-----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, GPdc2vgxopbE4KEcfB+hkrdruxj53MntI+g11OxUgBaK5LMSfEzCMGlrJAR9XVVo UtBZFe2agP2KximaBePupA== 0000912057-96-013804.txt : 19960705 0000912057-96-013804.hdr.sgml : 19960705 ACCESSION NUMBER: 0000912057-96-013804 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19960703 EFFECTIVENESS DATE: 19960703 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-91226 FILM NUMBER: 96590748 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 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996 REGISTRATION NO. 33-91226 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- POST-EFFECTIVE AMENDMENT NO. 1 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. Executive Vice-President, and Chief Legal Officer 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) X on August 1, 1996 pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a) / / on (date), pursuant to paragraph (a) of Rule 485 ------------------------ This filing is made pursuant to Rule 6c-3 and 6e-3(T) under the Investment Company Act of 1940 to register interests in Metropolitan Life Separate Account UL which funds certain flexible premium multifunded life insurance policies. ------------------------ Registrant elects to be governed (a) by Rule 6e-3(T)(b)(13)(i)(A) under the Investment Company Act of 1940 with respect to the policies described in this Registration Statement that incorporate a contingent deferred sales load and (b) by Rule 6e-3(T)(b)(13)(i)(B) with respect to other policies described in this Registration Statement. Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant has registered an indefinite amount of securities. THE REGISTRANT'S RULE 24f-2 NOTICE WAS FILED WITH THE COMMISSION ON FEBRUARY 29, 1996. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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--Who is the Issuer of the Group Policies and Certificates? 3........................................ Inapplicable 4........................................ SALES AND ADMINISTRATION OF THE GROUP POLICIES AND CERTIFICATES; SUMMARY--Who is the Issuer of the Group Policies and Certificates? 5, 6, 7.................................. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account; STATE REGULATION 8........................................ FINANCIAL STATEMENTS 9........................................ Inapplicable 10(a)..................................... OTHER CERTIFICATE PROVISIONS--Owner; Beneficiary; Collateral Assignment 10(c), 10(d).............................. DEFINITIONS--Valuation Date; SUMMARY--May the Certificate be Surrendered or the Cash Value Partially With-drawn; Is There a "Free Look" Period?; CERTIFICATE BENEFITS--Benefit at Final Date; CERTIFICATE RIGHTS--Surrender and Withdrawal Privileges; Exchange Privilege; PAYMENT AND ALLOCATION OF PREMIUMS--Allocation of Premiums and Cash Value, Cash Value Transfers; THE FIXED ACCOUNT--Death Benefit Transfer, Withdrawal, Surrender, and Loan Rights; OTHER POLICY PROVISIONS--Payment and Deferment 10(e)..................................... PAYMENT AND ALLOCATION OF PREMIUMS--Policy Termination and Reinstatement While the Group Policy is in Effect 10(f)..................................... VOTING RIGHTS 10(g)(1)-(3), 10(h)(1)-(3)................ RIGHTS RESERVED BY METLIFE 10(g)(4), 10(h)(4)........................ Inapplicable 10(i)..................................... CERTIFICATE BENEFITS--Death Benefit; Cash Value; Optional Income Plans; Optional Insurance Benefits; PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a Certificate; Premiums; Allocation of Premiums and Cash Value; Certificate Termination and Reinstatement While the Group Policy is in Effect 11........................................ SUMMARY--What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund? SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND-- Metropolitan Series Fund 12(a)..................................... Cover Page
i
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS - --------------------------------------------- ------------------------------------------------------------------------ 12(b), 12(e).............................. Inapplicable 12(c), 12(d).............................. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund 13(a), 13(b), 13(c), 13(d)................ SUMMARY--What are Separate Account UL, the Fixed Account and Metropolitan Series Fund?; What Charges are Assessed in Connection with the Certificate? CHARGES AND DEDUCTIONS; SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account; CERTIFICATE BENEFITS--Death Benefit Increases 13(e)..................................... SALES AND ADMINISTRATION OF THE CERTIFICATE 13(f), 13(g).............................. Inapplicable 14........................................ PAYMENT AND ALLOCATION OF PREMIUMS--Issuance of a Certificate; SALES AND ADMINISTRATION OF THE CERTIFICATES 15........................................ PAYMENT AND ALLOCATION OF PREMIUMS 16........................................ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund 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 AND METROPOLITAN SERIES FUND 18(b), 18(d).............................. Inapplicable 19........................................ SALES AND ADMINISTRATION OF THE CERTIFICATES; VOTING RIGHTS; REPORTS RIGHTS RESERVED BY METLIFE 20(a), 20(b).............................. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account 20(c), 20(d), 20(e), 20(f)................ Inapplicable 21(a), 21(b).............................. CERTIFICATE RIGHTS--Loan Privileges; OTHER CERTIFICATE PROVISIONS--Payment and Deferment 21(c), 22................................. Inapplicable 23........................................ SALES AND ADMINISTRATION OF THE CERTIFICATES 24........................................ OTHER CERTIFICATE PROVISIONS 25........................................ SUMMARY--Who is the Issuer of the Policies and Certificates? 26........................................ CHARGES AND DEDUCTIONS--Other Charges 27........................................ SUMMARY--Who is the Issuer of the Policies and Certificates? 28........................................ MANAGEMENT 29........................................ Inapplicable 30, 31, 32, 33, 34........................ Inapplicable 35........................................ STATE REGULATION 36, 37.................................... Inapplicable
ii
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS - --------------------------------------------- ------------------------------------------------------------------------ 38........................................ SALES AND ADMINISTRATION OF THE CERTIFICATES; DISTRIBUTION OF THE CERTIFICATES 39........................................ SUMMARY--Who is the Issuer of the Group Policies and Certificates?; SALES AND ADMINISTRATION OF THE CERTIFICATES; DISTRIBUTION OF THE CERTIFICATES 40(a)..................................... Inapplicable 40(b)..................................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund; CHARGES AND DEDUCTIONS--Other Charges 41(a)..................................... SUMMARY--Who is the Issuer of the Group Policies and Certificates?; SALES AND ADMINISTRATION OF THE CERTIFICATES 41(b), 41(c), 42, 43...................... Inapplicable 44(a)..................................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Metropolitan Series Fund; CERTIFICATE BENEFITS--Cash Value 44(b)..................................... Inapplicable 44(c)..................................... CHARGES AND DEDUCTIONS--Monthly Deduction From Cash Value 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 AND METROPOLITAN SERIES FUND--The Separate Account 51(a), 51(b).............................. SUMMARY--Who is the Issuer of the Group Policies and Certificates?; Cover Page; CERTIFICATE BENEFITS-- Optional Insurance Benefits; CERTIFICATE RIGHTS-- Exchange Privileges 51(c), 51(d), 51(e)....................... Captions referenced under Item 10(i) above 51(f)..................................... PAYMENT AND ALLOCATION OF PREMIUMS--Certificate Termination and Reinstatement While the Group Policy is in Effect 51(g)..................................... Captions referenced under Items 10(i) and 13 above 51(h), 51(j).............................. Inapplicable 51(i)..................................... DISTRIBUTION OF THE GROUP POLICIES AND CERTIFICATES 52(a), 52(c).............................. RIGHTS RESERVED BY METLIFE 52(b), 52(d).............................. Inapplicable 53(a)..................................... FEDERAL TAX MATTERS 53(b), 54 through 58...................... Inapplicable 59........................................ FINANCIAL STATEMENTS
iii Form of Supplement. Information in brackets will vary based upon the Group Policy under which the Certificate is issued. SUPPLEMENT DATED [DECEMBER 1, 1996] TO PROSPECTUS DATED AUGUST 1, 1996 FOR GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES ISSUED UNDER THE GROUP POLICIES The Prospectus describes the provisions of the Policies and Certificates that generally are applicable to all purchasers. Certain provisions, however, may vary depending upon the Group in connection with which a Policy or Certificate is issued. Accordingly, this Supplement provides Owners with additional, specific information about the Group Policy and Certificates issued to Owners in the [XYZ Group]. Words used in this Supplement have the same meanings given to them in the Prospectus, unless the context indicates otherwise. THE INFORMATION SET FORTH BELOW MERELY SUPPLEMENTS THE INFORMATION INCLUDED IN THE PROSPECTUS. IT IS NOT A SUMMARY OF THE PROSPECTUS AND IS NOT NECESSARILY MORE IMPORTANT THAN THE INFORMATION THAT IS INCLUDED IN THE PROSPECTUS. [MONEY MARKET INVESTMENT DIVISION: In addition to the six investment divisions described in the Prospectus, the Money Market investment division is also available to Owners of Certificates. The Money Market investment division invests in a corresponding portfolio of the Metropolitan Series Fund. The following is a brief summary of the investment objective of the Money Market portfolio: Money Market Portfolio. The investment objective of this portfolio is to achieve the highest possible current income consistent with the preservation of capital and maintenance of liquidity, by investing primarily in short-term money market instruments.] PORTABILITY: A Certificate becomes portable when one of the following events occurs: [(1) termination of employment other than through retirement; (2) retirement as defined by the employer; or (3) sale of the division for which the employee works such that the employee no longer works for the employer who is the participating entity of the Policy.] (See "Definitions-- Portable" in the Prospectus, "Payment and Allocation of Premiums--Termination of Participating Entity Participation in the Group Policy" in the Prospectus and "Payment and Allocation of Premiums--Effect of Termination of Group Policy Participation on Owners" in the Prospectus.) SPECIFIED FACE AMOUNT: The minimum specified face amount for which a Certificate may be issued is [$10,000]. [Automatic increases in the specified face amount of a Certificate will be effective on the January 1 next following each eligible employee's salary increase. The amount of the automatic increase in specified face amount will be equal to the amount of the salary increase rounded to the nearest five thousand dollars. Other] requests for increases in specified face amount may be made [1 time a year on January 1st]. The minimum amount of requested specified face amount increases is [the greater of one times the Owner's salary or $5,000]. (See "Certificate Benefits--Death Benefit," in the Prospectus.) [ALLOCATION OF NET PREMIUMS: The participating entity has retained the right to allocate the portion of the net premiums that it (rather than the Owner) pays among the Fixed Account and the investment divisions of the Separate Account, unless and until the covered person retires, as determined by the participating entity (if the covered person is employed by the participating entity) or the Owner's Certificate becomes portable (See "Payment and Allocation of Premiums--Allocation of Net Premiums" in the Prospectus).] [CASH VALUE TRANSFERS: The participating entity has retained the right to transfer the portion of the cash value attributable to net premiums that it (rather than the Owner) pays among the Fixed Account and the investment divisions of the Separate Account, unless and until the covered person retires, as determined by the participating entity (if the covered person is employed by the participating entity) or the Owner's Certificate S-1 becomes portable (see "Payment and Allocation of Premiums--Cash Value Transfers" in the Prospectus). In addition, the restrictions on transfers from the Fixed Account described under "Payment and Allocation of Premiums--Cash Value Transfers" in the Prospectus are applicable to the Certificates.] SYSTEMATIC INVESTMENT STRATEGIES: The systematic investment strategies described under "Payment and Allocation of Premiums--Systematic Investment Strategies" are [not] available under Certificates issued to Owners. TERMINATION BY METLIFE OF PARTICIPATING ENTITY PARTICIPATION IN THE GROUP POLICY: MetLife may terminate the participating entity's participation in the Group Policy if during any twelve month period, the aggregate specified face amount for all Owners under the Group Policy [decreases by 15%] or the number of Certificates [decreases by 20%]. (See "Payment and Allocation of Premiums--Termination of Participating Entity Participation in the Group Policy" in the Prospectus.) EFFECT OF CERTAIN TERMINATIONS OF GROUP POLICY PARTICIPATION ON CERTAIN OWNERS: If the participating entity does not replace the Group Policy with another life insurance product, Owners who have not yet exercised the paid up Certificate provision and whose Certificates are not already in the portable class, may elect to [become Owners of portable Certificates or paid-up Certificates or to receive their Certificates' cash surrender values]. (As to cases where the participating entity replaces the Group Policy with another life insurance product, or as to employees who have exercised the paid up Certificate option or whose Certificates are already in a portable class, see "Payment and Allocation of Premiums--Effect of Termination of Group Policy Participation on Owners" in the Prospectus.) PREMIUM EXPENSE CHARGES: A charge of [3%] of premiums paid will be deducted from all premium payments (see "Charges and Deductions--Sales Load," in the Prospectus). A charge for state premium taxes will be deducted from each premium payment equal to [2.5%] of premium (see "Charges and Deductions-- Tax Charges" in the Prospectus). (As to the charge deducted for the purpose of recovering a portion of the federal income tax treatment of deferred acquisition costs of MetLife, see "Charges and Deductions--Tax Charges" in the Prospectus.) COST OF INSURANCE RATE: The guaranteed cost of insurance rate for the Group is [100%] of the maximum rates that could be charged based on the 1980 CSO Table. (See "Charges and Deductions--Cost of Insurance Charge" in the Prospectus.) ADMINISTRATION CHARGES: [The administration charge that is part of the monthly combined charge is equal to [45%] of the monthly combined charge. In addition to the administration charge that is deducted as part of the monthly combined charge,] there will be an [additional] administration charge of [$1.50] per Certificate per month. (See "Charges and Deductions-- Administration Charge" in the Prospectus.) CHARGE FOR MORTALITY AND EXPENSE RISKS: The current charge for mortality and expense risks assumed by MetLife is equal to [.45%] of the average daily value of the assets in the Separate Account attributable to the Certificates. (See "Charges and Deductions--Charge for Mortality and Expense Risks" in the Prospectus.) SURRENDER CHARGES: [A sales charge will be deducted in the form of a surrender charge from the cash value if the Certificate is surrendered or terminated after a grace period during the first [5] Certificate years after issue. In addition, a surrender charge will be deducted upon surrender or termination of a Certificate during the first [5] years after an increase (other than an automatic increase). Finally, a surrender charge may also be deducted from the cash value if the Certificate is terminated because the Group Policy is terminated by the participating entity during the first [5] Group Policy years. (See "Charges and Deductions--Surrender Charges" in the Prospectus.)] [There is also a surrender transaction charge of [$25.00] or, if less, 2% of the amount withdrawn]. LOAN PRIVILEGES: [Certificates are subject to a transaction charge of [$25] for each loan.] The interest charged on a Certificate loan is currently [8%] per year and the interest currently being credited on amounts in the Loan Account is [6%] per year. (See "Certificate Rights--Loan Privileges" in the Prospectus.) This Supplement should be read in conjunction with the accompanying Prospectus for the Policies and Certificates. S-2 METLIFE -REGISTERED TRADEMARK- GVUL PROSPECTUSES FOR - GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY - METROPOLITAN SERIES FUND, INC. AUGUST 1, 1996 PROSPECTUS FOR GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES ISSUED UNDER THE GROUP POLICIES (Minimum Specified Face Amount For A Certificate--$10,000) (Minimum Group Size--200 eligible lives) Issued by METROPOLITAN LIFE INSURANCE COMPANY Group variable universal life insurance policies ("Group Policies") and certificates available through the Group Policies ("Certificates") are offered by this Prospectus. The Group Policies and Certificates are issued by Metropolitan Life Insurance Company, New York, NY ("MetLife"). Generally, so long as the Group Policy remains in force, the Certificates are designed to provide lifetime insurance coverage on the covered persons named in the Certificates, as well as maximum flexibility in connection with premium payments. This flexibility allows an owner of a Certificate to provide for changing insurance needs within the confines of a single insurance product. Group Policies may be issued to an employer (referred to herein as "participating entity") or to a trust that is adopted by a participating entity. Employees (including employees' spouses where specified in the Group Policy) of adopting employers may own Certificates issued under their respective participating entity's Group Policy. Unless the Certificate provides otherwise, only the owner of the Certificate (the "Owner") may exercise the rights set forth in the Certificate. The Certificate provides for a death benefit payable at the covered person's death. The death benefit varies because it includes the Certificate's cash value in addition to a fixed insurance amount. The premiums paid, less premium expense charges, will generally be allocated at the Owner's discretion among one or more of the available investment divisions of MetLife Separate Account UL ("Separate Account") and/or a fixed interest account ("Fixed Account") within the General Account of MetLife. The participating entity may select which investment divisions will be available to Owners. If the participating entity is contributing premiums to Certificates issued under its Group Policy, it may limit the ability of Owners to allocate any premiums contributed by such participating entity among the available investment divisions. The assets in each investment division are invested in shares of a corresponding portfolio of the Metropolitan Series Fund, Inc. ("Fund"). The accompanying prospectus for the Fund describes the investment objectives and certain attendant risks of the six currently available portfolios of the Fund: Growth Portfolio, Income Portfolio, Diversified Portfolio, Aggressive Growth Portfolio, International Stock Portfolio and Stock Index Portfolio. The International Stock Portfolio is NOT available in California. The Certificate's cash value will vary with the investment experience of the Separate Account investment divisions to which amounts are allocated and the fixed rates of interest earned by allocations to the Fixed Account. The cash value will also be adjusted for other factors, including the amount of charges imposed and the premium payments made. The Owner may withdraw or borrow a portion of the Certificate's cash surrender value, or the Certificate may be fully surrendered, at any time, subject to certain limitations and charges. The Owner has the flexibility to vary the frequency and amount of premium payments, subject to certain restrictions and conditions. MetLife is the investment manager of the Fund and the distributor of its shares. MetLife also distributes and administers the Certificates. State Street Research & Management Company ("State Street Research") is the sub-investment manager with respect to the Growth, Income, Diversified and Aggressive Growth Portfolios of the Fund. State Street Research is a wholly-owned subsidiary of MetLife. GFM International Investors Limited ("GFM") is the sub-investment manager with respect to the International Stock Portfolio of the Fund. GFM is a subsidiary of MetLife. As in the case of other life insurance policies, it may not be advantageous to purchase group variable universal life insurance as a replacement for an existing life insurance policy or in addition to an existing variable universal insurance policy. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO THE CURRENT PROSPECTUS FOR THE METROPOLITAN SERIES FUND, INC., WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. 1 Madison Avenue, New York, New York 10010 Telephone (800) 523-2894 TABLE OF CONTENTS
PAGE ----- DEFINITIONS....................................... 3 SUMMARY........................................... 5 Who is the Issuer of the Group Policies and Certificates?.................................... 5 What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund?................ 5 What Death Benefit is Available under the Certificate?..................................... 6 What Flexibility Does an Owner have to Adjust the Amount of the Death Benefit?..................... 6 What Flexibility Does an Owner have in Connection with Premium Payments?........................... 7 What Happens to Certificates when the Participating Entity's Active Participation in the Group Policy is Terminated?.................. 7 If the Participating Entity Continues to Participate in the Group Policy, How Long Will the Certificate Remain in Force?................. 7 How are Net Premiums Allocated?................... 7 May the Certificate be Surrendered or the Cash Value Partially Withdrawn?....................... 8 Is There a "Free Look" Period?.................... 8 What is the Loan Privilege?....................... 8 What Charges are Assessed in Connection with the Certificate?..................................... 8 What is the Tax Treatment of Cash Value?.......... 9 Is the Beneficiary Subject to Federal Income Tax on the Death Benefit?............................ 10 Is the Death Benefit or the Cash Value Subject to Federal Estate Tax?.............................. 10 How Should Premium Payments, Owner Requests and Other Communications be sent to MetLife?......... 10 SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND..... 10 The Separate Account.............................. 10 Metropolitan Series Fund.......................... 11 CERTIFICATE BENEFITS.............................. 12 Death Benefit..................................... 12 Cash Value........................................ 13 Benefit at Final Date............................. 20 Optional Income Plans............................. 20 Optional Insurance Benefits....................... 21 PAYMENT AND ALLOCATION OF PREMIUMS................ 21 Issuance of a Certificate......................... 21 PAGE ----- Premiums.......................................... 21 Allocation of Premiums and Cash Value............. 22 Termination of Participating Entity Participation in the Group Policy.............................. 24 Effect of Termination of Group Policy Participation on Owners.......................... 24 Certificate Termination and Reinstatement While the Group Policy is in Effect.................... 25 CHARGES AND DEDUCTIONS............................ 26 Premium Expense Charges........................... 26 Transfer Charge................................... 26 Monthly Deduction From Cash Value................. 27 Charges Against the Separate Account.............. 28 Surrender Charges................................. 28 Guarantee of Certain Charges...................... 30 Other Charges..................................... 30 ILLUSTRATIONS OF DEATH BENEFIT, CASH VALUES, CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS........ 30 CERTIFICATE RIGHTS................................ 34 Loan Privileges................................... 34 Surrender and Withdrawal Privileges............... 35 Exchange Privilege................................ 35 THE FIXED ACCOUNT................................. 36 General Description............................... 36 Fixed Account Cash Value.......................... 36 Death Benefit, Transfer, Withdrawal, Surrender, and Certificate Loan Rights...................... 37 RIGHTS RESERVED BY METLIFE........................ 37 OTHER CERTIFICATE PROVISIONS...................... 37 SALES AND ADMINISTRATION OF THE GROUP POLICIES AND CERTIFICATES..................................... 38 DISTRIBUTION OF THE GROUP POLICIES AND CERTIFICATES..................................... 39 FEDERAL TAX MATTERS............................... 39 MANAGEMENT........................................ 42 VOTING RIGHTS..................................... 45 Right to Instruct Voting of Fund Shares........... 45 REPORTS........................................... 45 STATE REGULATION.................................. 46 REGISTRATION STATEMENT............................ 46 LEGAL MATTERS..................................... 46 EXPERTS........................................... 46 FINANCIAL STATEMENTS.............................. 46 APPENDIX TO PROSPECTUS............................ 84
THE GROUP POLICY AND CERTIFICATE ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. METLIFE DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED PROSPECTUS OR ANY SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY METLIFE. 2 DEFINITIONS ADMINISTRATIVE OFFICE--The office of MetLife at 177 South Commons Drive, Aurora, Illinois 60507, to which all Owner communications are to be sent. MetLife may, by written notice, name other locations within the United States to serve as designated offices, in place of or in addition to the office above. AGE--For each covered person in a particular group, Age is defined as of a day selected by the participating entity and set forth in the Group Policy. Age can be measured from the Date of the Group Policy or from December 31st of a given year, or from any other date agreed to by MetLife and the participating entity. ALLOCATION DATE--The date the first premium is applied to the Separate Account pursuant to the designation in the Certificate enrollment form and/or Group Policy application, as applicable. During the first Group Policy year, it is set at twenty days after the Investment Start Date with respect to any Certificate. During this twenty day period the net premium allocated to the investment divisions of the Separate Account under any new Certificate will be applied to the Fixed Account. After the first Group Policy year, the Allocation Date for all new Certificates issued with respect to that Group is the Investment Start Date. BENEFICIARY--The beneficiary is the person or persons designated by the Owner to receive the insurance proceeds upon the death of the covered person. CASH SURRENDER VALUE--The cash value less any indebtedness and applicable surrender charge (computed as set forth under "Surrender Charges") and any accrued and unpaid monthly deduction. CASH VALUE--The sum of the Certificate cash values in the Fixed Account, the investment divisions of the Separate Account and the Loan Account. CERTIFICATE--The group variable universal life insurance certificates issued under the group variable universal life insurance policy offered by MetLife and described in this Prospectus. CERTIFICATE MONTH--The month beginning on the monthly anniversary. COVERED PERSON--The person upon whose life the Certificate is issued. DATE OF RECEIPT--The date premiums and communications are actually received at an Administrative Office. Premium payments and communications will be deemed to be received on the Date of Receipt with three exceptions: (1) when they are received on any day that is not a Valuation Date; (2) when they are received by means other than U.S. mail after 4:00 p.m. New York City time. With regard to (1) and (2) above, the Date of Receipt will be deemed to be the next Valuation Date. The third exception is the date of receipt for the first premium payment with regard to each Certificate. In this case, and subject to the exceptions set forth in (1) and (2) above, the Date of Receipt is the later of (1) the Date of Certificate and (2) the date the first premium for a Certificate is received at the Administrative Office. DATE OF CERTIFICATE--The effective date for life insurance protection under the Certificate. The Date of Certificate is set forth in the Certificate and is used to determine Certificate years and Certificate months from issue. Certificate anniversaries are measured from the Date of Certificate. DATE OF GROUP POLICY--The date set forth in the Group Policy that is used to determine Group Policy years and Group Policy months. Group Policy anniversaries are measured from the Date of Group Policy. FINAL DATE--The certificate anniversary on which the covered person is age 95 or later if specified in the Certificate. FIXED ACCOUNT--An account which is part of the General Account and to which MetLife will allocate net premiums as directed by the Owner or participating entity, as applicable, and credit certain fixed rates of interest. GENERAL ACCOUNT--The assets of MetLife other than those allocated to the Separate Account or any other legally-segregated separate account. GROUP--A participating entity and all Owners and/or people eligible to become Owners under the participating entity's Group Policy. 3 GROUP POLICY--For ease of reference in this Prospectus, this term includes both the group variable universal life insurance policy that the participating entity either participates in, is a party to or owns and which is offered by MetLife and described in this Prospectus together with any administration agreement entered into between the participating entity and MetLife. GUIDELINE ANNUAL PREMIUM--The level annual amount of premium that would be payable through the Final Date of a Certificate for the specified face amount of the Certificate, or any amount of increase in the specified face amount, if premiums therefor were fixed by MetLife as to both timing and amount and were based on 1980 Commissioners Standard Ordinary Mortality Tables, net investment earnings at an annual effective rate of 5%, and fees and charges as set forth in the Certificate and any Certificate riders. INDEBTEDNESS--The total of any unpaid Certificate loan and loan interest. INVESTMENT START DATE--The Date of Receipt of the first premium with respect to a Certificate. INVESTMENT DIVISION--A subdivision of the Separate Account. The assets in each investment division are invested exclusively in the shares of a specified portfolio. LOAN ACCOUNT--An account within the General Account to which cash value from the Separate Account and/or the Fixed Account in an amount equal to a Certificate loan requested by an Owner is transferred. MINIMUM GROUP SIZE--The minimum number of people in a group that is necessary before an employer can purchase a Group Policy. The minimum group size is currently 200 lives. However, MetLife reserves the right to issue a Group Policy or provide coverage to a participating entity that does not meet the minimum group size. MINIMUM SPECIFIED FACE AMOUNT--The minimum specified face amount of insurance for which a Certificate may be issued. The amount is set forth in the Certificate. The Certificate will never specify a minimum specified face amount of less than $10,000. MINIMUM PREMIUM--The amount set forth in the Certificate which will make an Owner eligible to keep the Certificate in force for the first two Certificate years. MONTHLY ANNIVERSARY--The same date in each month as the Date of Group Policy or the date the Certificate is issued, as applicable . For purposes of the Separate Account, whenever the monthly anniversary date falls on a date other than a valuation date, the next valuation date will be deemed to be the monthly anniversary. MONTHLY DEDUCTION--Charges deducted monthly from the cash value of a Certificate and which include any monthly cost of insurance, monthly cost of benefits provided by riders and monthly administration charge. OWNER--The person so designated in the enrollment form for the Certificate or as subsequently changed. PAID-UP--An election under the Certificate whereby the Owner may terminate the death benefit (and any riders in effect) and use all or part of the cash surrender value as a single premium for a paid-up benefit under the Certificate. If the paid-up election is made, all or part of the remaining cash value in the Certificate will be transferred to the General Account and may no longer be allocated to the Separate Account or Fixed Account. The Owner will receive any remaining cash surrender value that is not used to purchase a paid-up benefit. The paid-up benefit elected must not be more than can be purchased using the Certificate's cash surrender value or more than the death benefit under the Certificate at the time the election is made and must not be less than $10,000. PLANNED PERIODIC PREMIUM--An Owner's self-determined amount of premium planned to be paid at fixed intervals over a specified period of time. The Owner is not required to follow this schedule after the first premium payment. PORTABLE--A status that occurs when a covered person is no longer part of the participating entity's group. A Certificate becomes portable when an event specified in the Certificate occurs. These events may include: termination of the covered person's employment (other than through retirement) and retirement as determined by the participating entity. An Owner of a portable Certificate will no longer be deemed to be a member of the participating entity's group for purposes of determining cost of insurance rates and charges. 4 PORTFOLIO--A portfolio represents a different class (or series) of stock of Metropolitan Series Fund, Inc., a mutual fund in which the Separate Account assets are invested. PRO RATA BASIS--Allocations made in the same proportion that the Certificate's cash value in the Fixed Account and the Certificate's cash value in each investment division of the Separate Account bear to the Certificate's total cash value (except for the cash value, if any, in the Loan Account) as of the Date of Receipt of a request. SEPARATE ACCOUNT--Metropolitan Life Separate Account UL, a separate investment account of MetLife through which premiums paid under the Certificate are invested to the extent allocated to the Separate Account by the Owner. SPECIFIED FACE AMOUNT--The amount set forth in the Certificate. SURRENDER CHARGE CAP--The maximum surrender charge amount set forth in the Certificate. VALUATION DATE--Each day on which the New York Stock Exchange is open for trading or, on days other than when the New York Stock Exchange is open, on which it is determined that there is a sufficient degree of trading in the Fund's portfolio securities that the current net asset value of its redeemable securities might be materially affected. Valuations for any date other than a Valuation Date will be determined as of the next Valuation Date. VALUATION PERIOD--The period between two successive Valuation Dates, commencing at 4:00 p.m., New York City time, on each valuation date and ending at 4:00 p.m., New York City time, on the next succeeding Valuation Date. SUMMARY Unless the context indicates otherwise, this summary and the discussion in the rest of this Prospectus assume that cash surrender values are sufficient to pay all charges deducted on monthly anniversaries, that no Certificate loans have been made and that no riders are in effect (see "Loan Privileges--Effect of a Certificate Loan," "Payment and Allocation of Premiums--Certificate Termination and Reinstatement While the Group Policy is in Effect," and "Appendix to Prospectus"). This Prospectus describes only those aspects of the Certificate that relate to the Separate Account since only interests in the Separate Account are being offered by this Prospectus. Aspects of the Fixed Account are briefly summarized in order to give a better understanding of how the Certificate functions (see "The Fixed Account"). WHO IS THE ISSUER OF THE GROUP POLICIES AND CERTIFICATES? MetLife, the issuer of the Group Policies and Certificates, is a mutual life insurance company. It was incorporated under the laws of the State of New York in 1866 and since 1868 it has been engaged in the life insurance business under the name Metropolitan Life Insurance Company. Its Home Office is located at 1 Madison Avenue, New York, New York 10010. It is authorized to transact business in all states of the United States, the District of Columbia, Puerto Rico and all Provinces of Canada. MetLife, serving millions of people, is one of the largest financial services companies in the world with many of the largest United States corporations for its clients. On December 31, 1995, MetLife had total life insurance in force of approximately $1.3 trillion and total assets under management of over $179 billion. WHAT ARE SEPARATE ACCOUNT UL, THE FIXED ACCOUNT AND THE METROPOLITAN SERIES FUND? The Owner may allocate the net premiums paid under the Certificate to one or more of the investment divisions of the Separate Account, a separate investment account of MetLife (see "The Separate Account") and/or to a Fixed Account established by MetLife. In some cases, however, the participating entity may select the investment divisions available to Owners. Also the participating entity may retain the right to allocate any net premiums it pays unless and until the covered person retires (as determined by the participating entity) or the Owner's Certificate becomes portable. 5 There are currently six investment divisions available in the Separate Account. The assets in each division are invested in a separate class (or series) of stock of the Fund, a "series" type of mutual fund (see "Metropolitan Series Fund"). Each class of stock represents a separate portfolio within the Fund. The six portfolios of the Fund which are currently available to Owners are the Growth Portfolio, the Income Portfolio, the Diversified Portfolio, the Aggressive Growth Portfolio, the International Stock Portfolio and the Stock Index Portfolio. The International Stock Portfolio is not available in California. Net premiums allocated to the Fixed Account are held in the General Account of MetLife. Each portfolio of the Fund has a different investment objective and is managed by MetLife. For providing investment management services to the Fund, MetLife receives a fee from the Fund equivalent to an annual rate of .25% of the average daily value of the aggregate net assets of the Growth, Income, Diversified, and Stock Index Portfolios and an annual rate of .75% of the average daily value of the aggregate net assets of the International Stock and Aggressive Growth Portfolios. State Street Research provides sub-investment management services with respect to the Growth, Income, Aggressive Growth and Diversified Portfolios. GFM provides sub-investment management services with respect to the International Stock Portfolio. For these services, State Street Research and GFM receive an annual percentage fee from MetLife. State Street Research and GFM are subsidiaries of MetLife and their fees are the sole responsibility of MetLife, and not the Fund. In addition to the investment management fees, other direct expenses are charged against the assets of the Fund. For a full description of the Fund, see the prospectus for the Fund, which is attached at the end of this Prospectus, and the Fund's Statement of Additional Information referred to therein. WHAT DEATH BENEFIT IS AVAILABLE UNDER THE CERTIFICATE? The Certificate provides for the payment of a benefit upon the death of the covered person. The death benefit is the specified face amount of the Certificate plus the cash value on the date of death. If greater than the death benefit otherwise payable a minimum death benefit equivalent to a percentage, determined by age at death, of the cash value will be paid. The insurance proceeds payable will be reduced by any outstanding indebtedness and any accrued and unpaid charges (see "Certificate Benefits--Death Benefit"). The Certificate also provides a guaranteed death benefit under which the specified face amount is guaranteed for the first two Certificate years, provided that an amount equal to the total minimum premiums is paid. In addition, an Owner has the flexibility to add optional insurance benefits by riders specified in the Certificate. These may include a waiver of monthly deduction during total disability rider; an accelerated death benefit rider, a living benefits rider; an accidental death benefit rider; an accidental death or dismemberment benefit rider; and a dependent life benefits rider (see "Certificate Benefits--Optional Insurance Benefits"). The cost of these optional insurance benefits will be deducted from the cash value as part of the monthly deduction (see "Charges and Deductions--Monthly Deduction From Cash Value"). Proceeds under the Certificate may be received in cash or under one of the available optional income plans described in the Appendix to Prospectus (see "Certificate Benefits--Optional Income Plans"). WHAT FLEXIBILITY DOES AN OWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT? After the first Certificate year, the Owner may increase the specified face amount of the Certificate on a date or dates determined by the participating entity and set forth in the Group Policy (see "Certificate Benefits"). For qualifying employees of a participating entity, automatic increases in specified face amount will be made in conjunction with each employee's salary increase on a date or dates specified by the participating entity. Any increases in the death benefit are subject to MetLife's underwriting rules (see "Certificate Benefits--Change in Specified Face Amount"). Any specified face amount increase also will result in additional charges (see "Certificate Benefits--Increases," and "Effect of Changes in Specified Face Amount on Charges"). The specified face amount may also be decreased by the Owner after the first Certificate year. The specified face amount may never be less than the minimum specified face amount set forth in the Certificate. In no event will the specified face amount be less than $10,000. A decrease in the specified face amount may result in the imposition of a sales charge (see "Charges and Deductions--Surrender Charges"). An increase or decrease in the death benefit may have tax consequences (see "Federal Tax Matters"). 6 WHAT FLEXIBILITY DOES AN OWNER HAVE IN CONNECTION WITH PREMIUM PAYMENTS? If elected by a participating entity and authorized by the Owner, premiums are paid through payroll deduction and are remitted to MetLife by such employer on at least a monthly basis. If payroll deduction is not available, the Owner may remit premiums to MetLife directly on a quarterly or annual basis. Premium payments will not be credited to the Owner's Certificate until received by MetLife. An Owner has considerable flexibility concerning the amount and frequency of premium payments. In order to keep the guaranteed death benefit in effect, minimum premiums must be paid during each of the first two Certificate years (see "Premiums--Premium Limitations"). Otherwise, an Owner need not pay the minimum premium. Instead, an Owner may, subject to certain restrictions, make premium payments in any amount and at any frequency. However, the Owner may be required to make an unscheduled premium payment in order to keep the Certificate in force (see "Payment and Allocation of Premiums"). WHAT HAPPENS TO CERTIFICATES WHEN THE PARTICIPATING ENTITY'S ACTIVE PARTICIPATION IN THE GROUP POLICY IS TERMINATED? If the participating entity or MetLife decides to terminate the participating entity's participation in the Group Policy, the participating entity will cease remitting any payroll deductions of premiums. In addition, no future Certificates will be issued under the Group Policy. The current Certificates may also be terminated by MetLife under certain circumstances. A surrender charge may apply to the termination of a Certificate due to the termination of the Group Policy by the participating entity up to 5 years after the Group Policy is issued. There are also circumstances where an Owner may continue the Certificate even after the participating entity's termination of its participation in the Group Policy. If the Certificate is not terminated, different current charges may apply but the guaranteed charges will not be greater than they were prior to the termination of the Group Policy. (See "Effect of Termination of Group Policy Participation on Owners"). IF THE PARTICIPATING ENTITY CONTINUES TO PARTICIPATE IN THE GROUP POLICY, HOW LONG WILL THE CERTIFICATE REMAIN IN FORCE? The Certificate will terminate only (a) when its cash surrender value is insufficient to pay the monthly deduction (see "Charges and Deductions--Monthly Deduction from Cash Value"), and the grace period expires without a sufficient payment being made (see "Certificate Termination and Reinstatement While the Group Policy is in Effect--Termination"), or (b) in the first two Certificate years, if the cash surrender value on any Certificate monthly anniversary is insufficient to pay the monthly deduction and the total premiums paid as of such monthly anniversary do not equal at least the minimum premiums required as of that date, and the grace period expires without a sufficient payment being made. Therefore, failure to pay minimum premiums after the first two Certificate years will not automatically cause the Certificate to terminate. Nevertheless, after the first two Certificate years, under the circumstances described above, the Certificate can terminate, even if minimum premiums have been paid. Thus, after the first two Certificate years, payment of the minimum premiums does not guarantee that the Certificate will remain in force until its final date. HOW ARE NET PREMIUMS ALLOCATED? The portion of the premium available for allocation ("net premium") equals the premium paid less premium expense charges (see "Charges and Deductions Premium Expense Charges"). The participating entity or Owner, as applicable, determines in the application for the Group Policy or enrollment form for the Certificate, respectively, what portions, if any, of net premiums paid by each are to be allocated to the investment divisions of the Separate Account and/or to the Fixed Account. Allocations with respect to the Fixed Account are effective as of the Investment Start Date. Allocations with respect to the investment divisions of the Separate Account are effective as of the Allocation Date, as explained more fully under "Payment and Allocation of Premiums--Allocation of Premiums and Cash Value." An Owner or participating entity, as applicable, may change allocations of future net premiums at any time without charge by notifying MetLife in writing, subject to certain limitations (see "Payment and Allocation of Premiums--Allocation of Premiums and Cash Value"). Because investment performance of a Separate Account investment division (unlike that of the Fixed Account) is not guaranteed by MetLife, allocation of net premiums to the Separate 7 Account investment divisions increases the amount of investment risk to the Owner, and allocation to the Fixed Account decreases such risk. On the other hand, the potential benefit of the Fixed Account is limited to the return guaranteed by MetLife plus any discretionary return declared by MetLife from time to time. Subject to certain restrictions, currently, an Owner may transfer amounts among the investment divisions of the Separate Account or between the Separate Account and the Fixed Account without charge (see "Charges and Deductions"). In the first 24 Certificate months, an Owner may transfer the entire amount in the Separate Account to the Fixed Account without charge (see "Certificate Rights--Exchange Privilege" and "The Fixed Account--Death Benefit, Transfer, Withdrawal, Surrender, and Certificate Loan Rights"). An Owner may also elect to participate in one of the systematic investment strategies (see "Allocation of Premiums and Cash Value--Systematic Investment Strategies"). MAY THE CERTIFICATE BE SURRENDERED OR THE CASH VALUE PARTIALLY WITHDRAWN? The Owner may surrender the Certificate at any time and receive the cash surrender value of the Certificate. Subject to certain limitations, the Owner also may make partial withdrawals from the cash surrender value at any time prior to the final date (see "Certificate Rights--Surrender and Withdrawal Privileges"). Certificates under some Group Policies may be subject to a transaction charge of up to $25. Also, a sales load may be imposed on certain surrenders (see "Charges and Deductions--Surrender Charges"). Surrenders and withdrawals may have certain tax consequences (see "Federal Tax Matters"). IS THERE A "FREE LOOK" PERIOD? The Certificate provides for a free-look period that lasts until 10 days after receipt (except where state law requires a longer period for replacement policies or other reasons), 45 days after the enrollment form has been completed, or 10 days after MetLife mails the Owner a notice of free look whichever is later. The Owner may return the Certificate within this period and MetLife will send the Owner a complete refund of any premiums paid within 7 days. The refund of any premium paid by check, however, may be delayed until the check has cleared the Owner's bank. Following an increase in specified face amount requested by an Owner, there is a similar free look period that extends until the later of 10 days after the Owner receives revised Certificate pages reflecting the increase, 45 days after the request for the increase has been completed, or 10 days after MetLife mails the Owner a notice of cancellation right. During this period, the Owner may elect to terminate the increase, and all Certificate values will be restored to what they would have been had the increase not occurred. MetLife will also refund the amount of any premiums paid, to the extent necessary for the Certificate to continue to be within the definition of life insurance for federal income tax purposes (see "Premiums--Premium Limitations"). WHAT IS THE LOAN PRIVILEGE? An Owner may obtain a Certificate loan at any time that the Certificate has a loan value. Loans may be repaid at any time prior to the Final Date (see "Certificate Rights--Loan Privileges"). Certificates under some Group Policies may be subject to a transaction charge of up to $25. Loans are not available for Owners who have exercised the paid-up Certificate provision, except as otherwise required by law. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE CERTIFICATE? The various charges assessed in connection with the Certificates are outlined below. There are costs associated with the Certificates that are not associated with a fixed life insurance product because the Certificates are for a flexible premium variable universal life insurance product. For this reason, some individuals who do not believe they will ever use the variable universal life features included in the Certificates may find it more economical to purchase fixed life insurance coverage, rather than the Certificates. PREMIUM EXPENSE CHARGES. Premium expense charges vary based on the Group Policy under which the Certificate is issued. These charges may consist of a sales charge of up to 3% of each premium payment, a charge of .35% of each premium payment to recover a portion of MetLife's estimated cost for the federal income tax treatment of deferred acquisition costs ("DAC tax charge") and a state premium tax charge of up to 5% of each premium payment (see "Charges and Deductions--Premium Expense Charges"). 8 TRANSFER CHARGES. At the present time, there is no charge assessed when amounts are transferred among the different investment divisions of the Separate Account and between the investment divisions and the Fixed Account. MetLife reserves the right in the future to assess a charge of up to $25 against each transfer (see "Charges and Deductions--Transfer Charge"). MONTHLY DEDUCTION. The charges deducted as part of the monthly deduction can vary based upon the Group Policy under which an Owner's Certificate is issued. Cash value may be reduced by a monthly deduction equal to the sum of any applicable: (1) charge for the cost of insurance. MetLife uses simplified underwriting and guaranteed issue procedures. While the current costs of insurance rates are generally lower than 100% of the 1980 Commissioners Standard Ordinary Mortality Table Males, age last birthday ("1980 CSO Table"), the guaranteed rates are up to 150% of the maximum rates that could be charged based on the 1980 CSO table. The use of simplified underwriting and guaranteed issue procedures may result in the cost of insurance charges being higher for some healthy individuals. This charge will be deducted as part of a monthly combined charge consisting of the cost of insurance charge and a component of the charge for administration; (2) cost of any optional insurance benefits added by rider; (3) monthly administration charge. The monthly administration charge is comprised of two components. The first is a charge that is deducted as part of the monthly combined charge (the other part of the monthly combined charge is the cost of insurance, as described above). This component will never exceed 50% of this monthly combined charge. The second component is a charge which may be up to $3.00 per Certificate per month as specified in the Certificate. No profit is expected to be derived from the aggregate of the administration charges set forth in this paragraph. (See "Charges and Deductions--Monthly Deduction from Cash Value.") CHARGES AGAINST SEPARATE ACCOUNT. A daily charge equivalent to an effective annual rate of at least .45% and not to exceed .90% of the average daily net asset value attributable to the Policies of each investment division of the Separate Account is imposed to compensate MetLife for its assumption of certain mortality and expense risks (see "Charges and Deductions--Charge for Mortality and Expense Risks"). No charges are currently made against the Separate Account for federal or state income taxes with respect to earnings or capital gains which may be attributable to the Separate Account. Should MetLife determine that such taxes will be imposed, MetLife may make deductions from the Separate Account to pay these taxes (see "Federal Tax Matters"). The imposition of such taxes would result in a reduction of the cash value in the Separate Account. SURRENDER CHARGE. While the Group Policy is in force, a sales charge may be deducted in the form of a surrender charge if the Certificate is surrendered or there is a decrease of the specified face amount. The surrender charge will be deducted from the cash value of a Certificate if such surrender or decrease in specified face amount occurs during up to the first 5 Certificate years after issue or up to 5 years after an increase in the specified face amount (other than an automatic increase). The surrender charge will not exceed the surrender charge cap on the date of the surrender or specified face amount decrease. In some cases, beginning no later than the 2nd Certificate year (or the 2nd year after any applicable increase in specified face amount) this maximum declines. In other cases the surrender charge will remain level through up to the fifth Certificate year (or the fifth year after any applicable increase). In both cases the surrender charge becomes zero no later than Certificate year 6 (or 6 years after the last specified face amount increase) (see "Charges and Deductions--Surrender Charges"). A sales charge may also be deducted in the form of a surrender charge from the cash value of a Certificate if the Certificate is terminated because the Group Policy is terminated by the participating entity during up to the first 5 Group Policy years. The surrender charge will be the same surrender charge described above; however, its elimination after not more than 5 years, will be based on the number of years the Group Policy is in force, rather than the number of years the Certificate is in force or the number of years since an increase in specified face amount (see "Charges and Deductions--Surrender Charges"). WHAT IS THE TAX TREATMENT OF CASH VALUE? Cash value under a Certificate is subject to the same federal income tax treatment as cash value under a conventional fixed benefit life insurance policy. Under existing tax law, if a Certificate is not a modified 9 endowment contract as discussed in the following paragraph, a Certificate owner generally will be taxed on cash value withdrawn from the Certificate, the cash value received upon surrender of the Certificate or the cash value distributed at the Final Date of a Certificate only to the extent these amounts, when added to previous distributions, exceed the total premiums paid. Amounts received upon surrender or withdrawal or on the Final Date of a Certificate in excess of premiums paid will be treated as ordinary income. Special rules regarding taxation, including the imposition of a tax penalty, govern pre-death withdrawals from life insurance contracts referred to as modified endowment contracts. For more information, see "Federal Tax Matters." IS THE BENEFICIARY SUBJECT TO FEDERAL INCOME TAX ON THE DEATH BENEFIT? Like death benefits payable under conventional fixed benefit life insurance policies, death benefit proceeds payable under the Certificate under current law are generally completely excludable from the gross income of the beneficiary. As a result, the beneficiary generally will not be taxed on death benefit proceeds (see "Federal Tax Matters"). IS THE DEATH BENEFIT OR THE CASH VALUE SUBJECT TO FEDERAL ESTATE TAX? The death benefit under the Certificate or the cash value may be subject to federal estate tax (see "Federal Tax Matters"). HOW SHOULD PREMIUM PAYMENTS, OWNER REQUESTS AND OTHER COMMUNICATIONS BE SENT TO METLIFE? Premium payments and other communications (such as transfer requests, loan requests, loan repayments, withdrawal requests, surrender requests, changes of beneficiary, changes of the specified face amount, or changes of premium allocation) should be sent to the Administrative Office for the Certificate. MetLife may name different Administrative Offices for different transactions. In the future MetLife may permit transfer and withdrawal or other requests to be made by telephone. To exercise rights under a Certificate, the Owner must follow the procedures stated in the Certificate. To request a payment, change the allocation among the investment divisions, change the beneficiary, change the specified face amount, change an address or request any other action by MetLife, the Owner should utilize the forms prepared by MetLife for each purpose. The forms are available from the Administrative Offices. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND THE SEPARATE ACCOUNT The Separate Account, which is a separate investment account of MetLife, was established by MetLife pursuant to the New York Insurance Law on December 13, 1988. The Separate Account also receives premium payments in connection with other variable universal life insurance products issued by MetLife. The assets allocated to the Separate Account are the property of MetLife, and MetLife is not a trustee by reason of the Separate Account. The Separate Account meets the definition of "separate account" under the federal securities laws. All income, gains and losses, whether or not realized, from assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to other income, gains or losses of MetLife. Each Certificate provides that such portion of the assets in the Separate Account as equals the liabilities (and reserves) of MetLife with respect to the Separate Account shall not be chargeable with liabilities arising out of any other business of MetLife. The liabilities are the actuarially determined amount of MetLife's total commitments under the Certificates; the reserves are the assets allocated to pay these commitments. The values of the assets in the Separate Account will not at any time be less than the sum of all amounts then allocated to the Separate Account under variable life insurance policies. MetLife may accumulate in the Separate Account mortality and expense risk charges, mortality gains and investment gains on those assets (which represent such charges) in the Separate Account and other amounts in excess of MetLife's liabilities and reserves with respect to the Separate Account. MetLife may from time to time transfer to its general account any assets in the Separate Account in excess of such reserves and liabilities. 10 Although the Separate Account is an integral part of MetLife, the Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 ("1940 Act"). Registration does not involve supervision of management or investment practices or policies of the Separate Account or of MetLife by the Commission. There are currently six investment divisions available in the Separate Account. The assets in each investment division are invested in a separate class (or series) of stock issued by the Fund. Each class of stock represents a separate portfolio within the Fund. New investment divisions may be added as new portfolios are added to the Fund and made available to Owners. In addition, investment divisions may be eliminated from the Separate Account. One division, not listed below, has been eliminated from the Separate Account except for Groups that had received a written quotation regarding the Group Policy and the Certificates from MetLife, including a quotation for the cost of insurance rates applicable to such Group, before May 15, 1996. METROPOLITAN SERIES FUND The Fund is a "series" type of mutual fund which is registered with the Securities and Exchange Commission as a diversified open-end management investment company under the 1940 Act. The Fund has served as the investment medium for the Separate Account since the Separate Account commenced operations. A brief summary of the investment objectives of each Fund portfolio that may be available to Owners is set forth below. GROWTH PORTFOLIO. The investment objective of this portfolio is to achieve long-term growth of capital and income, and moderate current income, by investing primarily in common stocks that are believed to be of good quality or to have good growth potential or which are considered to be undervalued based on historical investment standards. INCOME PORTFOLIO. The investment objective of this portfolio is to achieve the highest possible total return, by combining current income with capital gains, consistent with prudent investment risk and the preservation of capital, by investing primarily in fixed-income, high-quality debt securities. DIVERSIFIED PORTFOLIO. The investment objective of this portfolio is to achieve a high total return while attempting to limit investment risk and preserve capital by investing in equity securities, fixed-income debt securities, or short-term money market instruments, or any combination thereof, at the discretion of State Street Research. AGGRESSIVE GROWTH PORTFOLIO. The investment objective of this portfolio is to achieve maximum capital appreciation by investing primarily in common stocks (and equity and debt securities convertible into or carrying the right to acquire common stocks) of emerging growth companies, undervalued securities or special situations. INTERNATIONAL STOCK PORTFOLIO. The investment objective of this portfolio is to achieve long-term growth of capital by investing primarily in common stocks and equity-related securities of non-United States companies. This portfolio is not available in connection with Group Policies and Certificates issued in California. STOCK INDEX PORTFOLIO. The investment objective of this portfolio is to equal the performance of the Standard & Poor's 500 Composite Stock Price Index (adjusted to assume reinvestment of dividends) by investing in the common stock of companies which are included in the index. MetLife purchases and redeems Fund shares for the Separate Account at their net asset value without the imposition of any sales or redemption charges. Such shares represent an interest in one of the portfolios of the Fund which correspond to the investment divisions of the Separate Account. Any dividend or capital gain distributions received from the Fund are likewise reinvested in Fund shares at net asset value as of the dates paid. The distributions have the effect of reducing the value of each share of the Fund and increasing the number of Fund shares outstanding. However, the total cash value in the Separate Account does not change as a result of such distributions. On each Valuation Date, shares of each portfolio are purchased or redeemed by MetLife for the Separate Account, based on, among other things, the amounts of net premiums allocated to the Separate Account, 11 dividends and distributions reinvested, transfers to and among investment divisions, Certificate loans, loan repayments and benefit payments to be effected pursuant to the terms of the Certificates as of that date. Such purchases and redemptions for the Separate Account are effected at the net asset value per share for each portfolio determined as of 4:00 p.m., New York City time, on that same Valuation Date. A full description of the Fund, its investment policies and restrictions, its charges and other aspects of its operation is contained in the prospectus for the Fund, which is attached at the end of this Prospectus, and in the Statement of Additional Information referred to therein. See "The Fund and its Purpose," in the prospectus for the Fund for a discussion of the different separate accounts for MetLife and its affiliates that invest in the Fund and the risks related thereto. CERTIFICATE BENEFITS DEATH BENEFIT As long as the Certificate remains in force (see "Certificate Termination and Reinstatement While the Group Policy is in Effect--Termination"), MetLife will, upon due proof of the covered person's death, pay the insurance proceeds of the Certificate to the named beneficiary. The proceeds may be received by the beneficiary in a single sum or under one or more of the available optional income plans as described in the Appendix to Prospectus. The insurance proceeds are: (a) the death benefit provided on the date of death; plus (b) any additional insurance on the covered person's life that is provided by rider; minus (c) any outstanding indebtedness and any accrued and unpaid charges; and minus (d) certain amounts of death benefit previously decreased as a result of a claim under a rider to the Policy. The death benefit is equal to the specified face amount of insurance plus the cash value. MINIMUM DEATH BENEFIT--There is a minimum death benefit equal to the greater of (1) the death benefit and (2) a percentage of the cash value as set forth in the table below. The minimum death benefit is determined in accordance with federal income tax laws, to ensure that the Certificate qualifies as a life insurance contract and that the insurance proceeds will be excluded from the gross income of the beneficiary. TABLE
ATTAINED AGE OF COVERED PERSON AT THE BEGINNING OF PERCENTAGE OF THE CERTIFICATE YEAR CASH VALUE - -------------------------------------- ----------------- 40 and less:.......................... 250% 45:................................... 215% 50:................................... 185% 55:................................... 150% 60:................................... 130% 65:................................... 120% ATTAINED AGE OF COVERED PERSON AT THE BEGINNING OF PERCENTAGE OF THE CERTIFICATE YEAR CASH VALUE - -------------------------------------- ----------------- 70:................................... 115% 75:................................... 105% 80:................................... 105% 85:................................... 105% 90:................................... 105% 95:................................... 100%
For the ages not listed, the percentage decreases by a ratable portion for each full year. In no event will the death benefit be lower than the minimum amount required to maintain the Certificate as life insurance under federal income tax law and applicable Internal Revenue Service rules. The Certificate provides a guaranteed death benefit. For all Owners, the specified face amount is guaranteed for the first two Certificate years provided that an amount equal to the total minimum premiums due has been paid even if the cash surrender value would otherwise be insufficient to keep the policy in force (see "Certificate Termination and Reinstatement While the Group Policy is in Effect"). If the requirements of the guaranteed death benefit are not met on any Certificate monthly anniversary, a notice will be sent to the Owner stating that the guarantee will terminate unless sufficient premiums are paid within the greater of 61 days, 12 measured from the Certificate monthly anniversary, or 30 days after the date notice is mailed. If sufficient premiums are not received within that time, the guaranteed death benefit will terminate and may not be reactivated. The death benefit provides insurance protection as well as possible build-up of cash value. The death benefit varies as the cash value changes. If the covered person dies on a date that is not a Valuation Date, the amount of death benefit proceeds payable will be determined as of the next Valuation Date. CHANGE IN SPECIFIED FACE AMOUNT. Subject to certain limitations, an Owner, after the first Certificate year may request an increase in the specified face amount of a Certificate on a date or dates determined by the participating entity and set forth in the Group Policy (see "Decreases" and "Increases," below). For Owners who are qualifying employees of employers who are participating entities, automatic increases in specified face amount will be made in conjunction with each employee's salary increases on a date or dates determined by the participating entity, unless such employee notifies MetLife in writing that no such automatic increases are desired. Any increases in the specified face amount are subject to MetLife's underwriting rules which may include a requirement for satisfactory evidence of the covered person's insurability. The specified face amount may also be decreased by the Owner after the first Certificate year. An increase or decrease in the death benefit may have tax consequences (see "Federal Tax Matters"). Any increase or decrease in the specified face amount requested by the Owner will become effective on the monthly anniversary on or next following the date of approval of the request. DECREASES. The specified face amount remaining in force after any requested decrease may not be less than the minimum specified face amount as specified in the Certificate. A decrease in the specified face amount may result in the imposition of a sales charge (see "Charges and Deductions--Surrender Charges"). No decrease in the specified face amount will be permitted if it would result in total premiums paid exceeding the then current maximum premium limitations determined by Internal Revenue Code rules (see "Premiums-- Premium Limitations"). For purposes of determining the cost of insurance charge (see "Charges and Deductions--Cost of Insurance," "Cost of Insurance Rate," and "Rate Class"), a decrease in the specified face amount will reduce the specified face amount in the following order: (a) the specified face amount provided by the most recent increases successively; and (b) the specified face amount on the Date of Certificate. INCREASES. Any requirements as to the minimum amount of an increase are specified in the Certificate. Any increases in specified face amount are subject to MetLife's underwriting rules. EFFECT OF CHANGES IN SPECIFIED FACE AMOUNT ON CHARGES. A change in the specified face amount may affect the net amount at risk which may affect an Owner's cost of insurance charge and the monthly administration charge (see "Charges and Deductions--Cost of Insurance;" "Cost of Insurance Rate," "Rate Class," "Administrative Charge"). This in turn can affect the level of subsequent cash values and death benefit. A change in the specified face amount may also affect the Certificate's status as a modified endowment contract for tax purposes (see "Federal Tax Matters"). Finally, an increase in the specified face amount requested by an Owner can result in an additional amount of surrender charge being imposed (see "Charges and Deductions--Surrender Charges"). CASH VALUE The total cash value of a Certificate at any time is the sum of the Certificate's cash values in the Fixed Account (see "The Fixed Account"), the Loan Account (see "Certificate Rights--Loan Privileges"), and the investment divisions of the Separate Account at such time. The Certificate's cash value in the Separate Account may increase or decrease on each Valuation Date depending on the investment return of the chosen investment divisions of the Separate Account (see "Separate Account Net Investment Return"). There is no guaranteed minimum cash value in the Separate Account. 13 CALCULATION OF SEPARATE ACCOUNT CASH VALUE. The portion of the first net premium allocated to the investment divisions of the Separate Account under a Certificate that is issued within the first Group Policy year will automatically be allocated to the Fixed Account from the Investment Start Date to the Allocation Date. Otherwise, on each Valuation Date, the Certificate's cash value in an investment division of the Separate Account will equal: (1) The cumulative amount of all net premium payments, transfers of cash value, loan repayments and interest credited on Certificate loans that are allocated to the investment division; minus (2) Any cash value transferred, surrendered or withdrawn from the investment division (including transfers to the Loan Account); minus (3) The portion of all charges and deductions allocated to the Certificate's cash value in the investment division (see "Charges and Deductions"); plus or minus (4) The cumulative net investment return (discussed below) on the amount of cash value in the investment division. The Certificate's total cash value in the Separate Account equals the sum of the Certificate's cash value in each investment division. SEPARATE ACCOUNT NET INVESTMENT RETURN. An investment division's net investment return is determined as of 4:00 p.m., New York City time, on each Valuation Date. All transactions and calculations with respect to the Certificates as of any Valuation Date are determined as of such time. Each investment division is credited with a rate of net investment return equal to its gross rate of investment return during the Valuation Period less (1) an adjustment for the Separate Account's charge for mortality and expense risks (equivalent to at least .45% and not more than .90% on an annual basis) and (2) a charge for MetLife's taxes, if any such tax charge becomes necessary in the future (see "Charges and Deductions--Charges Against the Separate Account"). The investment division's gross rate of investment return is equal to the rate of increase 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 paid by the portfolio during the period. Depending primarily on the investment experience of the underlying Fund portfolio, an investment division's net investment return may be either positive or negative during a Valuation Period. RATES OF RETURN. The rates of return for the portfolios of the Fund shown below reflect all charges against the available Fund portfolios. THEY DO NOT REPRESENT WHAT MAY HAPPEN IN THE FUTURE. IN ADDITION, THERE ARE SIGNIFICANT CHARGES AGAINST THE SEPARATE ACCOUNT, PREMIUMS AND THE CASH VALUE IN EACH CERTIFICATE THAT ARE NOT IMPOSED AGAINST THE AVAILABLE FUND PORTFOLIOS AND ARE THEREFORE NOT REFLECTED. These charges, i.e. charges against premiums, charges for mortality and expense risks, the administration charge, the surrender charge and the cost of insurance (see "Charges and Deductions--Premium Expense Charges," "Surrender Charges," and "Monthly Deduction from Cash Value"), significantly decrease the rates of return on a given Certificate. The rate of return is computed for each portfolio by subtracting the net asset value per share at the beginning of the period from the net asset value per share at the end of the period, adjusting for dividends declared on that portfolio's shares and dividing the result by the net asset value per share at the beginning of the period. The resulting ratio is then annualized to obtain the Average Annual Return shown. The annualization makes the assumption that the rate of return does not vary from any one year period to another and takes into account the effect of compounding. Rates of return are useful for reviewing the effectiveness of Fund management and for comparing the investment returns of the underlying Fund portfolios. HOWEVER, FOR THE REASONS STATED ABOVE, NO OWNER SHOULD EXPECT TO RECEIVE FUND RETURN. The hypothetical historical illustrations that appear below demonstrate the effect on the underlying Fund Portfolios' rates of return of all charges against the separate account, premiums and the cash value in the Policy illustrated. 14 The first column shown for each investment division begins on the later of the date the portfolio of the Fund in which it invests began operations and the date the first registration statement relating to such portfolio was declared effective by the Securities and Exchange Commission and ends on the date indicated. Other periods shown begin on January 1st and end on December 31st of the following year, except that the average annual return column is for the entire period shown for the division in question. Thus the rates of return are based on the actual historical experience of the available Fund portfolios. The annual return for the International Stock Portfolio was increased due to the voluntary assumption by MetLife of certain expenses for the International Stock Portfolio of the Fund in 1993 (see "Management of the Fund," in the prospectus for the Fund). This subsidization affected annual return only by .01%. There was no subsidization in 1994 or 1995.
6/24/83- 1/1/84- 1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 --------- --------- --------- --------- --------- --------- --------- --------- --------- GROWTH......... -4.60% 0.61% 34.80% 10.19% 5.67% 9.88% 39.96% -9.98% 33.18% INCOME......... 2.00% 13.83% 27.21% 19.58% -1.98% 9.23% 13.42% 9.98% 17.42% AVERAGE 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/92 12/31/93 12/31/94 12/31/95 RETURN --------- --------- --------- --------- --------- GROWTH......... 11.57% 14.41% -3.75% 34.49% 12.94% INCOME......... 6.90% 11.32% -3.32% 19.70% 11.29%
7/25/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 --------- --------- --------- --------- --------- --------- --------- --------- --------- DIVERSIFIED.... 3.41% 3.54% 8.88% 23.26% -0.89% 24.94% 9.49% 12.79% -3.44% AVERAGE 1/1/95- ANNUAL 12/31/95 RETURN --------- --------- DIVERSIFIED.... 27.87% 11.16%
AVERAGE 4/29/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN --------- --------- --------- --------- --------- --------- --------- --------- --------- AGGRESSIVE GROWTH........ 4.62% 33.11% -11.35% 66.46% 10.37% 22.66% -3.52% 31.00% 17.80%
AVERAGE 5/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN --------- --------- --------- --------- --------- --------- --------- STOCK INDEX.... 1.95% 29.76% 7.44% 9.55% 1.15% 37.95% 14.67%
AVERAGE 5/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN --------- --------- --------- --------- --------- --------- INTERNATIONAL STOCK......... -1.55% -10.21% 47.76% 4.45% 1.81% 7.29%
15 ILLUSTRATIONS. In order to demonstrate how the investment experience of the available portfolios of the Fund would have affected the death benefit, cash value and cash surrender value of a Certificate, hypothetical illustrations showing the hypothetical net return of each investment division are set forth below. These hypothetical illustrations are based on the actual historical experience of the available Fund portfolios as if the Separate Account had been in existence and a Certificate had been issued on the dates indicated. THEY DO NOT REPRESENT WHAT MAY HAPPEN IN THE FUTURE. The illustrations are based on the payment of monthly premiums of $175 for a specified face amount of $100,000 for an individual aged 40. The illustrations assume that no riders are in effect. The periods illustrated are based on the rates of return for such periods set forth in "Rates of Return" above. For each investment division, one illustration is based on the guaranteed charge rates under a hypothetical representative standard Group Policy; the other illustration is based as if the current charge rates were in effect during the period illustrated that would be representative of such a Group Policy. The actual maximum and current charge rates can be expected to vary from one Group Policy to another (See "Charges and Deductions.") The guaranteed illustrations assume: (1) that the covered person is in a rate class that has cost of insurance charges equal to 100% of the maximum rates that could be charged based on the 1980 Commissioners Standard Ordinary Mortality Table, Males, age last birthday ("1980 CSO Table"); (2) a $3.00 per Certificate per month administration charge plus a charge for administration included as part of the monthly combined charge equal to the same amount charged for the cost of insurance described in (1) above; (3) a .35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a 3% front end sales load; (6) a surrender charge cap equal to $30.17 per thousand dollars of specified face amount in Certificate Year 1; $24.62 per thousand dollars of specified face amount in Certificate Year 2; $18.85 per thousand dollars of specified face amount in Certificate Year 3; $12.83 per thousand dollars of specified face amount in Certificate Year 4; $6.55 per thousand dollars of specified face amount in Certificate Year 5; and $0 in Certificate Year 6 and thereafter; (7) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .90% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (8) a surrender transaction charge of $25. The current illustrations assume: (1) that the covered person is in a rate class that has standardized cost of insurance charges as set forth in the following table:
MONTHLY CURRENT COST OF INSURANCE RATE - --------------------------------------- RATE PER THOUSAND DOLLARS AGE OF INSURANCE - ---------- --------------------------- 40 to 44 $ 0.17 45 to 49 $ 0.29 50 to 54 $ 0.48 55 to 59 $ 0.75 60 to 64 $ 1.17 65 to 69 $ 2.10
(2) a $1.50 per Certificate per month administration charge plus a charge for administration included as part of the monthly combined charge equal to the 20% of the amount charged for the cost of insurance described in (1) above; (3) a 0.35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a 0% front end sales load; (6) a surrender charge cap equal to $30.17 per thousand dollars of specified face amount in Certificate Year 1; $24.62 per thousand dollars of specified face amount in Certificate Year 2; $18.85 per thousand dollars of specified face amount in Certificate Year 3; $12.83 per thousand dollars of specified face amount in Certificate Year 4; $6.55 per thousand dollars of specified face amount in Certificate Year 5; and $0 in Certificate Year 6 and thereafter; (7) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .45% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (8) no surrender transaction charge. 16 These examples of Certificate performance are for a specific age, rate class, and group mortality characteristics premium payment pattern and policy anniversary as set forth above. The benefits are calculated for a specific Certificate anniversary. The amount and timing of premium payments would affect individual Certificate benefits as would any withdrawals or Certificate loans. Performance may be shown for the systematic investment strategies made available under the Certificates (see "Allocation of Premiums and Cash Value--Systematic Investment Strategies"). Average annual return for each of the systematic investment strategies may be calculated by presuming a certain dollar value at the beginning of a period, and comparing this dollar value with the dollar value, based on historical performance for the applicable investment divisions or the Fixed Account, at the end of the period, expressed as a percentage. The average annual return in each case will assume that no withdrawals have occurred and will not reflect charges against premiums, cost of insurance or other monthly policy charges. This Prospectus also contains illustrations based on assumed rates of return. See "Illustrations Of Death Benefit, Cash Values, Cash Surrender Values And Accumulated Premiums." The following examples show how the hypothetical net return of the investment division which invests in the corresponding portfolio of the Fund would have affected benefits for a Certificate issued on the January 1 immediately following the effective date of such portfolio if that Certificate imposed the charges and had the other characteristics discussed above under "Illustrations." These examples assume that net premiums and related cash values were in the applicable investment division for the entire period. GROWTH BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1984.................................... $ 2,183 $ 1,843 $ 1,284 $ 101,843 1985.................................... 5,390 4,539 3,420 104,539 1986.................................... 8,076 6,783 5,104 106,783 1987.................................... 10,413 8,723 7,440 108,723 1988.................................... 13,630 11,389 10,734 111,389 1989.................................... 21,529 17,737 17,737 117,737 1990.................................... 21,395 17,432 17,432 117,432 1991.................................... 30,949 24,982 24,982 124,982 1992.................................... 36,847 29,514 29,514 129,514 1993.................................... 44,398 35,324 35,324 135,324 1994.................................... 44,767 35,133 35,133 135,133 1995.................................... 62,655 48,586 48,586 148,586
GROWTH BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1984.................................... $ 2,183 $ 1,356 $ 772 $ 101,356 1985.................................... 5,390 3,270 2,125 103,270 1986.................................... 8,076 4,785 3,081 104,785 1987.................................... 10,413 6,022 4,739 106,022 1988.................................... 13,630 7,664 7,009 107,664 1989.................................... 21,529 11,787 11,762 111,787 1990.................................... 21,395 11,392 11,367 111,392 1991.................................... 30,949 16,008 15,983 116,008 1992.................................... 36,847 18,521 18,496 118,521 1993.................................... 44,398 21,690 21,665 121,690 1994.................................... 44,767 21,212 21,187 121,212 1995.................................... 62,655 28,756 28,731 128,756
17 INCOME BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1984.................................... $ 2,330 $ 1,967 $ 1,408 $ 101,967 1985.................................... 5,408 4,555 3,435 104,555 1986.................................... 8,736 7,338 5,659 107,338 1987.................................... 10,677 8,945 7,662 108,945 1988.................................... 13,832 11,559 10,904 111,559 1989.................................... 17,941 14,767 14,767 114,767 1990.................................... 22,002 17,899 17,899 117,899 1991.................................... 28,167 22,701 22,701 122,701 1992.................................... 32,313 25,837 25,837 125,837 1993.................................... 38,166 30,306 30,306 130,306 1994.................................... 38,979 30,484 30,484 130,484 1995.................................... 48,962 37,782 37,782 137,782
INCOME BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1984.................................... $ 2,330 $ 1,448 $ 863 $ 101,448 1985.................................... 5,408 3,281 2,137 103,281 1986.................................... 8,736 5,178 3,474 105,178 1987.................................... 10,677 6,167 4,884 106,167 1988.................................... 13,832 7,773 7,118 107,773 1989.................................... 17,941 9,800 9,775 109,800 1990.................................... 22,002 11,668 11,643 111,668 1991.................................... 28,167 14,502 14,477 114,502 1992.................................... 32,313 16,144 16,119 116,144 1993.................................... 38,166 18,486 18,461 118,486 1994.................................... 38,979 18,246 18,221 118,246 1995.................................... 48,962 22,099 22,074 122,099
DIVERSIFIED BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1987.................................... $ 1,999 $ 1,688 $ 1,128 $ 101,688 1988.................................... 4,351 3,665 2,546 103,665 1989.................................... 7,687 6,459 4,780 106,459 1990.................................... 9,748 8,171 6,888 108,171 1991.................................... 14,583 12,193 11,538 112,193 1992.................................... 18,232 15,017 15,017 115,017 1993.................................... 22,781 18,551 18,551 118,551 1994.................................... 24,052 19,398 19,398 119,398 1995.................................... 33,137 26,509 26,509 126,509
18 DIVERSIFIED BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1987.................................... $ 1,999 $ 1,242 $ 657 $ 101,242 1988.................................... 4,351 2,635 1,491 102,635 1989.................................... 7,687 4,540 2,836 104,540 1990.................................... 9,748 5,605 4,322 105,605 1991.................................... 14,583 8,156 7,501 108,156 1992.................................... 18,232 9,918 9,893 109,918 1993.................................... 22,781 12,050 12,025 112,050 1994.................................... 24,052 12,345 12,320 112,345 1995.................................... 33,137 16,488 16,463 116,488
STOCK INDEX BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1991.................................... $ 2,376 $ 2,006 $ 1,446 $ 102,006 1992.................................... 4,784 4,029 2,910 104,029 1993.................................... 7,436 6,248 4,569 106,248 1994.................................... 9,639 8,079 6,796 108,079 1995.................................... 15,785 13,195 12,540 113,195
STOCK INDEX BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1991.................................... $ 2,376 $ 1,476 $ 891 $ 101,476 1992.................................... 4,784 2,901 1,757 102,901 1993.................................... 7,436 4,397 2,693 104,397 1994.................................... 9,639 5,547 4,264 105,547 1995.................................... 15,785 8,841 8,186 108,841
AGGRESSIVE GROWTH BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1989.................................... $ 2,341 $ 1,976 $ 1,416 $ 101,976 1990.................................... 4,072 3,430 2,311 103,430 1991.................................... 9,514 7,994 6,315 107,994 1992.................................... 12,901 10,809 9,526 110,809 1993.................................... 18,181 15,189 14,534 115,189 1994.................................... 19,612 16,167 16,167 116,167 1995.................................... 28,031 22,867 22,867 122,867
19 AGGRESSIVE GROWTH BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ----------- ----------- ------------- 1989.................................... $ 2,341 $ 1,454 $ 869 $ 101,454 1990.................................... 4,072 2,467 1,323 102,467 1991.................................... 9,514 5,625 3,921 105,625 1992.................................... 12,901 7,444 6,161 107,444 1993.................................... 18,181 10,241 9,586 110,241 1994.................................... 19,612 10,769 10,744 110,769 1995.................................... 28,031 14,998 14,973 114,998
INTERNATIONAL STOCK BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ------------- ----------- ------------- 1992.................................... $ 2,001 $ 1,689 $ 1,129 $ 101,689 1993.................................... 5,443 4,584 3,465 104,584 1994.................................... 7,700 6,468 4,789 106,468 1995.................................... 10,026 8,401 7,118 108,401
INTERNATIONAL STOCK BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CASH CERTIFICATE YEAR ENDING AT FUND SURRENDER ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE VALUE DEATH BENEFIT - ---------------------------------------- ---------------- ------------- ----------- ------------- 1992.................................... $ 2,001 $ 1,243 $ 658 $ 101,243 1993.................................... 5,443 3,302 2,157 103,302 1994.................................... 7,700 4,563 2,859 104,563 1995.................................... 10,026 5,780 4,497 105,780
From time to time the Separate Account may advertise its performance ranking information among similar investments as compiled by Lipper Analytical Services Inc., Morningstar, Inc. and other independent organizations. From time to time the Separate Account may compare the performance of its investment divisions with the performance of common stocks, long-term government bonds, long-term corporate bonds, intermediate-term government bonds, Treasury Bills, certificates of deposit and savings accounts. The Separate Account may use the Consumer Price Index in its advertisements as a measure of inflation for comparison purposes. BENEFIT AT FINAL DATE If the covered person is living, MetLife will pay to the Owner the cash value of the Certificate on the Final Date, reduced by any outstanding indebtedness (see "Certificate Benefits--Cash Value"). The Final Date of a Certificate is the Certificate anniversary on which the covered person is 95 or later, if so requested by the Owner and permitted by law (see "Federal Tax Matters"). OPTIONAL INCOME PLANS During the covered person's lifetime, the Owner may arrange for the cash surrender value to be paid in a single sum, in an account that earns interest or under one or more of the available optional income plans. For more specifics regarding optional income plans, see the Appendix to Prospectus. These choices are also available at the Final Date. If no election is made, MetLife will place the amount in an account that earns interest. The payee will have immediate access to all or any part of the account. 20 When the insurance proceeds are payable in a single sum, the beneficiary may, within one year of the covered person's death, select one or more of the optional income plans, if no payments have yet been made. If the insurance proceeds become payable under an optional income plan and the beneficiary has the right to withdraw the entire amount, the beneficiary may name and change contingent beneficiaries. OPTIONAL INSURANCE BENEFITS Subject to certain requirements, one or more of the optional insurance benefits described in the Appendix to Prospectus, may be included with a Certificate by rider. The cost of any optional insurance benefits will be deducted as part of the monthly deduction (see "Charges and Deductions--Monthly Deduction From Cash Value"). See the Appendix to Prospectus, for a discussion of how certain riders affect the benefits and the exercise of certain rights under the Certificate. PAYMENT AND ALLOCATION OF PREMIUMS ISSUANCE OF A CERTIFICATE Certificates will only be offered to eligible employees, and their spouses when provided by the participating entity. Individuals wishing to purchase a Certificate must complete an enrollment form which must be received in good order by the Administrative Office before a Certificate will be issued or any investment return will commence thereunder. A Certificate will not be issued with a specified face amount less than the Minimum Specified Face Amount. Acceptance is subject to MetLife's underwriting rules. MetLife reserves the right to reject an enrollment for any reason permitted by law. PREMIUMS PAYMENT OF PREMIUMS. During the first two Certificate years in order to keep the guaranteed death benefit in force, premium payments must be at least equal to the minimum premium due. Otherwise, the Owner is not required to pay minimum premium. MOREOVER THE PAYMENT OF MINIMUM PREMIUMS WILL NOT GUARANTEE THAT THE CERTIFICATE REMAINS IN FORCE AFTER THE FIRST TWO CERTIFICATE YEARS. Instead, the duration of the Certificate after the first two Certificate years depends upon the Certificate's cash surrender value, assuming the Group Policy remains in force (see "Certificate Termination and Reinstatement While the Group Policy is in Effect--Termination"). Premiums will be paid through payroll deduction, where provided by the participating entity. A participating entity may remit payroll deductions to MetLife as much as 30 days after the deduction is made. If there is no payroll deduction available, an Owner may elect to pay the premium quarterly or annually. Subject to the minimum and maximum premium limitations described below, an Owner may make unscheduled premium payments at any time in any amount. The Certificate, therefore, provides the Owner with the flexibility to vary the frequency and amount of premium payments to reflect changing financial conditions. During the first Group Policy year, the portion of the first premium payment under each Certificate allocated to investment divisions of the Separate Account will be allocated to the Fixed Account from the Investment Start Date until the Allocation Date as discussed in detail under "Allocation of Net Premiums" below. Thereafter, the portion of a premium payment allocated to the investment divisions of the Separate Account under such Certificates and any portion of premium payments allocated to the investment divisions of the Separate Account under Certificates issued after the first Group Policy year are credited to the Separate Account as of the Date of Receipt of the premium payment, together with any necessary allocation instructions in good order from the participating entity. The portion of each premium payment under each Certificate allocated to the Fixed Account is credited to the Fixed Account as of the Date of Receipt. 21 PREMIUM LIMITATIONS. During the first two Certificate years, premium payments by an Owner must at least equal the minimum premiums in order to keep the guaranteed death benefit in effect. Otherwise, the Certificate will terminate after a grace period commencing on a monthly anniversary when the cash surrender value is insufficient to pay the monthly deduction on that date. Except as described below, the total of all premiums paid, both planned and unplanned, can never exceed the then current maximum premium limitation determined by Internal Revenue Code rules relating to the definition of life insurance. If at any time a premium is paid that would result in total premiums exceeding the then current maximum premium limitations, MetLife will accept only that portion of the premium that will make total premiums equal the limit. Any part of the premium in excess of that amount will be refunded, and no further premiums will be accepted until allowed by the maximum premium limitations. These limitations will not apply to any premium that is required to be paid in order to prevent the Certificate from terminating. There may be cases where the total of all premiums paid could cause the Certificate to be classified as a modified endowment contract (see "Federal Tax Matters"). The annual statement (see "Reports") sent to each Owner will include information regarding the modified endowment contract status of a Certificate. In cases where a Certificate is not an irrevocable modified endowment contract, the annual statement will indicate what action the Certificate owner can take to reverse the modified endowment contract status of the Certificate. The first premium may not be less than the planned periodic premium. Every unplanned premium payment must be at least $100. Premium payments less than these minimum amounts will be refunded to the Owner. These minimum premium limits can be changed by MetLife. No increase will take effect until 90 days after notice is sent to the Owner. ALLOCATION OF PREMIUMS AND CASH VALUE NET PREMIUMS. The net premium equals the premium paid less premium expense charges (see "Charges and Deductions Premium Expense Charges"). ALLOCATION OF NET PREMIUMS. In the enrollment form for a Certificate, the Owner indicates the initial allocation of net premiums among the Fixed Account and the investment divisions of the Separate Account. In some cases, the participating entity retains the right to allocate the portion of any net premiums it pays rather than the Owner pays among the Fixed Account and the investment divisions of the Separate Account unless and until the covered person retires, as determined by the participating entity (if the covered person is employed by the participating entity), or the Certificate becomes portable. The Certificate includes a description of the Owner's right to allocate net premiums. The minimum percentage of each premium that may be allocated to the Fixed Account or any investment division of the Separate Account is 10%. Allocation percentages must be in whole numbers; for example, 33 1/3% may not be chosen. The Owner may change the allocation of future net premiums without charge at any time by providing MetLife with written notification at the Administrative Office. The change will be effective as of the Date of Receipt of the notice at the Administrative Office. A newly-issued Certificate is credited with an investment return commencing with the date the first premium for that Certificate is received, or, if later, the Date of Certificate. With one exception, the investment return that commences on this "Investment Start Date" is based on the allocation among the Fixed Account and the investment divisions of the Separate Account selected by the Owner (or, to the extent mentioned in the preceding paragraph, the participating entity). The one exception is for Certificates that are issued during the first year that the related Group Policy has been in effect. For those Certificates, the initial premium payments allocated to the investment divisions of the Separate Account will be allocated to and earn the current interest rate in the Fixed Account during the 20 day period of time from the Investment Start Date to the Allocation Date. Thereafter, the investment return is based on the investment allocation selected by the Owner or participating entity as mentioned above. 22 The Certificate's cash value in the investment divisions of the Separate Account will vary with the investment experience of these investment divisions, and the Owner bears this investment risk. Owners should periodically review their allocations of net premiums and cash values in light of market conditions and their overall financial planning requirements. CASH VALUE TRANSFERS. Except as described below, on and after the Allocation Date the Owner may transfer cash value among the Fixed Account and investment divisions of the Separate Account. In some cases, the participating entity may retain the right to transfer the portion of any cash value attributable to net premiums it pays rather than the Owner pays among the Fixed Account and the investment divisions of the Separate Account unless and until the covered person retires, as determined by the participating entity (if the covered person is employed by the participating entity) or the Owner's Certificate becomes portable. In addition, in some cases, the maximum amount that may be transferred from the Fixed Account in any Certificate year is the greater of $200 or 25% of the largest amount in the Fixed Account over the last four Certificate years, or, if the Certificate has been in effect for less than that period, since the Certificate date. This limit does not apply to a full surrender, to any loans taken or to any transfers made under a systematic investment strategy (see "Systematic Investment Strategies"). The Certificate includes a description of the Owner's cash value transfer rights. There is no charge for transfers. A transfer must be made in either dollar amounts or a percentage in whole numbers. The minimum amount that may be transferred is the lesser of $200 or the total amount in an investment division or, if the transfer is from the Fixed Account, the total amount in the Fixed Account. Transferring cash value from one or more investment divisions and/or the Fixed Account into one or more other investment divisions and/or the Fixed Account counts as one transfer. MetLife will effectuate transfers and determine all values in connection with transfers as of the Date of Receipt of written notice at the Administrative Office, except in the limited circumstances described under "Other Certificate Provisions--Payment Deferment" and "The Fixed Account--Death Benefit, Transfer, Withdrawal, Surrender and Certificate Loan Rights." Transfers are not taxable transactions under current law. Transfer requests must be in writing in a form acceptable to MetLife, or in another form of communication acceptable to MetLife. MetLife reserves the right, if permitted by state law, to allow Owners to make transfer requests by telephone. If MetLife decides to permit this transfer procedure, and an Owner elects to participate in the transfer procedure, the following will apply: the Owner will authorize MetLife to act upon the telephone instructions of any person purporting to be the Owner, assuming MetLife's procedures have been followed, to make transfers both from amounts in the Certificate's Fixed Account and in the Separate Account. MetLife will institute reasonable procedures to confirm that any instructions communicated by telephone are genuine. All telephone calls will be recorded, and the Owner will be asked to produce the Owner's personalized data prior to MetLife initiating any transfer requests by telephone. Additionally, as with other transactions, the Owner will receive a written confirmation of any such transfer. Neither MetLife nor the Separate Account will be liable for any loss, expense or cost arising out of any requests that MetLife or the Separate Account reasonably believe to be genuine. In the event that these transfer procedures are instituted and in the further event that an Owner who has elected to use such procedures encounters difficulty with them, such Owner should make the request to the Administrative Office. SYSTEMATIC INVESTMENT STRATEGIES. For certain groups, MetLife may permit the Owner to submit a written authorization directing MetLife to make transfers on a continuing periodic basis from one investment division to another or to the Fixed Account. MetLife currently offers three such investment strategies: the "Equity Generator," the "Equalizer" and the "Allocator." Both the "Equity Generator" and the "Allocator" may be elected at any time. The "Equalizer" may be elected only on a Certificate anniversary. Only one of these systematic investment strategies may be in effect at any one time. The Owner may submit a written request electing a strategy or directing MetLife to cancel a systematic investment strategy at any time. The election of any systematic investment strategy will become effective on the later of the Allocation Date and the end of the free look period. Under the "Equity Generator," Owners may have the interest earned on amounts in the Fixed Account transferred to the Stock Index investment division. Any such transfer from the Fixed Account to the Stock 23 Index investment division will be made at the beginning of each Certificate month following the Certificate month in which the interest is earned. The transfer will only be made for a month during which at least $20.00 in interest is earned. Amounts earned during a month in which less than $20.00 in interest is earned will remain in the Fixed Account. Under the "Equalizer," at the beginning of each Certificate month, a transfer is made from the Stock Index investment division to the Fixed Account or from the Fixed Account to the Stock Index investment division in order to make the Fixed Account and Stock Index investment division equal in value. While the "Equalizer" is in effect, any cash value transfer out of the Stock Index investment division that is not part of this systematic investment strategy will automatically terminate the "Equalizer" election. The Owner may then reelect the "Equalizer" commencing on the next Certificate anniversary. Under the "Allocator," at the beginning of each Certificate month, an amount designated by the Owner is transferred from the Fixed Account to any investment division(s) specified by the Owner. The Owner may choose to do this in one of the following three ways: (1) designating an amount to be transferred from the Fixed Account each month until amounts in that investment division are exhausted; (2) designating an amount to be transferred from the Fixed Account for a certain number of months; or (3) designating a total amount to be transferred from the Fixed Account in equal monthly installments over a certain number of months. The Owner's designations must allow the "Allocator" to remain in effect for at least three months. TERMINATION OF PARTICIPATING ENTITY PARTICIPATION IN THE GROUP POLICY Participation in the Group Policy will terminate if the participating entity decides to terminate its participation in the Group Policy. In addition, MetLife may also terminate the participating entity's participation in the Group Policy if during any twelve month period, the aggregate specified face amount for all Owners under the Group Policy or the number of Certificates falls by certain amounts or below the minimum permissible levels established by MetLife. Both the participating entity and MetLife must provide ninety days' written notice to the other as well to the Owners before terminating participation in the Group Policy. Termination of participation in the Group Policy means that the participating entity will no longer remit premiums to MetLife through payroll deduction and that no new Certificates will be issued under the participating entity's group. Owners of portable Certificates as defined in the Certificate as of the Certificate monthly anniversary next following the termination of the participating entity's participation in the Group Policy and Owners who exercised the paid-up Certificate provision as of a date not later than the last Certificate monthly anniversary immediately prior to notice of termination being sent to Owners will remain Owners of the Certificates. EFFECT OF TERMINATION OF GROUP POLICY PARTICIPATION ON OWNERS A Termination by the participating entity or MetLife of the participating entity's participation in the Group Policy will not affect Owners whose Certificates have become portable or who have exercised their paid-up Certificate option by the dates specified in the preceding paragraph. For all other Owners, subject to the surrender charge waivers discussed in the first paragraph below, the following applies: If the participating entity replaces the Group Policy with another life insurance product that accumulates cash value, Certificates will be terminated and cash surrender values of each Owner will be transferred to the other life insurance product. If the Owner does not elect to be covered under the new product or if the new product does not provide coverage for the Owner, the Certificate's cash surrender value will be transferred to the Owner. If the participating entity replaces the Group Policy with a life insurance product that does not accumulate cash value, Certificates will be terminated and Owners will receive their cash surrender value. In this case and in any other case where Owners receive their cash surrender value, Owners may purchase an annuity product from MetLife instead. If the Owner transfers the Certificate's cash value to such an annuity, no surrender charge will be assessed on the transfer. If the participating entity does not replace the Group Policy with another life insurance product, then, depending on the terms of the Certificate, Owners may have the option of electing to become Owners of portable Certificates or Owners of paid-up Certificates, or Owners may have the option of electing the standard conversion rights set forth in the Certificate or receiving the cash surrender value of their Certificates. If an Owner becomes the Owner of a portable Certificate, the current cost of insurance may change but will never be higher than the guaranteed cost of insurance. If an Owner elects the standard 24 conversion rights, insurance provided will be substantially less (and in some cases nominal) than the insurance provided under the Certificate. The Owner will receive any cash surrender value not used to purchase such standard conversion right. Where the cash surrender value of a Certificate is paid out to the Owner or transferred to another life insurance company, as described in the preceding paragraph following termination of the participating entity's participation in the Group Policy, special surrender charge waivers will apply. If participation has been terminated by MetLife, no surrender charge will be imposed on any such payouts or transfers. If participation has been terminated by the participating entity, no surrender charge will be imposed on such payouts or transfers if more than 5 Group Policy years have elapsed since the Date of Group Policy. See "Charges and Deductions--Surrender Charges." CERTIFICATE TERMINATION AND REINSTATEMENT WHILE THE GROUP POLICY IS IN EFFECT TERMINATION. If, during the first two Certificate years, the cash surrender value on any monthly anniversary is insufficient to cover the monthly deduction and the total premiums paid as of such monthly anniversary are not equal to the minimum premiums required as of that date, MetLife will notify the Owner and any assignee of record of that difference. Also, if, after the first two Certificate years, the cash surrender value on any monthly anniversary is insufficient to cover the monthly deduction, MetLife will notify the Owner and any assignee of record of that shortfall. In either case, the Owner will then have a grace period of the greater of 61 days, measured from the Certificate monthly anniversary, or 30 days after the date notice is mailed, to make sufficient payment. In the first two Certificate years, the minimum necessary premium payment will be an amount equal to the difference between the total premiums previously paid and the minimum premiums. Failure to make a sufficient payment within the grace period will result in termination of the Certificate without any cash surrender value. If the covered person dies during the grace period, the insurance proceeds will still be payable, but any accrued and unpaid monthly deductions will be deducted from the proceeds. REINSTATEMENT. Unless the Group Policy is terminated and the Owner would not have been permitted to retain the Certificate on a portable or paid-up basis (see, "Effect of Termination of Group Policy Participation on Owners" above), a terminated Certificate may be reinstated any time within 3 years (or longer where required by state law) after the end of the grace period and before the Final Date by submitting the following items to MetLife: (1) a written request for reinstatement; (2) evidence of insurability satisfactory to MetLife; and (3) a premium that, after the deduction of the premium expense charges (see "Charges and Deductions-- Premium Expense Charges"), is large enough to cover: (a) the monthly deductions through the end of the grace period and for at least the two Certificate months commencing with the effective date of reinstatement; (b) any portion of the surrender charge which was not paid at termination because the cash value at termination was insufficient to pay such portion of the charge; and (c) interest at the rate of 6% per year on the amount set forth in (b) from the commencement of the grace period to the date of reinstatement. MetLife reserves the right to waive the interest due set forth in (c) above. Notwithstanding the above, at the present time, with respect to the reinstatement of a Certificate that is terminated during the first two Certificate years, MetLife will accept as the premium required for reinstatement the lesser of the amount as defined in the immediately preceding paragraph and the following: the excess of the sum of (a) the monthly deductions through the end of the grace period and for at least the two Certificate months commencing with the effective date of reinstatement; and (b) the total of the minimum premiums that would have been payable under the Certificate from the date of the Certificate until the effective date of reinstatement had no termination occurred, over the sum of all premiums paid by the Owner to the effective date of the termination before any charges or deductions were applied. MetLife offers this alternative calculation of the premium required for reinstatement at present but reserves the right to modify or rescind this offer at its sole discretion. Indebtedness on the date of termination will be cancelled and need not be repaid and will not be reinstated. The amount of cash surrender value on the date of reinstatement will be determined in the manner set forth in the Certificate. 25 The date of reinstatement will be the monthly anniversary next following the date of approval of the request. The terms of the original Certificate, including the insurance rates provided therein, will apply to the reinstated Certificate. However, a Certificate which was terminated and reinstated during the first two Certificate years will be subject to termination after a grace period when the cash surrender value is insufficient to pay a monthly deduction even if all minimum premiums required to be paid during the first two Certificate years have been paid. A reinstated Certificate is subject to a new two year period of contestability (see "Other Certificate Provisions--Incontestability"). CHARGES AND DEDUCTIONS PREMIUM EXPENSE CHARGES SALES LOAD. A charge (which may be deemed to be a sales load as defined in the 1940 Act) may be deducted from each premium payment received by MetLife as described below. A charge of up to 3% of premiums paid may be deducted from all premium payments. There may also be a charge (which may be deemed to be a sales load) upon the surrender of a Certificate during the first 5 Certificate years (see "Surrender Charges"). These charges can vary depending upon the Group Policy under which an Owner's Certificate is issued. The Certificate describes the charges applicable to each Owner. The amount of any sales load (whether from either the premium expense charge or upon surrender of the Certificate) in any Certificate year cannot be specifically related to actual sales expenses for that year, which may include sales commissions as well as costs of prospectuses, other sales material and advertising. To the extent that sales expenses are not recovered from the charges for sales load, such expenses will be recovered from other sources, including any excess accumulated charges for mortality and expense risks under the Certificate, any other gains attributable to operations with respect to the Certificate and MetLife's general assets and surplus. MetLife does not anticipate that all its total sales expenses will be recovered from the sales charges. TAX CHARGES. Two charges are currently made for taxes related to premiums. These taxes include any federal, state or local taxes measured by or based on the amount of premiums received by MetLife. A charge of .35% of each premium payment is made for the purpose of recovering a portion of the DAC tax charge. MetLife represents that this charge is reasonable in relation to MetLife's increased federal income tax burden under the Internal Revenue Code resulting from receipt of premiums. An additional charge is made for state premium taxes. Premium taxes vary from state to state, and may be zero in some cases. One rate will be charged for each group. The initial charge for each group will be an estimate of anticipated taxes to be incurred on behalf of each Group Policy during the first Group Policy year. For each Group Policy year after the first Group Policy year, the state premium tax charge will be based on anticipated taxes taking into account actual state and local premium taxes incurred on behalf of each Group Policy in the prior year and known factors affecting the coming year's taxes. This charge may vary based on changes in the law or changes in residences of the Owners. This charge may vary from 0 to 5% of premium. MetLife will waive state premium taxes for Internal Revenue Code section 1035 exchanges from any other policy to a Certificate. MetLife will waive the DAC tax charge for Internal Revenue Code section 1035 exchanges from another MetLife policy to a Certificate. MetLife does not anticipate making a profit on this charge. TRANSFER CHARGE At the present time, no charge will be assessed against the cash value of a Certificate when amounts are transferred among the investment divisions of the Separate Account and between the investment divisions and the Fixed Account. MetLife reserves the right in the future to assess a charge of up to $25 against each transfer. If made, the charge would be allocated among the Fixed Account and each investment division of the Separate Account on a Pro Rata Basis. MONTHLY DEDUCTION FROM CASH VALUE The monthly deduction from cash value includes the cost of insurance charge, the charge for optional insurance benefits added by rider (see "Certificate Benefits--Optional Insurance Benefits"), and the administration charges. The cost of insurance charge, and the administration charges are discussed separately in the 26 paragraphs that follow. The charges that comprise the monthly deduction can vary depending upon the Group Policy under which an Owner's Certificate is issued. The Certificate describes the charges applicable to each Owner. The monthly deduction accrues on each monthly anniversary commencing with the Date of Certificate; however, the actual deduction may be made up to 45 days after each such monthly anniversary. It will be allocated among the Fixed Account and each investment division of the Separate Account on a Pro Rata Basis. See "Payment and Allocation of Premiums--Issuance of a Certificate," regarding when insurance coverage starts under a newly issued Certificate. COST OF INSURANCE. Because the cost of insurance depends upon a number of variables, it can vary from month to month. MetLife will determine the monthly cost of insurance charge by multiplying the applicable cost of insurance rate or rates by the insurance amount for each Certificate month. The insurance amount for a Certificate month is (a) the death benefit at the beginning of the Certificate month, less (b) the cash value at the beginning of the Certificate month. The insurance amount will be affected by changes in the specified face amount of the Certificate (see "Certificate Benefits--Death Benefit"). The insurance amount and therefore the cost of insurance will be greater if the specified face is increased. If the minimum death benefit is in effect (see "Death Benefit-- Minimum Death Benefit"), then the cost of insurance will vary directly with the cash value. The cost of insurance charge will be deducted as part of a monthly combined charge consisting of the cost of insurance charge and a component of the charge for administration (see "Administration Charge"). COST OF INSURANCE RATE. Cost of insurance rates are based on the age and rate class of the covered person and group mortality characteristics, the particular characteristics (such as the rate class structure, the degree of stability in the charges sought by the participating entity and portability features) under the Group Policy that are agreed to by MetLife and the participating entity, and the amount of any surplus to be transferred to MetLife from any previous insurer (see "Other Certificate Provisions--Dividends"). The actual monthly cost of insurance rates will be based on MetLife's expectations as to future experience. They will not, however, be greater than the guaranteed cost of insurance rates set forth in the Certificate. These guaranteed rates may be up to 150% of the maximum rates that could be charged based on the 1980 CSO Table. The maximum guaranteed rates are higher than the 1980 CSO Table because MetLife uses simplified underwriting and guaranteed issue procedures whereby the covered person may not be required to submit to a medical or paramedical examination, and may provide coverage to groups that present substandard risk characteristics according to underwriting criteria. Under certain circumstances a covered person may be required to submit to a medical or paramedical examination. The current cost of insurance rates for most groups are lower than 100% of the 1980 CSO Table. Any change in the cost of insurance rates will apply to all persons of the same insuring age, rate class and group. MetLife reviews its cost of insurance rates annually and adjusts the rates from time to time based on several factors including the number of Certificates in force for each group, the number of Certificates in the group surrendered or becoming portable during the period and the actual experience of the group. RATE CLASS. The rate class of a covered person affects the cost of insurance rate. MetLife and the participating entity will agree to the number of classes and characteristics of each class. The classes may vary by smokers and nonsmokers, active and retired status, Owners of portable Certificates and other Owners, and/or any other nondiscriminatory classes agreed to by the participating entity. Where smoker and non-smoker divisions are provided, a covered person who is in the non-smoker division of a rate class will have a lower cost of insurance than a covered person in the smoker division of the same rate class, even if each covered person has an identical Certificate. ADMINISTRATION CHARGE. The monthly administration charge is comprised of two components. The first component of the administration charge is a charge that is deducted as part of the monthly combined charge (the other part of the monthly combined charge is the cost of insurance, as described above). This component will never exceed 50% of the monthly combined charge. Since this component of the monthly administration charge will be related to the insurance amount of the Certificate, any change in the specified face amount of a 27 Certificate may result in a change in this component of the monthly administration charge. The second component of the administration charge is a charge which may be up to $3.00 per Certificate per month as specified in the Certificate. The Certificate will describe the administration charge applicable to each Owner. This charge will be used to compensate MetLife for expenses incurred in the administration of the Certificate as a group variable universal life certificate. These expenses include the cost of processing enrollments, determining insurability, and establishing and maintaining Certificate records. Differences in the administration charge rates applicable to different Group Policies will be determined by MetLife based on expected differences in the administrative costs under the Certificates or in the amount of revenues that MetLife expects to derive from the charge. Such differences may result, for example, from features under each Group Policy that are agreed to by MetLife and the participating entity; the extent to which certain administrative functions in connection with the Group Policy are to be performed by MetLife or by the participating entity; and the expected average Certificate size. No profit is expected to be derived from the aggregate of these administration charges. CHARGES AGAINST THE SEPARATE ACCOUNT CHARGE FOR MORTALITY AND EXPENSE RISKS. A daily charge is made against the Separate Account for mortality and expense risks assumed by MetLife. The amount of the charge is equivalent to an effective annual rate of at least .45% and is guaranteed not to exceed an effective annual rate of .90% of the average daily value of the assets in the Separate Account which are attributable to the Policies. MetLife reserves the right, if permitted by applicable law, to change the structure of mortality and expense risk charge so that it is charged on a monthly basis as a percentage of cash value attributable to the Separate Account or so that it is charged as a component of the monthly combined charge. The mortality risk assumed is that covered persons may live for a shorter period of time than estimated and, thus, a greater amount of death benefits than expected will be payable. The expense risk assumed is that expenses incurred in issuing and administering the Certificates will be greater than estimated. MetLife will realize a gain if the charges prove ultimately to be more than sufficient to cover its actual costs of such mortality and expense commitments. If the charges are not sufficient, the loss will fall on MetLife. If its estimates of future mortality and expense experience are accurate, MetLife anticipates that it will realize a profit from the mortality and expense risk charge; however if such estimates are inaccurate, MetLife could incur a loss. Differences in the mortality and expense risk charge rates applicable to different Group Policies will be determined by MetLife based on differences in the levels of mortality and expense risks under those Policies. Differences in mortality and expense risk arise principally from the fact that (a) the factors discussed above under "Monthly Deduction From Cash Value" on which the cost of insurance and administration charges are based are more uncertain in some cases than in others and (b) MetLife's ability to recover any unexpected mortality and administrative expense costs from the cost of insurance and administration charges also will vary from case to case, depending on the maximum rates for such charges agreed upon by MetLife and the participating entity. MetLife will determine cost of insurance, administration, and mortality and expense risk charge rates pursuant to its established actuarial procedures, and in doing so MetLife will not discriminate unreasonably or unfairly against the Owners of Certificates under any Group Policy. CHARGE FOR INCOME TAXES. Currently, no charge is made against the Separate Account for income taxes. However, MetLife may decide to make such a charge in the future (see "Federal Tax Matters"). SURRENDER CHARGES A sales charge may be deducted in the form of a surrender charge from the cash value if the Certificate is surrendered or terminated after a grace period during up to the first 5 Certificate years after issue. A sales charge will also be deducted upon surrender or termination of a Certificate during up to the first 5 years after an increase in the specified face amount (other than an automatic increase). The surrender charge will be no higher than the surrender charge cap set forth the Certificate, or in the case of a specified face amount increase, that portion of the surrender charge cap attributable to the increase. In some cases, beginning no later than the 2nd Certificate year (or the 2nd year after any increase in specified face amount), this surrender 28 charge cap will decrease as set forth in the Certificate. In other cases, the surrender charge will remain level through up to the fifth Certificate year (or the fifth year after the applicable specified face amount increase). In both cases the surrender charge becomes zero no later than Certificate year 6 (or 6 years after the last applicable specified face amount increase). The surrender charge cap as of the Date of Certificate as well as the surrender charge structure will be specified in the Certificate. The surrender charge cap referred to in the preceding paragraph is designed to meet certain applicable limitations under state insurance law. These limitations are imposed by means of mathematical formulas that result in maximums that vary based on the circumstances of individual Owners, making it impractical to set forth such maximums here. Moreover, the Certificates associated with a particular group are deemed to constitute a separate class or series that, as a result of negotiations between MetLife and the participating entity, may provide for a surrender charge cap that is lower, or decreases more rapidly, than required by the state insurance law limitations referred to above. The surrender charge cap applicable to all Certificates in a Group will be determined pursuant to rules applied uniformly to that Group, based on such factors as the Owner's Age at Certificate issue, the Owner's Age at any increase in specified face amount as well as the specified face amount or any increase therein. All variations in the surrender charge caps will be made pursuant to MetLife's established actuarial procedures, which will not discriminate unreasonably or unfairly against the Owners of Certificates under any Group Policy. Subject to the cap, the surrender charge during up to the first 5 Certificate years may be up to 26.65% of applicable premiums paid up to one Guideline Annual Premium, plus up to 5.65% of all additional applicable premiums. Subject to the cap attributable to the increase, the additional surrender charge imposed during up to 5 years after a non-automatic increase in specified face amount may be up to 26.65% of premium payments attributable to the increase up to one Guideline Annual Premium for the increase, plus up to 5.65% of premium payments attributable to the increase that are in excess of that amount. For these purposes, a portion of each premium payment made after any non-automatic increase in specified face amount will be deemed to be attributable to the increase. That portion will bear the same ratio to the total premium payment as the Guideline Annual Premium for the specified face amount increase bears to the Guideline Annual Premium for the entire Certificate. A reduction in specified face amount, will be subject to the surrender charge described above. Reductions in specified face amount will be applied against the most recent increases (including automatic increases) in specified face amount successively, and then to the specified face amount on the Date of Certificate. Any applicable surrender charges will be assessed to each segment surrendered in the order relinquished. For any segment that is surrendered in full, the full surrender charge, if any, for that segment will be assessed. Any surrender charge for the surrender of a fraction of a segment will be assessed in proportion of the amount surrendered to the total segment and any related surrender charge cap will be proportionately reduced. A sales charge may also be deducted in the form of a surrender charge from the cash value if the Certificate is terminated because the Group Policy is terminated by the participating entity during up to the first 5 Group Policy years. The surrender charge is the same as that imposed on surrender of a Certificate when participation in the Group Policy is not being terminated; however, its elimination after not more than 5 years will be based on the number of years the Group Policy is in force, rather than the number of years the Certificate is in force or the number of years since an increase in specified face amount. The effect of this is that any surrender charge applicable upon termination of a Certificate because of the participating entity's termination of the Group Policy will not exceed, but may be less than, any surrender charge that would otherwise be payable upon a surrender of the Certificate at that time. For example, an Owner who is 40 years old purchases a Certificate with a specified face amount of $100,000, with a corresponding minimum premium of $175 per month. The surrender charge cap for the entire initial specified face amount is assumed to be $1,283 during Certificate year 4. Based on these assumptions the guideline annual premium is $6,983. Assuming the premiums paid to the end of Certificate year 4 are $8,400, the surrender charge would be $1,966.03 [26.65% X $6,983 + 5.65% X ($8,400 - 29 $6,983), plus $25 transaction charge]. The resulting surrender charge would then be compared to the surrender charge cap, which would be calculated as $12.83 per each $1,000 of specified face amount, or $1,283. The lesser of the two amounts applies, i.e., $1,283. No surrender charges are assessed against specified face amount automatic increases or loans, but the amount of the applicable surrender charge which would be deducted upon termination of a Certificate reduces the amount of cash value which may be withdrawn or borrowed. GUARANTEE OF CERTAIN CHARGES MetLife guarantees, and may not increase the rates specified in the Certificate for the following charges: the sales charges deducted from premiums; the surrender charge; the charge for the estimated cost of Federal income tax treatment of deferred acquisition costs, apart from any change in the law; the maximum transfer charge; the maximum cost of insurance charge; the maximum administration charge; and the maximum charge for mortality and expense risks with respect to the Certificates. OTHER CHARGES Fund Investment Management Fee and Expenses. Shares of the Fund are purchased for the Separate Account at their net asset value, which reflects Fund fees and expenses as described more fully under "What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund?" and in the attached prospectus for the Fund. ILLUSTRATIONS OF DEATH BENEFIT, CASH VALUES, CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS The tables in this section illustrate the way in which a Certificate's death benefit, cash value and cash surrender value could vary over an extended period of time assuming that all premiums are allocated to and remain in the Separate Account for the entire period shown and hypothetical gross investment rates of return for the Fund (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross (after tax) annual rates of 0%, 6% and 12%. The tables are based on the payment of monthly premiums (see "Premiums--Premium Limitations"), for a specified face amount of $100,000 for an individual who is age 40. The guaranteed illustrations assume: (1) that the covered person is in a risk class that has maximum guaranteed cost of insurance charges equal to 100% of the maximum rates that could be charged based on the 1980 CSO Table; (2) a $3.00 per Certificate per month administration charge, plus a charge for administration included as part of the monthly combined charge equal to the same amount charged for the cost of insurance described in (1) above; (3) a .35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a 3% front end sales load; (6) a surrender charge cap equal to $30.17 per thousand dollars of specified face amount in Certificate Year 1; $24.62 per thousand dollars of specified face amount in Certificate Year 2; $18.85 per thousand dollars of specified face amount in Certificate Year 3; $12.83 per thousand dollars of specified face amount in Certificate Year 4; $6.55 per thousand dollars of specified face amount in Certificate Year 5; and $0 in Certificate Year 6 and thereafter; (7) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .90% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (8) a surrender transaction charge of $25. 30 The current illustrations assume: (1) that the covered person is in a rate class that does not distinguish between smokers and nonsmokers and has current standardized cost of insurance charges as set forth in the following table:
MONTHLY CURRENT COST OF INSURANCE RATE - --------------------------------------- RATE PER THOUSAND DOLLARS AGE OF INSURANCE - ---------- --------------------------- 40 to 44 $ 0.17 45 to 49 $ 0.29 50 to 54 $ 0.48 55 to 59 $ 0.75 60 to 64 $ 1.17 65 to 69 $ 2.10
Comparable illustrations for a covered person in MetLife's standard smoker underwriting risk classification or in a substandard risk classification would show lower cash values and cash surrender values and, therefore, a lower death benefit. Conversely, comparable illustrations for a covered person in MetLife's standard nonsmoker underwriting risk classification would show higher cash values and cash surrender values and, therefore, a higher death benefit; (2) a $1.50 per Certificate per month administration charge plus a charge for administration included as part of the monthly combined charge equal 20% of the amount charged for the cost of insurance described in (1) above; (3) a .35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a 0% front end sales load; (6) a surrender charge cap equal to $30.17 per thousand dollars of specified face amount in Certificate Year 1; $24.62 per thousand dollars of specified face amount in Certificate Year 2; $18.85 per thousand dollars of specified face amount in Certificate Year 3; $12.83 per thousand dollars of specified face amount in Certificate Year 4; $6.55 per thousand dollars of specified face amount in Certificate Year 5; and $0 in Certificate Year 6 and thereafter; (7) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .45% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (8) no surrender transaction charge. The differences between the cash values and the cash surrender values in the first five years are the surrender charges. The amounts shown for the death benefits, cash values and cash surrender values also take into account the daily charge to the Fund for investment management services equivalent to an annual rate of .42% of the average daily value of the aggregate net assets of the available Fund portfolios (an average of the rates for the six available portfolios of the Fund) and .10% for direct expenses of the available Fund portfolios (the average daily rate of such expenses for the available Fund portfolios during 1995). Taking account of the charges for investment management services and other Fund expenses, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -.96%, 4.98% and 10.92%, respectively. With the guaranteed charges, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.41%, 4.50% and 10.42%, respectively. The guaranteed maximum charge illustration is based on rates charged under a hypothetical representative Standard Group Policy; the current charge illustrations are based on rates that would be representative of such a Group Policy (see "Monthly Deduction From Cash Value--Cost of Insurance Rate"). The actual maximum current charge rates can be expected to vary from one Group Policy to another. The second column of the tables shows the amount which would accumulate if an amount equal to the annual planned premium were invested to earn interest, after taxes, at 5% compounded annually. Upon request, MetLife will furnish an illustration reflecting the proposed covered person's age, Certificate charges, the specified face amount or premium amount requested, frequency of premium payments, and any available rider requested. 31 GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE(1) ISSUE AGE 40 SPECIFIED FACE AMOUNT: $100,000 GUARANTEED CHARGES
TOTAL DEATH BENEFIT(2) ASSUMING TOTAL CASH HYPOTHETICAL TOTAL CASH VALUE(2) SURRENDER VALUE(2) GROSS ANNUAL PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL INVESTMENT ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT RATES OF END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF RETURN OF CERTIFICATE INTEREST -------------------------------- ----------------------------------- ------------ YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% - ------------------------------ ----------- ---------- -------- -------- ---------- ----------- -------- ------------ 1............................ $ 2,156 $ 1,301 $1,343 $ 1,384 $ 716 $ 758 $ 799 $ 101,301 2............................ 4,421 2,530 2,691 2,855 1,386 1,547 1,711 102,530 3............................ 6,798 3,684 4,040 4,418 1,980 2,336 2,714 103,684 4............................ 9,295 4,759 5,385 6,077 3,476 4,102 4,794 104,759 5............................ 11,916 5,750 6,720 7,836 5,095 6,065 7,181 105,750 6............................ 14,668 6,656 8,042 9,702 6,631 8,017 9,677 106,656 7............................ 17,558 7,472 9,343 11,681 7,447 9,318 11,656 107,472 8............................ 20,592 8,195 10,618 13,779 8,170 10,593 13,754 108,195 9............................ 23,778 8,821 11,862 16,003 8,796 11,837 15,978 108,821 10........................... 27,124 9,340 13,060 18,355 9,315 13,035 18,330 109,340 15........................... 46,533 9,917 17,790 31,985 9,892 17,765 31,960 109,917 20........................... 71,305 5,916 18,459 48,347 5,916 18,459 48,347 105,916 25........................... 102,921 0(3) 11,284 66,015 0(3) 11,284 66,015 0(3) 30........................... 143,272 0(3) 0 (3) 80,079 0(3) 0(3) 80,079 0(3) END OF CERTIFICATE YEAR 6% 12% - ------------------------------ ------------ --------- 1............................ $ 101,343 $ 101,384 2............................ 102,691 102,855 3............................ 104,040 104,418 4............................ 105,385 106,077 5............................ 106,720 107,836 6............................ 108,042 109,702 7............................ 109,343 111,681 8............................ 110,618 113,779 9............................ 111,862 116,003 10........................... 113,060 118,355 15........................... 117,790 131,985 20........................... 118,459 148,347 25........................... 111,284 166,015 30........................... 0(3) 180,079
- --------- (1) Assumes monthly payments of $175 paid at the beginning of each Certificate month. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Certificate to terminate because of insufficient cash value. (3) Zero value in cash value, cash surrender value and death benefit indicate termination of insurance coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums--Termination," on page 26 for further details. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METLIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 32 GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE(1) ISSUE AGE 40 SPECIFIED FACE AMOUNT: $100,000 CURRENT CHARGES
TOTAL DEATH BENEFIT(2) TOTAL CASH ASSUMING TOTAL CASH VALUE(2) SURRENDER VALUE(2) HYPOTHETICAL PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL GROSS ANNUAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT INVESTMENT END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF RATES OF RETURN OF CERTIFICATE INTEREST ----------------------------- ----------------------------- -------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% - ------------------------------ ----------- -------- -------- --------- -------- -------- --------- --------- --------- 1............................ $ 2,156 $ 1,768 $ 1,825 $ 1,881 $ 1,208 $ 1,265 $ 1,321 $ 101,768 $ 101,825 2............................ 4,421 3,519 3,741 3,967 2,400 2,621 2,848 103,519 103,741 3............................ 6,798 5,253 5,751 6,281 3,574 4,073 4,602 105,253 105,751 4............................ 9,295 6,970 7,862 8,847 5,687 6,579 7,564 106,970 107,862 5............................ 11,916 8,671 10,078 11,694 8,016 9,423 11,039 108,671 110,078 6............................ 14,668 10,183 12,227 14,668 10,183 12,227 14,668 110,183 112,227 7............................ 17,558 11,680 14,483 17,967 11,680 14,483 17,967 111,680 114,483 8............................ 20,592 13,164 16,851 21,626 13,164 16,851 21,626 113,164 116,851 9............................ 23,778 14,632 19,336 25,685 14,632 19,336 25,685 114,632 119,336 10........................... 27,124 16,087 21,946 30,187 16,087 21,946 30,187 116,087 121,946 15........................... 46,533 21,816 35,522 59,432 21,816 35,522 59,432 121,816 135,522 20........................... 71,305 25,377 50,623 105,967 25,377 50,623 105,967 125,377 150,623 25........................... 102,921 25,819 66,443 180,107 25,819 66,443 180,107 125,819 166,443 30........................... 143,272 19,706 79,015 295,757 19,706 79,015 295,757 119,706 179,015 END OF CERTIFICATE YEAR 12% - ------------------------------ --------- 1............................ $ 101,881 2............................ 103,967 3............................ 106,281 4............................ 108,847 5............................ 111,694 6............................ 114,668 7............................ 117,967 8............................ 121,626 9............................ 125,685 10........................... 130,187 15........................... 159,432 20........................... 205,967 25........................... 280,107 30........................... 395,757
- --------- (1) Assumes monthly payments of $175 paid at the beginning of each Certificate month. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Certificate to terminate because of insufficient cash value. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METLIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 33 CERTIFICATE RIGHTS LOAN PRIVILEGES CERTIFICATE LOAN. At any time, the Owner may borrow money from MetLife using the Certificate as the only security for the loan. Certificates under some Group Policies may be subject to a transaction charge of up to $25 for each loan. The smallest amount the Owner can borrow at any one time is $200. The maximum amount that may be borrowed at any time is the loan value. The loan value equals 75% (or higher where required by state law) of the cash surrender value. For situations where a Certificate loan may be treated as a taxable distribution, see "Federal Tax Matters." ALLOCATION OF CERTIFICATE LOAN. MetLife will allocate a Certificate loan among the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis. INTEREST. Interest charges can vary depending upon the Group Policy under which an Owner's Certificate is issued. The Certificate describes the interest charges applicable to each Owner. The interest rate may be up to 8% per year. The Certificate specifies the current interest rate applicable to each Owner. Interest payments are generally due at the beginning of each Certificate year. However, MetLife reserves the right to make interest payments due in a different manner. If unpaid within 31 days after it is due, interest will be treated as a new loan subject to the interest rates applicable at that time and an amount equal to such interest due will be transferred from the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis to the Loan Account. Generally, interest paid to MetLife in connection with Certificate loans is not deductible. For further information with respect to loan interest deductibility, counsel and other competent advisors should be consulted. EFFECT OF A CERTIFICATE LOAN. As of the Date of Receipt of the loan request, cash value equal to the portion of the Certificate loan allocated to the Fixed Account and to each investment division will be transferred from the Fixed Account and/or such investment divisions to the Certificate Loan Account, reducing the Certificate's cash value in the accounts from which the transfer was made. The transfer will be allocated among the Fixed Account and investment divisions of the Separate Account on a Pro Rata Basis (see "Charges and Deductions--Monthly Deduction from Cash Value"). Cash value in the Loan Account equal to indebtedness will be credited with interest at a rate equal to the rate of loan interest charged less a percentage charge, determined by MetLife. This charge may be up to 2%. Thus, the interest rate credited may be up to 8%. The Certificate indicates the current charge applicable to each Owner and the current interest rate credited to the amounts in the Loan Account. The minimum rate credited to the Loan Account will be 4% per year. NO ADDITIONAL INTEREST WILL BE CREDITED TO THE CASH VALUE IN THE LOAN ACCOUNT, NOR WILL THE CASH VALUE IN THE LOAN ACCOUNT PARTICIPATE IN ANY INVESTMENT EXPERIENCE APPLICABLE TO THE SEPARATE ACCOUNT. The Certificate's cash value in the Loan Account will be the outstanding indebtedness on the Valuation Date plus any interest credited to the Loan Account which has not yet been allocated to the Fixed Account or the investment divisions of the Separate Account as of the Valuation Date. Interest credited to amounts in the Loan Account will be allocated at least once a year among the Fixed Account and the investment divisions of the Separate Account in the same proportion as the net premiums are then being allocated. INDEBTEDNESS. Indebtedness equals the outstanding Certificate loan and loan interest. If, on a monthly anniversary, indebtedness exceeds the cash value minus the monthly deduction, MetLife will notify the Owner and any assignee of record. If a sufficient payment is not made to MetLife within the greater of 61 days, measured from the such monthly anniversary, or 30 days after the date notice of the start of the grace period is mailed, the Certificate will terminate without value. The Certificate may, however, later be reinstated, subject to certain conditions (see "Certificate Termination and Reinstatement While the Group Policy is in Effect"). REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the Final Date while the covered person is living. If not repaid, MetLife will deduct indebtedness from any amount payable under the Certificate. As of the Date of Receipt of the repayment, the Certificate's cash value in the Certificate Loan Account securing indebtedness will be allocated among the Fixed Account and the investment divisions of the 34 Separate Account in the same proportion that net premiums are being allocated to those accounts at the time of repayment. The Owner should designate whether a payment is intended as a loan repayment or a premium payment. Any payment for which no designation is made will be treated as a premium payment. SURRENDER AND WITHDRAWAL PRIVILEGES Subject to the limitations set forth below, at any time before the earlier of the death of the covered person and the Final Date, the Owner may make a partial withdrawal or totally surrender the Certificate by sending a written request to Administrative Office. The maximum amount available for surrenders or withdrawal is the cash surrender value on the Date of Receipt of the request. Certificates under some Group Policies may be subject to a transaction charge of up to $25 (or, if less, 2% of the amount withdrawn) for each surrender, withdrawal or partial withdrawal. This charge would be used to defray MetLife's costs in effecting the transaction and it would not be designed to yield any profit to MetLife. No transaction charge will apply to the termination of a Certificate due to the termination of the Group Policy by either the participating entity or MetLife. See "Charges and Deductions--Surrender Charge" for a discussion of other surrender charges. For any tax consequences in connection with a partial withdrawal or surrender, see "Federal Tax Matters." SURRENDERS. The Owner may surrender the Certificate for its cash surrender value. If the Certificate is being surrendered, MetLife may require that the Certificate itself be returned along with the request. An Owner may elect to have the proceeds paid in a single sum. If the covered person dies after the surrender of the Certificate and payment to the Owner of the cash surrender value but before the end of the Certificate month in which the surrender occurred, a death benefit will be payable to the beneficiary in an amount equal to the difference between the Certificate's death benefit and cash value, both computed as of the surrender date. PARTIAL WITHDRAWALS. The Owner may make a partial withdrawal from the Certificate's cash surrender value. The minimum partial withdrawal is $200. The amount withdrawn will be deducted from the Certificate's cash value as of the Date of Receipt. The amount will be deducted from the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis. The death benefit will be reduced by the amount withdrawn. In some cases, the maximum amount that may be withdrawn through a partial withdrawal from the Fixed Account in any Certificate year is the greater of $200 or 25% of the largest amount in the Fixed Account over the last four Certificate years, or, if the Certificate has been in force less than such period, since the Certificate date. The Certificate includes a description of the Owner's rights to make partial withdrawals. EXCHANGE PRIVILEGE During the first 24 Certificate months following the issuance of the Certificate, the Owner may exercise the Certificate exchange privilege, which results in the transfer at any one time of the entire amount in the Separate Account to the Fixed Account, and the allocation of all future net premiums to the Fixed Account. This will, in effect, serve as an exchange of the Certificate for the equivalent of a flexible premium fixed benefit life insurance policy. No charge will be imposed on such transfer in exercising this exchange privilege. Moreover, the Owner may subsequently transfer amounts back to one or more of the investment divisions of the Separate Account at any time, within the limitations described in "Allocation of Premiums and Cash Value--Cash Value Transfers." Similarly, during the first 24 months following an increase in the specified face amount requested by the Owner, the Owner may request a one time charge-free transfer of the Separate Account cash value attributable to the increase to the Fixed Account, including a transfer in the amount of any premium payments that have been deemed attributable to the increase (see "Charges and Deductions-- Surrender Charge"). In those states which require it, the Owner may also, during the first 24 Certificate months following the issuance of the Certificate, without charge, on one occasion exchange any Certificate still in force for a flexible premium fixed benefit life insurance policy issued by MetLife. Upon such exchange, the Certificate's cash value will be transferred to the general account of MetLife. 35 THE FIXED ACCOUNT An Owner may allocate net premiums and transfer cash value to the Fixed Account, which is part of the General Account of MetLife. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933 and neither the Fixed Account nor the general account has been registered as an investment company under the 1940 Act. Accordingly, neither the general account, the Fixed Account nor any interests therein are generally subject to the provisions of these Acts and MetLife has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this Prospectus relating to the Fixed Account. Disclosures regarding the Fixed Account may, however, be subject to certain generally applicable provisions of the Federal securities laws relating to the accuracy and completeness of statements made in prospectuses. GENERAL DESCRIPTION This Prospectus is generally intended to serve as a disclosure document only for the aspects of the Group Policy and Certificates involving the Separate Account and contains only selected information regarding the Fixed Account. For complete details regarding the Fixed Account, see the Certificate. Subject to applicable law, MetLife has sole discretion over the investment of the assets of the General Account, including those in the Fixed Account. Unlike the assets of the Separate Account, the assets in the Fixed Account, as a part of the general account, are chargeable with liabilities arising out of any other business of MetLife. The allocation or transfer of funds to the Fixed Account does not entitle an Owner to share in the investment experience of the general account. Instead, MetLife guarantees that cash value in the Fixed Account will accrue interest at an effective annual rate of at least 4%, independent of the actual investment experience of the general account. MetLife is not obligated to credit interest at any higher rate, although MetLife may do so, in its sole discretion. FIXED ACCOUNT CASH VALUE Net premiums allocated to the Fixed Account are credited to the Certificate. The Certificate's cash value in the Fixed Account will reflect the amount and frequency of premium payments allocated to the Fixed Account, the amount of interest credited to amounts in the Fixed Account, any partial withdrawals, any transfers from or to the investment divisions of the Separate Account, any Certificate indebtedness and any charges imposed on amounts in the Fixed Account in connection with the Certificate. ANY INTEREST METLIFE CREDITS ON THE CERTIFICATE'S CASH VALUE IN THE FIXED ACCOUNT IN EXCESS OF THE GUARANTEED RATE OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF METLIFE. THE OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO AMOUNTS OF CASH VALUE IN THE FIXED ACCOUNT MAY NOT EXCEED THE GUARANTEED MINIMUM RATE OF 4% PER YEAR. The cash value in the Fixed Account will be calculated on each Valuation Date. MetLife will declare a rate of excess interest which is guaranteed until the end of the calendar year in which the Group Policy first becomes effective. Thereafter, as of January 1 of each year, MetLife will declare the rate of excess interest applicable to net premium payments allocated to the Fixed Account during each such year. As of January 1 of each year, MetLife will also declare the rate of excess interest applicable to cash value in the Fixed Account. MetLife may also establish multiple bands of excess interest. This means that different rates of excess interest may apply to premium payments received in different years. Transfers made into the Fixed Account will be treated as new premium payments for these purposes. The guaranteed and excess interest are credited each Valuation Date. Once credited, that interest will be guaranteed and become part of the Certificate's cash value in the Fixed Account. The portion of the monthly deduction that is deducted from the Fixed Account will be charged against the most recent premiums paid and interest credited thereto. 36 DEATH BENEFIT, TRANSFER, WITHDRAWAL, SURRENDER, AND CERTIFICATE LOAN RIGHTS Amounts in the Fixed Account are generally subject to the same rights and limitations as are amounts allocated to the investment divisions of the Separate Account with respect to transfers, withdrawals, surrenders and Certificate loans (see "Certificate Benefits--Death Benefit," "Allocation of Premiums and Cash Value--Cash Value Transfers," "Loan Privileges," "Surrender and Withdrawal Privileges"). However, transfers from the Fixed Account may be subject to additional limitations as described under "Allocation of Premiums and Cash Value." MetLife reserves the right to delay transfers, withdrawals, surrenders and the payment of the Certificate loans allocated to the Fixed Account for up to six months (see "Other Certificate Provisions--Payment and Deferment"). Payments to pay premiums on another policy with MetLife will not be delayed. RIGHTS RESERVED BY METLIFE MetLife reserves the right to make certain changes if, in its judgment, they would best serve the interests of the Owners or would be appropriate in carrying out the purposes of the Certificates. Any changes will be made only to the extent and in the manner permitted by applicable laws. Also, when required by law, MetLife will obtain Owner approval of the changes and approval from any appropriate regulatory authority. Examples of the changes MetLife may make include: - To operate the Separate Account in any form permitted under the 1940 Act or in any other form permitted by law. - To take any action necessary to comply with or obtain and continue any exemptions from the 1940 Act. - To transfer any assets in any investment division to another investment division, or to one or more separate accounts, or to the Fixed Account; or to add, combine or remove investment divisions in the Separate Account. - To substitute, for the Fund shares held in any investment division, the shares of another portfolio of the Fund or the shares of another investment company or any other investment permitted by law. - To change the way MetLife assesses charges, but without increasing the aggregate amount charged to the Fixed Account or the Separate Account in connection with the Certificates. - To make any other necessary technical changes in the Certificate in order to conform with any action the above provisions permit MetLife to take. If any of these changes result in a material change in the underlying investments of an investment division to which the net premiums of a Certificate are allocated, MetLife will notify the Owner of such change, and the Owner may then make a new choice of investment divisions or the Fixed Account without charge. OTHER CERTIFICATE PROVISIONS OWNER. The Owner of a Certificate is the covered person unless another owner has been named in the enrollment form for the Certificate. Unless otherwise reserved by the participating entity, the Owner is entitled to exercise all rights under a Certificate while the covered person is alive, including the right to name a new owner or a contingent owner who would become the owner if the Owner should die before the covered person dies. BENEFICIARY. The beneficiary is the person or persons to whom the insurance proceeds are payable upon the covered person's death. The Owner may name a contingent beneficiary to become the beneficiary if all the beneficiaries die while the covered person is alive. If no beneficiary or contingent beneficiary is alive when the covered person dies, the Owner (or the Owner's estate) will be the beneficiary. While the covered person is alive, the Owner may change any beneficiary or contingent beneficiary. If more than one beneficiary is alive when the covered person dies, they will be paid in equal shares, unless the Owner has chosen otherwise. 37 INCONTESTABILITY. MetLife will not contest the validity of a Certificate after it has been in force during the covered person's lifetime for two years from the Date of Certificate (or date of reinstatement if a terminated Certificate is reinstated) except with respect to certain optional insurance benefits that may be added subsequent to the Date of Certificate. MetLife will not contest the validity of any increase requested by an Owner in the death benefit after such increase has been in force during the covered person's lifetime for two years from its effective date. SUICIDE. The insurance proceeds will not be paid if the covered person commits suicide, while sane or insane, within two years (or less if required by state law) from the Date of Certificate. Instead, MetLife will pay the beneficiary an amount equal to all premiums paid for the Certificate, without interest, less any outstanding Certificate loan and less any partial cash withdrawal. If the covered person commits suicide, while sane or insane, more than two years after the Date of Certificate but within two years (or less if required by state law) from the effective date of any increase in the death benefit, MetLife's liability with respect to such increase will be limited to the cost thereof. MISSTATEMENT OF AGE. If the covered person's age as stated in the enrollment form for a Certificate is not correct, benefits under a Certificate will be adjusted to reflect the correct age. COLLATERAL ASSIGNMENT. The Owner may assign a Certificate as collateral. All rights under the Certificate will be transferred to the extent of the assignee's interest. MetLife is not bound by an assignment or release thereof, unless it is in writing and is recorded at the Administrative Office. MetLife is not responsible for the validity of any assignment or release thereof. PAYMENT AND DEFERMENT. With respect to amounts in the investment divisions of the Separate Account, payment of the death benefit, all or a portion of the cash surrender value, free look proceeds or a loan will ordinarily be made within seven days after the Date of Receipt of all documents required for such payment. MetLife will pay interest on the amount of death benefit at a rate which is currently 6% per year (or such higher rate as may be required by state law) from the date of death until the date of payment of the death benefit. However, MetLife may defer the determination, application or payment of any such amount or any transfer of cash value in the Separate Account for any period during which the New York Stock Exchange is closed (other than customary weekend and holiday closing), for any period during which any emergency exists as a result of which it is not reasonably practicable for MetLife to determine the investment experience for a Certificate or for such other periods as the Securities and Exchange Commission may by order permit for the protection of Owners. MetLife will not defer a loan used to pay premiums on other policies or certificates issued by it. As with traditional life insurance, MetLife can delay payment of the entire insurance proceeds or other Certificate benefits if entitlement to payment is being questioned or is uncertain. DIVIDENDS. The Group Policies and Certificates are participating. However, in view of the manner in which MetLife has determined the premium rates and charges, it is not anticipated that the Group Policies and Certificates will be entitled to any dividend. In this connection, when a participating entity transfers coverage from a prior insurer to a MetLife Group Policy, or transfers coverage from a MetLife Group Policy to a successor insurer, certain amounts of surplus may also be transferred, respectively, to MetLife or to the successor insurance company, rather than being declared as dividends. The description throughout this Prospectus of the features of the Certificates is subject to the specific terms of the Certificates. SALES AND ADMINISTRATION OF THE GROUP POLICIES AND CERTIFICATES MetLife performs the sales and administrative services relating to the Group Policies and Certificates. The office of MetLife which administers the Group Policies and Certificates is located in Aurora, Illinois. Each participating entity and Owner will be notified which office will be the Administrative Office for servicing the Certificates. MetLife may name different Administrative Offices for different transactions. 38 MetLife acts as the principal underwriter (distributor) of the Group Policies and Certificates as defined in the 1940 Act (see "Distribution of the Group Policies and Certificates," below). In addition to selling insurance and annuities, MetLife also serves as investment adviser to certain other advisory clients, and is also principal underwriter for Metropolitan Tower Separate Accounts One and Two of Metropolitan Tower Life Insurance Company, a wholly-owned subsidiary of MetLife, and Metropolitan Life Separate Account E of MetLife, each of which is registered as a unit investment trust under the 1940 Act. Finally, MetLife acts as principal underwriter for other forms of variable universal life insurance policies, premiums for which may also be allocated to the Separate Account. BONDING. The directors, officers and employees of MetLife are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. DISTRIBUTION OF THE GROUP POLICIES AND CERTIFICATES The Group Policies and Certificates will be sold by individuals who are licensed life insurance sales representatives and registered representatives of MetLife, the principal underwriter of the Certificates. MetLife is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. No commissions are paid to MetLife's registered representatives for distribution of the Group Policies or Certificates, although MetLife representatives may earn certain incentive award credits. Group Policies and Certificates may also be sold through other registered broker-dealers who have entered into selling agreements with MetLife. Commissions or fees which are payable to a broker-dealer or third party administrator ("TPA") are set forth in MetLife's schedules of group insurance commission rates. Payments or commissions to broker-dealers or TPAs normally consist of two elements. The first element is based on the lowest premium sufficient to keep the Certificate in force. Under this element, a commission is payable to a maximum of 15% of premium, as described above, and is based upon the services provided by the broker-dealer or TPA. The second element is a per Certificate payment, based upon the total number of Certificates issued under the Group Policy. Maximum first year payments and renewal payments per Certificate are specified in MetLife's schedules of group insurance commission rates. In no event will commissions exceed the maximum percentage of gross premium commission payable under New York State law, for all Certificates. All payments and commissions are paid by MetLife. They do not result in any charges against the Group Policy or Certificates in addition to those set forth under "Charges and Deductions." Since no Group Policies or Certificates were sold during 1995, no compensation had been paid as of December 31, 1995. FEDERAL TAX MATTERS The following description is a brief summary of some of the tax rules, primarily related to federal income and estate taxes, which in the opinion of MetLife are currently in effect. The Certificate receives the same federal income and estate tax treatment as fixed benefit life insurance. The death benefit payable under the Certificate is generally excludable from the gross income of the beneficiary under Section 101 of the Internal Revenue Code ("Code") and the Owner is not deemed to be in constructive receipt of the cash values under the Certificate until actual withdrawal or surrender. Under existing tax law, an Owner generally will be taxed on cash value withdrawn from the Certificate and cash value received upon surrender of the Certificate. Under most circumstances, unless a Certificate is a modified endowment contract as discussed below, and unless the distribution occurs during the first 15 Certificate years, only the amount withdrawn, received upon surrender or distributed at the Final Date of a Certificate that exceeds the total premiums paid (less previous non-taxable withdrawals) will be treated as ordinary income. During the first 15 Certificate years, cash distributions from a Certificate, made as a result of a Certificate change that reduces the death benefit or other benefits under a Certificate, will be taxable to the Owner, under a complex formula, to the extent that cash value exceeds premiums paid (less previous non-taxable withdrawals). 39 Section 817(h) of Code and the Treasury Regulations thereunder set diversification rules for the investments underlying the Group Policies, in order for the Group Policies to be treated as life insurance. MetLife believes that these diversification standards will be satisfied. There is a provision in the regulations which allows for the correction of an inadvertent failure to diversify. Failure to comply with the rules found in the regulations would result in immediate taxation to Owners of all positive investment experience credited to a Certificate for the period of non-compliance and until such time as a settlement of the matter is reached with the Internal Revenue Service. There is a possibility that regulations may be proposed or that a controlling ruling may be issued in the future describing the extent to which Owner control over allocation of cash value may cause Owners to be treated as the owners of Separate Account assets for tax purposes. MetLife reserves the right to amend the Group Policies in any way necessary to avoid any such result. MetLife also believes that loans received under the Certificate will be treated as indebtedness of an Owner for federal tax purposes, and, unless the Certificate is or becomes a modified endowment contract as described below or terminates, that no part of any loan received under a Certificate will constitute income to the Owner. However, any remaining outstanding loan at the time the Certificate is totally surrendered, exchanged, terminated or on the Final Date may be subject to tax depending of the amount of gain in the Certificate. In the case of a modified endowment contract, amounts received before death, including Certificate loans, are treated first as income (to the extent of gain) and then as recovered investment. For purposes of determining the amount includible in income, all modified endowment contracts issued by the same company (or affiliate) to the same Owner during any calendar year will be treated as one modified endowment contract. Finally, an additional 10% income tax is generally imposed on the taxable portion of amounts received before age 59 1/2 under a modified endowment contract. In general, a modified endowment contract is a life insurance contract entered into or, generally, materially changed after June 20, 1988 that fails to meet a "7-pay test". Each Certificate is tested separately for purposes of this 7-pay test. Under the 7-pay test, if the amount of premiums paid with respect to a Certificate at any time during the first 7 Certificate years exceeds the sum of the net level premiums which would have been paid if the Certificate provided for paid-up future benefits after the payment of 7 level annual payments, the Certificate is a modified endowment contract. A Certificate may have to be reviewed under the 7-pay test even after the first seven Certificate years in the case of certain events such as a material modification of the Certificate as discussed below. If there is a reduction in benefits under the Certificate during any 7-pay testing period, the 7-pay test is applied using the reduced benefits level. Any distribution made within two years before a Certificate fails the 7-pay test may be treated as made in anticipation of such failure. Whether or not a particular Certificate meets these definitional requirements is dependent on the date it was entered into, premium payments made and the periodic premium payments to be made, the level of death benefit, any changes in the level of death benefits, the extent of any prior cash withdrawals, and other factors. Generally, a life insurance policy which is received in exchange for a modified endowment contract will also be considered a modified endowment contract. A Certificate should be reviewed upon issuance, upon making a cash withdrawal, upon making a change in future benefits and upon making a material modification to the Certificate to determine to what extent, if any, these tax rules apply. A material modification to a Certificate includes, but is not limited to, any requested increase in the future benefits provided under the Certificate. However, in general, increases that are attributable to the payment of premiums necessary to fund the lowest death benefit payable in the first 7 Certificate years will not be considered material modifications. The annual statement sent to each Owner will include information regarding the modified endowment contract status of a Certificate (see "Premiums--Premium Limitations"). Counsel and other competent advisors should be consulted to determine how these rules apply to an individual situation and before making premium payments, increasing or decreasing the total face insurance amount, or adding or removing a rider. 40 While employee pay all group variable universal life should generally be treated as separate from any Internal Revenue Code Section 79 Group Term Life Insurance Plan concurrently in effect, in some circumstances group variable universal life could be viewed as being part of such a plan, giving rise to adverse tax consequences. Congress may, in the future, consider other legislation that, if enacted, could adversely affect the tax treatment of life insurance policies. In addition, the Treasury Department may by regulation or interpretation modify the above described tax effects. Any legislative or administrative action could be applied retroactively. The death benefit payable under the Certificate is includable in the covered person's gross estate for federal estate tax purposes if the death benefit is paid to the covered person's estate or if the death benefit is paid to a beneficiary other than the estate and the covered person either possessed incidents of ownership in the Certificate at the time of death or transferred incidents of ownership in the Certificate to another person within three years of death. Whether or not any federal estate tax is payable with respect to the death benefit of the Certificate which is included in the covered person's gross estate depends on a variety of factors including the following. A smaller size estate may be exempt from federal estate tax because of a current estate tax credit which generally is equivalent to an exemption of $600,000. In addition, a death benefit paid to a surviving spouse may not be taxable because of a 100% estate tax marital deduction. Furthermore, a death benefit paid to a tax-exempt charity may not be taxable because of the allowance of an estate tax charitable deduction. If the Owner of the Certificate is not the covered person, and the Owner dies before the covered person, the value of the Certificate, as determined under Internal Revenue Service regulations, is includable in the federal gross estate of the Owner for federal estate tax purposes. Whether a federal estate tax is payable depends on a variety of factors, including those listed in the preceding paragraph. State and local income, estate, inheritance and other tax consequences of ownership or receipt of Certificate proceeds depend on the circumstances of each covered person, Owner or beneficiary. Finally, employer involvement and other factors determine whether group variable universal life is subject to the Employee Retirement Income Security Act ("ERISA"). The foregoing summary does not purport to be complete or to cover all situations. Counsel and other competent advisors should be consulted for more complete information. 41 MANAGEMENT The present directors and the senior officers and secretary of Metropolitan Life are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE - ----------------------------------- ----------------------------------------------- -------------------------------- Theodossios Athanassiades.......... Vice-Chairman of the Board, Vice-Chairman of the Board and Metropolitan Life Insurance Company, Director One Madison Avenue, New York, NY 10010. Curtis H. Barnette................. Chairman and Chief Executive Officer Director Bethlehem Steel Corp., 1170 Eighth Avenue, Martin Tower 2118, Bethlehem, PA 18016-7699. Joan Ganz Cooney................... Chairman, Executive Committee, Director Children's Television Workshop, One Lincoln Plaza, New York, NY 10023. James R. Houghton.................. Retired Chairman of the Board, Director Corning Incorporated, 80 East Market Street, 2nd Floor, Corning, NY 14830. Harry P. Kamen..................... Chairman, President and Chairman, President, Chief Chief Executive Officer, Executive Officer and Director Metropolitan Life Insurance Company, One Madison Avenue, New York, NY 10010. Helene L. Kaplan................... Of Counsel, Skadden, Arps, Slate, Director Meagher & Flom, 919 Third Avenue, New York, NY 10022. Richard J. Mahoney................. Chairman of the Executive Director Committee, Monsanto Company - Mail Zone N3L 800 N. Lindbergh Blvd., St. Louis, MO 63167. Allen E. Murray.................... Retired Chairman of the Board Director and Chief Executive Officer, Mobil Corporation, P.O. Box 2072 New York, NY 10163. John J. Phelan, Jr................. Retired Chairman and Director Chief Executive Officer, New York Stock Exchange, Inc., P.O. Box 312, Mill Neck, NY 11765.
42
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE - ----------------------------------- ----------------------------------------------- -------------------------------- John B. M. Place................... Former Chairman of the Board, Director Crocker National Corporation, 111 Sutter Street, 4th Fl., San Francisco, CA 94104. Hugh B. Price...................... President and Chief Executive Officer, Director National Urban League, Inc., 500 East 62nd Street New York, NY 10021. Robert G. Schwartz................. Retired Chairman of the Board, Director President and Chief Executive Officer, Metropolitan Life Insurance Company, 200 Park Avenue, Suite 5700 New York, NY 10166. Ruth J. Simmons.................... President, Director Smith College, College Hall 20, Northhampton, MA 01063. William S. Sneath.................. Retired Chairman of the Board, Director Union Carbide Corporation, 41 Leeward Lane, Riverside, CT 06878. John R. Stafford................... Chairman of the Board, President Director and Chief Executive Officer, American Home Products Corporation, Five Giralda Farms Madison, NJ 07940.
43 OFFICERS*
NAME OF OFFICER POSITION WITH METLIFE - --------------------------------------------- ------------------------------------------------------------------------ Harry P. Kamen............................... Chairman, President and Chief Executive Officer Theodossios Athanassiades.................... Vice-Chairman of the Board Gerald Clark................................. Senior Executive Vice-President and Chief Investment Officer Stewart G. Nagler............................ Senior Executive Vice-President and Chief Financial Officer Gary A. Beller............................... Executive Vice-President, Chief Legal Officer and General Counsel Robert H. Benmosche.......................... Executive Vice-President C. Robert Henrikson.......................... Executive Vice-President John D. Moynahan, Jr......................... Executive Vice-President Catherine A. Rein............................ Executive Vice-President John H. Tweedie.............................. Executive Vice-President Richard M. Blackwell......................... Senior Vice-President James B. Digney.............................. Senior Vice-President William T. Friedewald........................ Senior Vice-President and Chief Medical Director Frederick P. Hauser.......................... Senior Vice-President & Controller Anne E. Hayden............................... Senior Vice-President Jeffrey J. Hodgman........................... Senior Vice-President Leland C. Launer, Jr......................... Senior Vice-President Terence I. Lennon............................ Senior Vice-President David A. Levene.............................. Senior Vice-President James L. Lipscomb............................ Senior Vice-President James M. Logan............................... Senior Vice-President Francis P. Lynch............................. Senior Vice-President Thomas F. McDermott.......................... Senior Vice-President John C. Morrison, Jr......................... Senior Vice-President Dominick A. Prezzano......................... Senior Vice-President Leo T. Rasmussen............................. Senior Vice-President Vincent P. Reusing........................... Senior Vice-President Robert E. Sollmann, Jr....................... Senior Vice-President Thomas L. Stapleton.......................... Senior Vice-President & Tax Director William J. Toppeta........................... Senior Vice-President Arthur G. Typermass.......................... Senior Vice-President & Treasurer James A. Valentino........................... Senior Vice-President Judy E. Weiss................................ Senior Vice-President and Chief Actuary Stephen E. White............................. Senior Vice-President Richard F. Wiseman........................... Senior Vice-President Harvey M. Young.............................. Senior Vice-President Christine N. Markussen....................... Vice-President and Secretary
- --------- *The principal occupation of each officer, except for Gary A. Beller, Robert H. Benmosche and Terence I. Lennon during the last five years has been as an officer of MetLife or an affiliate thereof. Gary A. Beller has been an officer of MetLife since November, 1994; prior thereto, he was a Consultant and Executive Vice-President and General Counsel of the American Express Company. Robert H. Benmosche has been an Officer of MetLife since September, 1995; prior thereto, he was an Executive Vice President of Paine Webber. Terence I. Lennon has been an officer of MetLife since March, 1994; prior thereto, he was Assistant Deputy Superintendent and Chief Examiner of the New York State Department of Insurance. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 44 VOTING RIGHTS RIGHT TO INSTRUCT VOTING OF FUND SHARES In accordance with its view of present applicable law, MetLife will usually vote the shares of each of the portfolios of the Fund which are deemed attributable to Certificates at regular and special meetings of the shareholders of the Fund based on instructions received from persons having the voting interest in corresponding investment divisions of the Separate Account. However, if the 1940 Act or any rules thereunder should be amended or if the present interpretation thereof should change, and as a result MetLife determines that it is permitted to vote such shares of the Fund in its own right, it may elect to do so. Accordingly, the Owner will have a voting interest under a Certificate. The number of shares held in each Separate Account investment division deemed attributable to each Owner is determined by dividing a Certificate's cash value in that division, if any, by the net asset value of one share in the corresponding Fund portfolio in which the assets in that Separate Account investment division are invested. Fractional votes will be counted. The number of shares concerning which an Owner has the right to give instructions will be determined as of the record date for the meeting. Fund shares held in each registered separate account of MetLife or any affiliate that are or are not attributable to life insurance policies (including the Certificates) or annuity contracts and for which no timely instructions are received will be voted in the same proportion as the shares for which voting instructions are received by that separate account. Fund shares held in the general account or unregistered separate accounts of MetLife or its affiliates will be voted in the same proportion as the aggregate of (i) the shares for which voting instructions are received and (ii) the shares that are voted in proportion to such voting instructions. However, if MetLife or an affiliate determines that it is permitted to vote any such shares of the Fund in its own right, it may elect to do so subject to the then current interpretation of the 1940 Act or any rules there-under. The Owners may give instructions regarding, among other things, the election of the Board of Directors of the Fund, ratification of the selection of the Fund's independent auditors, and the approval of the Fund's investment manager and sub-investment manager. Each Owner having a voting interest will be sent voting instruction soliciting material and a form for giving voting instructions to MetLife. Current interpretations and rules under the 1940 Act permit fund shares to be voted in a manner contrary to Owner voting instructions in certain circumstances. In the event that MetLife does disregard voting instructions, a summary of the action and the reasons for such action will be included in the next semiannual report to Owners. REPORTS Owners will receive promptly statements of significant transactions such as changes in specified face amount, transfers among investment divisions, partial withdrawals, increases in loan principal by the Owner, loan repayments, termination for any reason, reinstatement and premium payments. Transactions pursuant to systematic investment strategies (see "Payment and Allocation of Premiums") may be confirmed quarterly. Owners whose premiums are automatically remitted under payroll deduction plans do not receive individual confirmation of premium payments from MetLife apart from that provided by their bank or employer. A statement will be sent at least annually to the Owner within thirty days after the period covered summarizing all of the above transactions and deductions of charges occurring during that Certificate year and setting forth the status of the death benefit, cash and cash surrender values, amounts in the investment divisions and Fixed Account, any policy loan and unpaid loan interest added to loan principal. Any statement will also discuss the modified endowment contract status of a Certificate (see "Premiums--Premium Limitations"). In addition, an Owner will be sent semiannual reports containing financial statements for the Fund, as required by the 1940 Act. 45 STATE REGULATION MetLife is subject to regulation and supervision by the Insurance Department of the State of New York, which periodically examines its affairs. It is also subject to the insurance laws and regulations of all jurisdictions where it is authorized to do business. Where required, a copy of the form of Group Policy and form of Certificate has been filed with, and approved by, insurance officials in each jurisdiction where the Group Policy and Certificates are sold. MetLife intends to satisfy the necessary requirements to distribute the Certificates in all fifty states and the District of Columbia as soon as possible. MetLife is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business, for the purposes of determining solvency and compliance with local insurance laws and regulations. Such statements are available for public inspection at state insurance department offices. REGISTRATION STATEMENT A registration statement under the Securities Act of 1933 has been filed with the Securities and Exchange Commission relating to the offering described in this Prospectus. This Prospectus does not contain all the information set forth in the registration statement and amendments thereto and the exhibits filed as a part thereof, to all of which reference is hereby made for additional information concerning the Separate Account, MetLife and the Certificates. The additional information may be obtained at the Commission's main office in Washington, D.C., upon payment of the prescribed fees. LEGAL MATTERS The legality of the Group Policies and Certificates described in this Prospectus has been passed upon by Christopher P. Nicholas, Associate General Counsel of Metropolitan Life. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised MetLife on certain matters relating to the federal securities laws. EXPERTS The financial statements included in this Prospectus of Metropolitan Life Separate Account UL as of December 31, 1995 and for the two years then ended and the financial statements of Metropolitan Life Insurance Company as of December 31, 1995 and 1994 and for the three years ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and have been so included in reliance upon the reports of such opinions given upon the authority of such firm as experts in auditing and accounting. Actuarial matters included in this Prospectus have been examined by George J. Kalb, FSA, MAAA, Vice-President and Actuary of MetLife, as stated in his opinion filed as an exhibit to the registration statement. FINANCIAL STATEMENTS The financial statements of MetLife included in this Prospectus should be considered only as bearing upon the ability of MetLife to meet its obligations under the Group Policies and Certificates. The most current financial statements of MetLife are those as of the end of the most recent fiscal year. MetLife does not prepare financial statements for publication more often than annually and believes that any incremental benefit to prospective Policy owners that may result from preparing and delivering more current financial statements, though unaudited, does not justify the additional cost that would be incurred. In addition, MetLife represents that there have been no adverse changes in its financial condition or operations between the end of the most current fiscal year and the date of this Prospectus. 46 INDEPENDENT AUDITORS' REPORT Metropolitan Life Insurance Company: We have audited the accompanying balance sheets of Metropolitan Life Insurance Company (the Company) as of December 31, 1995 and 1994 and the related statements of operations and surplus and of cash flow for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company'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. 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 Company at December 31, 1995 and 1994 and the results of its operations and its cash flow for each of the three years in the period ended December 31, 1995 in conformity with accounting practices prescribed or permitted by insurance regulatory authorities and generally accepted accounting principles. Deloitte & Touche LLP New York, New York February 9, 1996 47 METROPOLITAN LIFE INSURANCE COMPANY BALANCE SHEETS DECEMBER 31, 1995 AND 1994
NOTES 1995 1994 --------- ----------- ----------- (IN MILLIONS) ASSETS Bonds............................................................................... 4,11 $ 70,955 $ 65,592 Stocks.............................................................................. 3,4,11 3,646 3,672 Mortgage loans...................................................................... 3,4,11 14,211 14,524 Real estate......................................................................... 9,470 10,417 Policy loans........................................................................ 11 3,956 3,964 Cash and short-term investments..................................................... 11 1,923 2,334 Other invested assets............................................................... 3 2,480 2,262 Premiums deferred and uncollected................................................... 1,568 1,250 Investment income due and accrued................................................... 1,589 1,440 Separate Account assets............................................................. 31,707 25,424 Other assets........................................................................ 627 298 ----------- ----------- TOTAL ASSETS................................................................ $ 142,132 $ 131,177 ----------- ----------- ----------- ----------- LIABILITIES AND SURPLUS Liabilities Reserves for life and health insurance and annuities................................ 5,11 $ 76,249 $ 73,204 Policy proceeds and dividends left with the Company................................. 11 4,482 3,534 Dividends due to policyholders...................................................... 1,371 1,407 Premium deposit funds............................................................... 11 12,891 14,006 Interest maintenance reserve........................................................ 1,148 881 Other policy liabilities............................................................ 3,882 3,364 Investment valuation reserves....................................................... 1,860 1,981 Separate Account liabilities........................................................ 31,226 25,159 Other liabilities................................................................... 2,459 1,337 ----------- ----------- TOTAL LIABILITIES........................................................... 135,568 124,873 ----------- ----------- Surplus Special contingency reserves........................................................ 754 682 Surplus notes....................................................................... 10 1,400 700 Unassigned funds.................................................................... 4,410 4,922 ----------- ----------- TOTAL SURPLUS............................................................... 6,564 6,304 ----------- ----------- TOTAL LIABILITIES AND SURPLUS........................................... $ 142,132 $ 131,177 ----------- ----------- ----------- -----------
See accompanying notes to financial statements. 48 METROPOLITAN LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND SURPLUS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTES 1995 1994 1993 --------- --------- --------- --------- (IN MILLIONS) INCOME Premiums, annuity considerations and deposit funds.......................... 5 $ 19,972 $ 19,881 $ 19,442 Considerations for supplementary contracts and dividend accumulations....... 2,979 2,879 1,654 Net investment income....................................................... 7,825 7,143 7,356 Other income................................................................ 5 156 80 231 --------- --------- --------- Total income........................................................ 30,932 29,983 28,683 --------- --------- --------- BENEFITS AND EXPENSES Benefit payments (other than dividends)..................................... 25,055 23,533 21,417 Changes to reserves, deposit funds and other policy liabilities............. 321 1,619 (439) Insurance expenses and taxes (excluding tax on capital gains)............... 6 3,160 2,492 2,595 Net transfers to Separate Accounts.......................................... 675 503 3,239 Dividends to policyholders.................................................. 1,520 1,676 1,606 --------- --------- --------- Total benefits and expenses......................................... 30,731 29,823 28,418 --------- --------- --------- Net gain from operations.................................................... 201 160 265 Net realized capital losses................................................. 3,6 (873) (54) (132) --------- --------- --------- NET (LOSS) INCOME........................................................... (672) 106 133 SURPLUS ADDITIONS (DEDUCTIONS) Change in general account net unrealized capital gains...................... 3 442 150 131 Change in investment valuation reserves..................................... 121 (306) (169) Issuance of surplus notes................................................... 10 700 -- 700 Other adjustments--net...................................................... 1,5 (331) (52) 594 --------- --------- --------- NET CHANGE IN SURPLUS....................................................... 260 (102) 1,389 SURPLUS AT BEGINNING OF YEAR................................................ 6,304 6,406 5,017 --------- --------- --------- SURPLUS AT END OF YEAR...................................................... $ 6,564 $ 6,304 $ 6,406 --------- --------- --------- --------- --------- ---------
See accompanying notes to financial statements. 49 METROPOLITAN LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 --------- --------- --------- (IN MILLIONS) CASH PROVIDED Premiums, annuity considerations and deposit funds received.......................... $ 19,662 $ 19,983 $ 19,599 Considerations for supplementary contracts and dividend accumulations received....... 3,051 2,948 1,748 Net investment income received....................................................... 7,579 6,828 6,931 Other income received................................................................ 166 80 134 --------- --------- --------- Total receipts................................................................. 30,458 29,839 28,412 --------- --------- --------- Benefits paid (other than dividends)................................................. 23,939 22,387 20,092 Insurance expenses and taxes paid (excluding tax on capital gains)................... 2,337 2,366 2,532 Net cash transfers to Separate Accounts.............................................. 692 524 3,304 Dividends paid to policyholders...................................................... 1,473 1,684 1,596 Other--net........................................................................... (1,872) 368 (1,051) --------- --------- --------- Total payments................................................................. 26,569 27,329 26,473 --------- --------- --------- Net cash from operations............................................................. 3,889 2,510 1,939 Proceeds from long-term investments sold, matured or repaid after deducting taxes on capital gains of $102 for 1995, $60 for 1994 and $546 for 1993..................... 60,790 46,459 55,420 Issuance of surplus notes............................................................ 700 -- 700 Other cash provided.................................................................. 370 -- 369 --------- --------- --------- TOTAL CASH PROVIDED.................................................................. 65,749 48,969 58,428 --------- --------- --------- CASH APPLIED Cost of long-term investments acquired............................................... 65,122 47,845 58,033 Other cash applied................................................................... 1,038 162 247 --------- --------- --------- TOTAL CASH APPLIED................................................................... 66,160 48,007 58,280 --------- --------- --------- NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS........................................ (411) 962 148 CASH AND SHORT-TERM INVESTMENTS: BEGINNING OF YEAR.................................................................... 2,334 1,372 1,224 --------- --------- --------- END OF YEAR.......................................................................... $ 1,923 $ 2,334 $ 1,372 --------- --------- --------- --------- --------- ---------
See accompanying notes to financial statements. 50 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1. BUSINESS AND ACCOUNTING POLICIES Metropolitan Life Insurance Company (the Company) principally provides life insurance and annuity products and pension, pension-related and investment-related services to individuals, corporations and other institutions. The Company and its insurance subsidiaries also provide non-medical health, disability and property and casualty insurance. Through its non-insurance subsidiaries, the Company also offers investment management and advisory services and commercial finance. The Company's financial statements are prepared on the basis of accounting practices prescribed or permitted by the Insurance Department of the State of New York, which practices currently are considered to be generally accepted accounting principles for mutual life insurance companies (see Note 12). The primary interest of insurance regulatory authorities is the ability of the Company to fulfill its obligations to policyholders; therefore, the financial statements are oriented to the insured public. Significant accounting policies applied in preparing the financial statements follow. INVESTED ASSETS AND RELATED RESERVES Bonds qualifying for amortization are stated at amortized cost; all other bonds at prescribed values. Unaffiliated preferred stocks are stated principally at cost; unaffiliated common stocks are carried at market value. Mortgage loans are stated principally at their amortized indebtedness. Short-term investments generally mature within one year and are carried at amortized cost. Policy loans are stated at unpaid principal balances. Investments in subsidiaries are stated at equity in net assets and are included in stocks. Changes in net assets, excluding additional amounts invested, are included in unrealized capital gains or losses. Dividends from subsidiaries are reported by the Company as earnings in the year the dividends are declared. The excess of the purchase prices of non-insurance subsidiaries over the fair values of the net assets acquired (goodwill) is amortized on a straight-line basis. Investment real estate, other than real estate joint ventures and subsidiaries, is stated at depreciated cost net of non-recourse debt and an allowance for losses on real estate expected to be disposed of in the near term. Depreciation is generally calculated by the constant yield method for real estate purchased prior to December 1990 and the straight-line method if purchased thereafter. Real estate acquired in satisfaction of debt is valued at the lower of cost or estimated fair value at date of foreclosure and is subsequently stated at depreciated cost. Investments in real estate joint ventures, included in other invested assets, and real estate subsidiaries, included in stocks, are reported using the equity method and are generally adjusted to reflect the constant yield method of depreciation for real estate assets acquired by such entities prior to December 1990. In 1994, the Company changed to the straight-line method of determining depreciation on real estate acquired prior to December 1990 if the estimated fair value of the real estate is less than ninety percent of depreciated cost. This change had the effect of increasing depreciation expense by approximately $80 million in 1994. Investments in non-real estate partnerships are included in other invested assets and are accounted for using the equity method. The carrying value generally reflects the Company's share of unrealized gains and losses relating to the market value of publicly traded common stocks held by the partnerships. Impairments of individual investments that are considered to be other than temporary are recognized when incurred. Mandatory reserves have been established for general account investments in accordance with guidelines prescribed by insurance regulatory authorities. Such reserves consist of an Asset Valuation Reserve 51 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (AVR) for all invested assets and an Interest Maintenance Reserve (IMR), which defers the recognition of realized capital gains and losses (net of income tax) attributable to interest rate fluctuations on fixed income investments over the estimated remaining duration of the investments sold. Prior to 1994, the Company also established voluntary investment valuation reserves for certain general account investments. Changes to the AVR and voluntary investment reserves are reported as direct additions to or deductions from surplus. Transfers to the IMR are deducted from realized capital gains; IMR amortization is included in net investment income. Net realized capital gains or losses are presented net of federal capital gains tax or benefit, respectively, and transfers to the IMR. POLICY RESERVES Reserves for permanent plans of individual life insurance sold after 1959, universal life plans and certain term plans sold after 1982 are computed principally on the Commissioners' Reserve Valuation Method. Reserves for other life insurance policies are computed on the net level premium method. Reserves for individual annuity contracts are computed on the net level premium method, the net single premium method or the Commissioners' Annuity Reserve Valuation Method, as appropriate. Reserves for group annuity contracts are computed on the net single premium method. The reserves are based on mortality, morbidity and interest rate assumptions prescribed by New York State Insurance Law. Such reserves are sufficient to provide for contractual surrender values. Periodically to reflect changes in circumstances, the Company may change the assumptions, methodologies or procedures used to calculate reserves. During 1993, the Company and certain of its wholly-owned life insurance subsidiaries made certain changes which increased the Company's surplus by $667 million (substantially all of which related to interest rate changes). INCOME AND EXPENSES Premiums are recognized over the premium-paying period. Investment income is reported as earned. Expenses, including policy acquisition costs and federal income taxes, are charged to operations as incurred. During 1995, the Company recorded a restructuring charge of $72 million related primarily to the consolidation of office space leased for administration and agency sales offices. The Company anticipates additional restructuring charges over the next few years. SEPARATE ACCOUNT OPERATIONS Investments held in the Separate Accounts (stated at market value) and liabilities of the Separate Accounts (including participants' corresponding equity in the Separate Accounts) are reported separately as assets and liabilities. The Separate Accounts' operating results are reflected in the changes to these assets and liabilities. ESTIMATES The preparation of financial statements in conformity with accounting practices prescribed or permitted by regulatory authorities and generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 2. MERGER During 1995, the Company and New England Mutual Life Insurance Company (The New England) entered into a definitive agreement pursuant to which The New England will be merged with and into the 52 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Company (the Merger) subject to various conditions, including but not limited to, regulatory approvals and the necessary approvals of the policyholders of the Company and The New England. Upon consummation of the proposed Merger, the Company will be the surviving company. It is currently anticipated that the Merger will occur during the first half of 1996. If the proposed Merger is consummated, the financial statements of the Company and The New England will be combined to present the financial position and results of operations of the combined entity. Summary unaudited pro forma combined balance sheet information relating to the combined entity and summary historical balance sheet information relating to The New England as of December 31, 1995 and 1994 and summary unaudited pro forma combined statement of operations information and summary historical statement of operations information relating to The New England for the years ended December 31, 1995, 1994, and 1993, are shown below (in millions):
UNAUDITED PRO FORMA THE NEW ENGLAND COMBINED HISTORICAL ------------------------ -------------------- 1995 1994 1995 1994 ----------- ----------- --------- --------- At December 31: Total assets........................................................ $ 157,773 $ 146,260 $ 16,261 $ 15,753 Investment valuation reserves....................................... 2,012 1,987 429 362 Total surplus (including combined pro forma surplus notes of $1,548 for 1995 and $848 for 1994 and The New England historical surplus notes of $148 for 1995 and 1994)................................... 6,802 6,564 624 632
UNAUDITED PRO FORMA COMBINED THE NEW ENGLAND HISTORICAL ------------------------------- ------------------------------- 1995 1994 1993 1995 1994 1993 --------- --------- --------- --------- --------- --------- For the Years Ended December 31: Total income....................................... $ 33,668 $ 32,811 $ 31,533 $ 2,758 $ 2,844 $ 2,878 Dividends to policyholders......................... 1,731 1,883 1,833 211 207 227 Net gain from operations........................... 346 231 303 159 88 57 Net (loss) income.................................. (566) 124 70 60 42 89
Certain adjustments will be made to the Company's financial statements if the Merger is consummated in order to conform the accounting policies and practices reflected in the financial statements of the combined entities. The unaudited pro forma combined amounts presented above include management's estimate of the effects of such adjustments, related principally to differences in accounting for real estate and mortgage loans, on summary combined information as if the Merger had occurred on January 1, 1993. The amount of the adjustments will be finalized upon consummation of the planned Merger. 3. UNCONSOLIDATED SUBSIDIARIES AND OTHER AFFILIATES The Company's subsidiary operations primarily include insurance, real estate investment and brokerage activities, investment management and advisory services, mortgage originations and servicing, and commercial finance. At December 31, 1995 and 1994, subsidiary assets were $23,008 million and $21,476 million, respectively. At December 31, 1995 and 1994, subsidiary liabilities were $20,393 million and $18,905 million, respectively. Subsidiary revenues were $4,588 million, $4,715 million and $4,525 million in 1995, 1994 and 1993, respectively. Dividends from subsidiaries amounted to $558 million, $186 million and $175 million in 1995, 1994 and 1993, respectively. 53 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Unamortized goodwill was $129 million at December 31, 1994. There was no unamortized goodwill at December 31, 1995. The Company incurs charges on behalf of its subsidiaries which are reimbursed pursuant to agreements for shared use of property, personnel and facilities. Charges under such agreements were approximately $194 million, $307 million and $355 million in 1995, 1994 and 1993, respectively. The Company's net equity in joint ventures and other partnerships was $2,424 million and $2,250 million at December 31, 1995 and 1994, respectively. The Company's share of income from such entities was $97 million, $26 million and $76 million for 1995, 1994 and 1993, respectively. Many of the Company's real estate joint ventures have loans with the Company. The carrying values of such mortgages were $1,054 million and $1,372 million at December 31, 1995 and 1994, respectively. The Company had other loans outstanding to its affiliates with carrying values of $2,599 million and $2,073 million at December 31, 1995 and 1994, respectively. In January 1995, the Company and The Travelers Insurance Company (Travelers) contributed their respective group medical health care benefits businesses to a corporate joint venture, The MetraHealth Companies, Inc. (MetraHealth). In October 1995, the Company and Travelers sold their investments in MetraHealth to a non-affiliated health care management services company. For its interest in MetraHealth, a subsidiary of the Company received $485 million face amount of shares of redeemable preferred stock of the purchaser, $276 million in cash and rights to additional consideration based on the 1995 earnings of MetraHealth. The transaction resulted in post-tax income of $443 million to the Company, including an amount based on the 1995 estimated financial results of MetraHealth. The Company also has the right to receive up to an additional $169 million in cash for each of 1996 and 1997, based on the consolidated financial results of the purchaser for each of such years. During 1995, the Company sold Century 21 Real Estate Corporation (real estate brokerage operation), Metmor Financial Inc. (mortgage banking) and Metropolitan Trust Company of Canada (trust operation and mortgage administration) for $127 million, $56 million and $41 million, respectively, resulting in pre-tax realized capital losses of $167 million, $247 million and $86 million, respectively. The sales also resulted in $452 million of unrealized capital gains representing the reversal of prior period unrealized capital losses relating to the subsidiaries. 54 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 4. INVESTMENTS DEBT SECURITIES The carrying value, gross unrealized gain (loss) and estimated fair value of bonds and redeemable preferred stocks (debt securities), by category, as of December 31, 1995 and 1994 are shown below.
GROSS UNREALIZED CARRYING -------------------- ESTIMATED VALUE GAIN (LOSS) FAIR VALUE --------- --------- --------- ----------- (IN MILLIONS) DECEMBER 31, 1995: Bonds: U. S. Treasury securities and obligations of U.S. government corporations and agencies........................................... $ 12,871 $ 1,556 $ (2) $ 14,425 States and political subdivisions..................................... 1,865 582 (2) 2,445 Foreign governments................................................... 1,871 221 -- 2,092 Corporate............................................................. 29,992 1,872 (105) 31,759 Mortgage-backed securities............................................ 18,888 749 (27) 19,610 Other................................................................. 5,468 336 (16) 5,788 --------- --------- --------- ----------- Total bonds............................................................. $ 70,955 $ 5,316 $ (152) $ 76,119 --------- --------- --------- ----------- --------- --------- --------- ----------- Redeemable preferred stocks............................................. $ 39 $ -- $ (3) $ 36 --------- --------- --------- ----------- --------- --------- --------- ----------- DECEMBER 31, 1994: Bonds: U. S. Treasury securities and obligations of U.S. government corporations and agencies........................................... $ 9,807 $ 322 $ (546) $ 9,583 States and political subdivisions..................................... 1,483 69 (21) 1,531 Foreign governments................................................... 1,931 26 (60) 1,897 Corporate............................................................. 31,262 291 (1,682) 29,871 Mortgage-backed securities............................................ 17,485 251 (851) 16,885 Other................................................................. 3,624 18 (215) 3,427 --------- --------- --------- ----------- Total bonds............................................................. $ 65,592 $ 977 $ (3,375) $ 63,194 --------- --------- --------- ----------- --------- --------- --------- ----------- Redeemable preferred stocks............................................. $ 44 $ -- $ (14) $ 30 --------- --------- --------- ----------- --------- --------- --------- -----------
55 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 The carrying value and estimated fair value of bonds, by contractual maturity, at December 31, 1995 are shown below. Bonds not due at a single maturity date have been included in the table in the year of final maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
CARRYING ESTIMATED VALUE FAIR VALUE --------- ----------- (IN MILLIONS) Due in one year or less........................................... $ 2,171 $ 2,191 Due after one year through five years............................. 17,277 17,717 Due after five years through ten years............................ 17,188 18,381 Due after ten years............................................... 15,431 18,220 --------- ----------- Subtotal...................................................... 52,067 56,509 Mortgage-backed securities........................................ 18,888 19,610 --------- ----------- --------- ----------- Total......................................................... $ 70,955 $ 76,119 --------- ----------- --------- -----------
Proceeds from the sales of debt securities during 1995, 1994 and 1993 were $50,831 million, $36,401 million and $50,395 million, respectively. During 1995, 1994 and 1993, respectively, gross gains of $814 million, $577 million and $1,316 million, and gross losses of $352 million, $561 million and $96 million were realized on those sales. Realized investment gains and losses are determined by specific identification. MORTGAGE LOANS Mortgage loans are collateralized by properties located throughout the United States and Canada. Approximately 15 percent and 9 percent of the properties are located in California and Illinois, 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. As of December 31, 1995 and 1994, the mortgage loan investments were categorized as follows:
1995 1994 ----------- ----------- Office Buildings......................................................... 32% 36% Retail................................................................... 18% 17% Residential.............................................................. 20% 21% Agricultural............................................................. 20% 18% Other.................................................................... 10% 8% --- --- Total................................................................ 100% 100% --- --- --- ---
FINANCIAL INSTRUMENTS The Company has a securities lending program whereby large blocks of securities are loaned to third parties, primarily major brokerage firms. Company policy requires a minimum of 102 percent of the fair value of the loaned securities to be separately maintained as collateral for the loans. The collateral is recorded in memorandum records and not reflected in the accompanying balance sheets. To further minimize the credit risks related to this lending program, the Company regularly monitors the financial condition of counterparties to these agreements. During the normal course of business, the Company agrees with independent parties to purchase or sell bonds over fixed or variable periods of time. The off-balance sheet risks related to changes in the quality of the 56 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 underlying bonds are mitigated by the fact that commitment periods are generally short in duration and provisions in the agreements release the Company from its commitments in case of significant changes in the financial condition of the independent party or the issuer of the bond. The Company engages in a variety of derivative transactions with respect to the general account. Those derivatives, such as forwards, futures, options, foreign exchange agreements and swaps, which do not themselves generate interest or dividend income, are acquired or sold in order to hedge or reduce risks applicable to assets held, or expected to be purchased or sold, and liabilities incurred or expected to be incurred. The Company does not engage in trading of these derivatives. In 1995 and 1994, the Company engaged in three primary derivatives strategies. The Company entered into a number of anticipatory hedges using forwards to limit the interest rate exposures of investments in debt securities expected to be acquired within one year. The Company also hedged a number of investments in debt securities denominated in foreign currencies by executing swaps and forwards to ensure a United States dollar rate of return. In addition, the Company purchased a limited number of interest rate caps to hedge against rising interest rates on a portfolio of assets which the Company purchased to match the liabilities it incurred. Income and expenses related to derivatives used to hedge or manage risks are recorded on the accrual basis as an adjustment to the yield of the related securities over the periods covered by the derivative contracts. Gains and losses relating to early terminations of interest rate swaps used to hedge or manage interest rate risk are deferred and amortized over the remaining period originally covered by the swap. Gains and losses relating to derivatives used to hedge the risks associated with anticipated transactions are deferred and utilized to adjust the basis of the transaction once it has closed. If it is determined that the transaction will not close, such gains and losses are included in realized capital gains and losses. ASSETS ON DEPOSIT As of December 31, 1995 and 1994, the Company had assets on deposit with regulatory agencies of $5,281 million and $5,145 million, respectively. 5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS In the normal course of business, the Company assumes and cedes reinsurance with other insurance companies. The Company acquired, in part through reinsurance effective in January 1995, the group life, dental, disability, accidental death and dismemberment, vision and long-term care insurance businesses from Travelers and certain of its subsidiaries for $403 million. Commissions of $142 million and $4 million were charged to earnings during 1995 and 1994, respectively, and considerations in excess of commissions of $208 million and $49 million were recorded as a direct charge to surplus in 1995 and 1994, respectively. In January, 1995, the Company received assets with a fair market value equal to the $1,565 million of liabilities assumed under the reinsurance agreements. The reinsured businesses convert to Company contracts at policy anniversary date. During 1995, the Company entered into reinsurance agreements with MetraHealth to facilitate the transfer of certain of its group medical health care business to MetraHealth. The Company also has reinsurance agreements with certain of its life insurance subsidiaries. Reserves for insurance assumed pursuant to these agreements are included in reserves for life and health insurance and annuities and amounted to $2,143 million and $1,193 million at December 31, 1995 and 1994, respectively. 57 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 In 1993, the Company assumed $1,540 million of life insurance and annuity reserves of a New York life insurance company under rehabilitation and received assets having a fair value equal to the reserves assumed. The financial statements are shown net of ceded reinsurance. The amounts related to reinsurance agreements, including agreements described above but excluding certain agreements with non-affiliates for which the Company provides administrative services, are as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Reinsurance premiums assumed..................................... $ 890 $ 237 $ 264 Reinsurance ceded: Premiums....................................................... 457 77 86 Other income................................................... 26 1 3 Reduction in insurance liabilities (at December 31)............ 71 31 28
A contingent liability exists with respect to reinsurance ceded should the reinsurers be unable to meet their obligations. Activity in the liability for unpaid group accident and health policy and contract claims is summarized as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Balance at January 1....................................... $ 1,708 $ 1,588 $ 1,517 Less reinsurance recoverables............................ 1 1 1 --------- --------- --------- Net balance at January 1................................... 1,707 1,587 1,516 --------- --------- --------- Incurred related to: Current year............................................. 2,424 1,780 1,797 Prior years.............................................. (23) (7) (40) --------- --------- --------- Total incurred............................................. 2,401 1,773 1,757 --------- --------- --------- Paid related to: Current year............................................. 1,464 1,260 1,306 Prior years.............................................. 417 393 380 --------- --------- --------- Total paid................................................. 1,881 1,653 1,686 --------- --------- --------- Net balance at December 31................................. 2,227 1,707 1,587 Plus reinsurance recoverables............................ 93 1 1 --------- --------- --------- Balance at December 31..................................... $ 2,320 $ 1,708 $ 1,588 --------- --------- --------- --------- --------- ---------
6. FEDERAL INCOME TAXES The Company's federal income tax return is consolidated with certain affiliates. The consolidating companies have executed a tax allocation agreement. Under this agreement, the federal income tax provision is computed on a separate return basis. Members receive reimbursement to the extent that their losses and other credits result in a reduction of the current year's consolidated tax liability. Federal income tax expense has been calculated in accordance with the provisions of the Internal Revenue Code, as amended (the Code). Under the Code, the amount of federal income tax expense includes a tax on the Company's surplus calculated by a prescribed formula that incorporates a differential earnings 58 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 rate between stock and mutual life insurance companies. In 1995, the Company changed its calculation of surplus tax which resulted in an increase in 1995 federal income tax expense of $95 million. Had such change occurred prior to 1993, the Company's insurance expenses and taxes (excluding tax on capital gains) and net loss for the year ended December 31, 1995 would have been $2,758 million and $270 million, respectively; the Company's surplus, insurance expenses and taxes (excluding tax on capital gains) and net loss at and for the year ended December 31, 1994 would have been $5,902 million, $2,894 million and $296 million, respectively; and the Company's insurance expenses and taxes (excluding tax on capital gains) and net income for the year ended December 31, 1993 would have been $2,702 million and $26 million, respectively. The change would have had no effect on December 31, 1993 surplus and surplus at December 31, 1992 would have been $5,124 million. Total federal income taxes on operations and realized capital gains of $479 million, $192 million and $596 million were incurred in 1995, 1994 and 1993, respectively. 7. EMPLOYEE BENEFIT PLANS PENSION PLANS The Company has defined benefit pension plans covering all eligible employees and sales representatives of the Company and certain of its subsidiaries. The Company is both the sponsor and administrator of these plans. Retirement benefits are based on years of credited service and final average earnings' history. The Company's funding policy is to make the minimum contribution required by the Employee Retirement Income Security Act of 1974. Components of the net periodic pension (credit) cost for the years ended December 31, 1995, 1994 and 1993 for the defined benefit qualified and non-qualified pension plans are as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Service cost................................................... $ 58 $ 88 $ 71 Interest cost on projected benefit obligation.................. 215 209 191 Return on assets............................................... (262) 15 (380) Net amortization and deferrals................................. (33) (298) 110 --------- --------- --------- Net periodic pension (credit) cost............................. $ (22) $ 14 $ (8) --------- --------- --------- --------- --------- ---------
The assumed long-term rate of return on assets used in determining the net periodic pension (credit) cost was 9.5 percent in 1995 and 8.5 percent in 1994 and 1993. The Company is recognizing the unrecognized net asset at transition, attributable to the adoption of Statement of Financial Accounting Standards No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, in 1993, over the average remaining service period at the transition date of employees expected to receive benefits under the pension plans. 59 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 The funded status of the qualified and non-qualified defined benefit pension plans and a comparison of the accumulated benefit obligation, plan assets and projected benefit obligation at December 31, 1995 and 1994 are as follows:
1995 1994 --------- --------- (IN MILLIONS) Actuarial present value of obligations: Vested............................................................ $ (2,724) $ (2,266) Non-vested........................................................ (43) (47) --------- --------- Accumulated benefit obligation...................................... $ (2,767) $ (2,313) --------- --------- --------- --------- Projected benefit obligation........................................ $ (3,094) $ (2,676) Plan assets at contract value....................................... 3,286 2,900 --------- --------- Plan assets in excess of projected benefit obligation............... 192 224 Unrecognized prior service cost..................................... 73 92 Unrecognized net loss from past experience different from that assumed........................................................... 79 33 Unrecognized net asset at transition................................ (326) (365) Adjustment required to recognize minimum liability.................. (19) -- --------- --------- Accrued pension cost at December 31................................. $ (1) $ (16) --------- --------- --------- ---------
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25 percent for 1995, 8.5 percent for 1994 and 7.5 percent for 1993 in the United States and 8.0 percent for 1995, 7.25 percent for 1994 and 7.0 percent for 1993 in Canada. The weighted average assumed rate of increase in future compensation levels was 4.5 percent in 1995 and 5.0 percent in 1994 and 1993. In addition, several other factors, such as expected retirement dates and mortality, enter into the determination of the actuarial present value of the accumulated benefit obligation. The pension plans' assets are principally investment contracts issued by the Company. During 1995, the Company recognized a pension plan curtailment gain before income tax of $8 million. This gain relates to the transfer of Company group medical health care business personnel to MetraHealth. SAVINGS AND INVESTMENT PLAN The Company sponsors a savings and investment plan available for substantially all employees under which the Company matches a portion of employee contributions. During 1995, 1994 and 1993, the Company contributed $34 million, $42 million and $48 million, respectively, to the plan. OTHER POSTRETIREMENT BENEFITS The Company also provides certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to such benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company. The costs of non-pension postretirement benefits are recognized on an accrual basis in accordance with guidelines prescribed by insurance regulatory authorities. Such guidelines require the recognition of a postretirement benefit obligation for current retirees and fully eligible or vested employees. As prescribed by 60 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 the guidelines, the Company has elected to recognize over a period of twenty years the unrecognized postretirement benefit asset and obligation (net asset and obligation at transition) in existence on January 1, 1993 (effective date of guidelines). The following table sets forth the postretirement health care and life insurance plans' combined status reconciled with the amounts included in the Company's balance sheets at December 31, 1995 and 1994:
1995 1994 ------------------------------ ------------------------------ OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED ------------- --------------- ------------- --------------- (IN MILLIONS) Accumulated postretirement benefit obligations of retirees and fully eligible participants............................ $ (295) $ (776) $ (262) $ (787) Plan assets (Company insurance contracts) at contract value...................................................... 397 411 393 358 ------ ------ ------ ------ Plan assets in excess of (less than) accumulated postretirement benefit obligation.......................... 102 (365) 131 (429) Unrecognized net loss (gain) from past experience different from that assumed and from changes in assumptions.......... 53 (83) (6) (44) Prior service cost not yet recognized in net periodic retirement benefit cost.................................... (5) -- (5) -- Unrecognized (asset) obligation at transition................ (102) 438 (108) 464 ------ ------ ------ ------ Prepaid (Accrued) non-pension postretirement benefit cost at December 31................................................ $ 48 $ (10) $ 12 $ (9) ------ ------ ------ ------ ------ ------ ------ ------
The components of the net periodic non-pension postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Service cost..................................................................................... $ 26 $ 31 $ 32 Interest cost on accumulated postretirement benefit obligation................................... 74 76 87 Return on plan assets (Company insurance contracts).............................................. (61) (37) (36) Amortization of transition asset and obligation.................................................. 18 18 20 Net amortization and deferrals................................................................... (4) (10) (17) --- --- --- Net periodic non-pension postretirement benefit cost............................................. $ 53 $ 78 $ 86 --- --- --- --- --- ---
The assumed health care cost trend rate used in measuring the accumulated non-pension postretirement benefit obligation was 10.0 percent in 1995, 11.0 percent in 1994 and 12.0 percent in 1993, gradually decreasing to 5.25 percent, 6.5 percent and 5.5 percent, respectively, over twelve years. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25 percent, 8.5 percent, and 7.5 percent at December 31, 1995, 1994 and 1993, respectively. If the health care cost trend rate assumptions were increased 1.0 percent, the accumulated postretirement benefit obligation as of December 31, 1995, 1994 and 1993 would be increased 9.0 percent, 7.1 percent, and 7.2 percent, respectively. The effect of this change on the sum of the service and interest cost components of the net periodic postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993 would be an increase of 11.0 percent, 7.9 percent and 7.8 percent, respectively. 61 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 8. LEASES LEASE INCOME During 1995, 1994 and 1993, the Company received $1,742 million, $1,786 million and $1,482 million, respectively, in lease income related to its investment real estate. In accordance with standard industry practice, certain of the Company's lease agreements with retail tenants result in income that is contingent on the level of the tenants' sales revenues. LEASE EXPENSE The Company has entered into various lease agreements for office space, data processing and other equipment. Rental expense under such leases was $171 million, $193 million and $214 million for the years ended December 31, 1995, 1994 and 1993, respectively. Future gross minimum rental payments under non- cancelable leases, including those leases for which the Company recorded a restructuring charge in 1995, are as follows (in millions):
YEAR ENDING DECEMBER 31, - -------------------------------------------------------------- 1996.......................................................... $ 107 1997.......................................................... 82 1998.......................................................... 66 1999.......................................................... 48 2000.......................................................... 32 Thereafter.................................................... 53 --------- Total..................................................... $ 388 --------- ---------
9. OTHER COMMITMENTS AND CONTINGENCIES GUARANTEES The Company has entered into certain arrangements in the course of its business which, under certain circumstances, may impose significant financial obligations on the Company. The Company has entered into a support agreement with a subsidiary whereby the Company has agreed to maintain the subsidiary's net worth at one dollar or more. At December 31, 1995, the subsidiary's assets, which consist principally of loans to affiliates, amounted to $3,309 million and its net worth amounted to $11 million. In addition, the Company has entered into arrangements with certain of its subsidiaries and affiliates to assist such subsidiaries and affiliates in meeting various jurisdictions' regulatory requirements regarding capital and surplus. The Company has also entered into a support arrangement with respect to the reinsurance obligations of a subsidiary. No material payments have been made under these arrangements and it is the opinion of management that any payments required pursuant to these arrangements would not likely have a material adverse effect on the Company's financial position. LITIGATION In 1994, the Company entered into consent agreements (involving the payment of fines and policyholder restitution payments) with state authorities, including the insurance departments of all states, arising out of regulatory proceedings and investigations relating to alleged improper practices in the sale of individual life insurance. Litigation relating to the Company's individual life insurance sales practices (including individual actions and purported class actions) has also been instituted by or on behalf of policyholders and others, and additional litigation relating to the Company's sales practices may be commenced in the future. In addition, an 62 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 investigation by the Office of the United States Attorney for the Middle District of Florida, in conjunction with a grand jury, into certain of the sales practices that were the focus of the state investigations is ongoing. Various litigation, claims and assessments against the Company, in addition to the aforementioned, have arisen in the course of the Company's business, operations and activities. In certain of the matters referred to above, including actions with multiple plaintiffs, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome in all such matters, it is the opinion of the Company's management that their outcome, after consideration of the provisions made in the Company's financial statements, is not likely to have a material adverse effect on the Company's financial position. 10. SURPLUS NOTES The carrying values of surplus notes at December 31, 1995 and 1994 are shown below:
1995 1994 --------- --------- (IN MILLIONS) 6.30% surplus notes scheduled to mature on November 1, 2003...................... $ 400 $ 400 7.00% surplus notes scheduled to mature on November 1, 2005...................... 250 -- 7.70% surplus notes scheduled to mature on November 1, 2015...................... 200 -- 7.45% surplus notes scheduled to mature on November 1, 2023...................... 300 300 7.80% surplus notes scheduled to mature on November 1, 2025...................... 250 -- --------- --------- Total.................................................................... $ 1,400 $ 700 --------- --------- --------- ---------
Interest on the Company's surplus notes is scheduled to be paid semi-annually; principal payments are scheduled to be paid upon maturity. Such payments of interest and principal may be made only with the prior approval of the Superintendent of Insurance of the State of New York (Superintendent). Subject to the prior approval of the Superintendent, the 7.45 percent surplus notes may be redeemed, as a whole or in part, at the election of the Company at any time on or after November 1, 2003. During 1995 and 1994, the Company obtained Superintendent approval for and made total interest payments of $48 million on the surplus notes. 11. FAIR VALUE INFORMATION The estimated fair value amounts of financial instruments presented below have been determined by the Company using market information available as of December 31, 1995 and 1994 and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value for financial instruments for which there are no available market value quotations. 63 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 The estimates presented below are not necessarily indicative of the amounts the Company could have realized in a market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE ----------- --------- ----------- (IN MILLIONS) DECEMBER 31, 1995: Assets Bonds.............................................................................. $ 70,955 $ 76,119 Stocks, including subsidiaries..................................................... 3,646 3,608 Mortgage loans..................................................................... 14,211 14,818 Policy loans....................................................................... 3,956 4,023 Cash and short-term investments.................................................... 1,923 1,923 Liabilities Investment contracts included in: Reserves for life and health insurance and annuities............................. 18,137 18,211 Policy proceeds and dividends left with the Company.............................. 4,482 4,488 Premium deposit funds............................................................ 12,891 13,322 Other financial instruments Bond purchase agreements........................................................... $ 601 3.3 Bond sales agreements.............................................................. 80 (0.5) Interest rate swaps................................................................ 280 1.5 Interest rate caps................................................................. 231 -- Foreign currency swaps............................................................. 89 4.4 Foreign currency forwards.......................................................... 10 -- Covered call options............................................................... 25 (1.9) 1.9 Futures contracts.................................................................. 1,402 (19.5) -- Unused lines of credit............................................................. 1,600 1.1
64 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE ----------- --------- ----------- (IN MILLIONS) DECEMBER 31, 1994: Assets Bonds.............................................................................. $ 65,592 $ 63,194 Stocks, including subsidiaries..................................................... 3,672 3,660 Mortgage loans..................................................................... 14,524 14,269 Policy loans....................................................................... 3,964 3,645 Cash and short-term investments.................................................... 2,334 2,334 Liabilities Investment contracts included in: Reserves for life and health insurance and annuities............................. 16,354 16,370 Policy proceeds and dividends left with the Company.............................. 3,534 3,519 Premium deposit funds............................................................ 14,006 13,997 Other Financial Instruments Bond purchase agreements........................................................... $ 2,755 4.1 Bond sales agreements.............................................................. 1,450 0.8 Interest rate swaps................................................................ 272 (7.1) Interest rate caps................................................................. 185 (0.1) Foreign currency swaps............................................................. 36 (0.4) Foreign currency forwards.......................................................... 4 (0.2) (0.1) Covered call options............................................................... 25 (1.9) 1.9 Unused lines of credit............................................................. 1,450 1.0
For bonds that are publicly traded, estimated fair value was obtained from an independent market pricing service. Publicly traded bonds represented approximately 78 percent of the carrying value and estimated fair value of the total bonds as of December 31, 1995 and 77 percent of the carrying value and estimated fair value of the total bonds as of December 31, 1994. For all other bonds, estimated fair value was determined by management, based on interest rates, maturity, credit quality and average life. Included in bonds are loaned securities with estimated fair values of $8,148 million and $5,154 million at December 31, 1995 and 1994, respectively. Estimated fair values of stocks were generally based on quoted market prices, except for investments in common stock of subsidiaries, which are based on equity in net assets of the subsidiaries. Estimated fair values of mortgage loans were generally based on discounted projected cash flows using interest rates offered for loans to borrowers with comparable credit ratings and for the same maturities. Estimated fair values of policy loans were based on discounted projected cash flows using U.S. Treasury rates to approximate interest rates and Company experience to project patterns of loan repayment. For cash and short-term investments, the carrying amount is a reasonable estimate of fair value. Included in reserves for life and health insurance and annuities, policy proceeds and dividends left with the Company and premium deposit funds are amounts classified as investment contracts representing policies or contracts that do not incorporate significant insurance risk. The fair values for these liabilities are estimated using discounted projected cash flows, based on interest rates being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. Policy proceeds and dividends left with the Company also include other liabilities without defined durations. The estimated fair value of such liabilities, which generally are of short duration or have periodic adjustments of interest rates, approximates their carrying value. 65 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Estimated fair values of bond purchase/sale agreements were based on fees charged to enter into similar arrangements or on the estimated cost to terminate the outstanding agreements. For interest rate and foreign currency swaps, interest rate caps, interest rate futures, foreign currency forwards, futures contracts and covered call options, estimated fair value is the amount at which the contracts could be settled based on estimates obtained from dealers. The Company had unused lines of credit under agreements with various banks. The estimated fair values of unused lines of credit were based on fees charged to enter into similar agreements. 12. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR MUTUAL LIFE INSURANCE COMPANIES The Company, as a mutual life insurance company, prepares its financial statements in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of New York (statutory financial statements) which currently are considered to be generally accepted accounting principles (GAAP) for mutual life insurance companies. However, the Financial Accounting Standards Board (FASB) has issued certain pronouncements effective for 1996 annual financial statements and thereafter. Such pronouncements will no longer allow statutory financial statements to be described as being prepared in conformity with GAAP. Upon the effective date of the pronouncements, in order for their financial statements to be described as being prepared in conformity with GAAP, mutual life insurance companies will be required to adopt all applicable accounting principles promulgated by the FASB in any general purpose financial statements that they may issue. If permitted by insurance regulatory authorities, the Company will issue 1996 general purpose financial statements reflecting the adoption of all applicable GAAP pronouncements. However, the Company has not finalized the quantification of the effects of the application of the pronouncements on its financial statements. 66 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the Growth, Income, Money Market, Diversified, International Stock, Stock Index, and Aggressive Growth Divisions of Metropolitan Life Separate Account UL (the "Separate Account") as of December 31, 1995, and the related statements of operations for the year then ended and of changes in net assets for each of the two years in the period then ended. 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, 1995 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 net assets of the Growth, Income, Money Market, Diversified, International Stock, Stock Index and Aggressive Growth Divisions of Metropolitan Life Separate Account UL as of December 31, 1995 and the results of their operations for the year ended and the changes in their net assets for each of the two years in the period then ended, in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York February 19, 1996 67 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1995
MONEY INTERNATIONAL AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------------------------------------------------------------------------------ ASSETS: Investments in Metropolitan Series Fund, Inc. at Value (Note 1A): Growth Portfolio (4,099,345 shares; cost $96,789,176)....... $ 112,977,954 -- -- -- -- -- -- Income Portfolio (1,760,947 shares; cost $22,143,191)....... -- $ 22,416,853 -- -- -- -- -- Money Market Portfolio (282,752 shares; cost $3,047,618)........ -- -- $ 2,954,758 -- -- -- -- Diversified Portfolio (5,310,254 shares; cost $77,330,732)....... -- -- -- $ 84,698,553 -- -- -- International Stock Portfolio (1,414,995 shares; cost $17,940,365).................... -- -- -- -- $17,390,288 -- -- Stock Index Portfolio (725,046 shares; cost $11,289,160)....... -- -- -- -- -- $ 13,456,861 -- Aggressive Growth Portfolio (2,111,288 shares; cost $50,602,535).................... -- -- -- -- -- -- $ 54,619,026 ------------------------------------------------------------------------------------ Total Investments................. 112,977,954 22,416,853 2,954,758 84,698,553 17,390,288 13,456,861 54,619,026 Cash and Accounts Receivable........ -- -- 20,391 -- -- -- -- ------------------------------------------------------------------------------------ Total Assets...................... 112,977,954 22,416,853 2,975,149 84,698,553 17,390,288 13,456,861 54,619,026 LIABILITIES......................... 537,332 105,382 409 517,812 94,151 31,091 287,229 ------------------------------------------------------------------------------------ NET ASSETS.......................... $ 112,440,622 $ 22,311,471 $ 2,974,740 $ 84,180,741 $17,296,137 $ 13,425,770 $ 54,331,797 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------
See Notes to Financial Statements. 68 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
MONEY INTERNATIONAL STOCK AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ----------- ---------- --------- ----------------------- ---------- ----------- INVESTMENT INCOME: Income: Dividends (Note 2)................... $ 5,497,071 $1,312,997 $ 161,198 $ 5,314,778 $ 152,268 $ 290,369 $5,091,762 Expenses: Mortality and expense charges (Note 3)................................. 802,240 165,666 32,690 619,298 124,852 76,564 365,214 ----------- ---------- --------- ----------------------- ---------- ----------- Net investment income.................... 4,694,831 1,147,331 128,508 4,695,480 27,416 213,805 4,726,548 ----------- ---------- --------- ----------------------- ---------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions........................... 293,233 (8,290) 35,201 248,523 28,349 29,512 152,387 Change in unrealized appreciation of investments............................ 19,543,807 1,977,261 4,641 10,898,818 136,578 2,271,366 4,188,117 ----------- ---------- --------- ----------------------- ---------- ----------- Net realized and unrealized gain on investments (Note 1B).................. 19,837,040 1,968,971 39,842 11,147,341 164,927 2,300,878 4,340,504 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $24,531,871 $3,116,302 $ 168,350 $15,842,821 $ 192,343 $2,514,683 $9,067,052 ----------- ---------- --------- ----------------------- ---------- ----------- ----------- ---------- --------- ----------------------- ---------- -----------
See Notes to Financial Statements. 69 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS
GROWTH INCOME MONEY MARKET DIVISION DIVISION DIVISION ----------------------------- --------------------------- --------------------------- FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------------- 1995 1994 1995 1994 1995 1994 ------------- ------------- ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 4,694,831 $ 1,529,435 $ 1,147,331 $ 971,668 $ 128,508 $ 130,231 Net realized gain (loss) from security transactions.............. 293,233 53,162 (8,290) (9,894) 35,201 (79,321) Unrealized appreciation (depreciation) of investments............... 19,543,807 (4,282,800) 1,977,261 (1,415,108) 4,641 36,172 ------------- ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations................ 24,531,871 (2,700,203) 3,116,302 (453,334) 168,350 87,082 ------------- ------------- ------------ ------------ ------------ ------------ From capital transactions: Net premiums................ 41,455,659 45,546,952 8,687,776 10,328,856 2,988,786 6,425,154 Net portfolio transfers..... (4,142,623) (2,746,223) (1,257,339) 48,939 (3,815,269) (6,647,524) Other net transfers......... (17,287,875) (16,398,757) (3,439,203) (3,317,903) (661,810) (703,798) Substitutions (Note 4)...... -- -- -- -- -- -- ------------- ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital transactions...... 20,025,161 26,401,972 3,991,234 7,059,892 (1,488,293) (926,168) ------------- ------------- ------------ ------------ ------------ ------------ NET CHANGE IN NET ASSETS.... 44,557,032 23,701,769 7,107,536 6,606,558 (1,319,943) (839,086) NET ASSETS--BEGINNING OF YEAR...................... 67,883,590 44,181,821 15,203,935 8,597,377 4,294,683 5,133,769 ------------- ------------- ------------ ------------ ------------ ------------ NET ASSETS--END OF YEAR..... $ 112,440,622 $ 67,883,590 $ 22,311,471 $ 15,203,935 $ 2,974,740 $ 4,294,683 ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------- ------------ ------------ ------------ ------------
See Notes to Financial Statements. 70
DIVERSIFIED INTERNATIONAL STOCK DIVISION DIVISION --------------------------- --------------------------- FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1995 1994 1995 1994 ------------ ----------- ------------ ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 4,695,480 $ 1,734,612 $ 27,416 $ 485,015 Net realized gain (loss) from security transactions.............. 248,523 22,275 28,349 80,235 Unrealized appreciation (depreciation) of investments............... 10,898,818 (3,636,719) 136,578 (842,359) ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations................ 15,842,821 (1,879,832) 192,343 (277,109) ------------ ----------- ------------ ----------- From capital transactions: Net premiums................ 31,888,789 41,263,327 12,024,423 11,498,165 Net portfolio transfers..... (5,102,550) (4,980,679) (1,502,438) 1,014,621 Other net transfers......... (13,529,725) (14,095,050) (4,797,949) (3,556,411) Substitutions (Note 4)...... -- 2,235,074 -- -- ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from capital transactions...... 13,256,514 24,422,672 5,724,036 8,956,375 ------------ ----------- ------------ ----------- NET CHANGE IN NET ASSETS.... 29,099,335 22,542,840 5,916,379 8,679,266 NET ASSETS--BEGINNING OF YEAR...................... 55,081,406 32,538,566 11,379,758 2,700,492 ------------ ----------- ------------ ----------- NET ASSETS--END OF YEAR..... $ 84,180,741 $55,081,406 $ 17,296,137 $11,379,758 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- STOCK INDEX AGGRESSIVE GROWTH DIVISION DIVISION ----------------------------- ------------------------------ 1995 1994 1995 1994 ------------- ------------ --------------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 213,805 $ 132,182 $ 4,726,548 $ (98,251) Net realized gain (loss) from security transactions.............. 29,512 5,039 152,387 5,076 Unrealized appreciation (depreciation) of investments............... 2,271,366 (129,802) 4,188,117 (100,707) ------------- ------------ --------------- ----------- Net increase (decrease) in net assets resulting from operations................ 2,514,683 7,419 9,067,052 (193,882) ------------- ------------ --------------- ----------- From capital transactions: Net premiums................ 7,870,004 4,316,325 32,859,273 28,325,697 Net portfolio transfers..... 876,498 (301,802) (190,487) (15,434) Other net transfers......... (2,682,256) (1,454,580) (12,996,305) (10,302,089) Substitutions (Note 4)...... -- -- -- -- ------------- ------------ --------------- ----------- Net increase (decrease) in net assets resulting from capital transactions...... 6,064,246 2,559,943 19,672,481 18,008,174 ------------- ------------ --------------- ----------- NET CHANGE IN NET ASSETS.... 8,578,929 2,567,362 28,739,533 17,814,292 NET ASSETS--BEGINNING OF YEAR...................... 4,846,841 2,279,479 25,592,264 7,777,972 ------------- ------------ --------------- ----------- NET ASSETS--END OF YEAR..... $ 13,425,770 $ 4,846,841 $ 54,331,797 $25,592,264 ------------- ------------ --------------- ----------- ------------- ------------ --------------- -----------
71 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 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 seven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund"). 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. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1. SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS Investments in shares of the Fund are valued at the reported net asset values of the respective portfolios. A summary of investments of the seven designated portfolios of the Fund in which the seven investment divisions of the Separate Account invest as of December 31, 1995 is included as Note 5. The methods used to value the Fund's investments at December 31, 1995 are described in Note 1A of the Fund's 1994 Annual Report. 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 separately 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 reserves 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 or 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 policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2. DIVIDENDS On April 19, 1995 and December 19, 1995, the Fund declared dividends for all shareholders of record on April 25, 1995 and December 27, 1995, respectively. The amount of dividends received by the Separate Account was $17,820,443. The dividends were paid to Metropolitan Life on April 26, 1995 and December 28, 1995, 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 Fund held by each of 72 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 the seven investment divisions increased by the following: Growth Portfolio 203,974 shares, Income Portfolio 103,768 shares, Money Market Portfolio 15,439 shares, Diversified Portfolio 334,236 shares, International Stock Portfolio 12,446 shares, Stock Index Portfolio 15,791 shares, and Aggressive Growth Portfolio 199,098 shares. 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a daily charge against the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge is equivalent to the effective annual rate of .90% of the average daily value of the net assets in the Separate Account which are attributable to such policies. 4. SUBSTITUTION OF DIVISION On June 1, 1994, the net assets of the Equity Income Division were transferred to the Diversified Division under a substitution plan. 73 NOTES TO FINANCIAL STATEMENTS-(CONTINUED) METROPOLITAN SERIES FUND, INC. 5. A SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995
MONEY MARKET DIVERSIFIED GROWTH PORTFOLIO INCOME PORTFOLIO PORTFOLIO PORTFOLIO ---------------------------- ------------------------- ------------------------- ------------- VALUE VALUE VALUE VALUE (NOTE 1A) (NOTE 1A) (NOTE 1A) (NOTE 1A) COMMON STOCK Aerospace................ $ 46,873,200 (4.3%) $ 24,440,850 Automotive............... 8,400,388 (0.8%) 3,604,913 Banking.................. 46,664,450 (4.3%) 27,106,325 Building................. 6,695,350 (0.6%) 3,872,713 Business Services........ 17,307,250 (1.6%) 10,205,126 Chemical................. 62,351,063 (5.7%) 37,025,888 Computer Software & Service................. 64,486,020 (5.9%) 38,000,276 Drug..................... 68,975,425 (6.3%) 42,703,588 Electrical Equipment..... 18,014,400 (1.6%) 10,512,000 Electronics.............. 60,681,096 (5.5%) 37,210,134 Financial Services....... 50,077,876 (4.6%) 33,011,138 Food & Beverage.......... 56,499,225 (5.1%) 33,167,400 Hospital Management...... 23,432,125 (2.1%) 16,054,075 Hospital Supply.......... 46,253,650 (4.2%) 25,576,525 Hotel & Restaurant....... 22,954,525 (2.1%) 13,319,088 Insurance................ 31,977,600 (2.9%) 18,682,688 Machinery................ 47,891,562 (4.4%) 28,921,275 Metals & Mining.......... 7,637,612 (0.7%) 4,655,687 Office Equipment......... 68,138,213 (6.2%) 39,834,663 Oil...................... 69,771,787 (6.4%) 42,551,035 Oil Services............. 18,143,500 (1.7%) 10,505,225 Paper.................... 8,429,400 (0.8%) 4,914,800 Personal Care............ 24,817,000 (2.3%) 15,836,400 Retail Trade............. 82,486,135 (7.5%) 48,731,799 Tobacco.................. 26,525,550 (2.4%) 16,507,200 Toys & Musical Instruments............. 9,913,984 (0.9%) 5,967,406 Utilities-Telephone...... 31,793,450 (2.9%) 18,417,625 Video.................... 49,360,428 (4.5%) 28,511,540 ---------------- ------------- Total Common Stock....... 1,076,552,264 (98.3%) 639,847,382 ---------------- ------------- CONVERTIBLE PREFERRED STOCK Oil Services............. 154,500 PREFERRED STOCK Retail Trade............. 209,061 ---------------- ------------- Total Stock Securities... $ 1,076,552,264 (98.3%) $ 640,210,943 ---------------- ------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Banking.................. $ 13,202,211 (3.7%) $ 20,432,477 Financial Services....... 27,942,460 (8.0%) 38,284,443 Industrial-Miscellaneous... 29,715,375 (8.5%) 39,027,649 Mortgage Backed.......... 12,183,305 (3.5%) 12,889,132 ------------- ------------- Total Corporate Bonds.... 83,043,351 (23.7%) 110,633,701 ------------- ------------- Federal Agency Obligations............. 19,288,010 (5.5%) 24,303,049 Federal Treasury Obligations............. 173,723,485 (49.7%) 227,577,120 Foreign Obligations...... 31,751,086 (9.1%) 43,686,100 Government Sponsored..... 5,854,471 (1.7%) 7,073,233 Yankee Bonds............. 18,464,936 (5.3%) 26,274,500 ------------- ------------- Total Bonds.............. 249,081,988 (95.0%) 328,914,002 ------------- ------------- SHORT-TERM OBLIGATIONS Bank Note................ $ 1,999,841 (4.9%) Bankers' Acceptance...... 1,966,149 (4.8%) Commercial Paper......... $ 19,775,000 (1.8%) 13,785,000 (3.9%) 17,760,043 (43.9%) 31,189,000 Corporate Note........... 2,006,689 (5.0%) Federal Agency Obligations............. 9,613,137 (23.8%) Federal Treasury Obligations............. 6,874,040 (17.0%) ---------------- ------------- ------------- ------------- Total Short-Term Obligations............. 19,775,000 (1.8%) 13,785,000 (3.9%) 40,219,899 (99.4%) 31,189,000 ---------------- ------------- ------------- ------------- TOTAL INVESTMENTS........ 1,096,327,264 (100.1%) 345,910,339 (98.9%) 40,219,899 (99.4%) 1,110,947,646 Other Assets Less Liabilities............. (1,576,667) (-0.1%) 4,002,689 (1.1%) 236,376 (0.6%) 3,885,951 ---------------- ------------- ------------- ------------- NET ASSETS............... $ 1,094,750,597 (100.0%) $ 349,913,028 (100.0%) $ 40,456,275 (100.0%) $1,114,833,597 ---------------- ------------- ------------- ------------- ---------------- ------------- ------------- ------------- COMMON STOCK Aerospace................ (2.2%) Automotive............... (0.3%) Banking.................. (2.4%) Building................. (0.4%) Business Services........ (0.9%) Chemical................. (3.3%) Computer Software & Service................. (3.4%) Drug..................... (3.8%) Electrical Equipment..... (1.0%) Electronics.............. (3.3%) Financial Services....... (3.0%) Food & Beverage.......... (3.0%) Hospital Management...... (1.4%) Hospital Supply.......... (2.3%) Hotel & Restaurant....... (1.2%) Insurance................ (1.7%) Machinery................ (2.6%) Metals & Mining.......... (0.4%) Office Equipment......... (3.6%) Oil...................... (3.8%) Oil Services............. (0.9%) Paper.................... (0.4%) Personal Care............ (1.4%) Retail Trade............. (4.4%) Tobacco.................. (1.5%) Toys & Musical Instruments............. (0.5%) Utilities-Telephone...... (1.7%) Video.................... (2.6%) Total Common Stock....... (57.4%) CONVERTIBLE PREFERRED STOCK Oil Services............. (0.0%) PREFERRED STOCK Retail Trade............. (0.0%) Total Stock Securities... (57.4%) LONG-TERM DEBT SECURITIES Corporate Bonds: Banking.................. (1.8%) Financial Services....... (3.5%) Industrial-Miscellaneous. (3.5%) Mortgage Backed.......... (1.2%) Total Corporate Bonds.... (10.0%) Federal Agency Obligations............. (2.2%) Federal Treasury Obligations............. (20.4%) Foreign Obligations...... (3.9%) Government Sponsored..... (0.6%) Yankee Bonds............. (2.4%) Total Bonds.............. (29.5%) SHORT-TERM OBLIGATIONS Bank Note................ Bankers' Acceptance...... Commercial Paper......... (2.8%) Corporate Note........... Federal Agency Obligations............. Federal Treasury Obligations............. Total Short-Term Obligations............. (2.8%) TOTAL INVESTMENTS........ (99.7%) Other Assets Less Liabilities............. (0.3%) NET ASSETS............... (100.0%)
74 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) METROPOLITAN SERIES FUND, INC. 5. A SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995--(CONTINUED)
INTERNATIONAL STOCK PORTFOLIO -------------------------- VALUE (NOTE 1A) -------------- COMMON STOCK Airlines......................... $ 778,273 (0.3%) Automotive....................... 5,547,826 (1.9%) Banking.......................... 9,258,655 (3.1%) Beverages........................ 6,315,913 (2.1%) Broadcasting & Publishing........ 755,063 (0.3%) Building......................... 7,676,572 (2.6%) Business Services................ 5,642,530 (1.9%) Chemicals........................ 5,969,074 (2.0%) Electrical Equipment............. 9,578,893 (3.2%) Financial Services............... 9,274,046 (3.1%) Foods............................ 6,130,161 (2.1%) Health & Personal Care........... 10,013,145 (3.4%) Industrial--Miscellaneous........ 5,939,198 (2.0%) Insurance........................ 8,712,224 (2.9%) Leisure.......................... 5,033,575 (1.7%) Machinery........................ 10,540,444 (3.5%) Metals--Steel & Iron............. 3,707,213 (1.2%) Metals--Gold..................... 17,292,196 (5.8%) Metals--Miscellaneous............ 11,269,782 (3.8%) Miscellaneous.................... 1,417,500 (0.5%) Miscellaneous Materials.......... 10,149,225 (3.4%) Office Equipment................. 205,063 (0.1%) Offshore Funds & Investment Trusts......................... 5,181,098 (1.7%) Oil--Domestic.................... 9,941,445 (3.3%) Oil--International............... 783,833 (0.3%) Paper............................ 527,824 (0.2%) Railroad......................... 2,987,040 (1.0%) Real Estate...................... 5,468,829 (1.8%) Recreation....................... 3,126,583 (1.1%) Retail Trade..................... 9,116,882 (3.1%) Telecommunications............... 888,768 (0.3%) Textiles & Apparel............... 1,304,293 (0.4%) Transportation--Trucking......... 624,375 (0.2%) Utilities--Electric.............. 4,080,974 (1.4%) Utilities--Water................. 998,366 (0.3%) Wholesale & International Trade.......................... 4,857,355 (1.6%) -------------- Total Common Stock............... 201,094,236 (67.6%) Convertible Preferred Stock........ 426,075 (0.1%) Preferred Stock.................... 2,488,326 (0.9%) Total Equity Securities............ 204,008,637 (68.6%) Convertible Bonds.................. 17,774,377 (6.0%) -------------- TOTAL INVESTMENTS.................. 221,783,014 (74.6%) Other Assets Less Liabilities.... 75,678,027 (25.4%) -------------- NET ASSETS......................... $ 297,461,041 (100.0%) -------------- --------------
75 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) METROPOLITAN SERIES FUND, INC. 5. A SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995--(CONTINUED)
STOCK INDEX PORTFOLIO -------------------------- VALUE (NOTE 1A) ------------- COMMON STOCK Aerospace................................................................................... $ 13,979,982 (2.2%) Airlines.................................................................................... 2,644,937 (0.4%) Automotive.................................................................................. 16,087,052 (2.5%) Banking..................................................................................... 41,224,016 (6.5%) Beverages................................................................................... 35,762,761 (5.6%) Building.................................................................................... 6,721,186 (1.1%) Chemical.................................................................................... 22,748,995 (3.6%) Container................................................................................... 769,825 (0.1%) Cosmetics................................................................................... 4,724,749 (0.7%) Drug........................................................................................ 41,170,632 (6.5%) Electrical Connectors....................................................................... 1,504,050 (0.2%) Electrical Equipment........................................................................ 23,767,938 (3.7%) Electronics................................................................................. 26,279,796 (4.1%) Financial Services.......................................................................... 19,611,919 (3.1%) Foods....................................................................................... 16,942,138 (2.7%) Hospital Management......................................................................... 6,287,681 (1.0%) Hospital Supply............................................................................. 19,150,108 (3.0%) Hotel & Restaurant.......................................................................... 6,409,988 (1.0%) Industrials--Miscellaneous.................................................................. 13,838,876 (2.2%) Insurance................................................................................... 22,054,204 (3.5%) Leisure..................................................................................... 1,010,300 (0.2%) Machinery................................................................................... 9,363,339 (1.5%) Metals--Aluminum............................................................................ 2,557,576 (0.4%) Metals--Gold................................................................................ 3,688,584 (0.6%) Metals--Miscellaneous....................................................................... 2,603,457 (0.4%) Metals--Steel & Iron........................................................................ 2,102,738 (0.3%) Office Equipment............................................................................ 35,293,640 (5.6%) Oil--Crude Producers........................................................................ 577,675 (0.1%) Oil--Domestic............................................................................... 12,288,633 (1.9%) Oil--International.......................................................................... 37,270,188 (5.9%) Oil Services................................................................................ 6,695,613 (1.1%) Paper....................................................................................... 8,585,105 (1.4%) Photography................................................................................. 4,004,325 (0.6%) Printing & Publishing....................................................................... 7,978,951 (1.3%) Railroad.................................................................................... 7,750,478 (1.2%) Retail Trade................................................................................ 29,479,447 (4.6%) Services.................................................................................... 4,541,599 (0.7%) Shoes....................................................................................... 1,906,875 (0.3%) Soaps....................................................................................... 12,378,362 (1.9%) Textiles & Apparel.......................................................................... 1,231,638 (0.2%) Tire & Rubber............................................................................... 1,576,100 (0.2%) Toys & Musical Instruments.................................................................. 792,458 (0.1%) Transportation--Trucking.................................................................... 907,625 (0.1%) Utilities--Electric......................................................................... 21,261,693 (3.3%) Utilities--Gas Distribution................................................................. 3,778,086 (0.6%) Utilities--Gas Pipeline..................................................................... 3,294,056 (0.5%) Utilities--Telephone........................................................................ 53,586,928 (8.5%) Video....................................................................................... 14,232,219 (2.2%) ------------- Total Common Stock.......................................................................... 632,418,521 (99.4%) TOTAL SHORT-TERM OBLIGATIONS--U.S. TREASURY BILLS............................................. 5,503,636 (0.9%) ------------- TOTAL INVESTMENTS............................................................................. 637,922,157 (100.3%) Other Assets Less Liabilities................................................................. (2,098,918) (-0.3%) ------------- NET ASSETS.................................................................................... $ 635,823,239 (100.0%) ------------- ----------- ------------- -----------
76 NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) METROPOLITAN SERIES FUND, INC. 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995--(CONCLUDED)
AGGRESSIVE GROWTH PORTFOLIO ------------------------ VALUE (NOTE 1A) ------------- COMMON STOCK Aerospace.................................................................................... $ 37,289,175 (3.9%) Airlines..................................................................................... 23,823,062 (2.5%) Automotive................................................................................... 3,636,625 (0.4%) Business Services............................................................................ 43,265,943 (4.5%) Chemical..................................................................................... 9,393,750 (1.0%) Computer Software & Service.................................................................. 83,974,480 (8.8%) Diversified.................................................................................. 9,028,800 (0.9%) Drug......................................................................................... 23,960,467 (2.5%) Electrical Equipment......................................................................... 27,345,600 (2.9%) Electronics.................................................................................. 15,239,300 (1.6%) Financial Services........................................................................... 14,461,700 (1.5%) Food & Beverage.............................................................................. 18,494,325 (1.9%) Hospital Supply.............................................................................. 236,600 (0.0%) Hotel & Restaurant........................................................................... 57,102,144 (6.0%) Insurance.................................................................................... 52,168,826 (5.4%) Machinery.................................................................................... 32,567,513 (3.4%) Office Equipment............................................................................. 41,544,576 (4.3%) Oil.......................................................................................... 37,022,038 (3.9%) Oil Services................................................................................. 24,723,888 (2.6%) Personal Care................................................................................ 1,040,775 (0.1%) Printing & Publishing........................................................................ 7,862,175 (0.8%) Recreation................................................................................... 49,853,613 (5.2%) Retail Trade................................................................................. 120,841,866 (12.6%) Textiles & Apparel........................................................................... 72,565,958 (7.6%) Tobacco...................................................................................... 22,317,300 (2.3%) Utilities--Telephone......................................................................... 19,429,313 (2.0%) ------------- Total Common Stock........................................................................... 849,189,812 (88.6%) CONVERTIBLE PREFERRED STOCK Machinery.................................................................................... 6,481,163 (0.7%) PREFERRED STOCK Airlines..................................................................................... 7,062,000 (0.7%) ------------- Total Equity Securities........................................................................ 862,732,975 (90.0%) TOTAL LONG-TERM DEBT SECURITIES--CONVERTIBLE BONDS............................................. 9,658,850 (1.0%) TOTAL SHORT-TERM OBLIGATIONS--COMMERCIAL PAPER................................................. 58,265,000 (6.1%) ------------- TOTAL INVESTMENTS.............................................................................. 930,656,825 (97.1%) Other Assets Less Liabilities.................................................................. 28,258,408 (2.9%) ------------- NET ASSETS..................................................................................... $ 958,915,233 (100.0%) ------------- -------------
77 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, 1996 (UNAUDITED)
MONEY INTERNATIONAL AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------- ----------- ---------- ------------------------ ----------- ----------- ASSETS: Investments in Metropolitan Series Fund,Inc. at Value (Note 1A): Growth Portfolio (4,269,698 shares; cost $101,750,658)... $ 125,828,002 -- -- -- -- -- -- Income Portfolio (1,817,114 shares; cost $22,842,868).... -- $22,659,415 -- -- -- -- -- Money Market Portfolio (323,560 shares; cost $3,471,171).................. -- -- $3,420,032 -- -- -- -- Diversified Portfolio (5,512,792 shares; cost $80,659,387)................. -- -- -- $90,905,936 -- -- -- International Stock Portfolio (1,540,949 shares; cost $19,522,156)................. -- -- -- -- $ 19,153,994 -- -- Stock Index Portfolio (844,721 shares; cost $13,622,223).... -- -- -- -- -- $16,505,843 -- Aggressive Growth Portfolio (2,322,078 shares; cost $56,034,032)................. -- -- -- -- -- -- $64,019,697 ------------- ----------- ---------- ------------------------ ----------- ----------- Total Investments........... 125,828,002 22,659,415 3,420,032 90,905,936 19,153,994 16,505,843 64,019,697 Cash and Accounts Receivable...... 131 21 16,888 88 35 41 ------------- ----------- ---------- ------------------------ ----------- ----------- Total Assets................ 125,828,133 22,659,436 3,436,920 90,906,024 19,154,029 16,505,884 64,019,697 LIABILITIES....................... 655,789 121,528 616,888 97,980 53,034 351,984 ------------- ----------- ---------- ------------------------ ----------- ----------- NET ASSETS........................ $ 125,172,344 $22,537,908 $3,436,920 $90,289,136 $ 19,056,049 $16,452,850 $63,667,713 ------------- ----------- ---------- ------------------------ ----------- ----------- ------------- ----------- ---------- ------------------------ ----------- -----------
See Notes to Financial Statements. 78 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 ------------------------------------------------------------------------------------- MONEY INTERNATIONAL STOCK AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ---------- --------- ----------- ----------- ------------ --------- ----------- INVESTMENT INCOME: Income: Dividends (Note 2)...................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Expenses: Mortality and expense charges (Note 3)..................................... 24,424 4,616 1,035 17,881 4,489 4,199 14,696 ---------- --------- ----------- ----------- ------------ --------- ----------- Net investment income (loss)................ (24,424) (4,616) (1,035) (17,881) (4,489) (4,199) (14,696) ---------- --------- ----------- ----------- ------------ --------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................. 98,585 (8,905) (3,594) 33,043 10,683 17,238 14,501 Change in unrealized appreciation (depreciation) of investments............ 7,888,566 (457,115) 41,721 2,878,728 181,925 715,920 3,969,174 ---------- --------- ----------- ----------- ------------ --------- ----------- Net realized and unrealized gain (loss) on investments (Note 1B).................... 7,987,151 (466,020) 38,127 2,911,771 192,608 733,158 3,983,675 ---------- --------- ----------- ----------- ------------ --------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................. $7,962,727 $(470,636) $ 37,092 $2,893,890 $ 188,119 $ 728,959 $3,968,979 ---------- --------- ----------- ----------- ------------ --------- ----------- ---------- --------- ----------- ----------- ------------ --------- -----------
See Notes to Financial Statements. 79 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
MONEY MARKET GROWTH DIVISION INCOME DIVISION DIVISION --------------------------------- --------------------------------- ---------------- FOR THE THREE FOR THE THREE FOR THE THREE MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) ---------------- --------------- ---------------- --------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)..................... $ (24,424) $ 4,694,831 $ (4,616) $ 1,147,331 $ (1,035) Net realized gain (loss) from security transactions............... 98,585 293,233 (8,905) (8,290) (3,594) Unrealized appreciation (depreciation) of investments................ 7,888,566 19,543,807 (457,115) 1,977,261 41,721 ---------------- --------------- ---------------- --------------- ---------------- Net increase (decrease) in net assets resulting from operations................. 7,962,727 24,531,871 (470,636) 3,116,302 37,092 ---------------- --------------- ---------------- --------------- ---------------- From capital transactions: Net premiums................ 10,920,142 41,455,659 1,932,990 8,687,776 985,143 Redemptions (Note 4)........ (1,052,808) (2,766,288) (188,822) (546,157) (4,911) Net portfolio transfers (Note 4)................... 357,897 395,373 36,138 36,042 (374,271) Other net transfers (Note 4)......................... (5,456,236) (19,059,583) (1,083,233) (4,186,427) (180,873) Net increase (decrease) in net assets resulting from capital transactions....... 4,768,995 20,025,161 697,073 3,991,234 425,088 ---------------- --------------- ---------------- --------------- ---------------- NET CHANGE IN NET ASSETS...... 12,731,722 44,557,032 226,437 7,107,536 462,180 Net Assets--beginning of period....................... 112,440,622 67,883,590 22,311,471 15,203,935 2,974,740 ---------------- --------------- ---------------- --------------- ---------------- Net Assets--end of period..... $ 125,172,344 $ 112,440,622 $ 22,537,908 $ 22,311,471 $ 3,436,920 ---------------- --------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------- --------------- ---------------- DIVERSIFIED DIVISION --------------------------------- FOR THE THREE FOR THE YEAR MONTHS ENDED FOR THE YEAR ENDED MARCH 31, ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 (UNAUDITED) 1995 --------------- ---------------- --------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)..................... $ 128,508 $ (17,881) $ 4,695,480 Net realized gain (loss) from security transactions............... 35,201 33,043 248,523 Unrealized appreciation (depreciation) of investments................ 4,641 2,878,728 10,898,818 --------------- ---------------- --------------- Net increase (decrease) in net assets resulting from operations................. 168,350 2,893,890 15,842,821 --------------- ---------------- --------------- From capital transactions: Net premiums................ 2,988,786 7,955,690 31,888,789 Redemptions (Note 4)........ (89,665) (705,739) (2,358,803) Net portfolio transfers (Note 4)................... (3,328,483) (33,297) (416,768) Other net transfers (Note 4)......................... (1,058,931) (4,002,149) (15,856,704) Net increase (decrease) in net assets resulting from capital transactions....... (1,488,293) 3,214,505 13,256,514 --------------- ---------------- --------------- NET CHANGE IN NET ASSETS...... (1,319,943) 6,108,395 29,099,335 Net Assets--beginning of period....................... 4,294,683 84,180,741 55,081,406 --------------- ---------------- --------------- Net Assets--end of period..... $ 2,974,740 $ 90,289,136 $ 84,180,741 --------------- ---------------- --------------- --------------- ---------------- ---------------
See Notes to Financial Statements. 80
AGGRESSIVE INTERNATIONAL STOCK DIVISION STOCK INDEX DIVISION GROWTH DIVISION --------------------------------- --------------------------------- ---------------- FOR THE THREE FOR THE THREE FOR THE THREE MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) ---------------- --------------- ---------------- --------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)..................... $ (4,489) $ 27,416 $ (4,199) $ 213,805 $ (14,696) Net realized gain (loss) from security transactions............... 10,683 28,349 17,238 29,512 14,501 Unrealized appreciation (depreciation) of investments................ 181,925 136,578 715,920 2,271,366 3,969,174 ---------------- --------------- ---------------- --------------- ---------------- Net increase (decrease) in net assets resulting from operations................. 188,119 192,343 728,959 2,514,683 3,968,979 ---------------- --------------- ---------------- --------------- ---------------- From capital transactions: Net premiums................ 2,833,781 12,024,423 3,173,708 7,870,004 9,948,415 Redemptions (Note 4)........ (153,984) (392,901) (60,312) (232,828) (437,362) Net portfolio transfers (Note 4)................... (38,614) (658,961) 486,880 1,324,319 45,919 Other net transfers (Note 4)......................... (1,069,390) (5,248,525) (1,302,155) (2,897,249) (4,190,035) Net increase (decrease) in net assets resulting from capital transactions....... 1,571,793 5,724,036 2,298,121 6,064,246 5,366,937 ---------------- --------------- ---------------- --------------- ---------------- NET CHANGE IN NET ASSETS...... 1,759,912 5,916,379 3,027,080 8,578,929 9,335,916 Net Assets--beginning of period...................... 17,296,137 11,379,758 13,425,770 4,846,841 54,331,797 ---------------- --------------- ---------------- --------------- ---------------- Net Assets--end of period..... $ 19,056,049 $ 17,296,137 $ 16,452,850 $ 13,425,770 $ 63,667,713 ---------------- --------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------- --------------- ---------------- FOR THE YEAR ENDED DECEMBER 31, 1995 --------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)..................... $ 4,726,548 Net realized gain (loss) from security transactions............... 152,387 Unrealized appreciation (depreciation) of investments................ 4,188,117 --------------- Net increase (decrease) in net assets resulting from operations................. 9,067,052 --------------- From capital transactions: Net premiums................ 32,859,273 Redemptions (Note 4)........ (1,185,240) Net portfolio transfers (Note 4)................... 2,162,117 Other net transfers (Note 4)......................... (14,163,669) Net increase (decrease) in net assets resulting from capital transactions....... 19,672,481 --------------- NET CHANGE IN NET ASSETS...... 28,739,533 Net Assets--beginning of period...................... 25,592,264 --------------- Net Assets--end of period..... $ 54,331,797 --------------- ---------------
81 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 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 seven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund"). 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. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1. SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS Investments in shares of the Fund 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 separately 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 reserves 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 or 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 policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2. DIVIDENDS There were no dividends declared, as of March 31, 1996, for the period of January 1, 1996 through March 31, 1996. 82 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a daily charge against the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge is equivalent to the effective annual rate of .90% of the average daily value of the net assets in the Separate Account which are attributable to such policies. 4. RECLASSIFICATION Items in the Statement of Changes in Net Assets for December 31, 1995 have been reclassified to conform to changes made to the format presentation. 83 APPENDIX TO PROSPECTUS OPTIONAL INCOME PLANS The insurance proceeds when the covered person dies, the proceeds payable on the Final Date, or the cash surrender value payable on full surrender of a Certificate, instead of being paid in one lump sum, may be applied under one or more of the following income plans. Values under the income plans do not depend upon the investment experience of a separate account. The selection of an income plan can have significant federal income tax consequences associated with the Certificate proceeds. Owners and beneficiaries should consult with qualified tax advisers in this regard. OPTION 1. INTEREST INCOME The amount applied will earn interest which will be paid monthly. Withdrawals of at least $500 each may be made at any time by written request. OPTION 2. INSTALLMENT INCOME FOR A STATED PERIOD Monthly installment payments will be made so that the amount applied, with interest, will be paid over the period chosen (from 1 to 30 years). OPTION 2A. INSTALLMENT INCOME OF A STATED AMOUNT Monthly installment payments of a chosen amount will be made until the entire amount applied, with interest, is paid. OPTION 3. SINGLE LIFE INCOME--GUARANTEED PAYMENT PERIOD Monthly payments will be made during the lifetime of the payee with a chosen guaranteed payment period of 10, 15 or 20 years. OPTION 3A. SINGLE LIFE INCOME--GUARANTEED RETURN Monthly payments will be made during the lifetime of the payee. If the payee dies before the total amount applied under this plan has been paid, the remainder will be paid in one sum as a death benefit. OPTION 4. JOINT AND SURVIVOR LIFE INCOME Monthly payments will be made jointly to two persons during their lifetime and will continue during the remaining lifetime of the survivor. A total payment period of 10 years is guaranteed. OTHER FREQUENCIES AND PLANS. Instead of monthly payments, the owner may elect to have payments made quarterly, semiannually or annually. Other income plans may be arranged with MetLife's approval. CHOICE OF INCOME PLANS. See "Certificate Benefits--Optional Income Plans" and "Certificate Rights-- Surrenders," regarding how optional income plans may be chosen. When an income plan starts, a separate contract will be issued describing the terms of the plan. Specimen contracts may be obtained from the Administrative Office, and reference should be made to these forms for further details. LIMITATIONS. If the payee is not a natural person, the choice of an income plan will be subject to MetLife's approval. A collateral assignment will modify a prior choice of income plan. The amount due the assignee will be payable in one sum and the balance will be applied under the income plan. A choice of an income plan will not become effective unless each payment under the plan would be at least $50. Income plan payments may not be assigned and, to the extent permitted by law, will not be subject to the claims of creditors. INCOME PLAN RATES. Amounts applied under the interest income and installment income plans will earn interest at a rate set from time to time by MetLife but never less than 3% per year. Life income payments will be based on a rate set by MetLife and in effect on the date the amount to be applied becomes payable, but never less than the minimum payments guaranteed in the Certificate. Such minimum guaranteed payments are based on certain assumed mortality rates and an interest rate of 3%. 84 OPTIONAL INSURANCE BENEFITS Optional insurance benefit riders may be attached to a Certificate, subject to, their availability under the Group Policy, their availability under state law, certain insurance underwriting requirements and the payment of additional premiums. These riders are described in general terms below. Limitations and conditions are contained in the riders, and the description below is subject to the specific terms of the riders. A prospective purchaser may obtain a specimen Certificate with riders from the Administrative Office. The duration, but not the amount, of rider benefits may depend on the investment experience of a separate account. The following riders will be provided to all Owners if elected by the participating entity: WAIVER OF MONTHLY DEDUCTION DURING TOTAL DISABILITY. This rider waives the entire monthly deduction during the "Total Disability" of the covered person if the covered person is "Totally Disabled" for at least six months beginning prior to age 60. "Total Disability" or "Totally Disabled" means that because of sickness or an injury the covered person cannot do his or her job, and cannot do any other job for which they are fit by education, training or experience. Monthly deductions will continue to be waived until the earliest of the following: (a) the date the covered person is no longer totally disabled, or (b) the date the covered person does not give MetLife proof of Total Disability when required, or (c) the day before the date the covered person becomes 65 years old. If there has been an increase in the death benefit resulting from a request by the Owner and the Owner at the time of the increase did not request or did not qualify for this rider with respect to such increase, monthly deductions for charges related to such increase will continue to be made against the cash value of the Certificate. This could result in the cash value being insufficient to cover the monthly deductions related to the increase. In such a case, the grace period and termination provisions of the Certificate would apply only to such increase in death benefit. Since the monthly deduction with respect to the increase in the death benefit could reduce the cash value of the Certificate to zero, it may be advantageous for the Owner, at the time of the total disability, to reduce the death benefit to that amount which is subject to this rider. ACCELERATED DEATH BENEFIT. This rider provides for a one-time discounted payment of all or a portion of the death benefit to the Owner if the covered person's life span has been drastically limited so that the covered person is expected to die within six months or twelve months, as specified in the rider, or is not expected recover from the cause of reduction in life span. In addition, some riders also provide this benefit if the covered person is permanently confined to a Nursing Home and has a life expectancy of less than two years. The size of the benefit payment and the maximum benefit are stated in the rider. There are no premiums or rider fees for this rider. A payment of all the discounted death benefit will not be subject to any surrender charges. Upon payment of a portion of the death benefit, the death benefit under the Certificate is reduced to reflect the amount of the payment. In addition, the specified face amount, the cash value and the cash surrender value are reduced by the same proportion as the amount of the reduction of the death benefit divided by the death benefit prior to the payment. Any outstanding loan is reduced and paid out of the proceeds of the portion only if such reduction is necessary to keep the Certificate in force. Moreover, in the case of payment of all of the death benefit, the amount of any outstanding Certificate loan will be deducted from the payment. The payment under this rider may be taxable or may affect eligibility for benefits under state or federal law. Counsel and other competent advisors should be consulted to determine the effect on an individual situation. LIVING BENEFITS. This rider provides benefits in the form of living benefits to the Owner or covered person when "Unable to Care" for the Covered Person and when conditions specified in the rider are met. "Unable to Care" means that the Owner or covered person is unable to perform specified activities of daily living without human assistance each and every time performance of the activities is necessary. This may include the following types of activities: bathing, dressing, transferring/mobility, toileting/continence, and eating. The amount of living benefits available under this rider will be an amount of up to 50% of the specified face amount on the date when the conditions specified in this rider are met. However, the amount of Death Benefit payable at the covered person's death will be reduced by the amount of living benefits paid. Living benefits will not be paid for conditions resulting from, caused or contributed by a mental or nervous condition, other than Alzheimer's disease; or alcohol or drug abuse. Preexisting conditions may not be covered by this rider. 85 The payment under this rider may be taxable or may affect eligibility for benefits under state or federal law. Counsel and other competent advisors should be consulted to determine the effect on an individual situation. LIVING BENEFITS. This rider provides benefits in the form of living benefits to the Owner or covered person when "Unable to Care" for the Covered Person and when conditions specified in the rider are met. "Unable to Care" means that the Owner or covered person is unable to perform specified activities of daily living without human assistance each and every time performance of the activities is necessary. This may include the following types of activities: bathing, dressing, transferring/mobility, toileting/continence, and eating. The amount of living benefits availabe under this rider will be an amount of up to 50% of the specified face amount on the date when the conditions specified in this rider are met. However, the amount of Death Benefit payable at the covered person's death will be reduced by the amount of living benefits paid. Living benefits will not be paid for conditions resulting from, caused or contributed by a mental or nervous condition, other than Alzheimer's disease; or alcohol or drug abuse. Preexisting conditions may not be covered by this rider. The payment under this rider may be taxable or may affect eligibility for benefits under state or federal law. Counsel and other competent advisors should be consulted to determine the effect on an individual situation. The following riders may be elected by either the participating entity or the Owner, as set forth in the Policy or Certificate: ACCIDENTAL DEATH BENEFIT. This rider provides additional insurance equal to an amount stated in the Certificate if the covered person dies from an accident prior to age 70. It also provides an additional amount equal to twice the stated amount if the covered person dies from an accident occurring while the covered person is a fare-paying passenger on a common carrier. This rider is available at issue only. ACCIDENTAL DEATH OR DISMEMBERMENT BENEFIT. In addition to benefits described under "Accidental Death Benefits," above, this rider provides benefits if a covered person is injured in an accident if the covered loss occurs not more than 90 days after the date of an accident and prior to age 70. Covered losses may include loss of life, a hand, foot or sight of an eye. The amount of benefits on account of a covered person is the amount specified in the Certificate. DEPENDENT LIFE BENEFITS. This rider provides insurance on the life of a dependent payable to the Owner or other designated beneficiary while the benefits are in effect for that dependent on the date of death as set forth in this rider. A dependent may be the Owner's spouse or unmarried child. A child who may be covered includes a child who is supported solely by you and permanently living in the home of which you are the head, a child who is legally adopted or a stepchild who lives in your home. A child may be covered until age 19 and in some cases up to 23 years of age. A dependent child with a physical handicap or mental retardation may continue to be a dependent. The amount of dependent term insurance will be specified in the rider. 86 METLIFE -REGISTERED TRADEMARK- GV UL GROUP VARIABLE UNIVERSAL LIFE PROSPECTUSES FOR - GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY - METROPOLITAN SERIES FUND, INC. VERSION 1 ML-GVUL (8/96 EDITION) PRINTED IN U.S.A. POLICY FORM NO. 2130-S 96061ELS (5/97) MLIC-LD [LOGO] METLIFE CUSTOMER SERVICE CENTER BULK RATE 177 SOUTH COMMONS DRIVE ZIP+4 BARCODED AURORA, ILLINOIS 60507 U.S. POSTAGE PAID ADDRESS CORRECTION REQUESTED RUTLAND, VT FORWARDING AND RETURN PERMIT 220 POSTAGE GUARANTEED
METLIFE -REGISTERED TRADEMARK- GVUL PROSPECTUSES FOR - GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY - METROPOLITAN SERIES FUND, INC. AUGUST 1, 1996 PROSPECTUS FOR GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES ISSUED UNDER THE GROUP POLICIES (Minimum Specified Face Amount For A Certificate-$10,000) (Minimum Group Size-1,000 eligible lives) Issued by METROPOLITAN LIFE INSURANCE COMPANY Group variable universal life insurance policies ("Group Policies") and certificates available through the Group Policies ("Certificates") are offered by this Prospectus. The Group Policies and Certificates are issued by Metropolitan Life Insurance Company, New York, NY ("MetLife"). Generally, so long as the Group Policy remains in force, the Certificates are designed to provide lifetime insurance coverage on the covered persons named in the Certificates, as well as maximum flexibility in connection with premium payments. This flexibility allows an owner of a Certificate to provide for changing insurance needs within the confines of a single insurance product. Group Policies may be issued to an employer (referred to herein as "participating entity") or to a trust that is adopted by a participating entity. Employees (including employees' spouses where specified in the Group Policy) of adopting employers may own Certificates issued under their respective participating entity's Group Policy. Unless the Certificate provides otherwise, only the owner of the Certificate (the "Owner") may exercise the rights set forth in the Certificate. The Certificate provides for a death benefit payable at the covered person's death. The death benefit varies because it includes the Certificate's cash value in addition to a fixed insurance amount. The premiums paid, less premium expense charges, will generally be allocated at the Owner's discretion among one or more of the available investment divisions of MetLife Separate Account UL ("Separate Account") and/or a fixed interest account ("Fixed Account") within the General Account of MetLife. The participating entity may select which investment divisions will be available to Owners. If the participating entity is contributing premiums to Certificates issued under its Group Policy, it may limit the ability of Owners to allocate any premiums contributed by such participating entity among the available investment divisions. The assets in each investment division are invested in shares of a corresponding portfolio of the Metropolitan Series Fund, Inc. ("Fund"). The accompanying prospectus for the Fund describes the investment objectives and certain attendant risks of the six currently available portfolios of the Fund: Growth Portfolio, Income Portfolio, Diversified Portfolio, Aggressive Growth Portfolio, International Stock Portfolio and Stock Index Portfolio. The International Stock Portfolio is NOT available in California. The Certificate's cash value will vary with the investment experience of the Separate Account investment divisions to which amounts are allocated and the fixed rates of interest earned by allocations to the Fixed Account. The cash value will also be adjusted for other factors, including the amount of charges imposed and the premium payments made. The Owner may withdraw or borrow a portion of the Certificate's cash surrender value, or the Certificate may be fully surrendered, at any time, subject to certain limitations. The Owner has the flexibility to vary the frequency and amount of premium payments, subject to certain restrictions and conditions. MetLife is the investment manager of the Fund and the distributor of its shares. MetLife also distributes and administers the Certificates. State Street Research & Management Company ("State Street Research") is the sub-investment manager with respect to the Growth, Income, Diversified and Aggressive Growth Portfolios of the Fund. State Street Research is a wholly-owned subsidiary of MetLife. GFM International Investors Limited ("GFM") is the sub-investment manager with respect to the International Stock Portfolio of the Fund. GFM is a subsidiary of MetLife. As in the case of other life insurance policies, it may not be advantageous to purchase group variable universal life insurance as a replacement for an existing life insurance policy or in addition to an existing variable universal life insurance policy. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO THE CURRENT PROSPECTUS FOR THE METROPOLITAN SERIES FUND, INC., WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. 1 Madison Avenue, New York, New York 10010 Telephone (800) 523-2894 TABLE OF CONTENTS
PAGE --------- DEFINITIONS...................................... A-3 SUMMARY.......................................... A-5 Who is the Issuer of the Group Policies and Certificates?................................... A-5 What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund?............... A-5 What Death Benefit is Available under the Certificate?.................................... A-6 What Flexibility Does an Owner have to Adjust the Amount of the Death Benefit?.................... A-6 What Flexibility Does an Owner have in Connection with Premium Payments?.......................... A-6 What Happens to Certificates when the Participating Entity's Active Participation in the Group Policy is Terminated?................. A-7 If the Participating Entity Continues to Participate in the Group Policy, How Long Will the Certificate Remain in Force?................ A-7 How are Net Premiums Allocated?.................. A-7 May the Certificate be Surrendered or the Cash Value Partially Withdrawn?...................... A-7 Is There a "Free Look" Period?................... A-8 What is the Loan Privilege?...................... A-8 What Charges are Assessed in Connection with the Certificate?.................................... A-8 What is the Tax Treatment of Cash Value?......... A-9 Is the Beneficiary Subject to Federal Income Tax on the Death Benefit?........................... A-9 Is the Death Benefit or the Cash Value Subject to Federal Estate Tax?............................. A-9 How should Premium Payments, Owner Requests and Other Communications be sent to MetLife?........ A-9 SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND.... A-9 The Separate Account............................. A-9 Metropolitan Series Fund......................... A-10 CERTIFICATE BENEFITS............................. A-11 Death Benefit.................................... A-11 Cash Value....................................... A-12 Benefit at Final Date............................ A-19 Optional Income Plans............................ A-19 Optional Insurance Benefits...................... A-19 PAYMENT AND ALLOCATION OF PREMIUMS............... A-20 PAGE --------- Issuance of a Certificate........................ A-20 Premiums......................................... A-20 Allocation of Premiums and Cash Value............ A-21 Termination of Participating Entity Participation in the Group Policy............................. A-22 Effect of Termination of Group Policy Participation on Owners......................... A-23 Certificate Termination and Reinstatement While the Group Policy is in Effect................... A-23 CHARGES AND DEDUCTIONS........................... A-24 Premium Expense Charges.......................... A-24 Monthly Deduction From Cash Value................ A-24 Charges Against the Separate Account............. A-25 Guarantee of Certain Charges..................... A-26 Other Charges.................................... A-26 ILLUSTRATIONS OF DEATH BENEFIT, CASH VALUES, CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS....... A-26 CERTIFICATE RIGHTS............................... A-30 Loan Privileges.................................. A-30 Surrender and Withdrawal Privileges.............. A-31 Exchange Privilege............................... A-31 THE FIXED ACCOUNT................................ A-32 General Description.............................. A-32 Fixed Account Cash Value......................... A-32 Death Benefit, Transfer, Withdrawal, Surrender and Certificate Loan Rights..................... A-33 RIGHTS RESERVED BY METLIFE....................... A-33 OTHER CERTIFICATE PROVISIONS..................... A-33 SALES AND ADMINISTRATION OF THE GROUP POLICIES AND CERTIFICATES................................ A-34 DISTRIBUTION OF THE GROUP POLICIES AND CERTIFICATES.................................... A-35 FEDERAL TAX MATTERS.............................. A-35 MANAGEMENT....................................... A-37 VOTING RIGHTS.................................... A-40 Right to Instruct Voting of Fund Shares.......... A-40 REPORTS.......................................... A-40 STATE REGULATION................................. A-41 REGISTRATION STATEMENT........................... A-41 LEGAL MATTERS.................................... A-41 EXPERTS.......................................... A-41 FINANCIAL STATEMENTS............................. A-42 APPENDIX TO PROSPECTUS........................... A-80
THE GROUP POLICY AND CERTIFICATE ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. METLIFE DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED PROSPECTUS OR ANY SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY METLIFE. A-2 DEFINITIONS ADMINISTRATIVE OFFICE--The office of MetLife at 177 South Commons Drive, Aurora, Illinois 60507, to which all Owner communications are to be sent. MetLife may, by written notice, name other locations within the United States to serve as designated offices, in place of or in addition to the office above. AGE--For each covered person in a particular group, Age is defined as of a day selected by the participating entity and set forth in the Group Policy. Age can be measured from the Date of the Group Policy or from December 31st of a given year, or from any other date agreed to by MetLife and the participating entity. ALLOCATION DATE--The date the first premium is applied to the Separate Account pursuant to the designation in the Certificate enrollment form and/or Group Policy application, as applicable. During the first Group Policy year, it is set at twenty days after the Investment Start Date with respect to any Certificate. During this twenty day period the net premium allocated to the investment divisions of the Separate Account under any new Certificate will be applied to the Fixed Account. After the first Group Policy year, the Allocation Date for all new Certificates issued with respect to that Group is the Investment Start Date. BENEFICIARY--The beneficiary is the person or persons designated by the Owner to receive the insurance proceeds upon the death of the covered person. CASH SURRENDER VALUE--The cash value less any indebtedness and any accrued and unpaid monthly deduction. CASH VALUE--The sum of the Certificate cash values in the Fixed Account, the investment divisions of the Separate Account and the Loan Account. CERTIFICATE--The group variable universal life insurance certificates issued under the group variable universal life insurance policy offered by MetLife and described in this Prospectus. CERTIFICATE MONTH--The month beginning on the monthly anniversary. COVERED PERSON--The person upon whose life the Certificate is issued. DATE OF RECEIPT--The date premiums and communications are actually received at an Administrative Office. Premium payments and communications will be deemed to be received on the Date of Receipt with three exceptions: (1) when they are received on any day that is not a Valuation Date; (2) when they are received by means other than U.S. mail after 4:00 p.m. New York City time. With regard to (1) and (2) above, the Date of Receipt will be deemed to be the next Valuation Date. The third exception is the date of receipt for the first premium payment with regard to each Certificate. In this case, and subject to the exceptions set forth in (1) and (2) above, the Date of Receipt is the later of (1) the Date of Certificate and (2) the date the first premium for a Certificate is received at the Administrative Office. DATE OF CERTIFICATE--The effective date for life insurance protection under the Certificate. The Date of Certificate is set forth in the Certificate and is used to determine Certificate years and Certificate months from issue. Certificate anniversaries are measured from the Date of Certificate. DATE OF GROUP POLICY--The date set forth in the Group Policy that is used to determine Group Policy years and Group Policy months. Group Policy anniversaries are measured from the Date of Group Policy. FINAL DATE--The certificate anniversary on which the covered person is age 95 or later if specified in the Certificate. FIXED ACCOUNT--An account which is part of the General Account and to which MetLife will allocate net premiums as directed by the Owner or participating entity, as applicable, and credit certain fixed rates of interest. GENERAL ACCOUNT--The assets of MetLife other than those allocated to the Separate Account or any other legally-segregated separate account. GROUP--A participating entity and all Owners and/or people eligible to become Owners under the participating entity's Group Policy. A-3 GROUP POLICY--For ease of reference in this Prospectus, this term includes both the group variable universal life insurance policy that the participating entity either participates in, is a party to or owns and which is offered by MetLife and described in this Prospectus together with any administration agreement entered into between the participating entity and MetLife. INDEBTEDNESS--The total of any unpaid Certificate loan and loan interest. INVESTMENT START DATE--The Date of Receipt of the first premium with respect to a Certificate. INVESTMENT DIVISION--A subdivision of the Separate Account. The assets in each investment division are invested exclusively in the shares of a specified portfolio. LOAN ACCOUNT--An account within the General Account to which cash value from the Separate Account and/or the Fixed Account in an amount equal to a Certificate loan requested by an Owner is transferred. MINIMUM GROUP SIZE--The minimum number of people in a group that is necessary before an employer can purchase a Group Policy. The minimum group size is currently 1,000 lives; however, MetLife reserves the right to issue a Group Policy or provide coverage to a participating entity that does not meet the minimum group size. MINIMUM SPECIFIED FACE AMOUNT--The minimum specified face amount of insurance for which a Certificate may be issued. The amount is set forth in the Certificate. The Certificate will never specify a minimum specified face amount of less than $10,000. MONTHLY ANNIVERSARY--The same date in each month as the Date of Group Policy or the date the Certificate is issued, as applicable. For purposes of the Separate Account, whenever the monthly anniversary date falls on a date other than a valuation date, the next valuation date will be deemed to be the monthly anniversary. MONTHLY DEDUCTION--Charges deducted monthly from the cash value of a Certificate and which include any monthly cost of insurance, monthly cost of benefits provided by riders and monthly administration charge. OWNER--The person so designated in the enrollment form for the Certificate or as subsequently changed. PAID-UP--An election under the Certificate whereby the Owner may terminate the death benefit (and any riders in effect) and use all or part of the cash surrender value as a single premium for a paid-up benefit under the Certificate. If the paid-up election is made, all or part of the remaining cash value in the Certificate will be transferred to the General Account and may no longer be allocated to the Separate Account or the Fixed Account. The Owner will receive any remaining cash surrender value that is not used to purchase a paid-up benefit. The paid-up benefit elected must not be more than can be purchased using the Certificate's cash surrender value or more than the death benefit under the Certificate at the time the election is made and must not be less than $10,000. PLANNED PERIODIC PREMIUM--An Owner's self-determined amount of premium planned to be paid at fixed intervals over a specified period of time. The Owner is not required to follow this schedule after the first premium payment. PORTABLE--A status that occurs when a covered person is no longer part of the participating entity's group. A Certificate becomes portable when an event specified in the Certificate occurs. These events may include: termination of the covered person's employment (other than through retirement) and retirement as determined by the Participating Entity. An Owner of a portable Certificate will no longer be deemed to be a member of the participating entity's group for purposes of determining cost of insurance rates and charges. PORTFOLIO--A portfolio represents a different class (or series) of stock of Metropolitan Series Fund, Inc., a mutual fund in which the Separate Account assets are invested. PRO RATA BASIS--Allocations made in the same proportion that the Certificate's cash value in the Fixed Account and the Certificate's cash value in each investment division of the Separate Account bear to the Certificate's total cash value (except for the cash value, if any, in the Loan Account) as of the Date of Receipt of a request. A-4 SEPARATE ACCOUNT--Metropolitan Life Separate Account UL, a separate investment account of MetLife through which premiums paid under the Certificate are invested to the extent allocated to the Separate Account by the Owner. SPECIFIED FACE AMOUNT--The amount set forth in the Certificate. VALUATION DATE--Each day on which the New York Stock Exchange is open for trading or, on days other than when the New York Stock Exchange is open, on which it is determined that there is a sufficient degree of trading in the Fund's portfolio securities that the current net asset value of its redeemable securities might be materially affected. Valuations for any date other than a Valuation Date will be determined as of the next Valuation Date. VALUATION PERIOD--The period between two successive Valuation Dates, commencing at 4:00 p.m., New York City time, on each valuation date and ending at 4:00 p.m., New York City time, on the next succeeding Valuation Date. SUMMARY Unless the context indicates otherwise, this summary and the discussion in the rest of this Prospectus assume that cash surrender values are sufficient to pay all charges deducted on monthly anniversaries, that no Certificate loans have been made and that no riders are in effect (see "Loan Privileges--Effect of a Certificate Loan," "Payment and Allocation of Premiums--Certificate Termination and Reinstatement While the Group Policy is in Effect," and "Appendix to Prospectus"). This Prospectus describes only those aspects of the Certificate that relate to the Separate Account since only interests in the Separate Account are being offered by this Prospectus. Aspects of the Fixed Account are briefly summarized in order to give a better understanding of how the Certificate functions (see "The Fixed Account"). WHO IS THE ISSUER OF THE GROUP POLICIES AND CERTIFICATES? MetLife, the issuer of the Group Policies and Certificates, is a mutual life insurance company. It was incorporated under the laws of the State of New York in 1866 and since 1868 it has been engaged in the life insurance business under the name Metropolitan Life Insurance Company. Its Home Office is located at 1 Madison Avenue, New York, New York 10010. It is authorized to transact business in all states of the United States, the District of Columbia, Puerto Rico and all Provinces of Canada. MetLife, serving millions of people, is one of the largest financial services companies in the world with many of the largest United States corporations for its clients. On December 31, 1995, MetLife had total life insurance in force of approximately $1.3 trillion and total assets under management of over $179 billion. WHAT ARE SEPARATE ACCOUNT UL, THE FIXED ACCOUNT AND THE METROPOLITAN SERIES FUND? The Owner may allocate the net premiums paid under the Certificate to one or more of the investment divisions of the Separate Account, a separate investment account of MetLife (see "The Separate Account") and/or to a Fixed Account established by MetLife. In some cases, however, the participating entity may select the investment divisions available to Owners. Also, the participating entity may retain the right to allocate any net premiums it pays unless and until the covered person retires (as determined by the participating entity) or the Owner's Certificate becomes portable. There are currently six investment divisions available in the Separate Account. The assets in each division are invested in a separate class (or series) of stock of the Fund, a "series" type of mutual fund (see "Metropolitan Series Fund"). Each class of stock represents a separate portfolio within the Fund. The six portfolios of the Fund which are currently available to Owners are the Growth Portfolio, the Income Portfolio, the Diversified Portfolio, the Aggressive Growth Portfolio, the International Stock Portfolio and the Stock Index Portfolio. The International Stock Portfolio is not available in California. Net premiums allocated to the Fixed Account are held in the General Account of MetLife. Each portfolio of the Fund has a different investment objective and is managed by MetLife. For providing investment management services to the Fund, MetLife receives a fee from the Fund equivalent to an annual A-5 rate of .25% of the average daily value of the aggregate net assets of the Growth, Income, Diversified, and Stock Index Portfolios and an annual rate of .75% of the average daily value of the aggregate net assets of the International Stock and Aggressive Growth Portfolios. State Street Research provides sub-investment management services with respect to the Growth, Income, Aggressive Growth and Diversified Portfolios. GFM provides sub-investment management services with respect to the International Stock Portfolio. For these services, State Street Research and GFM receive an annual percentage fee from MetLife. State Street Research and GFM are subsidiaries of MetLife and their fees are the sole responsibility of MetLife, and not the Fund. In addition to the investment management fees, other direct expenses are charged against the assets of the Fund. For a full description of the Fund, see the prospectus for the Fund, which is attached at the end of this Prospectus, and the Fund's Statement of Additional Information referred to therein. WHAT DEATH BENEFIT IS AVAILABLE UNDER THE CERTIFICATE? The Certificate provides for the payment of a benefit upon the death of the covered person. The death benefit is the specified face amount of the Certificate plus the cash value on the date of death. If greater than the death benefit otherwise payable a minimum death benefit equivalent to a percentage, determined by age at death, of the cash value will be paid. The insurance proceeds payable will be reduced by any outstanding indebtedness and any accrued and unpaid charges (see "Certificate Benefits--Death Benefit"). In addition, an Owner has the flexibility to add optional insurance benefits by riders specified in the Certificate. These may include a waiver of monthly deduction during total disability rider; an accelerated death benefit rider a living benefits rider; an accidental death benefit rider; an accidental death or dismemberment benefit rider; and a dependent life benefits rider (see "Certificate Benefits--Optional Insurance Benefits"). The cost of these optional insurance benefits will be deducted from the cash value as part of the monthly deduction (see "Charges and Deductions--Monthly Deduction From Cash Value"). Proceeds under the Certificate may be received in cash or under one of the available optional income plans described in the Appendix to Prospectus (see "Certificate Benefits--Optional Income Plans"). WHAT FLEXIBILITY DOES AN OWNER HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT? The Owner may increase the specified face amount of the Certificate on a date or dates determined by the participating entity and set forth in the Group Policy (see "Certificate Benefits"). For employees of a participating entity, automatic increases in specified face amount will be made in conjunction with each employee's salary increase on a date or dates specified by the participating entity. Any increases in the death benefit are subject to MetLife's underwriting rules (see "Certificate Benefits--Change in Specified Face Amount"). Any specified face amount increase also will result in additional charges (see "Certificate Benefits--Increases," and "Effect of Changes in Specified Face Amount on Charges"). The specified face amount may also be decreased by the Owner after the first Certificate year. The specified face amount may never be less than the minimum specified face amount set forth in the Certificate. In no event will the specified face amount be less than $10,000. An increase or decrease in the death benefit may have tax consequences (see "Federal Tax Matters"). WHAT FLEXIBILITY DOES AN OWNER HAVE IN CONNECTION WITH PREMIUM PAYMENTS? If elected by a participating entity and authorized by the Owner, premiums are paid through payroll deduction and are remitted to MetLife by such employer on at least a monthly basis. If payroll deduction is not available, the Owner may remit premiums to MetLife directly on a quarterly or annual basis. Premium payments will not be credited to the Owner's Certificate until received by MetLife. An Owner has considerable flexibility concerning the amount and frequency of premium payments. An Owner need not pay any specific amount of minimum premiums. Instead, an Owner may, subject to certain restrictions, make premium payments in any amount and at any frequency. However, the Owner may be required to make an unscheduled premium payment in order to keep the Certificate in force (see "Payment and Allocation of Premiums"). A-6 WHAT HAPPENS TO CERTIFICATES WHEN THE PARTICIPATING ENTITY'S ACTIVE PARTICIPATION IN THE GROUP POLICY IS TERMINATED? If the participating entity or MetLife decides to terminate the participating entity's participation in the Group Policy, the participating entity will cease remitting any payroll deductions of premiums. In addition, no future Certificates will be issued under the Group Policy. The current Certificates may also be terminated by MetLife under certain circumstances. There are also circumstances where an Owner may continue the Certificate even after the participating entity's termination of its participation in the Group Policy. If the Certificate is not terminated, different current charges may apply but the guaranteed charges will not be greater than they were prior to the termination of the Group Policy. (See "Effect of Termination of the Group Policy Participation on Owners"). IF THE PARTICIPATING ENTITY CONTINUES TO PARTICIPATE IN THE GROUP POLICY, HOW LONG WILL THE CERTIFICATE REMAIN IN FORCE? The Certificate will terminate only when its cash surrender value is insufficient to pay the monthly deduction (see "Charges and Deductions--Monthly Deduction from Cash Value"), and the grace period expires without a sufficient payment being made (see "Certificate Termination and Reinstatement While the Group Policy is in Effect--Termination"). Therefore, failure to pay premiums will not automatically cause the Certificate to terminate and payment of premiums does not guarantee that the Certificate will remain in force until its final date. HOW ARE NET PREMIUMS ALLOCATED? The portion of the premium available for allocation ("net premium") equals the premium paid less premium expense charges (see "Charges and Deductions--Premium Expense Charges"). The participating entity or Owner, as applicable, determines in the application for the Group Policy or enrollment form for the Certificate, respectively, what portions, if any, of net premiums paid by each are to be allocated to the investment divisions of the Separate Account and/or to the Fixed Account. Allocations with respect to the Fixed Account are effective as of the Investment Start Date. Allocations with respect to the investment divisions of the Separate Account are effective as of the Allocation Date, as explained more fully under "Payment and Allocation of Premiums--Allocation of Premiums and Cash Value." An Owner or participating entity, as applicable, may change allocations of future net premiums at any time without charge by notifying MetLife in writing, subject to certain limitations (see "Payment and Allocation of Premiums--Allocation of Premiums and Cash Value"). Because investment performance of a Separate Account investment division (unlike that of the Fixed Account) is not guaranteed by MetLife, allocation of net premiums to the Separate Account investment divisions increases the amount of investment risk to the Owner, and allocation to the Fixed Account decreases such risk. On the other hand, the potential benefit of the Fixed Account is limited to the return guaranteed by MetLife plus any discretionary return declared by MetLife from time to time. Subject to certain restrictions, currently, an Owner may transfer amounts among the investment divisions of the Separate Account or between the Separate Account and the Fixed Account without charge (see "Charges and Deductions"). In the first 24 Certificate months, an Owner may transfer the entire amount in the Separate Account to the Fixed Account without charge (see "Certificate Rights--Exchange Privilege" and "The Fixed Account Death Benefit, Transfer, Withdrawal, Surrender, and Certificate Loan Rights.") An Owner may also elect to participate in one of the systematic investment strategies (see "Allocation of Premiums and Cash Value--Systematic Investment Strategies"). MAY THE CERTIFICATE BE SURRENDERED OR THE CASH VALUE PARTIALLY WITHDRAWN? The Owner may surrender the Certificate at any time and receive the cash surrender value of the Certificate. Subject to certain limitations, the Owner also may make partial withdrawals from the cash surrender value at any time prior to the final date (see "Certificate Rights--Surrender and Withdrawal Privileges"). Certificates under some Group Policies may be subject to a transaction charge of up to $25. Surrenders and withdrawals may have certain tax consequences (see "Federal Tax Matters"). A-7 IS THERE A "FREE LOOK" PERIOD? The Certificate provides for a free-look period that lasts until 10 days after receipt (except where state law requires a longer period for replacement policies or other reasons) or 45 days after the enrollment form has been completed, whichever is later. The Owner may return the Certificate within this period and MetLife will send the Owner a complete refund of any premiums paid within 7 days. The refund of any premium paid by check, however, may be delayed until the check has cleared the Owner's bank. Following an increase in specified face amount requested by an Owner, there is a similar free look period that extends until the later of 10 days after the Owner receives revised Certificate pages reflecting the increase or 45 days after the request for the increase has been completed. During this period, the Owner may elect to terminate the increase, and all Certificate values will be restored to what they would have been had the increase not occurred. MetLife will also refund the amount of any premiums paid, to the extent necessary for the Certificate to continue to be within the definition of life insurance for federal income tax purposes (see "Premiums--Premium Limitations"). WHAT IS THE LOAN PRIVILEGE? An Owner may obtain a Certificate loan at any time that the Certificate has a loan value. Loans may be repaid at any time prior to the Final Date (see "Certificate Rights--Loan Privileges"). Certificates under some Group Policies may be subject to a transaction charge of up to $25. Loans are not available for Owners who have exercised the paid-up Certificate provision, except as otherwise required by law. WHAT CHARGES ARE ASSESSED IN CONNECTION WITH THE CERTIFICATE? PREMIUM EXPENSE CHARGES. Premium expense charges vary based on the Group Policy under which the Certificate is issued. These charges may consist of a charge of .35% of each premium payment to recover a portion of MetLife's estimated cost for the federal income tax treatment of deferred acquisition costs ("DAC tax charge") and a state premium tax charge of up to 5% of each premium payment (see "Charges and Deductions--Premium Expense Charges"). MONTHLY DEDUCTION. The charges deducted as part of the monthly deduction can vary based upon the Group Policy under which an Owner's Certificate is issued. Cash value may be reduced by a monthly deduction equal to the sum of any applicable: (1) charge for the cost of insurance. MetLife uses simplified underwriting and guaranteed issue procedures. While the current costs of insurance rates are generally lower than 100% of the 1980 Commissioners Standard Ordinary Mortality Table Males, age last birthday ("1980 CSO Table"), the guaranteed rates are up to 150% of the maximum rates that could be charged based on the 1980 CSO table. The use of simplified underwriting and guaranteed issue procedures may result in the cost of insurance charges being higher for some healthy individuals. This charge will be deducted as part of a monthly combined charge consisting of the cost of insurance charge and a component of the charge for administration; (2) cost of any optional insurance benefits added by rider; (3) monthly administration charge. The monthly administration charge is comprised of two components. The first is a charge that is deducted as part of the monthly combined charge (the other part of the monthly combined charge is the cost of insurance, as described above). This component will never exceed 50% of this monthly combined charge. The second component is a charge which may be up to $3.00 per Certificate per month as specified in the Certificate. No profit is expected to be derived from the aggregate of the administration charges set forth in this paragraph. (See "Charges and Deductions--Monthly Deduction from Cash Value.") CHARGES AGAINST SEPARATE ACCOUNT. A daily charge equivalent to an effective annual rate of at least .45% and not to exceed .90% of the average daily net asset value attributable to the Policies of each investment division of the Separate Account is imposed to compensate MetLife for its assumption of certain mortality and expense risks (see "Charges and Deductions--Charge for Mortality and Expense Risks"). No charges are currently made against the Separate Account for federal or state income taxes with respect to earnings or capital gains which may be attributable to the Separate Account. Should MetLife determine that such taxes will be imposed, MetLife may make deductions from the Separate Account to pay these taxes (see "Federal Tax Matters"). The imposition of such taxes would result in a reduction of the cash value in the Separate Account. A-8 WHAT IS THE TAX TREATMENT OF CASH VALUE? Cash value under a Certificate is subject to the same federal income tax treatment as cash value under a conventional fixed benefit life insurance policy. Under existing tax law, if a Certificate is not a modified endowment contract as discussed in the following paragraph, a Certificate owner generally will be taxed on cash value withdrawn from the Certificate, the cash value received upon surrender of the Certificate or the cash value distributed at the Final Date of a Certificate only to the extent these amounts, when added to previous distributions, exceed the total premiums paid. Amounts received upon surrender or withdrawal or on the Final Date of a Certificate in excess of premiums paid will be treated as ordinary income. Special rules regarding taxation, including the imposition of a tax penalty, govern pre-death withdrawals from life insurance contracts referred to as modified endowment contracts. For more information, see "Federal Tax Matters." IS THE BENEFICIARY SUBJECT TO FEDERAL INCOME TAX ON THE DEATH BENEFIT? Like death benefits payable under conventional fixed benefit life insurance policies, death benefit proceeds payable under the Certificate under current law are generally completely excludable from the gross income of the beneficiary. As a result, the beneficiary generally will not be taxed on death benefit proceeds (see "Federal Tax Matters"). IS THE DEATH BENEFIT OR THE CASH VALUE SUBJECT TO FEDERAL ESTATE TAX? The death benefit under the Certificate or the cash value may be subject to federal estate tax (see "Federal Tax Matters"). HOW SHOULD PREMIUM PAYMENTS, OWNER REQUESTS AND OTHER COMMUNICATIONS BE SENT TO METLIFE? Premium payments and other communications (such as transfer requests, loan requests, loan repayments, withdrawal requests, surrender requests, changes of beneficiary, changes of the specified face amount, or changes of premium allocation) should be sent to the Administrative Office for the Certificate. MetLife may name different Administrative Offices for different transactions. In the future MetLife may permit transfer and withdrawal or other requests to be made by telephone. To exercise rights under a Certificate, the Owner must follow the procedures stated in the Certificate. To request a payment, change the allocation among the investment divisions, change the beneficiary, change the specified face amount, change an address or request any other action by MetLife, the Owner should utilize the forms prepared by MetLife for each purpose. The forms are available from the Administrative Offices. SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND THE SEPARATE ACCOUNT The Separate Account, which is a separate investment account of MetLife, was established by MetLife pursuant to the New York Insurance Law on December 13, 1988. The Separate Account also receives premium payments in connection with other variable universal life insurance products issued by MetLife. The assets allocated to the Separate Account are the property of MetLife, and MetLife is not a trustee by reason of the Separate Account. The Separate Account meets the definition of "separate account" under the federal securities laws. All income, gains and losses, whether or not realized, from assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to other income, gains or losses of MetLife. Each Certificate provides that such portion of the assets in the Separate Account as equals the liabilities (and reserves) of MetLife with respect to the Separate Account shall not be chargeable with liabilities arising out of any other business of MetLife. The liabilities are the actuarially determined amount of MetLife's total commitments under the Certificates; the reserves are the assets allocated to pay these commitments. The values of the assets in the Separate Account will not at any time be less than the sum of all amounts then allocated to the Separate Account under variable life insurance policies. MetLife may accumulate in the Separate Account mortality and expense risk charges, mortality gains and investment gains on those assets (which represent such charges) in the Separate Account and other amounts A-9 in excess of MetLife's liabilities and reserves with respect to the Separate Account. MetLife may from time to time transfer to its General Account any assets in the Separate Account in excess of such reserves and liabilities. Although the Separate Account is an integral part of MetLife, the Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 ("1940 Act"). Registration does not involve supervision of management or investment practices or policies of the Separate Account or of MetLife by the Commission. There are currently six available investment divisions in the Separate Account. The assets in each investment division are invested in a separate class (or series) of stock issued by the Fund. Each class of stock represents a separate portfolio within the Fund. New investment divisions may be added as new portfolios are added to the Fund and made available to Owners. In addition, investment divisions may be eliminated from the Separate Account. One division, not listed below, has been eliminated from the Separate Account except for Groups that had received a written quotation regarding the Group Policy and the Certificates from MetLife, including a quotation for the cost of insurance rates applicable to such Group, before May 15, 1996. METROPOLITAN SERIES FUND The Fund is a "series" type of mutual fund which is registered with the Securities and Exchange Commission as a diversified open-end management investment company under the 1940 Act. The Fund has served as the investment medium for the Separate Account since the Separate Account commenced operations. A brief summary of the investment objectives of each available Fund portfolio that may be available to Owners is set forth below. GROWTH PORTFOLIO. The investment objective of this portfolio is to achieve long-term growth of capital and income, and moderate current income, by investing primarily in common stocks that are believed to be of good quality or to have good growth potential or which are considered to be undervalued based on historical investment standards. INCOME PORTFOLIO. The investment objective of this portfolio is to achieve the highest possible total return, by combining current income with capital gains, consistent with prudent investment risk and the preservation of capital, by investing primarily in fixed-income, high-quality debt securities. DIVERSIFIED PORTFOLIO. The investment objective of this portfolio is to achieve a high total return while attempting to limit investment risk and preserve capital by investing in equity securities, fixed-income debt securities, or short-term money market instruments, or any combination thereof, at the discretion of State Street Research. AGGRESSIVE GROWTH PORTFOLIO. The investment objective of this portfolio is to achieve maximum capital appreciation by investing primarily in common stocks (and equity and debt securities convertible into or carrying the right to acquire common stocks) of emerging growth companies, undervalued securities or special situations. INTERNATIONAL STOCK PORTFOLIO. The investment objective of this portfolio is to achieve long-term growth of capital by investing primarily in common stocks and equity-related securities of non-United States companies. This portfolio is not available in connection with Group Policies and Certificates issued in California. STOCK INDEX PORTFOLIO. The investment objective of this portfolio is to equal the performance of the Standard & Poor's 500 Composite Stock Price Index (adjusted to assume reinvestment of dividends) by investing in the common stock of companies which are included in the index. MetLife purchases and redeems Fund shares for the Separate Account at their net asset value without the imposition of any sales or redemption charges. Such shares represent an interest in one of the portfolios of the Fund which correspond to the investment divisions of the Separate Account. Any dividend or capital gain distributions received from the Fund are likewise reinvested in Fund shares at net asset value as of the dates paid. The distributions have the effect of reducing the value of each share of the Fund and increasing the number of Fund shares outstanding. However, the total cash value in the Separate Account does not change as a result of such distributions. A-10 On each Valuation Date, shares of each portfolio are purchased or redeemed by MetLife for the Separate Account, based on, among other things, the amounts of net premiums allocated to the Separate Account, dividends and distributions reinvested, transfers to and among investment divisions, Certificate loans, loan repayments and benefit payments to be effected pursuant to the terms of the Certificates as of that date. Such purchases and redemptions for the Separate Account are effected at the net asset value per share for each portfolio determined as of 4:00 p.m., New York City time, on that same Valuation Date. A full description of the Fund, its investment policies and restrictions, its charges and other aspects of its operation is contained in the prospectus for the Fund, which is attached at the end of this Prospectus, and in the Statement of Additional Information referred to therein. See "The Fund and its Purpose" in the prospectus for the Fund for a discussion of the different separate accounts for MetLife and its affiliates that invest in the Fund and the risks related thereto. CERTIFICATE BENEFITS DEATH BENEFIT As long as the Certificate remains in force (see "Certificate Termination and Reinstatement While the Group Policy is in Effect--Termination"), MetLife will, upon due proof of the covered person's death, pay the insurance proceeds of the Certificate to the named beneficiary. The proceeds may be received by the beneficiary in a single sum or under one or more of the available optional income plans as described in the Appendix to Prospectus. The insurance proceeds are: (a) the death benefit provided on the date of death; plus (b) any additional insurance on the covered person's life that is provided by rider; minus (c) any outstanding indebtedness and any accrued and unpaid charges; and minus (d) certain amounts of death benefit previously decreased as a result of a claim under a rider to the Policy. The death benefit is equal to the specified face amount of insurance plus the cash value. MINIMUM DEATH BENEFIT--There is a minimum death benefit equal to the greater of (1) the death benefit and (2) a percentage of the cash value as set forth in the following table. The minimum death benefit is determined in accordance with federal income tax laws, to ensure that the Certificate qualifies as a life insurance contract and that the insurance proceeds will be excluded from the gross income of the beneficiary. TABLE
ATTAINED AGE OF COVERED PERSON AT THE BEGINNING OF PERCENTAGE OF THE CERTIFICATE YEAR CASH VALUE - -------------------------------------- ----------------- 40 and less:.......................... 250% 45:................................... 215% 50:................................... 185% 55:................................... 150% 60:................................... 130% 65:................................... 120% ATTAINED AGE OF COVERED PERSON AT THE BEGINNING OF PERCENTAGE OF THE CERTIFICATE YEAR CASH VALUE - -------------------------------------- ----------------- 70:................................... 115% 75:................................... 105% 80:................................... 105% 85:................................... 105% 90:................................... 105% 95:................................... 100%
For the ages not listed, the percentage decreases by a ratable portion for each full year. In no event will the death benefit be lower than the minimum amount required to maintain the Certificate as life insurance under federal income tax law and applicable Internal Revenue Service rules. The death benefit provides insurance protection as well as possible build-up of cash value. The death benefit varies as the cash value changes. If the covered person dies on a date that is not a Valuation Date, the amount of death benefit proceeds payable will be determined as of the next Valuation Date. CHANGE IN SPECIFIED FACE AMOUNT. Subject to certain limitations, an Owner may request an increase in the specified face amount of a Certificate on a date or dates determined by the participating entity and set forth in the Group Policy (see "Decreases" and "Increases" below). For Owners who are qualifying employees of A-11 employers who are participating entities, automatic increases in specified face amount will be made in conjunction with each employee's salary increases on a date or dates determined by the participating entity, unless such employee notifies MetLife in writing that no such automatic increases are desired. Any increases in the specified face amount are subject to MetLife's underwriting rules which may include a requirement for satisfactory evidence of the covered person's insurability. The specified face amount may also be decreased by the Owner after the first Certificate year. An increase or decrease in the death benefit may have tax consequences (see "Federal Tax Matters"). Any increase or decrease in the specified face amount requested by the Owner will become effective on the monthly anniversary on or next following the date of approval of the request. DECREASES. The specified face amount remaining in force after any requested decrease may not be less than the minimum specified face amount as specified in the Certificate. No decrease in the specified face amount will be permitted if it would result in total premiums paid exceeding the then current maximum premium limitations determined by Internal Revenue Code rules (see "Premiums--Premium Limitations"). For purposes of determining the cost of insurance charge (see "Charges and Deductions--Cost of Insurance"; "Cost of Insurance Rate"; and "Rate Class"), a decrease in the specified face amount will reduce the specified face amount in the following order: (a) the specified face amount provided by the most recent increases successively; and (b) the specified face amount on the Date of Certificate. INCREASES. Any requirements as to the minimum amount of an increase are specified in the Certificate. Any increases in specified face amount are subject to MetLife's underwriting rules. EFFECT OF CHANGES IN SPECIFIED FACE AMOUNT ON CHARGES. A change in the specified face amount may affect the net amount at risk which may affect an Owner's cost of insurance charge and the monthly administration charge (see "Charges and Deductions--Cost of Insurance," "Cost of Insurance Rate," "Rate Class," "Administrative Charge"). This in turn can affect the level of subsequent cash values and death benefit. A change in the specified face amount may also affect the Certificate's status as a modified endowment contract for tax purposes (see "Federal Tax Matters"). CASH VALUE The total cash value of a Certificate at any time is the sum of the Certificate's cash values in the Fixed Account (see "The Fixed Account"), the Loan Account (see "Certificate Rights--Loan Privileges"), and the investment divisions of the Separate Account at such time. The Certificate's cash value in the Separate Account may increase or decrease on each Valuation Date depending on the investment return of the chosen investment divisions of the Separate Account (see "Separate Account Net Investment Return"). There is no guaranteed minimum cash value in the Separate Account. CALCULATION OF SEPARATE ACCOUNT CASH VALUE. The portion of the first net premium allocated to the investment divisions of the Separate Account under a Certificate that is issued within the first Group Policy year will automatically be allocated to the Fixed Account from the Investment Start Date to the Allocation Date. Otherwise, on each Valuation Date, the Certificate's cash value in an investment division of the Separate Account will equal: (1) The cumulative amount of all net premium payments, transfers of cash value, loan repayments and interest credited on Certificate loans that are allocated to the investment division; minus (2) Any cash value transferred, surrendered or withdrawn from the investment division (including transfers to the Loan Account); minus (3) The portion of all charges and deductions allocated to the Certificate's cash value in the investment division (see "Charges and Deductions"); plus or minus (4) The cumulative net investment return (discussed below) on the amount of cash value in the investment division. The Certificate's total cash value in the Separate Account equals the sum of the Certificate's cash value in each investment division. A-12 SEPARATE ACCOUNT NET INVESTMENT RETURN. An investment division's net investment return is determined as of 4:00 p.m., New York City time, on each Valuation Date. All transactions and calculations with respect to the Certificates as of any Valuation Date are determined as of such time. Each investment division is credited with a rate of net investment return equal to its gross rate of investment return during the Valuation Period less (1) an adjustment for the Separate Account's charge for mortality and expense risks (equivalent to at least .45% and not more than .90% on an annual basis) and (2) a charge for MetLife's taxes, if any such tax charge becomes necessary in the future (see "Charges and Deductions--Charges Against the Separate Account"). The investment division's gross rate of investment return is equal to the rate of increase 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 paid by the portfolio during the period. Depending primarily on the investment experience of the underlying Fund portfolio, an investment division's net investment return may be either positive or negative during a Valuation Period. RATES OF RETURN. The following rates of return for the portfolios of the Fund shown below reflect all charges against the available Fund portfolios. THEY DO NOT REPRESENT WHAT MAY HAPPEN IN THE FUTURE. IN ADDITION, THERE ARE SIGNIFICANT CHARGES AGAINST THE SEPARATE ACCOUNT, PREMIUMS AND THE CASH VALUE IN EACH CERTIFICATE THAT ARE NOT IMPOSED AGAINST THE AVAILABLE FUND PORTFOLIOS AND ARE THEREFORE NOT REFLECTED. These charges, i.e. charges against premiums, charges for mortality and expense risks, the administration charge, and the cost of insurance (see "Charges and Deductions--Premium Expense Charges," and "Monthly Deduction from Cash Value"), significantly decrease the rates of return on a given Certificate. The rate of return is computed for each portfolio by subtracting the net asset value per share at the beginning of the period from the net asset value per share at the end of the period, adjusting for dividends declared on that portfolio's shares and dividing the result by the net asset value per share at the beginning of the period. The resulting ratio is then annualized to obtain the Average Annual Return shown. The annualization makes the assumption that the rate of return does not vary from any one year period to another and takes into account the effect of compounding. Rates of return are useful for reviewing the effectiveness of Fund management and for comparing the investment returns of the underlying Fund portfolios. HOWEVER, FOR THE REASONS STATED ABOVE, NO OWNER SHOULD EXPECT TO RECEIVE FUND RETURN. The hypothetical historical illustrations that appear below demonstrate the effect on the underlying Fund Portfolios' rates of return of all charges against the separate account, premiums and the cash value in the Policy illustrated. The first column shown for each investment division begins on the later of the date the portfolio of the Fund in which it invests began operations and the date the first registration statement relating to such portfolio was declared effective by the Securities and Exchange Commission and ends on the date indicated. Other periods shown begin on January 1st and end on December 31st of the following year, except that the average annual return column is for the entire period shown for the division in question. Thus the rates of return are based on the actual historical experience of the available Fund portfolios. The annual return for the International Stock Portfolio was increased due to the voluntary assumption by MetLife of certain expenses for the A-13 International Stock Portfolio of the Fund in 1993 (see "Management of the Fund" in the prospectus for the Fund). This subsidization affected annual return only by .01%. There was no subsidization in 1994 or 1995.
6/24/83- 1/1/84- 1/1/85- 1/1/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 ------- -------- -------- -------- ------- ------- -------- ------- -------- -------- -------- GROWTH........ -4.60% 0.61% 34.80% 10.19% 5.67% 9.88% 39.96% -9.98% 33.18% 11.57% 14.41% INCOME........ 2.00% 13.83% 27.21% 19.58% -1.98% 9.23% 13.42% 9.98% 17.42% 6.90% 11.32% AVERAGE 1/1/94- 1/1/95- ANNUAL 12/31/94 12/31/95 RETURN ------- -------- -------- GROWTH........ -3.75% 34.49% 12.94% INCOME........ -3.32% 19.70 11.29%
AVERAGE 7/25/86- 1/1/87- 1/1/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN ------- ------- ------- -------- -------- -------- ------- -------- ------- --------- ------- DIVERSIFIED... 3.41% 3.54% 8.88% 23.26% -0.89% 24.94% 9.49% 12.79% -3.44% 27.87% 11.16%
AVERAGE 4/29/88- 1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN ------- -------- -------- -------- -------- -------- ------- --------- -------- AGGRESSIVE GROWTH..... 4.62% 33.11% -11.35% 66.46% 10.37% 22.66% -3.52% 31.00% 17.80%
AVERAGE 5/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN ------- -------- ------- ------- ------- -------- -------- STOCK INDEX....... 1.95% 29.76% 7.44% 9.55% 1.15% 37.95% 14.67%
AVERAGE 5/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- ANNUAL 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 RETURN ------- -------- -------- ------- -------- ------- INTERNATIONAL STOCK......... -1.55% -10.21% 47.76% 4.45% 1.81% 7.29%
A-14 ILLUSTRATIONS. In order to demonstrate how the investment experience of the available portfolios of the Fund would have affected the death benefit and cash value of a Certificate, hypothetical illustrations showing the hypothetical net return of each investment division are set forth below. These hypothetical illustrations are based on the actual historical experience of the available Fund portfolios as if the Separate Account had been in existence and a Certificate had been issued on the dates indicated. THEY DO NOT REPRESENT WHAT MAY HAPPEN IN THE FUTURE. The illustrations are based on the payment of monthly premiums of $100 for a specified face amount of $100,000 for an individual aged 40. The illustrations assume that no riders are in effect. The periods illustrated are based on the rates of return for such periods set forth in "Rates of Return" above. The illustrations assume no Certificate loans have been made; therefore cash surrender values for the guaranteed illustrations would be $25 less than the cash values shown due to the deduction of a surrender transaction charge, and cash surrender values for the current illustrations would be equal to the cash values shown because it is assumed that no surrender transaction charge is deducted. For each investment division, one illustration is based on the guaranteed charge rates under a hypothetical representative standard Group Policy; the other illustration is based as if the current charge rates were in effect during the period illustrated that would be representative of such a Group Policy. The actual maximum and current charge rates can be expected to vary from one Group Policy to another (see "Charges and Deductions"). The guaranteed illustrations assume: (1) that the covered person is in a rate class that has cost of insurance charges equal to 100% of the maximum rates that could be charged based on the 1980 Commissioners Standard Ordinary Mortality Table, Males, age last birthday ("1980 CSO Table"); (2) a $3.00 per Certificate per month administration charge plus a charge for administration included as part of the monthly combined charge equal to the same amount charged for the cost of insurance described in (1) above; (3) a .35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .90% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (6) a surrender transaction charge of $25. The current illustrations assume: (1) that the covered person is in a rate class that has standardized cost of insurance charges equal as set forth in the following table:
MONTHLY CURRENT COST OF INSURANCE RATE - --------------------------------------- RATE PER THOUSAND DOLLARS AGE OF INSURANCE - ---------- --------------------------- 40 to 44 $ 0.17 45 to 49 $ 0.29 50 to 54 $ 0.48 55 to 59 $ 0.75 60 to 64 $ 1.17 65 to 69 $ 2.10
(2) a $1.50 per Certificate per month administration charge, plus a charge for administration included as part of the monthly combined charge equal to 20% of amount charged for the cost of insurance described in (1) above; (3) a 0.35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .45% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (6) no surrender transaction charge. These examples of Certificate performance are for a specific age, rate class, and group mortality characteristics premium payment pattern and policy anniversary as set forth above. The benefits are calculated for a specific Certificate anniversary. The amount and timing of premium payments would affect individual Certificate benefits as would any withdrawals or Certificate loans. Performance may be shown for the systematic investment strategies made available under the Certificates (see "Allocation of Premiums and Cash Value--Systematic Investment Strategies"). Average annual A-15 return for each of the systematic investment strategies may be calculated by presuming a certain dollar value at the beginning of a period, and comparing this dollar value with the dollar value, based on historical performance for the applicable investment divisions or the Fixed Account, at the end of the period, expressed as a percentage. The average annual return in each case will assume that no withdrawals have occurred and will not reflect charges against premiums, cost of insurance or other monthly policy charges. This Prospectus also contains illustrations based on assumed rates of return. See "Illustrations Of Death Benefit, Cash Values And Accumulated Premiums." The following examples show how the hypothetical net return of the investment division which invests in the corresponding portfolio of the Fund would have affected benefits for a Certificate issued on the January 1 immediately following the effective date of such portfolio if that Certificate imposed the charges and had the other characteristics discussed above under "Illustrations." These examples assume that net premiums and related cash values were in the applicable investment division for the entire period. GROWTH BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ----------- ------------- 1984................................................... $ 1,247 $ 936 $ 100,938 1985................................................... 3,080 2,306 102,306 1986................................................... 4,615 3,446 103,446 1987................................................... 5,950 4,432 104,432 1988................................................... 7,789 5,786 105,786 1989................................................... 12,302 8,913 108,913 1990................................................... 12,226 8,686 108,686 1991................................................... 17,685 12,368 112,368 1992................................................... 21,056 14,541 114,541 1993................................................... 25,370 17,339 117,339 1994................................................... 25,581 17,055 117,055 1995................................................... 35,803 23,366 123,366
GROWTH BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ------------- ------------- 1984................................................... $ 1,247 $ 517 $ 100,517 1985................................................... 3,080 1,208 101,208 1986................................................... 4,615 1,711 101,711 1987................................................... 5,950 2,081 102,081 1988................................................... 7,789 2,531 102,531 1989................................................... 12,302 3,724 103,724 1990................................................... 12,226 3,424 103,424 1991................................................... 17,685 4,547 104,547 1992................................................... 21,056 4,957 104,957 1993................................................... 25,370 5,448 105,448 1994................................................... 25,581 4,937 104,937 1995................................................... 35,803 6,121 106,121
A-16 INCOME BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ----------- ------------- 1984................................................... $ 1,332 $ 1,000 $ 101,000 1985................................................... 3,091 2,314 102,314 1986................................................... 4,992 3,728 103,728 1987................................................... 6,101 4,544 104,544 1988................................................... 7,904 5,872 105,872 1989................................................... 10,252 7,412 107,412 1990................................................... 12,572 8,903 108,903 1991................................................... 16,096 11,216 111,216 1992................................................... 18,465 12,700 112,700 1993................................................... 21,809 14,835 114,835 1994................................................... 22,274 14,730 114,730 1995................................................... 27,978 18,052 118,052
INCOME BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ------------- ------------- 1984................................................... $ 1,332 $ 552 $ 100,552 1985................................................... 3,091 1,212 101,212 1986................................................... 4,992 1,853 101,853 1987................................................... 6,101 2,125 102,125 1988................................................... 7,904 2,563 102,563 1989................................................... 10,252 3,077 103,077 1990................................................... 12,572 3,468 103,468 1991................................................... 16,096 4,062 104,062 1992................................................... 18,465 4,237 104,237 1993................................................... 21,809 4,506 104,506 1994................................................... 22,274 4,051 104,051 1995................................................... 27,978 4,373 104,373
DIVERSIFIED BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ----------- ------------- 1987................................................... $ 1,142 $ 857 $ 100,857 1988................................................... 2,486 1,862 101,862 1989................................................... 4,393 3,282 103,282 1990................................................... 5,570 4,151 104,151 1991................................................... 8,333 6,195 106,195 1992................................................... 10,419 7,538 107,538 1993................................................... 13,018 9,233 109,233 1994................................................... 13,744 9,588 109,588 1995................................................... 18,936 13,031 113,031
A-17 DIVERSIFIED BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ------------- ------------- 1987................................................... $ 1,142 $ 473 $ 100,473 1988................................................... 2,486 970 100,970 1989................................................... 4,393 1,612 101,612 1990................................................... 5,570 1,910 101,910 1991................................................... 8,333 2,657 102,657 1992................................................... 10,419 3,080 103,080 1993................................................... 13,018 3,554 103,554 1994................................................... 13,744 3,425 103,425 1995................................................... 18,936 4,267 104,267
STOCK INDEX BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ----------------- ------------- ------------- 1991................................................... $ 1,357 $ 1,019 $ 101,019 1992................................................... 2,734 2,047 102,047 1993................................................... 4,249 3,174 103,174 1994................................................... 5,508 4,105 104,105 1995................................................... 9,020 6,704 106,704
STOCK INDEX BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ----------------- ------------- ------------- 1991................................................... $ 1,357 $ 563 $ 100,563 1992................................................... 2,734 1,070 101,070 1993................................................... 4,249 1,566 101,566 1994................................................... 5,508 1,894 101,894 1995................................................... 9,020 2,892 102,892
AGGRESSIVE GROWTH BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ----------- ------------- 1989................................................... $ 1,338 $ 1,004 $ 101,004 1990................................................... 2,327 1,743 101,743 1991................................................... 5,437 4,061 104,061 1992................................................... 7,372 5,492 105,492 1993................................................... 10,389 7,717 107,717 1994................................................... 11,207 8,130 108,130 1995................................................... 16,018 11,414 111,414
AGGRESSIVE GROWTH BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE DEATH BENEFIT - ------------------------------------------------------- ---------------- ------------- ------------- 1989................................................... $ 1,338 $ 554 $ 100,554 1990................................................... 2,327 909 100,909 1991................................................... 5,437 2,002 102,002 1992................................................... 7,372 2,558 102,558 1993................................................... 10,389 3,396 103,396 1994................................................... 11,207 3,427 103,427 1995................................................... 16,018 4,567 104,567
A-18 INTERNATIONAL STOCK BASED ON CURRENT CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND DEATH ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE BENEFIT - ----------------------------------------------------------- --------------- ----------- ------------ 1992....................................................... $ 1,143 $ 858 $ 100,858 1993....................................................... 3,110 2,329 102,329 1994....................................................... 4,400 3,286 103,286 1995....................................................... 5,729 4,268 104,268
INTERNATIONAL STOCK BASED ON GUARANTEED CHARGES
PREMIUMS ACCUMULATED CERTIFICATE YEAR ENDING AT FUND DEATH ON DECEMBER 31ST OF RATES OF RETURN CASH VALUE BENEFIT - ----------------------------------------------------------- --------------- ----------- ------------ 1992....................................................... $ 1,143 $ 474 $ 100,474 1993....................................................... 3,110 1,219 101,219 1994....................................................... 4,400 1,632 101,632 1995....................................................... 5,729 1,983 101,983
From time to time the Separate Account may advertise its performance ranking information among similar investments as compiled by Lipper Analytical Services Inc., Morningstar, Inc. and other independent organizations. From time to time the Separate Account may compare the performance of its investment divisions with the performance of common stocks, long-term government bonds, long-term corporate bonds, intermediate-term government bonds, Treasury Bills, certificates of deposit and savings accounts. The Separate Account may use the Consumer Price Index in its advertisements as a measure of inflation for comparison purposes. BENEFIT AT FINAL DATE If the covered person is living, MetLife will pay to the Owner the cash value of the Certificate on the Final Date, reduced by any outstanding indebtedness (see "Certificate Benefits--Cash Value"). The Final Date of a Certificate is the Certificate anniversary on which the covered person is 95 or later, if so requested by the Owner and permitted by law (see "Federal Tax Matters"). OPTIONAL INCOME PLANS During the covered person's lifetime, the Owner may arrange for the cash surrender value to be paid in a single sum, in an account that earns interest or under one or more of the available optional income plans. For more specifics regarding optional income plans, see the Appendix to Prospectus. These choices are also available at the Final Date. If no election is made, MetLife will place the amount in an account that earns interest. The payee will have immediate access to all or any part of the account. When the insurance proceeds are payable in a single sum, the beneficiary may, within one year of the covered person's death, select one or more of the optional income plans, if no payments have yet been made. If the insurance proceeds become payable under an optional income plan and the beneficiary has the right to withdraw the entire amount, the beneficiary may name and change contingent beneficiaries. OPTIONAL INSURANCE BENEFITS Subject to certain requirements, one or more of the optional insurance benefits described in the Appendix to Prospectus, may be included with a Certificate by rider. The cost of any optional insurance benefits will be deducted as part of the monthly deduction (see "Charges and Deductions--Monthly Deduction From Cash Value"). See the Appendix to Prospectus, for a discussion of how certain riders affect the benefits and the exercise of certain rights under the Certificate. A-19 PAYMENT AND ALLOCATION OF PREMIUMS ISSUANCE OF A CERTIFICATE Certificates will only be offered to eligible employees, and their spouses when provided by the participating entity. Individuals wishing to purchase a Certificate must complete an enrollment form which must be received in good order by the Administrative Office before a Certificate will be issued or any investment return will commence thereunder. A Certificate will not be issued with a specified face amount less than the Minimum Specified Face Amount. Acceptance is subject to MetLife's underwriting rules. MetLife reserves the right to reject an enrollment for any reason permitted by law. PREMIUMS The Owner is not required to pay any specific amount of premiums. MOREOVER THE PAYMENT OF PREMIUMS WILL NOT GUARANTEE THAT THE CERTIFICATE REMAINS IN FORCE. Instead, the duration of the Certificate while the Group Policy is in force depends upon the Certificate's cash surrender value (see "Certificate Termination and Reinstatement While the Group Policy is in Effect--Termination"). Premiums will be paid through payroll deduction, where provided by the participating entity. A participating entity may remit payroll deductions to MetLife as much as 30 days after the deduction is made. If there is no payroll deduction available, an Owner may elect to pay the premium quarterly or annually. Subject to the minimum and maximum premium limitations described below, an Owner may make unscheduled premium payments at any time in any amount. The Certificate, therefore, provides the Owner with the flexibility to vary the frequency and amount of premium payments to reflect changing financial conditions. During the first Group Policy year, the portion of the first premium payment under each Certificate allocated to investment divisions of the Separate Account will be allocated to the Fixed Account from the Investment Start Date until the Allocation Date as discussed in detail under "Allocation of Net Premiums," below. Thereafter, the portion of a premium payment allocated to the investment divisions of the Separate Account under such Certificates and any portion of premium payments allocated to the investment divisions of the Separate Account under Certificates issued after the first Group Policy year are credited to the Separate Account as of the Date of Receipt of the premium payment, together with any necessary allocation instructions in good order from the participating entity. The portion of each premium payment under each certificate allocated to the Fixed Account is credited to the Fixed Account as of the Date of Receipt. PREMIUM LIMITATIONS. The Certificate will terminate after a grace period commencing on a monthly anniversary when the cash surrender value is insufficient to pay the monthly deduction on that date. Except as described below, the total of all premiums paid, both planned and unplanned, can never exceed the then current maximum premium limitation determined by Internal Revenue Code rules relating to the definition of life insurance. If at any time a premium is paid that would result in total premiums exceeding the then current maximum premium limitations, MetLife will accept only that portion of the premium that will make total premiums equal the limit. Any part of the premium in excess of that amount will be refunded, and no further premiums will be accepted until allowed by the maximum premium limitations. These limitations will not apply to any premium that is required to be paid in order to prevent the Certificate from terminating. There may be cases where the total of all premiums paid could cause the Certificate to be classified as a modified endowment contract (see "Federal Tax Matters"). The annual statement (see "Reports") sent to each Owner will include information regarding the modified endowment contract status of a Certificate. In cases where a Certificate is not an irrevocable modified endowment contract, the annual statement will indicate what action the Certificate owner can take to reverse the modified endowment contract status of the Certificate. The first premium may not be less than the planned periodic premium. Every unplanned premium payment must be at least $100. Premium payments less than these minimum amounts will be refunded to the Owner. These minimum premium limits can be changed by MetLife. No increase will take effect until 90 days after notice is sent to the Owner. A-20 ALLOCATION OF PREMIUMS AND CASH VALUE NET PREMIUMS. The net premium equals the premium paid less premium expense charges (see "Charges and Deductions--Premium Expense Charges"). ALLOCATION OF NET PREMIUMS. In the enrollment form for a Certificate, the Owner indicates the initial allocation of net premiums among the Fixed Account and the investment divisions of the Separate Account. In some cases, the participating entity retains the right to allocate the portion of any net premiums it pays rather than the Owner pays among the Fixed Account and the investment divisions of the Separate Account unless and until the covered person retires, as determined by the participating entity (if the covered person is employed by the participating entity), or the Certificate becomes portable. The Certificate includes a description of the Owner's right to allocate net premiums. The minimum percentage of each premium that may be allocated to the Fixed Account or any investment division of the Separate Account is 10%. Allocation percentages must be in whole numbers; for example, 33 1/3% may not be chosen. The Owner may change the allocation of future net premiums without charge at any time by providing MetLife with written notification at the Administrative Office. The change will be effective as of the Date of Receipt of the notice at the Administrative Office. A newly-issued Certificate is credited with an investment return commencing with the date the first premium for that Certificate is received, or, if later, the Date of Certificate. With one exception, the investment return that commences on this "Investment Start Date" is based on the allocation among the Fixed Account and the investment divisions of the Separate Account selected by the Owner (or, to the extent mentioned in the preceding paragraph, the participating entity). The one exception is for Certificates that are issued during the first year that the related Group Policy has been in effect. For those Certificates, the initial premium payments allocated to the investment division of the Separate Account will be allocated to and earn the current interest rate in the Fixed Account during the 20 day period of time from the Investment Start Date to the Allocation Date. Thereafter, the investment return is based on the investment allocation selected by the Owner or participating entity as mentioned above. The Certificate's cash value in the investment divisions of the Separate Account will vary with the investment experience of these investment divisions, and the Owner bears this investment risk. Owners should periodically review their allocations of net premiums and cash values in light of market conditions and their overall financial planning requirements. CASH VALUE TRANSFERS. Except as described below, on and after the Allocation Date the Owner may transfer cash value among the Fixed Account and investment divisions of the Separate Account. In some cases, the participating entity may retain the right to transfer the portion of any cash value attributable to net premiums it pays rather than the Owner pays among the Fixed Account and the investment divisions of the Separate Account unless and until the covered person retires, as determined by the participating entity (if the covered person is employed by the participating entity) or the Owner's Certificate becomes portable. In addition, in some cases, the maximum amount that may be transferred from the Fixed Account in any Certificate year is the greater of $200 or 25% of the largest amount in the Fixed Account over the last four Certificate years, or, if the Certificate has been in effect for less than that period, since the Certificate date. This limit does not apply to a full surrender, to any loans taken or to any transfers made under a systematic investment strategy (see "Systematic Investment Strategies").The Certificate includes a description of the Owner's cash value transfer rights. There is no charge for transfers. A transfer must be made in either dollar amounts or a percentage in whole numbers. The minimum amount that may be transferred is the lesser of $200 or the total amount in an investment division or, if the transfer is from the Fixed Account, the total amount in the Fixed Account. Transferring cash value from one or more investment divisions and/or the Fixed Account into one or more other investment divisions and/or the Fixed Account counts as one transfer. MetLife will effectuate transfers and determine all values in connection with transfers as of the Date of Receipt of written notice at the Administrative Office, except in the limited circumstances described under "Other Certificate Provisions--Payment Deferment," and "The Fixed Account--Death Benefit Transfer, Withdrawal, Surrender and Certificate Loan Rights." A-21 Transfers are not taxable transactions under current law. Transfer requests must be in writing in a form acceptable to MetLife, or in another form of communication acceptable to MetLife. MetLife reserves the right, if permitted by state law, to allow Owners to make transfer requests by telephone. If MetLife decides to permit this transfer procedure, and an Owner elects to participate in the transfer procedure, the following will apply: the Owner will authorize MetLife to act upon the telephone instructions of any person purporting to be the Owner, assuming MetLife's procedures have been followed, to make transfers both from amounts in the Certificate's Fixed Account and in the Separate Account. MetLife will institute reasonable procedures to confirm that any instructions communicated by telephone are genuine. All telephone calls will be recorded, and the Owner will be asked to produce the Owner's personalized data prior to MetLife initiating any transfer requests by telephone. Additionally, as with other transactions, the Owner will receive a written confirmation of any such transfer. Neither MetLife nor the Separate Account will be liable for any loss, expense or cost arising out of any requests that MetLife or the Separate Account reasonably believe to be genuine. In the event that these transfer procedures are instituted and in the further event that an Owner who has elected to use such procedures encounters difficulty with them, such Owner should make the request to the Administrative Office. SYSTEMATIC INVESTMENT STRATEGIES. For certain groups, MetLife may permit the Owner to submit a written authorization directing MetLife to make transfers on a continuing periodic basis from one investment division to another or to the Fixed Account. MetLife currently offers three such investment strategies: the "Equity Generator," the "Equalizer" and the "Allocator." Both the "Equity Generator" and the "Allocator" may be elected at any time. The "Equalizer" may be elected only on a Certificate anniversary. Only one of these systematic investment strategies may be in effect at any one time. The Owner may submit a written request electing a strategy or directing MetLife to cancel a systematic investment strategy at any time. The election of any systematic investment strategy will become effective on the later of the Allocation Date and the end of the free look period. Under the "Equity Generator," Owners may have the interest earned on amounts in the Fixed Account transferred to the Stock Index Investment Division. Any such transfer from the Fixed Account to the Stock Index Investment Division will be made at the beginning of each Certificate month following the Certificate month in which the interest is earned. The transfer will only be made for a month during which at least $20.00 in interest is earned. Amounts earned during a month in which less than $20.00 in interest is earned will remain in the Fixed Account. Under the "Equalizer," at the beginning of each Certificate month, a transfer is made from the Stock Index investment division to the Fixed Account or from the Fixed Account to the Stock Index investment division in order to make the Fixed Account and Stock Index investment division equal in value. While the "Equalizer" is in effect, any cash value transfer out of the Stock Index investment division that is not part of this systematic investment strategy will automatically terminate the "Equalizer" election. The Owner may then reelect the "Equalizer" strategy commencing on the next Certificate anniversary. Under the "Allocator," at the beginning of each Certificate month, an amount designated by the Owner is transferred from the Fixed Account to any investment division(s) specified by the Owner. The Owner may choose to do this in one of the following three ways: (1) designating an amount to be transferred from the Fixed Account each month until amounts in that investment division are exhausted; (2) designating an amount to be transferred from the Fixed Account for a certain number of months; or (3) designating a total amount to be transferred from the Fixed Account in equal monthly installments over a certain number of months. The Owner's designations must allow the "Allocator" to remain in effect for at least three months. TERMINATION OF PARTICIPATING ENTITY PARTICIPATION IN THE GROUP POLICY Participation in the Group Policy will terminate if the participating entity decides to terminate its participation in the Group Policy. In addition, MetLife may also terminate the participating entity's participation in the Group Policy if during any twelve month period, the aggregate specified face amount for all Owners under the Group Policy or the number of Certificates falls by certain amounts or below the minimum permissible levels established by MetLife. Both the participating entity and MetLife must provide ninety days' written notice to the A-22 other as well to the Owners before terminating participation in the Group Policy. Termination of participation in the Group Policy means that the participating entity will no longer remit premiums to MetLife through payroll deduction and that no new Certificates will be issued under the participating entity's group. Owners of portable Certificates as defined in the Certificate as of the Certificate monthly anniversary next following the termination of the participating entity's participation in the Group Policy and Owners who exercised the paid-up Certificate provision as of a date not later than the last Certificate monthly anniversary immediately prior to notice of termination being sent to Owners will remain Owners of the Certificates. EFFECT OF TERMINATION OF GROUP POLICY PARTICIPATION ON OWNERS A Termination by the participating entity or MetLife of the participating entity's participation in the Group Policy will not affect Owners whose Certificates have become portable or who have exercised their paid-up Certificate option by dates specified in the preceding paragraph. For all other Owners, the following applies: If the participating entity replaces the Group Policy with another life insurance product that accumulates cash value, Certificates will be terminated and cash surrender values of each Owner will be transferred to the other life insurance product. If the Owner does not elect to be covered under the new product or if the new product does not provide coverage for the Owner, the Certificate's cash surrender value will be transferred to the Owner. If the participating entity replaces the Group Policy with a life insurance product that does not accumulate cash value, Certificates will be terminated and Owners will receive their cash surrender value. In this case and in any other case where Owners receive their cash surrender value, Owners may purchase an annuity product from MetLife instead. If the participating entity does not replace the Group Policy with another life insurance product, then, depending on the terms of the Certificate, Owners may have the option of electing to become Owners of portable Certificates or Owners of paid-up Certificates, or Owners may have the option of electing the standard conversion rights set forth in the Certificate or receiving the cash surrender value of their Certificates. If an Owner becomes the Owner of a portable Certificate, the current cost of insurance may change but will never be higher than the guaranteed cost of insurance. If an Owner elects the standard conversion rights, insurance provided will be substantially less (and in some cases nominal) than the insurance provided under the Certificate. The Owner will receive any cash surrender value not used to purchase such standard conversion right. CERTIFICATE TERMINATION AND REINSTATEMENT WHILE THE GROUP POLICY IS IN EFFECT TERMINATION. If the cash surrender value on any monthly anniversary is insufficient to cover the monthly deduction, MetLife will notify the Owner and any assignee of record of that shortfall. The Owner will then have a grace period of the greater of 61 days, measured from the Certificate monthly anniversary, or 30 days after the date notice is mailed, to make sufficient payment. Failure to make a sufficient payment within the grace period will result in termination of the Certificate without any cash surrender value. If the covered person dies during the grace period, the insurance proceeds will still be payable, but any accrued and unpaid monthly deductions will be deducted from the proceeds. REINSTATEMENT. Unless the Group Policy is terminated and the Owner would not have been permitted to retain the Certificate on a portable or paid-up basis (see, "Effect of Termination of Group Policy Participation on Owners" above), a terminated Certificate may be reinstated any time within 3 years (or longer where required by state law) after the end of the grace period and before the Final Date by submitting the following items to MetLife: (1) a written request for reinstatement; (2) evidence of insurability satisfactory to MetLife; and (3) a premium that, after the deduction of the premium expense charges (see "Charges and Deductions-- Premium Expense Charges"), is large enough to cover the monthly deductions through the end of the grace period and for at least the two Certificate months commencing with the effective date of reinstatement. Indebtedness on the date of termination will be cancelled and need not be repaid and will not be reinstated. The amount of cash surrender value on the date of reinstatement will be determined in the manner set forth in the Certificate. The date of reinstatement will be the the monthly anniversary next following the date of approval of the request. The terms of the original Certificate, including the insurance rates provided therein, will apply to the reinstated Certificate. A reinstated Certificate is subject to a new two year period of contestability (see "Other Certificate Provisions--Incontestability"). A-23 CHARGES AND DEDUCTIONS PREMIUM EXPENSE CHARGES TAX CHARGES. Two charges are currently made for taxes related to premiums. These taxes include any federal, state or local taxes measured by or based on the amount of premiums received by MetLife. A charge of .35% of each premium payment is made for the purpose of recovering a portion of the DAC tax charge. MetLife represents that this charge is reasonable in relation to MetLife's increased federal income tax burden under the Internal Revenue Code resulting from the receipt of premiums. An additional charge is made for state premium taxes. Premium taxes vary from state to state, and may be zero in some cases. One rate will be charged for each group. The initial charge for each group will be an estimate of anticipated taxes to be incurred on behalf of each Group Policy during the first Group Policy year. For each Group Policy year after the first Group Policy year, the state premium tax charge will be based on anticipated taxes taking into account actual state and local premium taxes incurred on behalf of each Group Policy in the prior year and known factors affecting the coming year's taxes. This charge may vary based on changes in the law or changes in the residences of the Owners. This charge may vary from 0 to 5% of premium. MetLife will waive state premium taxes for Internal Revenue Code section 1035 exchanges from any other policy to a Certificate. MetLife will waive the DAC tax charge for Internal Revenue Code section 1035 exchanges from another MetLife policy to a Certificate. MetLife does not anticipate making a profit on this charge. MONTHLY DEDUCTION FROM CASH VALUE The monthly deduction from cash value includes the cost of insurance charge, the charge for optional insurance benefits added by rider (see "Certificate Benefits--Optional Insurance Benefits"), and the administration charges. The cost of insurance charge, and the administration charges are discussed separately in the paragraphs that follow. The charges that comprise the monthly deduction can vary depending upon the Group Policy under which an Owner's Certificate is issued. The Certificate describes the charges applicable to each Owner. The monthly deduction accrues on each monthly anniversary commencing with the Date of Certificate; however, the actual deduction may be made up to 45 days after each such monthly anniversary. It will be allocated among the Fixed Account and each investment division of the Separate Account on a Pro Rata Basis. See "Payment and Allocation of Premiums--Issuance of a Certificate" regarding when insurance coverage starts under a newly issued Certificate. COST OF INSURANCE. Because the cost of insurance depends upon a number of variables, it can vary from month to month. MetLife will determine the monthly cost of insurance charge by multiplying the applicable cost of insurance rate or rates by the insurance amount for each Certificate month. The insurance amount for a Certificate month is (a) the death benefit at the beginning of the Certificate month, less (b) the cash value at the beginning of the Certificate month. The insurance amount will be affected by changes in the specified face amount of the Certificate (see "Certificate Benefits--Death Benefits"). The insurance amount and therefore the cost of insurance will be greater if the specified face amount is increased. If the minimum death benefit is in effect (see "Death Benefit--Minimum Death Benefit"), then the cost of insurance will vary directly with the cash value. The cost of insurance charge will be deducted as part of a monthly combined charge consisting of the cost of insurance charge and a component of the charge for administration (see "Administration Charge"). COST OF INSURANCE RATE. Cost of insurance rates are based on the age and rate class of the covered person and group mortality characteristics, the particular characteristics (such as the rate class structure, the degree of stability in the charges sought by the participating entity and portability features) under the Group Policy that are agreed to by MetLife and the participating entity, and the amount of any surplus to be transferred to MetLife from any previous insurer (see "Other Certificate Provisions--Dividends"). The actual monthly cost of insurance rates will be based on MetLife's expectations as to future experience. They will not, however, be greater than the guaranteed cost of insurance rates set forth in the Certificate. These guaranteed rates may be up to 150% of the maximum rates that could be charged based on the 1980 CSO Table. The maximum guaranteed rates are higher than the 1980 CSO Table because MetLife uses simplified underwriting A-24 and guaranteed issue procedures whereby the covered person may not be required to submit to a medical or paramedical examination, and may provide coverage to groups that present substandard risk characteristics according to underwriting criteria. Under certain circumstances a covered person may be required to submit to a medical or paramedical examination. The current cost of insurance rates for most groups are lower than 100% of the 1980 CSO Table. Any change in the cost of insurance rates will apply to all persons of the same insuring age, rate class and group. MetLife reviews its cost of insurance rates annually and adjusts the rates from time to time based on several factors including the number of Certificates in force for each group, the number of Certificates in the group surrendered or becoming portable during the period and the actual experience of the group. RATE CLASS. The rate class of a covered person affects the cost of insurance rate. MetLife and the participating entity will agree to the number of classes and characteristics of each class. The classes may vary by smokers and nonsmokers, active and retired status, Owners of portable Certificates and other Owners, and/or any other nondiscriminatory classes agreed to by the participating entity. Where smoker and non-smoker divisions are provided, a covered person who is in the non-smoker division of a rate class will have a lower cost of insurance than a covered person in the smoker division of the same rate class, even if each covered person has an identical Certificate. ADMINISTRATION CHARGE. The monthly administration charge is comprised of two components. The first component of the administration charge is a charge that is deducted as part of the monthly combined charge (the other part of the monthly combined charge is the cost of insurance, as described above). This component will never exceed 50% of the monthly combined charge. Since this component of the monthly administration charge will be related to the insurance amount of the Certificate, any change in the specified face amount of a Certificate may result in a change in this component of the monthly administration charge. The second component of the charge is a charge which may be up to $3.00 per Certificate per month as specified in the Certificate. The Certificate will describe the administration charge applicable to each Owner. This charge will be used to compensate MetLife for expenses incurred in the administration of the Certificate as a group variable universal life certificate. These expenses include the cost of processing enrollments, determining insurability, and establishing and maintaining Certificate records. Differences in the administration charge rates applicable to different Group Policies will be determined by MetLife based on expected differences in the administrative costs under the Certificates or in the amount of revenues that MetLife expects to derive from the charge. Such differences may result, for example, from features under each Group Policy that are agreed to by MetLife and the participating entity; the extent to which certain administrative functions in connection with the Group Policy are to be performed by MetLife or by the participating entity; and the expected average Certificate size. No profit is expected to be derived from the aggregate of these administration charges. CHARGES AGAINST THE SEPARATE ACCOUNT CHARGE FOR MORTALITY AND EXPENSE RISKS. A daily charge is made against the Separate Account for mortality and expense risks assumed by MetLife. The amount of the charge is equivalent to an effective annual rate of at least .45% and is guaranteed not to exceed an effective annual rate of .90% of the average daily value of the assets in the Separate Account which are attributable to the Policies. MetLife reserves the right, if permitted by applicable law, to change the structure of mortality and expense risk charge so that it is charged on a monthly basis as a percentage of cash value attributable to the Separate Account or so that it is charged as a component of the monthly combined charge. The mortality risk assumed is that covered persons may live for a shorter period of time than estimated and, thus, a greater amount of death benefits than expected will be payable. The expense risk assumed is that expenses incurred in issuing and administering the Certificates will be greater than estimated. MetLife will realize a gain if the charges prove ultimately to be more than sufficient to cover the actual costs of such mortality and expense commitments. If the charges are not sufficient, the loss will fall on MetLife. If its estimates of future mortality and expense experience are accurate, MetLife anticipates that it will realize a profit from the mortality and expense risk charge; however if such estimates are inaccurate, MetLife could incur a loss. A-25 Differences in the mortality and expense risk charge rates applicable to different Group Policies will be determined by MetLife based on differences in the levels of mortality and expense risks under those Policies. Differences in mortality and expense risk arise principally from the fact that (a) the factors discussed above under "Monthly Deduction From Cash Value" on which the cost of insurance and administration charges are based are more uncertain in some cases than in others and (b) MetLife's ability to recover any unexpected mortality and administrative expense costs from the cost of insurance and administration charges will also vary from case to case depending on the maximum rates for such charges agreed upon by MetLife and the participating entity. MetLife will determine cost of insurance, administration, and mortality and expense risk charge rates pursuant to its established actuarial procedures, and in doing so MetLife will not discriminate unreasonably or unfairly against Owners of Certificates under any Group Policy. CHARGE FOR INCOME TAXES. Currently, no charge is made against the Separate Account for income taxes. However, MetLife may decide to make such a charge in the future (see "Federal Tax Matters"). GUARANTEE OF CERTAIN CHARGES MetLife guarantees, and may not increase the rates specified in the Certificate for the following charges: the charge for the estimated cost of Federal income tax treatment of deferred acquisition costs, apart from any change in the law; the maximum cost of insurance charge; the maximum administration charge; and the maximum charge for mortality and expense risks with respect to the Certificates. OTHER CHARGES FUND INVESTMENT MANAGEMENT FEE AND EXPENSES. Shares of the Fund are purchased for the Separate Account at their net asset value, which reflects Fund fees and expenses as described more fully under "What are Separate Account UL, the Fixed Account and the Metropolitan Series Fund?" and in the attached prospectus for the Fund. The Certificates do not impose any charges for sales expenses. Such expenses will be paid from other sources, including any excess accumulated charges for mortality and expense risks under the Certificates, any other gains attributable to operations with respect to the Certificates and MetLife's general assets and surplus. ILLUSTRATIONS OF DEATH BENEFIT, CASH VALUES AND ACCUMULATED PREMIUMS The tables in this section illustrate the way in which a Certificate's death benefit and cash value could vary over an extended period of time assuming that all premiums are allocated to and remain in the Separate Account for the entire period shown and hypothetical gross investment rates of return for the Fund (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross (after tax) annual rates of 0%, 6% and 12%. The tables are based on the payment of monthly premiums (see "Premiums--Premium Limitations"), for a specified face amount of $100,000 for an individual who is age 40. The illustrations assume no Certificate loans have been made; therefore cash surrender values for the guaranteed illustrations would be $25 less than the cash values shown due to the deduction of a surrender transaction charge, and cash surrender values for the current illustrations would be equal to the cash values shown because it is assumed that no surrender transaction charge is deducted. The guaranteed illustrations assume: (1) that the covered person is in a rate class that has maximum guaranteed cost of insurance charges equal to 100% of the maximum rates that could be charged based on the 1980 CSO Table; (2) a $3.00 per Certificate per month administration charge, plus a charge for administration included as part of the monthly combined charge equal to the same amount charged for the cost of insurance described in (1) above; (3) a .35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .90% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (6) a surrender transaction charge of $25. A-26 The current illustrations assume: (1) that the covered person is in a rate class that does not distinguish between smoker and nonsmoker and has current standardized cost of insurance charges as set forth in the following table:
MONTHLY CURRENT COST OF INSURANCE RATE - --------------------------------------- RATE PER THOUSAND DOLLARS AGE OF INSURANCE - ---------- --------------------------- 40 to 44 $ 0.17 45 to 49 $ 0.29 50 to 54 $ 0.48 55 to 59 $ 0.75 60 to 64 $ 1.17 65 to 69 $ 2.10
Comparable illustrations for a covered person in MetLife's standard smoker underwriting risk classification or in a substandard risk classification would show lower cash values and, therefore, a lower death benefit. Conversely, comparable illustrations for a covered person in MetLife's standard nonsmoker underwriting risk classification would show higher cash values and cash surrender values and, therefore, a higher death benefit; (2) a $1.50 per Certificate per month administration charge, plus a charge for administration included as part of the monthly combined charge equal to 20% of the amount charged for the cost of insurance described in (1) above; (3) a .35% DAC tax charge; (4) a 2.5% premium tax rate; (5) a daily charge against the Separate Account for mortality and expense risks equivalent to an effective annual rate of .45% of the average daily value of the assets in the Separate Account attributable to the Certificates; and (6) no surrender transaction charge. The amounts shown for the death benefits and cash values also take into account the daily charge to the Fund for investment management services equivalent to an annual rate of .42% of the average daily value of the aggregate net assets of the available Fund portfolios (an average of the rates for the six available portfolios of the Fund) and .10% for other direct expenses of the available Fund portfolios (the average daily rate of such expenses for the available Fund portfolios during 1995). Taking account of the charges for investment management services, other Fund expenses and the current charge for mortality and expense risks, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -.96%, 4.98% and 10.92%, respectively. With the guaranteed charges, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: - -1.41%, 4.50% and 10.42%, respectively. The guaranteed maximum charge illustration is based on rates charged under a hypothetical representative standard Group Policy; the current charge illustrations are based on rates that would be representative of such a Group Policy (see "Monthly Deduction From Cash Value--Cost of Insurance Rate"). The actual maximum current charge rates can be expected to vary from one Group Policy to another. The second column of the tables shows the amount which would accumulate if an amount equal to the annual planned premium were invested to earn interest, after taxes, at 5% compounded annually. Upon request, MetLife will furnish an illustration reflecting the proposed covered person's age, Certificate charges, the specified face amount or premium amount requested, frequency of premium payments, and any available rider requested. A-27 GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE(1) ISSUE AGE 40 SPECIFIED FACE AMOUNT: $100,000 GUARANTEED CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF CERTIFICATE INTEREST -------------------------- ----------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ------------------------------ ----------- ------- ------- ------- --------- ------- ------- 1............................ $ 1,232 $ 496 $ 512 $ 528 $100,496 $100,512 $100,528 2............................ 2,526 931 992 1,053 100,931 100,992 101,053 3............................ 3,885 1,303 1,433 1,572 101,303 101,433 101,572 4............................ 5,311 1,606 1,829 2,078 101,606 101,829 102,078 5............................ 6,809 1,837 2,174 2,564 101,837 102,174 102,564 6............................ 8,382 1,993 2,460 3,025 101,993 102,460 103,025 7............................ 10,033 2,070 2,679 3,452 102,070 102,679 103,452 8............................ 11,767 2,064 2,824 3,836 102,064 102,824 103,836 9............................ 13,588 1,971 2,885 4,168 101,971 102,885 104,168 10........................... 15,499 1,783 2,849 4,431 101,783 102,849 104,431 15........................... 26,590 0(3) 519 3,863 0(3) 100,519 103,863 20........................... 40,746 0(3) 0 (3) 0 (3) 0(3) 0(3) 0(3) 25........................... 58,812 0(3) 0 (3) 0 (3) 0(3) 0(3) 0(3) 30........................... 81,870 0(3) 0 (3) 0 (3) 0(3) 0(3) 0(3)
- --------- (1) Assumes monthly payments of $100 paid at the beginning of each Certificate month. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Certificate to terminate because of insufficient cash value. (3) Zero value in cash value, cash surrender value and death benefit indicate termination of insurance coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums--Termination," on page A-24 for further details. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METLIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-28 GROUP VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE(1) ISSUE AGE 40 SPECIFIED FACE AMOUNT: $100,000 CURRENT CHARGES
TOTAL CASH VALUE(2) TOTAL DEATH BENEFIT(2) PREMIUMS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF CERTIFICATE INTEREST -------------------------- ----------------------------- YEAR PER YEAR 0% 6% 12% 0% 6% 12% - ------------------------------ ----------- ------- ------- ------- --------- ------- ------- 1............................ $ 1,232 $ 898 $ 927 $ 956 $100,898 $100,927 $100,956 2............................ 2,526 1,788 1,900 2,015 101,788 101,900 102,015 3............................ 3,885 2,669 2,922 3,191 102,669 102,922 103,191 4............................ 5,311 3,541 3,995 4,495 103,541 103,995 104,495 5............................ 6,809 4,405 5,120 5,941 104,405 105,120 105,941 6............................ 8,382 5,089 6,125 7,362 105,089 106,125 107,362 7............................ 10,033 5,766 7,179 8,939 105,766 107,179 108,939 8............................ 11,767 6,437 8,286 10,687 106,437 108,286 110,687 9............................ 13,588 7,101 9,448 12,626 107,101 109,448 112,626 10........................... 15,499 7,758 10,668 14,777 107,758 110,668 114,777 15........................... 26,590 9,618 16,188 27,811 109,618 116,188 127,811 20........................... 40,746 9,492 21,019 47,133 109,492 121,019 147,133 25........................... 58,812 6,422 23,748 75,589 106,422 123,748 175,589 30........................... 81,870 0(3) 19,633 114,549 0(3) 119,633 214,549
- --------- (1) Assumes monthly payments of $100 paid at the beginning of each Certificate month. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no loan or partial withdrawal has been made. Excessive loans or withdrawals, adverse investment performance or insufficient premium payments may cause the Certificate to terminate because of insufficient cash value. (3) Zero value in cash value, cash surrender value and death benefit indicate termination of insurance coverage in the absence of a sufficient additional premium payment; see "Payment and Allocation of Premiums--Termination," on page A-24 for further details. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE PREMIUM AND CASH VALUE ALLOCATIONS MADE BY AN OWNER AND DIFFERENT RATES OF RETURN OF THE FUND PORTFOLIOS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY METLIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. A-29 CERTIFICATE RIGHTS LOAN PRIVILEGES CERTIFICATE LOAN. At any time, the Owner may borrow money from MetLife using the Certificate as the only security for the loan. Certificates under some Group Policies may be subject to a transaction charge of up to $25 for each loan. The smallest amount the Owner can borrow at any one time is $200. The maximum amount that may be borrowed at any time is the loan value. The loan value equals 75% (or higher where required by state law) of the cash surrender value. For situations where a Certificate loan may be treated as a taxable distribution, see "Federal Tax Matters." ALLOCATION OF CERTIFICATE LOAN. MetLife will allocate a Certificate loan among the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis. INTEREST. Interest charges can vary depending upon the Group Policy under which an Owner's Certificate is issued. The Certificate describes the interest charges applicable to each Owner. The interest rate may be up to 8% per year. The Certificate specifies the current interest rate applicable to each Owner. Interest payments are generally due at the beginning of each Certificate year. However, MetLife reserves the right to make interest payments due in a different manner. If unpaid within 31 days after it is due, interest will be treated as a new loan subject to the interest rates applicable at that time and an amount equal to such interest due will be transferred from the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis to the Loan Account. Generally, interest paid to MetLife in connection with Certificate loans is not deductible. For further information with respect to loan interest deductibility, counsel and other competent advisors should be consulted. EFFECT OF A CERTIFICATE LOAN. As of the Date of Receipt of the loan request, cash value equal to the portion of the Certificate loan allocated to the Fixed Account and to each investment division will be transferred from the Fixed Account and/or such investment divisions to the Certificate Loan Account, reducing the Certificate's cash value in the accounts from which the transfer was made. The transfer will be allocated among the Fixed Account and investment divisions of the Separate Account on a Pro Rata Basis (see "Charges and Deductions--Monthly Deduction from Cash Value"). Cash value in the Loan Account equal to indebtedness will be credited with interest at a rate equal to the rate of loan interest charged less a percentage charge, determined by MetLife. This charge may be up to 2%. Thus, the interest rate credited may be up to 8%. The Certificate indicates the current charge applicable to each Owner and the current interest rate credited to the amounts in the Loan Account. The minimum rate credited to the Loan Account will be 4% per year. NO ADDITIONAL INTEREST WILL BE CREDITED TO THE CASH VALUE IN THE LOAN ACCOUNT, NOR WILL THE CASH VALUE IN THE LOAN ACCOUNT PARTICIPATE IN ANY INVESTMENT EXPERIENCE APPLICABLE TO THE SEPARATE ACCOUNT. The Certificate's cash value in the Loan Account will be the outstanding indebtedness on the Valuation Date plus any interest credited to the Loan Account which has not yet been allocated to the Fixed Account or the investment divisions of the Separate Account as of the Valuation Date. Interest credited to amounts in the Loan Account will be allocated at least once a year among the Fixed Account and the investment divisions of the Separate Account in the same proportion as the net premiums are then being allocated. INDEBTEDNESS. Indebtedness equals the outstanding Certificate loan and loan interest. If, on a monthly anniversary, indebtedness exceeds the cash value minus the monthly deduction, MetLife will notify the Owner and any assignee of record. If a sufficient payment is not made to MetLife within the greater of 61 days, measured from the such monthly anniversary, or 30 days after the date notice of the start of the grace period is mailed, the Certificate will terminate without value. The Certificate may, however, later be reinstated, subject to certain conditions (see "Certificate Termination and Reinstatement While the Group Policy is in Effect"). REPAYMENT OF INDEBTEDNESS. Indebtedness may be repaid any time before the Final Date while the covered person is living. If not repaid, MetLife will deduct indebtedness from any amount payable under the Certificate. As of the Date of Receipt of the repayment, the Certificate's cash value in the Certificate Loan Account securing indebtedness will be allocated among the Fixed Account and the investment divisions of the A-30 Separate Account in the same proportion that net premiums are being allocated to those accounts at the time of repayment. The Owner should designate whether a payment is intended as a loan repayment or a premium payment. Any payment for which no designation is made will be treated as a premium payment. SURRENDER AND WITHDRAWAL PRIVILEGES Subject to the limitations set forth below, at any time before the earlier of the death of the covered person and the Final Date, the Owner may make a partial withdrawal or totally surrender the Certificate by sending a written request to Administrative Office. The maximum amount available for surrenders or withdrawal is the cash surrender value on the Date of Receipt of the request. Certificates under some Group Policies may be subject to a transaction charge of up to $25 (or, if less, 2% of the amount withdrawn) for each surrender, withdrawal or partial withdrawal. This charge would be used to defray MetLife's costs on effecting the transaction and it would not be designed to yield any profit to MetLife. No transaction charge will apply to the termination of a Certificate due to the termination of the Group Policy by either the participating entity or MetLife. For any tax consequences in connection with a partial withdrawal or surrender, see "Federal Tax Matters." SURRENDERS. The Owner may surrender the Certificate for its cash surrender value. If the Certificate is being surrendered, MetLife may require that the Certificate itself be returned along with the request. An Owner may elect to have the proceeds paid in a single sum. If the covered person dies after the surrender of the Certificate and payment to the Owner of the cash surrender value but before the end of the Certificate month in which the surrender occurred, a death benefit will be payable to the beneficiary in an amount equal to the difference between the Certificate's death benefit and cash value, both computed as of the surrender date. PARTIAL WITHDRAWALS. The Owner may make a partial withdrawal from the Certificate's cash surrender value. The minimum partial withdrawal is $200. The amount withdrawn will be deducted from the Certificate's cash value as of the Date of Receipt. The amount will be deducted from the Fixed Account and the investment divisions of the Separate Account on a Pro Rata Basis. The death benefit will be reduced by the amount withdrawn. In some cases, the maximum amount that may be withdrawn through a partial withdrawal from the Fixed Account in any Certificate year is the greater of $200 or 25% of the largest amount in the Fixed Account over the last four Certificate years, or, if the Certificate has been in force less than such period, since the Certificate date. The Certificate includes a description of the Owner's rights to make partial withdrawals. EXCHANGE PRIVILEGE During the first 24 Certificate months following the issuance of the Certificate, the Owner may exercise the Certificate exchange privilege, which results in the transfer at any one time of the entire amount in the Separate Account to the Fixed Account, and the allocation of all future net premiums to the Fixed Account. This will, in effect, serve as an exchange of the Certificate for the equivalent of a flexible premium fixed benefit life insurance policy. No charge will be imposed on such transfer in exercising this exchange privilege. Moreover, the Owner may subsequently transfer amounts back to one or more of the investment divisions of the Separate Account at any time, within the limitations described in "Allocation of Premiums and Cash Value--Cash Value Transfers." Similarly, during the first 24 months following an increase in the specified face amount requested by the Owner, the Owner may request a one time charge-free transfer of the Separate Account cash value attributable to the increase to the Fixed Account, including a transfer in the amount of any premium payments that have been deemed attributable to the increase. In those states which require it, the Owner may also, during the first 24 Certificate months following the issuance of the Certificate, without charge, on one occasion exchange any Certificate still in force for a flexible premium fixed benefit life insurance policy issued by MetLife. Upon such exchange, the Certificate's cash value will be transferred to the General Account of MetLife. A-31 THE FIXED ACCOUNT An Owner may allocate net premiums and transfer cash value to the Fixed Account, which is part of the General Account of MetLife. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933 and neither the Fixed Account nor the General Account has been registered as an investment company under the 1940 Act. Accordingly, neither the General Account, the Fixed Account nor any interests therein are generally subject to the provisions of these Acts and MetLife has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this Prospectus relating to the Fixed Account. Disclosures regarding the Fixed Account may, however, be subject to certain generally applicable provisions of the Federal securities laws relating to the accuracy and completeness of statements made in prospectuses. GENERAL DESCRIPTION This Prospectus is generally intended to serve as a disclosure document only for the aspects of the Group Policy and Certificates involving the Separate Account and contains only selected information regarding the Fixed Account. For complete details regarding the Fixed Account, see the Certificate. Subject to applicable law, MetLife has sole discretion over the investment of the assets of the General Account, including those in the Fixed Account. Unlike the assets of the Separate Account, the assets in the Fixed Account, as a part of the General Account, are chargeable with liabilities arising out of any other business of MetLife. The allocation or transfer of funds to the Fixed Account does not entitle an Owner to share in the investment experience of the General Account. Instead, MetLife guarantees that cash value in the Fixed Account will accrue interest at an effective annual rate of at least 4%, independent of the actual investment experience of the General Account. MetLife is not obligated to credit interest at any higher rate, although MetLife may do so, in its sole discretion. FIXED ACCOUNT CASH VALUE Net premiums allocated to the Fixed Account are credited to the Certificate. The Certificate's cash value in the Fixed Account will reflect the amount and frequency of premium payments allocated to the Fixed Account, the amount of interest credited to amounts in the Fixed Account, any partial withdrawals, any transfers from or to the investment divisions of the Separate Account, any Certificate indebtedness and any charges imposed on amounts in the Fixed Account in connection with the Certificate. ANY INTEREST METLIFE CREDITS ON THE CERTIFICATE'S CASH VALUE IN THE FIXED ACCOUNT IN EXCESS OF THE GUARANTEED RATE OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF METLIFE. THE OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO AMOUNTS OF CASH VALUE IN THE FIXED ACCOUNT MAY NOT EXCEED THE GUARANTEED MINIMUM RATE OF 4% PER YEAR. The cash value in the Fixed Account will be calculated on each Valuation Date. MetLife will declare a rate of excess interest which is guaranteed until the end of the calendar year in which the Group Policy first becomes effective. Thereafter, as of January 1 of each year, MetLife will declare the rate of excess interest applicable to net premium payments allocated to the Fixed Account during each such year. As of January 1 of each year, MetLife will also declare the rate of excess interest applicable to cash value in the Fixed Account. MetLife may also establish multiple bands of excess interest. This means that different rates of excess interest may apply to premium payments received in different years. Transfers made into the Fixed Account will be treated as new premium payments for these purposes. The guaranteed and excess interest are credited each Valuation Date. Once credited, that interest will be guaranteed and become part of the Certificate's cash value in the Fixed Account. The portion of the monthly deduction that is deducted from the Fixed Account will be charged against the most recent premiums paid and interest credited thereto. A-32 DEATH BENEFIT, TRANSFER, WITHDRAWAL, SURRENDER, AND CERTIFICATE LOAN RIGHTS Amounts in the Fixed Account are generally subject to the same rights and limitations as are amounts allocated to the investment divisions of the Separate Account with respect to transfers, withdrawals, surrenders and Certificate loans (see "Certificate Benefits--Death Benefit," "Allocation of Premiums and Cash Value--Cash Value Transfers," "Loan Privileges," "Surrender and Withdrawal Privileges"). However, transfers from the Fixed Account may be subject to additional limitations as described under "Allocation of Premiums and Cash Value." MetLife reserves the right to delay transfers, withdrawals, surrenders and the payment of the Certificate loans allocated to the Fixed Account for up to six months (see "Other Certificate Provisions--Payment and Deferment"). Payments to pay premiums on another policy with MetLife will not be delayed. RIGHTS RESERVED BY METLIFE MetLife reserves the right to make certain changes if, in its judgment, they would best serve the interests of the Owners or would be appropriate in carrying out the purposes of the Certificates. Any changes will be made only to the extent and in the manner permitted by applicable laws. Also, when required by law, MetLife will obtain Owner approval of the changes and approval from any appropriate regulatory authority. Examples of the changes MetLife may make include: - To operate the Separate Account in any form permitted under the 1940 Act or in any other form permitted by law. - To take any action necessary to comply with or obtain and continue any exemptions from the 1940 Act. - To transfer any assets in any investment division to another investment division, or to one or more separate accounts, or to the Fixed Account; or to add, combine or remove investment divisions in the Separate Account. - To substitute, for the Fund shares held in any investment division, the shares of another portfolio of the Fund or the shares of another investment company or any other investment permitted by law. - To change the way MetLife assesses charges, but without increasing the aggregate amount charged to the Fixed Account or the Separate Account in connection with the Certificates. - To make any other necessary technical changes in the Certificate in order to conform with any action the above provisions permit MetLife to take. If any of these changes result in a material change in the underlying investments of an investment division to which the net premiums of a Certificate are allocated, MetLife will notify the Owner of such change, and the Owner may then make a new choice of investment divisions or the Fixed Account without charge. OTHER CERTIFICATE PROVISIONS OWNER. The Owner of a Certificate is the covered person unless another owner has been named in the enrollment form for the Certificate. Unless otherwise reserved by the participating entity, the Owner is entitled to exercise all rights under a Certificate while the covered person is alive, including the right to name a new owner or a contingent owner who would become the owner if the Owner should die before the covered person dies. BENEFICIARY. The beneficiary is the person or persons to whom the insurance proceeds are payable upon the covered person's death. The Owner may name a contingent beneficiary to become the beneficiary if all the beneficiaries die while the covered person is alive. If no beneficiary or contingent beneficiary is alive when the covered person dies, the Owner (or the Owner's estate) will be the beneficiary. While the covered person is alive, the Owner may change any beneficiary or contingent beneficiary. If more than one beneficiary is alive when the covered person dies, they will be paid in equal shares, unless the Owner has chosen otherwise. A-33 INCONTESTABILITY. MetLife will not contest the validity of a Certificate after it has been in force during the covered person's lifetime for two years from the Date of Certificate (or date of reinstatement if a terminated Certificate is reinstated) except with respect to certain optional insurance benefits that may be added subsequent to the Date of Certificate. MetLife will not contest the validity of any increase requested by an Owner in the death benefit after such increase has been in force during the covered person's lifetime for two years from its effective date. SUICIDE. The insurance proceeds will not be paid if the covered person commits suicide, while sane or insane, within two years (or less if required by state law) from the Date of Certificate. Instead, MetLife will pay the beneficiary an amount equal to all premiums paid for the Certificate, without interest, less any outstanding Certificate loan and less any partial cash withdrawal. If the covered person commits suicide, while sane or insane, more than two years after the Date of Certificate but within two years (or less if required by state law) from the effective date of any increase in the death benefit, MetLife's liability with respect to such increase will be limited to the cost thereof. MISSTATEMENT OF AGE. If the covered person's age as stated in the enrollment form for a Certificate is not correct, benefits under a Certificate will be adjusted to reflect the correct age. COLLATERAL ASSIGNMENT. The Owner may assign a Certificate as collateral. All rights under the Certificate will be transferred to the extent of the assignee's interest. MetLife is not bound by an assignment or release thereof, unless it is in writing and is recorded at the Administrative Office. MetLife is not responsible for the validity of any assignment or release thereof. PAYMENT AND DEFERMENT. With respect to amounts in the investment divisions of the Separate Account, payment of the death benefit, all or a portion of the cash surrender value, free look proceeds or a loan will ordinarily be made within seven days after the Date of Receipt of all documents required for such payment. MetLife will pay interest on the amount of death benefit at a rate which is currently 6% per year (or such higher rate as may be required by state law) from the date of death until the date of payment of the death benefit. However, MetLife may defer the determination, application or payment of any such amount or any transfer of cash value in the Separate Account for any period during which the New York Stock Exchange is closed (other than customary weekend and holiday closing), for any period during which any emergency exists as a result of which it is not reasonably practicable for MetLife to determine the investment experience for a Certificate or for such other periods as the Securities and Exchange Commission may by order permit for the protection of Owners. MetLife will not defer a loan used to pay premiums on other policies or certificates issued by it. As with traditional life insurance, MetLife can delay payment of the entire insurance proceeds or other Certificate benefits if entitlement to payment is being questioned or is uncertain. DIVIDENDS. The Group Policies and Certificates are participating. However, in view of the manner in which MetLife has determined the premium rates and charges, it is not anticipated that the Group Policies and Certificates will be entitled to any dividend. In this connection, when a participating entity transfers coverage from a prior insurer to a MetLife Group Policy, or transfers coverage from a MetLife Group Policy to a successor insurer, certain amounts of surplus may also be transferred, respectively, to MetLife or to the successor insurance company, rather than being declared as dividends. The description throughout this Prospectus of the features of the Certificates is subject to the specific terms of the Certificates. SALES AND ADMINISTRATION OF THE GROUP POLICIES AND CERTIFICATES MetLife performs the sales and administrative services relating to the Group Policies and Certificates. The office of MetLife which administers the Group Policies and Certificates is located in Aurora, Illinois. Each participating entity and Owner will be notified which office will be the Administrative Office for servicing the Certificates. MetLife may name different Administrative Offices for different transactions. A-34 MetLife acts as the principal underwriter (distributor) of the Group Policies and Certificates as defined in the 1940 Act (see "Distribution of the Group Policies and Certificates"). In addition to selling insurance and annuities, MetLife also serves as investment adviser to certain other advisory clients, and is also principal underwriter for Metropolitan Tower Separate Accounts One and Two of Metropolitan Tower Life Insurance Company, a wholly-owned subsidiary of MetLife, and Metropolitan Life Separate Account E of MetLife, each of which is registered as a unit investment trust under the 1940 Act. Finally, MetLife acts as principal underwriter for other forms of variable universal life insurance policies, premiums for which may also be allocated to the Separate Account. BONDING. The directors, officers and employees of MetLife are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. DISTRIBUTION OF THE GROUP POLICIES AND CERTIFICATES The Group Policies and Certificates will be sold by individuals who are licensed life insurance sales representatives and registered representatives of MetLife, the principal underwriter of the Certificates. MetLife is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. No commissions are paid to MetLife's registered representatives for distribution of the Group Policies or Certificates, although MetLife representatives may earn certain incentive award credits. Group Policies and Certificates may also be sold through other registered broker-dealers who have entered into selling agreements with MetLife. Commissions or fees which are payable to a broker-dealer or third party administrator ("TPA") are set forth in MetLife's schedules of group insurance commission rates. Payments or commissions to broker-dealers or TPAs normally consist of two elements. The first element is based on the lowest premium sufficient to keep the Certificate in force. Under this element, a commission is payable to a maximum of 15% of premium, as described above, and is based upon the services provided by the broker-dealer or TPA. The second element is a per Certificate payment, based upon total number of Certificates issued under the Group Policy. Maximum first year payments and renewal payments per Certificate are specified in MetLife's schedules of group insurance commission rates. In no event will commissions exceed the maximum percentage of gross premium commission payable under New York State law, for all Certificates. All payments and commissions are paid by MetLife. They do not result in any charges against the Group Policy or Certificates in addition to those set forth under "Charges and Deductions." Since no Group Policies or Certificates were sold during 1995, no compensation had been paid as of December 31, 1995. FEDERAL TAX MATTERS The following description is a brief summary of some of the tax rules, primarily related to federal income and estate taxes, which in the opinion of MetLife are currently in effect. The Certificate receives the same federal income and estate tax treatment as fixed benefit life insurance. The death benefit payable under the Certificate is generally excludable from the gross income of the beneficiary under Section 101 of the Internal Revenue Code ("Code") and the Owner is not deemed to be in constructive receipt of the cash values under the Certificate until actual withdrawal or surrender. Under existing tax law, an Owner generally will be taxed on cash value withdrawn from the Certificate and cash value received upon surrender of the Certificate. Under most circumstances, unless a Certificate is a modified endowment contract as discussed below, and unless the distribution occurs during the first 15 Certificate years, only the amount withdrawn, received upon surrender or distributed at the Final Date of a Certificate that exceeds the total premiums paid (less previous non-taxable withdrawals) will be treated as ordinary income. During the first 15 Certificate years, cash distributions from a Certificate, made as a result of a Certificate change that reduces the death benefit or other benefits under a Certificate, will be taxable to the Owner, under a complex formula, to the extent that cash value exceeds premiums paid (less previous non-taxable withdrawals). A-35 Section 817(h) of Code and the Treasury Regulations thereunder set diversification rules for the investments underlying the Group Policies, in order for the Group Policies to be treated as life insurance. MetLife believes that these diversification standards will be satisfied. There is a provision in the regulations which allows for the correction of an inadvertent failure to diversify. Failure to comply with the rules found in the regulations would result in immediate taxation to Owners of all positive investment experience credited to a Certificate for the period of non-compliance and until such time as a settlement of the matter is reached with the Internal Revenue Service. There is a possibility that regulations may be proposed or that a controlling ruling may be issued in the future describing the extent to which Owner control over allocation of cash value may cause Owners to be treated as the owners of Separate Account assets for tax purposes. MetLife reserves the right to amend the Group Policies in any way necessary to avoid any such result. MetLife also believes that loans received under the Certificate will be treated as indebtedness of an Owner for federal tax purposes, and, unless the Certificate is or becomes a modified endowment contract as described below or terminates, that no part of any loan received under a Certificate will constitute income to the Owner. However, any remaining outstanding loan at the time the Certificate is totally surrendered, exchanged, terminated or on the Final Date may be subject to tax depending of the amount of gain in the Certificate. In the case of a modified endowment contract, amounts received before death including Certificate loans, are treated first as income (to the extent of gain) and then as recovered investment. For purposes of determining the amount includible in income, all modified endowment contracts issued by the same company (or affiliate) to the same Owner during any calendar year will be treated as one modified endowment contract. Finally, an additional 10% income tax is generally imposed on the taxable portion of amounts received before age 59 1/2 under a modified endowment contract. In general, a modified endowment contract is a life insurance contract entered into or, generally, materially changed after June 20, 1988 that fails to meet a "7-pay test". Each Certificate is tested separately for purposes of the 7-pay test. Under the 7-pay test, if the amount of premiums paid with respect to a Certificate at any time during the first 7 Certificate years exceeds the sum of the net level premiums which would have been paid if the Certificate provided for paid-up future benefits after the payment of 7 level annual payments, the Certificate is a modified endowment contract. A Certificate may have to be reviewed under the 7-pay test even after the first seven Certificate years in the case of certain events such as a material modification of the Certificate as discussed below. If there is a reduction in benefits under the Certificate during any 7-pay testing period, the 7-pay test is applied using the reduced benefits level. Any distribution made within two years before a Certificate fails the 7-pay test may be treated as made in anticipation of such failure. Whether or not a particular Certificate meets these definitional requirements is dependent on the date it was entered into, premium payments made and the periodic premium payments to be made, the level of death benefit, any changes in the level of death benefits, the extent of any prior cash withdrawals, and other factors. Generally, a life insurance policy which is received in exchange for a modified endowment contract will also be considered a modified endowment contract. A Certificate should be reviewed upon issuance, upon making a cash withdrawal, upon making a change in future benefits and upon making a material modification to the Certificate to determine to what extent, if any, these tax rules apply. A material modification to a Certificate includes, but is not limited to, any requested increase in the future benefits provided under the Certificate. However, in general, increases that are attributable to the payment of premiums necessary to fund the lowest death benefit payable in the first 7 Certificate years will not be considered material modifications. The annual statement sent to each Owner will include information regarding the modified endowment contract status of a Certificate (see "Premiums--Premium Limitations"). Counsel and other competent advisors should be consulted to determine how these rules apply to an individual situation and before making premium payments, increasing or decreasing the total face insurance amount, or adding or removing a rider. A-36 While employee pay all group variable universal life should generally be treated as separate from any Internal Revenue Code Section 79 Group Term Life Insurance Plan concurrently in effect, in some circumstances group variable universal life could be viewed as being part of such a plan, giving rise to adverse tax consequences. Congress may, in the future, consider other legislation that, if enacted, could adversely affect the tax treatment of life insurance policies. In addition, the Treasury Department may by regulation or interpretation modify the above described tax effects. Any legislative or administrative action could be applied retroactively. The death benefit payable under the Certificate is includable in the covered person's gross estate for federal estate tax purposes if the death benefit is paid to the covered person's estate or if the death benefit is paid to a beneficiary other than the estate and the covered person either possessed incidents of ownership in the Certificate at the time of death or transferred incidents of ownership in the Certificate to another person within three years of death. Whether or not any federal estate tax is payable with respect to the death benefit of the Certificate which is included in the covered person's gross estate depends on a variety of factors including the following. A smaller size estate may be exempt from federal estate tax because of a current estate tax credit which generally is equivalent to an exemption of $600,000. In addition, a death benefit paid to a surviving spouse may not be taxable because of a 100% estate tax marital deduction. Furthermore, a death benefit paid to a tax-exempt charity may not be taxable because of the allowance of an estate tax charitable deduction. If the Owner of the Certificate is not the covered person, and the Owner dies before the covered person, the value of the Certificate, as determined under Internal Revenue Service regulations, is includable in the federal gross estate of the Owner for federal estate tax purposes. Whether a federal estate tax is payable depends on a variety of factors, including those listed in the preceding paragraph. State and local income, estate, inheritance and other tax consequences of ownership or receipt of Certificate proceeds depend on the circumstances of each covered person, Owner or beneficiary. Finally, employer involvement and other factors determine whether group variable universal life is subject to the Employee Retirement Income Security Act ("ERISA"). The foregoing summary does not purport to be complete or to cover all situations. Counsel and other competent advisors should be consulted for more complete information. MANAGEMENT The present directors and the senior officers and secretary of Metropolitan Life are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
POSITIONS AND OFFICES NAME PRINCIPAL OCCUPATION & BUSINESS ADDRESS WITH METLIFE - -------------------------------- -------------------------------------------------- ---------------------------------- Theodossios Athanassiades....... Vice-Chairman of the Board, Vice-Chairman of the Board and Metropolitan Life Insurance Company, Director One Madison Avenue, New York, NY 10010. Curtis H. Barnette.............. Chairman and Chief Executive Officer Director Bethlehem Steel Corp., 1170 Eighth Avenue, Martin Tower 2118, Bethlehem, PA 18016-7699. Joan Ganz Cooney................ Chairman, Executive Committee, Director Children's Television Workshop, One Lincoln Plaza, New York, NY 10023
A-37
POSITIONS AND OFFICES NAME PRINCIPAL OCCUPATION & BUSINESS ADDRESS WITH METLIFE - -------------------------------- -------------------------------------------------- ---------------------------------- James R. Houghton............... Retired Chairman of the Board, Director Corning Incorporated, 80 East Market Street 2nd Floor Corning, NY 14830. Harry P. Kamen.................. Chairman, President and Chairman, President, Chief Chief Executive Officer, Executive Officer and Director Metropolitan Life Insurance Company, One Madison Avenue, New York, NY 10010. Helene L. Kaplan................ Of Counsel, Skadden, Arps, Slate, Director Meagher & Flom, 919 Third Avenue, New York, NY 10022. Richard J. Mahoney.............. Chairman of the Executive Committee, Director Monsanto Company - Mail Zone N3L 800 N. Lindbergh Blvd., St. Louis, MO 63167. Allen E. Murray................. Retired Chairman of the Board Director and Chief Executive Officer, Mobil Corporation, P.O. Box 2072 New York, NY 10163. John J. Phelan, Jr.............. Retired Chairman and Chief Executive Director Officer, New York Stock Exchange, Inc., P.O. Box 312, Mill Neck, NY 11765 John B. M. Place................ Former Chairman of the Board, Director Crocker National Corporation, 111 Sutter Street, 4th Fl., San Francisco, CA 94104. Hugh B. Price................... President and Chief Executive Officer, Director National Urban League, Inc., 500 East 62nd Street New York, NY 10021 Robert G. Schwartz.............. Retired Chairman of the Board, Director President and Chief Executive Officer, Metropolitan Life Insurance Company, 200 Park Avenue, Suite 5700 New York, NY 10166. Ruth J. Simmons................. President, Director Smith College, College Hall 20, North Hampton, MA 01063 William S. Sneath............... Retired Chairman of the Board, Director Union Carbide Corporation, 41 Leeward Lane, Riverside, CT 06878. John R. Stafford................ Chairman of the Board, President Director and Chief Executive Officer, American Home Products Corporation, Five Giralda Farms Madison, NJ 07940.
A-38 OFFICERS*
NAME OF OFFICER POSITION WITH METLIFE - --------------------------------------------- ------------------------------------------------------------------------ Harry P. Kamen............................... Chairman, President and Chief Executive Officer Theodossios Athanassiades.................... Vice-Chairman of the Board Gerald Clark................................. Senior Executive Vice-President and Chief Investment Officer Stewart G. Nagler............................ Senior Executive Vice-President and Chief Financial Officer Gary A. Beller............................... Executive Vice-President, Chief Legal Officer and General Counsel Robert H. Benmosche.......................... Executive Vice President C. Robert Henrikson.......................... Executive Vice-President John D. Moynahan, Jr......................... Executive Vice-President Catherine A. Rein............................ Executive Vice-President John H. Tweedie.............................. Executive Vice-President Richard M. Blackwell......................... Senior Vice-President James B. Digney.............................. Senior Vice-President William T. Friedewald........................ Senior Vice-President and Chief Medical Director Frederick P. Hauser.......................... Senior Vice-President & Controller Anne E. Hayden............................... Senior Vice-President Jeffrey J. Hodgman........................... Senior Vice-President Leland C. Launer, Jr......................... Senior Vice-President Terence I. Lennon............................ Senior Vice-President David A. Levene.............................. Senior Vice-President James L. Lipscomb............................ Senior Vice-President James M. Logan............................... Senior Vice-President Francis P. Lynch............................. Senior Vice-President Thomas F. McDermott.......................... Senior Vice-President John C. Morrison, Jr......................... Senior Vice-President Dominick A. Prezzano......................... Senior Vice-President Leo T. Rasmussen............................. Senior Vice-President Vincent P. Reusing........................... Senior Vice-President Robert E. Sollmann, Jr....................... Senior Vice-President Thomas L. Stapleton.......................... Senior Vice-President & Tax Director William J. Toppeta........................... Senior Vice-President Arthur G. Typermass.......................... Senior Vice-President & Treasurer James A. Valentino........................... Senior Vice-President Judy E. Weiss................................ Senior Vice-President and Chief Actuary Stephen E. White............................. Senior Vice-President Richard F. Wiseman........................... Senior Vice-President Harvey M. Young.............................. Senior Vice-President Christine N. Markussen....................... Vice-President and Secretary
- --------- * The principal occupation of each officer, except for Gary A. Beller, Robert H. Benmosche and Terence I. Lennon during the last five years has been as an officer of MetLife or an affiliate thereof. The business address of each officer is 1 Madison Avenue, New York, New York 10010. Gary A. Beller has been an officer of MetLife since November, 1994; prior thereto, he was a Consultant and Executive Vice-President and General Counsel of the American Express Company. Robert H. Benmosche has been an Officer of MetLife since September, 1995; prior thereto, he was an executive Vice-President of Paine Webber. Terence I. Lennon has been an officer of MetLife since March, 1994; prior thereto, he was Assistant Deputy Superintendent and Chief Examiner of the New York State Department of Insurance. A-39 VOTING RIGHTS RIGHT TO INSTRUCT VOTING OF FUND SHARES In accordance with its view of present applicable law, MetLife usually will vote the shares of each of the portfolios of the Fund which are deemed attributable to Certificates at regular and special meetings of the shareholders of the Fund based on instructions received from persons having the voting interest in corresponding investment divisions of the Separate Account. However, if the 1940 Act or any rules thereunder should be amended or if the present interpretation thereof should change, and as a result MetLife determines that it is permitted to vote such shares of the Fund in its own right, it may elect to do so. Accordingly, the Owner will have a voting interest under a Certificate. The number of shares held in each Separate Account investment division deemed attributable to each Owner is determined by dividing a Certificate's cash value in that division, if any, by the net asset value of one share in the corresponding Fund portfolio in which the assets in that Separate Account investment division are invested. Fractional votes will be counted. The number of shares concerning which an Owner has the right to give instructions will be determined as of the record date for the meeting. Fund shares held in each registered separate account of MetLife or any affiliate that are or are not attributable to life insurance policies (including the Certificates) or annuity contracts and for which no timely instructions are received will be voted in the same proportion as the shares for which voting instructions are received by that separate account. Fund shares held in the General Account or unregistered separate accounts of MetLife or its affiliates will be voted in the same proportion as the aggregate of (i) the shares for which voting instructions are received and (ii) the shares that are voted in proportion to such voting instructions. However, if MetLife or an affiliate determines that it is permitted to vote any such shares of the Fund in its own right, it may elect to do so subject to the then current interpretation of the 1940 Act or any rules thereunder. The Owners may give instructions regarding, among other things, the election of the Board of Directors of the Fund, ratification of the selection of the Fund's independent auditors, and the approval of the Fund's investment manager and sub-investment manager. Each Owner having a voting interest will be sent voting instruction soliciting material and a form for giving voting instructions to MetLife. Current interpretations and rules under the 1940 Act permit Fund shares to be voted in a manner contrary to Owner voting instructions under certain circumstances. In the event that MetLife does disregard voting instructions, a summary of the action and the reasons for such action will be included in the next semiannual report to Owners. REPORTS Owners will receive promptly statements of significant transactions such as changes in specified face amount, transfers among investment divisions, partial withdrawals, increases in loan principal by the Owner, loan repayments, termination for any reason, reinstatement and premium payments. Transactions pursuant to systematic investment strategies (see "Payment and Allocation of Premiums") may be confirmed quarterly. Owners whose premiums are automatically remitted under payroll deduction plans do not receive individual confirmation of premium payments from MetLife apart from that provided by their bank or employer. A statement will be sent at least annually to the Owner within thirty days after the period covered summarizing all of the above transactions and deductions of charges occurring during that Certificate year and setting forth the status of the death benefit, cash and cash surrender values, amounts in the investment divisions and Fixed Account, any policy loan and unpaid loan interest added to loan principal. Any statement will also discuss the modified endowment contract status of a Certificate (see "Premiums--Premium Limitations"). In addition, an Owner will be sent semiannual reports containing financial statements for the Fund, as required by the 1940 Act. A-40 STATE REGULATION MetLife is subject to regulation and supervision by the Insurance Department of the State of New York, which periodically examines its affairs. It is also subject to the insurance laws and regulations of all jurisdictions where it is authorized to do business. Where required, a copy of the form of Group Policy and form of Certificate has been filed with, and approved by, insurance officials in each jurisdiction where the Group Policy and Certificates are sold. MetLife intends to satisfy the necessary requirements to distribute the Certificates in all fifty states and the District of Columbia as soon as possible. MetLife is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business, for the purposes of determining solvency and compliance with local insurance laws and regulations. Such statements are available for public inspection at state insurance department offices. REGISTRATION STATEMENT A registration statement under the Securities Act of 1933 has been filed with the Securities and Exchange Commission relating to the offering described in this Prospectus. This Prospectus does not contain all the information set forth in the registration statement and amendments thereto and the exhibits filed as a part thereof, to all of which reference is hereby made for additional information concerning the Separate Account, MetLife and the Certificates. The additional information may be obtained at the Commission's main office in Washington, D.C., upon payment of the prescribed fees. LEGAL MATTERS The legality of the Group Policies and Certificates described in this Prospectus has been passed upon by Christopher P. Nicholas, Associate General Counsel of Metropolitan Life. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised MetLife on certain matters relating to the federal securities laws. EXPERTS The financial statements included in this Prospectus of Metropolitan Life Separate Account UL as of December 31, 1995 and for the two years then ended and the financial statements of Metropolitan Life Insurance Company as of December 31, 1995 and 1994 and for the three years ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and have been so included in reliance upon the reports of such opinions given upon the authority of such firm as experts in auditing and accounting. Actuarial matters included in this Prospectus have been examined by George J. Kalb, FSA, MAAA, Vice-President and Actuary of MetLife, as stated in his opinion filed as an exhibit to the registration statement. A-41 FINANCIAL STATEMENTS The financial statements of MetLife included in this Prospectus should be considered only as bearing upon the ability of MetLife to meet its obligations under the Group Policies and Certificates. The most current financial statements of MetLife are those as of the end of the most recent fiscal year. MetLife does not prepare financial statements for publication more often than annually and believes that any incremental benefit to prospective Policy owners that may result from preparing and delivering more current financial statements, though unaudited, does not justify the additional cost that would be incurred. In addition, MetLife represents that there have been no adverse changes in its financial condition or operations between the end of the most current fiscal year and the date of this Prospectus. A-42 INDEPENDENT AUDITORS' REPORT Metropolitan Life Insurance Company: We have audited the accompanying balance sheets of Metropolitan Life Insurance Company (the Company) as of December 31, 1995 and 1994 and the related statements of operations and surplus and of cash flow for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company'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. 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 Company at December 31, 1995 and 1994 and the results of its operations and its cash flow for each of the three years in the period ended December 31, 1995 in conformity with accounting practices prescribed or permitted by insurance regulatory authorities and generally accepted accounting principles. Deloitte & Touche LLP New York, New York February 9, 1996 A-43 METROPOLITAN LIFE INSURANCE COMPANY BALANCE SHEETS DECEMBER 31, 1995 AND 1994
NOTES 1995 1994 --------- ----------- ----------- (IN MILLIONS) ASSETS Bonds............................................................................... 4,11 $ 70,955 $ 65,592 Stocks.............................................................................. 3,4,11 3,646 3,672 Mortgage loans...................................................................... 3,4,11 14,211 14,524 Real estate......................................................................... 9,470 10,417 Policy loans........................................................................ 11 3,956 3,964 Cash and short-term investments..................................................... 11 1,923 2,334 Other invested assets............................................................... 3 2,480 2,262 Premiums deferred and uncollected................................................... 1,568 1,250 Investment income due and accrued................................................... 1,589 1,440 Separate Account assets............................................................. 31,707 25,424 Other assets........................................................................ 627 298 ----------- ----------- TOTAL ASSETS................................................................ $ 142,132 $ 131,177 ----------- ----------- ----------- ----------- LIABILITIES AND SURPLUS Liabilities Reserves for life and health insurance and annuities................................ 5,11 $ 76,249 $ 73,204 Policy proceeds and dividends left with the Company................................. 11 4,482 3,534 Dividends due to policyholders...................................................... 1,371 1,407 Premium deposit funds............................................................... 11 12,891 14,006 Interest maintenance reserve........................................................ 1,148 881 Other policy liabilities............................................................ 3,882 3,364 Investment valuation reserves....................................................... 1,860 1,981 Separate Account liabilities........................................................ 31,226 25,159 Other liabilities................................................................... 2,459 1,337 ----------- ----------- TOTAL LIABILITIES........................................................... 135,568 124,873 ----------- ----------- Surplus Special contingency reserves........................................................ 754 682 Surplus notes....................................................................... 10 1,400 700 Unassigned funds.................................................................... 4,410 4,922 ----------- ----------- TOTAL SURPLUS............................................................... 6,564 6,304 ----------- ----------- TOTAL LIABILITIES AND SURPLUS........................................... $ 142,132 $ 131,177 ----------- ----------- ----------- -----------
See accompanying notes to financial statements. A-44 METROPOLITAN LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND SURPLUS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTES 1995 1994 1993 --------- --------- --------- --------- (IN MILLIONS) INCOME Premiums, annuity considerations and deposit funds.......................... 5 $ 19,972 $ 19,881 $ 19,442 Considerations for supplementary contracts and dividend accumulations....... 2,979 2,879 1,654 Net investment income....................................................... 7,825 7,143 7,356 Other income................................................................ 5 156 80 231 --------- --------- --------- Total income........................................................ 30,932 29,983 28,683 --------- --------- --------- BENEFITS AND EXPENSES Benefit payments (other than dividends)..................................... 25,055 23,533 21,417 Changes to reserves, deposit funds and other policy liabilities............. 321 1,619 (439) Insurance expenses and taxes (excluding tax on capital gains)............... 6 3,160 2,492 2,595 Net transfers to Separate Accounts.......................................... 675 503 3,239 Dividends to policyholders.................................................. 1,520 1,676 1,606 --------- --------- --------- Total benefits and expenses......................................... 30,731 29,823 28,418 --------- --------- --------- Net gain from operations.................................................... 201 160 265 Net realized capital losses................................................. 3,6 (873) (54) (132) --------- --------- --------- NET (LOSS) INCOME........................................................... (672) 106 133 SURPLUS ADDITIONS (DEDUCTIONS) Change in general account net unrealized capital gains...................... 3 442 150 131 Change in investment valuation reserves..................................... 121 (306) (169) Issuance of surplus notes................................................... 10 700 -- 700 Other adjustments--net...................................................... 1,5 (331) (52) 594 --------- --------- --------- NET CHANGE IN SURPLUS....................................................... 260 (102) 1,389 SURPLUS AT BEGINNING OF YEAR................................................ 6,304 6,406 5,017 --------- --------- --------- SURPLUS AT END OF YEAR...................................................... $ 6,564 $ 6,304 $ 6,406 --------- --------- --------- --------- --------- ---------
See accompanying notes to financial statements. A-45 METROPOLITAN LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 --------- --------- --------- (IN MILLIONS) CASH PROVIDED Premiums, annuity considerations and deposit funds received.......................... $ 19,662 $ 19,983 $ 19,599 Considerations for supplementary contracts and dividend accumulations received....... 3,051 2,948 1,748 Net investment income received....................................................... 7,579 6,828 6,931 Other income received................................................................ 166 80 134 --------- --------- --------- Total receipts................................................................. 30,458 29,839 28,412 --------- --------- --------- Benefits paid (other than dividends)................................................. 23,939 22,387 20,092 Insurance expenses and taxes paid (excluding tax on capital gains)................... 2,337 2,366 2,532 Net cash transfers to Separate Accounts.............................................. 692 524 3,304 Dividends paid to policyholders...................................................... 1,473 1,684 1,596 Other--net........................................................................... (1,872) 368 (1,051) --------- --------- --------- Total payments................................................................. 26,569 27,329 26,473 --------- --------- --------- Net cash from operations............................................................. 3,889 2,510 1,939 Proceeds from long-term investments sold, matured or repaid after deducting taxes on capital gains of $102 for 1995, $60 for 1994 and $546 for 1993..................... 60,790 46,459 55,420 Issuance of surplus notes............................................................ 700 -- 700 Other cash provided.................................................................. 370 -- 369 --------- --------- --------- TOTAL CASH PROVIDED.................................................................. 65,749 48,969 58,428 --------- --------- --------- CASH APPLIED Cost of long-term investments acquired............................................... 65,122 47,845 58,033 Other cash applied................................................................... 1,038 162 247 --------- --------- --------- TOTAL CASH APPLIED................................................................... 66,160 48,007 58,280 --------- --------- --------- NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS........................................ (411) 962 148 CASH AND SHORT-TERM INVESTMENTS: BEGINNING OF YEAR.................................................................... 2,334 1,372 1,224 --------- --------- --------- END OF YEAR.......................................................................... $ 1,923 $ 2,334 $ 1,372 --------- --------- --------- --------- --------- ---------
See accompanying notes to financial statements. A-46 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1. BUSINESS AND ACCOUNTING POLICIES Metropolitan Life Insurance Company (the Company) principally provides life insurance and annuity products and pension, pension-related and investment-related services to individuals, corporations and other institutions. The Company and its insurance subsidiaries also provide non-medical health, disability and property and casualty insurance. Through its non-insurance subsidiaries, the Company also offers investment management and advisory services and commercial finance. The Company's financial statements are prepared on the basis of accounting practices prescribed or permitted by the Insurance Department of the State of New York, which practices currently are considered to be generally accepted accounting principles for mutual life insurance companies (see Note 12). The primary interest of insurance regulatory authorities is the ability of the Company to fulfill its obligations to policyholders; therefore, the financial statements are oriented to the insured public. Significant accounting policies applied in preparing the financial statements follow. INVESTED ASSETS AND RELATED RESERVES Bonds qualifying for amortization are stated at amortized cost; all other bonds at prescribed values. Unaffiliated preferred stocks are stated principally at cost; unaffiliated common stocks are carried at market value. Mortgage loans are stated principally at their amortized indebtedness. Short-term investments generally mature within one year and are carried at amortized cost. Policy loans are stated at unpaid principal balances. Investments in subsidiaries are stated at equity in net assets and are included in stocks. Changes in net assets, excluding additional amounts invested, are included in unrealized capital gains or losses. Dividends from subsidiaries are reported by the Company as earnings in the year the dividends are declared. The excess of the purchase prices of non-insurance subsidiaries over the fair values of the net assets acquired (goodwill) is amortized on a straight-line basis. Investment real estate, other than real estate joint ventures and subsidiaries, is stated at depreciated cost net of non-recourse debt and an allowance for losses on real estate expected to be disposed of in the near term. Depreciation is generally calculated by the constant yield method for real estate purchased prior to December 1990 and the straight-line method if purchased thereafter. Real estate acquired in satisfaction of debt is valued at the lower of cost or estimated fair value at date of foreclosure and is subsequently stated at depreciated cost. Investments in real estate joint ventures, included in other invested assets, and real estate subsidiaries, included in stocks, are reported using the equity method and are generally adjusted to reflect the constant yield method of depreciation for real estate assets acquired by such entities prior to December 1990. In 1994, the Company changed to the straight-line method of determining depreciation on real estate acquired prior to December 1990 if the estimated fair value of the real estate is less than ninety percent of depreciated cost. This change had the effect of increasing depreciation expense by approximately $80 million in 1994. Investments in non-real estate partnerships are included in other invested assets and are accounted for using the equity method. The carrying value generally reflects the Company's share of unrealized gains and losses relating to the market value of publicly traded common stocks held by the partnerships. Impairments of individual investments that are considered to be other than temporary are recognized when incurred. Mandatory reserves have been established for general account investments in accordance with guidelines prescribed by insurance regulatory authorities. Such reserves consist of an Asset Valuation Reserve A-47 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (AVR) for all invested assets and an Interest Maintenance Reserve (IMR), which defers the recognition of realized capital gains and losses (net of income tax) attributable to interest rate fluctuations on fixed income investments over the estimated remaining duration of the investments sold. Prior to 1994, the Company also established voluntary investment valuation reserves for certain general account investments. Changes to the AVR and voluntary investment reserves are reported as direct additions to or deductions from surplus. Transfers to the IMR are deducted from realized capital gains; IMR amortization is included in net investment income. Net realized capital gains or losses are presented net of federal capital gains tax or benefit, respectively, and transfers to the IMR. POLICY RESERVES Reserves for permanent plans of individual life insurance sold after 1959, universal life plans and certain term plans sold after 1982 are computed principally on the Commissioners' Reserve Valuation Method. Reserves for other life insurance policies are computed on the net level premium method. Reserves for individual annuity contracts are computed on the net level premium method, the net single premium method or the Commissioners' Annuity Reserve Valuation Method, as appropriate. Reserves for group annuity contracts are computed on the net single premium method. The reserves are based on mortality, morbidity and interest rate assumptions prescribed by New York State Insurance Law. Such reserves are sufficient to provide for contractual surrender values. Periodically to reflect changes in circumstances, the Company may change the assumptions, methodologies or procedures used to calculate reserves. During 1993, the Company and certain of its wholly-owned life insurance subsidiaries made certain changes which increased the Company's surplus by $667 million (substantially all of which related to interest rate changes). INCOME AND EXPENSES Premiums are recognized over the premium-paying period. Investment income is reported as earned. Expenses, including policy acquisition costs and federal income taxes, are charged to operations as incurred. During 1995, the Company recorded a restructuring charge of $72 million related primarily to the consolidation of office space leased for administration and agency sales offices. The Company anticipates additional restructuring charges over the next few years. SEPARATE ACCOUNT OPERATIONS Investments held in the Separate Accounts (stated at market value) and liabilities of the Separate Accounts (including participants' corresponding equity in the Separate Accounts) are reported separately as assets and liabilities. The Separate Accounts' operating results are reflected in the changes to these assets and liabilities. ESTIMATES The preparation of financial statements in conformity with accounting practices prescribed or permitted by regulatory authorities and generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 2. MERGER During 1995, the Company and New England Mutual Life Insurance Company (The New England) entered into a definitive agreement pursuant to which The New England will be merged with and into the A-48 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Company (the Merger) subject to various conditions, including but not limited to, regulatory approvals and the necessary approvals of the policyholders of the Company and The New England. Upon consummation of the proposed Merger, the Company will be the surviving company. It is currently anticipated that the Merger will occur during the first half of 1996. If the proposed Merger is consummated, the financial statements of the Company and The New England will be combined to present the financial position and results of operations of the combined entity. Summary unaudited pro forma combined balance sheet information relating to the combined entity and summary historical balance sheet information relating to The New England as of December 31, 1995 and 1994 and summary unaudited pro forma combined statement of operations information and summary historical statement of operations information relating to The New England for the years ended December 31, 1995, 1994, and 1993, are shown below (in millions):
UNAUDITED PRO FORMA THE NEW ENGLAND COMBINED HISTORICAL ------------------------ -------------------- 1995 1994 1995 1994 ----------- ----------- --------- --------- At December 31: Total assets........................................................ $ 157,773 $ 146,260 $ 16,261 $ 15,753 Investment valuation reserves....................................... 2,012 1,987 429 362 Total surplus (including combined pro forma surplus notes of $1,548 for 1995 and $848 for 1994 and The New England historical surplus notes of $148 for 1995 and 1994).................................. 6,802 6,564 624 632
UNAUDITED PRO FORMA COMBINED THE NEW ENGLAND HISTORICAL ------------------------------- ------------------------------- 1995 1994 1993 1995 1994 1993 --------- --------- --------- --------- --------- --------- For the Years Ended December 31: Total income....................................... $ 33,668 $ 32,811 $ 31,533 $ 2,758 $ 2,844 $ 2,878 Dividends to policyholders......................... 1,731 1,883 1,833 211 207 227 Net gain from operations........................... 346 231 303 159 88 57 Net (loss) income.................................. (566) 124 70 60 42 89
Certain adjustments will be made to the Company's financial statements if the Merger is consummated in order to conform the accounting policies and practices reflected in the financial statements of the combined entities. The unaudited pro forma combined amounts presented above include management's estimate of the effects of such adjustments, related principally to differences in accounting for real estate and mortgage loans, on summary combined information as if the Merger had occurred on January 1, 1993. The amount of the adjustments will be finalized upon consummation of the planned Merger. 3. UNCONSOLIDATED SUBSIDIARIES AND OTHER AFFILIATES The Company's subsidiary operations primarily include insurance, real estate investment and brokerage activities, investment management and advisory services, mortgage originations and servicing, and commercial finance. At December 31, 1995 and 1994, subsidiary assets were $23,008 million and $21,476 million, respectively. At December 31, 1995 and 1994, subsidiary liabilities were $20,393 million and $18,905 million, respectively. Subsidiary revenues were $4,588 million, $4,715 million and $4,525 million in 1995, 1994 and 1993, respectively. Dividends from subsidiaries amounted to $558 million, $186 million and $175 million in 1995, 1994 and 1993, respectively. A-49 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Unamortized goodwill was $129 million at December 31, 1994. There was no unamortized goodwill at December 31, 1995. The Company incurs charges on behalf of its subsidiaries which are reimbursed pursuant to agreements for shared use of property, personnel and facilities. Charges under such agreements were approximately $194 million, $307 million and $355 million in 1995, 1994 and 1993, respectively. The Company's net equity in joint ventures and other partnerships was $2,424 million and $2,250 million at December 31, 1995 and 1994, respectively. The Company's share of income from such entities was $97 million, $26 million and $76 million for 1995, 1994 and 1993, respectively. Many of the Company's real estate joint ventures have loans with the Company. The carrying values of such mortgages were $1,054 million and $1,372 million at December 31, 1995 and 1994, respectively. The Company had other loans outstanding to its affiliates with carrying values of $2,599 million and $2,073 million at December 31, 1995 and 1994, respectively. In January 1995, the Company and The Travelers Insurance Company (Travelers) contributed their respective group medical health care benefits businesses to a corporate joint venture, The MetraHealth Companies, Inc. (MetraHealth). In October 1995, the Company and Travelers sold their investments in MetraHealth to a non-affiliated health care management services company. For its interest in MetraHealth, a subsidiary of the Company received $485 million face amount of shares of redeemable preferred stock of the purchaser, $276 million in cash and rights to additional consideration based on the 1995 earnings of MetraHealth. The transaction resulted in post-tax income of $443 million to the Company, including an amount based on the 1995 estimated financial results of MetraHealth. The Company also has the right to receive up to an additional $169 million in cash for each of 1996 and 1997, based on the consolidated financial results of the purchaser for each of such years. During 1995, the Company sold Century 21 Real Estate Corporation (real estate brokerage operation), Metmor Financial Inc. (mortgage banking) and Metropolitan Trust Company of Canada (trust operation and mortgage administration) for $127 million, $56 million and $41 million, respectively, resulting in pre-tax realized capital losses of $167 million, $247 million and $86 million, respectively. The sales also resulted in $452 million of unrealized capital gains representing the reversal of prior period unrealized capital losses relating to the subsidiaries. A-50 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 4. INVESTMENTS DEBT SECURITIES The carrying value, gross unrealized gain (loss) and estimated fair value of bonds and redeemable preferred stocks (debt securities), by category, as of December 31, 1995 and 1994 are shown below.
GROSS UNREALIZED CARRYING -------------------- ESTIMATED VALUE GAIN (LOSS) FAIR VALUE --------- --------- --------- ----------- (IN MILLIONS) DECEMBER 31, 1995: Bonds: U. S. Treasury securities and obligations of U.S. government corporations and agencies........................................... $ 12,871 $ 1,556 $ (2) $ 14,425 States and political subdivisions..................................... 1,865 582 (2) 2,445 Foreign governments................................................... 1,871 221 -- 2,092 Corporate............................................................. 29,992 1,872 (105) 31,759 Mortgage-backed securities............................................ 18,888 749 (27) 19,610 Other................................................................. 5,468 336 (16) 5,788 --------- --------- --------- ----------- Total bonds............................................................. $ 70,955 $ 5,316 $ (152) $ 76,119 --------- --------- --------- ----------- --------- --------- --------- ----------- Redeemable preferred stocks............................................. $ 39 $ -- $ (3) $ 36 --------- --------- --------- ----------- --------- --------- --------- ----------- DECEMBER 31, 1994: Bonds: U. S. Treasury securities and obligations of U.S. government corporations and agencies........................................... $ 9,807 $ 322 $ (546) $ 9,583 States and political subdivisions..................................... 1,483 69 (21) 1,531 Foreign governments................................................... 1,931 26 (60) 1,897 Corporate............................................................. 31,262 291 (1,682) 29,871 Mortgage-backed securities............................................ 17,485 251 (851) 16,885 Other................................................................. 3,624 18 (215) 3,427 --------- --------- --------- ----------- Total bonds............................................................. $ 65,592 $ 977 $ (3,375) $ 63,194 --------- --------- --------- ----------- --------- --------- --------- ----------- Redeemable preferred stocks............................................. $ 44 $ -- $ (14) $ 30 --------- --------- --------- ----------- --------- --------- --------- -----------
A-51 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 The carrying value and estimated fair value of bonds, by contractual maturity, at December 31, 1995 are shown below. Bonds not due at a single maturity date have been included in the table in the year of final maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
CARRYING ESTIMATED VALUE FAIR VALUE --------- ----------- (IN MILLIONS) Due in one year or less........................................... $ 2,171 $ 2,191 Due after one year through five years............................. 17,277 17,717 Due after five years through ten years............................ 17,188 18,381 Due after ten years............................................... 15,431 18,220 --------- ----------- Subtotal...................................................... 52,067 56,509 Mortgage-backed securities........................................ 18,888 19,610 --------- ----------- --------- ----------- Total......................................................... $ 70,955 $ 76,119 --------- ----------- --------- -----------
Proceeds from the sales of debt securities during 1995, 1994 and 1993 were $50,831 million, $36,401 million and $50,395 million, respectively. During 1995, 1994 and 1993, respectively, gross gains of $814 million, $577 million and $1,316 million, and gross losses of $352 million, $561 million and $96 million were realized on those sales. Realized investment gains and losses are determined by specific identification. MORTGAGE LOANS Mortgage loans are collateralized by properties located throughout the United States and Canada. Approximately 15 percent and 9 percent of the properties are located in California and Illinois, 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. As of December 31, 1995 and 1994, the mortgage loan investments were categorized as follows:
1995 1994 ----------- ----------- Office Buildings......................................................... 32% 36% Retail................................................................... 18% 17% Residential.............................................................. 20% 21% Agricultural............................................................. 20% 18% Other.................................................................... 10% 8% --- --- Total................................................................ 100% 100% --- --- --- ---
FINANCIAL INSTRUMENTS The Company has a securities lending program whereby large blocks of securities are loaned to third parties, primarily major brokerage firms. Company policy requires a minimum of 102 percent of the fair value of the loaned securities to be separately maintained as collateral for the loans. The collateral is recorded in memorandum records and not reflected in the accompanying balance sheets. To further minimize the credit risks related to this lending program, the Company regularly monitors the financial condition of counterparties to these agreements. During the normal course of business, the Company agrees with independent parties to purchase or sell bonds over fixed or variable periods of time. The off-balance sheet risks related to changes in the quality of the A-52 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 underlying bonds are mitigated by the fact that commitment periods are generally short in duration and provisions in the agreements release the Company from its commitments in case of significant changes in the financial condition of the independent party or the issuer of the bond. The Company engages in a variety of derivative transactions with respect to the general account. Those derivatives, such as forwards, futures, options, foreign exchange agreements and swaps, which do not themselves generate interest or dividend income, are acquired or sold in order to hedge or reduce risks applicable to assets held, or expected to be purchased or sold, and liabilities incurred or expected to be incurred. The Company does not engage in trading of these derivatives. In 1995 and 1994, the Company engaged in three primary derivatives strategies. The Company entered into a number of anticipatory hedges using forwards to limit the interest rate exposures of investments in debt securities expected to be acquired within one year. The Company also hedged a number of investments in debt securities denominated in foreign currencies by executing swaps and forwards to ensure a United States dollar rate of return. In addition, the Company purchased a limited number of interest rate caps to hedge against rising interest rates on a portfolio of assets which the Company purchased to match the liabilities it incurred. Income and expenses related to derivatives used to hedge or manage risks are recorded on the accrual basis as an adjustment to the yield of the related securities over the periods covered by the derivative contracts. Gains and losses relating to early terminations of interest rate swaps used to hedge or manage interest rate risk are deferred and amortized over the remaining period originally covered by the swap. Gains and losses relating to derivatives used to hedge the risks associated with anticipated transactions are deferred and utilized to adjust the basis of the transaction once it has closed. If it is determined that the transaction will not close, such gains and losses are included in realized capital gains and losses. ASSETS ON DEPOSIT As of December 31, 1995 and 1994, the Company had assets on deposit with regulatory agencies of $5,281 million and $5,145 million, respectively. 5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS In the normal course of business, the Company assumes and cedes reinsurance with other insurance companies. The Company acquired, in part through reinsurance effective in January 1995, the group life, dental, disability, accidental death and dismemberment, vision and long-term care insurance businesses from Travelers and certain of its subsidiaries for $403 million. Commissions of $142 million and $4 million were charged to earnings during 1995 and 1994, respectively, and considerations in excess of commissions of $208 million and $49 million were recorded as a direct charge to surplus in 1995 and 1994, respectively. In January, 1995, the Company received assets with a fair market value equal to the $1,565 million of liabilities assumed under the reinsurance agreements. The reinsured businesses convert to Company contracts at policy anniversary date. During 1995, the Company entered into reinsurance agreements with MetraHealth to facilitate the transfer of certain of its group medical health care business to MetraHealth. The Company also has reinsurance agreements with certain of its life insurance subsidiaries. Reserves for insurance assumed pursuant to these agreements are included in reserves for life and health insurance and annuities and amounted to $2,143 million and $1,193 million at December 31, 1995 and 1994, respectively. A-53 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 In 1993, the Company assumed $1,540 million of life insurance and annuity reserves of a New York life insurance company under rehabilitation and received assets having a fair value equal to the reserves assumed. The financial statements are shown net of ceded reinsurance. The amounts related to reinsurance agreements, including agreements described above but excluding certain agreements with non-affiliates for which the Company provides administrative services, are as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Reinsurance premiums assumed..................................... $ 890 $ 237 $ 264 Reinsurance ceded: Premiums....................................................... 457 77 86 Other income................................................... 26 1 3 Reduction in insurance liabilities (at December 31)............ 71 31 28
A contingent liability exists with respect to reinsurance ceded should the reinsurers be unable to meet their obligations. Activity in the liability for unpaid group accident and health policy and contract claims is summarized as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Balance at January 1....................................... $ 1,708 $ 1,588 $ 1,517 Less reinsurance recoverables............................ 1 1 1 --------- --------- --------- Net balance at January 1................................... 1,707 1,587 1,516 --------- --------- --------- Incurred related to: Current year............................................. 2,424 1,780 1,797 Prior years.............................................. (23) (7) (40) --------- --------- --------- Total incurred............................................. 2,401 1,773 1,757 --------- --------- --------- Paid related to: Current year............................................. 1,464 1,260 1,306 Prior years.............................................. 417 393 380 --------- --------- --------- Total paid................................................. 1,881 1,653 1,686 --------- --------- --------- Net balance at December 31................................. 2,227 1,707 1,587 Plus reinsurance recoverables............................ 93 1 1 --------- --------- --------- Balance at December 31..................................... $ 2,320 $ 1,708 $ 1,588 --------- --------- --------- --------- --------- ---------
6. FEDERAL INCOME TAXES The Company's federal income tax return is consolidated with certain affiliates. The consolidating companies have executed a tax allocation agreement. Under this agreement, the federal income tax provision is computed on a separate return basis. Members receive reimbursement to the extent that their losses and other credits result in a reduction of the current year's consolidated tax liability. Federal income tax expense has been calculated in accordance with the provisions of the Internal Revenue Code, as amended (the Code). Under the Code, the amount of federal income tax expense includes a tax on the Company's surplus calculated by a prescribed formula that incorporates a differential earnings A-54 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 rate between stock and mutual life insurance companies. In 1995, the Company changed its calculation of surplus tax which resulted in an increase in 1995 federal income tax expense of $95 million. Had such change occurred prior to 1993, the Company's insurance expenses and taxes (excluding tax on capital gains) and net loss for the year ended December 31, 1995 would have been $2,758 million and $270 million, respectively; the Company's surplus, insurance expenses and taxes (excluding tax on capital gains) and net loss at and for the year ended December 31, 1994 would have been $5,902 million, $2,894 million and $296 million, respectively; and the Company's insurance expenses and taxes (excluding tax on capital gains) and net income for the year ended December 31, 1993 would have been $2,702 million and $26 million, respectively. The change would have had no effect on December 31, 1993 surplus and surplus at December 31, 1992 would have been $5,124 million. Total federal income taxes on operations and realized capital gains of $479 million, $192 million and $596 million were incurred in 1995, 1994 and 1993, respectively. 7. EMPLOYEE BENEFIT PLANS PENSION PLANS The Company has defined benefit pension plans covering all eligible employees and sales representatives of the Company and certain of its subsidiaries. The Company is both the sponsor and administrator of these plans. Retirement benefits are based on years of credited service and final average earnings' history. The Company's funding policy is to make the minimum contribution required by the Employee Retirement Income Security Act of 1974. Components of the net periodic pension (credit) cost for the years ended December 31, 1995, 1994 and 1993 for the defined benefit qualified and non-qualified pension plans are as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Service cost................................................... $ 58 $ 88 $ 71 Interest cost on projected benefit obligation.................. 215 209 191 Return on assets............................................... (262) 15 (380) Net amortization and deferrals................................. (33) (298) 110 --------- --------- --------- Net periodic pension (credit) cost............................. $ (22) $ 14 $ (8) --------- --------- --------- --------- --------- ---------
The assumed long-term rate of return on assets used in determining the net periodic pension (credit) cost was 9.5 percent in 1995 and 8.5 percent in 1994 and 1993. The Company is recognizing the unrecognized net asset at transition, attributable to the adoption of Statement of Financial Accounting Standards No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, in 1993, over the average remaining service period at the transition date of employees expected to receive benefits under the pension plans. A-55 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 The funded status of the qualified and non-qualified defined benefit pension plans and a comparison of the accumulated benefit obligation, plan assets and projected benefit obligation at December 31, 1995 and 1994 are as follows:
1995 1994 --------- --------- (IN MILLIONS) Actuarial present value of obligations: Vested............................................................ $ (2,724) $ (2,266) Non-vested........................................................ (43) (47) --------- --------- Accumulated benefit obligation...................................... $ (2,767) $ (2,313) --------- --------- --------- --------- Projected benefit obligation........................................ $ (3,094) $ (2,676) Plan assets at contract value....................................... 3,286 2,900 --------- --------- Plan assets in excess of projected benefit obligation............... 192 224 Unrecognized prior service cost..................................... 73 92 Unrecognized net loss from past experience different from that assumed........................................................... 79 33 Unrecognized net asset at transition................................ (326) (365) Adjustment required to recognize minimum liability.................. (19) -- --------- --------- Accrued pension cost at December 31................................. $ (1) $ (16) --------- --------- --------- ---------
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25 percent for 1995, 8.5 percent for 1994 and 7.5 percent for 1993 in the United States and 8.0 percent for 1995, 7.25 percent for 1994 and 7.0 percent for 1993 in Canada. The weighted average assumed rate of increase in future compensation levels was 4.5 percent in 1995 and 5.0 percent in 1994 and 1993. In addition, several other factors, such as expected retirement dates and mortality, enter into the determination of the actuarial present value of the accumulated benefit obligation. The pension plans' assets are principally investment contracts issued by the Company. During 1995, the Company recognized a pension plan curtailment gain before income tax of $8 million. This gain relates to the transfer of Company group medical health care business personnel to MetraHealth. SAVINGS AND INVESTMENT PLAN The Company sponsors a savings and investment plan available for substantially all employees under which the Company matches a portion of employee contributions. During 1995, 1994 and 1993, the Company contributed $34 million, $42 million and $48 million, respectively, to the plan. OTHER POSTRETIREMENT BENEFITS The Company also provides certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to such benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company. The costs of non-pension postretirement benefits are recognized on an accrual basis in accordance with guidelines prescribed by insurance regulatory authorities. Such guidelines require the recognition of a postretirement benefit obligation for current retirees and fully eligible or vested employees. As prescribed by A-56 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 the guidelines, the Company has elected to recognize over a period of twenty years the unrecognized postretirement benefit asset and obligation (net asset and obligation at transition) in existence on January 1, 1993 (effective date of guidelines). The following table sets forth the postretirement health care and life insurance plans' combined status reconciled with the amounts included in the Company's balance sheets at December 31, 1995 and 1994:
1995 1994 ------------------------------ ------------------------------ OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED ------------- --------------- ------------- --------------- (IN MILLIONS) Accumulated postretirement benefit obligations of retirees and fully eligible participants............................ $ (295) $ (776) $ (262) $ (787) Plan assets (Company insurance contracts) at contract value...................................................... 397 411 393 358 ------ ------ ------ ------ Plan assets in excess of (less than) accumulated postretirement benefit obligation.......................... 102 (365) 131 (429) Unrecognized net loss (gain) from past experience different from that assumed and from changes in assumptions.......... 53 (83) (6) (44) Prior service cost not yet recognized in net periodic retirement benefit cost.................................... (5) -- (5) -- Unrecognized (asset) obligation at transition................ (102) 438 (108) 464 ------ ------ ------ ------ Prepaid (Accrued) non-pension postretirement benefit cost at December 31................................................ $ 48 $ (10) $ 12 $ (9) ------ ------ ------ ------ ------ ------ ------ ------
The components of the net periodic non-pension postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 --------- --------- --------- (IN MILLIONS) Service cost..................................................................................... $ 26 $ 31 $ 32 Interest cost on accumulated postretirement benefit obligation................................... 74 76 87 Return on plan assets (Company insurance contracts).............................................. (61) (37) (36) Amortization of transition asset and obligation.................................................. 18 18 20 Net amortization and deferrals................................................................... (4) (10) (17) --- --- --- Net periodic non-pension postretirement benefit cost............................................. $ 53 $ 78 $ 86 --- --- --- --- --- ---
The assumed health care cost trend rate used in measuring the accumulated non-pension postretirement benefit obligation was 10.0 percent in 1995, 11.0 percent in 1994 and 12.0 percent in 1993, gradually decreasing to 5.25 percent, 6.5 percent and 5.5 percent, respectively, over twelve years. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25 percent, 8.5 percent, and 7.5 percent at December 31, 1995, 1994 and 1993, respectively. If the health care cost trend rate assumptions were increased 1.0 percent, the accumulated postretirement benefit obligation as of December 31, 1995, 1994 and 1993 would be increased 9.0 percent, 7.1 percent, and 7.2 percent, respectively. The effect of this change on the sum of the service and interest cost components of the net periodic postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993 would be an increase of 11.0 percent, 7.9 percent and 7.8 percent, respectively. A-57 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 8. LEASES LEASE INCOME During 1995, 1994 and 1993, the Company received $1,742 million, $1,786 million and $1,482 million, respectively, in lease income related to its investment real estate. In accordance with standard industry practice, certain of the Company's lease agreements with retail tenants result in income that is contingent on the level of the tenants' sales revenues. LEASE EXPENSE The Company has entered into various lease agreements for office space, data processing and other equipment. Rental expense under such leases was $171 million, $193 million and $214 million for the years ended December 31, 1995, 1994 and 1993, respectively. Future gross minimum rental payments under non- cancelable leases, including those leases for which the Company recorded a restructuring charge in 1995, are as follows (in millions):
YEAR ENDING DECEMBER 31, - -------------------------------------------------------------- 1996.......................................................... $ 107 1997.......................................................... 82 1998.......................................................... 66 1999.......................................................... 48 2000.......................................................... 32 Thereafter.................................................... 53 --------- Total..................................................... $ 388 --------- ---------
9. OTHER COMMITMENTS AND CONTINGENCIES GUARANTEES The Company has entered into certain arrangements in the course of its business which, under certain circumstances, may impose significant financial obligations on the Company. The Company has entered into a support agreement with a subsidiary whereby the Company has agreed to maintain the subsidiary's net worth at one dollar or more. At December 31, 1995, the subsidiary's assets, which consist principally of loans to affiliates, amounted to $3,309 million and its net worth amounted to $11 million. In addition, the Company has entered into arrangements with certain of its subsidiaries and affiliates to assist such subsidiaries and affiliates in meeting various jurisdictions' regulatory requirements regarding capital and surplus. The Company has also entered into a support arrangement with respect to the reinsurance obligations of a subsidiary. No material payments have been made under these arrangements and it is the opinion of management that any payments required pursuant to these arrangements would not likely have a material adverse effect on the Company's financial position. LITIGATION In 1994, the Company entered into consent agreements (involving the payment of fines and policyholder restitution payments) with state authorities, including the insurance departments of all states, arising out of regulatory proceedings and investigations relating to alleged improper practices in the sale of individual life insurance. Litigation relating to the Company's individual life insurance sales practices (including individual actions and purported class actions) has also been instituted by or on behalf of policyholders and others, and additional litigation relating to the Company's sales practices may be commenced in the future. In addition, an A-58 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 investigation by the Office of the United States Attorney for the Middle District of Florida, in conjunction with a grand jury, into certain of the sales practices that were the focus of the state investigations is ongoing. Various litigation, claims and assessments against the Company, in addition to the aforementioned, have arisen in the course of the Company's business, operations and activities. In certain of the matters referred to above, including actions with multiple plaintiffs, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome in all such matters, it is the opinion of the Company's management that their outcome, after consideration of the provisions made in the Company's financial statements, is not likely to have a material adverse effect on the Company's financial position. 10. SURPLUS NOTES The carrying values of surplus notes at December 31, 1995 and 1994 are shown below:
1995 1994 --------- --------- (IN MILLIONS) 6.30% surplus notes scheduled to mature on November 1, 2003...................... $ 400 $ 400 7.00% surplus notes scheduled to mature on November 1, 2005...................... 250 -- 7.70% surplus notes scheduled to mature on November 1, 2015...................... 200 -- 7.45% surplus notes scheduled to mature on November 1, 2023...................... 300 300 7.80% surplus notes scheduled to mature on November 1, 2025...................... 250 -- --------- --------- Total.................................................................... $ 1,400 $ 700 --------- --------- --------- ---------
Interest on the Company's surplus notes is scheduled to be paid semi-annually; principal payments are scheduled to be paid upon maturity. Such payments of interest and principal may be made only with the prior approval of the Superintendent of Insurance of the State of New York (Superintendent). Subject to the prior approval of the Superintendent, the 7.45 percent surplus notes may be redeemed, as a whole or in part, at the election of the Company at any time on or after November 1, 2003. During 1995 and 1994, the Company obtained Superintendent approval for and made total interest payments of $48 million on the surplus notes. 11. FAIR VALUE INFORMATION The estimated fair value amounts of financial instruments presented below have been determined by the Company using market information available as of December 31, 1995 and 1994 and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value for financial instruments for which there are no available market value quotations. A-59 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 The estimates presented below are not necessarily indicative of the amounts the Company could have realized in a market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE ----------- --------- ----------- (IN MILLIONS) DECEMBER 31, 1995: Assets Bonds.............................................................................. $ 70,955 $ 76,119 Stocks, including subsidiaries..................................................... 3,646 3,608 Mortgage loans..................................................................... 14,211 14,818 Policy loans....................................................................... 3,956 4,023 Cash and short-term investments.................................................... 1,923 1,923 Liabilities Investment contracts included in: Reserves for life and health insurance and annuities............................. 18,137 18,211 Policy proceeds and dividends left with the Company.............................. 4,482 4,488 Premium deposit funds............................................................ 12,891 13,322 Other financial instruments Bond purchase agreements........................................................... $ 601 3.3 Bond sales agreements.............................................................. 80 (0.5) Interest rate swaps................................................................ 280 1.5 Interest rate caps................................................................. 231 -- Foreign currency swaps............................................................. 89 4.4 Foreign currency forwards.......................................................... 10 -- Covered call options............................................................... 25 (1.9) 1.9 Futures contracts.................................................................. 1,402 (19.5) -- Unused lines of credit............................................................. 1,600 1.1
A-60 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE ----------- --------- ----------- (IN MILLIONS) DECEMBER 31, 1994: Assets Bonds.............................................................................. $ 65,592 $ 63,194 Stocks, including subsidiaries..................................................... 3,672 3,660 Mortgage loans..................................................................... 14,524 14,269 Policy loans....................................................................... 3,964 3,645 Cash and short-term investments.................................................... 2,334 2,334 Liabilities Investment contracts included in: Reserves for life and health insurance and annuities............................. 16,354 16,370 Policy proceeds and dividends left with the Company.............................. 3,534 3,519 Premium deposit funds............................................................ 14,006 13,997 Other Financial Instruments Bond purchase agreements........................................................... $ 2,755 4.1 Bond sales agreements.............................................................. 1,450 0.8 Interest rate swaps................................................................ 272 (7.1) Interest rate caps................................................................. 185 (0.1) Foreign currency swaps............................................................. 36 (0.4) Foreign currency forwards.......................................................... 4 (0.2) (0.1) Covered call options............................................................... 25 (1.9) 1.9 Unused lines of credit............................................................. 1,450 1.0
For bonds that are publicly traded, estimated fair value was obtained from an independent market pricing service. Publicly traded bonds represented approximately 78 percent of the carrying value and estimated fair value of the total bonds as of December 31, 1995 and 77 percent of the carrying value and estimated fair value of the total bonds as of December 31, 1994. For all other bonds, estimated fair value was determined by management, based on interest rates, maturity, credit quality and average life. Included in bonds are loaned securities with estimated fair values of $8,148 million and $5,154 million at December 31, 1995 and 1994, respectively. Estimated fair values of stocks were generally based on quoted market prices, except for investments in common stock of subsidiaries, which are based on equity in net assets of the subsidiaries. Estimated fair values of mortgage loans were generally based on discounted projected cash flows using interest rates offered for loans to borrowers with comparable credit ratings and for the same maturities. Estimated fair values of policy loans were based on discounted projected cash flows using U.S. Treasury rates to approximate interest rates and Company experience to project patterns of loan repayment. For cash and short-term investments, the carrying amount is a reasonable estimate of fair value. Included in reserves for life and health insurance and annuities, policy proceeds and dividends left with the Company and premium deposit funds are amounts classified as investment contracts representing policies or contracts that do not incorporate significant insurance risk. The fair values for these liabilities are estimated using discounted projected cash flows, based on interest rates being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. Policy proceeds and dividends left with the Company also include other liabilities without defined durations. The estimated fair value of such liabilities, which generally are of short duration or have periodic adjustments of interest rates, approximates their carrying value. A-61 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Estimated fair values of bond purchase/sale agreements were based on fees charged to enter into similar arrangements or on the estimated cost to terminate the outstanding agreements. For interest rate and foreign currency swaps, interest rate caps, interest rate futures, foreign currency forwards, futures contracts and covered call options, estimated fair value is the amount at which the contracts could be settled based on estimates obtained from dealers. The Company had unused lines of credit under agreements with various banks. The estimated fair values of unused lines of credit were based on fees charged to enter into similar agreements. 12. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR MUTUAL LIFE INSURANCE COMPANIES The Company, as a mutual life insurance company, prepares its financial statements in conformity with accounting practices prescribed or permitted by the Insurance Department of the State of New York (statutory financial statements) which currently are considered to be generally accepted accounting principles (GAAP) for mutual life insurance companies. However, the Financial Accounting Standards Board (FASB) has issued certain pronouncements effective for 1996 annual financial statements and thereafter. Such pronouncements will no longer allow statutory financial statements to be described as being prepared in conformity with GAAP. Upon the effective date of the pronouncements, in order for their financial statements to be described as being prepared in conformity with GAAP, mutual life insurance companies will be required to adopt all applicable accounting principles promulgated by the FASB in any general purpose financial statements that they may issue. If permitted by insurance regulatory authorities, the Company will issue 1996 general purpose financial statements reflecting the adoption of all applicable GAAP pronouncements. However, the Company has not finalized the quantification of the effects of the application of the pronouncements on its financial statements. A-62 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the Growth, Income, Money Market, Diversified, International Stock, Stock Index, and Aggressive Growth Divisions of Metropolitan Life Separate Account UL (the "Separate Account") as of December 31, 1995, and the related statements of operations for the year then ended and of changes in net assets for each of the two years in the period then ended. 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, 1995 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 net assets of the Growth, Income, Money Market, Diversified, International Stock, Stock Index and Aggressive Growth Divisions of Metropolitan Life Separate Account UL as of December 31, 1995 and the results of their operations for the year ended and the changes in their net assets for each of the two years in the period then ended, in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York February 19, 1996 A-63 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1995
MONEY INTERNATIONAL AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------- ----------- ---------- ----------- ------------ ----------- ----------- ASSETS: Investments in Metropolitan Series Fund, Inc. at Value (Note 1A): Growth Portfolio (4,099,345 shares; cost $96,789,176)....... $ 112,977,954 -- -- -- -- -- -- Income Portfolio (1,760,947 shares; cost $22,143,191)....... -- $22,416,853 -- -- -- -- -- Money Market Portfolio (282,752 shares; cost $3,047,618)........ -- -- $2,954,758 -- -- -- -- Diversified Portfolio (5,310,254 shares; cost $77,330,732)....... -- -- -- $84,698,553 -- -- -- International Stock Portfolio (1,414,995 shares; cost $17,940,365).................... -- -- -- -- $17,390,288 -- -- Stock Index Portfolio (725,046 shares; cost $11,289,160)....... -- -- -- -- -- $13,456,861 -- Aggressive Growth Portfolio (2,111,288 shares; cost $50,602,535).................... -- -- -- -- -- -- $54,619,026 ------------- ----------- ---------- ----------- ------------ ----------- ----------- Total Investments................. 112,977,954 22,416,853 2,954,758 84,698,553 17,390,288 13,456,861 54,619,026 Cash and Accounts Receivable........ -- -- 20,391 -- -- -- -- ------------- ----------- ---------- ----------- ------------ ----------- ----------- Total Assets...................... 112,977,954 22,416,853 2,975,149 84,698,553 17,390,288 13,456,861 54,619,026 LIABILITIES......................... 537,332 105,382 409 517,812 94,151 31,091 287,229 ------------- ----------- ---------- ----------- ------------ ----------- ----------- NET ASSETS.......................... $ 112,440,622 $22,311,471 $2,974,740 $84,180,741 $17,296,137 $13,425,770 $54,331,797 ------------- ----------- ---------- ----------- ------------ ----------- ----------- ------------- ----------- ---------- ----------- ------------ ----------- -----------
See Notes to Financial Statements. A-64 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
MONEY INTERNATIONAL STOCK AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ----------- ---------- --------- ----------- ------------ ---------- ----------- INVESTMENT INCOME: Income: Dividends (Note 2)................... $ 5,497,071 $1,312,997 $ 161,198 $ 5,314,778 $ 152,268 $ 290,369 $5,091,762 Expenses: Mortality and expense charges (Note 3)................................. 802,240 165,666 32,690 619,298 124,852 76,564 365,214 ----------- ---------- --------- ----------- ------------ ---------- ----------- Net investment income.................... 4,694,831 1,147,331 128,508 4,695,480 27,416 213,805 4,726,548 ----------- ---------- --------- ----------- ------------ ---------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions........................... 293,233 (8,290) 35,201 248,523 28,349 29,512 152,387 Change in unrealized appreciation of investments............................ 19,543,807 1,977,261 4,641 10,898,818 136,578 2,271,366 4,188,117 ----------- ---------- --------- ----------- ------------ ---------- ----------- Net realized and unrealized gain on investments (Note 1B).................. 19,837,040 1,968,971 39,842 11,147,341 164,927 2,300,878 4,340,504 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $24,531,871 $3,116,302 $ 168,350 $15,842,821 $ 192,343 $2,514,683 $9,067,052 ----------- ---------- --------- ----------- ------------ ---------- ----------- ----------- ---------- --------- ----------- ------------ ---------- -----------
See Notes to Financial Statements. A-65 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS
GROWTH INCOME MONEY MARKET DIVISION DIVISION DIVISION ----------------------------- --------------------------- --------------------------- FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------------- 1995 1994 1995 1994 1995 1994 ------------- ------------- ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 4,694,831 $ 1,529,435 $ 1,147,331 $ 971,668 $ 128,508 $ 130,231 Net realized gain (loss) from security transactions.............. 293,233 53,162 (8,290) (9,894) 35,201 (79,321) Unrealized appreciation (depreciation) of investments............... 19,543,807 (4,282,800) 1,977,261 (1,415,108) 4,641 36,172 ------------- ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations................ 24,531,871 (2,700,203) 3,116,302 (453,334) 168,350 87,082 ------------- ------------- ------------ ------------ ------------ ------------ From capital transactions: Net premiums................ 41,455,659 45,546,952 8,687,776 10,328,856 2,988,786 6,425,154 Net portfolio transfers..... (4,142,623) (2,746,223) (1,257,339) 48,939 (3,815,269) (6,647,524) Other net transfers......... (17,287,875) (16,398,757) (3,439,203) (3,317,903) (661,810) (703,798) Substitutions (Note 4)...... -- -- -- -- -- -- ------------- ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital transactions...... 20,025,161 26,401,972 3,991,234 7,059,892 (1,488,293) (926,168) ------------- ------------- ------------ ------------ ------------ ------------ NET CHANGE IN NET ASSETS.... 44,557,032 23,701,769 7,107,536 6,606,558 (1,319,943) (839,086) NET ASSETS--BEGINNING OF YEAR...................... 67,883,590 44,181,821 15,203,935 8,597,377 4,294,683 5,133,769 ------------- ------------- ------------ ------------ ------------ ------------ NET ASSETS--END OF YEAR..... $ 112,440,622 $ 67,883,590 $ 22,311,471 $ 15,203,935 $ 2,974,740 $ 4,294,683 ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------- ------------ ------------ ------------ ------------
See Notes to Financial Statements. A-66
DIVERSIFIED INTERNATIONAL STOCK DIVISION DIVISION --------------------------- --------------------------- FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1995 1994 1995 1994 ------------ ----------- ------------ ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 4,695,480 $ 1,734,612 $ 27,416 $ 485,015 Net realized gain (loss) from security transactions.............. 248,523 22,275 28,349 80,235 Unrealized appreciation (depreciation) of investments............... 10,898,818 (3,636,719) 136,578 (842,359) ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations................ 15,842,821 (1,879,832) 192,343 (277,109) ------------ ----------- ------------ ----------- From capital transactions: Net premiums................ 31,888,789 41,263,327 12,024,423 11,498,165 Net portfolio transfers..... (5,102,550) (4,980,679) (1,502,438) 1,014,621 Other net transfers......... (13,529,725) (14,095,050) (4,797,949) (3,556,411) Substitutions (Note 4)...... -- 2,235,074 -- -- ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from capital transactions...... 13,256,514 24,422,672 5,724,036 8,956,375 ------------ ----------- ------------ ----------- NET CHANGE IN NET ASSETS.... 29,099,335 22,542,840 5,916,379 8,679,266 NET ASSETS--BEGINNING OF YEAR...................... 55,081,406 32,538,566 11,379,758 2,700,492 ------------ ----------- ------------ ----------- NET ASSETS--END OF YEAR..... $ 84,180,741 $55,081,406 $ 17,296,137 $11,379,758 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- STOCK INDEX AGGRESSIVE GROWTH DIVISION DIVISION ----------------------------- ------------------------------ 1995 1994 1995 1994 ------------- ------------ --------------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 213,805 $ 132,182 $ 4,726,548 $ (98,251) Net realized gain (loss) from security transactions.............. 29,512 5,039 152,387 5,076 Unrealized appreciation (depreciation) of investments............... 2,271,366 (129,802) 4,188,117 (100,707) ------------- ------------ --------------- ----------- Net increase (decrease) in net assets resulting from operations................ 2,514,683 7,419 9,067,052 (193,882) ------------- ------------ --------------- ----------- From capital transactions: Net premiums................ 7,870,004 4,316,325 32,859,273 28,325,697 Net portfolio transfers..... 876,498 (301,802) (190,487) (15,434) Other net transfers......... (2,682,256) (1,454,580) (12,996,305) (10,302,089) Substitutions (Note 4)...... -- -- -- -- ------------- ------------ --------------- ----------- Net increase (decrease) in net assets resulting from capital transactions...... 6,064,246 2,559,943 19,672,481 18,008,174 ------------- ------------ --------------- ----------- NET CHANGE IN NET ASSETS.... 8,578,929 2,567,362 28,739,533 17,814,292 NET ASSETS--BEGINNING OF YEAR...................... 4,846,841 2,279,479 25,592,264 7,777,972 ------------- ------------ --------------- ----------- NET ASSETS--END OF YEAR..... $ 13,425,770 $ 4,846,841 $ 54,331,797 $25,592,264 ------------- ------------ --------------- ----------- ------------- ------------ --------------- -----------
A-67 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 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 seven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund"). 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. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1. SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS Investments in shares of the Fund are valued at the reported net asset values of the respective portfolios. A summary of investments of the seven designated portfolios of the Fund in which the seven investment divisions of the Separate Account invest as of December 31, 1995 is included as Note 5. The methods used to value the Fund's investments at December 31, 1995 are described in Note 1A of the Fund's 1994 Annual Report. 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 separately 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 reserves 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 or 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 policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2. DIVIDENDS On April 19, 1995 and December 19, 1995, the Fund declared dividends for all shareholders of record on April 25, 1995 and December 27, 1995, respectively. The amount of dividends received by the Separate Account was $17,820,443. The dividends were paid to Metropolitan Life on April 26, 1995 and December 28, 1995, 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 Fund held by each of A-68 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 the seven investment divisions increased by the following: Growth Portfolio 203,974 shares, Income Portfolio 103,768 shares, Money Market Portfolio 15,439 shares, Diversified Portfolio 334,236 shares, International Stock Portfolio 12,446 shares, Stock Index Portfolio 15,791 shares, and Aggressive Growth Portfolio 199,098 shares. 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a daily charge against the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge is equivalent to the effective annual rate of .90% of the average daily value of the net assets in the Separate Account which are attributable to such policies. 4. SUBSTITUTION OF DIVISION On June 1, 1994, the net assets of the Equity Income Division were transferred to the Diversified Division under a substitution plan. A-69 NOTES TO FINANCIAL STATEMENTS-(CONTINUED) METROPOLITAN SERIES FUND, INC. 5. A SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995
GROWTH PORTFOLIO INCOME PORTFOLIO --------------------------- ------------------------- VALUE VALUE (NOTE 1A) (NOTE 1A) COMMON STOCK Aerospace........... $ 46,873,200 (4.3%) Automotive.......... 8,400,388 (0.8%) Banking............. 46,664,450 (4.3%) Building............ 6,695,350 (0.6%) Business Services... 17,307,250 (1.6%) Chemical............ 62,351,063 (5.7%) Computer Software & Service............ 64,486,020 (5.9%) Drug................ 68,975,425 (6.3%) Electrical Equipment.......... 18,014,400 (1.6%) Electronics......... 60,681,096 (5.5%) Financial Services........... 50,077,876 (4.6%) Food & Beverage..... 56,499,225 (5.1%) Hospital Management......... 23,432,125 (2.1%) Hospital Supply..... 46,253,650 (4.2%) Hotel & Restaurant......... 22,954,525 (2.1%) Insurance........... 31,977,600 (2.9%) Machinery........... 47,891,562 (4.4%) Metals & Mining..... 7,637,612 (0.7%) Office Equipment.... 68,138,213 (6.2%) Oil................. 69,771,787 (6.4%) Oil Services........ 18,143,500 (1.7%) Paper............... 8,429,400 (0.8%) Personal Care....... 24,817,000 (2.3%) Retail Trade........ 82,486,135 (7.5%) Tobacco............. 26,525,550 (2.4%) Toys & Musical Instruments........ 9,913,984 (0.9%) Utilities-Telephone... 31,793,450 (2.9%) Video............... 49,360,428 (4.5%) --------------- Total Common Stock.............. 1,076,552,264 (98.3%) --------------- CONVERTIBLE PREFERRED STOCK Oil Services........ PREFERRED STOCK Retail Trade........ --------------- Total Stock Securities......... $ 1,076,552,264 (98.3%) --------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Banking............. $ 13,202,211 (3.7%) Financial Services........... 27,942,460 (8.0%) Industrial-Miscellaneous... 29,715,375 (8.5%) Mortgage Backed..... 12,183,305 (3.5%) ------------- Total Corporate Bonds.............. 83,043,351 (23.7%) ------------- Federal Agency Obligations........ 19,288,010 (5.5%) Federal Treasury Obligations........ 173,723,485 (49.7%) Foreign Obligations........ 31,751,086 (9.1%) Government Sponsored.......... 5,854,471 (1.7%) Yankee Bonds........ 18,464,936 (5.3%) ------------- Total Bonds......... 249,081,988 (95.0%) ------------- SHORT-TERM OBLIGATIONS Bank Note........... Bankers' Acceptance......... Commercial Paper.... $ 19,775,000 (1.8%) 13,785,000 (3.9%) Corporate Note...... Federal Agency Obligations........ Federal Treasury Obligations........ --------------- ------------- Total Short-Term Obligations........ 19,775,000 (1.8%) 13,785,000 (3.9%) --------------- ------------- TOTAL INVESTMENTS... 1,096,327,264 (100.1%) 345,910,339 (98.9%) Other Assets Less Liabilities........ (1,576,667) (-0.1%) 4,002,689 (1.1%) --------------- ------------- NET ASSETS.......... $ 1,094,750,597 (100.0%) $ 349,913,028 (100.0%) --------------- ------------- --------------- ------------- MONEY MARKET PORTFOLIO DIVERSIFIED PORTFOLIO ------------------------- ------------------------- VALUE VALUE (NOTE 1A) (NOTE 1A) COMMON STOCK Aerospace........... $ 24,440,850 (2.2%) Automotive.......... 3,604,913 (0.3%) Banking............. 27,106,325 (2.4%) Building............ 3,872,713 (0.4%) Business Services... 10,205,126 (0.9%) Chemical............ 37,025,888 (3.3%) Computer Software & Service............ 38,000,276 (3.4%) Drug................ 42,703,588 (3.8%) Electrical Equipment.......... 10,512,000 (1.0%) Electronics......... 37,210,134 (3.3%) Financial Services........... 33,011,138 (3.0%) Food & Beverage..... 33,167,400 (3.0%) Hospital Management......... 16,054,075 (1.4%) Hospital Supply..... 25,576,525 (2.3%) Hotel & Restaurant......... 13,319,088 (1.2%) Insurance........... 18,682,688 (1.7%) Machinery........... 28,921,275 (2.6%) Metals & Mining..... 4,655,687 (0.4%) Office Equipment.... 39,834,663 (3.6%) Oil................. 42,551,035 (3.8%) Oil Services........ 10,505,225 (0.9%) Paper............... 4,914,800 (0.4%) Personal Care....... 15,836,400 (1.4%) Retail Trade........ 48,731,799 (4.4%) Tobacco............. 16,507,200 (1.5%) Toys & Musical Instruments........ 5,967,406 (0.5%) Utilities-Telephone. 18,417,625 (1.7%) Video............... 28,511,540 (2.6%) ------------- Total Common Stock.............. 639,847,382 (57.4%) ------------- CONVERTIBLE PREFERRED STOCK Oil Services........ 154,500 (0.0%) PREFERRED STOCK Retail Trade........ 209,061 (0.0%) ------------- Total Stock Securities......... $ 640,210,943 (57.4%) ------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Banking............. $ 20,432,477 (1.8%) Financial Services........... 38,284,443 (3.5%) Industrial-Miscellan 39,027,649 (3.5%) Mortgage Backed..... 12,889,132 (1.2%) ------------- Total Corporate Bonds.............. 110,633,701 (10.0%) ------------- Federal Agency Obligations........ 24,303,049 (2.2%) Federal Treasury Obligations........ 227,577,120 (20.4%) Foreign Obligations........ 43,686,100 (3.9%) Government Sponsored.......... 7,073,233 (0.6%) Yankee Bonds........ 26,274,500 (2.4%) ------------- Total Bonds......... 328,914,002 (29.5%) ------------- SHORT-TERM OBLIGATIONS Bank Note........... $ 1,999,841 (4.9%) Bankers' Acceptance......... 1,966,149 (4.8%) Commercial Paper.... 17,760,043 (43.9%) 31,189,000 (2.8%) Corporate Note...... 2,006,689 (5.0%) Federal Agency Obligations........ 9,613,137 (23.8%) Federal Treasury Obligations........ 6,874,040 (17.0%) ------------- ------------- Total Short-Term Obligations........ 40,219,899 (99.4%) 31,189,000 (2.8%) ------------- ------------- TOTAL INVESTMENTS... 40,219,899 (99.4%) 1,110,947,646 (99.7%) Other Assets Less Liabilities........ 236,376 (0.6%) 3,885,951 (0.3%) ------------- ------------- NET ASSETS.......... $ 40,456,275 (100.0%) $1,114,833,597 (100.0%) ------------- ------------- ------------- -------------
A-70 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) METROPOLITAN SERIES FUND, INC. 5. A SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995--(CONTINUED)
INTERNATIONAL STOCK PORTFOLIO -------------------------- VALUE (NOTE 1A) -------------- COMMON STOCK Airlines......................... $ 778,273 (0.3%) Automotive....................... 5,547,826 (1.9%) Banking.......................... 9,258,655 (3.1%) Beverages........................ 6,315,913 (2.1%) Broadcasting & Publishing........ 755,063 (0.3%) Building......................... 7,676,572 (2.6%) Business Services................ 5,642,530 (1.9%) Chemicals........................ 5,969,074 (2.0%) Electrical Equipment............. 9,578,893 (3.2%) Financial Services............... 9,274,046 (3.1%) Foods............................ 6,130,161 (2.1%) Health & Personal Care........... 10,013,145 (3.4%) Industrial--Miscellaneous........ 5,939,198 (2.0%) Insurance........................ 8,712,224 (2.9%) Leisure.......................... 5,033,575 (1.7%) Machinery........................ 10,540,444 (3.5%) Metals--Steel & Iron............. 3,707,213 (1.2%) Metals--Gold..................... 17,292,196 (5.8%) Metals--Miscellaneous............ 11,269,782 (3.8%) Miscellaneous.................... 1,417,500 (0.5%) Miscellaneous Materials.......... 10,149,225 (3.4%) Office Equipment................. 205,063 (0.1%) Offshore Funds & Investment Trusts......................... 5,181,098 (1.7%) Oil--Domestic.................... 9,941,445 (3.3%) Oil--International............... 783,833 (0.3%) Paper............................ 527,824 (0.2%) Railroad......................... 2,987,040 (1.0%) Real Estate...................... 5,468,829 (1.8%) Recreation....................... 3,126,583 (1.1%) Retail Trade..................... 9,116,882 (3.1%) Telecommunications............... 888,768 (0.3%) Textiles & Apparel............... 1,304,293 (0.4%) Transportation--Trucking......... 624,375 (0.2%) Utilities--Electric.............. 4,080,974 (1.4%) Utilities--Water................. 998,366 (0.3%) Wholesale & International Trade.......................... 4,857,355 (1.6%) -------------- Total Common Stock............... 201,094,236 (67.6%) Convertible Preferred Stock........ 426,075 (0.1%) Preferred Stock.................... 2,488,326 (0.9%) Total Equity Securities............ 204,008,637 (68.6%) Convertible Bonds.................. 17,774,377 (6.0%) -------------- TOTAL INVESTMENTS.................. 221,783,014 (74.6%) Other Assets Less Liabilities.... 75,678,027 (25.4%) -------------- NET ASSETS......................... $ 297,461,041 (100.0%) -------------- --------------
A-71 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) METROPOLITAN SERIES FUND, INC. 5. A SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995--(CONTINUED)
STOCK INDEX PORTFOLIO -------------------------- VALUE (NOTE 1A) ------------- COMMON STOCK Aerospace................................................................................... $ 13,979,982 (2.2%) Airlines.................................................................................... 2,644,937 (0.4%) Automotive.................................................................................. 16,087,052 (2.5%) Banking..................................................................................... 41,224,016 (6.5%) Beverages................................................................................... 35,762,761 (5.6%) Building.................................................................................... 6,721,186 (1.1%) Chemical.................................................................................... 22,748,995 (3.6%) Container................................................................................... 769,825 (0.1%) Cosmetics................................................................................... 4,724,749 (0.7%) Drug........................................................................................ 41,170,632 (6.5%) Electrical Connectors....................................................................... 1,504,050 (0.2%) Electrical Equipment........................................................................ 23,767,938 (3.7%) Electronics................................................................................. 26,279,796 (4.1%) Financial Services.......................................................................... 19,611,919 (3.1%) Foods....................................................................................... 16,942,138 (2.7%) Hospital Management......................................................................... 6,287,681 (1.0%) Hospital Supply............................................................................. 19,150,108 (3.0%) Hotel & Restaurant.......................................................................... 6,409,988 (1.0%) Industrials--Miscellaneous.................................................................. 13,838,876 (2.2%) Insurance................................................................................... 22,054,204 (3.5%) Leisure..................................................................................... 1,010,300 (0.2%) Machinery................................................................................... 9,363,339 (1.5%) Metals--Aluminum............................................................................ 2,557,576 (0.4%) Metals--Gold................................................................................ 3,688,584 (0.6%) Metals--Miscellaneous....................................................................... 2,603,457 (0.4%) Metals--Steel & Iron........................................................................ 2,102,738 (0.3%) Office Equipment............................................................................ 35,293,640 (5.6%) Oil--Crude Producers........................................................................ 577,675 (0.1%) Oil--Domestic............................................................................... 12,288,633 (1.9%) Oil--International.......................................................................... 37,270,188 (5.9%) Oil Services................................................................................ 6,695,613 (1.1%) Paper....................................................................................... 8,585,105 (1.4%) Photography................................................................................. 4,004,325 (0.6%) Printing & Publishing....................................................................... 7,978,951 (1.3%) Railroad.................................................................................... 7,750,478 (1.2%) Retail Trade................................................................................ 29,479,447 (4.6%) Services.................................................................................... 4,541,599 (0.7%) Shoes....................................................................................... 1,906,875 (0.3%) Soaps....................................................................................... 12,378,362 (1.9%) Textiles & Apparel.......................................................................... 1,231,638 (0.2%) Tire & Rubber............................................................................... 1,576,100 (0.2%) Toys & Musical Instruments.................................................................. 792,458 (0.1%) Transportation--Trucking.................................................................... 907,625 (0.1%) Utilities--Electric......................................................................... 21,261,693 (3.3%) Utilities--Gas Distribution................................................................. 3,778,086 (0.6%) Utilities--Gas Pipeline..................................................................... 3,294,056 (0.5%) Utilities--Telephone........................................................................ 53,586,928 (8.5%) Video....................................................................................... 14,232,219 (2.2%) ------------- Total Common Stock.......................................................................... 632,418,521 (99.4%) TOTAL SHORT-TERM OBLIGATIONS--U.S. TREASURY BILLS............................................. 5,503,636 (0.9%) ------------- TOTAL INVESTMENTS............................................................................. 637,922,157 (100.3%) Other Assets Less Liabilities................................................................. (2,098,918) (-0.3%) ------------- NET ASSETS.................................................................................... $ 635,823,239 (100.0%) ------------- ----------- ------------- -----------
A-72 NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) METROPOLITAN SERIES FUND, INC. 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1995--(CONCLUDED)
AGGRESSIVE GROWTH PORTFOLIO ------------------------ VALUE (NOTE 1A) ------------- COMMON STOCK Aerospace.................................................................................... $ 37,289,175 (3.9%) Airlines..................................................................................... 23,823,062 (2.5%) Automotive................................................................................... 3,636,625 (0.4%) Business Services............................................................................ 43,265,943 (4.5%) Chemical..................................................................................... 9,393,750 (1.0%) Computer Software & Service.................................................................. 83,974,480 (8.8%) Diversified.................................................................................. 9,028,800 (0.9%) Drug......................................................................................... 23,960,467 (2.5%) Electrical Equipment......................................................................... 27,345,600 (2.9%) Electronics.................................................................................. 15,239,300 (1.6%) Financial Services........................................................................... 14,461,700 (1.5%) Food & Beverage.............................................................................. 18,494,325 (1.9%) Hospital Supply.............................................................................. 236,600 (0.0%) Hotel & Restaurant........................................................................... 57,102,144 (6.0%) Insurance.................................................................................... 52,168,826 (5.4%) Machinery.................................................................................... 32,567,513 (3.4%) Office Equipment............................................................................. 41,544,576 (4.3%) Oil.......................................................................................... 37,022,038 (3.9%) Oil Services................................................................................. 24,723,888 (2.6%) Personal Care................................................................................ 1,040,775 (0.1%) Printing & Publishing........................................................................ 7,862,175 (0.8%) Recreation................................................................................... 49,853,613 (5.2%) Retail Trade................................................................................. 120,841,866 (12.6%) Textiles & Apparel........................................................................... 72,565,958 (7.6%) Tobacco...................................................................................... 22,317,300 (2.3%) Utilities--Telephone......................................................................... 19,429,313 (2.0%) ------------- Total Common Stock........................................................................... 849,189,812 (88.6%) CONVERTIBLE PREFERRED STOCK Machinery.................................................................................... 6,481,163 (0.7%) PREFERRED STOCK Airlines..................................................................................... 7,062,000 (0.7%) ------------- Total Equity Securities........................................................................ 862,732,975 (90.0%) TOTAL LONG-TERM DEBT SECURITIES--CONVERTIBLE BONDS............................................. 9,658,850 (1.0%) TOTAL SHORT-TERM OBLIGATIONS--COMMERCIAL PAPER................................................. 58,265,000 (6.1%) ------------- TOTAL INVESTMENTS.............................................................................. 930,656,825 (97.1%) Other Assets Less Liabilities.................................................................. 28,258,408 (2.9%) ------------- NET ASSETS..................................................................................... $ 958,915,233 (100.0%) ------------- -------------
A-73 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, 1996 (UNAUDITED)
MONEY INTERNATIONAL AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------- ----------- ---------- ----------- ------------ ----------- ----------- ASSETS: Investments in Metropolitan Series Fund,Inc. at Value (Note 1A): Growth Portfolio (4,269,698 shares; cost $101,750,658)............... $ 125,828,002 -- -- -- -- -- -- Income Portfolio (1,817,114 shares; cost $22,842,868)... -- $22,659,415 -- -- -- -- -- Money Market Portfolio (323,560 shares; cost $3,471,171)................. -- -- $3,420,032 -- -- -- -- Diversified Portfolio (5,512,792 shares; cost $80,659,387)................ -- -- -- $90,905,936 -- -- -- International Stock Portfolio (1,540,949 shares; cost $19,522,156)................ -- -- -- -- $19,153,994 -- -- Stock Index Portfolio (844,721 shares; cost $13,622,223)... -- -- -- -- -- $16,505,843 -- Aggressive Growth Portfolio (2,322,078 shares; cost $56,034,032)................ -- -- -- -- -- -- $64,019,697 ------------- ----------- ---------- ----------- ------------ ----------- ----------- Total Investments........... 125,828,002 22,659,415 3,420,032 90,905,936 19,153,994 16,505,843 64,019,697 Cash and Accounts Receivable...... 131 21 16,888 88 35 41 ------------- ----------- ---------- ----------- ------------ ----------- ----------- Total Assets................ 125,828,133 22,659,436 3,436,920 90,906,024 19,154,029 16,505,884 64,019,697 LIABILITIES....................... 655,789 121,528 616,888 97,980 53,034 351,984 ------------- ----------- ---------- ----------- ------------ ----------- ----------- NET ASSETS........................ $ 125,172,344 $22,537,908 $3,436,920 $90,289,136 $19,056,049 $16,452,850 $63,667,713 ------------- ----------- ---------- ----------- ------------ ----------- ----------- ------------- ----------- ---------- ----------- ------------ ----------- -----------
See Notes to Financial Statements. A-74 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 ------------------------------------------------------------------------------------- MONEY INTERNATIONAL STOCK AGGRESSIVE GROWTH INCOME MARKET DIVERSIFIED STOCK INDEX GROWTH DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ---------- --------- ----------- ----------- ------------ --------- ----------- INVESTMENT INCOME: Income: Dividends (Note 2)...................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Expenses: Mortality and expense charges (Note 3).................................... 24,424 4,616 1,035 17,881 4,489 4,199 14,696 ---------- --------- ----------- ----------- ------------ --------- ----------- Net investment income (loss)................ (24,424) (4,616) (1,035) (17,881) (4,489) (4,199) (14,696) ---------- --------- ----------- ----------- ------------ --------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from security transactions............................ 98,585 (8,905) (3,594) 33,043 10,683 17,238 14,501 Change in unrealized appreciation (depreciation) of investments........... 7,888,566 (457,115) 41,721 2,878,728 181,925 715,920 3,969,174 ---------- --------- ----------- ----------- ------------ --------- ----------- Net realized and unrealized gain (loss) on investments (Note 1B)................... 7,987,151 (466,020) 38,127 2,911,771 192,608 733,158 3,983,675 ---------- --------- ----------- ----------- ------------ --------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................. $7,962,727 $(470,636) $ 37,092 $2,893,890 $ 188,119 $ 728,959 $3,968,979 ---------- --------- ----------- ----------- ------------ --------- ----------- ---------- --------- ----------- ----------- ------------ --------- -----------
See Notes to Financial Statements. A-75 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
MONEY MARKET GROWTH DIVISION INCOME DIVISION DIVISION --------------------------------- --------------------------------- ---------------- FOR THE THREE FOR THE THREE FOR THE THREE MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) ---------------- --------------- ---------------- --------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ (24,424) $ 4,694,831 $ (4,616) $ 1,147,331 $ (1,035) Net realized gain (loss) from security transactions.............. 98,585 293,233 (8,905) (8,290) (3,594) Unrealized appreciation (depreciation) of investments............... 7,888,566 19,543,807 (457,115) 1,977,261 41,721 ---------------- --------------- ---------------- --------------- ---------------- Net increase (decrease) in net assets resulting from operations................ 7,962,727 24,531,871 (470,636) 3,116,302 37,092 ---------------- --------------- ---------------- --------------- ---------------- From capital transactions: Net premiums................ 10,920,142 41,455,659 1,932,990 8,687,776 985,143 Redemptions (Note 4)........ (1,052,808) (2,766,288) (188,822) (546,157) (4,911) Net portfolio transfers (Note 4).................. 357,897 395,373 36,138 36,042 (374,271) Other net transfers (Note 4)........................ (5,456,236) (19,059,583) (1,083,233) (4,186,427) (180,873) Net increase (decrease) in net assets resulting from capital transactions...... 4,768,995 20,025,161 697,073 3,991,234 425,088 ---------------- --------------- ---------------- --------------- ---------------- NET CHANGE IN NET ASSETS...... 12,731,722 44,557,032 226,437 7,107,536 462,180 Net Assets--beginning of period....................... 112,440,622 67,883,590 22,311,471 15,203,935 2,974,740 ---------------- --------------- ---------------- --------------- ---------------- Net Assets--end of period..... $ 125,172,344 $ 112,440,622 $ 22,537,908 $ 22,311,471 $ 3,436,920 ---------------- --------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------- --------------- ---------------- DIVERSIFIED DIVISION --------------------------------- FOR THE THREE FOR THE YEAR MONTHS ENDED FOR THE YEAR ENDED MARCH 31, ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 (UNAUDITED) 1995 --------------- ---------------- --------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 128,508 $ (17,881) $ 4,695,480 Net realized gain (loss) from security transactions.............. 35,201 33,043 248,523 Unrealized appreciation (depreciation) of investments............... 4,641 2,878,728 10,898,818 --------------- ---------------- --------------- Net increase (decrease) in net assets resulting from operations................ 168,350 2,893,890 15,842,821 --------------- ---------------- --------------- From capital transactions: Net premiums................ 2,988,786 7,955,690 31,888,789 Redemptions (Note 4)........ (89,665) (705,739) (2,358,803) Net portfolio transfers (Note 4).................. (3,328,483) (33,297) (416,768) Other net transfers (Note 4)........................ (1,058,931) (4,002,149) (15,856,704) Net increase (decrease) in net assets resulting from capital transactions...... (1,488,293) 3,214,505 13,256,514 --------------- ---------------- --------------- NET CHANGE IN NET ASSETS...... (1,319,943) 6,108,395 29,099,335 Net Assets--beginning of period....................... 4,294,683 84,180,741 55,081,406 --------------- ---------------- --------------- Net Assets--end of period..... $ 2,974,740 $ 90,289,136 $ 84,180,741 --------------- ---------------- --------------- --------------- ---------------- ---------------
See Notes to Financial Statements. A-76
AGGRESSIVE INTERNATIONAL STOCK DIVISION STOCK INDEX DIVISION GROWTH DIVISION --------------------------------- --------------------------------- ---------------- FOR THE THREE FOR THE THREE FOR THE THREE MONTHS ENDED FOR THE YEAR MONTHS ENDED FOR THE YEAR MONTHS ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) ---------------- --------------- ---------------- --------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ (4,489) $ 27,416 $ (4,199) $ 213,805 $ (14,696) Net realized gain (loss) from security transactions.............. 10,683 28,349 17,238 29,512 14,501 Unrealized appreciation (depreciation) of investments............... 181,925 136,578 715,920 2,271,366 3,969,174 ---------------- --------------- ---------------- --------------- ---------------- Net increase (decrease) in net assets resulting from operations................ 188,119 192,343 728,959 2,514,683 3,968,979 ---------------- --------------- ---------------- --------------- ---------------- From capital transactions: Net premiums................ 2,833,781 12,024,423 3,173,708 7,870,004 9,948,415 Redemptions (Note 4)........ (153,984) (392,901) (60,312) (232,828) (437,362) Net portfolio transfers (Note 4).................. (38,614) (658,961) 486,880 1,324,319 45,919 Other net transfers (Note 4)........................ (1,069,390) (5,248,525) (1,302,155) (2,897,249) (4,190,035) Net increase (decrease) in net assets resulting from capital transactions...... 1,571,793 5,724,036 2,298,121 6,064,246 5,366,937 ---------------- --------------- ---------------- --------------- ---------------- NET CHANGE IN NET ASSETS...... 1,759,912 5,916,379 3,027,080 8,578,929 9,335,916 Net Assets--beginning of period...................... 17,296,137 11,379,758 13,425,770 4,846,841 54,331,797 ---------------- --------------- ---------------- --------------- ---------------- Net Assets--end of period..... $ 19,056,049 $ 17,296,137 $ 16,452,850 $ 13,425,770 $ 63,667,713 ---------------- --------------- ---------------- --------------- ---------------- ---------------- --------------- ---------------- --------------- ---------------- FOR THE YEAR ENDED DECEMBER 31, 1995 --------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss).................... $ 4,726,548 Net realized gain (loss) from security transactions.............. 152,387 Unrealized appreciation (depreciation) of investments............... 4,188,117 --------------- Net increase (decrease) in net assets resulting from operations................ 9,067,052 --------------- From capital transactions: Net premiums................ 32,859,273 Redemptions (Note 4)........ (1,185,240) Net portfolio transfers (Note 4).................. 2,162,117 Other net transfers (Note 4)........................ (14,163,669) Net increase (decrease) in net assets resulting from capital transactions...... 19,672,481 --------------- NET CHANGE IN NET ASSETS...... 28,739,533 Net Assets--beginning of period...................... 25,592,264 --------------- Net Assets--end of period..... $ 54,331,797 --------------- ---------------
A-77 METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 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 seven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund"). 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. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1. SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS Investments in shares of the Fund 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 separately 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 reserves 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 or 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 policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2. DIVIDENDS There were no dividends declared, as of March 31, 1996, for the period of January 1, 1996 through March 31, 1996. A-78 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a daily charge against the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge is equivalent to the effective annual rate of .90% of the average daily value of the net assets in the Separate Account which are attributable to such policies. 4. RECLASSIFICATION Items in the Statement of Changes in Net Assets for December 31, 1995 have been reclassified to conform to changes made to the format presentation. A-79 APPENDIX TO PROSPECTUS OPTIONAL INCOME PLANS The insurance proceeds when the covered person dies, the proceeds payable on the Final Date, or the cash surrender value payable on full surrender of a Certificate, instead of being paid in one lump sum, may be applied under one or more of the following income plans. Values under the income plans do not depend upon the investment experience of a separate account. The selection of an income plan can have significant federal income tax consequences associated with the Certificate proceeds. Owners and beneficiaries should consult with qualified tax advisers in this regard. OPTION 1. INTEREST INCOME The amount applied will earn interest which will be paid monthly. Withdrawals of at least $500 each may be made at any time by written request. OPTION 2. INSTALLMENT INCOME FOR A STATED PERIOD Monthly installment payments will be made so that the amount applied, with interest, will be paid over the period chosen (from 1 to 30 years). OPTION 2A. INSTALLMENT INCOME OF A STATED AMOUNT Monthly installment payments of a chosen amount will be made until the entire amount applied, with interest, is paid. OPTION 3. SINGLE LIFE INCOME--GUARANTEED PAYMENT PERIOD Monthly payments will be made during the lifetime of the payee with a chosen guaranteed payment period of 10, 15 or 20 years. OPTION 3A. SINGLE LIFE INCOME--GUARANTEED RETURN Monthly payments will be made during the lifetime of the payee. If the payee dies before the total amount applied under this plan has been paid, the remainder will be paid in one sum as a death benefit. OPTION 4. JOINT AND SURVIVOR LIFE INCOME Monthly payments will be made jointly to two persons during their lifetime and will continue during the remaining lifetime of the survivor. A total payment period of 10 years is guaranteed. OTHER FREQUENCIES AND PLANS. Instead of monthly payments, the owner may elect to have payments made quarterly, semiannually or annually. Other income plans may be arranged with MetLife's approval. CHOICE OF INCOME PLANS. See "Certificate Benefits--Optional Income Plans" and "Certificate Rights-- Surrenders," regarding how optional income plans may be chosen. When an income plan starts, a separate contract will be issued describing the terms of the plan. Specimen contracts may be obtained from the Administrative Office, and reference should be made to these forms for further details. LIMITATIONS. If the payee is not a natural person, the choice of an income plan will be subject to MetLife's approval. A collateral assignment will modify a prior choice of income plan. The amount due the assignee will be payable in one sum and the balance will be applied under the income plan. A choice of an income plan will not become effective unless each payment under the plan would be at least $50. Income plan payments may not be assigned and, to the extent permitted by law, will not be subject to the claims of creditors. INCOME PLAN RATES. Amounts applied under the interest income and installment income plans will earn interest at a rate set from time to time by MetLife but never less than 3% per year. Life income payments will be based on a rate set by MetLife and in effect on the date the amount to be applied becomes payable, but never less than the minimum payments guaranteed in the Certificate. Such minimum guaranteed payments are based on certain assumed mortality rates and an interest rate of 3%. A-80 OPTIONAL INSURANCE BENEFITS Optional insurance benefit riders may be attached to a Certificate, subject to, their availability under the Group Policy, their availability under state law, certain insurance underwriting requirements and the payment of additional premiums. These riders are described in general terms below. Limitations and conditions are contained in the riders, and the description below is subject to the specific terms of the riders. A prospective purchaser may obtain a specimen Certificate with riders from the Administrative Office. The duration, but not the amount, of rider benefits may depend on the investment experience of a separate account. The following riders will be provided to all Owners if elected by the participating entity: WAIVER OF MONTHLY DEDUCTION DURING TOTAL DISABILITY. This rider waives the entire monthly deduction during the "Total Disability" of the covered person if the covered person is "Totally Disabled" for at least six months beginning prior to age 60. "Total Disability" or "Totally Disabled" means that because of sickness or an injury the covered person cannot do his or her job, and cannot do any other job for which they are fit by education, training or experience. Monthly deductions will continue to be waived until the earliest of the following: (a) the date the covered person is no longer totally disabled, or (b) the date the covered person does not give MetLife proof of Total Disability when required, or (c) the day before the date the covered person becomes 65 years old. If there has been an increase in the death benefit resulting from a request by the Owner and the Owner at the time of the increase did not request or did not qualify for this rider with respect to such increase, monthly deductions for charges related to such increase will continue to be made against the cash value of the Certificate. This could result in the cash value being insufficient to cover the monthly deductions related to the increase. In such a case, the grace period and termination provisions of the Certificate would apply only to such increase in death benefit. Since the monthly deduction with respect to the increase in the death benefit could reduce the cash value of the Certificate to zero, it may be advantageous for the Owner, at the time of the total disability, to reduce the death benefit to that amount which is subject to this rider . ACCELERATED DEATH BENEFIT. This rider provides for a one-time discounted payment of all or a portion of the death benefit to the Owner if the covered person's life span has been drastically limited so that the covered person is expected to die within six months or twelve months, as specified in the rider, or is not expected recover from the cause of reduction in life span. In addition some riders also provide this benefit if the covered person is permanently confined to a Nursing Home and has a life expectancy of less than two years. The size of the benefit payment and the maximum benefit are stated in the rider. There are no premiums or rider fees for this rider. Upon payment of a portion of the death benefit, the death benefit under the Certificate is reduced to reflect the amount of the payment. In addition, the specified face amount, the cash value and the cash surrender value are reduced by the same proportion as the amount of the reduction of the death benefit divided by the death benefit prior to the payment. Any outstanding loan is reduced and paid out of the proceeds of the portion only if such reduction is necessary to keep the Certificate in force. Moreover, in the case of payment of all of the death benefit, the amount of any outstanding Certificate loan will be deducted from the payment. The payment under this rider may be taxable or may affect eligibility for benefits under state or federal law. Counsel and other competent advisors should be consulted to determine the effect on an individual situation. LIVING BENEFITS. This rider provides benefits in the form of living benefits to the Owner or covered person when "Unable to Care" for the Covered Person and when conditions specified in the rider are met. "Unable to Care" means that the Owner or covered person is unable to perform specified activities of daily living without human assistance each and every time performance of the activities is necessary. This may include the following types of activities: bathing, dressing, transferring/mobility, toileting/continence, and eating. The amount of living benefits available under this rider will be an amount of up to 50% of the specified face amount on the date when the conditions specified in this rider are met. However, the amount of Death Benefit payable at the covered person's death will be reduced by the amount of living benefits paid. Living benefits will not be paid for conditions resulting from, caused or contributed by a mental or nervous condition, other than Alzheimer's disease; or alcohol or drug abuse. Preexisting conditions may not be covered by this rider. A-81 The payment under this rider may be taxable or may affect eligibility for benefits under state or federal law. Counsel and other competent advisors should be consulted to determine the effect on an individual situation. The following riders may be elected by either the participating entity or the Owner, as set forth in the Policy or Certificate: ACCIDENTAL DEATH BENEFIT. This rider provides additional insurance equal to an amount stated in the Certificate if the covered person dies from an accident prior to age 70. It also provides an additional amount equal to twice the stated amount if the covered person dies from an accident occurring while the covered person is a fare-paying passenger on a common carrier. This rider is available at issue only. ACCIDENTAL DEATH OR DISMEMBERMENT BENEFIT. In addition to benefits described under "Accidental Death Benefits," above, this rider provides benefits if a covered person is injured in an accident if the covered loss occurs not more than 90 days after the date of an accident and prior to age 70. Covered losses may include loss of life, a hand, foot or sight of an eye. The amount of benefits on account of a covered person is the amount specified in the Certificate. DEPENDENT LIFE BENEFITS. This rider provides insurance on the life of a dependent payable to the Owner or other designated beneficiary while the benefits are in effect for that dependent on the date of death as set forth in this rider. A dependent may be the Owner's spouse or unmarried child. A child who may be covered includes a child who is supported solely by you and permanently living in the home of which you are the head, a child who is legally adopted or a stepchild who lives in your home. A child may be covered until age 19 and in some cases up to 23 years of age. A dependent child with a physical handicap or mental retardation may continue to be a dependent. The amount of dependent term insurance will be specified in the rider. A-82 METLIFE -REGISTERED TRADEMARK- GV UL GROUP VARIABLE UNIVERSAL LIFE PROSPECTUSES FOR - GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES AND CERTIFICATES ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY - METROPOLITAN SERIES FUND, INC. VERSION 2 ML-GVUL (8/96 EDITION) PRINTED IN U.S.A. POLICY FORM NO. 2130-S 96061ELT (EXP 5/97) MLIC-LD [LOGO] METLIFE CUSTOMER SERVICE CENTER BULK RATE 177 SOUTH COMMONS DRIVE ZIP+4 BARCODED AURORA, ILLINOIS 60507 U.S. POSTAGE PAID ADDRESS CORRECTION REQUESTED RUTLAND, VT FORWARDING AND RETURN PERMIT 220 POSTAGE GUARANTEED PART II CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. Cross-Reference Table. Form of Supplement to the Prospectus, consisting of 2 pages. The Prospectus--Version No. 1, consisting of 87 pages. The Prospectus--Version No. 2, consisting of 83 pages. Undertaking to File Reports, filed with the initial filing of this Registration Statement on April 14, 1995. Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933, filed with the initial filing of this Registration Statement on April 14, 1995. Representation, Description and Undertaking pursuant to rule 6e-3(T)(b)(13)(iii)(F) under the Investment Company Act of 1940, filed with the initial filing of this Registration Statement on April 14, 1995. The signatures. Written Consents of the following persons: Christopher P. Nicholas, filed with the initial filing of this Registration Statement on April 14, 1995. George J. Kalb (filed with Exhibit 6 below) 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........................... * (2) --Not Applicable (3) --(a) Not Applicable --(b) Form of Selected Broker Agreement......................................... +++ --(c) Schedule of sales commissions............................................. **** (4) --Not applicable (5) --(a) Specimen Group Variable Universal Life Insurance Policy (including any alternate pages as required by state law) with form of riders, if any..... ++ --(b) Specimen Group Variable Universal Life Insurance Certificate issued under the Group Variable Universal Life Policy (including any alternate pages as required by state law) with form of riders, if any........................ ++ (6) --(a) Charter and By-Laws of Metropolitan Life.................................. ++++ --(b) Amendment to By-Laws...................................................... ++++ (7) --Not Applicable (8) --Not Applicable (9) --Not Applicable (10) --(a) Application Form for Policy and Form of Receipt........................... +++ --(b) Enrollment Form for Certificate and Form of Receipt....................... +++ --(c) Request For Systematic Transfer Option Form............................... +++ 2. --See Exhibit 1.A(5) above 3. -- Opinion and consent of Counsel as to the legality of the securities being sold.......................................................................... ++
II-1 4. --Not Applicable 5. --Not Applicable 6. -- Opinion and consent of George J. Kalb relating to the Group Variable Universal Life Insurance Policies, including representations required under the terms of an SEC exemptive order (File No. 812-9452) permitting the deduction of a charge to compensate MetLife for the tax impact of deferral of acquisition costs............................................................. + 7. -- Form of Notice of Cancellation Right and Request for Cancellation relating to Group Variable Universal Life Insurance Certificates pursuant to Rule 6e-3(T)(b)(13)(viii) under the Investment Company Act of 1940................. ++ 8. --Powers of Attorney............................................................ ** 9. -- Method of Computing Exchange pursuant to Rule 6e-3(T)(b)(13)(v)(B) under the Investment Company Act of 1940 (not required because there will be no cash value adjustments) 10. -- Statement of Metropolitan Life pursuant to Rule 27d-2 under the Investment Company Act of 1940........................................................... *** 11. -- Memorandum describing certain procedures filed pursuant to Rule 6e-3(T)(b)(12)(iii)........................................................... ++ 27. -- Financial Data Schedule of Separate Account UL (period ending March 31, 1996)......................................................................... +
- --------- + Filed herewith. * Incorporated by reference to the initial filing of the Registration Statement of Separate Account UL (File No. 33-32813) on January 5, 1990. ** Powers of Attorney for signatories other than Theodossios Athanassiades, Harry P. Kamen Stewart G. Nagler and Curtis H. Barnette were filed with the filing of Post-Effective Amendment No. 1 to the Registration Statement of Separate Account UL (File No. 33-32813) on March 1, 1991. Powers of Attorney for Theodossios Athanassiades and Harry P. Kamen were filed with the initial filing of the Registration Statement of Separate Account UL (File No. 33-57320) on January 22, 1993. A Power of Attorney for Stewart G. Nagler was filed with Pre-Effective Amendment No. 1 of the Registration Statement of Separate Account UL (File No. 33-57320) on July 29, 1993. A Power of Attorney for Curtis H. Barnette was filed with the initial filing of this Registration Statement of Separate Account UL (File No. 33-91226) on April 14, 1995. Powers of Attorney for Hugh B. Price and Ruth J. Simmons were filed with Pre-Effective Amendment No. 1 to this Registration Statement of Separate Account UL (File No. 33-91226) on September 8, 1995. The foregoing Powers of Attorney are incorporated herein by reference. *** Incorporated herein by reference to the filing of Post-Effective Amendment No. 4 to the Registration Statement of Separate Account UL (File No. 33-47927) on April 26, 1996. **** Incorporated by reference from the sections entitled "Distribution of the Group Policies and Certificates" in the prospectuses that are included in this amended Registration Statement. ++ Included in the initial filing of this Registration Statement of Separate Account UL (File No. 33-91226) on April 14, 1995. +++ Included in the filing of Pre-Effective Amendment No. 1 of this Registration Statement of Separate Account UL (File No. 33-91226) on September 8, 1995. ++++ Incorporated herein by reference to the filing of Post-Effective Amendment No. 4 to the Registration Statement of Separate Account UL (File No. 33-57320) on March 1, 1996. 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 EFFECTIVENESS 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 2ND DAY OF JULY, 1996. METROPOLITAN LIFE (SEAL) INSURANCE COMPANY By: /s/ RICHARD M. BLACKWELL ------------------------------------------- RICHARD M. BLACKWELL, ESQ. SENIOR VICE-PRESIDENT & GENERAL COUNSEL Attest: /s/ RUTH GLUCK ---------------------------------------- RUTH GLUCK, ESQ. 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 CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - --------------------------------------------------- -------------------------------------------- ----------------------- * Chairman, President, Chief Executive Officer - --------------------------------------------------- and Director (Principal Executive Officer) HARRY P. KAMEN * Vice-Chairman of the Board and Director ---------------------------------------- THEODOSSIOS ATHANASSIADES * Senior Executive Vice-President and Chief ---------------------------------------- Financial Officer (Principal Financial STEWART G. NAGLER Officer) * Senior Executive Vice-President and ---------------------------------------- Controller (Principal Accounting Officer) FREDERICK P. HAUSER * Director ---------------------------------------- CURTIS H. BARNETTE * Director ---------------------------------------- JOAN GANZ COONEY *By /s/ CHRISTOPHER P. NICHOLAS July 2, 1996 ------------------------------------ CHRISTOPHER P. NICHOLAS, ESQ. ATTORNEY-IN-FACT
II-3
SIGNATURE TITLE DATE - --------------------------------------------------- -------------------------------------------- ----------------------- * Director ---------------------------------------- HELENE L. KAPLAN * Director ---------------------------------------- RICHARD J. MAHONEY * Director ---------------------------------------- ALLEN E. MURRAY * Director ---------------------------------------- JOHN J. PHELAN, JR. * Director ---------------------------------------- JOHN B. M. PLACE * Director ---------------------------------------- HUGH B. PRICE * Director ---------------------------------------- ROBERT G. SCHWARTZ * Director ---------------------------------------- RUTH J. SIMMONS * Director ---------------------------------------- WILLIAM S. SNEATH * Director ---------------------------------------- JOHN R. STAFFORD *By /s/ CHRISTOPHER P. NICHOLAS July 2, 1996 ------------------------------------ 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) 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 2ND DAY OF JULY, 1996. METROPOLITAN LIFE SEPARATE ACCOUNT UL (REGISTRANT) By: METROPOLITAN LIFE INSURANCE COMPANY (DEPOSITOR) (SEAL) By: /s/ RICHARD M. BLACKWELL ---------------------------------- RICHARD M. BLACKWELL, ESQ. SENIOR VICE-PRESIDENT AND GENERAL COUNSEL Attest: /s/ RUTH GLUCK ------------------------------------ RUTH GLUCK, ESQ. ASSISTANT SECRETARY
II-5 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 1 to Registration Statement No. 33-91226 of Metropolitan Life Separate Account UL on Form S-6 of our report dated February 19, 1996 relating to Metropolitan Life Separate Account UL, and of our report dated February 9, 1996 relating to Metropolitan Life Insurance Company both appearing in the Prospectuses, which are a part of such Registration Statement, and to the reference to us under the heading "Experts" in such Prospectuses. DELOITTE & TOUCHE LLP New York, New York July 2, 1996 II-6 EX-6 2 EXHIBIT 6 - OPINION AND CONSENT OF GEORGE J. KALB July 2, 1996 Metropolitan Life Insurance Company One Madison Avenue New York, New York 10010 Dear Sirs: This opinion is furnished in connection with the filing of Post-Effective Amendment No. 1 to Registration Statement No. 33-91226 on Form S-6 ("Registration Statement") which covers premiums received under Group Variable Universal Life Insurance Policies with a minimum group size of 200 eligible lives ("Small Group Policies") and premium received under Group Variable Universal Life Insurance Polices with a minimum group size of 1000 eligible lives ("Large Group 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 Small Group Policy form and the Large Group Policy form and I am familiar with the Registration Statement and Exhibits thereto. In my opinion: (1) The illustrations of death benefits, cash values, cash surrender values and accumulated premiums for the Small Group Policy on pages 16 to 20 and on pages 30 to 33 of the prospectus relating to the Small Group Policies included in the Registration Statement ("Small Group Prospectus"), based on the assumptions stated in the illustrations, are consistent with the provisions of the Small Group Policies. Such assumptions, including the assumed current charge levels, are reasonable. The Small Group Policies have not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations on pages 16 to 20 and on pages 30 to 33, appear to be correspondingly more favorable to a prospective purchaser of a certificate under the Small Group Policy for males age 40 in the underwriting categories specified in the illustrations, than to prospective purchasers of certificates under Small Group Policies for a male at other ages or in other underwriting classes or for a female. Nor were the particular illustrations shown selected for the purpose of making this relationship appear more favorable. (2) The illustrations of the amount of surrender charge which would be taken upon the surrender of a particular certificate issued pursuant to a Small Group Policy on pages 29 and 30 based on the assumptions stated in the illustrations, are consistent with the provisions of the Small Group Policy. (3) The charge for federal taxes that is imposed under the Small Group Policies is reasonable in relation to MLIC's increased tax burden under Section 848 of the Internal Revenue Code of 1986, resulting from MLIC's receipt of premiums under such Small Group Policies. The cost to MLIC of capital used to satisfy its increased tax burden under Section 848 is, in essence, MLIC's targeted after-tax rate of return. The targeted after-tax rate of return is reasonable and the factors taken into account by MLIC in determining such targeted after-tax rate of return are appropriate factors to consider. (4) The illustrations of death benefits, cash values, and accumulated premiums for the Large Group Policy on pages A-15 to A-19 and on pages A-26 to A-29 of the prospectus relating to the Large Group Policies included in the Registration Statement ("Large Group Prospectus"), based on the assumptions stated in the illustrations, are consistent with the provisions of the Large Group Policies. Such assumptions, including the assumed current charge levels, are reasonable. The Large Group Policies have not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations on pages A-15 to A-19 and on pages A-26 to A-29, appear to be correspondingly more favorable to a prospective purchaser of a certificate under the Large Group Policy for males age 40 in the underwriting risk categories specified in the illustrations, than to prospective purchasers of certificates under Large Group Policies for a male at other ages or in other underwriting classes or for a female. Nor were the particular illustrations shown selected for the purpose of making this relationship appear more favorable. (5) The charge for federal taxes that is imposed under the Large Group Policies is reasonable in relation to MLIC's increased tax burden under Section 848 of the Internal Revenue Code of 1986, resulting from MLIC's receipt of premiums under such Large Group Policies. The cost to MLIC of capital used to satisfy its increased tax burden under Section 848 is, in essence, MLIC's targeted after-tax rate of return. The targeted after-tax rate of return is reasonable and the factors taken into account by MLIC in determining such targeted after-tax rate of return are appropriate factors to consider. 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 "Experts" in each of the Small Group Prospectus and the Large Group Prospectus. Very truly yours, /s/George J. Kalb ----------------------- George J. Kalb Vice-President and Actuary EX-27.(A) 3 FDS FOR GROWTH DIVISION 3/31/96
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METROPOLITAN LIFE SEPARATE ACCOUNT UL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 8 GROWTH DIVISION 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 101750668 101750658 131 0 0 125828133 0 0 655789 655789 0 0 0 0 10230695 0 452438 0 24077344 125172344 0 0 0 24424 (24424) 98585 7888566 7962727 0 0 0 0 0 0 0 12731722 10255119 353853 0 0 0 0 24424 102055709 0 0 0 0 0 0 0 0.0 0 0
EX-27.(B) 4 FDS FOR INCOME DIVISION 3/31/96
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METROPOLITAN LIFE SEPARATE ACCOUNT UL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9 INCOME DIVISION 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 22842868 22659415 21 0 0 22659436 0 0 121528 121528 0 0 0 0 2937960 0 (3524) 0 (182453) 22537908 0 0 0 4616 (4616) (8905) (457115) (470636) 0 0 0 0 0 0 0 226437 2942576 5381 0 0 0 0 4616 20305275 0 0 0 0 0 0 0 0.0 0 0
EX-27.(C) 5 FDS FOR MONEY MARKET DIVISION 3/31/96
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METROPOLITAN LIFE SEPARATE ACCOUNT UL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 10 MONEY MARKET DIVISION 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 3471171 3420032 16888 0 0 3436920 0 0 0 0 0 0 0 0 426288 0 (42621) 0 (51139) 3436920 0 0 0 1035 (1035) (3594) 41721 37092 0 0 0 0 0 0 0 462180 427323 (77822) 0 0 0 0 1035 3404328 0 0 0 0 0 0 0 0.0 0 0
EX-27.(D) 6 FDS FOR DIVERSIFIED DIVISION 3/31/96
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METROPOLITAN LIFE SEPARATE ACCOUNT UL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 11 DIVERSIFIED DIVISION 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 80659387 90905936 88 0 0 90906024 0 0 616888 616888 0 0 0 0 8820684 0 314109 0 10246549 90289136 0 0 0 17881 (17881) 33043 2878728 2893890 0 0 0 0 0 0 0 6108395 8838565 281066 0 0 0 0 17881 76956449 0 0 0 0 0 0 0 0.0 0 0
EX-27.(E) 7 FDS FOR INTERNATIONAL STOCK DIVISION 3/31/96
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METROPOLITAN LIFE SEPARATE ACCOUNT UL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12 INTERNATIONAL STOCK DIVISION 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 19522156 19153994 35 0 0 19154029 0 0 97980 97980 0 0 0 0 590019 0 121883 0 (368152) 19056049 0 0 0 4489 (4489) 10683 181925 188119 0 0 0 0 0 0 0 1759912 594508 111200 0 0 0 0 4489 15746896 0 0 0 0 0 0 0 0.0 0 0
EX-27.(F) 8 FDS FOR STOCK INDEX DIVISION 3/31/96
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METROPOLITAN LIFE SEPARATE ACCOUNT UL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 13 STOCK INDEX DIVISION 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 13622223 16505843 41 0 0 16505884 0 0 53034 53034 0 0 0 0 386843 0 60984 0 2883621 16452850 0 0 0 4199 (4199) 17238 715920 728959 0 0 0 0 0 0 0 3027080 391042 43746 0 0 0 0 4199 11184481 0 0 0 0 0 0 0 0.0 0 0
EX-27.(G) 9 FDS FOR AGGRESSIVE GROWTH DIVISION 3/31/96
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METROPOLITAN LIFE SEPARATE ACCOUNT UL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 14 AGGRESSIVE GROWTH DIVISION 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 56034032 64019697 0 0 0 64019697 0 0 351984 351984 0 0 0 0 5042417 0 172215 0 7985665 63667713 0 0 0 14696 (14696) 14501 3969174 3968979 0 0 0 0 0 0 0 9335916 5057113 157714 0 0 0 0 14696 48527946 0 0 0 0 0 0 0 0.0 0 0
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