anniversary on which the insured is Age 95. Subject to certain conditions, we will allow you to extend that date where permitted by state law. If the insured is living on the Final Date, we will pay you the cash surrender value of the Policy. You can receive the cash surrender value in a single sum, in an account that earns interest, or under an available income plan. OPTIONAL BENEFITS ADDED BY RIDER You may be eligible for certain benefits provided by rider, subject to certain underwriting requirements and the payment of additional premiums. We will deduct any charges for the rider(s) (other than the charge for the interim term insurance rider) as part of the monthly deduction. Each rider contains important information, including limits and conditions that apply to the benefits. If you decide to purchase any of the riders, you should carefully review their provisions to be sure if the benefit is something that you want. You should also consider: - - That the addition of certain riders can restrict your ability to exercise certain rights under the Policy. - - That the amount of benefits provided under the rider is not based on investment performance of a separate account; but, if the Policy terminates because of poor investment performance or any other reason, the riders generally will also terminate. - - The tax consequences. You should also consult with your tax advisor before purchasing one of the riders. - - That, as discussed below, there are special factors with respect to charges in connection with the yearly renewable term insurance benefit. Generally, we currently make the following benefits available by rider: - - Disability Waiver of Monthly - Interim Term Insurance Benefit Deduction Benefit(1) - - Accidental Death Benefit - Yearly Renewable Term Insurance Benefit(3) - - Accelerated Death Benefit(2)
- ------------ (1) An increase in specified face amount may not be covered by this rider. If not, the portion of the monthly deduction associated with the increase will continue to be deducted from the cash value, which if insufficient, could result in the Policy's termination. For this reason, it may be advantageous for the owner, at the time of total disability, to reduce the specified face amount to that covered by this rider. (2) Payment under this rider may affect eligibility for benefits under state or federal law. This rider is currently not available in New Jersey or Massachusetts. (3) Generally not available in connection with large groups. The yearly renewable term insurance benefit provides coverage on the insured to age 95. You may purchase this rider, if available, only at Policy issue, though the amount of coverage of an existing rider will change with 17 changes to the Policy to maintain the proportionate allocation of the total insurance amount between the Policy and the Rider. Since the amount of annual target premium (see "Annual Target Premium" under "Charges and Deductions") is not affected by this rider, the amount of sales charge you pay may be less if coverage is obtained through this rider rather than as part of the Policy. However, the current charges for the cost of insurance are higher and commissions that we pay our representatives may be lower under this rider. You should consider these factors before allocating the insurance coverage between the Policy and this rider. INCOME PLANS Before you purchase an income plan you should consider: - - The tax consequences associated with the Policy proceeds, which can vary considerably, depending on whether a plan is chosen. You or your beneficiary should consult with a qualified tax adviser about tax consequences. - - That your Policy will terminate at the time you purchase an income plan and you will receive a new contract, which describes the terms of the income plan. You should carefully review the terms of the new contract, because it contains important information about the terms and conditions of the income plan. - - That these plans do not have a variable investment return. Generally, we currently make the following income plans available: - - Interest income - Installment Income for a Stated Period - - Installment Income of a Stated - Single Life Income-Guaranteed Amount Payment Period - - Joint and Survivor Life Income - Single Life Income-Guaranteed Return
POLICY RIGHTS CASH VALUE TRANSFERS (SIDEBAR) GENERALLY YOU CAN RECEIVE THE POLICY'S INSURANCE PROCEEDS, AMOUNTS PAYABLE AT THE FINAL DATE OR AMOUNTS PAID UPON SURRENDER UNDER AN INCOME PLAN INSTEAD OF IN A LUMP SUM. YOU CAN TRANSFER YOUR CASH VALUE AMONG THE INVESTMENT DIVISIONS AND THE FIXED ACCOUNT AT ANY TIME BEGINNING AFTER THE END OF THE FREE LOOK PERIOD. (END SIDEBAR) The minimum amount you may transfer is $50 or, if less, the total amount in an investment option. You may make transfers at any time. The maximum amount that you may transfer or withdraw from the Fixed Account in any Policy year is the greater of $50 and 25% of the largest amount in the Fixed Account over the last four Policy years. This limit does not apply to a full surrender, any loans taken, or any transfers under a systematic investment strategy. We may also limit the number of investment options to which you may transfer cash value, and, under certain conditions, we may have to approve transfers to the Fixed Account (see "Allocating Net Premiums" under "Payment and Allocation of Premiums."). We do not currently charge for the first six transfers in a Policy year. We charge $25 for any additional amounts transferred in the same Policy year. (For this purpose, all transfers made as part of the same request count as one transfer). Transactions under the Systematic Investment Strategies are not considered "transfers" for purposes of this charge. We reserve the right to assess a charge in the future against all transfers. Currently, transfers are not taxable transactions. 18 Each Fund may restrict or refuse purchases or redemptions of shares in their Portfolios as a result of certain market timing activities. You should read each Fund's prospectus for more details. We reserve the right to refuse to accept any transaction request where the request would tend to disrupt administration of the Policies or is not in the best interests of Policy owners or the Separate Account. SYSTEMATIC INVESTMENT STRATEGIES: You can choose one of four currently available strategies. You can also change or cancel your choice at any time. - - EQUITY GENERATOR: allows you to transfer the interest earned on amounts in the Fixed Account in any Policy month equal to at least $20 to the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. The transfer will be made at the beginning of the Policy month following the Policy month in which the interest was earned. - - EQUALIZER: allows you to periodically equalize amounts in your Fixed Account and either the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. We currently make equalization each quarter. We will terminate this strategy if you make a transfer out of the investment division or the Fixed Account that isn't part of the strategy. You may then reelect the Equalizer on your next Policy anniversary. - - REBALANCER: allows you to periodically redistribute amounts in the Fixed Account and investment divisions in the same proportion that the net premiums are then being allocated. We currently make the redistribution at the beginning of each quarter. - - ALLOCATOR: allows you to systematically transfer money from the State Street Research Money Market investment division to the Fixed Account and/or any investment division(s). You must have enough cash value in the State Street Research Money Market investment division to enable the election to be in effect for three months. The election can be to transfer each month: - A specific amount until the cash value in the State Street Research Money Market investment division is exhausted. - A specific amount for a specific number of months. - Amounts in equal installments until the total amount you have requested has been transferred. TRANSFERS BY TELEPHONE: We may, if permitted by state law, decide in the future to allow you to make transfer requests, changes to Systematic Investment Strategies and allocations of future net premium by phone. We may also allow you to authorize your sales representative to make such requests. The following procedures would apply: - - We must have received your authorization in writing satisfactory to us, to act on instructions from any person that claims to be you or your sales representative, as applicable, as long as that person follows our procedures. - - We will institute reasonable procedures to confirm that instructions we receive are genuine. Our procedures will include receiving from the caller your personalized data. - - All telephone calls will be recorded. - - You will receive a written confirmation of any transaction. - - Neither the Separate Account nor we will be liable for any loss, expense or cost arising out of a telephone request if we reasonably believed the request to be genuine. 19 LOAN PRIVILEGES (SIDEBAR) YOU CAN BORROW FROM US AND USE YOUR POLICY AS SECURITY FOR THE LOAN. (END SIDEBAR) The amount of each loan must be: - - At least $250. - - No more than the greater of the cash surrender value less two monthly deductions and 75% of the cash surrender value (unless your Policy tells you that state law requires a different percentage to be applied) when added to all other outstanding Policy loans. As of your loan request's Date of Receipt, we will: - - Remove an amount equal to the loan from your cash value in the Fixed Account and each investment division of the Separate Account in the same proportion as the Policy's cash value in each such option bears to the total cash value of the Policy in the Fixed Account and the investment divisions. - - Transfer such cash value to the Policy loan account, where it will be credited with interest at a rate equal to the loan rate charged less a percentage charge, based on expenses associated with Policy loans, determined by us. This percentage charge will not exceed 2%, and the minimum rate we will credit to the Policy Loan Account will be 3% per year, except where state law requires 4% (for Policies issued prior to April 30, 2000, the rate is 4%). At least once a year, we will transfer any interest earned in your Policy loan account to the Fixed Account and the investment divisions, according to the way that we then allocate your net premiums. - - Charge you interest, which will accrue daily. We will tell you the initial interest rate that applies to your loan and mail you advance notices of any increases applicable to existing loans. The interest rate charged for a Policy year will never be greater than the maximum allowed by law and will generally be the greater of: - The published monthly average for the calendar month ending two months before the start of such year; and - The guaranteed rate used to credit interest to the cash value allocated to the Fixed Account for the Policy, plus no more than 1%. The published monthly average means (a) Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc. or any successor service; or (b) If the Moody's average is not published, a substantially similar average established by regulation issued by the insurance supervisory official of the state in which your Policy is delivered. Your interest payments are due at the end of each Policy year and if you don't pay the amount within 31 days after it is due, we will treat it as a new Policy loan, which will be taken from the Fixed Account and the investment divisions by the same method as other loans. Repaying your loans (plus accrued interest) is done by sending in payments at least equal to $25. You should designate whether a payment is intended as a loan repayment or a premium payment, since we will treat any payment for which no designation is made as a premium payment. We will allocate your repayment to the Fixed Account and the investment divisions, in the same proportion that net premiums are then allocated, except that amounts borrowed from the Fixed Account will be repaid to the Fixed Account first. 20 Before taking a Policy loan you should consider the following: - - Interest payments on loans are generally not deductible for tax purposes. - - Under certain situations, Policy loans could be considered taxable distributions. - - If you surrender your Policy or if we terminate your Policy, or at the Final Date, any outstanding loan amounts (plus accrued interest) will be taxed as a distribution. (See "Federal Tax Matters--The Policy--Loans" below.) - - A policy loan increases the chances of our terminating your policy due to insufficient cash value. We will terminate your Policy with no value if: (a) on a monthly anniversary your loans (plus accrued interest) exceed your cash value minus the monthly deduction; and (b) we tell you of the insufficiency and you do not make a sufficient payment within 61 days of the monthly anniversary. - - Your Policy's death benefit will be reduced by any unpaid loan (plus accrued interest). SURRENDER AND WITHDRAWAL PRIVILEGES (SIDEBAR) YOU CAN SURRENDER YOUR POLICY FOR ITS CASH SURRENDER VALUE. (END SIDEBAR) We may ask you to return the Policy before we honor your request to surrender your Policy. You can choose to have the proceeds paid in a single sum, or under an income plan. If the insured dies after you surrender the Policy but before the end of the Policy month in which you surrendered the Policy, we will pay your beneficiary an amount equal to the difference between the Policy's death benefit and its cash value, computed as of the surrender date. You can make partial withdrawals if: - - The withdrawal would not result in the cash surrender value being less than sufficient to pay 2 monthly deductions. - - The withdrawal is at least $250. - - The withdrawal would not result in total premiums paid exceeding any then current maximum premium limitation determined by Internal Revenue Code Rules. - - The withdrawal would not result in your specified face amount falling below the minimum allowable amount after a decrease, as described under "Specified Face Amount," above. If you make a request for a partial withdrawal that is not permitted, we will tell you and you may then ask for a smaller withdrawal or surrender the Policy. We will deduct your withdrawal from the Fixed Account and the investment divisions in the same proportion that the Policy's cash value in each such option bears to the total cash value of the Policy in the Fixed Account and the investment divisions. Before surrendering your Policy or requesting a partial withdrawal you should consider the following: - - Amounts received may be taxable as income and, if your Policy is a modified endowment contract, subject to certain tax penalties. - - Your Policy could become a modified endowment contract. - - For partial withdrawals, your death benefit will decrease, generally by the amount of the withdrawal. For Option A Policies, your specified face amount will also decrease, generally by the amount of the withdrawal. - - In some cases you may be better off taking a Policy loan, rather than a partial withdrawal. 21 EXCHANGE PRIVILEGE If you decide that you no longer want to take advantage of the investment divisions in the Separate Account, you may transfer all of your money into the Fixed Account. No charge will be imposed on a transfer of your entire cash value (or the cash value attributable to a specified face amount increase) to the Fixed Account within the first 24 Policy months (or within 24 Policy months after a specified face amount increase you have requested, as applicable). In some states, in order to exercise your exchange privilege, you must transfer, without charge, the Policy cash value (or the portion attributable to a specified face amount increase) to a flexible premium fixed benefit life insurance policy, which we make available. THIRD PARTY REQUESTS Generally, we only accept requests for transactions or information from you. Therefore, we reserve the right not to process transactions requested on your behalf by your agent with a power of attorney or any other authorization. This includes processing transactions by an agent you designate, through a power of attorney or other authorization, who has the ability to control the amount and timing of transfers for a number of other Policy owners, and who simultaneously makes the same request or series of requests on behalf of other Policy owners. (SIDEBAR) YOU CAN MAKE VOLUNTARY PLANNED PERIODIC PREMIUM PAYMENTS AND UNSCHEDULED PREMIUM PAYMENTS. (END SIDEBAR) PAYMENT AND ALLOCATION OF PREMIUMS PREMIUMS The payment of premiums won't guarantee that your Policy will remain in force. Rather, this depends on your Policy's cash surrender value. PAYING PREMIUMS You can make premium payments, subject to certain limitations discussed below, through the: - - VOLUNTARY PLANNED PERIODIC PREMIUM SCHEDULE: You choose the schedule on your application. The schedule sets forth the amount of premiums, fixed payment intervals and the period of time that you intend to pay premiums. The schedule can be: (a) annual; (b) semi-annual; or (c) through another method to which we agree. After payment of the first planned periodic premium, you do not have to pay premiums in accordance with your voluntary planned period premium schedule. - - UNSCHEDULED PREMIUM PAYMENT OPTION: You can make premium payments at any time. (SIDEBAR) NET PREMIUMS ARE YOUR PREMIUMS MINUS THE CHARGES DEDUCTED FROM YOUR PREMIUMS. (END SIDEBAR) MAXIMUM AND MINIMUM PREMIUM PAYMENTS - - The first premium may not be less than the planned premium. - - After the first Policy year, your voluntary planned periodic payments must be at least $100, whether on an annual or semi-annual basis. - - Unscheduled premium payments must be at least $100 each. We may change this minimum amount on 90 days' notice to you. - - You may not pay premiums that exceed tax law premium limitations for life insurance policies. We will return any amounts that exceed these limits except that we will keep any amounts that are required to keep the Policy from terminating. We will let you make premium payments that would turn 22 your Policy into a modified endowment contract, but we will tell you of this status in your annual statement, and if possible, we will tell you how to reverse the status. - - We reserve the right not to sell a Policy to any group or individual associated with such group if the total amount of annual premium that is expected to be paid in connection with all Policies sold to the group or individuals associated with such group is less than $250,000. - - We may require evidence of insurability for premium payments that cause the minimum death benefit to exceed the death benefit then in effect under the death benefit option chosen. ALLOCATING NET PREMIUMS Your allocations of net premiums to the Fixed Account are effective as of the Investment Start Date. Your allocations of net premiums to the investment divisions of the Separate Account are effective as of the end of the free look period. During the free look period, we allocate the net premium payments you allocated to the investment divisions to the State Street Research Money Market investment division. At the end of the free look period, we will then allocate your cash value in that investment division among all the Separate Account investment divisions according to your net premium allocation instructions. You can instruct us to allocate your net premiums among the Fixed Account and the investment divisions. The percentage of your net premium allocation into each of these investment options must be in whole numbers. You can change your allocations (effective after the end of the free look period) at any time by giving us written notification at our Designated Office or in another manner that we permit. If you have cash value of at least $60,000,000 in the Fixed Account for all Policies you own, we will have to give prior approval to any allocation of net premium or transfer of cash value to the Fixed Account. Over the lifetime of your Policy, we may restrict you to allocating net premiums and cash value to a maximum of 17 investment divisions of the Separate Account (including the State Street Research Money Market Division) plus allocations to the Fixed Account, if any. Once you reach the limit, you may re-allocate cash value and net premiums among the 17 selected investment divisions, but you may not allocate net premiums or cash value to any additional investment divisions. We reserve the right to eliminate this restriction at any time. POLICY TERMINATION AND REINSTATEMENT TERMINATION: We will terminate your Policy without any cash surrender value if: - - The cash surrender value is less than the monthly deduction; - - We do not receive a sufficient premium payment within the 61-day grace period to cover the monthly deduction. We will mail you notice if any grace period starts. 23 REINSTATEMENT: Upon your request, we will reinstate your Policy (without reinstating any amounts in a Policy loan account), subject to certain terms and conditions that the Policy provides. We must receive your request within 3 years (or within a longer period if required by state law) after the end of the grace period and before the Final Date. You also must provide us: - - A written application for reinstatement (the date we approve the application will be the effective date of the reinstatement). - - Evidence of insurability that we find satisfactory. - - An additional premium amount that the Policy prescribes for this purpose. CHARGES AND DEDUCTIONS (SIDEBAR) CAREFULLY REVIEW THE "TABLE OF CHARGES AND EXPENSES" IN THE "SUMMARY" WHICH SETS (END SIDEBAR) FORTH THE CHARGES THAT YOU PAY UNDER YOUR POLICY. The Policy charges compensate us for our expenses and risks. Any distinctions we make about the specific purposes of the different charges are imprecise, and we are free to keep and use our revenues or profits for any other purpose, including paying any of our costs and expenses in connection with the Policies. The following sets forth additional information about some (but not all) of the Policy charges. ANNUAL TARGET PREMIUM: We use the concept of annual target premium to determine certain limits on sales and administrative charges under the Policy. We define the annual target premium to be: - - For Policies issued prior to May 1, 1996 or issued in connection with certain employer sponsored plans effective prior to August 1, 2000, 50% of the estimated annual amount which satisfied the 7-Pay test under federal tax law based on the issue age of the insured and the initial specified face amount. (See "Modified Endowment Contracts" under "Federal Tax Matters.") - - For all other Policies, 100% of the estimated annual amount that satisfied the 7-Pay test based on the issue age of the insured, the specified face amount of insurance and standard underwriting class. For such Policies, the annual target premium amount is increased and decreased proportionately for increases and decreases in the specified face amount of the Policy. ADMINISTRATIVE CHARGE: We make this charge primarily to compensate us for expenses we incur in the administration of the Policy, including our underwriting and start-up expenses. CHARGE FOR AVERAGE EXPECTED STATE TAXES ATTRIBUTABLE TO PREMIUMS: We make this charge to reimburse us for the state premium taxes that we must pay on premiums we receive. Premium taxes vary from state to state and currently range from 0 to 3.5%. Our charge approximates the average tax rate we expect to pay on premiums we receive from all states. CHARGES INCLUDED IN THE MONTHLY DEDUCTION: We allocate the monthly deduction (except for the monthly mortality and expense risk charge) among the Fixed Account and each investment division of the Separate Account in the same proportion as the Policy's cash value in each such option bears to the total cash value of the Policy in the Fixed Account and the investment divisions. We deduct the monthly deductions as of each monthly anniversary, commencing with the Date of Policy. - - COST OF TERM INSURANCE: This charge varies monthly based on many factors. Each month, we determine the charge by multiplying your cost of insurance rates by the term insurance amount. - The term insurance amount is the death benefit at the beginning of the Policy month divided by a discount factor to account for an assumed 24 return; minus the cash value at the beginning of the Policy month after deduction of all other applicable charges. Factors that affect the term insurance amount include the specified face amount, the cash value and the death benefit option you choose (generally, the term insurance amount will be higher for Options B and C). - The term insurance rate is based on our expectations as to future experience, taking into account the insured's sex (if permitted by law), age, underwriting class and rate class. The rates will never exceed the guaranteed rates, which are based on certain 1980 Commissioners Standard Ordinary Mortality Tables and the insured's sex and age. Our current rates are lower than the maximums in most cases. We review our rates periodically and may adjust them, but we will apply the same rates to everyone who has had their Policy for the same amount of time and who is the same age, sex and rate class. As a general rule, the cost of insurance rate increases each year you own your Policy, as the insured's age increases. - Rate class relates to the level of mortality risk we assume with respect to an insured. It can be the standard rate class, or one that is higher (and if the insured is 20 or older, we may divide rate class by smoking status). The insured's rate class will affect your cost of term insurance. You can also have more than one rate class in effect, if the insured's rate class has changed and you change your specified face amount. A better rate class will lower the cost of term insurance on your entire Policy and a worse rate class will affect the portion of your cost of term insurance charge attributable to the specified face amount increase. - - MORTALITY AND EXPENSE RISK CHARGE: We make this monthly charge primarily to compensate us for: - mortality risks that insureds may live for a shorter period than we expect; and - expense risks that our issuing and administrative expenses may be higher than we expect. If our estimates are correct, we will realize a profit from this charge, otherwise, we could incur a loss. This monthly charge is allocated proportionately to the cash value in each investment division of the Separate Account. VARIATIONS IN CHARGES: We may vary a charge by group, based on anticipated variations in our costs or risks associated with the group or individuals in the group that the charge was intended to cover. Our variations in the charges will be made in accordance with our established and uniformly applied administrative procedures. We consider a variety of factors in determining charges, including but not limited to: - - The nature of the group and its organizational framework - - The method by which sales will be made to the individuals associated with the group - - The facility by which premiums will be paid - - The group's capabilities with respect to administrative tasks - - Our anticipated persistency of the Policies - - The size of the group and the number or years it has been in existence - - The aggregate amount of premiums we expect to be paid on the Policies owned by the group or by individuals associated with the group Any variations in charges will be reasonable and will not be unfairly discriminatory to the interests of any Policy owner. 25 FEDERAL TAX MATTERS (SIDEBAR) YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR TO FIND OUT HOW TAXES CAN AFFECT (END SIDEBAR) YOUR BENEFITS AND RIGHTS UNDER YOUR POLICY. The following is a brief summary of some tax rules that may apply to your Policy. You should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy, especially before you make unscheduled premium payments, change your specified face amount, change your death benefit option, change coverage provided by riders, take a loan or withdrawal, or assign or surrender the Policy. THE POLICY INSURANCE PROCEEDS - - Generally excludable from your beneficiary's gross income. - - The proceeds may be subject to federal estate tax: (i) if paid to the insured's estate; or (ii) if paid to a different beneficiary if the insured possessed incidents of ownership at or within three years before death. - - If you die before the insured, the value of your Policy (determined under IRS rules) is included in your estate and may be subject to federal estate tax. - - Whether or not any federal estate tax is due is based on a number of factors including the estate size. CASH VALUE (IF YOUR POLICY IS NOT A MODIFIED ENDOWMENT CONTRACT) - - You are generally not taxed on your cash value until you withdraw it, surrender your Policy or receive a distribution on the Final Date. In these cases, you are generally permitted to take withdrawals up to the amount of premiums paid without any tax consequences. However, withdrawals will be subject to income tax after you have received amounts equal to the total premiums you paid. Somewhat different rules apply in the first 15 Policy years, when a distribution may be subject to tax if there is a gain in your Policy (which is generally when your cash value exceeds the cumulative premiums you paid). Finally, if your Policy is part of a collateral assignment equity split dollar arrangement, there is a risk that increases in cash value may be taxed annually. LOANS - - Loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract or terminates. - - Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. - - If your Policy terminates (upon surrender, cancellation, lapse or the Final Date) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. MODIFIED ENDOWMENT CONTRACTS These contracts are life insurance contracts where the premiums paid during the first 7 years after the Policy is issued, or after a material change in the Policy, exceed tax law limits referred to as the "7-pay test." Material changes in the Policy include changes in the level of benefits and certain other changes to your Policy after the issue date. Reductions in benefits during a 7-pay period may cause your Policy to become a modified endowment 26 contract. Generally, a life insurance policy that is received in exchange for a modified endowment contract will also be considered a modified endowment contract. If your Policy is considered a modified endowment contract the following applies: - - The death benefit will generally be income tax free to your beneficiary, as discussed above. - - Amounts withdrawn or distributed before the insured's death, including loans, assignments and pledges, are treated as income first and subject to income tax (to the extent of any gain in your Policy). All modified endowment contracts you purchase from us and our affiliates during the same calendar year are treated as a single contract for purposes of determining the amount of any such income. - - An additional 10% income tax generally applies to the taxable portion of the amounts received before age 59 1/2, except generally if you are disabled or if the distribution is part of a series of substantially equal periodic payments made over life expectancy. DIVERSIFICATION In order for your Policy to qualify as life insurance, we must comply with certain diversification standards with respect to the investments underlying the Policy. We believe that we satisfy and will continue to satisfy these diversification standards. Inadvertent failure to meet these standards may be able to be corrected. Failure to meet these standards would result in immediate taxation to Policy owners of gains under their Policies. CHANGES TO TAX RULES AND INTERPRETATIONS Changes in applicable tax rules and interpretations can adversely affect the tax treatment of your Policy. These changes may take effect retroactively. We reserve the right to amend the Policy in any way necessary to avoid any adverse tax treatment. Examples of changes that could create adverse tax consequences include: - - Possible taxation of cash value transfers. - - Possible taxation as if you were the owner of your allocable portion of the Separate Account's assets. - - Possible limits on the number of investment funds available or the frequency of transfers among them. - - Possible changes in the tax treatment of Policy benefits and rights. OUR TAXATION In general, we don't expect to incur federal, state or local taxes upon the earnings or realized capital gains attributable to the assets in the Separate Account relating to the cash surrender value of the Policies. If we do incur such taxes, we reserve the right to charge cash value allocated to the Separate Account for these taxes. SHOWING PERFORMANCE We may advertise or otherwise show: - - Investment division performance ranking and rating information as it compares among similar investments as compiled by independent organizations. - - Comparisons of the investment divisions with performance of similar investments and appropriate indices. 27 - - Our insurance company ratings that are assigned by independent rating agencies and that are relevant when considering our ability to honor our guarantees. - - Personalized illustrations based on historical Separate Account performance. RIGHTS WE RESERVE We reserve the right to make certain changes if we believe the changes are in the best interest of our Policy owners or would help carry out the purposes of the Policy. We will make these changes in the manner permitted by applicable law and only after getting any necessary owner and regulatory approval. We will notify you of any changes that result in a material change in the underlying investments in the investment divisions, and you will have a chance to transfer out of the affected division (without charge). Some of the changes we may make include: - - Operating the Separate Account in any other form that is permitted by applicable law. - - Changes to obtain or continue exemptions from the 1940 Act. - - Transferring assets among investment divisions or to other separate accounts, or our general account or combining or removing investment divisions from the Separate Account. - - Substituting Fund shares in an investment division for shares of another portfolio of a Fund or another fund or investment permitted by law. - - Changing the way we assess charges without exceeding the aggregate amount of the Policy's guaranteed maximum charges. - - Making any necessary technical changes to the Policy to conform it to the changes we have made. OTHER POLICY PROVISIONS (SIDEBAR) CAREFULLY REVIEW YOUR POLICY WHICH CONTAINS A FULL DISCUSSION OF ALL ITS PROVISIONS. (END SIDEBAR) You should read your Policy for a full discussion of its provisions. The following is a brief discussion of some of the provisions that you should consider: FREE LOOK PERIOD You can return the Policy during this period. The period is the later of: - - 10 days after you receive the Policy (unless state law requires your Policy to specify a longer specified period); and - - the date we receive a receipt signed by you. If you return your Policy, we will send you a complete refund of any premiums paid (or cash value plus any charges deducted if state law requires) within seven days. INCONTESTABILITY We will not contest: - - Your Policy after 2 Policy years from issue or reinstatement (excluding riders added later). - - An increase in a death benefit after it has been in effect for two years. SUICIDE If the insured commits suicide within the first two Policy years (or another period required by state law), your beneficiary will receive all premiums paid 28 (without interest), less any outstanding loans (plus accrued interest) and withdrawals taken. Similarly, we will pay the beneficiary only the cost of any increase in specified face amount if the insured commits suicide within two years of such increase. AGE AND SEX We will adjust benefits to reflect the correct age and sex of the insured, if this information isn't correct in the Policy application. ASSIGNMENT AND CHANGE IN OWNERSHIP You can assign your Policy as collateral if you notify us in writing. The assignment or release of the assignment is effective when it is recorded at the Designated Office. We are not responsible for determining the validity of the assignment or its release. Also, there could be serious adverse tax consequences to you or your beneficiary, so you should consult with your tax adviser before making any change of ownership or other assignment. PAYMENT AND DEFERMENT (SIDEBAR) UNDER CERTAIN SITUATIONS, WE MAY DEFER PAYMENTS. WE PERFORM THE SALES AND ADMINISTRATIVE SERVICES FOR THE POLICIES. (END SIDEBAR) Generally, we will pay or transfer amounts from the Separate Account within seven days after the Date of Receipt of all necessary documentation required for such payment or transfer. We can defer this if: - - The New York Stock Exchange has an unscheduled closing. - - There is an emergency so that we could not reasonably determine the investment experience of a Policy. - - The Securities and Exchange Commission by order permits us to do so for the protection of Policy owners (provided that the delay is permitted under New York State insurance law and regulations). - - With respect to the insurance proceeds, if entitlement to a payment is being questioned or is uncertain. - - We are paying amounts attributable to a check. In that case we can wait for a reasonable time (15 days or less) to let the check clear. We currently pay interest on the amount of insurance proceeds at 3% per year (or higher if state law requires) from the date of death until the date we pay the benefit. DIVIDENDS The Policy is "nonparticipating," which means it is not eligible for dividends from us and does not share in any distributions of our surplus. SALES AND ADMINISTRATION OF THE POLICIES We serve as the "principal underwriter," as defined in the 1940 Act, for the Policy and other variable life insurance and variable annuity contracts issued by a subsidiary and us. We are registered under the Securities Exchange Act of 1934 as a broker-dealer and are a member of the National Association of Securities Dealers, Inc. BONDING Our directors, officers and employees are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. 29 DISTRIBUTING THE POLICIES We sell the Policies through licensed life insurance sales representatives: - - Registered through us. - - Registered through other broker-dealers, including a wholly owned subsidiary. COMMISSIONS We may pay commissions to representatives (or the broker-dealers through which they are registered) for the sale of our products. The commissions do not result in a charge against the Policy in addition to the charges already described elsewhere in this Prospectus. We paid no commissions in 1997. Commissions paid in 1998 and 1999 totaled $2,463,084 and $2,877,550, respectively. Maximum commissions are generally: - - POLICY YEAR 1: 15% of premiums paid up to the target premium 2% of premiums paid above the target premium - - POLICY YEARS 2-10: 10% of premiums paid up to the target premium 1.5% of premiums paid above the target premium - - POLICY YEARS 11 AND LATER: 3% of premiums paid up to the target premium 1.5% of premiums paid above the target premium - - POLICY YEARS 8 AND LATER: We may pay up to .15% of the cash value of a Policy and administrative expenses in certain circumstances. (SIDEBAR) YOU CAN GIVE US VOTING INSTRUCTIONS ON SHARES OF EACH PORTFOLIO OF A FUND THAT (END SIDEBAR) ARE ATTRIBUTED TO YOUR POLICY. VOTING RIGHTS The Funds have shareholder meetings from time to time to, for example, elect directors and approve investment managers. We will vote the shares of each Portfolio that are attributed to your Policy based on your instructions. Should we determine that the 1940 Act no longer requires us to do this, we may decide to vote Fund shares in our own right, without input from you or any other owners of variable life insurance policies or variable annuity contracts that participate in a Fund. If you are eligible to give us voting instructions, we will send you informational material and a form to send back to us. We are entitled to disregard voting instructions in certain limited circumstances prescribed by the SEC. If we do so, we will give you our reasons in the next semi-annual report to Policy owners. The number of shares for which you can give us voting instructions is determined as of the record date for the Fund shareholder meeting by dividing: - - Your Policy's cash value in the corresponding investment division; by - - The net asset value of one share of that Portfolio. We will count fractional votes. If we do not receive timely voting instructions from Policy owners and other insurance and annuity owners that are entitled to give us voting instructions, we will vote those shares in the same proportion as the shares held in the same separate account for which we did receive voting instructions. Also, we will vote Fund shares that are not attributable to insurance or annuity owners (including shares that we hold in our general account) or that are 30 held in separate accounts that are not registered under the 1940 Act in the same proportion as the aggregate of the shares for which we received voting instructions from all insurance and annuity owners. REPORTS Generally, you will promptly receive statements confirming your significant transactions such as: - - Change in specified face amount. - - Change in death benefit options. - - Transfers among investment divisions (including those through Systematic Investment Strategies, which are confirmed quarterly). - - Partial withdrawals. - - Loan amounts you request. - - Loan repayments and premium payments. If your premium payments are made through a systematic payment method, we will not send you any confirmation in addition to the one you receive from your employer. We will also send you an annual statement within 30 days after a Policy year that will summarize the year's transactions and include information on: - - Deductions and charges. - - Status of the death benefit. - - Cash and cash surrender values. - - Amounts in the investment divisions and Fixed Account. - - Status of Policy loans. - - Automatic loans to pay interest. - - Information on your modified endowment contract status (if applicable). We will also send you a Fund's annual and semi-annual reports to shareholders. ILLUSTRATION OF POLICY BENEFITS (SIDEBAR) PERSONALIZED ILLUSTRATIONS CAN HELP YOU UNDERSTAND HOW YOUR POLICY VALUES CAN VARY. (END SIDEBAR) In order to help you understand how your Policy values would vary over time under different sets of assumptions, we will provide you with certain illustrations upon request. These will be based on the age and insurance risk characteristics of the insured under your Policy and such factors as the specified face amount, death benefit option, premium payment amounts and rates of return (within limits) that you request. You can request such illustrations at any time. We have filed an example of such an illustration as an exhibit to the registration statement referred to below. GETTING MORE INFORMATION We are regulated by the New York Insurance Department and periodically are examined by them. We are also subject to the laws and regulations of all the jurisdictions in which we do business and, if required, we have filed the Policy for approval in every jurisdiction in which the Policy is sold. The Policy may not be available in every jurisdiction. You should ask your sales representative whether the Policy is available in your jurisdiction. We file annual statements on our operations, including financial statements, with insurance departments of various jurisdictions so that they can review 31 our solvency and compliance with applicable laws and regulations. You can review these statements which are available at the offices of the various insurance departments. This Prospectus is part of a registration statement that we filed with the Securities and Exchange Commission under the Securities Act of 1933. The registration statement includes additional information, amendments and exhibits. You can get this information from the Securities and Exchange Commission (a copying fee may apply) by visiting or writing to its Public Reference Room or using its Internet site at: - - Securities and Exchange Commission Public Reference Room Washington, D.C. 20549 Call 1-800-SEC-0330 (for information about using the Public Reference Room) Internet site: HTTP://WWW.SEC.GOV LEGAL, ACCOUNTING AND ACTUARIAL MATTERS Christopher P. Nicholas, Associate General Counsel at MetLife, has passed upon the legality of the Policies. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised us on certain matters relating to the federal securities laws. Deloitte & Touche LLP, independent auditors, have audited the financial statements included in this Prospectus, for the periods as stated in their reports appearing herein. Such financial statements are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Our financial statements should be considered only as bearing upon our ability to meet our obligations under the Policy. Michael F. Rogalski, FSA, MAAA, Vice-President and Actuary of MetLife, has examined actuarial matters included in the registration statement, as stated in his opinion filed as an exhibit to the registration statement. MANAGEMENT The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE Curtis H. Barnette Chairman and Chief Executive Officer Director Bethlehem Steel Corp. 1170 Eight Ave.--Martin Tower 2118 Bethlehem, PA 18016 Robert H. Benmosche Chairman of the Board, President and Chairman of the Board, Chief Executive Officer President, Chief Metropolitan Life Insurance Company Executive Officer and One Madison Ave. Director New York, NY 10010 Gerald Clark Vice Chairman of the Board and Vice Chairman of the Chief Investment Officer Board, Chief Metropolitan Life Insurance Company Investment Officer One Madison Ave. and Director New York, NY 10010
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PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE Joan Ganz Cooney Chairman, Executive Committee Director Children's Television Workshop One Lincoln Plaza New York, NY 10023 Burton A. Dole, Jr. Retired Chairman, President and Director Chief Executive Officer Nellcor Puritan Bennett 2200 Faradlay Ave. Carlsbad, CA 92008 James R. Houghton Chairman of the Board Emeritus Director and Director Corning Incorporated 80 East Market Street, 2nd Floor Corning, NY 14830 Harry P. Kamen Chairman and Director Chief Executive Officer (Retired) Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 Helene L. Kaplan Of Counsel Director Skadden Arps, Slate, Meagher & Flom 919 Third Ave. New York, NY 10022 Charles M. Leighton Retired Chairman and Director Chief Executive Officer CML Group, Inc. 524 Main Street Bolton, MA 01720 Allen E. Murray Retired Chairman of the Board and Director Chief Executive Officer Mobil Corporation 375 Park Ave., Suite 2901 New York, NY 10152 Stewart Nagler Vice Chairman of the Board and Vice Chairman of the Chief Financial Officer Board and Chief Metropolitan Life Insurance Company Financial Officer One Madison Avenue and Director New York, NY 10010 John J. Phelan, Jr. Retired Chairman and Director Chief Executive Officer New York Stock Exchange, Inc. P.O. Box 312 Mill Neck, NY 11765 Hugh B. Price President and Chief Executive Officer Director National Urban League, Inc. 12 Wall Street New York, NY 10005 Robert G. Schwartz Retired Chairman of the Board, Director President and Chief Executive Officer Metropolitan Life Insurance Company 200 Park Ave., Suite 5700 New York, NY 10166
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PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE Ruth J. Simmons, Ph.D. President Smith College Director College Hall 20 Northhampton, MA 01063 William C. Steere, Jr. Chairman of the Board and Director Chief Executive Officer Pfizer, Inc. 235 East 42nd Street New York, NY 10017
NAME OF OFFICER* POSITION WITH METROPOLITAN LIFE Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer Gerald Clark Vice Chairman of the Board, Chief Investment Officer and Director Stewart G. Nagler Vice Chairman of the Board, Chief Financial Officer and Director Gary A. Beller Senior Executive Vice-President and General Counsel James H. Benson President, Individual Business; Chairman, Chief Executive Officer and President, New England Life Insurance Company C. Robert Henrikson President, Institutional Business William J. Toppeta President, Client Services and Chief Administrative Officer Richard A. Liddy Senior Executive Vice-President Catherine H. Rein Senior Executive Vice-President; President and Chief Executive Officer, Metropolitan Property and Casualty Insurance Company John H. Tweedie Senior Executive Vice-President Lisa M. Weber Executive Vice-President Stanley J. Talbi Senior Vice-President and Chief Actuary
- --------------- * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. Robert H. Benmosche has been an officer of Metropolitan Life 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 Strategies and Development and an Associate Director of Human Resources of Paine Webber. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 34 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Santander International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Large Cap Growth, Invesco VIF High Yield, Invesco VIF Industrial Income, Invesco VIF Realty and Templeton International Stock Portfolios of Metropolitan Life Separate Account UL (the "Separate Account") as of December 31, 1999, and the related statements (i) of operations for the year ended December 31, 1999 and of changes in net assets for the years ended December 31, 1999 and 1998 of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Santander International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index and Russell 2000 Index Portfolios and (ii) of operations and of changes in net assets for the period May 3, 1999 (commencement of operations) to December 31, 1999 of Janus Large Cap Growth, Invesco VIF High Yield, Invesco VIF Industrial Income, Invesco VIF Realty and Templeton International Stock Portfolios. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these 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. Our procedures included confirmation of securities owned as of December 31, 1999 by correspondence with the custodian and the depositor of the Separate Account. 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 financial statements present fairly, in all material respects, the financial position of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, Santander International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Large Cap Growth, Invesco VIF High Yield, Invesco VIF Industrial Income, Invesco VIF Realty and Templeton International Stock Portfolios of Metropolitan Life Separate Account UL as of December 31, 1999 and the results of their operations and the changes in their net assets for the respective stated periods, in conformity with generally accepted accounting principles. We did not audit the financial statements for the Templeton Variable Products Series Fund, the Janus Aspen Series Fund and the Investco Investment Funds, Inc., of which the investment information for these funds is summarized in Note 5 to the financial statements. The financial statements for these funds were audited by other auditors. DELOITTE & TOUCHE LLP Tampa, Florida March 27, 2000 1 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES At December 31, 1999
State Street State Street State Street State Street Research State Street Research Research Research Money Research Aggressive Growth Income Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------ ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (10,745,186 shares; cost $333,312,756)..... $420,566,549 -- -- -- -- State Street Research Income Portfolio (5,620,168 shares; cost $70,920,972)........... -- $65,643,563 -- -- -- State Street Research Money Market Portfolio (3,197,886 shares; cost $34,029,917)........... -- -- $33,075,729 -- -- State Street Research Diversified Portfolio (13,568,374 shares; cost $225,692,070)..... -- -- -- $247,894,193 -- State Street Research Aggressive Growth Portfolio (5,593,963 shares; cost $149,637,856).......... -- -- -- -- $215,087,902 MetLife Stock Index Portfolio (6,441,446 shares; cost $196,867,091)..... -- -- -- -- -- Santander International Stock Portfolio (3,175,743 shares ; cost $41,292,139)...... -- -- -- -- -- Loomis Sayles High Yield Bond Portfolio (541,135 shares; cost $5,032,558)............ -- -- -- -- -- Janus Mid Cap Portfolio (3,102,796 shares; cost $64,508,142)........... -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,043,071 shares; cost $24,804,658)........... -- -- -- -- -- Scudder Global Equity Portfolio (970,303 shares; cost $11,980,830)...... -- -- -- -- -- Harris Oakmark Large Cap Value Portfolio (33,250 shares; cost $310,760). -- -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (49,457 shares; cost $575,293). -- -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (96,515 shares; cost $1,121,477)............ -- -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (56,961 shares; cost $565,809). -- -- -- -- -- Morgan Stanley EAFE Index Portfolio (93,368 shares; cost $1,085,242)....... -- -- -- -- -- Russell 2000 Index Portfolio (36,094 shares; cost $410,863). -- -- -- -- -- Janus Large Cap Growth Portfolio (2,864 shares; cost $85,665).......... -- -- -- -- -- Invesco VIF High Yield Portfolio (280 shares; cost $3,233)........... -- -- -- -- -- Invesco VIF Industrial Income Portfolio (279 shares; cost $5,827)).......... -- -- -- -- -- Invesco VIF Realty Portfolio (200 shares; cost $1,500)........... -- -- -- -- -- Templeton International Stock (307 shares; cost $6,351)................ -- -- -- -- -- ------------ ----------- ----------- ------------ ------------ Total Investments....... 420,566,549 65,643,563 33,075,729 247,894,193 215,087,902 Cash and Accounts Receivable............. 20 0 0 0 0 ------------ ----------- ----------- ------------ ------------ Total Assets............ 420,566,569 65,643,563 33,075,729 247,894,193 215,087,902 LIABILITIES............. 898,400 12,123 2,247 191,488 417,916 ------------ ----------- ----------- ------------ ------------ NET ASSETS.............. $419,668,169 $65,631,440 $33,073,482 $247,702,705 $214,669,986 ============ =========== =========== ============ ============
See Notes to Financial Statements. 2
Loomis T. Rowe Harris Neuberger MetLife Santander Sayles Price Scudder Oakmark Berman Stock International High Yield Janus Small Cap Global Large Cap Partners Index Stock Bond Mid Cap Growth Equity Value Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------ ------------- ---------- ------------ ----------- ----------- --------- ------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $261,458,295 -- -- -- -- -- -- -- -- $44,047,550 -- -- -- -- -- -- -- -- $4,918,907 -- -- -- -- -- -- -- -- $113,376,167 -- -- -- -- -- -- -- -- $32,137,518 -- -- -- -- -- -- -- -- $14,467,210 -- -- -- -- -- -- -- -- $296,920 -- -- -- -- -- -- -- -- $592,005 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ------------ ----------- ---------- ------------ ----------- ----------- -------- -------- 261,458,295 44,047,550 4,918,907 113,376,167 32,137,518 14,467,210 296,920 592,005 84,625 0 35,301 0 11,803 30,687 42,578 285 - ------------ ----------- ---------- ------------ ----------- ----------- -------- -------- 261,542,920 44,047,550 4,954,208 113,376,167 32,149,321 14,497,897 339,498 592,290 248,062 122,989 0 297,416 0 0 0 0 - ------------ ----------- ---------- ------------ ----------- ----------- -------- -------- $261,294,858 $43,924,561 $4,954,208 $113,078,751 $32,149,321 $14,497,897 $339,498 $592,290 ============ =========== ========== ============ =========== =========== ======== ========
3 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES (Continued) At December 31, 1999
T. Rowe Lehman Morgan Price Brothers Stanley Russell Large Cap Aggregate EAFE 2000 Growth Bond Index Index Index Portfolio Portfolio Portfolio Portfolio ASSETS: ----------- ---------- ---------- --------- Investments at Value (Note 2A): State Street Research Growth Portfolio (10,745,186 shares; cost $333,312,756)..................... -- -- -- -- State Street Research Income Portfolio (5,620,168 shares; cost $70,920,972)...................... -- -- -- -- State Street Research Money Market Portfolio (3,197,886 shares; cost $34,029,917)...................... -- -- -- -- State Street Research Diversified Portfolio (13,568,374 shares; cost $225,692,070)..................... -- -- -- -- State Street Research Aggressive Growth Portfolio (5,593,963 shares; cost $149,637,856)........ -- -- -- -- MetLife Stock Index Portfolio (6,441,446 shares; cost $196,867,091)................ -- -- -- -- Santander International Stock Portfolio (3,175,743 shares ; cost $41,292,139)...................... -- -- -- -- Loomis Sayles High Yield Bond Portfolio (541,135 shares; cost $5,032,558)....................... -- -- -- -- Janus Mid Cap Portfolio (3,102,796 shares; cost $64,508,142)................. -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,043,071 shares; cost $24,804,658)...................... -- -- -- -- Scudder Global Equity Portfolio (970,303 shares; cost $11,980,830)................. -- -- -- -- Harris Oakmark Large Cap Value Portfolio (33,250 shares; cost $310,760)......................... -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (49,457 shares; cost $575,293).................... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (96,515 shares; cost $1,121,477)....................... $1,294,264 -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (56,961 shares; cost $565,809).................... -- $538,275 -- -- Morgan Stanley EAFE Index Portfolio (93,368 shares; cost $1,085,242).................. -- -- $1,245,531 -- Russell 2000 Index Portfolio (36,094 shares; cost $410,863).... -- -- -- $451,900 Janus Large Cap Growth Portfolio (2,864 shares; cost $85,665)..................... -- -- -- -- Invesco VIF High Yield Portfolio (280 shares; cost $3,233)......... -- -- -- -- Invesco VIF Industrial Income Portfolio (279 shares; cost $5,827))..................... -- -- -- -- Invesco VIF Realty Portfolio (200 shares; cost $1,500).............. -- -- -- -- Templeton International Stock (307 shares; cost $6,351).............. -- -- -- -- ---------- -------- ---------- -------- Total Investments................. 1,294,264 538,275 1,245,531 451,900 Cash and Accounts Receivable....... 0 22,766 0 88 ---------- -------- ---------- -------- Total Assets...................... 1,294,264 561,041 1,245,531 451,988 LIABILITIES........................ 40,869 0 23,869 0 ---------- -------- ---------- -------- NET ASSETS......................... $1,253,395 $561,041 $1,221,662 $451,988 ========== ======== ========== ========
See Notes to Financial Statements. 4
Janus Invesco Invesco VIF Invesco Templeton Large Cap VIF Industrial VIF International Growth High Yield Income Realty Stock Portfolio Portfolio Portfolio Portfolio Portfolio Total - --------- ---------- ----------- --------- ------------- -------------- -- -- -- -- -- $ 420,566,549 -- -- -- -- -- 65,643,563 -- -- -- -- -- 33,075,729 -- -- -- -- -- 247,894,193 -- -- -- -- -- 215,087,902 -- -- -- -- -- 261,458,295 -- -- -- -- -- 44,047,550 -- -- -- -- -- 4,918,907 -- -- -- -- -- 113,376,167 -- -- -- -- -- 32,137,518 -- -- -- -- -- 14,467,210 -- -- -- -- -- 296,920 -- -- -- -- -- 592,005 -- -- -- -- -- 1,294,264 -- -- -- -- -- 538,275 -- -- -- -- -- 1,245,531 -- -- -- -- -- 451,900 $96,373 -- -- -- -- 96,373 -- $3,227 -- -- -- 3,227 -- -- $5,872 -- -- 5,872 -- -- -- $1,584 -- 1,584 -- -- -- -- $6,832 6,832 ------- ------ ------ ------ ------ -------------- 96,373 3,227 5,872 1,584 6,832 1,457,206,366 0 0 0 0 0 228,153 ------- ------ ------ ------ ------ -------------- 96,373 3,227 5,872 1,584 6,832 1,457,434,519 0 0 0 0 0 2,255,379 ------- ------ ------ ------ ------ -------------- $96,373 $3,227 $5,872 $1,584 $6,832 $1,455,179,140 ======= ====== ====== ====== ====== ==============
5 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
For the year ended December 31, 1999 ------------------------------------------------------------------ State Street State Street State Street State Street Research State Street Research Research Research Money Research Aggressive Growth Income Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends (Note 3)..... $44,038,080 $ 4,181,436 $1,538,117 $20,799,436 $ 4,466,938 Expenses: Mortality and expense charges (Note 4)...... 3,209,889 499,462 241,265 1,973,981 1,429,076 ----------- ----------- ---------- ----------- ----------- Net investment income (loss)................. 40,828,191 3,681,974 1,296,852 18,825,455 3,037,862 ----------- ----------- ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 3,593,964 15,187 245,673 743,624 1,280,373 Change in unrealized appreciation (depreciation) of investments............ 16,515,105 (5,496,396) (275,023) (2,237,161) 47,914,985 ----------- ----------- ---------- ----------- ----------- Net realized and unrealized gain (loss) on investments......... 20,109,069 (5,481,209) (29,350) (1,493,537) 49,195,358 ----------- ----------- ---------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............. $60,937,260 $(1,799,235) $1,267,502 $17,331,918 $52,233,220 =========== =========== ========== =========== ===========
See Notes to Financial Statements. 6
- -------------------------------------------------------------------------------------------------- Loomis T. Rowe Harris Neuberger MetLife Santander Sayles Price Scudder Oakmark Berman Stock International High Yield Janus Small Cap Global Large Cap Partners Index Stock Bond Mid Cap Growth Equity Value Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ----------- ------------- ---------- ----------- ---------- ---------- --------- ------------- $12,076,347 $ 6,737,411 $ 384,074 $ 5,416,355 $ 0 $ 486,049 $ 2,973 $13,508 1,722,924 334,318 32,947 432,040 159,812 86,933 615 627 - ----------- ----------- --------- ----------- ---------- ---------- -------- ------- 10,353,423 6,403,093 351,127 4,984,315 (159,812) 399,116 2,358 12,881 - ----------- ----------- --------- ----------- ---------- ---------- -------- ------- 3,899,836 528,185 (159,077) 1,140,427 41,394 272,213 (5,489) 679 24,029,258 (1,137,521) 384,776 44,344,823 6,830,580 1,937,990 (13,841) 16,713 - ----------- ----------- --------- ----------- ---------- ---------- -------- ------- 27,929,094 (609,336) 225,699 45,485,250 6,871,974 2,210,203 (19,330) 17,392 - ----------- ----------- --------- ----------- ---------- ---------- -------- ------- $38,282,517 $ 5,793,757 $ 576,826 $50,469,565 $6,712,162 $2,609,319 $(16,972) $30,273 =========== =========== ========= =========== ========== ========== ======== =======
7 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS (Continued)
For the year ended December 31, 1999 ---------------------------------------- T. Rowe Lehman Morgan Price Brothers Stanley Russell Large Cap Aggregate EAFE 2000 Growth Bond Index Index Index Portfolio Portfolio Portfolio Portfolio --------- ---------- --------- --------- INVESTMENT INCOME: Income: Dividends (Note 3).................. $ 5,264 $ 24,999 $ 15,956 $13,398 Expenses: Mortality and expense charges (Note 4)................................. 4,482 2,156 4,919 1,131 -------- -------- -------- ------- Net investment income (loss)......... 782 22,843 11,037 12,267 -------- -------- -------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions............... 2,027 (1,189) 92,428 10,610 Change in unrealized appreciation (depreciation) of investments....... 172,687 (27,533) 160,288 41,036 -------- -------- -------- ------- Net realized and unrealized gain (loss) on investments............... 174,714 (28,722) 252,716 51,646 -------- -------- -------- ------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..................... $175,496 $ (5,879) $263,753 $63,913 ======== ======== ======== =======
See Notes to Financial Statements. 8
For the period May 3, 1999 to December 31, 1999 - ------------------------------------------------------------- Janus Invesco Invesco VIF Invesco Templeton Large Cap VIF Industrial VIF International Growth High Yield Income Realty Stock Portfolio Portfolio Portfolio Portfolio Portfolio Total - ----------- ------------ ----------- --------- ------------- ------------ $ 0 $ 0 $ 0 $ 0 $ 0 $100,200,341 61 0 0 1 5 10,136,644 ------- --- --- --- ---- ------------ (61) 0 0 (1) (5) 90,063,697 ------- --- --- --- ---- ------------ 79 0 0 0 32 11,700,976 10,708 (6) 45 84 481 133,172,078 ------- --- --- --- ---- ------------ 10,787 (6) 45 84 513 144,873,054 ------- --- --- --- ---- ------------ $10,726 $(6) $45 $83 $508 $234,936,751 ======= === === === ==== ============
9 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Research State Street Research State Street Research Growth Portfolio Income Portfolio Money Market Portfolio -------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 1999 1998 1999 1998 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 40,828,191 $ 27,785,410 $ 3,681,974 $ 3,877,871 $ 1,296,852 $ 1,022,138 Net realized gain (loss) from security transactions.......... 3,593,964 1,828,922 15,187 239,248 245,673 139,583 Change in unrealized appreciation (depreciation) of investments........... 16,515,105 38,462,367 (5,496,396) (12,424) (275,023) (384,125) ------------ ------------ ----------- ----------- ------------ ------------ Net increase (decrease) in net assets from operations............ 60,937,260 68,076,699 (1,799,235) 4,104,695 1,267,502 777,596 ------------ ------------ ----------- ----------- ------------ ------------ From capital transactions: Net premiums........... 76,267,713 68,697,236 15,797,917 13,501,414 35,768,800 28,800,532 Redemptions............ (15,563,840) (9,651,413) (1,719,595) (1,455,088) (296,905) (292,311) Net portfolio transfers............. 3,590,588 462,907 2,922,342 2,032,607 (23,898,442) (12,984,969) Other net transfers.... (38,125,701) (33,909,522) (6,009,960) (5,444,551) (2,027,635) (2,036,921) ------------ ------------ ----------- ----------- ------------ ------------ Net increase in net assets from capital transactions.......... 26,168,760 25,599,208 10,990,704 8,634,382 9,545,818 13,486,331 ------------ ------------ ----------- ----------- ------------ ------------ NET CHANGE IN NET ASSETS................. 87,106,020 93,675,907 9,191,469 12,739,077 10,813,320 14,263,927 NET ASSETS--BEGINNING OF YEAR................... 332,562,149 238,886,242 56,439,971 43,700,894 22,260,162 7,996,235 ------------ ------------ ----------- ----------- ------------ ------------ NET ASSETS--END OF YEAR. $419,668,169 $332,562,149 $65,631,440 $56,439,971 $ 33,073,482 $ 22,260,162 ============ ============ =========== =========== ============ ============
See Notes to Financial Statements. 10
State Street Research State Street Research Aggressive Growth MetLife Santander Diversified Portfolio Portfolio Stock Index Portfolio International Stock Portfolio - -------------------------- -------------------------- -------------------------- ------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 1999 1998 1999 1998 1999 1998 1999 1998 - ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- $ 18,825,455 $ 17,838,146 $ 3,037,862 $ 7,473,609 $ 10,353,423 $ 5,466,190 $ 6,403,093 $ 119,967 743,624 522,086 1,280,373 390,678 3,899,836 2,060,324 528,185 251,518 (2,237,161) 12,721,568 47,914,985 9,316,026 24,029,258 21,573,004 (1,137,521) 5,740,557 - ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 17,331,918 31,081,800 52,233,220 17,180,313 38,282,517 29,099,518 5,793,757 6,112,042 - ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 54,466,186 48,746,380 41,977,555 48,080,744 80,432,444 59,343,787 8,765,614 10,224,172 (8,542,813) (5,712,146) (6,935,090) (4,373,459) (5,037,136) (2,361,734) (1,805,287) (1,153,624) 2,267,794 2,809,643 (8,586,687) (6,687,894) 20,459,060 9,729,932 (1,507,125) (2,377,311) (26,640,820) (23,504,994) (18,101,172) (18,773,580) (31,708,703) (23,041,439) (3,575,131) (3,678,501) - ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 21,550,347 22,338,883 8,354,606 18,245,811 64,145,665 43,670,546 1,878,071 3,014,736 - ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 38,882,265 53,420,683 60,587,826 35,426,124 102,428,182 72,770,064 7,671,828 9,126,778 208,820,440 155,399,757 154,082,160 118,656,036 158,866,676 86,096,612 36,252,733 27,125,955 - ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- $247,702,705 $208,820,440 $214,669,986 $154,082,160 $261,294,858 $158,866,676 $ 43,924,561 $ 36,252,733 ============ ============ ============ ============ ============ ============ ============== ==============
11 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
T. Rowe Price Loomis Sayles Janus Small Cap Growth High Yield Bond Portfolio Mid Cap Portfolio Portfolio ------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 1999 1998 1999 1998 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 351,127 $ 241,444 $ 4,984,315 $ 9,561 $ (159,812) $ (71,325) Net realized gain (loss) from security transactions.......... (159,077) (15,746) 1,140,427 178,428 41,394 (14,908) Change in unrealized appreciation (depreciation) of investments........... 384,776 (428,334) 44,344,823 4,299,801 6,830,580 455,213 ---------- ---------- ------------ ----------- ----------- ----------- Net increase (decrease) in net assets from operations............ 576,826 (202,636) 50,469,565 4,487,790 6,712,162 368,980 ---------- ---------- ------------ ----------- ----------- ----------- From capital transactions: Net premiums........... 1,766,270 1,559,975 31,140,404 13,796,446 10,707,741 8,413,079 Redemptions............ (387,694) (29,635) (1,283,943) (179,560) (556,621) (87,656) Net portfolio transfers............. 1,046,383 180,422 24,344,237 4,280,509 5,288,531 3,021,876 Other net transfers.... (587,488) (451,340) (12,718,059) (5,121,876) (3,307,953) (2,968,930) ---------- ---------- ------------ ----------- ----------- ----------- Net increase in net assets from capital transactions.......... 1,837,471 1,259,422 41,482,639 12,775,519 12,131,698 8,378,369 ---------- ---------- ------------ ----------- ----------- ----------- NET CHANGE IN NET ASSETS................. 2,414,297 1,056,786 91,952,204 17,263,309 18,843,860 8,747,349 NET ASSETS--BEGINNING OF YEAR................... 2,539,911 1,483,125 21,126,547 3,863,238 13,305,461 4,558,112 ---------- ---------- ------------ ----------- ----------- ----------- NET ASSETS--END OF YEAR. $4,954,208 $2,539,911 $113,078,751 $21,126,547 $32,149,321 $13,305,461 ========== ========== ============ =========== =========== ===========
See Notes to Financial Statements. 12
Scudder Harris Oakmark Neuberger Berman Partners T. Rowe Price Global Equity Portfolio Large Cap Value Portfolio Mid Cap Value Portfolio Large Cap Growth Portfolio ---------------------------- --------------------------- --------------------------- --------------------------- For the Period For the Period For the Period For the Year For the Year For the Year November 9, For the Year November 9, For the Year November 9, Ended Ended Ended 1998 to Ended 1998 to Ended 1998 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 1999 1998 1999 1998 1999 1998 1999 1998 ------------ ------------ ------------ -------------- ------------ -------------- ------------ -------------- $ 399,116 $ 82,316 $ 2,358 $ 0 $ 12,881 $ 0 $ 782 $ 0 272,213 35,936 (5,489) 0 679 0 2,027 0 1,937,990 556,946 (13,841) 0 16,713 0 172,687 0 ----------- ----------- -------- --- -------- --- ---------- --- 2,609,319 675,198 (16,972) 0 30,273 0 175,496 0 ----------- ----------- -------- --- -------- --- ---------- --- 4,574,226 3,660,518 125,384 0 162,181 0 141,433 0 (541,665) (44,451) (8,780) 0 0 0 0 0 985,125 2,251,711 224,137 0 433,203 0 1,037,195 0 (1,431,966) (1,263,459) 15,729 0 (33,367) 0 (100,729) 0 ----------- ----------- -------- --- -------- --- ---------- --- 3,585,720 4,604,319 356,470 0 562,017 0 1,077,899 0 ----------- ----------- -------- --- -------- --- ---------- --- 6,195,039 5,279,517 339,498 0 592,290 0 1,253,395 0 8,302,858 3,023,341 0 0 0 0 0 0 ----------- ----------- -------- --- -------- --- ---------- --- $14,497,897 $ 8,302,858 $339,498 $ 0 $592,290 $ 0 $1,253,395 $ 0 =========== =========== ======== === ======== === ========== ===
13 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Lehman Brothers Aggregate Morgan Stanley Russell 2000 Bond Index Portfolio EAFE Index Portfolio Index Portfolio --------------------------- --------------------------- --------------------------- For the Period For the Period For the Period For the Year November 9, For the Year November 9, For the Year November 9, Ended 1998 to Ended 1998 to Ended 1998 to December 31, December 31, December 31, December 31, December 31, December 31, 1999 1998 1999 1998 1999 1998 ------------ -------------- ------------ -------------- ------------ -------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 22,843 $ 0 $ 11,037 $ 0 $ 12,267 $ 0 Net realized gain (loss) from security transactions.......... (1,189) 0 92,428 0 10,610 0 Change in unrealized appreciation (depreciation) of investments........... (27,533) 0 160,288 0 41,036 0 -------- --- ---------- --- -------- --- Net increase (decrease) in net assets from operations............ (5,879) 0 263,753 0 63,913 0 -------- --- ---------- --- -------- --- From capital transactions: Net premiums........... 93,732 0 139,276 0 214,532 0 Redemptions............ (1,012) 0 (1,812) 0 (1,472) 0 Net portfolio transfers............. 484,526 0 862,477 0 219,845 0 Other net transfers.... (10,326) 0 (42,032) 0 (44,830) 0 -------- --- ---------- --- -------- --- Net increase in net assets from capital transactions.......... 566,920 0 957,909 0 388,075 0 -------- --- ---------- --- -------- --- NET CHANGE IN NET ASSETS................. 561,041 0 1,221,662 0 451,988 0 NET ASSETS--BEGINNING OF YEAR................... 0 0 0 0 0 0 -------- --- ---------- --- -------- --- NET ASSETS--END OF YEAR. $561,041 $ 0 $1,221,662 $ 0 $451,988 $ 0 ======== === ========== === ======== ===
See Notes to Financial Statements. 14
Invesco VIF Invesco VIF Templeton Janus Large Cap High Yield Industrial Income Invesco VIF International Growth Portfolio Portfolio Portfolio Realty Portfolio Stock Portfolio TOTAL - ---------------- -------------- ----------------- ---------------- --------------- ------------------------------ For the Period For the Period For the Period For the Period For the Period For the Year For the Year May 3, 1999 to May 3, 1999 to May 3, 1999 to May 3, 1999 to May 3, 1999 to Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, 1999 1999 1999 1999 1999 1999 1998 - ---------------- -------------- ----------------- ---------------- --------------- -------------- -------------- $ (61) $ 0 $ 0 $ (1) $ (5) $ 90,063,697 $ 63,845,327 79 0 0 0 32 11,700,976 5,616,069 10,708 (6) 45 84 481 133,172,078 92,300,599 ------- ------ ------ ------ ------ -------------- -------------- 10,726 (6) 45 83 508 234,936,751 161,761,995 ------- ------ ------ ------ ------ -------------- -------------- 99 0 0 0 1,166 362,542,673 304,824,283 0 0 0 0 0 (42,683,665) (25,341,077) 86,070 3,236 5,802 1,524 5,208 30,275,029 2,719,433 (522) (3) 25 (23) (50) (144,450,716) (120,195,113) ------- ------ ------ ------ ------ -------------- -------------- 85,647 3,233 5,827 1,501 6,324 205,683,321 162,007,526 ------- ------ ------ ------ ------ -------------- -------------- 96,373 3,227 5,872 1,584 6,832 440,620,072 323,769,521 0 0 0 0 0 1,014,559,068 690,789,547 ------- ------ ------ ------ ------ -------------- -------------- $96,373 $3,227 $5,872 $1,584 $6,832 $1,455,179,140 $1,014,559,068 ======= ====== ====== ====== ====== ============== ==============
15 Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 1999 1.BUSINESS Metropolitan Life Separate Account UL (the "Separate Account") is a multi- division unit investment trust registered under the Investment Company Act of 1940. The five divisions are ULII, IVUL, GVUL, UL2001 and VAI. The Separate Account presently consists of twenty-two investment portfolios used to support variable universal life insurance policies. The assets in each portfolio are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc., the Janus Aspen Series Fund, the Invesco Variable Investment Funds, Inc. and the Templeton Variable Products Series Fund (the "Funds"). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by Metropolitan Life Insurance Company ("Metropolitan Life"), on December 13, 1988 and registered as a unit investment trust on January 5, 1990. The assets of the Separate Account are the property of Metropolitan Life. On May 3, 1999, operations commenced for the five new investment portfolios added to the Separate Account on that date: the Janus Large Cap Growth Portfolio, the Invesco VIF High Yield Portfolio, the Invesco VIF Industrial Income Portfolio, the Invesco VIF Realty Portfolio and the Templeton International Stock Portfolio. On November 9, 1998, operations commenced for the six new investment portfolios added to the Separate Account on that date: the Harris Oakmark Large Cap Value Portfolio, the Neuberger Berman Partners Mid Cap Value Portfolio, the T. Rowe Price Large Cap Growth Portfolio, the Lehman Brothers Aggregate Bond Index Portfolio, the Morgan Stanley EAFE Index Portfolio and the Russell 2000 Index Portfolio. 2.SIGNIFICANT ACCOUNTING POLICIES A.Valuation of Investments Investments in shares of the Funds are valued at the reported net asset values of the respective portfolios. A summary of investments of the twenty-two designated portfolios of the Funds in which the five investment divisions of the Separate Account invest as of December 31, 1999 is included as Note 5. B.Security Transactions Purchases and sales are recorded on the trade date. Realized gains and losses on sales of investments are determined on the basis of identified cost. C.Federal Income Taxes In the opinion of counsel of Metropolitan Life, the Separate Account will be treated as a part of Metropolitan Life and its operations, and the Separate Account will not be taxed as a "regulated investment company" under existing law. Metropolitan Life is taxed as a life insurance company. The policies permit Metropolitan Life to charge against the Separate Account any taxes or reserve for taxes, attributable to the maintenance or operation of the Separate Account. Metropolitan Life is not currently charging any federal income taxes against the Separate Account arising from the earnings of realized capital gains attributable to the Separate Account. Such charges may be imposed in future years depending on market fluctuations and transactions involving the Separate Account. D.Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In certain policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed on certain policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 16 NOTES TO FINANCIAL STATEMENTS--(Continued) 3.DIVIDENDS On May 4, 1999 and December 16, 1999, the Metropolitan Series Fund, Inc. declared dividends for all shareholders of record on May 7, 1999 and December 21, 1999 respectively. The amount of dividends received by the Separate Account was $100,200,341. The dividends were paid to Metropolitan Life on May 11, 1999 and December 22, 1999, respectively, and were immediately reinvested in additional shares of the portfolios in which the investment divisions invest. As a result of this reinvestment, the number of shares of the Metropolitan Series Fund, Inc. held by each of the sixteen investment portfolios increased by the following: State Street Research Growth Portfolio, 1,168,696 shares; State Street Research Income Portfolio, 357,372 shares; State Street Research Money Market Portfolio, 148,919 shares; State Street Research Diversified Portfolio, 1,161,405 shares; State Street Research Aggressive Growth Portfolio, 126,713 shares; MetLife Stock Index Portfolio, 307,335 shares; Santander International Stock Portfolio, 495,499 shares; Loomis Sayles High Yield Bond Portfolio, 42,345 shares; Janus Mid Cap Portfolio, 164,544 shares; Scudder Global Equity Portfolio, 34,867 shares; Harris Oakmark Large Cap Value Portfolio, 343 shares; Neuberger Berman Partners Mid Cap Value Portfolio, 1,185 shares; T. Rowe Price Large Cap Growth Portfolio, 410 shares; Lehman Brothers Aggregate Bond Index Portfolio, 2,648 shares; Morgan Stanley EAFE Index Portfolio, 1,260 shares and Russell 2000 Index Portfolio, 1,133 shares. No dividends were received by the T. Rowe Price Small Cap Growth Portfolio, the Janus Large Cap Growth Portfolio, the Invesco VIF High Yield Portfolio, the Invesco VIF Industrial Income Portfolio, the Invesco VIF Realty Portfolio or the Templeton International Stock Portfolio. 4.EXPENSES For assets in the Separate Account that support certain policies, Metropolitan Life applies a charge against the assets attributable to the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge varies by policy type but will be higher than an effective annual rate of .90% of the average daily value of the net assets of the monthly anniversary value of the net assets in the Separate Account attributable to such policies. 17 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999 Investment information, summarized by investment type and industry sector, for each portfolio in which the Separate Account invests is presented below: Metropolitan Series Fund, Inc.
State Street State Street State Street State Street Research Research Research Research Growth Income Money Market Diversified Portfolio Portfolio Portfolio Portfolio -------------- ------------ ------------ -------------- Value Value Value Value (Note 2A) (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Banking................. $ 82,527,431 (2.3%) $ 37,290,000 (1.3%) Biotechnology........... 54,963,147 (1.5%) 24,690,597 (0.9%) Broadcasting............ 296,377,400 (8.2%) 133,419,212 (4.6%) Business Services....... 112,535,700 (3.1%) 50,496,775 (1.8%) Chemicals............... 76,861,100 (2.1%) 34,515,338 (1.2%) Computer Equipment & Service................ 256,218,167 (7.1%) 115,412,728 (4.0%) Consumer Products....... 41,549,200 (1.1%) 18,585,325 (0.6%) Drugs & Health Care..... 199,768,100 (5.5%) 89,658,175 (3.1%) Electrical Equipment.... 135,638,375 (3.7%) 61,141,725 (2.1%) Electronics............. 311,786,331 (8.6%) 139,112,337 (4.8%) Entertainment & Leisure. 69,260,925 (1.9%) 31,127,400 (1.1%) Financial Services...... 207,714,472 (5.7%) 93,083,836 (3.2%) Food & Beverages........ 68,059,775 (1.9%) 30,438,238 (1.1%) Household Products...... 115,271,300 (3.2%) 52,737,925 (1.8%) Insurance............... 122,153,209 (3.4%) 55,087,431 (1.9%) Liquor.................. 35,878,100 (1.0%) 16,110,094 (0.6%) Medical Equipment & Supply................. 64,919,375 (1.8%) 29,183,519 (1.0%) Multi-Industry.......... 157,590,888 (4.3%) 70,569,787 (2.5%) Office & Business Equipment.............. 100,591,019 (2.8%) 45,145,450 (1.6%) Oil..................... 78,019,820 (2.1%) 34,877,416 (1.2%) Oil & Gas Exploration... 10,186,600 (0.3%) 4,492,675 (0.2%) Oil-International....... 148,770,011 (4.1%) 66,566,008 (2.3%) Retail Trade............ 230,490,362 (6.4%) 103,622,031 (3.6%) Software................ 220,768,794 (6.1%) 99,297,338 (3.5%) Telecommunications Equipment & Services... 166,601,284 (4.6%) 74,851,353 (2.6%) Transportation-Trucking. 5 (0.0%) Utilities-Electric...... 29,997,175 (0.8%) 13,395,200 (0.5%) Utilities-Gas & Pipelines.............. 38,584,063 (1.1%) 17,426,063 (0.6%) Utilities-Telephone..... 103,491,375 (2.9%) 46,478,737 (1.6%) -------------- -------------- Total Common Stock...... 3,536,573,498 (97.6%) 1,588,812,718 (55.3%) -------------- -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Aerospace & Defense..... $ 3,129,248 (0.7%) 8,007,919 (0.3%) Asset Backed............ 13,145,137 (2.7%) 16,750,976 (0.6%) Automotive.............. 7,115,862 (1.5%) 14,621,369 (0.5%) Banking................. 5,120,913 (1.1%) Collateralized Mortgage Obligations............ 23,320,293 (4.9%) 45,392,738 (1.6%) Drugs & Health Care..... 2,903,965 (0.6%) 6,368,139 (0.2%) Electrical Equipment.... 5,032,173 (0.2%) Entertainment & Leisure. 4,307,188 (0.2%) Finance & Banking....... 19,467,181 (4.1%) 90,280,549 (3.1%) Financial Services...... 120,137,416 (25.1%) 305,430,425 (10.6%) Food & Beverages........ 9,895,519 (2.1%) 12,511,591 (0.4%) Healthcare Services..... 13,325,625 (2.8%) 28,557,900 (1.0%) Industrials............. 13,357,360 (2.8%) 58,750,359 (2.0%) Mortgage Related........ 11,533,851 (2.4%) 31,552,849 (1.1%) Newspapers.............. 9,744,055 (2.0%) 20,468,019 (0.7%) Pollution Control....... 1,760,000 (0.4%) 19,866,031 (0.7%) Restaurant.............. 3,089,555 (0.6%) 3,884,012 (0.1%) Retail Grocery.......... 7,162,867 (1.5%) 20,183,815 (0.7%) Telecommunications Equipment & Services... 14,952,575 (3.1%) 36,301,441 (1.3%) Utilities-Electric...... 23,188,403 (4.9%) 35,847,072 (1.3%) Utilities-Gas & Pipelines.............. 2,508,129 (0.5%) 6,344,091 (0.2%) ------------ -------------- Total Corporate Bonds... 304,857,954 (63.8%) 770,458,656 (26.8%) ------------ -------------- Federal Agency Obligations............ 33,244,644 (6.9%) 64,815,085 (2.3%) Federal Treasury Obligations............ 69,212,535 (14.5%) 254,049,569 (8.8%) Foreign Obligations..... 9,200,344 (1.9%) 23,045,630 (0.8%) State Agency Obligations............ 19,552,778 (4.1%) 46,617,831 (1.6%) Yankee Bonds............ 26,698,901 (5.6%) 63,191,720 (2.2%) ------------ -------------- Total Long-Term Debt Securities............. 462,767,156 (96.8%) 1,222,178,491 (42.5%) ------------ -------------- SHORT-TERM OBLIGATIONS Bankers' Acceptances.... $ 2,296,541 (4.5%) Commercial Paper........ 104,406,562 (2.9%) 4,153,120 (0.9%) 46,206,089 (89.6%) 40,162,565 (1.4%) Foreign Obligations..... 2,527,260 (4.9%) Repurchase Agreements... 906,000 (0.0%) -------------- ------------ ----------- -------------- Total Short-Term Obligations............ 105,312,562 (2.9%) 4,153,120 (0.9%) 51,029,890 (99.0%) 40,162,565 (1.4%) -------------- ------------ ----------- -------------- TOTAL INVESTMENTS....... 3,641,886,060 (100.5%) 466,920,276 (97.7%) 51,029,890 (99.0%) 2,851,153,774 (99.2%) Other Assets Less Liabilities............ (18,570,414) (-0.5%) 10,959,423 (2.3%) 515,101 (1.0%) 23,257,871 (0.8%) -------------- ------------ ----------- -------------- NET ASSETS.............. $3,623,315,646 (100.0%) $477,879,699 (100.0%) $51,544,991 (100.0%) $2,874,411,645 (100.0%) ============== ============ =========== ==============
18 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
State Street Research Santander MetLife Aggressive International Stock Index Growth Stock Portfolio Portfolio Portfolio -------------- -------------- ------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense.... $ 42,520,747 (1.0%) Automotive............. 53,473,320 (1.3%) $ 24,293,875 (1.5%) $ 12,765,921 (4.0%) Banking................ 222,504,127 (5.3%) 11,599,213 (0.7%) 35,345,047 (11.1%) Biotechnology.......... 4,259,062 (0.1%) 24,580,406 (1.5%) Broadcasting........... 102,304,763 (2.4%) 113,538,148 (7.1%) Building & Construction.......... 12,908,642 (0.3%) 1,129,927 (0.4%) Business Services...... 52,283,928 (1.2%) 128,551,113 (8.0%) 6,578,957 (2.1%) Chemicals.............. 66,926,188 (1.6%) 5,668,625 (0.4%) 14,809,559 (4.7%) Computer Equipment & Service............... 344,503,286 (8.2%) 176,966,356 (11.1%) Construction Materials. 1,347,336 (0.0%) 4,145,142 (1.3%) Consumer Products...... 1,541,270 (0.0%) 15,105,475 (0.9%) 2,347,558 (0.7%) Consumer Services...... 1,546,791 (0.0%) 22,926,075 (1.4%) Containers & Glass..... 4,748,324 (0.1%) 1,276,864 (0.4%) Cosmetics.............. 4,566,110 (0.1%) Drugs & Health Care.... 269,559,821 (6.4%) 33,934,131 (2.1%) 15,475,094 (4.9%) Electrical Equipment... 198,603,236 (4.7%) 11,781,000 (0.7%) 11,051,542 (3.5%) Electronics............ 290,979,817 (6.9%) 205,642,403 (12.8%) 27,888,740 (8.8%) Entertainment & Leisure............... 31,589,263 (0.8%) 55,319,769 (3.5%) Financial Services..... 211,099,391 (5.0%) 15,565,562 (1.0%) 22,770,469 (7.2%) Food & Beverages....... 144,392,638 (3.4%) Forest Products & Paper................. 38,649,761 (0.9%) Healthcare Services.... 540,800 (0.0%) Homebuilders........... 1,209,419 (0.0%) 2,861,065 (0.9%) Hospital Management.... 11,657,934 (0.3%) Hotel & Motel.......... 6,028,073 (0.1%) 11,613,994 (0.7%) Household Appliances & Home Furnishings...... 4,477,880 (0.1%) 10,469,911 (3.3%) Household Products..... 95,206,866 (2.3%) Industrial Components & Material.............. 190,650 (0.0%) 4,141,955 (1.3%) Insurance.............. 123,792,495 (3.0%) 9,968,500 (3.1%) Liquor................. 6,651,963 (0.2%) Machinery.............. 24,637,034 (0.6%) 4,784,205 (1.5%) Medical Equipment & Supply................ 98,448,956 (2.3%) 15,930,200 (1.0%) 1,710,480 (0.5%) Metals-Aluminum........ 15,170,831 (0.4%) Metals-Gold............ 5,671,760 (0.1%) Metals-Non-Ferrous..... 2,318,173 (0.1%) 3,141,599 (1.0%) Metals-Steel & Iron.... 4,254,478 (0.1%) 10,929,924 (3.4%) Mining................. 3,046,177 (0.1%) Miscellaneous.......... 4,915,428 (0.1%) 4,099,931 (1.3%) Multi-Industry......... 53,514,408 (1.3%) 9,173,529 (2.9%) Newspapers............. 20,296,141 (0.5%) Office & Business Equipment............. 192,540,031 (4.6%) 43,779,375 (2.7%) 2,382,141 (0.8%) Oil.................... 3,253,848 (1.0%) Oil & Gas Exploration.. 4,313,126 (0.1%) 2,903,201 (0.9%) Oil-Domestic........... 26,869,426 (0.6%) Oil-Equipment & Services.............. 26,067,054 (0.6%) 10,873,000 (0.7%) 3,294,267 (1.0%) Oil-International...... 174,437,716 (4.2%) 6,183,861 (1.9%) Packaging.............. 618,375 (0.0%) Personal Care.......... 1,790,854 (0.6%) Photography............ 7,423,620 (0.2%) 3,030,146 (1.0%) Plastics............... 1,642,705 (0.5%) Pollution Control...... 4,170,830 (0.1%) Printing & Publishing.. 8,326,516 (0.2%) 21,786,212 (1.4%) 1,419,888 (0.4%) Real Estate............ 4,807,378 (1.5%) Restaurant............. 22,291,487 (0.5%) Retail Grocery......... 17,788,649 (0.4%) 1,661,126 (0.5%) Retail Trade........... 258,726,495 (6.2%) 176,908,418 (11.1%) 12,081,931 (3.8%) Software............... 306,073,513 (7.3%) 118,954,841 (7.4%) Technology............. 19,159,525 (1.2%) Telecommunications Equipment & Services.. 121,104,733 (2.9%) 154,558,970 (9.7%) 11,386,247 (3.6%) Textiles & Apparel..... 7,270,147 (0.2%) 8,983,463 (0.6%) Tires & Rubber......... 2,933,650 (0.1%) 1,029,788 (0.3%) Tobacco................ 20,221,865 (0.5%) 7,882,048 (2.5%) Toys & Amusements...... 3,146,864 (0.1%) 814,349 (0.3%) Transportation- Airlines.............. 9,225,687 (0.2%) 7,301,153 (2.3%) Transportation- Miscellaneous......... 3,557,910 (1.1%) Transportation- Railroad.............. 15,390,852 (0.4%) Transportation- Trucking.............. 525,406 (0.0%) Utilities-Electric..... 67,540,874 (1.6%) 9,663,975 (0.6%) Utilities-Gas & Pipelines............. 21,701,498 (0.5%) 13,129,119 (0.8%) 1,526,783 (0.5%) Utilities- Miscellaneous......... 1,420,319 (0.0%) Utilities-Telephone.... 306,347,545 (7.3%) 16,136,400 (1.0%) 15,549,318 (4.9%) -------------- -------------- ------------- Total Common Stock..... 4,208,813,565 (100.1%) 1,466,949,643 (91.6%) 310,364,861 (97.7%) -------------- -------------- -------------
19 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
State Street Research Santander MetLife Aggressive International Stock Index Growth Stock Portfolio Portfolio Portfolio (continued) (continued) (continued) -------------- -------------- ------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) PREFERRED STOCK Banking................ 2,290,901 (0.7%) Retail Trade........... 309,734 (0.1%) ------------ Total Preferred Stock.. 2,600,635 (0.8%) ------------ LONG-TERM DEBT SECURITIES Foreign Obligations.... 158,596 (0.0%) SHORT TERM OBLIGATIONS Commercial Paper....... 154,949,235 (9.7%) Repurchase Agreements.. 4,097,000 (1.3%) Federal Agency Obligations........... 1,206,498 (0.0%) -------------- -------------- ------------ TOTAL INVESTMENTS....... 4,210,020,063 (100.1%) 1,621,898,878 (101.3%) 317,221,092 (99.8%) Other Assets Less Liabilities............ (4,818,376) (-0.1%) (21,058,178) (-1.3%) 609,779 (0.2%) -------------- -------------- ------------ NET ASSETS.............. $4,205,201,687 (100.0%) $1,600,840,700 (100.0%) $317,830,871 (100.0%) ============== ============== ============
20 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
Loomis Sayles High Yield Bond Portfolio -------------- Value (Note 2A) COMMON STOCK Banking............................................... $ 3,252 (0.0%) Forest Products & Paper............................... 1,625,767 (2.7%) Oil & Gas Exploration................................. 141,728 (0.2%) Oil-Equipment & Services.............................. 56,250 (0.1%) Real Estate........................................... 239,906 (0.4%) Restaurant............................................ 3,479 (0.0%) Utilities-Electric.................................... 20,632 (0.0%) ----------- Total Common Stock.................................... 2,091,014 (3.4%) ----------- PREFERRED STOCK Banking............................................... 8,549 (0.0%) Construction Materials................................ 129,844 (0.2%) Food & Beverages...................................... 29,250 (0.0%) Metals-Steel & Iron................................... 182,000 (0.3%) Oil & Gas Exploration................................. 267,750 (0.4%) Oil-Equipment & Services.............................. 281,685 (0.5%) Real Estate........................................... 175,650 (0.3%) Telecommunications Equipment & Services............... 1,400,884 (2.3%) Transportation-Shipping............................... 12,000 (0.0%) Utilities-Electric.................................... 300,459 (0.5%) Utilities-Telephone................................... 214,312 (0.4%) ----------- Total Preferred Stock................................. 3,002,383 (4.9%) ----------- LONG-TERM DEBT SECURITIES Convertible Bonds Automotive............................................ 380,625 (0.6%) Building & Construction............................... 81,500 (0.1%) Computer Equipment & Service.......................... 3,458,197 (5.6%) Drugs & Health Care................................... 1,967,862 (3.2%) Electronics........................................... 1,882,512 (3.1%) Entertainment & Leisure............................... 237,480 (0.4%) Foreign Obligations................................... 5,617,845 (9.1%) Healthcare Services................................... 297,375 (0.5%) Industrial Components & Material...................... 364,625 (0.6%) Industrials........................................... 692,775 (1.1%) Medical Equipment & Supply............................ 208,050 (0.3%) Oil & Gas Exploration................................. 150,000 (0.2%) Oil-Equipment & Services.............................. 1,094,043 (1.8%) Pollution Control..................................... 123,188 (0.2%) Real Estate........................................... 91,000 (0.2%) Restaurant............................................ 357,360 (0.6%) Retail Trade.......................................... 68,563 (0.1%) Telecommunications Equipment & Services............... 442,500 (0.7%) Transportation-Trucking............................... 129,600 (0.2%) ----------- Total Convertible Bonds............................... 17,645,100 (28.6%) ----------- Corporate Bonds Broadcasting.......................................... 1,687,875 (2.7%) Chemicals............................................. 292,740 (0.5%) Computer Equipment & Service.......................... 627,120 (1.0%) Food & Beverages...................................... 76,402 (0.1%) Healthcare Services................................... 976,095 (1.6%) Industrials........................................... 912,871 (1.5%) Oil & Gas Exploration................................. 988,687 (1.6%) Oil-Equipment & Services.............................. 3,231,875 (5.2%) Real Estate........................................... 409,937 (0.7%) Retail Trade.......................................... 452,163 (0.7%) Telecommunications Equipment & Services............... 5,659,875 (9.2%) Textiles & Apparel.................................... 333,506 (0.6%) Transportation........................................ 261,563 (0.4%) Transportation-Shipping............................... 626,800 (1.0%) Utilities-Electric.................................... 705,750 (1.2%) Utilities-Telephone................................... 493,000 (0.8%) ----------- Total Corporate Bonds................................. 17,736,259 (28.8%) ----------- Foreign Obligations................................... 11,987,615 (19.4%) Yankee Bonds.......................................... 6,418,660 (10.4%) ----------- Total Long-Term Debt Securities....................... 53,787,634 (87.2%) ----------- SHORT-TERM OBLIGATIONS Repurchase Agreements................................. 884,000 (1.4%) ----------- TOTAL INVESTMENTS..................................... 59,765,031 (96.9%) Other Assets Less Liabilities......................... 1,936,338 (3.1%) ----------- NET ASSETS............................................ $61,701,369 (100.0%) ===========
21 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
T. Rowe Price Janus Small Cap Scudder Mid Cap Growth Global Equity Portfolio Portfolio Portfolio -------------- ------------- ------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense.... $ 1,025,437 (0.4%) $ 2,654,542 (1.5%) Automotive............. 2,668,712 (1.0%) 389,527 (0.2%) Banking................ 2,779,701 (1.0%) 6,374,730 (3.7%) Biotechnology.......... $ 42,717,280 (2.2%) 1,622,128 (0.6%) 3,766,838 (2.2%) Broadcasting........... 182,450,383 (9.4%) 9,202,244 (3.4%) 4,670,099 (2.7%) Building & Construction.......... 1,147,375 (0.4%) 514,750 (0.3%) Business Services...... 152,634,350 (7.9%) 23,868,284 (8.9%) 2,358,915 (1.4%) Chemicals.............. 3,291,533 (1.2%) 10,906,382 (6.4%) Computer Equipment & Service............... 419,901,193 (21.7%) 24,709,494 (9.2%) 3,283,932 (1.9%) Construction & Mining Equipment............. 727,050 (0.3%) Construction Materials. 678,125 (0.3%) 2,484,832 (1.5%) Consumer Products...... 398,263 (0.1%) Drugs & Health Care.... 51,178,119 (2.6%) 16,126,810 (6.0%) 5,494,040 (3.2%) Education.............. 34,102,280 (1.8%) 3,104,162 (1.2%) Electrical Equipment... 5,424,125 (2.0%) 5,874,457 (3.4%) Electronics............ 255,169,133 (13.2%) 39,158,644 (14.5%) 13,213,361 (7.7%) Entertainment & Leisure............... 49,936,749 (2.6%) 5,588,944 (2.1%) Financial Services..... 6,797,057 (2.5%) 5,079,216 (3.0%) Food & Beverages....... 1,538,278 (0.6%) Forest Products & Paper................. 963,375 (0.6%) Healthcare Services.... 14,559,746 (0.8%) 702,625 (0.3%) 568,269 (0.3%) Hospital Management.... 500,656 (0.2%) Household Appliances & Home Furnishings...... 1,246,452 (0.7%) Industrial Components & Material.............. 856,794 (0.3%) Insurance.............. 2,260,759 (0.8%) 4,670,482 (2.7%) Lease Rental Obligations........... 1,193,456 (0.4%) Machinery.............. 151,599 (0.1%) Medical Equipment & Supply................ 14,836,617 (0.8%) 6,020,644 (2.2%) Metals-Gold............ 4,072,604 (2.4%) Metals-Non-Ferrous..... 4,677,775 (2.7%) Metals-Steel & Iron.... 6,605,028 (3.9%) Mining................. 1,744,481 (1.0%) Miscellaneous.......... 275,600 (0.1%) Multi-Industry......... 2,482,024 (1.4%) Newspapers............. 854,775 (0.3%) Office & Business Equipment............. 4,939,347 (1.8%) 5,639,675 (3.3%) Oil & Gas Exploration.. 932,512 (0.3%) 683,750 (0.4%) Oil-Domestic........... 3,765,288 (2.2%) Oil-Equipment & Services.............. 2,943,681 (1.1%) 1,531,040 (0.9%) Oil-International...... 3,368,984 (2.0%) Photography............ 1,244,309 (0.5%) Pollution Control...... 969,891 (0.4%) Real Estate............ 2,692,804 (1.0%) 2,179,844 (1.3%) Restaurant............. 1,091,461 (0.1%) 4,051,256 (1.5%) Retail Grocery......... 1,830,483 (0.7%) Retail Trade........... 13,244,333 (0.7%) 13,945,028 (5.2%) 1,396,008 (0.8%) Software............... 124,501,640 (6.4%) 31,128,170 (11.5%) 7,143,207 (4.2%) Telecommunications Equipment & Services.. 473,207,570 (24.5%) 23,235,061 (8.6%) 12,333,669 (7.2%) Textiles & Apparel..... 2,968,687 (1.1%) 575,629 (0.3%) Tobacco................ 212,694 (0.1%) Toys & Amusements...... 478,400 (0.2%) Transportation- Airlines.............. 1,232,378 (0.5%) 2,112,781 (1.2%) Transportation- Railroad.............. 824,988 (0.3%) 5,090,951 (3.0%) Transportation- Trucking.............. 940,175 (0.3%) Utilities-Electric..... 7,734,478 (4.5%) Utilities-Gas & Pipelines............. 1,606,375 (0.9%) Utilities-Telephone.... 91,101,795 (4.7%) 1,916,966 (0.7%) 8,137,388 (4.7%) -------------- ------------ ------------ Total Common Stock..... 1,920,632,649 (99.4%) 258,795,811 (96.0%) 157,759,471 (91.9%) -------------- ------------ ------------ SHORT-TERM OBLIGATIONS Commercial Paper....... 44,688,825 (2.3%) Foreign Obligations.... 5,218,413 (3.0%) Repurchase Agreements.. 1,914,000 (0.1%) 6,468,000 (3.8%) -------------- ------------ Total Short-Term Obligations........... 46,602,825 (2.4%) 11,686,413 (6.8%) -------------- ------------ LONG-TERM DEBT SECURITIES Participating Loan Notes................. 420,065 (0.2%) Federal Treasury Obligations........... 195,140 (0.1%) SHORT-TERM OBLIGATIONS Regulated Investment Companies............. 12,572,104 (4.7%) -------------- ------------ ------------ TOTAL INVESTMENTS....... 1,967,235,474 (101.8%) 271,563,055 (100.8%) 169,865,949 (98.9%) Other Assets Less Liabilities............ (35,438,420) (-1.8%) (2,045,413) (-0.8%) 1,848,472 (1.1%) -------------- ------------ ------------ NET ASSETS.............. $1,931,797,054 (100.0%) $269,517,642 (100.0%) $171,714,421 (100.0%) ============== ============ ============
22 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
Morgan Stanley Russell 2000 EAFE Index Portfolio Index Portfolio --------------- --------------- Value Value (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense........... $ 678,269 (0.6%) $ 193,539 (0.2%) Agriculture & Related......... 69,500 (0.1%) Automotive.................... 1,110,278 (1.0%) 3,241,751 (3.9%) Banking....................... 7,243,688 (6.5%) 8,729,364 (10.6%) Biotechnology................. 2,144,522 (1.9%) 193,965 (0.2%) Broadcasting.................. 1,513,037 (1.4%) 951,178 (1.2%) Building & Construction....... 602,606 (0.5%) 444,750 (0.5%) Business Services............. 7,088,385 (6.4%) 1,208,099 (1.5%) Chemicals..................... 1,803,803 (1.6%) 1,933,527 (2.4%) Coal.......................... 30,375 (0.0%) Computer Equipment & Service.. 8,906,921 (8.0%) 1,885,797 (2.3%) Construction & Mining Equipment.................... 264,722 (0.2%) 37,709 (0.0%) Construction Materials........ 695,375 (0.6%) 920,852 (1.1%) Consumer Products............. 329,088 (0.3%) 426,599 (0.5%) Consumer Services............. 41,388 (0.0%) 103,263 (0.1%) Containers & Glass............ 313,969 (0.3%) 145,958 (0.2%) Cosmetics..................... 43,751 (0.1%) Drugs & Health Care........... 5,063,950 (4.5%) 4,831,395 (5.9%) Education..................... 159,694 (0.1%) Electrical Equipment.......... 2,139,364 (1.9%) 2,346,494 (2.9%) Electronics................... 8,542,542 (7.7%) 6,444,858 (7.8%) Entertainment & Leisure....... 1,726,211 (1.6%) 401,596 (0.5%) Financial Services............ 2,146,995 (1.9%) 3,529,550 (4.3%) Food & Beverages.............. 1,575,037 (1.4%) 2,170,309 (2.6%) Forest Products & Paper....... 919,925 (0.8%) 448,821 (0.5%) Healthcare Services........... 914,353 (0.8%) 21,577 (0.0%) Homebuilders.................. 526,462 (0.5%) 135,410 (0.2%) Hospital Management........... 344,369 (0.3%) Hotel & Motel................. 454,447 (0.4%) 209,742 (0.3%) Household Appliances & Home Furnishings.................. 735,853 (0.7%) 554,907 (0.7%) Household Products............ 307,909 (0.3%) 23,221 (0.0%) Industrial Components & Material..................... 1,976,599 (1.8%) 443,963 (0.5%) Industrial Development / Pollution Bonds........................ 70,720 (0.1%) Insurance..................... 3,360,032 (3.0%) 4,037,027 (4.9%) Investment Companies.......... 38,106 (0.0%) Lease Rental Obligations...... 436,903 (0.4%) 6,440 (0.0%) Liquor........................ 205,856 (0.2%) 628,678 (0.8%) Machinery..................... 1,854,774 (1.7%) 937,355 (1.1%) Medical Equipment & Supply.... 2,052,444 (1.8%) 160,632 (0.2%) Metals-Aluminum............... 56,888 (0.1%) 27,558 (0.0%) Metals-Gold................... 27,638 (0.0%) 17,957 (0.0%) Metals-Non-Ferrous............ 148,431 (0.1%) 243,787 (0.3%) Metals-Steel & Iron........... 794,678 (0.7%) 714,613 (0.9%) Mining........................ 148,944 (0.1%) 51,399 (0.1%) Miscellaneous................. 513,562 (0.5%) 92,534 (0.1%) Mobile Homes.................. 198,119 (0.2%) Multi-Industry................ 902,396 (0.8%) 4,241,874 (5.2%) Newspapers.................... 146,913 (0.1%) 5,582 (0.0%) Office & Business Equipment... 1,049,025 (0.9%) 444,459 (0.5%) Oil........................... 245,419 (0.2%) 1,824,272 (2.2%) Oil & Gas Exploration......... 1,377,606 (1.2%) 74,383 (0.1%) Oil-Domestic.................. 7,204 (0.0%) Oil-Equipment & Services...... 1,199,770 (1.1%) 970,166 (1.2%) Oil-International............. 1,486,992 (1.8%)
23 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
Morgan Stanley Russell 2000 EAFE Index Portfolio Index Portfolio (continued) (continued) --------------- --------------- Value Value (Note 2A) (Note 2A) COMMON STOCK--(Continued) Packaging.................. 95,138 (0.1%) Personal Care.............. 51,100 (0.1%) 512,187 (0.6%) Photography................ 308,944 (0.3%) 146,031 (0.2%) Plastics................... 136,109 (0.1%) 55,133 (0.1%) Pollution Control.......... 170,117 (0.2%) 8,788 (0.0%) Printing & Publishing...... 681,175 (0.6%) 579,027 (0.7%) Real Estate................ 4,853,008 (4.4%) 1,113,230 (1.4%) Restaurant................. 905,844 (0.8%) 63,682 (0.1%) Retail Grocery............. 358,198 (0.3%) 678,318 (0.8%) Retail Trade............... 3,602,791 (3.2%) 2,263,892 (2.8%) Shipbuilding............... 107,250 (0.1%) 6,851 (0.0%) Software................... 9,163,883 (8.2%) 528,209 (0.6%) Technology................. 1,124,335 (1.0%) Telecommunications Equipment & Services...... 7,256,975 (6.5%) 5,713,882 (6.9%) Textiles & Apparel......... 994,724 (0.9%) 268,027 (0.3%) Tires & Rubber............. 47,500 (0.0%) 246,555 (0.3%) Tobacco.................... 142,120 (0.1%) 298,673 (0.4%) Toys & Amusements.......... 36,441 (0.0%) 182,813 (0.2%) Transportation............. 195,463 (0.2%) 207,016 (0.3%) Transportation-Airlines.... 821,011 (0.7%) 431,963 (0.5%) Transportation- Miscellaneous............. 22,388 (0.0%) Transportation-Railroad.... 462,959 (0.4%) 551,262 (0.7%) Transportation-Shipping.... 201,838 (0.2%) 399,092 (0.5%) Transportation-Trucking.... 698,687 (0.6%) 9,013 (0.0%) Utilities.................. 367,963 (0.3%) Utilities-Electric......... 1,548,840 (1.4%) 1,998,232 (2.4%) Utilities-Gas & Pipelines.. 2,091,713 (1.9%) 462,574 (0.6%) Utilities-Miscellaneous.... 109,089 (0.1%) Utilities-Telephone........ 310,884 (0.3%) 6,851,920 (8.3%) Utilities-Water............ 116,150 (0.1%) ------------ ----------- Total Common Stock......... 111,978,300 (100.2%) 81,773,424 (99.3%) ------------ ----------- PREFERRED STOCK Automotive................. 22,424 (0.0%) Broadcasting............... 152,498 (0.2%) Building & Construction.... 9,187 (0.0%) Oil-Equipment & Services... 8,865 (0.0%) Oil-International.......... 15,413 (0.0%) Retail Grocery............. 7,711 (0.0%) Retail Trade............... 9,096 (0.0%) Software................... 210,838 (0.3%) ----------- Total Preferred Stock...... 436,032 (0.5%) ----------- SHORT-TERM OBLIGATIONS Federal Agency Obligations. 996,977 (0.9%) 1,042,652 (1.3%) ------------ ----------- TOTAL INVESTMENTS.......... 112,975,277 (101.1%) 83,252,108 (101.1%) Other Assets Less Liabilities............... (1,246,645) (-1.1%) (897,193) (-1.1%) ------------ ----------- NET ASSETS................. $111,728,632 (100.0%) $82,354,915 (100.0%) ============ ===========
24 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
Lehman Brothers Aggregate Bond Index Portfolio ------------ Value (Note 2A) LONG-TERM DEBT SECURITIES Corporate Bonds: Aerospace & Defense...................................... $ 217,373 (0.2%) Asset Backed............................................. 1,114,534 (0.9%) Automotive............................................... 656,234 (0.5%) Banking.................................................. 2,646,073 (2.0%) Broadcasting............................................. 459,729 (0.4%) Collateralized Mortgage Obligations...................... 1,557,920 (1.2%) Drugs & Health Care...................................... 137,862 (0.1%) Entertainment & Leisure.................................. 447,900 (0.3%) Finance & Banking........................................ 1,184,489 (0.9%) Financial Services....................................... 5,417,318 (4.2%) Food & Beverages......................................... 198,824 (0.2%) Forest Products & Paper.................................. 902,049 (0.7%) Industrials.............................................. 138,134 (0.1%) Liquor................................................... 468,535 (0.4%) Multi-Industry........................................... 712,878 (0.5%) Office & Business Equipment.............................. 465,375 (0.4%) Oil & Gas Exploration.................................... 572,352 (0.4%) Printing & Publishing.................................... 457,777 (0.3%) Real Estate.............................................. 502,193 (0.4%) Restaurant............................................... 457,986 (0.4%) Retail Trade............................................. 1,152,172 (0.9%) Telecommunications Equipment & Services.................. 1,447,723 (1.1%) Transportation-Airlines.................................. 825,882 (0.6%) Transportation-Railroad.................................. 300,801 (0.2%) Utilities-Electric....................................... 1,364,726 (1.1%) Utilities-Gas & Pipelines................................ 723,618 (0.6%) Utilities-Telephone...................................... 1,420,791 (1.1%) ------------ Total Corporate Bonds.................................... 25,951,248 (20.1%) ------------ Federal Agency Obligations............................... 57,027,167 (44.1%) Federal Treasury Obligations............................. 35,460,210 (27.4%) State Agency Obligations................................. 182,909 (0.1%) Yankee Bonds............................................. 2,257,967 (1.7%) ------------ Total Bonds.............................................. 120,879,501 (93.4%) ------------ SHORT-TERM OBLIGATIONS Commercial Paper......................................... 4,535,468 (3.5%) Federal Agency Obligations............................... 595,728 (0.5%) ------------ Total Short-Term Obligations............................. 5,131,196 (4.0%) ------------ TOTAL INVESTMENTS......................................... 126,010,697 (97.4%) Other Assets Less Liabilities............................. 3,327,963 (2.6%) ------------ NET ASSETS................................................ $129,338,660 (100.0%) ============
25 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Metropolitan Series Fund, Inc.
Harris Oakmark Neuberger Berman T. Rowe Price Large Cap Value Partners Mid Cap Value Large Cap Portfolio Portfolio Growth Portfolio --------------- ---------------------- ---------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense.... $ 3,218,687 (8.4%) $ 822,900 (2.1%) Automotive............. 1,947,912 (5.0%) $ 260,550 (0.5%) Banking................ 3,446,094 (9.0%) 851,525 (2.2%) 1,887,612 (3.7%) Biotechnology.......... 431,081 (0.8%) Broadcasting........... 1,537,144 (4.0%) 2,779,959 (5.4%) Building & Construction.......... 813,375 (2.1%) 246,138 (0.5%) Business Services...... 3,166,562 (8.3%) 1,177,100 (3.0%) 2,216,848 (4.3%) Chemicals.............. 1,192,344 (3.1%) 1,938,494 (5.0%) Computer Equipment & Service............... 972,969 (2.5%) 1,436,228 (3.7%) 4,917,202 (9.6%) Consumer Products...... 2,168,375 (5.7%) Containers & Glass..... 191,706 (0.5%) Drugs & Health Care.... 727,988 (1.9%) 3,374,794 (6.6%) Electrical Equipment... 439,875 (1.1%) 1,288,125 (2.5%) Electronics............ 1,815,625 (4.7%) 792,706 (2.1%) 4,235,797 (8.2%) Entertainment & Leisure............... 1,735,500 (4.5%) 481,500 (1.2%) 87,750 (0.2%) Financial Services..... 1,618,975 (4.2%) 4,435,533 (8.6%) Food & Beverages....... 341,925 (0.7%) Forest Products & Paper................. 821,250 (2.1%) 1,103,437 (2.9%) 234,900 (0.5%) Hospital Management.... 398,438 (0.8%) Hotel & Motel.......... 368,950 (1.0%) 361,213 (0.7%) Household Appliances & Home Furnishings...... 739,200 (1.9%) Household Products..... 922,387 (1.8%) Industrials............ 201,400 (0.5%) 174,900 (0.3%) Insurance.............. 878,813 (2.3%) 1,890,531 (4.9%) 1,188,617 (2.3%) Machinery.............. 1,577,063 (4.1%) 1,209,506 (3.1%) Medical Equipment & Supply................ 1,241,094 (3.2%) 1,205,187 (2.3%) Metals-Aluminum........ 498,063 (1.3%) Metals-Non-Ferrous..... 434,125 (1.1%) Metals-Steel & Iron.... 570,025 (1.5%) Mining................. 107,400 (0.3%) Miscellaneous.......... 1,785,375 (4.7%) Multi-Industry......... 458,850 (1.2%) 3,303,693 (6.4%) Newspapers............. 1,844,500 (4.8%) 192,719 (0.4%) Office & Business Equipment............. 340,588 (0.7%) Oil.................... 547,031 (1.4%) Oil & Gas Exploration.. 1,010,250 (2.6%) Oil-Domestic........... 592,500 (1.5%) Oil-Equipment & Services.............. 2,015,375 (5.2%) 238,006 (0.5%) Oil-International...... 1,476,969 (2.9%) Packaging.............. 686,359 (1.8%) Printing & Publishing.. 2,301,000 (6.0%) 501,500 (1.3%) 355,081 (0.7%) Real Estate............ 1,281,250 (3.3%) 535,500 (1.4%) 205,969 (0.4%) Restaurant............. 169,313 (0.3%) Retail Grocery......... 981,221 (1.9%) Retail Trade........... 611,000 (1.6%) 2,590,426 (5.0%) Software............... 1,988,325 (5.1%) 4,157,962 (8.1%) Telecommunications Equipment & Services.. 3,108,844 (8.0%) 2,269,381 (4.4%) Textiles & Apparel..... 2,081,625 (5.4%) 163,556 (0.3%) Tobacco................ 1,864,275 (4.9%) 264,338 (0.5%) Toys & Amusements...... 1,765,312 (4.6%) Transportation- Airlines.............. 510,313 (1.3%) Transportation- Railroad.............. 582,075 (1.5%) 261,188 (0.5%) Utilities-Electric..... 1,118,050 (2.9%) Utilities-Gas & Pipelines............. 286,663 (0.7%) Utilities-Telephone.... 2,158,184 (4.2%) ----------- ----------- ----------- Total Common Stock..... 34,729,994 (90.5%) 36,880,419 (95.2%) 50,117,550 (97.5%) ----------- ----------- ----------- SHORT-TERM OBLIGATIONS Commercial Paper....... 1,500,000 (3.9%) Regulated Investment Companies............. 1,867,428 (3.6%) Repurchase Agreements.. 1,482,000 (3.9%) 1,854,000 (4.8%) 703,000 (1.4%) ----------- ----------- ----------- Total Short-Term Obligations........... 2,982,000 (7.8%) 1,854,000 (4.8%) 2,570,428 (5.0%) ----------- ----------- ----------- TOTAL INVESTMENTS...... 37,711,994 (98.3%) 38,734,419 (100.0%) 52,687,978 (102.5%) Other Assets Less Liabilities........... 665,535 (1.7%) (12,430) (0.0%) (1,286,462) (-2.5%) ----------- ----------- ----------- NET ASSETS............. $38,377,529 (100.0%) $38,721,989 (100.0%) $51,401,516 (100.0%) =========== =========== ===========
26 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Templeton Variable Products Series Fund
Templeton International Stock Portfolio -------------- Value (Note 2A) COMMON STOCK Aerospace & Defense................................... $ 1,925,333 (0.2%) Appliances & Household Durables....................... 43,597,485 (3.8%) Automotive............................................ 38,876,270 (3.4%) Banking............................................... 93,961,811 (8.1%) Broadcasting.......................................... 11,671,882 (1.0%) Building Materials & Components....................... 8,232,097 (0.7%) Chemicals............................................. 50,382,806 (4.3%) Data Processing & Reproduction........................ 9,436,991 (0.8%) Electrical & Electronics.............................. 86,309,209 (7.4%) Energy Sources........................................ 61,113,306 (5.3%) Financial Services.................................... 67,495,324 (5.8%) Food & Household Products............................. 22,749,989 (2.0%) Forest Products & Paper............................... 21,609,388 (1.9%) Health & Personal Care................................ 43,531,166 (3.8%) Industrial Components................................. 4,125,846 (0.4%) Insurance............................................. 63,000,165 (5.4%) Machinery & Engineering............................... 7,096,640 (0.6%) Merchandising......................................... 30,647,631 (2.6%) Metals & Mining....................................... 70,173,353 (6.1%) Multi-Industry........................................ 52,379,143 (4.5%) Real Estate........................................... 1,704,438 (0.1%) Recreation & Other Consumer Goods..................... 11,067,926 (1.0%) Telecommunications.................................... 103,119,516 (8.9%) Transportation........................................ 51,149,658 (4.4%) Utilities-Gas & Pipelines............................. 87,566,150 (7.5%) -------------- ------- Total Common Stock.................................... 1,042,923,523 (90.0%) -------------- ------- Preferred Stock....................................... 56,820,552 (4.9%) SHORT-TERM OBLIGATIONS Repurchase Agreements................................. 46,236,000 (4.0%) -------------- ------- TOTAL INVESTMENTS..................................... 1,145,980,075 (98.9%) Other Assets Less Liabilities......................... 12,182,392 (1.1%) -------------- ------- NET ASSETS............................................ $1,158,162,467 (100.0%) ============== =======
27 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Janus Aspen Series Fund
Janus Aspen Growth Portfolio ---------------- Value (Note 2A) COMMON STOCK Audio and Video Products............................. $ 12,027,000 (0.4%) Automotive........................................... 1,586,454 (0.1%) Brewery.............................................. 12,112,537 (0.4%) Broadcast Services and Programming................... 105,648,024 (3.5%) Cable Television..................................... 253,832,722 (8.5%) Cellular Telecommunications.......................... 152,852,858 (5.1%) Circuits............................................. 121,198,124 (4.0%) Commercial Banks..................................... 8,067,519 (0.3%) Commercial Services.................................. 30,151,000 (1.0%) Computer Software.................................... 55,568,330 (1.9%) Computer Memory Devices.............................. 31,415,384 (1.0%) Computers Micro...................................... 158,170,877 (5.3%) Cosmetics and Toiletries............................. 11,884,925 (0.4%) Cruise Lines......................................... 20,701,929 (0.7%) Data Processing and Management....................... 37,104,521 (1.2%) Distribution and Wholesale........................... 24,791,256 (0.8%) Diversified Financial Services....................... 22,502,813 (0.7%) Diversified Operations............................... 165,718,684 (5.5%) Electronic Components................................ 79,706,735 (2.7%) Electronic Safety Devices............................ 6,334,247 (0.2%) Enterprise Software and Services..................... 24,758,379 (0.8%) Finance-Credit Card.................................. 62,213,244 (2.1%) Finance-Investment Bankers/Brokers................... 42,087,398 (1.4%) Food-Wholesale....................................... 3,307,287 (0.1%) Identification Systems and Devices................... 11,250,562 (0.4%) Instruments-Scientific............................... 42,286,156 (1.4%) Internet Content..................................... 11,715,741 (0.4%) Internet Software.................................... 37,657,646 (1.3%) Life and Health Insurance............................ 72,109,337 (2.4%) Medical-Biomedical and Genetic....................... 46,106,600 (1.5%) Medical-Drugs........................................ 21,339,070 (0.7%) Medical-Instruments.................................. 10,103,026 (0.3%) Money Center Banks................................... 72,862,400 (2.4%) Multi-Line Insurance................................. 38,767,246 (1.3%) Multimedia........................................... 191,538,881 (6.4%) Networking Products.................................. 117,238,564 (3.9%) Office Automation and Equipment...................... 11,390,880 (0.4%) Optical Supplies..................................... 15,991,391 (0.5%) Pipelines............................................ 72,361,869 (2.4%) Property and Casualty Insurance...................... 7,297,509 (0.2%) Publishing-Newspapers................................ 8,696,844 (0.3%) Radio................................................ 27,660,475 (0.9%) Retail Building Products............................. 35,819,450 (1.2%) Retail-Discount...................................... 11,151,245 (0.4%) Retail-Office Supplies............................... 20,860,390 (0.7%) Retail-Restaurants................................... 75,633,305 (2.5%) Super Regional Banks................................. 11,427,330 (0.4%) Telecommunication Equipment.......................... 180,832,646 (6.0%) Telecommunication Services........................... 31,562,024 (1.1%) Telephone-Integrated................................. 15,503,209 (0.5%) Television........................................... 41,936,217 (1.4%) -------------- Total Common Stock................................... 2,684,842,260 (89.4%) -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Retail Internet...................................... 13,019,556 (0.4%) Telecommunication Services........................... 15,050,000 (0.5%) -------------- Total Corporate Bonds................................ 28,069,556 (0.9%) -------------- SHORT-TERM OBLIGATIONS Repurchase Agreements................................. 217,600,000 (7.3%) U.S. Government Agencies.............................. 74,360,555 (2.5%) -------------- Total Short-Term Obligations.......................... 291,960,555 (9.8%) -------------- TOTAL INVESTMENTS..................................... 3,004,872,371 (100.1%) Other Assets Less Liabilities......................... (2,889,168) (0.1%) -------------- NET ASSETS............................................ $3,001,983,203 (100.0%) ==============
28 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Invesco Variable Investment Funds, Inc.
Invesco VIF-High Yield Portfolio --------------- Value (Note 2A) COMMON STOCKS & WARRANTS Computer Related..................................... $ 20,475 (0.0%) Telecommunications--Long Distance.................... 1,500 (0.0%) Telephone............................................ 3,454 (0.0%) ----------- Total Common Stocks & Warrants....................... 25,429 (0.0%) ----------- PREFERRED STOCK Publishing........................................... 304,500 (0.5%) Telecommunications--Cellular & Wireless.............. 445,000 (0.8%) Telecommunications--Long Distance.................... 1,005,000 (1.8%) Telephone............................................ 368,083 (0.6%) ----------- Total Preferred Stock................................ 2,122,583 (3.7%) ----------- FIXED INCOME SECURITIES Corporate Bonds: Biotechnology........................................ 552,500 (0.9%) Broadcasting......................................... 2,861,250 (4.9%) Cable................................................ 5,033,700 (8.6%) Chemicals............................................ 1,100,750 (1.9%) Communications--Equipment & Manufacturing............ 866,000 (1.5%) Computer Related..................................... 2,974,625 (5.1%) Electric Utilities................................... 2,348,825 (4.0%) Electrical Equipment................................. 206,000 (0.4%) Engineering & Construction........................... 182,000 (0.3%) Gaming............................................... 1,955,238 (3.3%) Healthcare Services.................................. 740,000 (1.3%) Household Products................................... 365,000 (0.6%) Iron & Steel......................................... 703,570 (1.2%) Lodging--Hotels...................................... 225,000 (0.4%) Metals & Mining...................................... 350,000 (0.6%) Oil & Gas Related.................................... 2,483,975 (4.3%) Paper & Forest Products.............................. 1,046,060 (1.8%) Personal Care........................................ 257,250 (0.4%) Pollution Control.................................... 895,000 (1.5%) Services............................................. 2,530,312 (4.3%) Shipping............................................. 95,000 (0.2%) Specialty Printing................................... 683,750 (1.2%) Telecommunications--Cellular & Wireless.............. 2,369,250 (4.1%) Telecommunications--Long Distance.................... 9,060,975 (15.5%) Telephone............................................ 11,058,433 (18.9%) Textiles & Apparel Manufacturing..................... 915,000 (1.6%) ----------- Total Corporate Bonds................................ 51,859,463 (88.8%) ----------- SHORT-TERM INVESTMENTS Repurchase Agreements................................ 2,968,000 (5.1%) ----------- TOTAL INVESTMENTS.................................... 56,975,475 (97.6%) Other Assets Less Liabilities........................ 1,403,130 (2.4%) ----------- NET ASSETS........................................... $58,378,605 (100.0%) ===========
29 NOTES TO FINANCIAL STATEMENTS--(Continued) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Continued) Invesco Variable Investment Funds, Inc.
Invesco Invesco VIF Industrial VIF Realty Income Portfolio Portfolio ---------------- ---------- Value Value (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense............ $ 1,589,874 (2.0%) Automobiles.................... 534,375 (0.7%) Banks.......................... 4,750,694 (5.9%) Beverages...................... 1,977,650 (2.5%) Broadcasting................... 1,475,500 (1.8%) Chemicals...................... 1,117,962 (1.4%) Communications-Equipment Manufacturing................. 972,562 (1.2%) Computer Related............... 2,232,056 (2.8%) Electric Utilities............. 1,438,590 (1.8%) Electronics.................... 1,305,600 (1.6%) Electrical Equipment........... 1,934,375 (2.4%) Electronics-semiconductor...... 2,512,500 (3.1%) Financial...................... 1,111,250 (1.4%) Foods.......................... 3,215,379 (4.0%) Gaming......................... 1,000,000 (1.3%) Gold & Precious Metals Mining.. 171,500 (0.2%) Health Care Drugs- Pharmaceuticals............... 6,066,543 (7.6%) Health Care Related............ 1,027,465 (1.3%) Household Products............. 2,176,500 (2.7%) Insurance...................... 2,640,875 (3.3%) Investment Bank/Broker Firm.... 999,250 (1.3%) Lodging-Hotels................. 772,937 (1.0%) Manufacturing.................. 996,938 (1.2%) Oil & Gas Related.............. 5,659,240 (7.1%) Paper & Forest Products........ 1,426,638 (1.8%) Railroads...................... 2,285,062 (2.9%) Real Estate Investment Trust... $ 544,084 (87.0%) Real Estate Related............ 16,965 (2.7%) Restaurants.................... 1,007,812 (1.3%) Retail......................... 4,794,062 (6.0%) Savings & Loan................. 1,154,156 (1.4%) Services....................... 452,625 (0.6%) Telecommunications-Cellular & Wireless...................... 825,000 (1.0%) Telecommunications-Long Distance...................... 1,555,313 (2.0%) Telephone...................... 4,413,256 (5.5%) Tobacco........................ 394,187 (0.5%) ----------- --------- Total Common Stock............. 65,987,726 (82.6%) 561,049 (89.7%) ----------- --------- FIXED INCOME SECURITIES Corporate Bonds: Airlines....................... 293,092 (0.4%) Building Materials............. 510,509 (0.6%) Cable.......................... 355,750 (0.4%) Computer Related............... 222,469 (0.3%) Electric Utilities............. 3,076,860 (3.9%) Insurance...................... 425,360 (0.5%) Lodging-Hotels................. 218,852 (0.3%) Oil & Gas Related.............. 1,470,846 (1.9%) Paper & Forest Products........ 105,624 (0.1%) Services....................... 98,500 (0.1%) Telecommunications-Long Distance...................... 151,250 (0.2%) Telephone...................... 653,905 (0.8%) ----------- Total Corporate Bonds.......... 7,583,017 (9.5%) ----------- US Government Obligations...... 712,501 (0.9%) ----------- Total Fixed Income Securities.. 8,295,518 (10.4%) SHORT TERM INVESTMENTS Repurchase Agreements.......... 6,586,000 (8.2%) ----------- --------- TOTAL INVESTMENTS.............. 80,869,244 (101.2%) 561,049 (89.7%) Other Assets Less Liabilities.. (976,632) (-1.2%) 64,429 (10.3%) ----------- --------- NET ASSETS..................... $79,892,612 (100.0%) $ 625,478 (100.0%) =========== =========
30 NOTES TO FINANCIAL STATEMENTS--(Concluded) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1999--(Concluded) The value of investments in the Funds portfolios are determined using the following valuation techniques: Portfolio securities that are traded on domestic stock exchanges are valued at the last price as of the close of business on the day the securities are being valued. Lacking any sales, securities are valued at the mean between closing bid and asked prices (except the Loomis Sayles High Yield Bond Portfolio, which values such securities at last bid price). Securities trading primarily on non-domestic exchanges are valued at the preceding closing price on the exchange where it primarily trades (or in the case of Loomis Sayles High Yield Bond and Scudder Global Equity Portfolios, the last sale). A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for that security by the Board of Directors or its delegates. If no closing price is available, then such securities are valued, first, by using the mean between last current bid and asked prices or, second, by using last available closing price (except the Scudder Global Equity Portfolio which second values such securities at last current bid or third, by using last available price). Domestic securities traded on over-the-counter markets are valued at the mean between bid and asked prices or yield equivalent as obtained from two or more dealers that make markets in the securities (except for the Loomis Sayles High Yield Bond Portfolio, which would value such security, first, at last sale price and, second, at bid price or the Scudder Global Equity and the Neuberger Berman Partners Mid Cap Value Portfolios that value such securities, first, at last sale price and, second, at last bid price). All non-U.S. securities traded on over-the-counter securities markets are valued at the last sale quote if market quotations are available, or the last closing bid price if there is no active trading in a particular security for a given day (except the Neuberger Berman Partners Mid Cap Value Portfolio which is valued at the mean between closing bid and asked prices). Where market quotations are not readily available for such non-domestic, over-the-counter securities, then such securities will be valued in good faith by a method that the Board of Directors or its delegates believe accurately reflects fair value. Portfolio securities that are traded both on over-the-counter markets and on a stock exchange are valued according to the broadest and most representative market. For debt securities, this ordinarily will be the over-the-counter market. Securities and assets for which market quotations are not readily available (e.g. certain long-term bonds and notes) are valued at fair value as determined in good faith by or under the direction of the Board of Directors, including valuations furnished by a pricing service retained for this purpose and typically utilized by other institutional-sized trading organizations. Forward foreign exchange contracts are valued based on the closing prices of the forward currency contract rates in London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Short-term instruments with a remaining maturity of sixty days or less are valued utilizing the amortized cost method of valuation. If for any reason the fair value of any security is not fairly reflected by such method, such security will be valued by the same method as securities having a maturity of more than sixty days. Options on securities, indices, or futures contracts are valued at the last sales price available as of the close of business on the day of valuation. If no sales have occurred, options are valued at the mean between bid and asked prices. Options on currencies are valued at the spot price each day. As a general matter, futures contracts are marked-to-market daily. The value of futures contracts will be the sum of the margin deposits plus or minus the difference between the value of the futures contract on each day the net asset value is calculated and the value on the date the futures contract originated. For this purpose, value is the value established on a recognized commodity exchange, or by reference to other customary sources, with gain or loss being realized when the futures contract closes or expires. 31 1 INDEX TO FINANCIAL STATEMENTS
PAGE ---- 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..................
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 3 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
See accompanying notes to consolidated financial statements. 4 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN MILLIONS)
1999 1998 ---- ---- 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 ======== ========
See accompanying notes to consolidated financial statements. 5 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ----------------------------------------- NET FOREIGN MINIMUM UNREALIZED CURRENCY PENSION COMPREHENSIVE RETAINED INVESTMENT TRANSLATION LIABILITY TOTAL INCOME (LOSS) EARNINGS GAINS (LOSSES) ADJUSTMENT ADJUSTMENT ----- ------------- -------- -------------- ----------- ---------- 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) ======= ======= ======= ===== ====
See accompanying notes to consolidated financial statements. 6 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
1999 1998 1997 ---- ---- ---- 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 ======== ======== ========
See accompanying notes to consolidated financial statements. 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. 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. 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. 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. 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). 12 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information regarding deferred policy acquisition costs is as follows:
YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ---- ---- ---- 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 ======= ====== ======
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. 13 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL OTHER INTANGIBLE ASSETS -------------------- -------------------------- 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- 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 ==== ==== ====== ======
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. 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 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 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. 17 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. INVESTMENTS The components of net investment income were as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
Net realized investment gains (losses), including changes in valuation allowances, were as follows:
YEARS ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ---- ---- ---- 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 ===== ====== ======
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. 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:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
The changes in net unrealized investment gains (losses) were as follows:
YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ---- ---- ---- 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 ======= ====== ======
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:
COST OR GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- ---- ---- ---------- 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 ======= ====== ====== =======
Fixed maturities and equity securities at December 31, 1998 were as follows:
COST OR GROSS UNREALIZED AMORTIZED ----------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- ---- ---- ---------- 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 ======= ====== ==== ========
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:
AMORTIZED ESTIMATED COST FAIR VALUE --------- ---------- 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 ======= =======
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:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- 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
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. 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:
DECEMBER 31, ---------------------------------------- 1999 1998 ------------------ ------------------ AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- 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 ======= =======
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. 22 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Changes in mortgage loan valuation allowances were as follows:
YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ---- ---- ---- 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 ===== ===== =====
A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
DECEMBER 31, -------------- 1999 1998 ---- ---- 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 ==== ======
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. 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:
DECEMBER 31, ---------------- 1999 1998 ---- ---- 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 ====== ======
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:
DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- 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% ====== === ====== ===
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:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- 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 ==== ==== =====
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 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:
DECEMBER 31, ---------------- 1999 1998 ---- ---- Investment............................................... $1,016 $1,067 Estimated residual values................................ 559 607 ------ ------ 1,575 1,674 Unearned income.......................................... (417) (471) ------ ------ $1,158 $1,203 ====== ======
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:
1999 1998 ------------------------------------------ ------------------------------------------ CURRENT MARKET CURRENT MARKET OR FAIR VALUE OR FAIR VALUE CARRYING NOTIONAL -------------------- CARRYING NOTIONAL -------------------- VALUE AMOUNT ASSETS LIABILITIES VALUE AMOUNT ASSETS LIABILITIES -------- -------- ------ ----------- -------- -------- ------ ----------- 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 ==== ======= === ==== === ======= === ====
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:
DECEMBER 31, 1998 TERMINATIONS/ DECEMBER 31, 1999 NOTIONAL AMOUNT ADDITIONS MATURITIES NOTIONAL AMOUNT ----------------- --------- ------------- ----------------- 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 ======= ======= ======= =======
The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 1999:
REMAINING LIFE ------------------------------------------------------------------- ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS TOTAL -------- ------------------ ----------------- --------------- ----- 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 ====== ======= ==== ==== =======
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. 26 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amounts related to the Company's financial instruments were as follows:
NOTIONAL CARRYING ESTIMATED DECEMBER 31, 1999 AMOUNT VALUE FAIR VALUE - ----------------- -------- -------- ---------- 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
NOTIONAL CARRYING ESTIMATED DECEMBER 31, 1998 AMOUNT VALUE FAIR VALUE - ----------------- -------- -------- ---------- 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
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. 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 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.
DECEMBER 31, ------------------------------------ PENSION BENEFITS OTHER BENEFITS ---------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- 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 $ -- $ -- ====== ====== ====== ======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
NON-QUALIFIED QUALIFIED PLAN PLAN TOTAL ---------------- -------------- ---------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- 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 ====== ====== ===== ===== ====== ======
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:
PENSION BENEFITS OTHER BENEFITS ---------------------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- 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
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:
ONE PERCENT ONE PERCENT INCREASE DECREASE ----------- ----------- Effect on total of service and interest cost components.... $ 14 $ 11 Effect of accumulated postretirement benefit obligation.... $134 $111
The components of periodic benefit costs were as follows:
PENSION BENEFITS OTHER BENEFITS --------------------- ------------------ 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- 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 ===== ===== ===== ==== ==== ====
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. 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:
DECEMBER 31, ---------------- 1999 1998 ---- ---- 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 ====== ======
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". 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 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 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- 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 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 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 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:
GROSS RENTAL SUBLEASE RENTAL INCOME INCOME PAYMENTS ------ -------- -------- 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
10. INCOME TAXES The provision for income taxes was as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- 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 ==== ==== ====
Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes as reported were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- 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 ==== ==== ====
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:
DECEMBER 31, ---------------- 1999 1998 ---- ---- 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) ====== ======
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 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:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
The effects of reinsurance with GenAmerica Corporation ("GenAmerica") were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Premiums ceded to GenAmerica.............................. $108 $113 $61 ==== ==== === Reinsurance recoveries from GenAmerica netted against policyholder benefits................................... $ 74 $ 28 $24 ==== ==== ===
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. 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:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
12. OTHER EXPENSES Other expenses were comprised of the following:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
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. 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:
DECEMBER 31, ------------------ 1999 1998 ---- ---- 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 ======= =======
YEARS ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ---- ---- ---- 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 ===== ====== ======
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:
1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
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 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.
AUTO AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/ DECEMBER 31, 1999 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL - ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- ----- 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
45 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUTO AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/ DECEMBER 31, 1998 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL - ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- ----- 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
AUTO AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/ DECEMBER 31, 1997 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL - ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- ----- 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
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. METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 2000 [UNAUDITED]
STATE STREET STATE STREET STATE STREET RESEARCH STATE STREET RESEARCH RESEARCH MONEY RESEARCH GROWTH INCOME MARKET DIVERSIFIED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ ------------ ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (10,854,619 shares; cost $323,590,542)..... $443,736,810 -- -- -- State Street Research Income Portfolio (5,805,069 shares; cost $72,537,494)...... -- $70,125,239 -- -- State Street Research Money Market Portfolio (4,472,055 shares; cost $46,891,971)...... -- -- $47,597,871 -- State Street Research Diversified Portfolio (13,725,987 shares; cost $229,537,676)..... -- -- -- $260,244,718 State Street Research Aggressive Growth Portfolio (5,654,713 shares; cost $153,932,202)..... -- -- -- -- MetLife Stock Index Portfolio (7,289,290 shares; cost $234,407,582)..... -- -- -- -- Santander International Stock Portfolio (3,379,030 shares; cost $44,349,604)...... -- -- -- -- Loomis Sayles High Yield Bond Portfolio (638,398 shares; cost $5,895,364)....... -- -- -- -- Janus Mid Cap Portfolio (4,292,028 shares; cost 109,951,360)...... -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,411,458 shares; cost $31,387,482)...... -- -- -- -- Scudder Global Equity Portfolio (1,203,436 shares; cost $15,588,911)...... -- -- -- -- Harris Oakmark Large Cap Value Portfolio (78,783 shares; cost $666,883)......... -- -- -- -- Neuberger & Berman Partners Mid Cap Value Portfolio (105,754 shares; cost $1,262,673)....... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (221,400 shares; cost $2,845,644)....... -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (715,810 shares; cost $6,910,092)....... -- -- -- -- Morgan Stanley EAFE Index (214,874 shares; cost $2,683,723)....... -- -- -- -- Russell 2000 Index Portfolio (185,491 shares; cost $2,384,675)....... -- -- -- -- Janus Large Cap Growth Portfolio (145,723 shares; cost $4,669,792)....... -- -- -- -- Invesco VIF High Yield Portfolio (900 shares; cost $10,281).......... -- -- -- -- Invesco Industrial Income Portfolio (267 shares; cost $5,578)........... -- -- -- -- Invesco Realty Portfolio (957 shares; cost $8,575)........... -- -- -- -- Templeton International Stock (21,945 shares; cost $408,375)......... -- -- -- -- ------------ ----------- ----------- ------------ Total Investments........ 443,736,810 70,125,239 47,597,871 260,244,718 Cash and Accounts Receivable............. 0 0 0 0 ------------ ----------- ----------- ------------ Total Assets............. 443,736,810 70,125,239 47,597,871 260,244,718 LIABILITIES.............. 1,352,537 39,215 1,950 421,876 ------------ ----------- ----------- ------------ NET ASSETS............... $442,384,273 $70,086,024 $47,595,921 $259,822,842 ============ =========== =========== ============
See Notes to Financial Statements. 112
STATE STREET LOOMIS T. ROWE HARRIS RESEARCH METLIFE PUTNAM SAYLES PRICE SCUDDER OAKMARK AGGRESSIVE STOCK INTERNATIONAL HIGH YIELD JANUS SMALL CAP GLOBAL LARGE CAP GROWTH INDEX STOCK BOND MID CAP GROWTH EQUITY VALUE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------- ---------- ------------ ----------- ----------- --------- ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (10,854,619 shares; cost $323,590,542)..... -- -- -- -- -- -- -- -- State Street Research Income Portfolio (5,805,069 shares; cost $72,537,494)...... -- -- -- -- -- -- -- -- State Street Research Money Market Portfolio (4,472,055 shares; cost $46,891,971)...... -- -- -- -- -- -- -- -- State Street Research Diversified Portfolio (13,725,987 shares; cost $229,537,676)..... -- -- -- -- -- -- -- -- State Street Research Aggressive Growth Portfolio (5,654,713 shares; cost $153,932,202)..... $236,197,382 -- -- -- -- -- -- -- MetLife Stock Index Portfolio (7,289,290 shares; cost $234,407,582)..... -- $294,268,648 -- -- -- -- -- -- Santander International Stock Portfolio (3,379,030 shares; cost $44,349,604)...... -- -- $46,664,402 -- -- -- -- -- Loomis Sayles High Yield Bond Portfolio (638,398 shares; cost $5,895,364)....... -- -- -- $5,988,173 -- -- -- -- Janus Mid Cap Portfolio (4,292,028 shares; cost 109,951,360)...... -- -- -- -- $153,182,485 -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,411,458 shares; cost $31,387,482)...... -- -- -- -- -- $40,319,576 -- -- Scudder Global Equity Portfolio (1,203,436 shares; cost $15,588,911)...... -- -- -- -- -- -- $17,666,445 -- Harris Oakmark Large Cap Value Portfolio (78,783 shares; cost $666,883)......... -- -- -- -- -- -- -- $665,718 Neuberger & Berman Partners Mid Cap Value Portfolio (105,754 shares; cost $1,262,673)....... -- -- -- -- -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (221,400 shares; cost $2,845,644)....... -- -- -- -- -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (715,810 shares; cost $6,910,092)....... -- -- -- -- -- -- -- -- Morgan Stanley EAFE Index (214,874 shares; cost $2,683,723)....... -- -- -- -- -- -- -- -- Russell 2000 Index Portfolio (185,491 shares; cost $2,384,675)....... -- -- -- -- -- -- -- -- Janus Large Cap Growth Portfolio (145,723 shares; cost $4,669,792)....... -- -- -- -- -- -- -- -- Invesco VIF High Yield Portfolio (900 shares; cost $10,281).......... -- -- -- -- -- -- -- -- Invesco Industrial Income Portfolio (267 shares; cost $5,578)........... -- -- -- -- -- -- -- -- Invesco Realty Portfolio (957 shares; cost $8,575)........... -- -- -- -- -- -- -- -- Templeton International Stock (21,945 shares; cost $408,375)......... -- -- -- -- -- -- -- -- ------------ ------------ ----------- ---------- ------------ ----------- ----------- -------- Total Investments........ 236,197,382 294,268,648 46,664,402 5,988,173 153,182,485 40,319,576 17,666,445 665,718 Cash and Accounts Receivable............. 0 0 0 30,951 0 0 22,203 22,767 ------------ ------------ ----------- ---------- ------------ ----------- ----------- -------- Total Assets............. 236,197,382 294,268,648 46,664,402 6,019,124 153,182,485 40,319,576 17,688,648 688,485 LIABILITIES.............. 458,351 402,530 50,821 0 276,059 35,292 0 0 ------------ ------------ ----------- ---------- ------------ ----------- ----------- -------- NET ASSETS............... $235,739,031 $293,866,118 $46,613,581 $6,019,124 $152,906,426 $40,284,284 $17,688,648 $688,485 ============ ============ =========== ========== ============ =========== =========== ========
113 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) AT JUNE 30, 2000 [UNAUDITED]
NEUBURGER T. ROWE LEHMAN MORGAN BERMAN PRICE BROTHERS STANLEY PARTNERS LARGE CAP AGGREGATE BOND EAFE MID CAP VALUE GROWTH INDEX INDEX PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------- ----------- -------------- ----------- ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (10,854,619 shares; cost $323,590,542)..... -- -- -- -- State Street Research Income Portfolio (5,805,069 shares; cost $72,537,494)...... -- -- -- -- State Street Research Money Market Portfolio (4,472,055 shares; cost $46,891,971)...... -- -- -- -- State Street Research Diversified Portfolio (13,725,987 shares; cost $229,537,676)..... -- -- -- -- State Street Research Aggressive Growth Portfolio (5,654,713 shares; cost $153,932,202)..... -- -- -- -- MetLife Stock Index Portfolio (7,289,290 shares; cost $234,407,582)..... -- -- -- -- Santander International Stock Portfolio (3,379,030 shares; cost $44,349,604)...... -- -- -- -- Loomis Sayles High Yield Bond Portfolio (638,398 shares; cost $5,895,364)....... -- -- -- -- Janus Mid Cap Portfolio (4,292,028 shares; cost 109,951,360)...... -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,411,458 shares; cost $31,387,482)...... -- -- -- -- Scudder Global Equity Portfolio (1,203,436 shares; cost $15,588,911)...... -- -- -- -- Harris Oakmark Large Cap Value Portfolio (78,783 shares; cost $666,883)......... -- -- -- -- Neuberger & Berman Partners Mid Cap Value Portfolio (105,754 shares; cost $1,262,673)....... $1,356,822 -- -- -- T. Rowe Price Large Cap Growth Portfolio (221,400 shares; cost $2,845,644)....... -- $3,192,594 -- -- Lehman Brothers Aggregate Bond Index Portfolio (715,810 shares; cost $6,910,092)....... -- -- $7,029,252 -- Morgan Stanley EAFE Index (214,874 shares; cost $2,683,723)....... -- -- -- $2,741,796 Russell 2000 Index Portfolio (185,491 shares; cost $2,384,675)....... -- -- -- -- Janus Large Cap Growth Portfolio (145,723 shares; cost $4,669,792)....... -- -- -- -- Invesco VIF High Yield Portfolio (900 shares; cost $10,281).......... -- -- -- -- Invesco Industrial Income Portfolio (267 shares; cost $5,578)........... -- -- -- -- Invesco Realty Portfolio (957 shares; cost $8,575)........... -- -- -- -- Templeton International Stock (21,945 shares; cost $408,375)......... -- -- -- -- ---------- ---------- ---------- ---------- Total Investments........ 1,356,822 3,192,594 7,029,252 2,741,796 Cash and Accounts Receivable............. 0 49,805 0 7,765 ---------- ---------- ---------- ---------- Total Assets............. 1,356,822 3,242,399 7,029,252 2,749,561 LIABILITIES.............. 11,429 0 4,839 0 ---------- ---------- ---------- ---------- NET ASSETS............... $1,345,393 $3,242,399 $7,024,413 $2,749,561 ========== ========== ========== ==========
See Notes to Financial Statements. 114
RUSSELL JANUS INVESCO INVESCO VIF INVESCO VIF TEMPLETON 2000 ASPEN VIF EQUITY REAL ESTATE INTERNATIONAL INDEX GROWTH HIGH YIELD INCOME OPPORTUNITY SECURITIES, CLASS 1 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL ----------- ----------- ---------- ----------- ----------- ------------------- ------------------- ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (10,854,619 shares; cost $323,590,542)..... -- -- -- -- -- -- $ 443,736,810 State Street Research Income Portfolio (5,805,069 shares; cost $72,537,494)...... -- -- -- -- -- -- 70,125,239 State Street Research Money Market Portfolio (4,472,055 shares; cost $46,891,971)...... -- -- -- -- -- -- 47,597,871 State Street Research Diversified Portfolio (13,725,987 shares; cost $229,537,676)..... -- -- -- -- -- -- 260,244,718 State Street Research Aggressive Growth Portfolio (5,654,713 shares; cost $153,932,202)..... -- -- -- -- -- -- 236,197,382 MetLife Stock Index Portfolio (7,289,290 shares; cost $234,407,582)..... -- -- -- -- -- -- 294,268,648 Santander International Stock Portfolio (3,379,030 shares; cost $44,349,604)...... -- -- -- -- -- -- 46,664,402 Loomis Sayles High Yield Bond Portfolio (638,398 shares; cost $5,895,364)....... -- -- -- -- -- -- 5,988,173 Janus Mid Cap Portfolio (4,292,028 shares; cost 109,951,360)...... -- -- -- -- -- -- 153,182,485 T. Rowe Price Small Cap Growth Portfolio (2,411,458 shares; cost $31,387,482)...... -- -- -- -- -- -- 40,319,576 Scudder Global Equity Portfolio (1,203,436 shares; cost $15,588,911)...... -- -- -- -- -- -- 17,666,445 Harris Oakmark Large Cap Value Portfolio (78,783 shares; cost $666,883)......... -- -- -- -- -- -- 665,718 Neuberger & Berman Partners Mid Cap Value Portfolio (105,754 shares; cost $1,262,673)....... -- -- -- -- -- -- 1,356,822 T. Rowe Price Large Cap Growth Portfolio (221,400 shares; cost $2,845,644)....... -- -- -- -- -- -- 3,192,594 Lehman Brothers Aggregate Bond Index Portfolio (715,810 shares; cost $6,910,092)....... -- -- -- -- -- -- 7,029,252 Morgan Stanley EAFE Index (214,874 shares; cost $2,683,723)....... -- -- -- -- -- -- 2,741,796 Russell 2000 Index Portfolio (185,491 shares; cost $2,384,675)....... $2,316,882 -- -- -- -- -- 2,316,882 Janus Large Cap Growth Portfolio (145,723 shares; cost $4,669,792)....... -- $4,792,844 -- -- -- -- 4,792,844 Invesco VIF High Yield Portfolio (900 shares; cost $10,281).......... -- -- $10,229 -- -- -- 10,229 Invesco Industrial Income Portfolio (267 shares; cost $5,578)........... -- -- -- $5,714 -- -- 5,714 Invesco Realty Portfolio (957 shares; cost $8,575)........... -- -- -- -- $8,758 -- 8,758 Templeton International Stock (21,945 shares; cost $408,375)......... -- -- -- -- -- $423,750 423,750 ---------- ---------- ------- ------ ------ -------- -------------- Total Investments........ 2,316,882 4,792,844 10,229 5,714 8,758 423,750 1,638,536,108 Cash and Accounts Receivable............. 68,527 59 1 4 1 25 202,108 ---------- ---------- ------- ------ ------ -------- -------------- Total Assets............. 2,385,409 4,792,903 10,230 5,718 8,759 423,775 1,638,738,216 LIABILITIES.............. 0 0 0 0 0 0 3,054,899 ---------- ---------- ------- ------ ------ -------- -------------- NET ASSETS............... $2,385,409 $4,792,903 $10,230 $5,718 $8,759 $423,775 $1,635,683,317 ========== ========== ======= ====== ====== ======== ==============
115 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS [UNAUDITED]
FOR THE SIX MONTHS ENDED JUNE 30, 2000 ------------------------------------------------------ STATE STREET STATE STREET STATE STREET RESEARCH STATE STREET RESEARCH RESEARCH MONEY RESEARCH GROWTH INCOME MARKET DIVERSIFIED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 0 $ 0 $ 0 $ 0 Expenses: Mortality and expense charges (Note 4)..... 1,880,499 270,482 180,625 1,105,160 ----------- ---------- ---------- ----------- Net investment (loss) income................. (1,880,499) (270,482) (180,625) (1,105,160) ----------- ---------- ---------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 3,122,544 (562,876) (304,989) 921,311 Change in unrealized appreciation (depreciation) of investments............ 15,577,303 2,865,154 1,660,088 8,504,918 ----------- ---------- ---------- ----------- Net realized and unrealized gain (loss) on investments......... 18,699,847 2,302,278 1,355,099 9,426,229 ----------- ---------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............. $16,819,348 $2,031,796 $1,174,474 $ 8,321,069 =========== ========== ========== ===========
See Notes to Financial Statements. 116
--------------------------------------------------------------------------------------------------- STATE STREET LOOMIS T. ROWE HARRIS RESEARCH METLIFE PUTNAM SAYLES PRICE SCUDDER OAKMARK AGGRESSIVE STOCK INTERNATIONAL HIGH YIELD JANUS SMALL CAP GLOBAL LARGE CAP GROWTH INDEX STOCK BOND MID CAP GROWTH EQUITY VALUE PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------ ----------- ------------- ---------- ----------- ---------- --------- --------- INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Expenses: Mortality and expense charges (Note 4)..... 984,136 1,155,650 192,881 23,618 604,704 145,588 66,040 1,944 ----------- ----------- --------- -------- ----------- ---------- --------- -------- Net investment (loss) income................. (984,136) (1,155,650) (192,881) (23,618) (604,704) (145,588) (66,040) (1,944) ----------- ----------- --------- -------- ----------- ---------- --------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 1,916,455 3,660,762 290,858 (37,781) 1,530,161 549,273 178,013 (28,736) Change in unrealized appreciation (depreciation) of investments............ 16,815,134 (4,730,138) (440,612) 206,461 (5,636,901) 1,599,233 (408,847) 12,675 ----------- ----------- --------- -------- ----------- ---------- --------- -------- Net realized and unrealized gain (loss) on investments......... 18,731,589 (1,069,376) (149,754) 168,680 (4,106,740) 2,148,506 (230,834) (16,061) ----------- ----------- --------- -------- ----------- ---------- --------- -------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............. $17,747,453 $(2,225,026) $(342,635) $145,062 $(4,711,444) $2,002,918 $(296,874) $(18,005) =========== =========== ========= ======== =========== ========== ========= ========
117 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS (CONTINUED) [UNAUDITED]
FOR THE SIX MONTHS ENDED JUNE 30, 2000 ----------------------------------------------------- NEUBURGER T. ROWE LEHMAN MORGAN BERMAN PRICE BROTHERS STANLEY PARTNERS LARGE CAP AGGREGATE BOND EAFE MID CAP VALUE GROWTH INDEX INDEX PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------- --------- -------------- ----------- INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 0 $ 0 $ 0 $ 0 Expenses: Mortality and expense charges (Note 4)..... 3,911 7,832 7,385 7,448 ------- -------- -------- --------- Net investment (loss) income................. (3,911) (7,832) (7,385) (7,448) ------- -------- -------- --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... (8,475) 5,642 (5,857) 53,290 Change in unrealized appreciation (depreciation) of investments............ 77,436 174,262 146,692 (102,215) ------- -------- -------- --------- Net realized and unrealized gain (loss) on investments......... 68,961 179,904 140,835 (48,925) ------- -------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............. $65,050 $172,072 $133,450 $ (56,373) ======= ======== ======== =========
See Notes to Financial Statements. 118
------------------------------------------------------------------------------- RUSSELL JANUS INVESCO INVESCO VIF INVESCO VIF TEMPLETON 2000 ASPEN VIF EQUITY REAL ESTATE INTERNATIONAL INDEX GROWTH HIGH YIELD INCOME OPPORTUNITY SECURITIES, CLASS 1 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL --------- --------- ---------- ----------- ----------- ------------------- ---------------- INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 0 $ 0 $ 0 $ 0 $ 0 $ 34,323 $ 34,323 Expenses: Mortality and expense charges (Note 4)..... 5,875 3,210 9 17 5 783 6,647,802 -------- -------- ---- --- ---- -------- ----------- Net investment (loss) income................. (5,875) (3,210) (9) (17) (5) 33,540 (6,613,479) -------- -------- ---- --- ---- -------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 8,357 5,239 (2) 4 16 (32,203) 11,261,006 Change in unrealized appreciation (depreciation) of investments............ (81,294) 112,344 (46) 91 99 14,894 36,366,731 -------- -------- ---- --- ---- -------- ----------- Net realized and unrealized gain (loss) on investments......... (72,937) 117,583 (48) 95 115 (17,309) 47,627,737 -------- -------- ---- --- ---- -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............. $(78,812) $114,373 $(57) $78 $110 $ 16,231 $41,014,258 ======== ======== ==== === ==== ======== ===========
119 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENT OF CHANGES IN NET ASSETS [UNAUDITED]
STATE STREET RESEARCH STATE STREET RESEARCH STATE STREET RESEARCH GROWTH PORTFOLIO INCOME PORTFOLIO MONEY MARKET PORTFOLIO --------------------- --------------------- ---------------------- FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, 2000 2000 2000 --------------------- --------------------- ---------------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) income............. $ (1,880,499) $ (270,482) $ (180,625) Net realized gain (loss) from security transactions....... 3,122,544 (562,876) (304,989) Change in unrealized appreciation (depreciation) of investments........ 15,577,303 2,865,154 1,660,088 ------------ ----------- ------------ Net increase (decrease) in net assets resulting from operations.... 16,819,348 2,031,796 1,174,474 ------------ ----------- ------------ From capital transactions: Net premiums......... 39,237,045 9,279,408 29,338,686 Redemptions.......... (7,942,699) (944,029) (237,970) Net portfolio transfers.......... (5,018,004) (2,917,742) (14,576,484) Other net transfers.......... (20,379,586) (2,994,849) (1,176,267) ------------ ----------- ------------ Net increase (decrease) in net assets from capital transactions....... 5,896,756 2,422,788 13,347,965 ------------ ----------- ------------ NET CHANGE IN NET ASSETS................. 22,716,104 4,454,584 14,522,439 NET ASSETS--BEGINNING OF PERIOD................. 419,668,169 65,631,440 33,073,482 ------------ ----------- ------------ NET ASSETS--END OF PERIOD................. $442,384,273 $70,086,024 $ 47,595,921 ============ =========== ============
See Notes to Financial Statements. 120
STATE STREET RESEARCH STATE STREET RESEARCH METLIFE PUTNAM DIVERSIFIED PORTFOLIO AGGRESSIVE GROWTH PORTFOLIO STOCK INDEX PORTFOLIO INTERNATIONAL STOCK PORTFOLIO --------------------- --------------------------- --------------------- ----------------------------- FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 2000 2000 2000 --------------------- --------------------------- --------------------- ----------------------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) income............. $ (1,105,160) $ (984,136) $ (1,155,650) $ (192,881) Net realized gain (loss) from security transactions....... 921,311 1,916,455 3,660,762 290,858 Change in unrealized appreciation (depreciation) of investments........ 8,504,918 16,815,134 (4,730,138) (440,612) ------------ ------------ ------------ ----------- Net increase (decrease) in net assets resulting from operations.... 8,321,069 17,747,453 (2,225,026) (342,635) ------------ ------------ ------------ ----------- From capital transactions: Net premiums......... 26,985,088 20,791,682 46,436,933 5,248,919 Redemptions.......... (4,966,559) (5,574,188) (4,248,728) (929,881) Net portfolio transfers.......... (4,035,337) (1,227,806) 11,443,563 744,004 Other net transfers.......... (14,184,124) (10,668,096) (18,835,482) (2,031,387) ------------ ------------ ------------ ----------- Net increase (decrease) in net assets from capital transactions....... 3,799,068 3,321,592 34,796,286 3,031,655 ------------ ------------ ------------ ----------- NET CHANGE IN NET ASSETS................. 12,120,137 21,069,045 32,571,260 2,689,020 NET ASSETS--BEGINNING OF PERIOD................. 247,702,705 214,669,986 261,294,858 43,924,561 ------------ ------------ ------------ ----------- NET ASSETS--END OF PERIOD................. $259,822,842 $235,739,031 $293,866,118 $46,613,581 ============ ============ ============ ===========
121 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) [UNAUDITED]
LOOMIS SAYLES JANUS T. ROWE PRICE HIGH YIELD BOND PORTFOLIO MID CAP PORTFOLIO SMALL CAP GROWTH PORTFOLIO ------------------------- ------------------ -------------------------- FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, 2000 2000 2000 ------------------------- ------------------ -------------------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) income............. $ (23,618) $ (604,704) $ (145,588) Net realized gain (loss) from security transactions....... (37,781) 1,530,161 549,273 Change in unrealized appreciation (depreciation) of investments........ 206,461 (5,636,901) 1,599,233 ---------- ------------ ----------- Net increase (decrease) in net assets resulting from operations.... 145,062 (4,711,444) 2,002,918 ---------- ------------ ----------- From capital transactions: Net premiums......... 1,052,837 29,187,820 5,976,801 Redemptions.......... (73,638) (1,695,954) (414,852) Net portfolio transfers.......... 254,279 29,598,569 2,686,398 Other net transfers.......... (313,624) (12,551,316) (2,116,302) ---------- ------------ ----------- Net increase (decrease) in net assets from capital transactions....... 919,854 44,539,119 6,132,045 ---------- ------------ ----------- NET CHANGE IN NET ASSETS................. 1,064,916 39,827,675 8,134,963 NET ASSETS--BEGINNING OF PERIOD................. 4,954,208 113,078,751 32,149,321 ---------- ------------ ----------- NET ASSETS--END OF PERIOD................. $6,019,124 $152,906,426 $40,284,284 ========== ============ ===========
See Notes to Financial Statements. 122
SCUDDER HARRIS OAKMARK NEUBERGER BERMAN PARTNERS T. ROWE PRICE GLOBAL EQUITY PORTFOLIO LARGE CAP VALUE PORTFOLIO MID CAP VALUE PORTFOLIO LARGE CAP GROWTH PORTFOLIO ----------------------- ------------------------- ------------------------- -------------------------- FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 2000 2000 2000 ----------------------- ------------------------- ------------------------- -------------------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) income............. $ (66,040) $ (1,944) $ (3,911) $ (7,832) Net realized gain (loss) from security transactions....... 178,013 (28,736) (8,475) 5,642 Change in unrealized appreciation (depreciation) of investments........ (408,847) 12,675 77,436 174,262 ----------- --------- ---------- ---------- Net increase (decrease) in net assets resulting from operations.... (296,874) (18,005) 65,050 172,072 ----------- --------- ---------- ---------- From capital transactions: Net premiums......... 3,015,020 250,307 445,012 741,665 Redemptions.......... (195,039) (9,871) 0 (1,465) Net portfolio transfers.......... 1,636,901 272,521 399,052 1,253,318 Other net transfers.......... (969,257) (145,965) (156,011) (176,586) ----------- --------- ---------- ---------- Net increase (decrease) in net assets from capital transactions....... 3,487,625 366,992 688,053 1,816,932 ----------- --------- ---------- ---------- NET CHANGE IN NET ASSETS................. 3,190,751 348,987 753,103 1,989,004 NET ASSETS--BEGINNING OF PERIOD................. 14,497,897 339,498 592,290 1,253,395 ----------- --------- ---------- ---------- NET ASSETS--END OF PERIOD................. $17,688,648 $ 688,485 $1,345,393 $3,242,399 =========== ========= ========== ==========
123 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) [UNAUDITED]
LEHMAN BROTHERS AGGREGATE MORGAN STANLEY RUSSELL 2000 BOND INDEX PORTFOLIO EAFE INDEX PORTFOLIO INDEX PORTFOLIO ------------------------- -------------------- ------------------ FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, 2000 2000 2000 ------------------------- -------------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) income............. $ (7,385) $ (7,448) $ (5,875) Net realized gain (loss) from security transactions....... (5,857) 53,290 8,357 Change in unrealized appreciation (depreciation) of investments........ 146,692 (102,215) (81,294) ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations.... 133,450 (56,373) (78,812) ---------- ---------- ---------- From capital transactions: Net premiums......... 568,627 681,250 795,852 Redemptions.......... (2,578) (2,339) (5,770) Net portfolio transfers.......... 5,949,498 1,085,596 1,423,763 Other net transfers.......... (185,625) (180,235) (201,612) ---------- ---------- ---------- Net increase (decrease) in net assets from capital transactions....... 6,329,922 1,584,272 2,012,233 ---------- ---------- ---------- NET CHANGE IN NET ASSETS................. 6,463,372 1,527,899 1,933,421 NET ASSETS--BEGINNING OF PERIOD................. 561,041 1,221,662 451,988 ---------- ---------- ---------- NET ASSETS--END OF PERIOD................. $7,024,413 $2,749,561 $2,385,409 ========== ========== ==========
See Notes to Financial Statements. 124
TEMPLETON INVESCO VIF INVESCO VIF INVESCO VIF INTERNATIONAL JANUS ASPEN HIGH YIELD EQUITY INCOME REAL ESTATE SECURITIES, CLASS 1 GROWTH PORTFOLIO PORTFOLIO PORTFOLIO OPPORTUNITY PORTFOLIO PORTFOLIO ------------------ ------------------ ------------------ --------------------- ------------------- FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 2000 2000 2000 2000 ------------------ ------------------ ------------------ --------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) income............. $ (3,210) $ (9) $ (17) $ (5) $ 33,540 Net realized gain (loss) from security transactions....... 5,239 (2) 4 16 (32,203) Change in unrealized appreciation (depreciation) of investments........ 112,344 (46) 91 99 14,894 ---------- ------- ------ ------ -------- Net increase (decrease) in net assets resulting from operations.... 114,373 (57) 78 110 16,231 ---------- ------- ------ ------ -------- From capital transactions: Net premiums......... 192,541 0 0 0 194,304 Redemptions.......... 0 0 0 0 (1,160) Net portfolio transfers.......... 4,653,928 7,137 0 7,139 210,621 Other net transfers.......... (264,312) (77) (232) (74) (3,053) ---------- ------- ------ ------ -------- Net increase (decrease) in net assets from capital transactions....... 4,582,157 7,060 (232) 7,065 400,712 ---------- ------- ------ ------ -------- NET CHANGE IN NET ASSETS................. 4,696,530 7,003 (154) 7,175 416,943 NET ASSETS--BEGINNING OF PERIOD................. 96,373 3,227 5,872 1,584 6,832 ---------- ------- ------ ------ -------- NET ASSETS--END OF PERIOD................. $4,792,903 $10,230 $5,718 $8,759 $423,775 ========== ======= ====== ====== ======== TOTAL ------------------ FOR THE SIX MONTHS ENDED JUNE 30, 2000 ------------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment (loss) income............. $ (6,613,479) Net realized gain (loss) from security transactions....... 11,261,006 Change in unrealized appreciation (depreciation) of investments........ 36,366,731 -------------- Net increase (decrease) in net assets resulting from operations.... 41,014,258 -------------- From capital transactions: Net premiums......... 220,419,797 Redemptions.......... (27,246,720) Net portfolio transfers.......... 33,850,914 Other net transfers.......... (87,534,072) -------------- Net increase (decrease) in net assets from capital transactions....... 139,489,919 -------------- NET CHANGE IN NET ASSETS................. 180,504,177 NET ASSETS--BEGINNING OF PERIOD................. 1,455,179,140 -------------- NET ASSETS--END OF PERIOD................. $1,635,683,317 ==============
125 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 [UNAUDITED] 1. BUSINESS Metropolitan Life Separate Account UL (the "Separate Account") is a multi-division unit investment trust registered under the Investment Company Act of 1940 and presently consists of twenty-two investment portfolios used to support variable universal life insurance policies. The assets in each portfolio are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Funds"). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by Metropolitan Life Insurance Company ("Metropolitan Life"), on December 13, 1988 and registered as a unit investment trust on January 5, 1990. The Assets of the Separate Account are the property of Metropolitan Life. On September 30, 2000 operations are expected to commence for eighteen new investment portfolios added to the Separate Account on that date: the State Street Research Aurora Small Cap Value Portfolio, the Putnam Large Cap Growth Portfolio, the MetLife Mid Cap Stock Index Portfolio, the Franklin Small Cap-Class 2 Portfolio, the Davis Venture Value Portfolio, the Loomis Sayles Small Cap Portfolio, the Alger Equity Growth Portfolio, the MFS Investors Portfolio, the Back Bay Advisors Bond Income Portfolio, the Westpeak Growth and Income Portfolio, the Growth and Income-Class B Portfolio, the Premier Growth-Class B Portfolio, the Technology-Class B Portfolio, Large Cap Stock Portfolio, Growth-Service Class Portfolio, Contrafund-Service Class Portfolio, and the Asset Manager Growth-Service Class Portfolio. 2. SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS Investments in shares of the Funds are valued at the reported net asset values of the respective portfolios. B. SECURITY TRANSACTIONS Purchases and sales are recorded on the trade date. Realized gains and losses on sales of investments are determined on the basis of identified cost. C. FEDERAL INCOME TAXES In the opinion of counsel of Metropolitan Life, the Separate Account will be treated as a part of Metropolitan Life and its operations, and the Separate Account will not be taxed as a "regulated investment company" under existing law. Metropolitan Life is taxed as a life insurance company. The policies permit Metropolitan Life to charge against the Separate Account any taxes or reserve for taxes, attributable to the maintenance or operation of the Separate Account. Metropolitan Life is not currently charging any federal income taxes against the Separate Account arising from the earnings of realized capital gains attributable to the Separate Account. Such charges may be imposed in future years depending on market fluctuations and transactions involving the Separate Account. D. NET PREMIUMS Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain of the policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain of the 126 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 -- (CONTINUED) [UNAUDITED] policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 3. DIVIDENDS On February 28, 2000 and April 26, 2000, the Templeton International Securities, Class 1 Portfolio declared dividends for all shareholders of record on February 28, 2000 and April 26, 2000 respectively. The amount of dividends received by the Separate Account was $34,323. The dividends were paid to Metropolitan Life on February 29, 2000 and April 27, 2000, respectively, and were immediately reinvested in additional shares of the portfolios in which the Templeton International Securities, Class 1 Portfolio invest. As a result of this reinvestment, the number of shares of the Metropolitan Series Fund, Inc. held by Templeton International Securities, Class 1 Portfolio increased by 1,817 shares. 4. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a charge against the assets attributable to the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge varies by policy type but will be higher than an effective annual rate of .90% of the average daily value of the net assets of the monthly anniversary value of the net assets in the Separate Account which are attributable to such policies. 5. CHANGE OF NAME Effective January 24, 2000, Putnam became the sub-investment manager of the Putnam International Stock Portfolio (formerly Santander International Stock Portfolio) of the Metropolitan Series Fund, Inc. Effective February 15, 2000, Invesco VIF Realty Portfolio changed its name to Invesco VIF Real Estate Opportunity Portfolio. 127 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS)
PRO FORMA SIX SIX MONTHS MONTHS ENDED ENDED JUNE 30, JUNE 30, (NOTE 4) -------------- ----------------- 2000 1999 2000 ---- ---- ---- REVENUES Premiums........................... $7,041 $5,786 $ 6,147 Universal life and investment-type product policy fees.............. 917 651 917 Net investment income.............. 5,042 4,806 4,432 Other revenues..................... 1,359 1,048 1,370 Net realized investment losses (net of amounts allocable to other accounts of $23, $40 and $12, respectively).................... (147) (155) (127) Contribution from the closed block............................ 1 -- 25 ------- ------- ------- 14,213 12,136 12,764 ------- ------- ------- EXPENSES Policyholder benefits and claims (includes amounts directly related to net realized investment losses of $8, $16 and $8, respectively)................ 7,336 6,400 6,420 Interest credited to policyholder account balances................. 1,421 1,207 1,421 Policyholder dividends............. 605 784 226 Payments to former Canadian policyholders.................... 327 -- -- Other expenses (includes amounts directly related to net realized investment losses of $15, $24 and $4, respectively)................ 3,857 3,421 3,693 ------- ------- ------- 13,546 11,812 11,760 ------- ------- ------- Income before provision for income taxes and extraordinary item..... 667 324 1,004 Provision for income taxes......... 376 171 335 ------- ------- ------- Income before extraordinary item... 291 153 669 Extraordinary item -- demutualization expense.......... 170 44 -- ------- ------- ------- Net income......................... $ 121 $ 109 $ 669 ======= ======= ======= Net income after date of demutualization.................. $ 341 =======
See accompanying notes to unaudited interim condensed consolidated financial statements. 128 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (IN MILLIONS)
2000 1999 ---- ---- ASSETS Investments: Fixed maturities available-for-sale, at fair value....................... $ 83,618 $ 96,981 Equity securities, at fair value...... 2,133 2,006 Mortgage loans on real estate......... 16,405 19,739 Real estate and real estate joint ventures............................ 5,619 5,649 Policy loans.......................... 4,179 5,598 Other limited partnership interests... 1,559 1,331 Short-term investments................ 1,046 3,055 Other invested assets................. 2,122 1,501 -------- -------- 116,681 135,860 Cash and cash equivalents............... 3,187 2,789 Accrued investment income............... 1,424 1,725 Premiums and other receivables.......... 8,317 6,681 Deferred policy acquisition costs....... 6,771 9,069 Deferred income taxes................... 695 603 Other................................... 4,824 3,564 Closed block assets..................... 39,089 -- Separate account assets................. 73,706 64,941 -------- -------- $254,694 $225,232 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits.................. $ 41,373 $ 73,582 Policyholder account balances........... 53,605 45,901 Other policyholder funds................ 5,339 4,498 Policyholder dividends payable.......... 283 974 Short-term debt......................... 1,775 4,208 Long-term debt.......................... 3,838 2,514 Current income tax payable.............. 552 548 Other................................... 16,938 14,376 Closed block liabilities................ 42,766 -- Separate account liabilities............ 73,706 64,941 -------- -------- 240,175 211,542 -------- -------- Commitments and contingencies (Note 7).................................... Company-obligated mandatory redeemable securities of subsidiary trust holding solely junior subordinated debentures of its Parent......................... 118 -- -------- -------- Stockholder's Equity: Common stock, par value $.01 per share:................................ 5 -- Additional paid-in capital.............. 14,549 -- Retained earnings....................... 341 14,100 Accumulated other comprehensive loss.... (494) (410) -------- -------- 14,401 13,690 -------- -------- $254,694 $225,232 ======== ========
See accompanying notes to unaudited interim condensed consolidated financial statements. 129 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN MILLIONS)
ACCUMULATED OTHER COMPREHENSIVE LOSS ------------------ NET FOREIGN MINIMUM ADDITIONAL UNREALIZED CURRENCY PENSION COMMON PAID-IN RETAINED INVESTMENT TRANSLATION LIABILITY STOCK CAPITAL EARNING LOSSES ADJUSTMENT ADJUSTMENT TOTAL ------ ---------- -------- ---------- ----------- ---------- ----- Balance at January 1, 2000................... $-- $ -- $ 14,100 $(297) $(94) $(19) $13,690 Policy credits and cash payments to eligible policyholders.......... (2,958) (2,958) Common stock issued in demutualization........ 5 10,917 (10,922) -- Capital contribution from Parent................. -- 3,632 -- -- -- -- 3,632 Comprehensive income: Net loss before date of demutualization...... (220) (220) Net income after date of demutualization... 341 341 Other comprehensive loss: Unrealized investment losses, net of realized offsets, reclassification adjustments and income taxes....... (92) (92) Foreign currency translation adjustments........ 8 8 ------- Other comprehensive loss............... (84) ------- Comprehensive income... 37 --- ------- -------- ----- ---- ---- ------- Balance at June 30, 2000................... $ 5 $14,549 $ 341 $(389) $(86) $(19) $14,401 === ======= ======== ===== ==== ==== =======
See accompanying notes to unaudited interim condensed consolidated financial statements. 130 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (IN MILLIONS)
2000 1999 ---- ---- NET CASH PROVIDED BY OPERATING ACTIVITIES............................ $ 1,682 $ 1,280 CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturities.................... 21,473 39,728 Equity securities................... 392 456 Mortgage loans on real estate....... 998 761 Real estate and real estate joint ventures........................... 344 482 Other limited partnership interests.......................... 263 273 Purchases of: Fixed maturities.................... (25,258) (40,588) Equity securities................... (377) (172) Mortgage loans on real estate....... (833) (2,190) Real estate and real estate joint ventures........................... (186) (170) Other limited partnerhip interests.......................... (338) (193) Net change in short-term investments......................... 2,130 616 Net change in policy loans............ (98) 87 Purchase of business, net of cash received............................ (419) -- Proceeds from sales of businesses..... 107 -- Net change in investment collateral... 1,015 505 Other, net............................ (387) (72) -------- -------- Net cash used in investing activities... (1,174) (477) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Capital contribution from Parent...... 3,632 -- Cash payments to eligible policyholders....................... (2,550) -- Policyholder account balances: Deposits............................ 14,769 10,268 Withdrawals......................... (14,636) (11,509) Net change in short-term debt......... (2,436) (1,058) Long-term debt issued................. 1,124 165 Long-term debt repaid................. (13) (181) -------- -------- Net cash provided by (used in) financing activities............................ (110) (2,315) -------- -------- Change in cash and cash equivalents..... 398 (1,512) Cash and cash equivalents, beginning of period................................ 2,789 3,301 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 3,187 $ 1,789 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest.............................. $ 257 $ 196 ======== ======== Income taxes.......................... $ 235 $ 170 ======== ======== Non-cash transactions during the period: Policy credits to eligible policyholders....................... $ 408 $ -- ======== ======== Business acquisitions -- assets....... $ 23,686 $ -- ======== ======== Business acquisitions -- liabilities......................... $ 22,406 $ -- ======== ========
See accompanying notes to unaudited interim condensed consolidated financial statements. 131 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Metropolitan Life Insurance Company 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, reinsurance and retirement and savings products and services to corporations and other institutions. On April 7, 2000, Metropolitan Life Insurance Company ("Metropolitan Life") converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. ("MetLife"), a Delaware corporation. The conversion was pursuant to an order by the New York Superintendent of Insurance ("Superintendent") approving Metropolitan Life's plan of reorganization (the "plan") as amended. On the date of demutualization, each policyholder's membership interest in Metropolitan Life was extinguished and each eligible policyholder received, in exchange for that interest, trust interests representing shares of common stock of MetLife 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, Metropolitan Life's Canadian branch made cash payments to holders of certain policies transferred to Clarica Life Insurance Company in connection with the sale of a substantial portion of Metropolitan Life's Canadian operations in 1998. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company and its consolidated results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of full year performance. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and the notes thereto for the year ended December 31, 1999. PRINCIPLES OF CONSOLIDATION The accompanying condensed consolidated financial statements include the accounts of the Company, partnerships and joint ventures in which the Company has a majority voting interest or general partner interest with limited removal rights from limited partners. All material intercompany accounts and transactions have been eliminated. EXTRAORDINARY ITEM -- DEMUTUALIZATION EXPENSE The accompanying condensed consolidated statements of operations include extraordinary charges of $170 (net of income tax benefit of $60), and $44 (net of income tax benefit of $10) 132 for the six months ended June 30, 2000 and 1999, respectively, related to costs associated with the demutualization. FEDERAL INCOME TAXES Federal income taxes for interim periods have been computed using an estimated annual effective tax rate. This rate is revised, if necessary, at the end of each successive interim period to reflect the current estimate of the annual effective tax rate. Income tax expense for the six months ended June 30, 2000 reflect the effect of surplus tax for the period prior to demutualization and the non-deductible payment to the former Canadian policyholders. CLOSED BLOCK On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues 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 to provide 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 the policies 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 related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that 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 as long as any policy in the closed block remains in force. The expected life of the closed block is over 100 years. The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends in the amounts described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization represents the estimated maximum future contributions from the closed block expected to result from operations attributed to the closed block after income taxes. Contributions from the closed block are 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 Company will recognize only the expected cumulative contribution in income with the excess recorded as a policyholder dividend obligation, because it will pay the excess of the actual cumulative contribution from the closed block over the expected cumulative contribution to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block. If over such 133 period, the actual cumulative contribution from the closed block is less than the expected cumulative contribution from the closed block, the Company will recognize only the actual contribution in income. However, the Company may change dividends in the future, which would be intended to increase future actual contributions until the actual cumulative contributions equal the expected cumulative contributions. The results of operations of the closed block are presented as a single line item in the Company's condensed consolidated statements of operations entitled, "Contribution from the closed block". In addition, all assets and liabilities allocated to the closed block are reported in the Company's condensed consolidated balance sheet separately under the captions "Closed block assets" and "Closed block liabilities", respectively. Prior to the establishment of the closed block the assets, liabilities, revenues and expenses of the closed block were reported in various line items in the Company's condensed consolidated financial statements. Accordingly, certain line items in the Company's condensed consolidated financial statements subsequent to the establishment of the closed block reflect material reductions in reported amounts, as compared to periods prior to the establishment of the closed block, while having no effect on stockholder's equity or net income (loss). The pre-tax contribution from the closed block includes only those revenues, benefit payments, dividends, premium taxes, administrative and investment expenses considered in funding the closed block and deferred policy acquisition costs incurred prior to the date of demutualization, applicable to policies included in the closed block. Income tax expenses applicable to the closed block are allocated to the closed block and are reflected as a component of the provision for income taxes. EARNINGS AFTER DATE OF DEMUTUALIZATION Net income after the date of demutualization is based on the results of operations for the period beginning on April 1, 2000, adjusted to eliminate the payments to the former Canadian policyholders and costs of demutualization recorded in April 2000 which are applicable to the period prior to demutualization. APPLICATION OF ACCOUNTING PRONOUNCEMENTS Effective January 1, 2000, the Company adopted 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. Adoption of SOP 98-7 did not have a material effect on the Company's condensed consolidated financial statements. In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES -- AN AMENDMENT OF FASB STATEMENT NO. 133 ("SFAS 138"). In June 1999, the FASB also 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 134 ("SFAS 133") until January 1, 2001. SFAS 133, as amended by SFAS 138, requires, among other things, that all derivatives be recognized in the consolidated balance sheet 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 December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company is required to adopt SAB 101 as of January 1, 2001. The Company is in the process of quantifying the impact, if any, of the requirements of SAB 101. 2. INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS On the date of demutualization, MetLife conducted an initial public offering of 202,000,000 shares and concurrent private placements of 60,000,000 shares of its common stock at an initial public offering price of $14.25 per share. The shares of common stock issued in the offerings are in addition to 493,903,472 shares of common stock of MetLife distributed to the Metropolitan Life policyholder trust for the benefit of policyholders of Metropolitan Life in connection with the demutualization. On April 10, 2000, MetLife issued 30,300,000 additional shares of common stock as a result of the exercise of over-allotment options granted to underwriters in the initial public offering. In April 2000, MetLife Capital Trust I, a business trust wholly owned by MetLife, issued 20,125,000 8.00% equity security units ("units"). Each unit contains a purchase contract under which the holder agrees to purchase, for $50.00, shares of common stock of MetLife on May 15, 2003 and a capital security, with a stated liquidation amount of $50.00. The number of shares to be purchased at such date will be determined based on the average trading price of MetLife common stock. The proceeds from the sale of the units were used to acquire $1,006 8.00% debentures of MetLife ("MetLife debentures"). The capital securities represent undivided beneficial ownership interests in MetLife Capital Trust I's assets, which consist solely of the MetLife debentures. These securities are pledged to collateralize the obligations of the unit holder under the related purchase contracts. Holders of the capital securities are entitled to receive cumulative cash distributions accruing from April 7, 2000 and payable quarterly in arrears commencing August 15, 2000 at an annual rate of 8.00%. MetLife irrevocably guarantees, on a senior and unsecured basis, the payment in full of distributions on the capital securities and the stated liquidation amount of the capital securities, in each case to the extent of available trust funds. Holders of the capital securities generally have no voting rights. The MetLife debentures bear interest at an annual rate of 8.00% of the principal amount, payable quarterly in arrears commencing August 15, 2000 and mature on May 15, 2005. These debentures are unsecured. Because MetLife is a holding company, its right to participate in the distribution of assets of any subsidiary upon the subsidiary's liquidation, reorganization or otherwise, is subject to the prior claims of creditors of the subsidiary, except to the extent MetLife may be recognized as a creditor of that subsidiary. Accordingly, MetLife's obligations under the debentures are effectively subordinated to all existing and future liabilities of its subsidiaries. 135 In connection with the contribution to Metropolitan Life of the net proceeds from the initial public offering, the private placements and the unit offering, Metropolitan Life issued to MetLife a $1,006 8.00% mandatorily convertible note due 2005 having the same interest and payment terms as set forth in the debentures of MetLife issued to MetLife Capital Trust I. The principal amount of the capital note is mandatorily convertible into common stock of Metropolitan Life upon maturity or acceleration of the capital note and without any further action by MetLife or Metropolitan Life. In addition, the capital note provides that Metropolitan Life may not make any payment of principal or interest on the capital note so long as specified payment restrictions exist and have not been waived by the Superintendent. Payment restrictions would exist if Metropolitan Life fails to exceed certain thresholds relative to the level of its statutory risk-based capital or the amount of its outstanding capital notes, surplus notes or similar obligations. At June 30, 2000, Metropolitan Life's statutory total adjusted capital exceeded these limitations. 3. CLOSED BLOCK The closed block was established on the effective date of demutualization. Amounts reported at April 7, 2000 and for the period after demutualization are as of April 1, 2000 and for the period beginning on April 1, 2000 (the effect of transactions from April 1, 2000 through April 6, 2000 are not considered material). Certain amounts reported for the closed block are based on estimates and assumptions that management believes are reasonable. Revisions to such estimates will be recorded in the period of change. Pro forma amounts are as if the closed block had been established on January 1, 2000. Closed block revenues and expenses were as follows:
PRO FORMA PRO FORMA JANUARY 1, 2000 APRIL 7, 2000 SIX MONTHS THROUGH THROUGH ENDED APRIL 6, 2000 JUNE 30, 2000 JUNE 30, 2000 --------------- ------------- ------------- REVENUES Premiums......................... $ 894 $ 936 $1,830 Net investment income and other revenues....................... 620 626 1,246 Net realized investment losses (net of amounts allocable to other accounts of $11, $(6) and $5, respectively).............. (20) (20) (40) ------ ------ ------ 1,494 1,542 3,036 ------ ------ ------ EXPENSES Policyholder benefits and claims (includes amounts directly related to net realized investment losses of $--, $(7) and $(7), respectively)........ 916 918 1,834 Policyholder dividends........... 379 376 755 Policyholder dividend obligation..................... -- 27 27 Other expenses (includes amounts directly related to net realized investment losses of $11, $1 and $12, respectively).................. 175 220 395 ------ ------ ------ 1,470 1,541 3,011 ------ ------ ------ Contribution from the closed block............................ $ 24 $ 1 $ 25 ====== ====== ======
136 Closed block assets and liabilities at June 30, 2000 and April 7, 2000 were as follows:
JUNE 30, APRIL 7, 2000 2000 -------- -------- ASSETS Investments: Fixed maturities available-for-sale, at fair value....................... $23,961 $23,939 Equity securities, at fair value...... 24 -- Mortgage loans on real estate......... 5,026 4,744 Policy loans.......................... 3,776 3,762 Short-term investments................ 98 167 Other invested assets................. 428 325 ------- ------- 33,313 32,937 Cash and cash equivalents............... 1,005 643 Accrued investment income............... 518 538 Premiums and other receivables.......... 242 250 Deferred policy acquisition costs....... 4,011 4,011 Other................................... -- 22 ------- ------- Total closed block assets............. $39,089 $38,401 ======= ======= LIABILITIES Future policy benefits.................. $38,835 38,662 Other policyholder funds................ 313 321 Policyholder dividends payable.......... 767 747 Current income tax payable.............. 61 46 Other................................... 2,790 2,331 ------- ------- Total closed block liabilities........ $42,766 $42,107 ======= =======
4. PRO FORMA INFORMATION The pro forma information for the six months ended June 30, 2000 is provided for informational purposes only and does not necessarily indicate the consolidated results of operations had the demutualization been consummated on January 1, 2000. The pro forma information also does not project or forecast the consolidated results of operations for any future period. The pro forma earnings information gives effect to the demutualization and other related events as if they occurred on January 1, 2000. Accordingly, pro forma earnings reflect the following adjustments: - The elimination of surplus tax of $30, since Metropolitan Life will no longer be subject to such tax as a stock life insurance company; - The elimination of interest of $9 (net of income taxes of $5) related to the repayment of $900 of short-term debt incurred in connection with Metropolitan Life's acquisition of GenAmerica for the period January 1, 2000 through April 6, 2000; - The elimination of cash payments of $327 made by Metropolitan Life's Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company in 1998; 137 - The elimination of demutualization expenses of $170 (net of income taxes of $60) which were assumed to have been incurred prior to January 1, 2000; and - The establishment of the closed block (See Note 3 for pro forma amounts of revenues and expenses). 5. ACQUISITIONS AND DISPOSITIONS GENAMERICA CORPORATION On January 6, 2000, Metropolitan Life completed its acquisition of GenAmerica Corporation ("GenAmerica") for $1.2 billion plus costs of the acquisition. 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 ("Conning") common stock, an asset manager. Metropolitan Life owned 9.6% of the outstanding shares of RGA common stock prior to the completion of the GenAmerica acquisition. On the date of the acquisition, Metropolitan Life's ownership percentage of the outstanding shares of RGA common stock was 57.9%. In connection with the acquisition of GenAmerica, Metropolitan Life obtained GenAmerica Capital I, a wholly-owned subsidiary trust of GenAmerica. In June 1997, GenAmerica Capital I issued $125 of 8.525% capital securities. GenAmerica has fully and conditionally guaranteed, on a subordinated basis, the obligation of the trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities at any time after June 30, 2007. In April 2000, Metropolitan Life acquired the outstanding shares of Conning common stock not already owned by Metropolitan Life for $73. As part of the GenAmerica acquisition, General American Life Insurance Company paid Metropolitan Life a fee of $120 in connection with the assumption of certain funding agreements. The fee has been considered as part of the purchase price of GenAmerica. In connection with this transaction, Metropolitan Life made a capital contribution of $120 to General American Life after the completion of the acquisition. The Company's total revenues, income before extraordinary items and net income for the six months ended June 30, 1999 on both an historical and pro forma basis as if the acquisition of GenAmerica had occurred on January 1, 1999 were as follows:
INCOME BEFORE TOTAL REVENUES EXTRAORDINARY ITEM NET INCOME -------------- ------------------ ---------- Historical......................... $12,136 $153 $109 Pro forma.......................... $14,201 $188 $140
NVEST On June 16, 2000, the Company announced that its affiliates, Nvest, L.P. and Nvest Companies, L.P., have entered into a definitive agreement to be acquired by CDC Asset Management, an affiliate of Caisse des Depots Group. The Company owns 48% of the outstanding units of the Nvest entities. 138 CDC Asset Management will pay $40 per unit for Nvest, L.P. and Nvest Companies, L.P., subject to a possible price adjustment and other conditions set forth in the agreement. Based on the $40 per unit price, the Company would receive $858 upon the closing of this transaction. This transaction, which will result in a gain, is expected to be completed in the fourth quarter of 2000. Total assets of the Nvest entities were approximately $871 at June 30, 2000. Total revenues and net income (net of minority interest) applicable to the Nvest entities were approximately $318 and $21 for the six months ended June 30, 2000, respectively. 6. NET REALIZED INVESTMENT LOSSES Net realized investment losses, including changes in valuation allowances, for the six months ended June 30, 2000 and 1999 were as follows:
2000 1999 ---- ---- Fixed maturities........................ $ (240) $ (276) Equity securities....................... 79 (37) Mortgage loans on real estate........... 6 4 Real estate and real estate joint ventures.............................. 27 166 Other limited partnership interests..... (3) 27 Sales of businesses..................... 3 -- Other................................... (42) (79) ------ ------ (170) (195) Amounts allocable to: Deferred policy acquisition costs....... 15 24 Participating pension contracts......... 8 16 ------ ------ $ (147) $ (155) ====== ======
Realized investment losses have been reduced by (1) deferred policy acquisition cost adjustments to the extent that such adjustments result from realized investment gains and losses and (2) adjustments to participating contractholder accounts when amounts equal to such investment gains and losses are credited to or deducted from the contractholders' accounts. This presentation may not be comparable to presentations made by other insurers. 7. COMMITMENTS AND CONTINGENCIES LITIGATION Metropolitan Life is currently a defendant in approximately 550 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". 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. No appeal was taken, and the settlement is final. The settlement class includes most of the owners of permanent life insurance 139 policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The 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 action members for sales by the defendant insurers during the class period, effectively resolving all pending class actions against these insurers. Under the terms of the order, only those class members who exclude themselves from the settlement may continue an existing, or start a new, sales practices lawsuit against Metropolitan Life, 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. 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. Metropolitan Life 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. Metropolitan Life believes that the cost to it 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. Metropolitan Life has not yet made a recovery under those reinsurance agreements and, although there is a risk that the carriers will refuse coverage for all or part of the claim, Metropolitan Life believes this is very unlikely to occur. Metropolitan Life 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 ("New England") with which Metropolitan Life merged in 1996. Eight of those actions have been consolidated as a multidistrict proceeding for pre-trial purposes in the United States District Court of Massachusetts. The Court certified a mandatory class as to those claims. Following an appeal of that certification, the United States Court of Appeals remanded the case to the District Court for further consideration. New England has agreed to a settlement with class counsel. The District Court has granted preliminary approval, and a fairness hearing is scheduled for October 2000. 140 The Metropolitan Life 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 of this consolidated proceeding. General American Life Insurance Company has not reached agreement with plaintiffs' counsel on the attorneys' fees to be paid, and the District Court will decide that issue. In addition, the class action settlement does not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada. A certified class action with conditionally certified subclasses against Metropolitan Life, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants alleging improper sales abroad is pending in a New York federal court and settlement discussions are continuing. In the past, some individual sales practices claims have been resolved 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. See Note 9 of Notes to Consolidated Financial Statements for the year ended December 31, 1999 for information regarding reinsurance contracts related to sales practices claims. 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 Metropolitan Life's or the New England'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, Metropolitan Life 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. Metropolitan Life 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. Metropolitan Life 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 Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and alleging that Metropolitan Life 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 Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While Metropolitan Life 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. Metropolitan Life 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 Metropolitan Life may ultimately incur is uncertain. 141 Significant portions of amounts paid in settlement of such cases have been funded with proceeds from a previously resolved dispute with Metropolitan Life's primary, umbrella and first level excess liability insurance carriers. Metropolitan Life is presently in litigation with several of its excess 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. Metropolitan Life 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. Metropolitan Life's asbestos-related litigation with these insurers should have no effect on its recoveries under excess insurance policies that were obtained in 1998 for asbestos-related claims. See Note 9 of Notes to Consolidated Financial Statements for the year ended December 31, 1999 for information regarding insurance policies obtained in 1998 related to asbestos-related claims. A purported class action suit involving policyholders in 32 states has been filed in a Rhode Island state court against a Metropolitan Life subsidiary, Metropolitan Property and Casualty Insurance Company, with respect to claims by policyholders for the alleged diminished value of automobiles after accident-related repairs. The trial court recently denied a motion by Metropolitan Property and Casualty Insurance Company for summary judgment. 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 Insurance 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 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 defend themselves vigorously 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. Metropolitan Life has completed a tender offer to purchase the shares of Conning Corporation that it had not already owned. After Metropolitan Life had announced its intention to make a tender offer, three putative class actions were filed by Conning shareholders alleging that the prospective offer was inadequate and constituted a breach of fiduciary duty. The parties 142 to the litigation have reached an agreement in principle providing for a settlement of the actions. Several lawsuits have been brought challenging the fairness of Metropolitan Life's plan of reorganization and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions name as defendants some or all of Metropolitan Life, MetLife, the individual directors, the New York State Superintendent of Insurance and MetLife's underwriters for the initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the Supreme Court of the State of New York for New York County have been consolidated within the commercial part. There remains a separate purported class action in state court in New York County and another in Kings County. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting. Some of the plaintiffs in the above described actions have also brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the New York Superintendent of Insurance that approved the plan. In this action, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933. The plaintiffs in these actions claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. These three federal cases have been consolidated, and the defendants have moved to dismiss the complaints. On August 3, 2000, a purported class action was filed in the United States District Court for the Southern District of New York seeking damages from MetLife for alleged violations of various provisions of the Constitution of the United States in connection with the plan of reorganization. Metropolitan Life, MetLife and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and intend to contest vigorously all of the plaintiffs' claims in these actions. Two lawsuits were filed in July 2000 against Metropolitan Life alleging racial discrimination against African-Americans in the marketing, sale, and administration of inexpensive life insurance policies, including "industrial" life insurance policies, sold by Metropolitan Life decades ago. The first lawsuit was filed in the United States District Court for the Southern District of New York and the second was filed in the United States District Court for the Eastern District of Louisiana. The plaintiffs in these purported class actions seek unspecified compensatory damages, punitive damages, reformation, imposition of a constructive trust, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices and adjust policy values, and other relief. Metropolitan Life believes it has meritorious defenses to the plaintiffs' claims and intends to contest vigorously all of the plaintiffs' claims in these actions. Insurance Departments in a number of states recently have initiated inquiries about possible race-based underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in the respective states, including Metropolitan Life and certain of its subsidiaries. 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 143 regularly 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. 8. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) for the six months ended June 30, 2000 and 1999 was as follows:
2000 1999 ---- ---- Net Income (loss) before date of demutualization....................... $ (220) $ 109 Net income after date of demutualization....................... 341 -- Accumulated other comprehensive income (loss): Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes........ (92) (1,077) Foreign currency translation adjustments......................... 8 27 ------ -------- Accumulated other comprehensive income (loss):............................... (84) (1,050) ------ -------- Comprehensive income (loss)......... $ 37 $ (941) ====== ========
9. BUSINESS SEGMENT INFORMATION
AUTO FOR THE SIX MONTHS ENDED & ASSET CONSOLIDATION/ JUNE 30, 2000 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL REINSURANCE MANAGEMENT CORPORATE ELIMINATION TOTAL - ------------------------ ---------- ------------- ---- ------------- ----------- ---------- --------- -------------- ----- Premiums................. $2,253 $3,377 $1,301 $ 319 $728 $ -- $ -- $(937) $7,041 Universal life and investment-type product policy fees............ 620 273 -- 24 -- -- -- -- 917 Net investment income.... 3,176 1,882 83 128 183 42 329 (781) 5,042 Other revenues........... 404 355 18 5 11 434 63 69 1,359 Net realized investment gains (losses)......... (57) (41) 6 8 (3) -- (84) 24 (147) Contribution from the closed block........... -- -- -- -- -- -- -- 1 1 Income (loss) before provision for income taxes and extraordinary item................... 548 409 (9) (296) 50 40 (40) (35) 667
144
AUTO FOR THE SIX MONTHS ENDED & ASSET CONSOLIDATION/ JUNE 30, 1999 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL REINSURANCE MANAGEMENT CORPORATE ELIMINATION TOTAL - ------------------------ ---------- ------------- ---- ------------- ----------- ---------- --------- -------------- ----- Premiums................. $2,068 $2,754 $ 727 $237 $-- $ -- $ -- $ -- $5,786 Universal life and investment-type product policy fees............ 381 249 -- 21 -- -- -- -- 651 Net investment income.... 2,601 1,898 44 101 -- 38 278 (154) 4,806 Other revenues........... 260 305 9 3 -- 403 21 47 1,048 Net realized investment gains (losses)......... 23 (72) (1) 6 -- -- (92) (19) (155) Income (loss) before provision for income taxes and extraordinary item................... 482 454 29 4 -- 48 (636) (57) 324
AT JUNE 30, AT DECEMBER 31, 2000 1999 ----------- --------------- Assets Individual............................ $130,909 $109,401 Institutional......................... 90,841 88,127 Auto & Home........................... 4,451 4,443 International......................... 4,873 4,381 Reinsurance........................... 6,607 -- Asset Management...................... 1,199 1,036 Corporate............................. 19,512 20,499 Consolidation/Elimination............. (3,698) (2,655) -------- -------- Total............................... $254,694 $225,232 ======== ========
The Individual segment includes the results of the closed block for the period April 7, 2000 (date the closed block became effective) through June 30, 2000 combined on a line by line basis with the results of operations outside the closed block. See Note 3 for closed block amounts included in the Individual segment above. 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 $21 and $25 for the six months ended June 30, 2000 and 1999, respectively. The investment in Nvest was $192 and $206 at June 30, 2000 and 1999, respectively. The Reinsurance segment includes the life reinsurance business of RGA combined with Exeter, a previously existing ancillary life reinsurance business. Exeter has been reported as a component of the Individual segment rather than as a separate segment for periods prior to January 1, 2000 due to its immateriality. The Consolidation/Elimination column includes the elimination of all intersegment amounts, the closed block amounts presented on a line by line basis in the Individual segment, and the Individual segment's ownership interest in Nvest. Revenues (including revenues of the closed block) derived from any one customer did not exceed 10% of consolidated revenues. Such revenues from U.S. operations were $15,270 and $11,768 for the six months ended June 30, 2000 and 1999, respectively, which represented 97% of consolidated revenues for 2000 and 1999. 145
[LOGO] Metropolitan Life Insurance Company 1900002349(0501) printed in U.S.A. One Madison Avenue, New York, NY 10010 E00048MVC(exp0501)MLIC-LD
PART II REPRESENTATION WITH RESPECT TO FEES AND CHARGES Metropolitan Life represents that the fees and charges deducted under the Policies offered and sold pursuant to this amended 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 under the Policies. Metropolitan Life bases its representation on its assessment of all of the facts and circumstances, including such relevant factors as: the nature and extent of such services, expenses and risks, the need for Metropolitan Life to earn a profit, the degree to which the Policies include innovative features, and regulatory standards for exemptive relief under the Investment Company Act of 1940 used prior to October 1996, including the range of industry practice. This representation applies to all policies issued pursuant this Registration Statement, including those sold on the terms specifically described in the prospectus contained herein, or any variations therein based on supplements, amendments, endorsements or other riders to such policies or prospectus, or otherwise. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. Cross-Reference Table. The Prospectus, consisting of 32 pages. Undertaking to File Reports as filed with the initial filing of this Registration Statement on January 22, 1993. Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933 as filed with the initial filing of this Registration Statement on January 22, 1993. Representation With Respect To Fees And Charges. The signatures. Written Consents of the following persons: Michael F. Rogalski (filed with Exhibit 6 below). Freedman, Levy, Kroll & Simonds as filed with the initial filing of this Registration Statement on January 22, 1993. Deloitte & Touche LLP The following exhibits: 1.A (1) -- Resolution of Board of Directors of Metropolitan Life effecting the establishment of Metropolitan Life Separate Account UL...... ++++ (2) -- Not Applicable (3) -- (a) Not Applicable -- (b) Form of Selected Broker Agreement........................... * -- (c) Schedule of Sales Commissions............................... +++ (4) -- Not Applicable (5) -- (a) Specimen Flexible Premium Variable Life Insurance Policy.... * -- (b) Alternate pages required by State Law....................... * -- (c) Endorsement for calculation of minimum death benefit using the Cash Value Accumulation test................................ * -- (d) Accelerated Death Benefit and Zero Cost Loan riders......... * -- (e) Yearly Renewable Term rider................................. +++++ -- (f) Refund of sales load rider.................................. +++++ -- (g) Amended Policy Specifications Page indicating alternate premium expense charges..................................... +++++ -- (h) (1) Participation Agreements with Invesco and Janus......... ** (2) Form of Participation Agreement with Templeton.......... ** (3) Participation Agreements with New England and Alliance.................................................... + (4) Form of Participation Agreement with COVA............... + (5)(i) Participation Agreement with Fidelity................ ****
II-1 (ii) Supplemental Agreements with Fidelity.................. + -- (i) Form of personalized illustration........................... + (6) -- (a) Restated Charter and By-Laws of Metropolitan Life........... *** (7) -- Not Applicable (8) -- Not Applicable (9) -- Not Applicable (10) -- (a) Amended Application Forms for Policy and Form of Receipt (including State variations).................................... * 3. -- Opinion and consent of Counsel as to the legality of the securities being registered..................................... +++++ 4. -- Not Applicable 5. -- See Exhibit 27 below. 6. -- Opinion and consent of Michael F. Rogalski, relating to the Policies........................................................ + 7. -- Not Applicable 8. -- Powers of Attorney.............................................. ++++ 11. -- Memoranda describing certain procedures filed pursuant to Rule 6e-3(T)(b)(12)(iii)............................................. * 27. -- Financial Data Schedule (not applicable) No Code of Ethics has been included in the above exhibits, because the registrant invests only in shares of open-end management investment companies registered under the Investment Company Act of 1940.
- ------------------------ + Filed herewith. ++ Included in the filing of Post-Effective Amendment No. 4 to this Registration Statement on March 1, 1996. +++ Incorporated by reference from "Distribution of the Policies" in the Prospectus included herein. ++++ Incorporated by reference to the filing of Post-Effective Amendment No. 5 to the Registration Statement of Separate Account UL (File No. 33-47927) on April 30, 1997, except for Robert H. Benmosche's power of attorney, which is incorporated by reference to the Registration Statement of Separate Account UL (File No. 333-40161) filed on November 13, 1997, Stewart G. Nagler's power of attorney, which is incorporated by reference to the filing of Post- Effective Amendment No. 6 to the Registration Statement of Separate Account UL (File No. 33-47927) on December 23, 1997, Virginia M. Wilson's power of attorney which is incorporated by reference to the filing of Pre-Effective Amendment No. 2 to the Registration Statement of Metropolitan Life Separate Account E (File No. 333-80547) on November 1, 1999 and William C. Steere, Jr.'s power of attorney which is included in the filing of Post-Effective Amendment No. 8 to this Registration Statement. +++++ Included in the filing of Post-Effective Amendment No. 5 to this Registration Statement on April 26, 1996. * Included in the filing of Post-Effective Amendment No. 6 to this Registration Statement on April 30, 1997. ** Included in the filing of Post-Effective Amendment No. 8 to this Registration Statement on April 23, 1999. *** Incorporated by reference to the filing of Post-Effective Amendment No. 3 to the Registration Statement of Separate Account UL (File No. 333-40161) on April 6, 2000. **** Incorporated by reference to the filing of Post-Effective Amendment No. 26 to the Registration Statement of Separate Account E (File No. 2-90380) on Form N-4 on April 30, 1997.
II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, METROPOLITAN LIFE INSURANCE COMPANY certifies that it meets all of the requirements for effectness of this amended Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of New York, State of New York, this 18th day of September, 2000. Metropolitan Life Insurance Company (Seal) By: /s/ GARY A. BELLER ----------------------------------------------- Gary A. Beller Senior Executive Vice-President & 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 below by the following persons in the in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman, President, and Chief Executive ------------------------------------------- Officer and Director (Principal Robert H. Benmosche Executive Officer) * Vice-Chairman of the Board and Chief ------------------------------------------- Investment Officer and Director Gerald Clark * Vice-Chairman of the Board and Chief ------------------------------------------- Financial Officer (Principal Financial Stewart G. Nagler Officer) * Senior Vice-President and Controller ------------------------------------------- (Principal Accounting Officer) Virginia M. Wilson * ------------------------------------------- Director Curtis H. Barnette * ------------------------------------------- Director Joan Ganz Cooney * ------------------------------------------- Director Burton A. Dole, Jr. *By /s/ CHRISTOPHER P. NICHOLAS --------------------------------------- Christopher P. Nicholas, Esq. Attorney-in-fact September 18, 2000
II-3
SIGNATURE TITLE DATE --------- ----- ---- * ------------------------------------------- Director James R. Houghton * Chairman and Chief Executive Officer ------------------------------------------- (Retired) and Director Harry P. Kamen * ------------------------------------------- Director Helene L. Kaplan * ------------------------------------------- Director Charles M. Leighton * ------------------------------------------- Director Allen E. Murray * ------------------------------------------- Director John J. Phelan, Jr. * ------------------------------------------- Director Hugh B. Price * ------------------------------------------- Director Robert G. Schwartz * ------------------------------------------- Director Ruth J. Simmons, Ph.D * ------------------------------------------- Director William C. Steere *By /s/ CHRISTOPHER P. NICHOLAS --------------------------------------- September 18, 2000 Christopher P. Nicholas, Esq. Attorney-in-fact
II-4 Pursuant to the requirements of the Securities Act of 1933, the Registrant, METROPOLITAN LIFE SEPARATE ACCOUNT UL, certifies that it meets all of the requirements for effectiveness of this amended Registration Statement pursuant to Rule 485(b) and has duly caused this amended Registration Statement to be signed, on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of New York, State of New York this 18th day of September 2000. Metropolitan Life Separate Account UL (Registrant) By: Metropolitan Life Insurance Company (Depositor) (Seal) By: /s/ GARY A. BELLER, ESQ. --------------------------------------- Senior Executive Vice-President and General Counsel Attest: /s/ CHERYL D. MARTINO ------------------------------------ Assistant Secretary
II-5 INDEPENDENT AUDITORS' CONSENT METROPOLITAN LIFE INSURANCE COMPANY: We consent to the use in this Post-Effective Amendment No. 10 to the Registration Statement No. 33-57320 of Metropolitan Life Separate Account UL on Form S-6 of our report dated March 27, 2000 relating to Metropolitan Life Separate Account UL appearing in the Prospectus, which is a part of such Registration Statement, and our report dated February 7, 2000, relating to Metropolitan Life Insurance Company also appearing in the Prospectus, and to the reference to us under the heading "Legal, Accounting and Actuarial Matters" in such Prospectus. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP New York, New York September 12, 2000 II-6 EX-99.1A(5)(H)(3) 2 a2023826zex-99_1a5h3.txt EXHIBIT 99.1.A(5)(H)(3) PARTICIPATION AGREEMENT Among NEW ENGLAND ZENITH FUND, NEW ENGLAND INVESTMENT MANAGEMENT, INC., NEW ENGLAND SECURITIES CORPORATION and METROPOLITAN LIFE INSURANCE COMPANY AGREEMENT, made and entered into as of the 1st day of May, 2000 by and among NEW ENGLAND ZENITH FUND, a business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund"), Metropolitan Life Insurance Company (the "Company") on its own behalf and on behalf of Metropolitan Life Separate Account UL, Metropolitan Life Separate Account E, Metropolitan Life Separate Account F, New England Variable Account and any other current or future separate account which invests in the Fund (each an "Account"), each a separate account of the Company, NEW ENGLAND INVESTMENT MANAGEMENT, INC. (the "Adviser") and NEW ENGLAND SECURITIES CORPORATION (the "Underwriter"). WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act") and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Fund serves as an investment vehicle underlying variable life insurance policies and variable annuity contracts (collectively, "Variable Insurance Products") offered by insurance companies ("Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission ("SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from certain provisions of the 1940 Act and certain rules and regulations thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by both variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and WHEREAS, the Adviser acts as the investment adviser and/or administrator or subadministrator to each series of the Fund and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended; and WHEREAS, the Company has registered or will register certain variable life and/or variable annuity contracts under the 1933 Act, if required; 1 WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act, if required; WHEREAS, the Underwriter is registered as a broker dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares of certain series of the Fund (the "Series") on behalf of each Account to fund certain variable life and variable annuity contracts (each, a "Contract") and the Underwriter is authorized to sell such shares to each Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: 1. Sale of Fund Shares. 1.1 Subject to the terms of the Distribution Agreement in effect from time to time between the Fund and the Underwriter, the Underwriter agrees to sell to the Company those shares of each Series which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 1.1, the Company is the Fund's designee. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates the net asset value of shares of the Series. The Company shall use commercially reasonable efforts to communicate notice of orders for the purchase of Shares of each Series to the Fund's custodian by 10:00 a.m. Eastern time on the following business day (the "Next Business Day"), and the Company and the Fund shall each use commercially reasonable efforts to wire (or cause to be wired) funds to the other, for the purpose of settling net purchase orders or orders of redemption, by 3:00 p.m. of the Next Business Day. 1.2 The Fund agrees to make its shares available for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Fund calculates its net asset value. The Fund agrees to use reasonable efforts to calculate such net asset value on each day which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board" or the "Trustees") may refuse to sell shares of any Series to any person, or suspend or terminate the offering of shares of any Series, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, in the best interests of the shareholders of such Series. 1.3 The Fund and the Underwriter agree that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts, or to other purchasers of 2 the kind specified in Treas. Reg. Section 1.817-5 (f)(3) (or any successor regulation) as from time to time in effect. 1.4 The Fund agrees to redeem, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. 1.5 The Company agrees that all purchases and redemptions by it of the shares of each Series will be in accordance with the provisions of the then current prospectus and statement of additional information of the Fund for the respective Series and in accordance with any procedures that the Fund, the Underwriter or the Fund's transfer agent may have established governing purchases and redemptions of shares of the Series generally. 1.6 The Company shall pay for Fund shares on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.1. hereof. Payment shall be in federal funds transmitted by wire to the Fund's custodian. 1.7 Issuance and transfer of the Funds' shares will be by book entry only. Share certificates will not be issued. Shares ordered from the Fund will be recorded on the transfer records of the Fund in an appropriate title for each Account or the appropriate subaccount of each Account. 1.8 The Fund shall furnish same day notice (by e-mail, fax or telephone, followed by written confirmation) to the Company of any income, dividends or capital gain distributions payable on the shares of any Series. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Series shares in additional shares of that Series. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.9 The Fund shall make the net asset value per share for each Series available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 7:00 p.m. Eastern time. The Fund shall furnish the Company's daily share balance to the Company as soon as reasonably practicable. 2. REPRESENTATIONS AND WARRANTIES. 2.1 The Company represents and warrants that each Contract shall be either (i) registered, or prior to the purchase of shares of any Series in connection with the funding of such Contract, will be registered under the 1933 Act or (ii) exempt from such registration; that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws, including all applicable customer suitability requirements. The Company further represents and warrants that it is an insurance 3 company duly organized and in good standing under applicable law and that it has legally and validly established each Account as a separate account pursuant to relevant state insurance law prior to any issuance or sale of any Contract by such Account and that each Account shall be either (i) registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act; or (ii) exempt from such registration. 2.2 The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with the laws of the Commonwealth of Massachusetts and all applicable federal and state securities laws and that the Fund is and shall remain registered under the 1940 Act. The Fund agrees that it will amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to permit the continuous public offering of its shares in accordance with the 1933 Act. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Underwriter. 2.3 The Fund represents that each Series is currently qualified as a "regulated investment company" under subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and agrees that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company promptly upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4 Subject to Section 6.1, the Company represents that the Contracts are currently treated as endowment, annuity or life insurance contracts under applicable provisions of the Code and agrees that it will make every effort to maintain such treatment and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5 The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states. 2.6 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. 2.7 The Underwriter further represents that it will sell and distribute the Fund shares in accordance with all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act and the 1940 Act. 2.8 The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 4 2.9 Each of the Fund, the Adviser and the Underwriter represent and warrant that all of their directors, officers and employees dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage in an amount, in the case of the Adviser and the Underwriter, of not less than $5,000,000 and, in the case of the Fund, not less than the minimal coverage as required by Rule 17g-1 under the 1940 Act or any successor regulations as may be promulgated from time to time. Each aforesaid bond shall include coverage for larceny and embezzlement of Fund assets and shall be issued by a reputable bonding company. 2.10 The Company represents and warrants that all of its directors, officers, employees and other individuals/entities dealing with the money and/or securities representing amounts intended for the purchase of shares of the Fund or proceeds of the redemption of shares of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage in an amount not less than $5,000,000. The aforesaid Bond shall include coverage for larceny and embezzlement of Fund assets and shall be issued by a reputable bonding company. 2.11 The Company represents and warrants that it will not, without the prior written consent of the Fund and the Adviser, purchase Fund shares with Account assets derived from the sale of Contracts to individuals or entities which would cause the investment policies of any Series to be subject to any limitations not in the Fund's then current prospectus or statement of additional information with respect to any Series. 3. PROSPECTUSES AND PROXY STATEMENTS; VOTING. 3.1 The Underwriter (or the Fund) shall provide the Company with as many copies of the Fund's current prospectus as the Company may reasonably request (at the Company's expense with respect to other than existing Contract owners). If requested by the Company in lieu thereof, the Underwriter (or the Fund) shall provide such documentation (including a final copy of the new prospectus as set in type at the Fund's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing to be at the Company's expense with respect to other than existing Contract owners). 3.2 The Underwriter (or the Fund), at its expense, shall print and provide the Fund's then current statement of additional information free of charge to the Company and to any owner of a Contract or prospective owner who requests such statement. 3.3 The Fund, at its expense, shall provide the Company with copies of its proxy material, reports to shareholders and other communications to shareholders in such quantity as the Company shall reasonably require for distribution (at the Fund's expense) to Contract owners. 5 3.4 So long as and to the extent that the SEC or its staff continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners, or if and to the extent required by law, the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such Series for which instructions have been received. The Company reserves the right to vote Fund shares held in any Account in its own right, to the extent permitted by law. The Company shall be responsible for assuring that each Account participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule A hereto, which standards will also be provided to the other Participating Insurance Companies. 4. SALES MATERIAL AND INFORMATION. 4.1 The Company shall be solely responsible for sales literature or other promotional material, in which the Fund, a Series, the Adviser, any subadviser to any Series, or the Underwriter (in its capacity as distributor of the Fund) is named, the substance of which is contained in the then current prospectus or statement of additional information of the Fund. Other sales literature or other promotional material may also be used by the Company if such sales literature or other promotional material (or the substance thereof) has been previously approved by the Fund or its designee. All other sales literature or other promotional material shall not be used by the Company until it has been approved by the Fund or its designee. The Company shall deliver such draft sales literature or other promotional material to the Fund or its designee at least thirty Business days prior to its use. The Fund or such designee shall use commercially reasonable efforts to review sales literature so delivered within ten days. 4.2 The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or statement of additional information for the Fund shares, as such registration statement and prospectus or statement of additional information may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the approval of the Fund or the Underwriter or the designee of either. 4.3 The obligations set forth in Section 4.1 herein shall apply mutatis mutandis to the Fund and the Underwriter with respect to each piece of sales literature or other promotional material in which the Company and/or any Account is named. 4.4 The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, any Account or the Contracts other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be 6 amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5 The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, shareholder annual, semi-annual or other reports, proxy statements, applications for exemptions, requests for no-action letters and any amendments to any of the above, that relate to any Series, promptly after the filing of each such document with the SEC or any other regulatory authority. 4.6 The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, statements of additional information, shareholder annual, semi-annual or other reports, solicitations for voting instructions, applications for exemptions, requests for no-action letters and any amendments to any of the above, that relate to the Contracts or any Account, promptly after the filing of such document with the SEC or any other regulatory authority. Each party hereto will provide to each other party, to the extent it is relevant to the Contracts or the Fund, a copy of any comment letter received from the staff of the SEC or the NASD, and the Company's response thereto, following any examination or inspection by the staff of the SEC or the NASD. 4.7 As used herein, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees. 5. FEES AND EXPENSES. 5.1 The Fund, the Adviser and the Underwriter shall pay no fee or other compensation to the Company under this agreement, except that if the Fund or any Series adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Fund may make payments to the Underwriter or to the Company. Each party acknowledges that the Adviser may pay service or administrative fees to the Company and other Participating Insurance Companies pursuant to separate agreements. 6. DIVERSIFICATION. 6.1 The Fund will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Code and the regulations 7 issued thereunder. Without limiting the scope of the foregoing, the Fund will at all times comply with Section 817(h) of the Code and any Treasury Regulations thereunder relating to the diversification requirements for variable annuity, endowment or life insurance contracts, as from time to time in effect. 7. POTENTIAL CONFLICTS. 7.1 To the extent required by the Shared Funding Exemptive Order or by applicable law, the Board of Trustees of the Fund (the "Board") will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Series are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Fund shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2 The Company will report to the Board any potential or existing conflicts between the interests of contract owners of different separate accounts of which the Company is or becomes aware. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order and under applicable law, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation of the Company to inform the Board whenever contract owner voting instructions are disregarded. 7.3 If it is determined by a majority of the Board, or a majority of its disinterested trustees, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Series and reinvesting such assets in a different investment medium, including (but not limited to) another series of the Fund, or submitting the question of whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected 8 contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the relevant Account's investment in the Fund and terminate this Agreement; provided, however, that such withdrawal and termination shall be limited to the extent required by such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination will take place within six (6) months after the Fund gives written notice that this provision is being implemented. 7.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 1940 Act are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Fund and/or Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions 9 substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 8. INDEMNIFICATION. 8.1 Indemnification by the Company (a) The Company agrees to indemnify and hold harmless the Fund and each of its Trustees and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or statement of additional information (if applicable) for the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement or prospectus or statement of additional information (if applicable) for the Contracts or in the Contracts or sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or statement of additional information (if applicable) or sales literature or other promotional material of the Fund not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in any registration statement, prospectus or statement of additional information (if applicable) or sales literature or other promotional material of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by 10 the Company, as limited by and in accordance with the provisions of Section 8.1(b) and 8.1(c) hereof. (b) The Company shall not be liable under this Section 8.1 with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject if such loss, claim, damage, liability or litigation is caused by or arises out of such Indemnified Party's willful misfeasance, bad faith or gross negligence or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Fund, whichever is applicable. (c) Each Indemnified Party shall notify the Company of any claim made against an Indemnified Party in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought under this indemnification provision unless the Company's ability to defend against the claim shall have been materially prejudiced by the Indemnified Party's failure to give such notice and shall not in any way relieve the Company from any liability which it may have to the Indemnified Party against whom the action is brought otherwise than on account of this indemnification provision. In case any such action is brought against one or more Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to each Indemnified Party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. An Indemnified Party shall not settle any claim involving a remedy other than monetary damages without the prior written consent of the Company. (d) The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2 Indemnification by the Adviser and the Underwriter (a) The Adviser and the Underwriter agree to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser and the Underwriter) or litigation (including legal and other expenses) to which the Indemnified 11 Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus or statement of additional information, or sales literature or other promotional material of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser, the Underwriter, or Fund by or on behalf of the Company for use in the registration statement, prospectus or statement of additional information for the Fund or in sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or statement of additional information or sales literature or other promotional material for the Contracts not supplied by the Adviser, the Underwriter or the Fund or persons under their control) or wrongful conduct of the Adviser, the Underwriter or the Fund or persons under their control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in any registration statement, prospectus or statement of additional information or sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Adviser, the Underwriter, or the Fund; or (iv) arise as a result of any failure by the Adviser, the Underwriter or the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Adviser, the Underwriter, or the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, the Underwriter, or the Fund; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. (b) Neither the Adviser nor the Underwriter shall be liable under this Section 8.2 with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject if such loss, claim, damage, liability or litigation is caused by or arises out of such Indemnified Party's willful misfeasance, bad faith or gross negligence or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or each Account, whichever is applicable. 12 (c) Each Indemnified Party shall notify each of the Adviser, the Underwriter, and the Fund of any claim made against the Indemnified Party within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify each of the Adviser, the Underwriter, and the Fund of any such claim shall not relieve the Adviser or the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought under this indemnification provision unless the Adviser or the Underwriter's ability to defend against the claim shall have been materially prejudiced by the Indemnified Party's failure to give such notice and shall not in any way relieve the Adviser or the Underwriter from any liability which it may have to the Indemnified Party against whom the action is brought otherwise than on account of this indemnification provision. In case any such action is brought against one or more Indemnified Parties, the Adviser and the Underwriter will be entitled to participate, at their own expense, in the defense thereof. The Adviser and/or the Underwriter shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser and/or the Underwriter to such party of the election of the Adviser and/or the Underwriter to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser and/or the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. An Indemnified Party shall not settle any claim involving any remedy other than monetary damages without the prior written consent of the Adviser and/or the Underwriter. (d) The Company agrees promptly to notify the Adviser, the Underwriter and the Fund of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of each Account. 9. APPLICABLE LAW. 9.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. 10. TERMINATION. 10.1 This Agreement shall terminate: 13 (a) at the option of any party upon 180 days' advance written notice to the other parties; provided, however, that such notice shall not be given earlier than one year following the date of this Agreement; or (b) at the option of the Company to the extent that shares of a Series are not reasonably available to meet the requirements of the Contracts as determined by the Company, provided however, that such termination shall apply only to those Series the shares of which are not reasonably available. Prompt notice of the election to terminate for such cause shall be furnished by the Company; or (c) at the option of the Fund in the event that formal administrative proceedings are instituted against the Company by the NASD, the SEC, any state insurance department or commissioner or similar insurance regulator or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, with respect to the operation of any Account or the purchase by any Account of Fund shares, provided, however, that the Fund determines in its sole judgment, exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (d) at the option of the Company in the event that formal administrative proceedings are instituted against the Fund, the Adviser or the Underwriter by the NASD, the SEC or any state securities or insurance department or commissioner or any other regulatory body, provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund, the Adviser or the Underwriter to perform its obligations under this Agreement; or (e) with respect to any Account, upon requisite authority (by vote of the Contract owners having an interest in such Account or any subaccount thereof, or otherwise) to substitute the shares of another investment company (or separate series thereof) for the shares of any Series in accordance with the terms of the Contracts for which shares of that Series had been selected to serve as the underlying investment medium. The Company will give 90 days' prior written notice to the Fund of the date of any proposed vote to replace the Fund's shares or of the filing by the Company with the SEC of any application relating to any such substitution; or (f) at the option of the Company, in the event any shares of any Series are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment medium of the Contracts issued or to be issued by the Company; or (g) at the option of the Company, if any Series ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that any Series may fail to so qualify; or 14 (h) at the option of the Company, if the Fund fails to meet the diversification requirements specified in Section 6 hereof; or (i) at the option of the Fund, the Adviser or the Underwriter, if (1) the Fund, the Adviser or the Underwriter, as the case may be, shall determine, in its sole judgment reasonably exercised in good faith, that the Company has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity will have a material adverse impact on the business and operations of the Fund, the Adviser or the Underwriter, as the case may be, (2) the Fund, the Adviser or the Underwriter shall notify the Company in writing of such determination and its intent to terminate this Agreement, and (3) after considering the actions taken by the Company and any other changes in circumstances since the giving of such notice, such determination of the Fund, the Adviser or the Underwriter shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; or (j) at the option of the Company, if (1) the Company shall determine, in its sole judgment reasonably exercised in good faith, that the Fund, the Adviser or the Underwriter has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity will have a material adverse impact upon the business and operations of the Company, (2) the Company shall notify the Fund, the Adviser and the Underwriter in writing of such determination and its intent to terminate the Agreement, and (3) after considering the actions taken by the Fund, the Adviser and/or the Underwriter and any other changes in circumstances since the giving of such notice, such determination shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; or (k) in the case of an Account not registered under the 1933 Act or 1940 Act, the Company shall give the Fund 90 days' prior written notice if the Company chooses to cease using any Series as an investment vehicle for such Account. It is understood and agreed that the right of any party hereto to terminate this Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no reason. 10.2 Notice Requirement. No termination of this Agreement shall be effective unless and until the party terminating this Agreement gives prior written notice to all other parties to this Agreement of its intent to terminate which notice shall set forth the basis for such termination. Furthermore, in the event that any termination is based upon the provisions of Article VII, or the provision of Section 10.1(a), 10.1(i) or 10.1(j) of this Agreement, such prior written notice shall be given in advance of the effective date of termination as required by such provisions; and 15 10.3 In the event that any termination is based upon the provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior written notice shall be given at least ninety (90) days before the effective date of termination. 10.4 Effect of Termination. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall, at the option of the Company, continue to make available additional shares of each Series pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.4 shall not apply to any terminations under Section 10.1(b) or Section 7, and in the case of terminations under Section 7 terminations, the effect of such terminations shall be governed by Section 7 of this Agreement. 11. NOTICES. Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund or to the Adviser: 501 Boylston Street Boston, Massachusetts 02116 Attention: Thomas M. Lenz, Secretary If to the Company: Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 Attention: Christopher P. Nicholas If to the Underwriter: 501 Boylston Street Boston, Massachusetts 02116 Attention: Mary M. Diggins, Secretary 12. MISCELLANEOUS. 16 12.1 A copy of the Agreement and Declaration of Trust establishing New England Zenith Fund is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders of the Fund individually but are binding only upon the assets and property belonging to the Series. 12.2 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 12.3 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 12.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 17 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Barbara Hume --------------------------- Name: Barbara Hume Title: Vice President Date: May 1, 2000 NEW ENGLAND ZENITH FUND By: /s/ Anne M. Goggin --------------------------- Name: Anne M. Goggin Title: Chairman and President Date: May 1, 2000 NEW ENGLAND INVESTMENT MANAGEMENT, INC. By: /s/ Anne M. Goggin --------------------------- Name: Anne M. Goggin Title: Chairman and President Date: May 1, 2000 NEW ENGLAND SECURITIES CORPORATION By: /s/ Mary M. Diggins --------------------------- Name: Mary M. Diggins Title: Secretary Date: May 1, 2000 18 PARTICIPATION AGREEMENT Among NEW ENGLAND ZENITH FUND, NEW ENGLAND INVESTMENT MANAGEMENT, INC., NEW ENGLAND SECURITIES CORPORATION and METROPOLITAN LIFE INSURANCE COMPANY SCHEDULE A With respect to each Account, all shares of each Series attributable to such policies and contracts for which no owner instructions have been received by the Company and all shares of the Series attributable to charges assessed by the Company against such policies and contracts will be voted for, voted against, or withheld from voting on any proposal in the same proportions as are the shares for which owner instructions have been received by the Company with respect to policies or contracts issued by such Account. To the extent the Company has so agreed with respect to an Account not registered with the SEC under the 1940 Act, all shares of each Series held by the Account will be voted for, voted against or withheld from voting on any proposal in the same proportions as are the shares of such Series for which contract owners' voting instructions have been received. If the Company has not so agreed, the shares of each Series attributable to such unregistered Account will be voted for, voted against, or withheld from voting on any proposal in the same proportions as are all other shares for which the Company has received voting instructions. PARTICIPATION AGREEMENT AMONG METROPOLITAN LIFE INSURANCE COMPANY ALLIANCE CAPITAL MANAGEMENT L.P. AND ALLIANCE FUND DISTRIBUTORS, INC. DATED AS OF September 1, 2000 PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 1 day of September, 2000 ("Agreement"), by and among Metropolitan Life Insurance Company, an insurance company ("Insurer") (on behalf of itself and its "Separate Account," defined below); Alliance Capital Management L.P., a Delaware limited partnership ("Adviser"), the investment adviser of the Fund referred to below; and Alliance Fund Distributors, Inc., a Delaware corporation ("Distributor"), the Fund's principal Distributor (collectively, the "Parties"), WITNESSETH THAT: WHEREAS Insurer, the Distributor, and Alliance Variable Products Series Fund, Inc. (the "Fund") desire that Class B shares of the Fund's Growth & Income Portfolio, Premier Growth Portfolio, and Technology Portfolio, (the "Portfolios"; reference herein to the "Fund" includes reference to each Portfolio to the extent the context requires) be made available by Distributor to serve as underlying investment media for Variable life insurance contracts of Insurer that are the subject of Insurer's Form S-6 registration statement filed with the Securities and Exchange Commission (the "SEC"), File No. 33-57320 (the "Contracts"), to be offered through the Insurer and other registered broker-dealer firms as agreed to by Insurer; and WHEREAS the Contracts provide for the allocation of net amounts received by Insurer to separate series (the "Divisions"; reference herein to the "Separate Account" includes reference to each Division to the extent the context requires) of the Separate Account for investment in Class B shares of corresponding Portfolios of the Fund that are made available through the Separate Account to act as underlying investment media, NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Fund and Distributor will make Class B shares of the Portfolios available to Insurer 1 for this purpose at net asset value and with no sales charges, all subject to the following provisions: SECTION 1. ADDITIONAL PORTFOLIOS The Fund has and may, from time to time, add additional Portfolios, which will become subject to this Agreement, if, upon the written consent of each of the Parties hereto, they are made available as investment media for the Contracts. SECTION 2. PROCESSING TRANSACTIONS 2.1 Distributor agrees to sell to the Insurer those shares of the Fund which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 2.1, the Insurer shall be the designee of the Fund for receipt of such orders from the Accounts that correspond to Contract transactions that are not within the Insurer's discretion and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives such orders by 8:00 a.m., Eastern Time, on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Commission. 2.2 The Fund agrees to make its shares available for purchase at the applicable net asset value per share by the Insurer and its Accounts on those days on which the Fund calculates its Portfolios' net asset values on each day on which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the board of directors of the Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities 2 having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of that Portfolio. When practicable, the Fund will provide Insurer with 30 days written notice of its intention to refuse to sell Fund shares pursuant to this Agreement. 2.3 The Fund and Distributor agree that shares of the Fund will be sold only to participating insurance companies and their separate accounts. No shares of any Portfolio will be sold to the general public. 2.4. The Fund and Distributor will not sell Fund shares to any insurance company or separate account unless an agreement containing provisions substantially the same as Sections 5.1(b), 5.1(d), 5.3, 5.4, 5.5, 5.6, and 13 of this Agreement in its effect to govern such sales. 2.5 The Fund agrees to redeem, on the Insurer's request, any full or fractional shares of the Fund held by the Insurer, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section 2.5, the Insurer shall be the designee of the Fund for receipt of requests for redemption from each Account that correspond to Contract transactions that are not within the Insurer's discretion and receipt by that designee shall constitute receipt by the Fund; provided that the Fund receives the request for redemption by 8:00 a.m., Eastern Time, on the next following Business Day. 2.6 The Insurer shall pay for Fund shares by 9:00 a.m., Eastern Time, on the next following Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 2.1 hereof. Payment shall be in federal funds transmitted by wire. 3 2.7 Issuance and transfer of the Fund shares will be by book entry only. Stock certificates will not be issued to the Insurer or any Account. Shares ordered from the Insurer will be recorded in an appropriate title for each Account or the appropriate sub account of each Account. 2.8 The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to the insurer of any income, dividends or capital gain distributions payable on the Portfolios' shares. The Insurer hereby elects to receive all income dividends and capital gain distributions payable on a Portfolio's shares in additional shares of that Portfolio. The Insurer reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify the Insurer of the number of shares issued as payment of dividends and distributions. 2.9 The Fund shall make the net asset value per share for each Portfolio available to the Insurer on a daily basis, in accordance with mutually agreed upon guidelines for electronic transmission, as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make those per-share net asset values available by 6:00 p.m. Eastern Time. 2.10 If the Fund provides materially incorrect share net asset value information, the Insurer shall receive adjustment to the number of shares purchased or redeemed to reflect the correct net asset value per share (and, if and to the extent necessary, the Insurer shall make adjustments to the number of units credited, and/or unit values for the Contracts for the periods affected). In the event adjustments are required to correct any error in the computation of the Fund's net asset value per share, or dividend or capital gain distribution, Adviser or the Fund shall promptly notify the Insurer after discovering the need for such adjustments. If an 4 adjustment is necessary to correct an error which has caused Contract owners to be credited with more or less than the amount to which they are entitled, Adviser shall make all necessary adjustments to the number of shares owned by the Account and distribute to the Account the amount of the underpayment. The Insurer will adjust the number of units of each Contract owner and credit the appropriate amount of such payment to each Contract owner. In no event shall the Insurer be liable to Contract owner for any such adjustments or underpayments amounts, provided that the underpayment was not caused by the Insurer. In no event shall the Insurer be liable to the Fund or the Adviser for any such adjustments or overpayment amounts, provided that the overpayment was not caused by the Insurer. In the event that any known overpayment are made to Contract owners, as a result of any such error, Insurer will take commercially reasonable steps, within the constraints of state and federal law, to recover overpayment amounts. All of the Insurer's reasonable expenses incident to any adjustments required hereunder (including any uncollected, overpaid amounts) shall be borne by Adviser, provided that the need for the adjustment was not caused by the Insurer. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided herein, each Party will bear all expenses incident to its performance under this Agreement. 3.2 REGISTRATION. The Fund will bear the cost of its registering as a management investment company under the 1940 Act and registering its shares under the Securities Act of 1933, as amended (the "1933 Act"), and keeping such registrations current and effective; including, without limitation, the preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Fund 5 and its shares and payment of all applicable registration or filing fees with respect to any of the foregoing. Insurer will bear the cost of registering the Separate Account as a unit investment trust under the 1940 Act and registering units of interest under the Contracts under the 1933 Act and keeping such registrations current and effective; including, without limitation, the preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Separate Account and its units of interest and payment of all applicable registration or filing fees with respect to any of the foregoing. 3.3 OTHER (NON-SALES-RELATED) EXPENSES. If requested by the Insurer, the Fund shall provide camera-ready film containing the Fund's prospectus and all alternate forms of prospectuses for each funding option or any combination of funding options that the Insurer is offering (collectively "Prospectus" for this Section 3.3), Statement of Additional Information, and such other assistance as is reasonably necessary, including a diskette in the form sent to the financial printer, in order for the Insurer once each year (or more frequently if the Prospectus and/or Statement of Additional Information for the Fund is amended during the year) to have the prospectus for the Contracts, other funds and the Fund's Prospectus printed together in one document, and to have the Statement of Additional Information for the Fund and the Statement of Additional Information for the Contracts printed together in one document. The Insurer may print the Fund's Prospectus or its Statement of Additional Information in combination with other fund companies' prospectuses and statements of additional information. Except as provided in the following three sentences, all expenses of printing and distributing Fund Prospectuses and Statements of Additional Information shall be the expense of the Insurer. For Prospectuses and Statements of Additional Information provided by the Insurer to its existing owners of Contracts in order to update 6 disclosure annually as required by the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Fund. The Fund will bear the costs of printing in quantity and delivering to existing Participants the documents as to which it bears the cost of preparation as set forth above in this Section 3.3, it being understood that reasonable cost allocations will be made in cases where any such Fund and Insurer documents are printed or mailed on a combined or coordinated basis. The same procedures shall be followed with respect to the Fund's Statement of Additional Information. The Insurer agrees to provide the Fund or its designee with such information as may be reasonably requested by the Fund to assure that the Fund's expenses do not include the cost of printing any Prospectuses or Statements of Additional Information other than those actually distributed to existing owners of the Contracts. The Insurer agrees that it shall not alter in any way the forms of the Fund's Prospectus and Statement of Additional Information provided to it, including but not limited to the contents, layout and format of those documents. The Fund agrees to cooperate with the Insurer to make the Prospectuses of the Fund available to the Insurer in a format that will facilitate making the prospectus available to contract holders and prospects on the internet (e.g. in HTML or PDF file formats). The Insurer will be familiar with all federal, state, and SRO rules and regulations concerning: the electronic offer and sale of securities and the electronic distribution of advertising and sales literature, and will conform its materially and procedures to these rules and regulations, in the event that these means are used by the Insurer with respect to any offer or sale of the Fund's shares. 7 3.4 OTHER SALES-RELATED EXPENSES. Expenses of distributing the Portfolio's shares and the Contracts will be paid by the Insurer and other parties, as they shall determine by separate agreement. 3.5 PARTIES TO COOPERATE. The Adviser, Insurer, and Distributor each agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver combined or coordinated prospectuses or other materials of the Fund and Separate Account. SECTION 4. SALES MATERIAL AND INFORMATION. 4.1 Except with respect to "fact sheets", the Insurer shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund, Adviser or Distributor is named, at least fifteen Business Days prior to its use. No such material shall be used if the Fund or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. The Insurer intends to create and provide Contract owners with "fact sheets" of participating Funds on a regular basis. The Insurer will initially provide a template fact sheet to the Fund for the Fund's approval. Thereafter, the Insurer will provide the Portfolio with samples of the fact sheets for approval by the Fund only if the content or format of the report changes substantially. Generally, the Fund and the Insurer agree to good faith mutual cooperation in the resolution of novel or controversial issues concerning sales literature that may arise pursuant to this Agreement. Upon request of the Insurer, the Fund agrees to provide the Insurer with the information necessary to complete the fact sheet not later than 10 business days after the end of the quarter for which the information is requested. 8 4.2 The Insurer shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement for the Fund shares, or Fund Prospectus as such registration statement and Fund Prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Distributor, except with the permission of the Fund or the Distributor or designee of either. 4.3 The Fund, Distributor, or its designee shall furnish, or shall cause to be furnished, to the Insurer or its designee, each piece of sales literature or other promotional material in which the Insurer and/or its separate account(s), is named at least fifteen Business Days prior to its use. No such material shall be used if the Insurer or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. 4.4 The Fund and Distributor shall not give any information, except as required by law, or make any representations on behalf of the Insurer or concerning the Insurer, the Separate Account, or the Contracts other than the information or representations contained in a registration statement for the Contract or Separate Account Prospectus, as such registration statement and Prospectus may be amended or supplemented from time to time, or in published reports for the Separate Account which are in the public domain or approved by the Insurer for distribution to Contract owners, or in sales literature or other promotional material approved by the Insurer or its designee, except with the permission of the Insurer. 4.6 For the purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, 9 magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials. 4.8. At the request of any Party to this Agreement, each other Party will make available to the other Party's independent auditors and/or representatives of the appropriate regulatory agencies, all relevant records, data and access to operating procedures that may be reasonably requested. The Fund agrees that the Insurer shall have the right to inspect, audit and copy all relevant records pertaining to the performance of services under this Agreement pursuant to the requirements of any state insurance regulator(s). However, the Fund shall own and control all of its respective records pertaining to its performance of the services under this Agreement. 4.9 The Fund shall send to the Insurer (i) confirmations of activity in the Separate Account within five (5) business days after each date on which a purchase or redemption of shares of the Fund is effected for the Separate Account, which the parties acknowledge can be through DST Vision when available, and (ii) statements detailing activity in the Separate Account no less frequently than quarterly. 4.10 The Fund shall provide the Insurer with any information it reasonably requests from time to time, in connection with the Insurer's performance of this Agreement, and reporting 10 to management and customers. This information will be provided by the Fund within a reasonable time period after receiving such request from the Insurer. SECTION 5. LEGAL COMPLIANCE 5.1 TAX LAWS. (a) The Adviser will use its best efforts to qualify and to maintain qualification of each Portfolio as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and the Adviser or Distributor will notify Insurer immediately upon having a reasonable basis for believing that a Portfolio has ceased to so qualify or that it might not so qualify in the future. (b) Insurer represents that it believes, in good faith, that the Contracts will be treated as life insurance, annuity or endowment contracts under applicable provisions of the Code and that it will make every effort to maintain such treatment. Insurer will notify the Fund and Distributor immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (c) The Fund will use its best efforts to comply and to maintain each Portfolio's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code, and the Fund, Adviser or Distributor will notify Insurer immediately upon having a reasonable basis for believing that a Portfolio has ceased to so comply or that a Portfolio might not so comply in the future. (d) Insurer represents that it believes, in good faith, that the Separate Account is a "segregated asset account" and that interests in the Separate Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817(h) of the Code and the regulations thereunder. Insurer will make every effort to 11 continue to meet such definitional requirements, and it will notify the Fund and Distributor immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. (e) The Adviser will manage the Fund as a RIC in compliance with Subchapter M of the Code and will use its best efforts to manage to be in compliance with Section 817(h) of the Code and regulations thereunder. The Fund has adopted and will maintain procedures for ensuring that the Fund is managed in compliance with Subchapter M and Section 817(h) and regulations thereunder. On a quarterly basis, not more than 30 days after quarter end, the Adviser shall provide the Insurer with a Certificate of Compliance of the Fund's compliance with Section 817(h) of the Code and the regulations thereunder, in the form of the attached Schedule A. (f) Should the Distributor or Adviser become aware of a failure of Fund, or any of its Portfolios, to be in compliance with Subchapter M of the Code or Section 817(h) of the Code and regulations thereunder, they represent and agree that they will immediately notify Insurer of such in writing. 5.2 INSURANCE AND CERTAIN OTHER LAWS. (a) The Adviser will use its best efforts to cause the Fund to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by Insurer. If it cannot comply, it will so notify Insurer in writing. (b) Insurer represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of New York and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains the 12 Separate Account as a segregated asset account under New York Law, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) Distributor represents and warrants that it is a business corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has full corporate power, authority and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. (d) Distributor represents and warrants that the Fund is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. (e) Adviser represents and warrants that it is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 5.3 SECURITIES LAWS. (a) Insurer represents and warrants that (i) interests in the Separate Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act and the Contracts will be duly authorized for issuance and sold in compliance with New York law, (ii) the Separate Account is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) the Separate Account does and will comply in all material respects with the applicable requirements of the 1940 Act and the rules thereunder, (iv) the Separate Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will, at 13 all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, and (v) the Separate Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) The Adviser and Distributor represent and warrant that (i) Fund shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) the Fund is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend the registration statement for its shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its shares, (iv) the Fund does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) the Fund's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) The Fund will register and qualify its shares for sale in accordance with the laws of any state or other jurisdiction only if and to the extent reasonably deemed advisable by the Fund, Insurer or any other life insurance company utilizing the Fund. (d) Distributor and Insurer each represents and warrants that it is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended, and is a member in good standing of the National Association of Securities Dealers Inc. (the "NASD"). 14 5.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) Distributor or the Fund shall immediately notify Insurer of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to the Fund's registration statement under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Fund Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of the Fund's shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Fund shares in any state or jurisdiction, including, without limitation, any circumstances in which the Fund's shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law or such law precludes the use of such shares as an underlying investment medium of the Contracts issued or to be issued by Insurer. Distributor and the Fund will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) Insurer shall immediately notify the Fund of (i) the issuance by any court or regulatory body of any stop order, cease and desist order or similar order with respect to the Separate Account's registration statement under the 1933 Act relating to the Contracts or the Separate Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Separate Account Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of the Separate Account interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance 15 with applicable state and federal law. Insurer will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 5.5 INSURER TO PROVIDE DOCUMENTS. Upon request, Insurer will provide the Fund and the Distributor one complete copy of SEC registration statements, Separate Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and amendments to any of the above, that relate to the Separate Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 5.6 FUND TO PROVIDE DOCUMENTS. Upon request, the Fund will provide to Insurer one complete copy of SEC registration statements, Fund Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document with the SEC or other regulatory authorities. SECTION 6. MIXED AND SHARED FUNDING 6.1 General. The Fund has obtained an order exempting it from certain provisions of the 1940 Act and rules thereunder so that the Fund is available for investment by certain other entities, including, without limitation, separate accounts funding variable life insurance policies and separate accounts of insurance companies unaffiliated with Insurer ("Mixed and Shared Funding Order"). The Parties 16 recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 6. 6.2 DISINTERESTED DIRECTORS. The Fund agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of Adviser or Distributor within the meaning of Section 2(a)(19) of the 1940 Act. 6.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. The Fund agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the participants in all separate accounts of life insurance companies utilizing the Fund, including the Separate Account. Insurer agrees to inform the Board of Directors of the Fund of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; 17 (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract participants or by participants of different life insurance companies utilizing the Fund; or (f) a decision by a life insurance company utilizing the Fund to disregard the voting instructions of participants. Insurer will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by Insurer to disregard voting instructions of Participants. 6.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, Insurer and the other life insurance companies utilizing the Fund will, at their own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected participants and, as appropriate, segregating the assets of any particular group (e.g., annuity contract owners or participants, life insurance contract owners or all 18 contract owners and participants of one or more life insurance companies utilizing the Fund) that votes in favor of such segregation, or offering to the affected contract owners or participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "Management Company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a Management Company. (b) If the material irreconcilable conflict arises because of Insurer's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, Insurer may be required, at the Fund's election, to withdraw the Separate Account's investment in the Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within 180 days after the Fund gives notice to Insurer that this provision is being implemented, and until such withdrawal Distributor and the Fund shall continue to accept and implement orders by Insurer for the purchase and redemption of shares of the Fund. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to Insurer conflicts with the majority of other state regulators, then Insurer will withdraw the Separate Account's investment in the Fund within 180 days after the Fund's Board of Directors informs Insurer that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal Distributor and Fund shall continue to accept and implement orders by Insurer for the purchase and redemption of shares of the Fund. (d) Insurer agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. 19 (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will the Fund or Distributor be required to establish a new funding medium for any Contracts. Insurer will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 6.5 NOTICE TO INSURER. The Fund will promptly make known in writing to Insurer the Board of Directors' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 6.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS. Insurer and the Fund will at least annually submit to the Board of Directors of the Fund such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying life insurance companies utilizing the Fund of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 20 6.7 COMPLIANCE WITH SEC RULES. If, at any time during which the Fund is serving an investment medium for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to mixed and shared funding, the Parties agree that they will comply with the terms and conditions thereof and that the terms of this Section 6 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. SECTION 7. TERMINATION 7.1 EVENTS OF TERMINATION. Subject to Section 7.4 below, this Agreement will terminate as to a Portfolio: (a) at the option of Insurer or Distributor upon at least 180 days advance written notice to the other Parties, or (b) at the option of the Fund upon (i) at least sixty days advance written notice to the other parties, and (ii) approval by a majority of the disinterested Directors upon a reasonable good faith finding that a continuation of this Contract would have a material adverse impact on the Fund, or a majority vote of the shares of the affected Portfolio in the corresponding Division of the Separate Account (pursuant to the procedures set forth in Section 12 of this Agreement for voting Trust shares in accordance with Participant instructions). (c) at the option of the Fund upon institution of formal proceedings against Insurer by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding Insurer's obligations under this Agreement or related to the sale of the Contracts, the operation of the Separate Account, or the purchase of the Fund shares, if, in each case, the Fund reasonably 21 determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Portfolio to be terminated; or (d) at the option of Insurer upon institution of formal proceedings against the Fund, Adviser, or Distributor by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding the Fund's, Adviser's or Distributor's obligations under this Agreement or related to the operation or management of the Fund or the purchase of Fund shares, if, in each case, Insurer reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on Insurer or the Division corresponding to the Portfolio to be terminated; or (e) at the option of any Party in the event that (i) the Portfolio's shares are not registered and, in all material respects, issued and sold in accordance with any applicable state and federal law or (ii) such law precludes the use of such shares as an underlying investment medium of the Contracts issued or to be issued by Insurer; or (f) upon termination of the corresponding Division's investment in the Portfolio pursuant to Section 6 hereof; or (g) at the option of Insurer if the Portfolio ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions; or (h) at the option of Insurer if the Portfolio fails to comply with Section 817(h) of the Code or with successor or similar provisions; or (i) at the option of Insurer if Insurer reasonably believes that any change in a Fund's investment adviser or investment practices will materially increase the risks incurred by Insurer. 22 7.2 FUNDS TO REMAIN AVAILABLE. Except (i) as necessary to implement Participant-initiated transactions, (ii) as required by state insurance laws or regulations, (iii) as required pursuant to Section 6 of this Agreement, or (iv) with respect to any Portfolio as to which this Agreement has terminated, Insurer shall not redeem Fund shares attributable to the Contracts, or prevent Participants from allocating payments to or transferring amounts from a Portfolio that was otherwise available under the Contracts, until, in either case, 60 calendar days after Insurer shall have notified the Fund or Distributor of its intention to do so. 7.3 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 7.4 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. Notwithstanding any termination of this Agreement, the Distributor shall continue to make available shares of the Portfolios pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (the "Existing Contracts"), except as otherwise provided under Section 6 of this Agreement. Specifically, and without limitation, the Distributor shall facilitate the sale and purchase of shares of the Portfolios as necessary in order to process premium payments, surrenders and other withdrawals, and transfers or reallocations of values under Existing Contracts. SECTION 8. PARTIES TO COOPERATE RESPECTING TERMINATION The other Parties hereto agree to cooperate with and give reasonable assistance to Insurer in taking all necessary and appropriate steps for the purpose of ensuring that the Separate Account owns no shares of a Portfolio after the Final Termination Date with respect thereto. 23 SECTION 9. ASSIGNMENT This Agreement may not be assigned by any Party, except with the written consent of each other Party. SECTION 10. CLASS B DISTRIBUTION PAYMENTS From time to time during the term of this Agreement the Distributor may make payments to the Insurer pursuant to a distribution plan adopted by the Fund with respect to the Class B shares of the Portfolios pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan") in consideration of the Insurer's furnishing distribution services relating to the Class B shares of the Portfolios and providing administrative, accounting and other services, including personal service and/or the maintenance of Participant accounts, with respect to such shares. The Distributor has no obligation to make any such payments, and the Insurer waives any such payment, until the Distributor receives monies therefor from the Fund. Any such payments made pursuant to this Section 10 shall be subject to the following terms and conditions: (a) Any such payments shall be in such amounts as the Distributor may from time to time advise the Insurer in writing but in any event not in excess of the amounts permitted by the Rule 12b-1 Plan. Such payments may include a service fee in the amount of .25 of 1% per annum of the average daily net assets of the Fund attributable to the Class B shares of a Portfolio held by clients of the Insurer. Any such service fee shall be paid solely for personal service and/or the maintenance of Participant accounts. (b) The provisions of this Section 10 relate to a plan adopted by the Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person authorized to direct the disposition of monies paid or payable by the Fund pursuant to this Section 10 shall provide the Fund's Board of 24 Directors, and the Directors shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. (c) The provisions of this Section 10 shall remain in effect for not more than a year and thereafter for successive annual periods only so long as such continuance is specifically approved at least annually in conformity with Rule 12b-1 and the 1940 Act. The provisions of this Section 10 shall automatically terminate in the event of the assignment (as defined by the 1940 Act) of this Agreement, in the event the Rule 12b-1 Plan terminates or is not continued or in the event this Agreement terminates or ceases to remain in effect. In addition, the provisions of this Section 10 may be terminated at any time by the vote of a majority of the Fund's Board, or by a vote of a majority of the outstanding shares as provided in the Plan, on sixty (60) days' written notice delivered or mailed by registered mail, postage prepaid, to the other party, without payment of any penalty. SECTION 11. NOTICES Notices and communications required or permitted by Section 2 hereof will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: Metropolitan Life Insurance Company, Inc. 485-B Route One South, Suite 420 Iselin, NJ 08830 Attn: William Rhatigan FAX: (732) 602-6455 25 Metropolitan Life Insurance Company, Inc. 1 Madison Ave. New York, NY 10010 Attn: Chris Nicholas FAX: (212) 251-1663 Alliance Fund Distributors, Inc. 1345 Avenue of the Americas New York, NY 10105 Attn.: Edmund P. Bergan FAX: (212) 969-2290 Alliance Capital Management L.P. 1345 Avenue of the Americas New York NY 10105 Attn: Edmund P. Bergan FAX: (212) 969-2290 SECTION 12. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, Insurer will distribute all proxy material furnished by the Fund to Participants and will vote Fund shares in accordance with instructions received from Participants. Insurer will vote Fund shares that are (a) not attributable to Participants or (b) attributable to Participants, but for which no instructions have been received, in the same proportion as Fund shares for which said instructions have been received from Participants. Insurer agrees that it will disregard Participant voting instructions only to the extent it would be permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if the Contracts were variable life insurance policies subject to that rule. Other participating life insurance companies utilizing the Fund will be responsible for calculating voting privileges in a manner consistent with that of Insurer, as prescribed by this Section 12. 26 SECTION 13. FOREIGN TAX CREDITS The Adviser agrees to consult in advance with Insurer concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to the Fund's shareholders. SECTION 14. INDEMNIFICATION 14.1 INDEMNIFICATION BY THE INSURER 14.1(a). The Insurer agrees to indemnify and hold harmless the Fund, Adviser, and Distributor, and each director of the Board and officers and each person, if any, who controls the Fund, Adviser, and Distributor, within the meaning of Section 15 of the 1933 Act ("Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 14.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Insurer) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in or in connection with the registration statement, Separate Account, Prospectus, Contracts, or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the 27 statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to Insurer by or on behalf of the Fund for use in the registration statement for the Contracts or Separate Account Prospectus or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, Prospectus or sales literature of the Fund not supplied by Insurer or persons under its control) or wrongful conduct of the Insurer or persons under its control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of Insurer; or (iv) arise as a result of any failure by Insurer to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by Insurer in this Agreement or arise out of or result from any other material breach of this Agreement by Insurer, as limited by and in accordance with the provisions of Section 14.1(b) and 14.1(c) hereof. 28 14.1(b) Insurer shall not be liable under this Section 14 with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by the reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Fund, whichever is applicable. 14.1(c) Insurer shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless that Indemnified Party shall have notified the Insurer in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon that Indemnified Party (or after the Indemnified Party shall have received notice of such service on any designated agent). Notwithstanding the foregoing, the failure of any Indemnified Party to give notice as provided herein shall not relieve Insurer of its obligations hereunder except to the extent that the Insurer has been prejudiced by such failure to give notice. In addition, any failure by the Indemnified Party to notify Insurer of any such claim shall not relieve the Insurer from any liability which it may have to the Indemnified Party against whom the action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the insurer shall be entitled to participate, at its own expense, in the defense of the action. The Insurer also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action; PROVIDED, HOWEVER, that if the Indemnified Party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to Insurer, Insurer shall not have the right to assume said defense, but shall pay the costs and expenses thereof (except that in no event 29 shall the Insurer be liable for the fees and expenses of more than one counsel for Indemnified Parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances). After notice from Insurer to the Indemnified Party of Insurer's election to assume the defense thereof, and in the absence of such a reasonable conclusion that there may be different or additional defenses available to the Indemnified Party, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Insurer will not be liable to that party under this Agreement for any legal or other expenses subsequently incurred by the party independently in connection with the defense thereof other than reasonable costs of investigation. 14.1(d) The Indemnified Parties will promptly notify Insurer in writing of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 14.2 INDEMNIFICATION BY THE ADVISER 14.2(a) The Adviser agrees to indemnify and hold harmless Insurer and each of its directors and officers and each person, if any, who controls Insurer within the meaning of Section l5 of the 1933 Act ("Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 14.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Distributor) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund shares or the Contracts and: 30 (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or Fund Prospectus or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser or Fund by or on behalf of the Insurer for use in the registration statement or in sales literature of the Fund (or any amendment or supplement) or Fund Prospectus or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature for the Contracts not supplied by Distributor or persons under its control) or wrongful conducts of the Fund, Adviser or Distributor or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, or sales literature covering the Contracts or Separate Account Prospectus, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to Insurer by or on behalf of the Fund; or 31 (iv) arise as a result of any failure by the Distributor, Fund or Adviser to provide the services and furnish the material under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Articles VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Distributor or Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Distributor, Fund or Adviser; as limited by in accordance with the provisions of Sections 14.2(b) and 14.2(c) hereof. 14.2(b) The Adviser shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which the Indemnified Party would otherwise by subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Insurer or the Separate Account, whichever is applicable. 14.2(c) The Adviser shall not be liable under this indemnification provision with respect to any claim made against the Indemnified Party unless the Indemnified Party shall have notified Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Indemnified Party (or after the Indemnified Party shall have received notice of such service on any designated agent). Notwithstanding the foregoing, the failure of the Indemnified Party to give notice as provided herein shall not relieve Adviser of its obligations hereunder except to the extent that Adviser has been prejudiced by such failure to give notice. In addition, any failure by the Indemnified Party to notify Adviser of any such claim shall not relieve Adviser from any liability that it may have 32 to the Indemnified Party against whom such action is brought otherwise than account of this indemnification provision. In case any such action is brought against the Indemnified Party, Adviser will be entitled to participate, at its own expense, in the defense thereof. Unless the Indemnified Party releases Adviser from any further obligation under this Section 14.2, Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action; PROVIDED, HOWEVER, that if the Indemnified Party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to Adviser, Adviser shall not have the right to assume said defense, but shall pay the costs and expenses thereof (except that in no event shall Adviser be liable for the fees and expenses of more than one counsel for the Indemnified Party in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances). After notice from Adviser to the Indemnified Party of Adviser's election to assume the defense thereof, and in the absence of such a reasonable conclusion that there may be different or additional defenses available to the Indemnified Party, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Adviser will not be liable to that party under this Agreement for any legal or other expenses subsequently incurred by that party independently in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding any other provision of this Paragraph 14.2(c) Insurer shall be entitled to refuse any request by Adviser to assume the defense of any action brought against Insurer by the Internal Revenue Service ("IRS") or any other tax authority, provided that following such refusal, Adviser shall be released from any further obligation for costs of defense under this Section 14.2. If they are so allowed by rules of procedure, however, Adviser and Insurer will be entitled to participate in the defense of any action brought against Adviser by the 33 IRS or any other tax authority, with any and all costs associated with the Adviser's or Insurer's defense to be the responsibility of Adviser or Insurer. 14.2(d) The Insurer agrees promptly to notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Separate Account. 14.3 INDEMNIFICATION BY THE DISTRIBUTOR 14.3(a) The Distributor agrees to indemnify and hold harmless Insurer and each of its directors and officers and each person, if any, who controls Insurer within the meaning of Section l5 of the 1933 Act ("Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 14.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Advisor) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or Fund Prospectus or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Distributor or Fund by or on behalf of the Insurer for use in the 34 registration statement or in sales literature of the Fund (or any amendment or supplement) or Fund Prospectus or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature for the Contracts not supplied by Adviser or persons under its control) or wrongful conducts of the Fund, Distributor or Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, or sales literature covering the Contracts or Separate Account Prospectus, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to Insurer by or on behalf of the Fund; or (iv) arise as a result of any failure by the Adviser, Fund or Distributor to provide the services and furnish the material under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Articles VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Adviser or Distributor in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, Fund or A; as limited by in accordance with the provisions of Sections 14.3(b) and 14.3(c) hereof. 35 14.3(b) The Distributor shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which the Indemnified Party would otherwise by subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Insurer or the Separate Account, whichever is applicable. 14.3(c) The Distributor shall not be liable under this indemnification provision with respect to any claim made against the Indemnified Party unless the Indemnified Party shall have notified Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Indemnified Party (or after the Indemnified Party shall have received notice of such service on any designated agent). Notwithstanding the foregoing, the failure of the Indemnified Party to give notice as provided herein shall not relieve Distributor of its obligations hereunder except to the extent that Distributor has been prejudiced by such failure to give notice. In addition, any failure by the Indemnified Party to notify Distributor of any such claim shall not relieve Distributor from any liability that it may have to the Indemnified Party against whom such action is brought otherwise than account of this indemnification provision. In case any such action is brought against the Indemnified Party, Distributor will be entitled to participate, at its own expense, in the defense thereof. Unless the Indemnified Party releases Distributor from any further obligation under this Section 14.3, Distributor also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action; PROVIDED, HOWEVER, that if the Indemnified Party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to A, Distributor shall not have the right 36 to assume said defense, but shall pay the costs and expenses thereof (except that in no event shall Distributor be liable for the fees and expenses of more than one counsel for the Indemnified Party in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances). After notice from Distributor to the Indemnified Party of A's election to assume the defense thereof, and in the absence of such a reasonable conclusion that there may be different or additional defenses available to the Indemnified Party, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Distributor will not be liable to that party under this Agreement for any legal or other expenses subsequently incurred by that party independently in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding any other provision of this Paragraph 14.3(c) Insurer shall be entitled to refuse any request by Distributor to assume the defense of any action brought against Insurer by the IRS or any other tax authority, provided that following such refusal, Distributor shall be released from any further obligation for costs of defense under this Section 14.3. If they are so allowed by rules of procedure, however, Distributor and Insurer will be entitled to participate in the defense of any action brought against Distributor by the IRS or any other tax authority, with any and all costs associated with the A's or Insurer's defense to be the responsibility of Distributor or Insurer. 14.3(d) The Insurer agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Separate Account. 37 SECTION 15. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with New York law, without regard for that state's principles of conflict of laws. SECTION 16. EXECUTION IN COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 17. SEVERABILITY If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 18. RIGHTS CUMULATIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. SECTION 19. RESTRICTIONS ON SALES OF FUND SHARES Insurer agrees that the Fund will be permitted (subject to the other terms of this Agreement) to make its shares available to separate accounts of other life insurance companies. SECTION 20. HEADINGS The headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. 38 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. METROPOLITAN LIFE INSURANCE COMPANY, INC. By: /s/ John Ryan Name: John Ryan Title: Vice President ALLIANCE CAPITAL MANAGEMENT L.P. By: Alliance Capital Management Corporation, its General Partner By:/s/ Edmund P. Bergan, Jr. Name: Edmund P. Bergan, Jr. Title: Vice President and Assistant General Counsel ALLIANCE FUND DISTRIBUTORS, INC. By: /s/ Richard A. Winge Name: Richard A. Winge Title: Sr. Vice-President 39 SCHEDULE A CERTIFICATE OF COMPLIANCE Name of Fund(s): - ------------------------------ To: Metropolitan Life Insurer, Inc. 485-B Route One South, Suite 420 Iselin, NJ 08830 Attn: William Rhatigan FAX: (732) 602-6455 Metropolitan Life Insurer, Inc. 1 Madison Ave. New York, NY 10010 Attn: Chris Nicholas FAX: (212) 251-1663 We have reviewed compliance of the Fund(s) named above with respect to certain investment diversification requirements for the Fund(s) for the quarter ending _________________. The review was limited to verifying whether the Fund complied with the quarterly diversification requirements described in Section 817(h) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Section 817(h) Diversification Requirements"). The review did not include testing compliance with any other investment limitations in the prospectus of Statement of Additional Information of the Fund(s). As of _____________ the Fund was in compliance with the Section 817(h) Diversification Requirements. Dated: By: Name: Title: 40 EX-99.1A(5)(H)(4) 3 a2023826zex-99_1a5h4.txt EXHIBIT 99.1A(5)(H)(4) PARTICIPATION AGREEMENT Among COVA SERIES TRUST, COVA INVESTMENT ADVISORY CORPORATION, and METROPOLITAN LIFE INSURANCE COMPANY AGREEMENT, made and entered into as of the 30th day of September, 2000 by and among COVA SERIES TRUST, a business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund"), Metropolitan Life Insurance Company (the "Company") on its own behalf and on behalf of Metropolitan Life Separate Account UL, Metropolitan Life Separate Account E, Metropolitan Life Separate Account F, New England Variable Account and any other current or future separate account which invests in the Fund (each an "Account"), each a separate account of the Company, and COVA INVESTMENT ADVISORY CORPORATION (the "Adviser" or the "Underwriter"). WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act") and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Fund serves as an investment vehicle underlying variable life insurance policies and variable annuity contracts (collectively, "Variable Insurance Products") offered by insurance companies ("Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission ("SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from certain provisions of the 1940 Act and certain rules and regulations thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by both variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and WHEREAS, the Adviser acts as the investment adviser and/or administrator or subadministrator to each series of the Fund and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended; and WHEREAS, the Company has registered or will register certain variable life and/or variable annuity contracts under the 1933 Act, if required; 1 WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act, if required; WHEREAS, the Underwriter is registered as a broker dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares of certain series of the Fund (the "Series") on behalf of each Account to fund certain variable life and variable annuity contracts (each, a "Contract") and the Underwriter is authorized to sell such shares to each Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: 1. SALE OF FUND SHARES. 1.1 Subject to the terms of the Distribution Agreement in effect from time to time between the Fund and the Underwriter, the Underwriter agrees to sell to the Company those shares of each Series which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 1.1, the Company is the Fund's designee. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates the net asset value of shares of the Series. The Company shall use commercially reasonable efforts to communicate notice of orders for the purchase of Shares of each Series to the Fund's custodian by 10:00 a.m. Eastern time on the following business day (the "Next Business Day"), and the Company and the Fund shall each use commercially reasonable efforts to wire (or cause to be wired) funds to the other, for the purpose of settling net purchase orders or orders of redemption, by 3:00 p.m. of the Next Business Day. 1.2 The Fund agrees to make its shares available for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Fund calculates its net asset value. The Fund agrees to use reasonable efforts to calculate such net asset value on each day which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board" or the "Trustees") may refuse to sell shares of any Series to any person, or suspend or terminate the offering of shares of any Series, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, in the best interests of the shareholders of such Series. 1.3 The Fund and the Underwriter agree that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts, or to other purchasers of 2 the kind specified in Treas. Reg. Section 1.817-5 (f)(3) (or any successor regulation) as from time to time in effect. 1.4 The Fund agrees to redeem, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. 1.5 The Company agrees that all purchases and redemptions by it of the shares of each Series will be in accordance with the provisions of the then current prospectus and statement of additional information of the Fund for the respective Series and in accordance with any procedures that the Fund, the Underwriter or the Fund's transfer agent may have established governing purchases and redemptions of shares of the Series generally. 1.6 The Company shall pay for Fund shares on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.1. hereof. Payment shall be in federal funds transmitted by wire to the Fund's custodian. 1.7 Issuance and transfer of the Funds' shares will be by book entry only. Share certificates will not be issued. Shares ordered from the Fund will be recorded on the transfer records of the Fund in an appropriate title for each Account or the appropriate subaccount of each Account. 1.8 The Fund shall furnish same day notice (by e-mail, fax or telephone, followed by written confirmation) to the Company of any income, dividends or capital gain distributions payable on the shares of any Series. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Series shares in additional shares of that Series. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.9 The Fund shall make the net asset value per share for each Series available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 7:00 p.m. Eastern time. The Fund shall furnish the Company's daily share balance to the Company as soon as reasonably practicable. 2. REPRESENTATIONS AND WARRANTIES. 2.1 The Company represents and warrants that each Contract shall be either (i) registered, or prior to the purchase of shares of any Series in connection with the funding of such Contract, will be registered under the 1933 Act or (ii) exempt from such registration; that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws, including all applicable customer suitability requirements. The Company further represents and warrants that it is an insurance 3 company duly organized and in good standing under applicable law and that it has legally and validly established each Account as a separate account pursuant to relevant state insurance law prior to any issuance or sale of any Contract by such Account and that each Account shall be either (i) registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act; or (ii) exempt from such registration. 2.2 The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with the laws of the Commonwealth of Massachusetts and all applicable federal and state securities laws and that the Fund is and shall remain registered under the 1940 Act. The Fund agrees that it will amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to permit the continuous public offering of its shares in accordance with the 1933 Act. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Underwriter. 2.3 The Fund represents that each Series is currently qualified as a "regulated investment company" under subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and agrees that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company promptly upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4 Subject to Section 6.1, the Company represents that the Contracts are currently treated as endowment, annuity or life insurance contracts under applicable provisions of the Code and agrees that it will make every effort to maintain such treatment and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5 The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states. 2.6 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. 2.7 The Underwriter further represents that it will sell and distribute the Fund shares in accordance with all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act and the 1940 Act. 2.8 The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 4 2.9 Each of the Fund, the Adviser and the Underwriter represent and warrant that all of their directors, officers and employees dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage in an amount, in the case of the Adviser and the Underwriter, of not less than $5,000,000 and, in the case of the Fund, not less than the minimal coverage as required by Rule 17g-1 under the 1940 Act or any successor regulations as may be promulgated from time to time. Each aforesaid bond shall include coverage for larceny and embezzlement of Fund assets and shall be issued by a reputable bonding company. 2.10 The Company represents and warrants that all of its directors, officers, employees and other individuals/entities dealing with the money and/or securities representing amounts intended for the purchase of shares of the Fund or proceeds of the redemption of shares of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage in an amount not less than $5,000,000. The aforesaid Bond shall include coverage for larceny and embezzlement of Fund assets and shall be issued by a reputable bonding company. 2.11 The Company represents and warrants that it will not, without the prior written consent of the Fund and the Adviser, purchase Fund shares with Account assets derived from the sale of Contracts to individuals or entities which would cause the investment policies of any Series to be subject to any limitations not in the Fund's then current prospectus or statement of additional information with respect to any Series. 3. PROSPECTUSES AND PROXY STATEMENTS; VOTING. 3.1 The Underwriter (or the Fund) shall provide the Company with as many copies of the Fund's current prospectus as the Company may reasonably request (at the Company's expense with respect to other than existing Contract owners). If requested by the Company in lieu thereof, the Underwriter (or the Fund) shall provide such documentation (including a final copy of the new prospectus as set in type at the Fund's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing to be at the Company's expense with respect to other than existing Contract owners). 3.2 The Underwriter (or the Fund), at its expense, shall print and provide the Fund's then current statement of additional information free of charge to the Company and to any owner of a Contract or prospective owner who requests such statement. 3.3 The Fund, at its expense, shall provide the Company with copies of its proxy material, reports to shareholders and other communications to shareholders in such quantity as the Company shall reasonably require for distribution (at the Fund's expense) to Contract owners. 5 3.4 So long as and to the extent that the SEC or its staff continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners, or if and to the extent required by law, the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such Series for which instructions have been received. The Company reserves the right to vote Fund shares held in any Account in its own right, to the extent permitted by law. The Company shall be responsible for assuring that each Account participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule A hereto, which standards will also be provided to the other Participating Insurance Companies. 4. SALES MATERIAL AND INFORMATION. 4.1 The Company shall be solely responsible for sales literature or other promotional material, in which the Fund, a Series, the Adviser, any subadviser to any Series, or the Underwriter (in its capacity as distributor of the Fund) is named, the substance of which is contained in the then current prospectus or statement of additional information of the Fund. Other sales literature or other promotional material may also be used by the Company if such sales literature or other promotional material (or the substance thereof) has been previously approved by the Fund or its designee. All other sales literature or other promotional material shall not be used by the Company until it has been approved by the Fund or its designee. The Company shall deliver such draft sales literature or other promotional material to the Fund or its designee at least thirty Business days prior to its use. The Fund or such designee shall use commercially reasonable efforts to review sales literature so delivered within ten days. 4.2 The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or statement of additional information for the Fund shares, as such registration statement and prospectus or statement of additional information may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the approval of the Fund or the Underwriter or the designee of either. 4.3 The obligations set forth in Section 4.1 herein shall apply MUTATIS MUTANDIS to the Fund and the Underwriter with respect to each piece of sales literature or other promotional material in which the Company and/or any Account is named. 4.4 The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, any Account or the Contracts other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be 6 amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5 The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, shareholder annual, semi-annual or other reports, proxy statements, applications for exemptions, requests for no-action letters and any amendments to any of the above, that relate to any Series, promptly after the filing of each such document with the SEC or any other regulatory authority. 4.6 The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, statements of additional information, shareholder annual, semi-annual or other reports, solicitations for voting instructions, applications for exemptions, requests for no-action letters and any amendments to any of the above, that relate to the Contracts or any Account, promptly after the filing of such document with the SEC or any other regulatory authority. Each party hereto will provide to each other party, to the extent it is relevant to the Contracts or the Fund, a copy of any comment letter received from the staff of the SEC or the NASD, and the Company's response thereto, following any examination or inspection by the staff of the SEC or the NASD. 4.7 As used herein, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees. 5. FEES AND EXPENSES. 5.1 The Fund, the Adviser and the Underwriter shall pay no fee or other compensation to the Company under this agreement, except that if the Fund or any Series adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Fund may make payments to the Underwriter or to the Company. Each party acknowledges that the Adviser may pay service or administrative fees to the Company and other Participating Insurance Companies pursuant to separate agreements. 6. DIVERSIFICATION. 6.1 The Fund will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Code and the regulations 7 issued thereunder. Without limiting the scope of the foregoing, the Fund will at all times comply with Section 817(h) of the Code and any Treasury Regulations thereunder relating to the diversification requirements for variable annuity, endowment or life insurance contracts, as from time to time in effect. 7. POTENTIAL CONFLICTS. 7.1 To the extent required by the Shared Funding Exemptive Order or by applicable law, the Board of Trustees of the Fund (the "Board") will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Series are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Fund shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2 The Company will report to the Board any potential or existing conflicts between the interests of contract owners of different separate accounts of which the Company is or becomes aware. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order and under applicable law, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation of the Company to inform the Board whenever contract owner voting instructions are disregarded. 7.3 If it is determined by a majority of the Board, or a majority of its disinterested trustees, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Series and reinvesting such assets in a different investment medium, including (but not limited to) another series of the Fund, or submitting the question of whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected 8 contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the relevant Account's investment in the Fund and terminate this Agreement; provided, however, that such withdrawal and termination shall be limited to the extent required by such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination will take place within six (6) months after the Fund gives written notice that this provision is being implemented. 7.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 1940 Act are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Fund and/or Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions 9 substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 8. INDEMNIFICATION. 8.1 Indemnification by the Company (a) The Company agrees to indemnify and hold harmless the Fund and each of its Trustees and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or statement of additional information (if applicable) for the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement or prospectus or statement of additional information (if applicable) for the Contracts or in the Contracts or sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or statement of additional information (if applicable) or sales literature or other promotional material of the Fund not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in any registration statement, prospectus or statement of additional information (if applicable) or sales literature or other promotional material of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by 10 the Company, as limited by and in accordance with the provisions of Section 8.1(b) and 8.1(c) hereof. (b) The Company shall not be liable under this Section 8.1 with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject if such loss, claim, damage, liability or litigation is caused by or arises out of such Indemnified Party's willful misfeasance, bad faith or gross negligence or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Fund, whichever is applicable. (c) Each Indemnified Party shall notify the Company of any claim made against an Indemnified Party in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought under this indemnification provision unless the Company's ability to defend against the claim shall have been materially prejudiced by the Indemnified Party's failure to give such notice and shall not in any way relieve the Company from any liability which it may have to the Indemnified Party against whom the action is brought otherwise than on account of this indemnification provision. In case any such action is brought against one or more Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to each Indemnified Party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. An Indemnified Party shall not settle any claim involving a remedy other than monetary damages without the prior written consent of the Company. (d) The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2 Indemnification by the Adviser and the Underwriter (a) The Adviser and the Underwriter agree to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser and the Underwriter) or litigation (including legal and other expenses) to which the Indemnified 11 Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus or statement of additional information, or sales literature or other promotional material of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser, the Underwriter, or Fund by or on behalf of the Company for use in the registration statement, prospectus or statement of additional information for the Fund or in sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or statement of additional information or sales literature or other promotional material for the Contracts not supplied by the Adviser, the Underwriter or the Fund or persons under their control) or wrongful conduct of the Adviser, the Underwriter or the Fund or persons under their control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in any registration statement, prospectus or statement of additional information or sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Adviser, the Underwriter, or the Fund; or (iv) arise as a result of any failure by the Adviser, the Underwriter or the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Adviser, the Underwriter, or the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, the Underwriter, or the Fund; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. (b) Neither the Adviser nor the Underwriter shall be liable under this Section 8.2 with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject if such loss, claim, damage, liability or litigation is caused by or arises out of such Indemnified Party's willful misfeasance, bad faith or gross negligence or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or each Account, whichever is applicable. 12 (c) Each Indemnified Party shall notify each of the Adviser, the Underwriter, and the Fund of any claim made against the Indemnified Party within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify each of the Adviser, the Underwriter, and the Fund of any such claim shall not relieve the Adviser or the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought under this indemnification provision unless the Adviser or the Underwriter's ability to defend against the claim shall have been materially prejudiced by the Indemnified Party's failure to give such notice and shall not in any way relieve the Adviser or the Underwriter from any liability which it may have to the Indemnified Party against whom the action is brought otherwise than on account of this indemnification provision. In case any such action is brought against one or more Indemnified Parties, the Adviser and the Underwriter will be entitled to participate, at their own expense, in the defense thereof. The Adviser and/or the Underwriter shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser and/or the Underwriter to such party of the election of the Adviser and/or the Underwriter to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser and/or the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. An Indemnified Party shall not settle any claim involving any remedy other than monetary damages without the prior written consent of the Adviser and/or the Underwriter. (d) The Company agrees promptly to notify the Adviser, the Underwriter and the Fund of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of each Account. 9. APPLICABLE LAW. 9.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. 10. TERMINATION. 10.1 This Agreement shall terminate: 13 (a) at the option of any party upon 180 days' advance written notice to the other parties; provided, however, that such notice shall not be given earlier than one year following the date of this Agreement; or (b) at the option of the Company to the extent that shares of a Series are not reasonably available to meet the requirements of the Contracts as determined by the Company, provided however, that such termination shall apply only to those Series the shares of which are not reasonably available. Prompt notice of the election to terminate for such cause shall be furnished by the Company; or (c) at the option of the Fund in the event that formal administrative proceedings are instituted against the Company by the NASD, the SEC, any state insurance department or commissioner or similar insurance regulator or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, with respect to the operation of any Account or the purchase by any Account of Fund shares, provided, however, that the Fund determines in its sole judgment, exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (d) at the option of the Company in the event that formal administrative proceedings are instituted against the Fund, the Adviser or the Underwriter by the NASD, the SEC or any state securities or insurance department or commissioner or any other regulatory body, provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund, the Adviser or the Underwriter to perform its obligations under this Agreement; or (e) with respect to any Account, upon requisite authority (by vote of the Contract owners having an interest in such Account or any subaccount thereof, or otherwise) to substitute the shares of another investment company (or separate series thereof) for the shares of any Series in accordance with the terms of the Contracts for which shares of that Series had been selected to serve as the underlying investment medium. The Company will give 90 days' prior written notice to the Fund of the date of any proposed vote to replace the Fund's shares or of the filing by the Company with the SEC of any application relating to any such substitution; or (f) at the option of the Company, in the event any shares of any Series are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment medium of the Contracts issued or to be issued by the Company; or (g) at the option of the Company, if any Series ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that any Series may fail to so qualify; or 14 (h) at the option of the Company, if the Fund fails to meet the diversification requirements specified in Section 6 hereof; or (i) at the option of the Fund, the Adviser or the Underwriter, if (1) the Fund, the Adviser or the Underwriter, as the case may be, shall determine, in its sole judgment reasonably exercised in good faith, that the Company has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity will have a material adverse impact on the business and operations of the Fund, the Adviser or the Underwriter, as the case may be, (2) the Fund, the Adviser or the Underwriter shall notify the Company in writing of such determination and its intent to terminate this Agreement, and (3) after considering the actions taken by the Company and any other changes in circumstances since the giving of such notice, such determination of the Fund, the Adviser or the Underwriter shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; or (j) at the option of the Company, if (1) the Company shall determine, in its sole judgment reasonably exercised in good faith, that the Fund, the Adviser or the Underwriter has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity will have a material adverse impact upon the business and operations of the Company, (2) the Company shall notify the Fund, the Adviser and the Underwriter in writing of such determination and its intent to terminate the Agreement, and (3) after considering the actions taken by the Fund, the Adviser and/or the Underwriter and any other changes in circumstances since the giving of such notice, such determination shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; or (k) in the case of an Account not registered under the 1933 Act or 1940 Act, the Company shall give the Fund 90 days' prior written notice if the Company chooses to cease using any Series as an investment vehicle for such Account. It is understood and agreed that the right of any party hereto to terminate this Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no reason. 10.2 Notice Requirement. No termination of this Agreement shall be effective unless and until the party terminating this Agreement gives prior written notice to all other parties to this Agreement of its intent to terminate which notice shall set forth the basis for such termination. Furthermore, in the event that any termination is based upon the provisions of Article VII, or the provision of Section 10.1(a), 10.1(i) or 10.1(j) of this Agreement, such prior written notice shall be given in advance of the effective date of termination as required by such provisions; and 15 10.3 In the event that any termination is based upon the provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior written notice shall be given at least ninety (90) days before the effective date of termination. 10.4 Effect of Termination. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall, at the option of the Company, continue to make available additional shares of each Series pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.4 shall not apply to any terminations under Section 10.1(b) or Section 7, and in the case of terminations under Section 7 terminations, the effect of such terminations shall be governed by Section 7 of this Agreement. 11. Notices. Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund or to the Adviser: One Tower Lane, Suite 3000 Oakbrook Terrace, Illinois 60181-4644 Attention: , Secretary If to the Company: Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 Attention: Christopher P. Nicholas If to the Underwriter: One Tower Lane, Suite 3000 Oakbrook Terrace, Illinois 60181-4644 Attention: , Secretary 12. MISCELLANEOUS. 16 12.1 A copy of the Agreement and Declaration of Trust establishing New England Zenith Fund is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders of the Fund individually but are binding only upon the assets and property belonging to the Series. 12.2 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 12.3 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 12.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 17 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. METROPOLITAN LIFE INSURANCE COMPANY By: __________________________ Name: Title: Vice President Date: September 30, 2000 COVA SERIES TRUST By: ___________________________ Name: Title: Chairman and President Date: September 30, 2000 COVA INVESTMENT ADVISORY CORPORATION. By: ___________________________ Name: Title: Date: September 30, 2000 18 PARTICIPATION AGREEMENT Among COVA SERIES TRUST, COVA INVESTMENT ADVISORY CORPORATION and METROPOLITAN LIFE INSURANCE COMPANY SCHEDULE A With respect to each Account, all shares of each Series attributable to such policies and contracts for which no owner instructions have been received by the Company and all shares of the Series attributable to charges assessed by the Company against such policies and contracts will be voted for, voted against, or withheld from voting on any proposal in the same proportions as are the shares for which owner instructions have been received by the Company with respect to policies or contracts issued by such Account. To the extent the Company has so agreed with respect to an Account not registered with the SEC under the 1940 Act, all shares of each Series held by the Account will be voted for, voted against or withheld from voting on any proposal in the same proportions as are the shares of such Series for which contract owners' voting instructions have been received. If the Company has not so agreed, the shares of each Series attributable to such unregistered Account will be voted for, voted against, or withheld from voting on any proposal in the same proportions as are all other shares for which the Company has received voting instructions. EX-99.1A(5)(H)(5)(II 4 a2023826zex-99_1a5h5ii.txt EXHIBIT 99.1.A(5)(H)(5)(II) AMENDMENT NO. 1 Amendment to the Participation Agreement among Metropolitan Life Insurance Company (the "Company"), Variable Insurance Products Fund (the "Fund") and Fidelity Distributors Corporation (the "Underwriter") dated July 2, 1991 (the "Agreement"). WHEREAS, each of the parties is desirous of expanding the ability of Company to participate in the qualified markets, the Company, the Underwriter and the Fund hereby agree to amend the Agreement by deleting from Section 1.4 the reference to Section 2.12 and by deleting Section 2.12 in its entirety. In witness whereof, each of the parties has caused this Amendment to be executed in its name and on its behalf by its duly authorized representative as of November 1, 1991. METROPOLITAN LIFE INSURANCE COMPANY FIDELITY DISTRIBUTORS CORPORATION By: /s/ George E. Strother By: /s/ Kurt A. Lange ----------------------- --------------------------- Name: George E. Strother Name: Kurt A. Lange ----------------------- --------------------------- Title: AVP Title: PRESIDENT ----------------------- --------------------------- VARIABLE INSURANCE PRODUCTS FUND By: /s/ J. Gary Burkhead ----------------------- Name: J. Gary Burkhead ----------------------- Title: Senior VP ----------------------- AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND FIDELITY DISTRIBUTORS CORPORATION and METROPOLITAN LIFE INSURANCE COMPANY WHEREAS, METROPOLITAN LIFE INSURANCE COMPANY (the "Company"), VARIABLE INSURANCE PRODUCTS FUND (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION have previously entered into a Participation Agreement (the "Agreement") containing certain arrangements concerning prospectus costs; and WHEREAS, the Trustees of the Fund have approved certain changes to the expense structure of the Fund; and NOW, THEREFORE, the parties do hereby agree to amend the Agreement by substituting the following arrangement in place of any inconsistent language in the Participation Agreement, wherever found: 1.The Fund will provide to the Company each year, at the Fund's cost, such number of prospectuses and Statements of Additional Information as are actually distributed to the Company's then-existing variable life and/or variable annuity contract owners. 2.If the Company takes camera-ready film or computer diskettes containing the Fund's prospectus and/or Statement of Additional Information in lieu of receiving hard copies of these documents, the Fund will reimburse the Company in an amount computed as follows. The number of prospectuses and Statements of Additional Information actually distributed to existing contract owners by the Company will be multiplied by the Fund's actual per-unit cost of printing the documents. 3.The Company agrees to provide the Fund or its designee with such information as may be reasonably requested by the Fund in order to verify that the prospectuses and Statements of Additional Information provided to the Company, or the reimbursement made to the Company, are or have been used only for the purposes set forth hereinabove. IN WITNESS WHEREOF we have set our hand as of the 15th day of December, 1994. METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Michael R. Irvine ------------------------ Name: Michael R. Irvine ------------------------ Title: VICE-PRESIDENT ------------------------ VARIABLE INSURANCE PRODUCTS FUND FIDELITY DISTRIBUTORS CORPORATION By: /s/ J. Gary Burkhead By: /s/ Kurt A. Lange ------------------------ --------------------------------- Name: J. Gary Burkhead Name: Kurt A. Lange ------------------------ --------------------------------- Title: Senior Vice President Title: President ------------------------ --------------------------------- AMENDMENT NO. 1 Amendment to the Participation Agreement among Metropolitan Life Insurance Company (the "Company"), Variable Insurance Products Fund II (the "Fund") and Fidelity Distributors Corporation (the "Underwriter") dated July 2, 1991 (the Agreement"). WHEREAS, each of the parties is desirous of expanding the ability of Company to participate in the qualified markets, the Company, the Underwriter and the Fund hereby agree to amend the Agreement by deleting from Section 1.4 the reference to Section 2.12 and by deleting Section 2.12 in its entirety. In witness whereof, each of the parties has caused this Amendment to be executed in its name and on its behalf by its duly authorized representative as of November 1, 1991. METROPOLITAN LIFE INSURANCE COMPANY FIDELITY DISTRIBUTORS CORPORATION By: /s/ George E. Strother By: /s/ Kurt A. Lange ----------------------- --------------------------- Name: George E. Strother Name: KURT A. LANGE ----------------------- --------------------------- Title: AVP Title: PRESIDENT ----------------------- --------------------------- VARIABLE INSURANCE PRODUCTS FUND II By: /s/ J. Gary Burkhead ----------------------- Name: J. GARY BURKHEAD ----------------------- Title: Senior VP ----------------------- AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION and METROPOLITAN LIFE INSURANCE COMPANY WHEREAS, METROPOLITAN LIFE INSURANCE COMPANY (the "Company"), VARIABLE INSURANCE PRODUCTS FUND II (the "Fund') and FIDELITY DISTRIBUTORS CORPORATION have previously entered into a Participation Agreement (the "Agreement") containing certain arrangements concerning prospectus costs: and WHEREAS, the Trustees of the Fund have approved certain changes to the expense structure of the Fund; and NOW, THEREFORE, the parties do hereby agree to amend the Agreement by substituting the following arrangement in place of any inconsistent language in the Participation Agreement, wherever found: 1.The Fund will provide to the Company each year, at the Fund's cost, such number of prospectuses and Statements of Additional Information as are actually distributed to the Company's then-existing variable life and/or variable annuity contract owners. 2.If the Company takes camera-ready film or computer diskettes containing the Fund's prospectus and/or Statement of Additional Information in lieu of receiving hard copies of these documents, the Fund will reimburse the Company in an amount computed as follows. The number of prospectuses and Statements of Additional Information actually distributed to existing contract owners by the Company will be multiplied by the Fund's actual per-unit cost of printing the documents. 3.The Company agrees to provide the Fund or its designee with such information as may be reasonably requested by the Fund in order to verify that the prospectuses and Statements of Additional Information provided to the Company, or the reimbursement made to the Company, are or have been used only for the purposes set forth hereinabove. IN WITNESS WHEREOF we have set our hand as of the 15th day of December, 1994. METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Michael R. Irvine ------------------------ Name: MICHAEL R. IRVINE ------------------------ Title: VICE-PRESIDENT ------------------------ VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION By: /s/ J. Gary Burkhead By: /s/ Kurt A. Lange ------------------------ --------------------------------- Name: J. Gary Burkhead Name: Kurt A. Lange ------------------------ --------------------------------- Title: Senior Vice President Title: President ------------------------ --------------------------------- Amendment No. 3 to Participation Agreement Metropolitan Life Insurance Company, Variable Insurance Products Fund and Fidelity Distributors Corporation, hereby amend their Participation Agreement ("Agreement"), dated July 2, 1991 by doing all of the following: I. Revising the recitals to indicate, wherever appropriate, that WHEREAS, the variable life insurance and/or variable annuity products identified on Schedule A hereto ("Contracts") have been or will be registered by the Company under the Securities Act of 1933, unless such Contracts are exempt from registration thereunder; and WHEREAS, the Company has registered or will register the Separate Accounts identified on Schedule A as unit investment trusts under the 1940 Act, unless such Accounts are exempt from registration thereunder. II. Replacing section 1.6 in its entirety with the following: 1.6. The Company agrees that purchases and redemptions of Portfolio shares offered by the then current prospectus of the Fund shall be made in accordance with the provisions of such prospectus. III. Replacing section 2.1 in its entirety with the following: 2.1. The Company represents and warrants that the Contracts are or will be registered under the 1933 Act or are exempt from registration thereunder; that the Contracts will be issued and sold in compliance in all material respects with all applicable Federal and State laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under the New York Insurance Law and, unless exempt from registration thereunder, has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. IV. Replacing section 2.5 in its entirety with the following: 2.5. (a) With respect to Initial Class shares, the Fund currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may make such payments in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for distribution expenses. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of trustees, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (b) With respect to Service Class shares and Service Class 2 shares, the Fund has adopted Rule 12b-1 Plans under which it makes payments to finance distribution expenses. The Fund represents and warrants that it has a board of trustees, a majority of whom are not interested persons of the Fund, which has formulated and approved each of its Rule 12b-1 Plans to finance distribution expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plans will be approved by a similarly constituted board of trustees. V. Adding the following sentence to the beginning of section 3.1: Wherever the term "prospectus" is used in this Agreement in relation to the Contracts or the Accounts, the term shall be deemed to include each prospectus, registration statement, private offering memorandum or other disclosure document for the Contract or the Account. VI. Replacing section 4.6 in its entirety with the following: 4.6. The Company will provide to the Fund at least one complete copy of all prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC or other regulatory authorities or, if a Contract and its associated Account are exempt from registration, at the time such documents are first published. VII. Replacing section 5.3 in its entirety with the following: 5.3. The Company shall bear the expenses of distributing the Fund's prospectus and reports to owners of Contracts issued by the Company. The Fund shall bear the costs of soliciting Fund proxies from Contract owners, including the costs of mailing proxy materials and tabulating proxy voting instructions, not to exceed the costs charged by any service provider engaged by the Fund for this purpose. The Fund and the Underwriter shall not be responsible for the costs of any proxy solicitations other than proxies sponsored by the Fund. VIII. Replacing Schedules A and B with the Revised Schedules A and B, attached. IX. Amending Schedule C by deleting the words "at its expense" from the second sentence of paragraph 4. IN WITNESS WHEREOF, each party has caused this Amendment to be executed in its name and on its behalf by its duly authorized representative as of September 5, 2000. METROPOLITAN LIFE INSURANCE COMPANY VARIABLE INSURANCE PRODUCTS FUND II By: /s/ Michael Rogalski By: /s/ Robert C. Pozen ------------------------ ------------------------ Name: Michael Rogalski Name: Robert C. Pozen ------------------------ ------------------------ Title: VP and Actuary Title: Senior Vice President FIDELITY DISTRIBUTORS CORPORATION By: /s/ Kevin J. Kelly ------------------------ Name: Kevin J. Kelly ------------------------ Title: Vice President SCHEDULE A Company Accounts
- ------------------------------------------------------- ----------------------------------------------------- Name of Account Date of Resolution of Company's Board which Established the Account - ------------------------------------------------------- ----------------------------------------------------- Metropolitan Life 9/27/83 Separate Account E - ------------------------------------------------------- ----------------------------------------------------- Metropolitan Life 9/27/83 Separate Account F - ------------------------------------------------------- ----------------------------------------------------- 12/13/88 Separate Account UL - ------------------------------------------------------- ----------------------------------------------------- Metropolitan Life [PENDING APPROVAL] Separate Account L - ------------------------------------------------------- -----------------------------------------------------
SCHEDULE B Company Contracts 1. Contract Form G.2952A and certificate forms G.4361, G.4362, and G. 4363, and other contracts and certificate forms developed for sale to colleges and universities and other tax-deferred employee benefit plans and affiliates of such plans. 2. Contracts developed for Section 451 deferred fee arrangements, Section 457(f) deferred compensation plans and Section 457(e)(11) severance and death benefit plans. 3. Metropolitan Life PPVL contract forms: G.2328 G.2331 G.2331(99) G.2331-NJ-PAR (no longer issued) G.2331-NJ-NP G.2333 G.2334 G.2335 4. MetFlex (SM) Contract Form: 7FV-93 Amendment No. 3 to Participation Agreement Metropolitan Life Insurance Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation, hereby amend their Participation Agreement ("Agreement"), dated July 2, 1991 by doing all of the following: I. Revising the recitals to indicate, wherever appropriate, that WHEREAS, the variable life insurance and/or variable annuity products identified on Schedule A hereto ("Contracts") have been or will be registered by the Company under the Securities Act of 1933, unless such Contracts are exempt from registration thereunder; and WHEREAS, the Company has registered or will register the Separate Accounts identified on Schedule A as unit investment trusts under the 1940 Act, unless such Accounts are exempt from registration thereunder. II. Replacing section 1.6 in its entirety with the following: 1.6. The Company agrees that purchases and redemptions of Portfolio shares offered by the then current prospectus of the Fund shall be made in accordance with the provisions of such prospectus. III. Replacing section 2.1 in its entirety with the following: 2.1. The Company represents and warrants that the Contracts are or will be registered under the 1933 Act or are exempt from registration thereunder; that the Contracts will be issued and sold in compliance in all material respects with all applicable Federal and State laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under the New York Insurance Law and, unless exempt from registration thereunder, has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. IV. Replacing section 2.5 in its entirety with the following: 2.5. (a) With respect to Initial Class shares, the Fund currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may make such payments in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for distribution expenses. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of trustees, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (b) With respect to Service Class shares and Service Class 2 shares, the Fund has adopted Rule 12b-1 Plans under which it makes payments to finance distribution expenses. The Fund represents and warrants that it has a board of trustees, a majority of whom are not interested persons of the Fund, which has formulated and approved each of its Rule 12b-1 Plans to finance distribution expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plans will be approved by a similarly constituted board of trustees. V. Adding the following sentence to the beginning of section 3.1: Wherever the term "prospectus" is used in this Agreement in relation to the Contracts or the Accounts, the term shall be deemed to include each prospectus, registration statement, private offering memorandum or other disclosure document for the Contract or the Account. VI. Replacing section 4.6 in its entirety with the following: 4.6. The Company will provide to the Fund at least one complete copy of all prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC or other regulatory authorities or, if a Contract and its associated Account are exempt from registration, at the time such documents are first published. VII. Replacing section 5.3 in its entirety with the following: 5.3. The Company shall bear the expenses of distributing the Fund's prospectus and reports to owners of Contracts issued by the Company. The Fund shall bear the costs of soliciting Fund proxies from Contract owners, including the costs of mailing proxy materials and tabulating proxy voting instructions, not to exceed the costs charged by any service provider engaged by the Fund for this purpose. The Fund and the Underwriter shall not be responsible for the costs of any proxy solicitations other than proxies sponsored by the Fund. VIII. Replacing Schedules A and B with the Revised Schedules A and B, attached. IX. Amending Schedule C by deleting the words "at its expense" from the second sentence of paragraph 4. IN WITNESS WHEREOF, each party has caused this Amendment to be executed in its name and on its behalf by its duly authorized representative as of September 5, 2000. METROPOLITAN LIFE INSURANCE COMPANY VARIABLE INSURANCE PRODUCTS FUND II By: /s/ Michael Rogalski By: /s/ Robert C. Pozen ------------------------ ------------------------ Name: Michael Rogalski Name: Robert C. Pozen ------------------------ ------------------------ Title: VP and Actuary Title: Senior Vice President FIDELITY DISTRIBUTORS CORPORATION By: /s/ Kevin J. Kelly ------------------------ Name: Kevin J. Kelly ------------------------ Title: Vice President SCHEDULE A Company Accounts
- ------------------------------------------------------- ----------------------------------------------------- Name of Account Date of Resolution of Company's Board which Established the Account - ------------------------------------------------------- ----------------------------------------------------- Metropolitan Life 9/27/83 Separate Account E - ------------------------------------------------------- ----------------------------------------------------- Metropolitan Life 9/27/83 Separate Account F - ------------------------------------------------------- ----------------------------------------------------- 12/13/88 Separate Account UL - ------------------------------------------------------- ----------------------------------------------------- Metropolitan Life [PENDING APPROVAL] Separate Account L - ------------------------------------------------------- -----------------------------------------------------
SCHEDULE B Company Contracts 1. Contract Form G.2952A and certificate forms G.4361, G.4362, and G. 4363, and other contracts and certificate forms developed for sale to colleges and universities and other tax-deferred employee benefit plans and affiliates of such plans. 2. Contracts developed for Section 451 deferred fee arrangements, Section 457(f) deferred compensation plans and Section 457(e)(11) severance and death benefit plans. 3. Metropolitan Life PPVL contract forms: G.2328 G.2331 G.2331(99) G.2331-NJ-PAR (no longer issued) G.2331-NJ-NP G.2333 G.2334 G.2335 4. MetFlex (SM) Contract Form: 7FV-93 EX-99.1A(5)(I) 5 a2023826zex-99_1a5i.txt EXHIBIT 99.1.A(5)(I) FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION A GUARANTEED MAXIMUM CHARGES
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2) Premiums Assuming Hypothetical Assuming Hypothetical End Of Accumulated Gross Annual Investment Gross Annual Investment Policy at 5% Interest Rates of Return of Rates of Return of ---------------------------------------------------------------------------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 1 2,100 1,298 1,389 1,481 100,000 100,000 100,000 2 4,305 2,543 2,805 3,078 100,000 100,000 100,000 3 6,620 3,734 4,247 4,805 100,000 100,000 100,000 4 9,051 4,869 5,716 6,673 100,000 100,000 100,000 5 11,604 5,946 7,209 8,695 100,000 100,000 100,000 6 14,284 6,962 8,724 10,884 100,000 100,000 100,000 7 17,098 7,910 10,256 13,253 100,000 100,000 100,000 8 20,053 8,786 11,801 15,818 100,000 100,000 100,000 9 23,156 9,582 13,353 18,596 100,000 100,000 100,000 10 26,414 10,293 14,907 21,608 100,000 100,000 100,000 15 45,315 12,728 22,985 41,711 100,000 100,000 100,000 20 69,439 11,985 30,585 74,406 * 100,000 100,000 100,000 * 25 100,227 5,825 36,393 128,954 * 100,000 100,000 150,077 * (3) 30 139,522 0 (4) 37,697 215,165 * 0 (4) 100,000 230,980 * (3)
(1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy Year. The values would vary from those shown if the amount or frequency of payments varies. (2) Amounts shown take into account deductions from premiums, the monthly deduction from cash value (including the cost of insurance and mortality and expense risks charge), the daily charge to the Funds for investment management services equivalent to an annual rate of .62% of the average daily value of the aggregate net assets of the Funds (which represents a simple average of the maximum management fees applicable to the 40 available portfolios of the Funds), and .20% for other direct Fund expenses (the average of the expenses indicated in the chart in the MetFlex prospectus under "Fund Investment Management Fees and Direct Expenses"). Where applicable, the other direct Fund expenses include 12b-1 fees of not more than .25%. Fees and expenses also take into account any applicable subsidies. Without these subsidies, the gross investment rates of return of 0%, 6%, and 12% correspond to actual (or net) annual rates of -.81%, 5.14%, and 11.09%, respectively. Amounts shown assume no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. Amounts do not reflect the refund of sales load and do not show the impact of any available riders. (3) Minimum death benefit applies; see "Death Benefit Options -- Minimum Death Benefit" for further details. (4) Zero values in cash value and death benefit indicate termination of coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums - Termination" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
12% 12% Cash Death Yr. Value Benefit --- ----- ------- 20 73,268 129,425 25 118,426 187,369 30 180,519 259,349
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION A CURRENT CHARGES
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2) Premiums Assuming Hypothetical Assuming Hypothetical End Of Accumulated Gross Annual Investment Gross Annual Investment Policy at 5% Interest Rates of Return of Rates of Return of ----------------------------------------------------------------------------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 1 2,100 1,627 1,728 1,830 100,000 100,000 100,000 2 4,305 3,226 3,530 3,847 100,000 100,000 100,000 3 6,620 4,796 5,407 6,067 100,000 100,000 100,000 4 9,051 6,338 7,363 8,516 100,000 100,000 100,000 5 11,604 7,847 9,398 11,213 100,000 100,000 100,000 6 14,284 9,323 11,515 14,182 100,000 100,000 100,000 7 17,098 10,765 13,716 17,454 100,000 100,000 100,000 8 20,053 12,171 16,004 21,060 100,000 100,000 100,000 9 23,156 13,545 18,387 25,040 100,000 100,000 100,000 10 26,414 14,903 20,893 29,470 100,000 100,000 100,000 15 45,315 21,448 35,467 60,240 100,000 100,000 100,000 20 69,439 26,877 53,496 111,736 100,000 100,000 136,764 (3) 25 100,227 30,849 76,416 * 197,139 * 100,000 100,000 * 229,430 * (3) 30 139,522 32,029 106,188 * 337,988 * 100,000 113,993 * (3) 362,831 * (3)
(1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy Year. The values would vary from those shown if the amount or frequency of payments varies. (2) Amounts shown take into account deductions from premiums, the monthly deduction from cash value (including the cost of insurance and mortality and expense risks charge), the daily charge to the Funds for investment management services equivalent to an annual rate of .62% of the average daily value of the aggregate net assets of the Funds (which represents a simple average of the maximum management fees applicable to the 40 available portfolios of the Funds), and .20% for other direct Fund expenses (the average of the expenses indicated in the chart in the MetFlex prospectus under "Fund Investment Management Fees and Direct Expenses"). Where applicable, the other direct Fund expenses include 12b-1 fees of not more than .25%. Fees and expenses also take into account any applicable subsidies. Without these subsidies, the gross investment rates of return of 0%, 6%, and 12% correspond to actual (or net) annual rates of -.81%, 5.14%, and 11.09%, respectively. Amounts shown assume no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. Amounts do not reflect the refund of sales load and do not show the impact of any available riders. (3) Minimum death benefit applies; see "Death Benefit Options -- Minimum Death Benefit" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
6% 12% 6% 12% Cash Cash Death Death Yr. Value Value Yr. Benefit Benefit --- ----- ----- --- ------- ------- 15 n/a 60,156 15 n/a 120,254 20 n/a 109,801 20 n/a 193,959 25 75,923 189,447 25 120,123 299,736 30 102,251 314,222 30 146,903 451,439
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION B GUARANTEED MAXIMUM CHARGES
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2) Premiums Assuming Hypothetical Assuming Hypothetical End Of Accumulated Gross Annual Investment Gross Annual Investment Policy at 5% Interest Rates of Return of Rates of Return of ---------------------------------------------------------------------------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 1 2,100 1,291 1,382 1,472 101,291 101,382 101,472 2 4,305 2,521 2,781 3,052 102,521 102,781 103,052 3 6,620 3,690 4,197 4,748 103,690 104,197 104,748 4 9,051 4,795 5,628 6,568 104,795 105,628 106,568 5 11,604 5,833 7,069 8,521 105,833 107,069 108,521 6 14,284 6,800 8,515 10,614 106,800 108,515 110,614 7 17,098 7,688 9,956 12,852 107,688 109,956 112,852 8 20,053 8,490 11,387 15,241 108,490 111,387 115,241 9 23,156 9,200 12,795 17,787 109,200 112,795 117,787 10 26,414 9,810 14,172 20,497 109,810 114,172 120,497 15 45,315 11,476 20,627 37,273 111,476 120,627 137,273 20 69,439 9,493 24,530 59,803 109,493 124,530 159,803 25 100,227 1,941 22,736 88,697 101,941 122,736 188,697 30 139,522 0 (4) 9,871 123,294 0 (4) 109,871 223,294
(1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy Year. The values would vary from those shown if the amount or frequency of payments varies. (2) Amounts shown take into account deductions from premiums, the monthly deduction from cash value (including the cost of insurance and mortality and expense risks charge), the daily charge to the Funds for investment management services equivalent to an annual rate of .62% of the average daily value of the aggregate net assets of the Funds (which represents a simple average of the maximum management fees applicable to the 40 available portfolios of the Funds), and .20% for other direct Fund expenses (the average of the expenses indicated in the chart in the MetFlex prospectus under "Fund Investment Management Fees and Direct Expenses"). Where applicable, the other direct Fund expenses include 12b-1 fees of not more than .25%. Fees and expenses also take into account any applicable subsidies. Without these subsidies, the gross investment rates of return of 0%, 6%, and 12% correspond to actual (or net) annual rates of -.81%, 5.14%, and 11.09%, respectively. Amounts shown assume no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. Amounts do not reflect the refund of sales load and do not show the impact of any available riders. (4) Zero values in cash value and death benefit indicate termination of coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums - Termination" for further details. FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION B CURRENT CHARGES
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2) Premiums Assuming Hypothetical Assuming Hypothetical End Of Accumulated Gross Annual Investment Gross Annual Investment Policy at 5% Interest Rates of Return of Rates of Return of -------------------------------------------------------------------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 1 2,100 1,624 1,726 1,827 101,624 101,726 101,827 2 4,305 3,218 3,522 3,837 103,218 103,522 103,837 3 6,620 4,780 5,389 6,047 104,780 105,389 106,047 4 9,051 6,311 7,331 8,479 106,311 107,331 108,479 5 11,604 7,806 9,347 11,150 107,806 109,347 111,150 6 14,284 9,262 11,436 14,082 109,262 111,436 114,082 7 17,098 10,680 13,602 17,303 110,680 113,602 117,303 8 20,053 12,055 15,843 20,838 112,055 115,843 120,838 9 23,156 13,393 18,167 24,726 113,393 118,167 124,726 10 26,414 14,708 20,600 29,033 114,708 120,600 129,033 15 45,315 20,892 34,459 58,400 120,892 134,459 158,400 20 69,439 25,573 50,628 105,693 125,573 150,628 205,693 25 100,227 28,094 68,974 182,240 * 128,094 168,974 282,240 * 30 139,522 26,440 87,598 304,630 * 126,440 187,598 404,630 *
(1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy Year. The values would vary from those shown if the amount or frequency of payments varies. (2) Amounts shown take into account deductions from premiums, the monthly deduction from cash value (including the cost of insurance and mortality and expense risks charge), the daily charge to the Funds for investment management services equivalent to an annual rate of .62% of the average daily value of the aggregate net assets of the Funds (which represents a simple average of the maximum management fees applicable to the 40 available portfolios of the Funds), and .20% for other direct Fund expenses (the average of the expenses indicated in the chart in the MetFlex prospectus under "Fund Investment Management Fees and Direct Expenses"). Where applicable, the other direct Fund expenses include 12b-1 fees of not more than .25%. Fees and expenses also take into account any applicable subsidies. Without these subsidies, the gross investment rates of return of 0%, 6%, and 12% correspond to actual (or net) annual rates of -.81%, 5.14%, and 11.09%, respectively. Amounts shown assume no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. Amounts do not reflect the refund of sales load and do not show the impact of any available riders. * If the Cash Value Accumulation test had been used, the following changes would apply:
12% 12% Cash Death Yr. Value Benefit 25 182,219 288,301 30 302,704 434,892
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION C GUARANTEED MAXIMUM CHARGES
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2) Premiums Assuming Hypothetical Assuming Hypothetical End Of Accumulated Gross Annual Investment Gross Annual Investment Policy at 5% Interest Rates of Return of Rates of Return of ----------------------------------------------------------------------------------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 1 2,100 1,289 1,380 1,471 102,000 102,000 102,000 2 4,305 2,513 2,774 3,045 104,000 104,000 104,000 3 6,620 3,671 4,181 4,734 106,000 106,000 106,000 4 9,051 4,760 5,597 6,544 108,000 108,000 108,000 5 11,604 5,774 7,018 8,483 110,000 110,000 110,000 6 14,284 6,708 8,438 10,560 112,000 112,000 112,000 7 17,098 7,553 9,846 12,781 114,000 114,000 114,000 8 20,053 8,298 11,232 15,152 116,000 116,000 116,000 9 23,156 8,935 12,586 17,682 118,000 118,000 118,000 10 26,414 9,451 13,894 20,380 120,000 120,000 120,000 15 45,315 10,182 19,692 37,349 130,000 130,000 130,000 20 69,439 5,637 21,802 61,673 140,000 140,000 140,000 25 100,227 0 (4) 14,747 98,541 0 (4) 150,000 150,000 30 139,522 0 (4) 0 (4) 162,282 * 0 (4) 0 (4) 174,211 * (3)
(1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy Year. The values would vary from those shown if the amount or frequency of payments varies. (2) Amounts shown take into account deductions from premiums, the monthly deduction from cash value (including the cost of insurance and mortality and expense risks charge), the daily charge to the Funds for investment management services equivalent to an annual rate of .62% of the average daily value of the aggregate net assets of the Funds (which represents a simple average of the maximum management fees applicable to the 40 available portfolios of the Funds), and .20% for other direct Fund expenses (the average of the expenses indicated in the chart in the MetFlex prospectus under "Fund Investment Management Fees and Direct Expenses"). Where applicable, the other direct Fund expenses include 12b-1 fees of not more than .25%. Fees and expenses also take into account any applicable subsidies. Without these subsidies, the gross investment rates of return of 0%, 6%, and 12% correspond to actual (or net) annual rates of -.81%, 5.14%, and 11.09%, respectively. Amounts shown assume no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. Amounts do not reflect the refund of sales load and do not show the impact of any available riders. (3) Minimum death benefit applies; see "Death Benefit Options -- Minimum Death Benefit" for further details. (4) Zero values in cash value and death benefit indicate termination of coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums - Termination" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
12% 12% Cash Death Yr. Value Benefit 25 98,494 155,833 30 152,069 218,475
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (1) MALE ISSUE AGE 45 STANDARD NONSMOKER FULL UNDERWRITING RISK SPECIFIED FACE AMOUNT: $100,000 -- DEATH BENEFIT OPTION C CURRENT CHARGES
TOTAL CASH VALUE (2) TOTAL DEATH BENEFIT (2) Premiums Assuming Hypothetical Assuming Hypothetical End Of Accumulated Gross Annual Investment Gross Annual Investment Policy at 5% Interest Rates of Return of Rates of Return of --------------------------------------------------------------------------------------- Year Per Year 0% 6% 12% 0% 6% 12% 1 2,100 1,624 1,725 1,827 102,000 102,000 102,000 2 4,305 3,217 3,521 3,837 104,000 104,000 104,000 3 6,620 4,777 5,387 6,046 106,000 106,000 106,000 4 9,051 6,305 7,328 8,478 108,000 108,000 108,000 5 11,604 7,796 9,341 11,150 110,000 110,000 110,000 6 14,284 9,247 11,429 14,086 112,000 112,000 112,000 7 17,098 10,658 13,593 17,313 114,000 114,000 114,000 8 20,053 12,024 15,832 20,860 116,000 116,000 116,000 9 23,156 13,350 18,156 24,766 118,000 118,000 118,000 10 26,414 14,650 20,589 29,102 120,000 120,000 120,000 15 45,315 20,696 34,495 58,954 130,000 130,000 130,000 20 69,439 25,012 50,937 108,473 * 140,000 140,000 140,000 * 25 100,227 26,590 70,256 191,703 * 150,000 150,000 223,104 * (3) 30 139,522 22,231 91,937 329,016 * 160,000 160,000 353,199 * (3)
(1) Assumes annual planned premium payments of $2,000 paid in full at beginning of each Policy Year. The values would vary from those shown if the amount or frequency of payments varies. (2) Amounts shown take into account deductions from premiums, the monthly deduction from cash value (including the cost of insurance and mortality and expense risks charge), the daily charge to the Funds for investment management services equivalent to an annual rate of .62% of the average daily value of the aggregate net assets of the Funds (which represents a simple average of the maximum management fees applicable to the 40 available portfolios of the Funds), and .20% for other direct Fund expenses (the average of the expenses indicated in the chart in the MetFlex prospectus under "Fund Investment Management Fees and Direct Expenses"). Where applicable, the other direct Fund expenses include 12b-1 fees of not more than .25%. Fees and expenses also take into account any applicable subsidies. Without these subsidies, the gross investment rates of return of 0%, 6%, and 12% correspond to actual (or net) annual rates of -.81%, 5.14%, and 11.09%, respectively. Amounts shown assume no policy loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Policy to terminate because of insufficient cash value. Amounts do not reflect the refund of sales load and do not show the impact of any available riders. (3) Minimum death benefit applies; see "Death Benefit Options -- Minimum Death Benefit" for further details. * If the Cash Value Accumulation test had been used, the following changes would apply:
12% 12% Cash Death Yr. Value Benefit 20 107,784 190,397 (3) 25 186,196 294,593 30 309,042 443,996
EX-99.6 6 a2023826zex-99_6.txt EXHIBIT 99.6 September 12, 2000 Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 Dear Sirs: This opinion is furnished in connection with the filing of Post-Effective Amendment No. 10 to Registration Statement No. 33-57320 on Form S-6 ("Registration Statement") which covers premiums received under Flexible Premium Variable Life Insurance Policies ("Policies") offered by Metropolitan Life Insurance Company ("MLIC") in each State where they have been approved by appropriate State insurance authorities. As a Vice-President and Actuary of MLIC, I have reviewed the Policy forms and I am familiar with the Registration Statement and Exhibits thereto. In my opinion, the illustrations of Policy death benefits, cash values, cash surrender values and accumulated premiums in Exhibit 1A. (5) (i) included in the Registration Statement, based on the assumptions stated therein, are consistent with the provisions of the Policy forms. Also, in my opinion, the amounts assumed in the illustrations for current Policy charges (including the decrease in mortality and expense risk charge after 9 years) remain reasonable, based on MLIC's current expectations. The Policies have not been designed so as to make the relationship between premiums and benefits, as shown in these illustrations appear to be disproportionately more favorable to a prospective purchaser of the Policy for standard risk males age 45, than to prospective purchasers of Policies for a male at other ages or in other underwriting classes or for a female. Nor have the particular illustrations shown been selected for the purpose of making that relationship appear more favorable. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Legal, Accounting and Actuarial Matters" in the prospectus contained in the registration statement. Very truly yours, /s/ Michael F. Rogalski - ------------------------------ Michael F. Rogalski, FSA, MAAA Vice-President and Actuary -----END PRIVACY-ENHANCED MESSAGE-----