-----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, Ufd76PhjGoU3mjiw/StmGmOfBeuKC+3oO+nSeaOI4oAX1BCKaLZHHyN9/xwcmz0h 5TrSnBkzBgmW/rzcPhImvw== 0000950109-03-002564.txt : 20030430 0000950109-03-002564.hdr.sgml : 20030430 20030430131534 ACCESSION NUMBER: 0000950109-03-002564 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20030430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-57320 FILM NUMBER: 03671806 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06025 FILM NUMBER: 03671807 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 485APOS 1 d485apos.txt METROPOLITAN LIFE SEPARATE ACCOUNT UL As filed with the Securities and Exchange Commission on April __,2003 Registration No. 033-57320 811-06025 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 14 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 8 [X] Metropolitan Life Separate Account UL (Exact Name of Registrant) Metropolitan Life Insurance Company (Name of Depositor) One Madison Avenue New York, NY 10010 (Address of depositor's principal executive offices) --------------------- Gary A. Beller, Esq. Senior Executive Vice President and General Counsel Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 (Name and address of agent for service) Copies to: Gary O. Cohen, Esq. and Thomas C. Lauerman, Esq. Foley & Lardner 3000 K Street, N.W. Washington, D.C. 20007 It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [X] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment Title of Securities Being Registered: Interests in Metropolitan Life Separate Account UL, which funds certain Variable Universal Life Insurance Policies. PROSPECTUS FOR METFLEX, A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY ("Policy") Issued by Metropolitan Life Insurance Company ("MetLife") May 1, 2003 This prospectus provides you with important information about MetLife's MetFlex Policies. However, this prospectus is not the Policy. The Policy, rather, is a separate written agreement that MetLife issues to you. The Policy is designed to provide: .. Life insurance coverage .. Flexible premium payments .. A choice among three death benefit options .. A method of financing certain deferred compensation plans, post-retirement benefits and payroll deduction programs We offer the following funding options for allocating premium payments to and transferring cash value among a fixed interest account and the Metropolitan Life Separate Account UL investment divisions which invest in the following corresponding fund ("Fund") portfolios: Metropolitan Series Fund, Inc. portfolios (Class A): State Street Research Aggressive Growth Neuberger Berman Partners Mid Cap Value State Street Research Diversified Scudder Global Equity State Street Research Investment Trust T. Rowe Price Large Cap Growth State Street Research Aurora T. Rowe Price Small Cap Growth Putnam International Stock Lehman Brothers(R) Aggregate Bond Index Met/Putnam Voyager MetLife Stock Index (formerly Putnam Large Cap Growth) Morgan Stanley EAFE(R) Index Harris Oakmark Large Cap Value Russell 2000(R) Index Janus Mid Cap MetLife Mid Cap Stock Index Davis Venture Value MFS Research Managers Loomis Sayles Small Cap FI Structured Equity Alger Equity Growth State Street Research Bond Income MFS Investors Trust State Street Research Money Market
The Janus Aspen Series portfolios: Janus Aspen Growth--Institutional Class The Invesco Variable Investment Funds, Inc. ("VIF") funds: INVESCO VIF--High Yield INVESCO VIF--Real Estate Opportunity INVESCO VIF--Core Equity The Franklin Templeton Variable Insurance Products Trust funds: Templeton Foreign Franklin Small Cap--Class 2 Securities--Class 1 AllianceBernstein Variable Products Series Fund, Inc. portfolios: AllianceBernstein Growth AllianceBernstein and Income--Class B Technology--Class B AllianceBernstein Premier Growth--Class B Met Investors Series Trust portfolios (Class A): Lord Abbett Growth and Income Lord Abbett Bond Debenture Fidelity Variable Insurance Products Fund portfolios: Growth--Service Class Asset Manager Growth(R) Service Class Contrafund(R) Service Class Separate prospectuses for the Metropolitan Series Fund, Inc., the Janus Aspen Series, the Invesco Variable Investment Funds, Inc., the Franklin Templeton Variable Insurance Products Trust, the AllianceBernstein Variable Products Series Fund, Inc., the Met Investors Series Trust and the Fidelity Variable Insurance Products Fund (each a "Fund") are available from us. They describe in greater detail an investment in the Portfolios listed above. Before purchasing a Policy, read the information in this prospectus and in the prospectus for each Fund. Keep these prospectuses for future reference. Since the Fixed Account is not registered under the federal securities laws, this Prospectus contains only limited information about the Fixed Account. The Policy gives you more information on the operation of the Fixed Account. Policies issued in your state may provide different features and benefits from, and impose different costs than, those described in this Prospectus. Your actual Policy and any endorsements are the controlling documents. You should read the Policy carefully for any variations in your state. Neither the Securities and Exchange Commission ("SEC") nor any state securities authority has approved or disapproved these securities, nor have they determined if this Prospectus is accurate or complete. Any representation otherwise is a criminal offense. This Prospectus does not constitute an offering in any jurisdiction where such offering may not lawfully be made. Interests in the Separate Account, the Fixed Account and the Portfolios are not deposits, obligations of, or insured or guaranteed by, the U.S. Government, any bank or other depository institution including the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board or any other agency or entity or person. We do not authorize any representations about this offering other than as contained in this Prospectus or its supplements or in our authorized supplemental sales material. 2 TABLE OF CONTENTS
Page in this Subject Prospectus ------- ---------- Cover Page Contacting Us................................................. 4 Summary of Benefits and Risks................................. 4 Policy Benefits.............................................. 4 Risks of a Policy............................................ 5 Fee Tables.................................................... 6 Transaction Fees............................................. 7 Periodic Charges Other Than Portfolio Operating Expenses..... 9 Periodic Charges for Optional Riders That You Choose to Add to Your Policy............................................. 9 Portfolio Operating Expenses................................. 10 MetLife....................................................... 14 The Fixed Account............................................ 15 Separate Account UL.......................................... 15 The Funds.................................................... 15 The Portfolio Share Classes that We Offer.................. 19 Voting Rights.............................................. 19 Issuing a Policy.............................................. 19 Payment and Allocation of Premiums............................ 20 Paying Premiums.............................................. 20 Maximum and Minimum Premium Payments......................... 21 Allocating Net Premiums...................................... 21 Insurance Proceeds............................................ 21 Death Benefit Options........................................ 22 Minimum Death Benefit........................................ 23 Specified Face Amount........................................ 24 Income Plans................................................. 25 Cash Value, Transfers and Withdrawals......................... 26 Cash Value................................................... 26 Cash Value Transfers......................................... 26 Surrender and Withdrawal Privileges.......................... 27 Benefit at Final Date........................................ 28 Loan Privileges............................................... 28 Optional Rider Benefits....................................... 30 Charges and Deductions........................................ 31 Important Information Applicable to all Policy Charges and Deductions............................................... 31 Charges Deducted From Premiums............................. 31 Charges Included in the Monthly Deduction.................. 32 Variations in Charges...................................... 33 Portfolio Company Charges.................................... 34 Other Charges................................................ 34 Policy Termination and Reinstatement.......................... 34 Federal Tax Matters........................................... 34 Rights We Reserve............................................. 36 Other Policy Provisions....................................... 37 Sales of Policies............................................. 39 Experts....................................................... 39 Financial Statements.......................................... 40
3 [SIDEBAR: You can contact us at our Designated Office.] Contacting Us You can communicate all of your requests, instructions and notifications to us by contacting us in writing at our Designated Office. We may require that certain requests, instructions and notifications be made on forms that we provide. These include: changing your beneficiary; taking a Policy loan; changing your death benefit option; taking a partial withdrawal; surrendering your Policy; making transfer requests (including elections with respect to the systematic investment strategies); or changing your premium allocations. Our Designated Office is our home office at 1 Madison Avenue, New York, NY 10010. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. Summary of Benefits and Risks This summary gives an overview of the Policy and is qualified by the more detailed information in the balance of this Prospectus and the Policy. MetLife issues the Policies. We offer the Policies to employers, employer sponsored plans, or other organizations or individuals associated with such employers, plans or organizations. We designed the Policies for financing nonqualified deferred compensation plans, other post-employment benefits, certain employer sponsored payroll deduction programs or other purposes. Policy Benefits Premium Payment Flexibility. The Policy allows flexibility in making premium payments. The Policy will remain in force as long as the cash surrender value is large enough to cover one monthly deduction, regardless of whether or not premium payments have been made. Cash Value. Your cash value in the Policy reflects your premium payments, the charges we deduct, interest we credit if you have cash value in our fixed interest account, any investment experience you have in our Separate Account, as well as your loan and withdrawal activity. Transfers And Systematic Investment Strategies. You may transfer cash value among the funding options, subject to certain limits. You may also choose among four systematic investment strategies: the Equity Generator/SM/, the Equalizer/SM/, the Allocator/SM/, and the Rebalancer/SM/. Specified Face Amount of Insurance. Within certain limits, you may choose your specified face amount of insurance when the Policy is issued. You may also change the amount at any time after the first Policy year, subject to our rules and procedures. Death Benefit Options. Generally, you have a choice among three options. These range from an amount equal to the specified face amount to an amount equal to the specified face amount plus the policy cash value at the date of death. Income Plans. The insurance proceeds can be paid under a variety of income plans that are available under the Policy. 4 Surrenders, Partial Withdrawals and Loans. Within certain limits, you may take partial withdrawals and loans from the Policy. You may also surrender your Policy for its cash surrender value. Tax Advantages. If you meet certain requirements, you will not pay income taxes on withdrawals or surrenders or at the Final Date of the Policy, until your cumulative withdrawn amounts exceed the cumulative premiums you have paid. The death benefit may be subject to Federal and state estate taxes, but your beneficiary will generally not be subject to income tax on the death benefit. As with any taxation matter, you should consult with and rely on the advice of your own tax advisor. Yearly Renewable Term Rider. This rider provides coverage on the insured to age 95. The amount of sales charge you pay may be less if coverage is obtained through this rider rather than as part of the Policy. However, the current charges for the cost of insurance are higher. Other Optional Rider Benefits. You may be eligible for certain other benefits provided by rider, subject to certain underwriting requirements and the payment of additional premiums. We will deduct any charges for the rider(s) (other than the charge for the interim term insurance rider) as part of the monthly deduction. Risks of a Policy This Prospectus discusses the risks associated with purchasing the Policy. Other prospectuses (which are attached at the end of this Prospectus) discuss the risks associated with investment in the Fund described therein. Those prospectuses are being provided to you in addition to this Prospectus because each of the Separate Account UL investment divisions that are available to you under the Policy invests solely in a corresponding "Portfolio" of a Fund. Investment Risk. MetLife does not guarantee the investment performance of the variable investment options and you should consider your risk tolerance before selecting any of these options. You will be subject to the risk that investment performance will be unfavorable and that your cash value will decrease. In addition, we deduct Policy fees and charges from your Policy's cash value, which can significantly reduce your Policy's cash value. During times of poor investment performance, these deductions may have an even greater impact on your Policy's cash value. It is possible to lose your full investment and your Policy could terminate without value, unless you pay additional premiums. If you allocate cash value to the Fixed Account, then we credit such cash value with a declared rate of interest. You assume the risk that the rate may decrease, although it will never be lower than the guaranteed minimum annual effective rate of 4%. Surrender and Withdrawal Risks. The Policies are designed to provide lifetime insurance protection. They are not offered primarily as an investment, and are not suitable as a short-term savings vehicle. You should purchase the Policy only if you have the financial ability to keep it in force for a substantial period of time. You should not purchase the Policy if you intend to surrender all or part of the Policy's cash value in the near future. Risk of Policy Termination. Your Policy may terminate without value if you have paid an insufficient amount of premiums or if the investment 5 experience of the investment divisions is poor. If your cash surrender value is not enough to pay the monthly your Policy will terminate without value unless you make a premium payment sufficient to cover two monthly deductions within the 61-day grace period. If your Policy does terminate, your insurance coverage will terminate (although you will be given an opportunity to reinstate your coverage if you satisfy certain requirements). Lapse of a policy on which there is an outstanding loan may have adverse tax consequences. Policy Charge and Expense Increase. We have the right to increase certain Policy charges. Tax Law Risks. To the extent that you purchase a Policy based on expected tax benefits relative to other financial or investment products or strategies, there is no certainty that such advantages will always continue to exist. As with any taxation matter, you should consult with and rely on the advice of your own tax advisor. During the first 15 Policy years, in certain circumstances, a distribution may be subject to tax on an income-out-first tax basis if there is a gain in your Policy (which is generally when your cash value exceeds the cumulative premiums you paid). Finally, if your Policy is part of an equity split dollar arrangement, there is a risk that some portion of the cash value may be taxed prior to any Policy distribution. If you pay more than a certain amount of premiums, you may cause your Policy to become a "modified endowment contract." If it does, you will pay income taxes on loans and other amounts we pay out to you (except for payment of insurance proceeds), to the extent of any gains in your Policy (which is generally the excess of cash value over the premiums paid). In this case, an additional 10% tax penalty may also apply. Tax laws, regulations, and interpretations have often been changed in the past and such changes continue to be proposed. Fee Tables The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Policy. The charges set forth in the first three tables may vary by group, based on anticipated variations in our costs or risks associated with the group or individuals in the group that the charge was intended to cover. Our variations in the charges will be made in accordance with our established and uniformly applied administrative procedures. Any variations in charges will be reasonable and will not be unfairly discriminatory to the interests of any Policy owner. In addition to the following tables, certain charges that we don't currently impose (but which we have the right to impose on your Policy in the future) are described under "Charges and Deductions--Other Charges," further back in this Prospectus. In certain cases, we have the right to increase our charges for new Policies, as well as for Policies already outstanding. The maximum charges in such cases are shown in the far right-hand columns of each of the first three tables below. 6 Transaction Fees This table describes the fees and expenses that you will pay at the time that you buy the Policy, surrender the Policy, or transfer cash value among the variable investment options or the Fixed Account.
When Charge Current Amount Maximum Amount Charge is Deducted Deducted We Can Deduct - --------------------------------------------------------------------------------------------- Sales Charge/(1)(2)(3)(4)/ On payment of Up to 6.5% of Policy Years 1 to 10, premium premiums paid (3% up to 9% of in Policy Years 11 premiums paid./(6)/ and later) until the total of payments in Policy Years 11 and any Policy year later, same as equals the annual Current Amount for target premium/(5)/ for those years that Policy year and 0% on the excess. - --------------------------------------------------------------------------------------------- Charge for average On payment of 2.25% of each Same as Current expected state and premium premium payment Amount local taxes attributable to premiums - --------------------------------------------------------------------------------------------- Charge for expected On payment of 1.2% of each Same as Current federal taxes premium premium payment Amount attributable to premiums - --------------------------------------------------------------------------------------------- Administrative On payment of Up to 1.05% of each Same as Current Charge premium premium payment. Amount We reduce the charge to .05% on the portion of any premiums paid in a Policy year above the annual target premium/(2)/. - --------------------------------------------------------------------------------------------- Transfer Fee On transfer of cash Not currently $25 per transfer, and value among charged none for transfers investment divisions under Systematic or to or from the Investment Fixed Account Strategies - --------------------------------------------------------------------------------------------- Interim Term On payment of first Insurance Benefit premium if rider is Highest: $11.40 per Highest: $30.45 per (applies only if you elected $1,000 of term $1,000 of term elected rider at insurance amount insurance amount issue) Lowest: $0.03 per Lowest: $0.09 per Highest and Lowest $1,000 of term $1,000 of term Charge Among All insurance amount insurance amount Possible Insureds $0.16 per $1,000 of $0.40 per $1,000 of Charge for male, term insurance term insurance issue age 45, amount amount Guaranteed Issue underwriting class/(4)/ - ---------------------------------------------------------------------------------------------
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When Charge Current Amount Maximum Amount Charge is Deducted Deducted We Can Deduct - -------------------------------------------------------------------------------- Enhanced Cash On premium 0.25% of each Same as Current Surrender Value payments made premium payment Amount Rider during the first five made during the Policy years first five Policy years - -------------------------------------------------------------------------------- Underwriting On face amount None Up to $3 per $1,000 Charge (applies only increase of increase if you request an increase in your specified face amount)
- -------- /1/ For Policies issued with the Refund of Sales Charge Rider, if you request a full cash withdrawal during the first three Policy years (first five Policy years for Policies issued on or after August 1, 2000), we will refund any sales charges deducted within 365 days prior to the date the request is received at our Designated office. /2/ For Policies issued with the Enhanced Cash Surrender Value Rider, if you request a full cash withdrawal during the first seven Policy years, we will refund (a) part of the cumulative charges we have deducted from your premium payments and (b) part of the cost of term insurance we have deducted in the current Policy year, as shown in the table below. However, we will not pay this refund if the full cash withdrawal is related to an exchange pursuant to Section 1035 of the Internal Revenue Code.
Portion of Cost of Term Insurance Charges Deducted Portion of during Policy Year of Policy Year of Cumulative Premium Full Cash Withdrawal Full Cash Withdrawal Charges to be Refunded* to be Refunded** ----------------------------------------------------------------------- 1 100% 75% ----------------------------------------------------------------------- 2 90% 50% ----------------------------------------------------------------------- 3 75% 25% ----------------------------------------------------------------------- 4 60% None ----------------------------------------------------------------------- 5 45% None ----------------------------------------------------------------------- 6 30% None ----------------------------------------------------------------------- 7 15% None ----------------------------------------------------------------------- 8 and later None None
* The percent shown is applied to the cumulative sales, tax, and administrative charges deducted from your premium. ** The percent shown is applied to the cost of term insurance charges deducted during the Policy year in which the full cash withdrawal occurs. /3/ For Policies issued prior to May 1, 1996 or in connection with certain employer sponsored plans effective prior to August 1, 2000, the maximum we can charge is 1% of each premium payment and we currently charge 0%. /4/ This charge varies based on individual characteristics of the insured or of individuals in the group that the charge was intended to cover, and may not be representative of the charge that you will pay. You can obtain more information about the charges that would apply by contacting your insurance sales representative. If you would like, we will provide you with an illustration of the impact of these and other charges under the Policy based on various assumptions. /5/ See "Charges and Deductions--Annual Target Premium" for a detailed discussion of the determination of the annual target premium. /6/ There is no sales charge for payments in excess of the annual target premium in any Policy year. 8 Periodic Charges Other Than Portfolio Operating Expenses These tables describe other fees and expenses that you will pay periodically during the time that you own the Policy not including the fees and expenses of the Portfolios. Periodic Charges Applicable to All Policies
Maximum Amount We Can Charge When Charge is Deducted Current Amount Deducted Deduct - ----------------------------------------------------------------------------------------------------------- Cost of Term Insurance* On each monthly anniversary of the Policy Highest: $11.40 per Highest: $30.45 per Highest and Lowest Charge $1,000 of term insurance $1,000 of term insurance Among All Possible amount amount Insureds Lowest: $0.03 per $1,000 Lowest: $0.09 per $1,000 of term insurance amount of term insurance amount Charge for male, issue age 45, Guaranteed Issue $0.16 per $1,000 of term $0.40 per $1,000 of term underwriting class insurance amount insurance amount - ----------------------------------------------------------------------------------------------------------- Mortality and Expense On each monthly Effective annual rate of Effective annual rate up Risk Charge anniversary of the Policy 0.48% of the cash value to .90%** in the Separate Account.** We intend to reduce this charge after Policy year 9 to 0.36% and after Policy year 20 to 0.30%. - ----------------------------------------------------------------------------------------------------------- Loan Interest Spread Annually (or on loan Annual rate of 0.25% of Annual rate of 2% of the termination, if earlier) the loan amount loan amount
Periodic Charges Applicable to any Optional Riders That You Choose to Add to Your Policy****
When Charge is Current Amount Maximum Amount Optional Feature Deducted Deducted We Can Deduct - ----------------------------------------------------------------------------------------------------------- Disability Waiver of Monthly Monthly Deduction Benefit Highest: $0.28 per $1,000 Highest: $0.28 per $1,000 ***** of total term insurance of total term insurance amount amount Highest and Lowest Charge Among All Possible Lowest: $0.01 per $1,000 Lowest: $0.01 per $1,000 Insureds of total term insurance of total term insurance amount amount Charge for male, issue $0.03 per $1,000 of total $0.04 per $1,000 of total age 45, Guaranteed Issue term insurance amount term insurance amount underwriting class - -----------------------------------------------------------------------------------------------------------
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When Charge is Current Amount Maximum Amount Optional Feature Deducted Deducted We Can Deduct - ----------------------------------------------------------------------------------------------------------- Accidental Death Benefit Monthly ***** Highest: $0.07 per $1,000 Highest: $0.12 per $1,000 of accidental death of accidental death Highest and Lowest Charge benefit amount benefit amount Among All Possible Policies Lowest: $0.04 per $1,000 Lowest: $0.07 per $1,000 of accidental death of accidental death benefit amount benefit amount Charge for male, issue age 45, Guaranteed Issue $0.04 per $1,000 of $0.07 per $1,000 of underwriting class accidental death benefit accidental death benefit amount amount - ----------------------------------------------------------------------------------------------------------- Yearly Renewable Term Monthly Insurance Benefit ***** Highest: $11.40 per Highest: $31.36 per $1,000 of term insurance $1,000 of term insurance Highest and Lowest Charge amount amount Among All Possible Policies Lowest: $0.03 per $1,000 Lowest: $0.09 per $1,000 of term insurance amount of term insurance amount Charge for male, issues $0.17 per $1,000 of term $0.41 per $1,000 of term age 45, Guaranteed Issue insurance amount insurance amount underwriting class
- -------- * The cost of term insurance charge varies based on anticipated variations in our costs or risks associated with the group or individuals in the group that the charge was intended to cover. See "Charges and Deductions--Cost of Term Insurance" for a more detailed discussion of factors affecting this charge. You can obtain more information about the cost of insurance or other charges that would apply by contacting your insurance sales representative. If you would like, we will provide you with an illustration of the impact of these and other charges under the Policy based on various assumptions. ** For policies issued prior to May 1, 1996 or in connection with certain employer sponsored plans effective prior to August 1, 2000, the charge is currently equivalent to an effective annual rate of 0.60% of the cash value in the Separate Account. For those Policies, we intend to reduce this charge to ..30% for all Policy years after the ninth. *** We charge interest on Policy loans but credit you with interest on the amount of the cash value we hold as collateral for the loan. The loan interest spread is the excess of the interest rate we charge over the interest rate we credit. **** The charges for the optional Interim Term Insurance Rider and the Enhanced Cash Surrender Value Rider have previously been described in the table of Transaction Fees above, since the charges for those riders are deducted from the premiums. ***** This charge varies based on individual characteristics of the insured or of individuals in the group that the charge was intended to cover, and may not be representative of the charge that you will pay. You can obtain more information about the charges that would apply by contacting your insurance sales representative. If you would like, we will provide you with an illustration of the impact of these and other charges under the Policy based on various assumptions. Portfolio Operating Expenses Each of the Funds pays an investment management fee to its investment manager. Each of the Funds also incurs other direct expenses (see the Fund Prospectus and Statement of Additional Information referred to therein for each Fund). You bear indirectly your proportionate share of the fees and expenses of the Portfolios of each Fund that correspond to the Separate Account investment divisions you are using. The Funds offer various classes of shares, each of which has a different level of expenses, only one of which is available under a Policy. 10 The first table below shows the lowest and highest fees and expenses charged by the Portfolios for the fiscal year ended December 31, 2002.
Lowest* Highest* - ------------------------------------------------------------------ Total Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets, including management fees, distribution (Rule 12b-1) fees and other expenses) 0.31% 1.89% - ------------------------------------------------------------------
- -------- *The lowest and highest percentages have been selected after adjustment of the percentage for all Portfolios (on a consistent basis) to reflect any changes in expenses during the 12 months ended December 31, 2002 or expected to occur during the 12 months ended December 31, 2003. The table below describes the annual operating expenses for each Portfolio for the year ended December 31, 2002 as a percentage of the Portfolio's average daily net assets for the year.
Gross Manage- Total Fee Waivers Net Total ment Other 12b-1 Annual and Expense Annual Fees Expenses Fees Expenses Reimbursements Expenses --------------------------------------------------------------------------- Metropolitan Series Fund, Inc. (Class A) --------------------------------------------------------------------------- State Street Research Aggressive Growth/(a)/ .73% .06% 0 .79% 0 .79% --------------------------------------------------------------------------- State Street Research Diversified/(a)/ .44% .05% 0 .49% 0 .49% --------------------------------------------------------------------------- State Street Research Investment Trust/(a)/ .49% .05% 0 .54% 0 .54% --------------------------------------------------------------------------- State Street Research Aurora .85% .10% 0 .95% 0 .95% --------------------------------------------------------------------------- Putnam International Stock .90% .22% 0 1.12% 0 1.12% --------------------------------------------------------------------------- Met/Putnam Voyager (formerly Putnam Large Cap Growth)/(b)/ .80% .27% 0 1.07% 0.07% 1.00% --------------------------------------------------------------------------- Harris Oakmark Large Cap Value/(a)/ .75% .08% 0 .83% 0 .83% --------------------------------------------------------------------------- Janus Mid Cap .69% .06% 0 .75% 0 .75% --------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Value/(a)/ .69% .11% 0 .80% 0 .80% ---------------------------------------------------------------------------
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Gross Manage- Total Fee Waivers Net Total ment Other 12b-1 Annual and Expense Annual Fees Expenses Fees Expenses Reimbursements Expenses - ------------------------------------------------------------------------------- Scudder Global Equity .64% .17% 0 .81% 0 .81% - ------------------------------------------------------------------------------- T. Rowe Price Large Cap Growth/(a)/ .63% .14% 0 .77% 0 .77% - ------------------------------------------------------------------------------- T. Rowe Price Small Cap Growth .52% .09% 0 .61% 0 .61% - ------------------------------------------------------------------------------- Lehman Brothers(R) Aggregate Bond Index .25% .09% 0 .34% 0 .34% - ------------------------------------------------------------------------------- MetLife Mid Cap Stock Index .25% .18% 0 .43% 0 .43% - ------------------------------------------------------------------------------- Morgan Stanley EAFE(R) Index/(b)/ .30% .49% 0 .79% 0.04% .75% - ------------------------------------------------------------------------------- Russell 2000(R) Index .25% .24% 0 .49% 0 .49% - ------------------------------------------------------------------------------- MetLife Stock Index .25% .06% 0 .31% 0 .31% - ------------------------------------------------------------------------------- Davis Venture Value/(a)/ .75% .05% 0 .80% 0 .80% - ------------------------------------------------------------------------------- Loomis Sayles Small Cap .90% .07% 0 .97% 0 .97% - ------------------------------------------------------------------------------- Alger Equity Growth .75% .04% 0 .79% 0 .79% - ------------------------------------------------------------------------------- MFS Investors Trust/(a)(b)/ .75% .59% 0 1.34% 0.34% 1.00% - ------------------------------------------------------------------------------- State Street Research Money Market .35% .08% 0 .43% 0 .43% - ------------------------------------------------------------------------------- MFS Research Managers/(a)(b)/ .75% .39% 0 1.14% 0.14% 1.00% - ------------------------------------------------------------------------------- FI Structured Equity/(a)/ .67% .05% 0 .72% 0 .72% - ------------------------------------------------------------------------------- State Street Research Bond Income// .40% .11% 0 .51% 0 .51% - ------------------------------------------------------------------------------- The Janus Aspen Series - ------------------------------------------------------------------------------- Janus Aspen Growth-- Institutional Class .65% .02% 0 .67% 0 .67% - ------------------------------------------------------------------------------- The Invesco Variable Investment Funds, Inc. ("VIF") - ------------------------------------------------------------------------------- INVESCO VIF-- High Yield/(d)(f)/ .60% .45% 0 1.05% 0 1.05% - ------------------------------------------------------------------------------- INVESCO VIF-- Core Equity/(d)(f)/ .75% .37% 0 1.12% 0 1.12% - ------------------------------------------------------------------------------- INVESCO VIF-- Real Estate Opportunity/(d)(e)(f)/ .90% .99% 0 1.89% 0 1.89% - -------------------------------------------------------------------------------
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Gross Manage- Total Fee Waivers Net Total ment Other 12b-1 Annual and Expense Annual Fees Expenses Fees Expenses Reimbursements Expenses ----------------------------------------------------------------------------- The Franklin Templeton Variable Insurance Products Trust ----------------------------------------------------------------------------- Templeton Foreign Securities-- Class 1/(h)/ .70% .20% 0 .90% 0.02% .88% ----------------------------------------------------------------------------- Franklin Small Cap--Class 2/(h)(i)/ .53% .31% .25% 1.09% 0.05% 1.04% ----------------------------------------------------------------------------- AllianceBernstein Variable Products Series Fund, Inc. ----------------------------------------------------------------------------- AllianceBernstein Growth and Income--Class B .63% .05% .25% .93% 0 .93% ----------------------------------------------------------------------------- AllianceBernstein Premier Growth--Class B 1.00% .06% .25% 1.31% 0 1.31% ----------------------------------------------------------------------------- AllianceBernstein Technology-- Class B 1.00% .21% .25% 1.46% 0 1.46% ----------------------------------------------------------------------------- Met Investors (formerly COVA) Series Trust (Class A) ----------------------------------------------------------------------------- Lord Abbett Growth and Income .58% .09% 0 .67% 0 .67% ----------------------------------------------------------------------------- Lord Abbett Bond Debenture/(c)/ .60% .17% 0 .77% 0.02 .75% ----------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund ----------------------------------------------------------------------------- Growth--Service Class/(g)/ .58% .09% .10% .77% 0 .77% ----------------------------------------------------------------------------- Contrafund (R) Service Class/(g)/ .58% .10% .10% .78% 0 .78% ----------------------------------------------------------------------------- Asset Manager Growth (R)-- Service Class/(g)/ .58% .16% .10% .84% 0 .84%
- -------- (a) The Metropolitan Series Fund directed certain of the Portfolio's trades to brokers who paid a portion of the Portfolio's expenses. Net Total Annual Expenses for the Portfolio does not reflect these reductions or credits. If we included these reductions or credits, Net Total Annual Expenses would have been: .78% for the Davis Venture Value Portfolio, .71% for the FI Structured Equity Portfolio, .82% for the Harris Oakmark Large Cap Value Portfolio, .98% for the MFS Investors Trust Portfolio, .93% for the MFS Research Managers Portfolio, .77% for the Neuberger Berman Partners Mid Cap Value Portfolio, .78% for the State Street Research Aggressive Growth 13 Portfolio, .48% for the State Street Research Diversified Portfolio, .52% for the State Street Research Investment Trust Portfolio, and .76% for the T. Rowe Price Large Cap Growth Portfolio. (b) The Metropolitan Series Fund and its affiliate MetLife Advisers, LLC have entered into an Expense Agreement under which MetLife Advisers, LLC will waive investment management fees and/or pay expenses (other than brokerage costs, interest, taxes or extraordinary expenses) ("Expenses") attributable to the Class A shares of this Portfolio of the Metropolitan Series Fund, so that the Net Total Annual Expenses of this Portfolio will not exceed, at any time prior to April 30, 2004, the percentage shown in the far right column. Under the Expense Agreement, if certain conditions are met, the MFS Investors Trust Portfolio and the MFS Research Managers Portfolio may reimburse Metlife Advisers, LLC for fees it waived and Expenses it paid if, in the future, actual Expenses of the Portfolios are less than the expense limits. Net Total Annual Expenses for the MFS Investors Trust Portfolio and the MFS Research Managers Portfolio have been restated to reflect certain changes during the year in the arrangements described above. (c) Met Investors Series Trust and its affiliate Met Investors Advisory LLC have entered into an Expense Limitation Agreement under which Met Investors Advisory LLC has agreed to waive or limit its fees and to assume other expenses so that the Net Total Annual Expenses of this Portfolio (other than interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of this Portfolio's business) will not exceed, at any time prior to April 30, 2004, the percentages shown in the far right column. Under certain circumstances, any fees waived or expenses reimbursed by Met Investors Advisory LLC may, with the approval of the Trust's Board of Trustees, be repaid by the Portfolio to Met Investors Advisory LLC. Net Total Annual Expenses for the Lord Abbett Bond Debenture Portfolio have been restated to reflect changes during the year in the arrangements described above. (d) The Fund's actual Other Expenses and Net Total Annual Expenses were lower than the figures shown because its custodian fees were reduced under an expense offset arrangement. (e) Certain expenses of the Fund were absorbed voluntarily by INVESCO pursuant to commitments between the Fund and INVESCO. This commitment may be changed at any time following consultation with the Board of Directors and is not reflected in the table. After absorption, but excluding any expense offset arrangements, the Fund's other Expenses and Net Total Annual Expenses were 0.46% and 1.36% respectively. (f) Effective June 1, 2002, INVESCO is entitled to reimbursement from the Fund for fees and expenses absorbed pursuant to a voluntary expense limitation commitment between INVESCO and the Fund, if such reimbursements do not cause the Fund to exceed expense limitations and the reimbursement is made within three years after INVESCO incurred the expense. The voluntary expense limitations may be changed at any time following consultation with the Board of Directors and are not reflected in the table. (g) Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's custodian expenses. These offsets may be discontinued at any time. (h) The manager has agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund for cash management. This reduction is reflected in the table and is required by the Fund's Board of Trustees and an exemptive order by the Securities and Exchange Commission. The Fund and expense information regarding the Portfolios was provided by those Portfolios. MetLife Metropolitan Life Insurance Company ("MetLife") is a wholly-owned subsidiary of MetLife, Inc., a publicly traded company. Our main office is located at One Madison Avenue, New York, New York 10010. MetLife has the legal obligation to pay all benefits and other amounts to which you are entitled under the terms of your Policy. 14 The Fixed Account The Fixed Account is part of our general assets that are not in any legally segregated separate accounts. Amounts in the Fixed Account are credited with interest at an effective annual rate of 4%. We may also credit excess interest on such amounts. Different excess interest rates may apply to different amounts based upon when such amounts were allocated to the Fixed Account. Any partial amounts we remove from the Fixed Account (such as any portion of your Policy's monthly deduction that is allocable to the Fixed Account) will be taken from the most recently allocated amounts first. Any excess interest rate will be credited for at least 12 months before a new rate is credited. We can delay transfers, withdrawals, surrender and payment of Policy loans from the Fixed Account for up to 6 months. Since the Fixed Account is not registered under the federal securities laws, this Prospectus contains only limited information about the Fixed Account. The Policy gives you more information on the operation of the Fixed Account. Separate Account UL The Separate Account receives premium payments from the Policy described in this Prospectus and other variable life insurance policies that we issue. The assets in the Separate Account legally belong to us, but they are held solely for the benefit of investors in the Separate Account and no one else, including our other creditors. Income and realized and unrealized capital gains and losses of the Separate Account are credited to the Separate Account without regard to any of our other income or capital gains and losses. We will keep an amount in the Separate Account that at least equals the value of our commitments to policy owners that are based on their investments in the Separate Account. We can also keep charges that we deduct and other excess amounts in the Separate Account or we can transfer the excess out of the Separate Account. [SIDEBAR: Each Separate Account investment division invests in a corresponding Portfolio of a Fund.] The Separate Account has subdivisions, called "investment divisions." Each Investment division invests its assets exclusively in shares of a corresponding Portfolio of a Fund. We can add new investment divisions to or eliminate Investment divisions from the Separate Account. You can designate how you would like your net premiums and cash value to be allocated among the available investment divisions and our Fixed Account. Amounts you allocate to each investment division receive the investment experience of the investment division, and you bear this investment risk. The Funds [SIDEBAR: You should carefully review the investment objectives, strategies, and risks of each Portfolio which are described in the prospectus for each Fund you have also received.] Each of the Funds is a "series" type of mutual fund, which is registered as an open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"). Each Fund is divided into Portfolios, each of which represents a different class of stock in which a corresponding investment division of the Separate Account invests. You should read each Fund prospectus that you have also received. They contain information about each Fund and its Portfolios, including the investment objectives, strategies, risks and investment advisers that are associated with each Portfolio. They also contain information on our different separate accounts and those of our affiliates that invest in each Fund and the risks related thereto. 15 Some of the Portfolios have names and investment objectives that are very similar to certain publicly available mutual funds that are managed by the same money managers. These Portfolios are not those publicly available mutual funds and will not have the same performance. Different performance will result from such factors as different implementation of investment policies, different cash flows into and out of the Portfolios, different fees and different sizes. Our arrangements with certain of the unaffiliated Fund sponsors provide that They or one of their affiliates will pay us based on a percentage (up to 0.25% on an annual basis) of the net assets of a Portfolio attributable to the Policies. The fees are not charged to you, the Separate Account or the Portfolio. As of the end of each Valuation Period (see "Valuation period" description below in "Other Policy Provisions--When Your Requests Become Effective"), we purchase and redeem Fund shares for the Separate Account at their net asset value without any sales or redemption charges. These purchases and redemptions reflect the amount of any of the following transactions that take effect at the end of the Valuation Period: .. The allocation of net premiums to the Separate Account. .. Dividends and distributions on Fund shares, which are reinvested as of the dates paid (which reduces the value of each share of the Fund and increases the number of Fund shares outstanding, but has no effect on the cash value in the Separate Account). .. Policy loans and loan repayments allocated to the Separate Account. .. Transfers to and among investment divisions. .. Withdrawals and surrenders taken from the Separate Account. The adviser, any sub-adviser and investment objective of each Portfolio are as follows: Metropolitan Series Fund, Inc. Adviser: MetLife Advisers, LLC
Portfolio Sub-Adviser Investment Objective - --------------------------------------------------------------------------------- State Street Research State Street Research & Maximum capital Aggressive Growth Management Company appreciation. - --------------------------------------------------------------------------------- State Street Research State Street Research & Long-term growth of capital Investment Trust Management Company and income. - --------------------------------------------------------------------------------- State Street Research State Street Research & High total return, consisting Aurora Management Company principally of capital appreciation. - --------------------------------------------------------------------------------- State Street Research State Street Research & High total return while Diversified Management Company attempting to limit investment risk and reserve capital. - --------------------------------------------------------------------------------- Putnam International Stock Putnam Investment Long-term growth of capital. Management, LLC - --------------------------------------------------------------------------------- Met/Putnam Voyager Putnam Investment Capital appreciation. Management, LLC - --------------------------------------------------------------------------------- Harris Oakmark Large Cap Harris Associates L.P. Long-term capital Value appreciation. - --------------------------------------------------------------------------------- Janus Mid Cap Janus Capital Management Long-term growth of capital. Inc. - --------------------------------------------------------------------------------- Neuberger Berman Partners Neuberger Berman Capital growth. Mid Cap Value Management Inc. - --------------------------------------------------------------------------------- Scudder Global Equity Deutsche Investment Long-term growth of capital. Management Americas Inc. - ---------------------------------------------------------------------------------
16
Portfolio Sub-Adviser Investment Objective - ------------------------------------------------------------------------------------ T. Rowe Price Large Cap T. Rowe Price Associates Long-term growth of capital Growth Inc. and, secondarily, dividend income. - ------------------------------------------------------------------------------------ T. Rowe Price Small Cap T. Rowe Price Associates Long-term growth. Growth Inc. - ------------------------------------------------------------------------------------ Lehman Brothers(R) Metropolitan Life Insurance To equal the performance of Aggregate Bond Index Company the Lehman Brothers Aggregate Bond Index. - ------------------------------------------------------------------------------------ MetLife Stock Index Metropolitan Life Insurance To equal the performance of Company the Standard & Poor's 500 Composite Stock Price Index. - ------------------------------------------------------------------------------------ Morgan Stanley EAFE(R) Metropolitan Life Insurance To equal the performance of Index Company the MSCI EAFE Index. - ------------------------------------------------------------------------------------ Russell 2000(R) Index Metropolitan Life Insurance To equal the return of Company Russell 2000 Index. - ------------------------------------------------------------------------------------ MetLife Mid Cap Stock Metropolitan Life Insurance To equal the performance of Index Company the Standard & Poor's MidCap 400 Composite Stock Index. - ------------------------------------------------------------------------------------ Davis Venture Value Davis Selected Advisors, Growth of capital. L.P. - ------------------------------------------------------------------------------------ Alger Equity Growth Fred Alger Management, Inc Long-term capital appreciation. - ------------------------------------------------------------------------------------ Loomis Sayles Small Cap Loomis, Sayles & Company, Long-term capital growth L.P. from investments in common stocks or other equity securities. - ------------------------------------------------------------------------------------ MFS Investors Trust Massachusetts Financial Long-term growth of capital Services Company with a secondary objective to seek reasonable current income. - ------------------------------------------------------------------------------------ State Street Research State Street Research & High level of current income Money Market Management Company consistent with preservation of capital. - ------------------------------------------------------------------------------------ MFS Research Managers Massachusetts Financial Long-term growth of capital. Services Company - ------------------------------------------------------------------------------------ FI Structured Equity Fidelity Management & Long-term growth of capital. (formerly Wespeak Growth Research Company and Income) - ------------------------------------------------------------------------------------ State Street Research Bond State Street Research & A competitive total return Income Management Company primarily from investing in fixed-income securities. - ------------------------------------------------------------------------------------ The Janus Aspen Series Advisor: Janus Capital Management LLC - ------------------------------------------------------------------------------------ Portfolio Sub-Adviser Investment Objective - ------------------------------------------------------------------------------------ Janus Aspen Growth N/A Long-term growth of capital in a manner consistent with the preservation of capital. - ------------------------------------------------------------------------------------
17 The Invesco Variable Investment Advisor: INVESCO Funds, Inc. ("VIF") Funds Group, Inc. ---------------------------------------------------------------------------- Portfolio Sub-Adviser Investment Objective ---------------------------------------------------------------------------- INVESCO VIF - High Yield N/A To provide a high level of current income by investing primarily in bonds and other debt securities. ---------------------------------------------------------------------------- INVESCO VIF - Core N/A To provide a high total Utility return through both growth and current income. ---------------------------------------------------------------------------- INVESCO VIF - Real N/A Capital Growth. Estate Opportunity ---------------------------------------------------------------------------- The Franklin Templeton Variable Insurance Advisor: Franklin Products Trust Advisors, Inc. ---------------------------------------------------------------------------- Portfolio Sub-Adviser Investment Objective ---------------------------------------------------------------------------- Templeton Foreign N/A Long-term growth of capital. Securities - Class 1 ---------------------------------------------------------------------------- Franklin Small Cap - Class 2 N/A Long-term growth of capital. ---------------------------------------------------------------------------- AllianceBernstein Variable Products Series Adviser: Alliance Fund, Inc. Capital Management, L.P. ---------------------------------------------------------------------------- Portfolio Sub-Adviser Investment Objective ---------------------------------------------------------------------------- AllianceBernstein Growth N/A To seek reasonable current and Income - Class B income and reasonable opportunity for appreciation through investments primarily in dividend-paying common stocks of good quality. ---------------------------------------------------------------------------- AllianceBernstein Premier N/A Growth of capital by Growth - Class B pursuing aggressive investment policies. ---------------------------------------------------------------------------- AllianceBernstein N/A Capital growth. Technology - Class B ---------------------------------------------------------------------------- Met Investors Series Trust (Class A) Adviser: Met Investors Advisory, LLC ---------------------------------------------------------------------------- Portfolio Sub-Adviser Investment Objective ---------------------------------------------------------------------------- Lord Abbett Growth and Lord, Abbett & Co. Long-term growth of capital Income and income. ---------------------------------------------------------------------------- Lord Abbett Bond Lord, Abbett & Co. To provide high current Debenture income and the opportunity for capital appreciation to produce a high total return. ----------------------------------------------------------------------------
18 Fidelity Variable Insurance Products Fund Adviser: Fidelity Management & Research Company --------------------------------------------------------------------- Portfolio Sub-Adviser Investment Objective --------------------------------------------------------------------- Growth - Service Class N/A Capital appreciation. --------------------------------------------------------------------- Contrafund(R) Service Class N/A Long-term capital appreciation. --------------------------------------------------------------------- Asset Manager Growth(R) - N/A To maximize total return by Service Class allocating its assets among stocks, bonds, short-term investments, and other investments. ---------------------------------------------------------------------
The Portfolio Share Classes that We Offer The Funds offer various classes of shares, each of which has a different level of expenses. The Fund prospectuses may provide information for share classes or Portfolios that are not available through the Policy. When you consult the Fund prospectus for a Portfolio, you should be careful to refer only to the information regarding the Portfolio and class of shares that is available through the Policy. The following classes of shares are available under the Policy: .. For the Metropolitan Series Fund, Inc. and the Met Investors Series Trust Portfolios, we offer Class A shares only. .. For the Janus Aspen Series we offer Institutional Class shares only. .. For the Franklin Templeton Variable Insurance Products Trust we offer Class 1 shares for the Templeton Foreign Securities portfolio and Class 2 shares for the Franklin Small Cap portfolio. .. For the AllianceBernstein Variable Products Series Fund we offer Class B shares only. .. For the Fidelity Variable Insurance Products Fund we offer Service Class shares only. Voting Rights [SIDEBAR: You can give us voting instructions on shares of each Portfolio of a Fund that are attributed to your Policy.] The Funds have shareholder meetings from time to time to, for example, elect directors and approve some changes in investment management arrangements. We will vote the shares of each Portfolio that are attributed to your Policy based on your instructions. Should we determine that the 1940 Act no longer requires us to do this, we may decide to vote Fund shares in our own right, without input from you or any other owners of variable life insurance policies or variable annuity contracts that participate in a Fund. Issuing a Policy If you want to own a Policy, then you must complete an application, which must be received by the Designated Office. We reserve the right to reject an application for any reason permitted by law, and our acceptance of an application is subject to our insurance underwriting rules. We may choose one of three types of underwriting when selling Policies. We decide which type to use based on the total number of eligible possible insureds for whom you can purchase a Policy and the percentage of those insureds for whom you actually purchase a Policy. The three types of underwriting are: Guaranteed Issue--requires the least evidence of insurability and rating classification 19 Simplified Underwriting--requires more evidence of insurability and rating classification Full Underwriting--requires the most evidence of insurability and rating classification An insured who is a standard risk under Simplified Underwriting or Guaranteed Issue may have a higher cost of term insurance rate than would apply to the same insured under Full Underwriting. [SIDEBAR: We will issue a Policy to you as owner. You will have all the rights under the Policy including the ability to name a new owner or contingent owner.] Generally, we will issue a Policy only for insureds that are age 70 or less (although we may decide to permit an insured that is older) that have provided evidence of insurability that we find acceptable. An "insured" is the person upon whose life we issue the Policy. For the purpose of computing the insured's age under the Policy, we start with the insured's age on the Date of Policy which is set forth in the Policy. Age under the Policy at any other time is then computed using that issue age and adding the number of full Policy years completed. The Date of Policy is usually the date the Policy application is approved. We use the Date of Policy to calculate the Policy years (and Policy months and monthly anniversaries). We may permit a Date of Policy that is earlier than the date the application is approved if there have been no material misrepresentations in the application in order to preserve a younger age for the insured. You may request that your Date of Policy be the same date the planned periodic premium is received. In these cases, you would incur a charge for insurance protection before insurance coverage starts. However, the earlier Date of Policy gives you the potential advantage of having the premium applied to the Separate or Fixed Account on an earlier date if a payment is received. Insurance coverage under the Policy will generally begin at the time the application is approved. For coverage to be effective, the insured's health must be the same as stated in the application and, in most states, the insured must not have sought medical advice or treatment after the date of the application. [SIDEBAR: You can make voluntary planned periodic premium payments and unscheduled premium payments.] Payment and Allocation of Premiums The payment of premiums won't guarantee that your Policy will remain in force. Rather, this depends on your Policy's cash surrender value. Paying Premiums You can make premium payments, subject to certain limitations discussed below, through the: Voluntary Planned Periodic Premium Schedule: You choose the schedule on your application. The schedule sets forth the amount of premiums, fixed payment intervals and the period of time that you intend to pay premiums. The schedule can be: (a) annual; (b) semi-annual; or (c) through another method to which we agree. After payment of the first planned periodic premium, you do not have to pay premiums in accordance with your voluntary planned period premium schedule. 20 Unscheduled Premium Payment Option: You can make premium payments at any time. Maximum and Minimum Premium Payments .. The first premium may not be less than the planned premium. .. After the first Policy year, your voluntary planned periodic payments must be at least $100, whether on an annual or semi-annual basis. .. Unscheduled premium payments must be at least $100 each. We may change this minimum amount on 90 days' notice to you. .. You may not pay premiums that exceed tax law premium limitations for life insurance policies. We will return any amounts that exceed these limits except that we will keep any amounts that are required to keep the Policy from terminating. We will let you make premium payments that would turn your Policy into a modified endowment contract, but we will tell you of this status in your annual statement, and if possible, we will tell you how to reverse the status. .. We reserve the right not to sell a Policy to any group or individual associated with such group if the total amount of annual premium that is expected to be paid in connection with all Policies sold to the group or individuals associated with such group is less than $250,000. .. We may require evidence of insurability for premium payments that cause the minimum death benefit to exceed the death benefit then in effect under the death benefit option chosen. Allocating Net Premiums [SIDEBAR: Net premiums are your premiums minus the charges deducted from your premiums.] Your allocations of net premiums to the Fixed Account are effective as of the Investment Start Date. See "Investment Start Date" description below in "Other Policy Provisions--When Your Requests Become Effective." Your allocations of net premiums to the investment divisions of the Separate Account are effective as of the end of the free look period. During the free look period, we allocate the net premium payments you allocated to the investment divisions to the State Street Research Money Market investment division. At the end of the free look period, we will then allocate your cash value in that investment division among all the Separate Account investment divisions according to your net premium allocation instructions. You can instruct us to allocate your net premiums among the Fixed Account and the investment divisions. The percentage of your net premium allocation into each of these investment options must be in whole numbers. You can change your allocations (effective after the end of the free look period) at any time by giving us written notification at our Designated Office or in any other manner that we permit. If you have cash value of at least $60,000,000 in the Fixed Account for all Policies you own, we will have to give prior approval to any allocation of net premium or transfer of cash value to the Fixed Account. Insurance Proceeds If the Policy is in force, we will pay your beneficiary the insurance proceeds as of the end of the Valuation Period that includes the insured's date of death. We will pay this amount after we receive documents that we request as due proof of the insured's death. The beneficiary can receive the death benefit in a single sum or under an income plan described below. You may make this choice during the insured's lifetime. If no selection is made we will place the 21 amount in an account to which we will credit interest, and the beneficiary will have immediate access to all or part of that amount. The beneficiary has one year from the date the insurance proceeds are paid to change the selection from a single sum payment to an income plan, as long as we have made no payments from the interest-bearing account. If the terms of the income plan permit the beneficiary to withdraw the entire amount from the plan, the beneficiary can also name contingent beneficiaries. The insurance proceeds equal: .. The death benefit under the death benefit option or minimum death benefit that is in effect on the date of death; plus .. Any additional insurance proceeds provided by rider; minus .. Any unpaid Policy loans and accrued interest thereon, and any due and unpaid charges accruing during a grace period. Death Benefit Options [SIDEBAR: The Policy generally offers a choice of three death benefit options.] You can choose among three options. You select which option you want in the Policy application. The three options are: .. Option A: The death benefit is a level amount and equals the specified face amount of the Policy. .. Option B: The death benefit varies and equals the specified face amount of the Policy plus the cash value on the date of death. .. Option C: The death benefit varies and equals the specified face amount of the Policy plus the amount by which the Policy premiums paid exceed withdrawals made. You have the flexibility to include, at Policy issue, a yearly renewable term rider. This rider is generally not available with Policies issued prior to May 1, 1996 or in connection with certain employer sponsored plans effective prior to August 1, 2000. There are issues that you should consider in choosing your death benefit option. For example, under Options B and C, the cash value or other amounts are added to the specified face amount. Therefore, the death benefit will generally be greater under these options than under Option A, for Policies with the same specified face amount and premium payments. By the same token, the cost of insurance will generally be greater under Options B and C than under Option A. [SIDEBAR: You can generally change your death benefit option.] You can change your death benefit option after the first Policy year, provided that: .. Your cash surrender value after the change would be enough to pay at least two monthly deductions. .. The specified face amount continues to be no less than the minimum we allow after a decrease. .. The total premiums you have paid do not exceed the then current maximum premium limitations permitted under Internal Revenue Service rules. .. You provide evidence satisfactory to us of the insured's insurability, as we may require. Any change will be effective on the monthly anniversary on or immediately following the Date of Receipt of the request (or following the date we approve it if we require evidence of insurability). A change in death benefit option will cause us to automatically increase or decrease your specified face amount so 22 that the amount of the death benefit is not changed on the effective date of the new death benefit option. Before you change your death benefit option you should consider the following: .. If the term insurance portion of your death benefit changes, as it may with a change from Option A to B or C and vice versa, the term insurance charge will also change. This will affect your cash value and, in some cases, the death benefit levels. .. If your specified face amount changes because of the change in death benefit option, consider also the issues presented by changing your specified face amount that are described under "Specified Face Amount," below. These issues include the possibility: that your Policy would become a modified endowment contract; that you would receive a taxable distribution; and of changes in the maximum premium amounts that you can pay. Minimum Death Benefit In no event will the Policy death benefit (plus the proceeds under any yearly renewable term rider on the insured's life) be lower than the minimum amount required to maintain the Policy as life insurance under the federal income tax laws as in effect on the date your Policy is issued. We determine this minimum by applying either the: I. Cash Value Accumulation Test or II. Guideline Premium/Cash Value Corridor Test. You choose the Cash Value Accumulation Test or the Guideline Premium/Cash Value Corridor Test before we issue your Policy, and the election cannot later be changed. Under the Cash Value Accumulation Test, your death benefit is never less than the amount of your Policy's cash value at the insured's date of death, multiplied by a factor set forth in your Policy. This factor varies depending upon the insured's age at the date of death, and it declines as the insured grows older. Under the Guideline Premium/Cash Value Corridor Test, there is a very similar minimum death benefit based on your Policy's cash value at the date of death. However, the factors set forth in your Policy are higher for the Guideline Premium/Cash Value Corridor Test (which results in a higher minimum death benefit, assuming the same cash value). Also, there are firm limits on the amount of premiums you can pay for the amount of coverage you have in force under the Guideline Premium/Cash Value Corridor Test, while the tax law imposes no such firm limits under the Cash Value Accumulation Test. Before choosing between these two Tests you should consider the following: .. The Cash Value Accumulation Test may allow you to pay a greater amount in premiums for the same amount of death benefit under federal income tax laws and still qualify as life insurance. This is the case because the Policy will qualify as life insurance even though the Policy owner is paying a higher level of premium than allowed under the Guideline Premium/Cash Value Accumulation Test. However, the death benefit under the Cash Value Accumulation Test (and thus the monthly cost of term insurance) could be higher. You should ask for an illustration comparing results under both tests. .. Increases in death benefits by operation of the Cash Value Accumulation Test will result in a higher monthly cost of term insurance. Such increases can also 23 occur under the Guideline Premium/Cash Value Corridor Test, although this is less likely. .. Any advantage of the Cash Value Accumulation Test may be eliminated if the Policy owner does not intend to exceed the 7-pay test limit. The 7-pay test sets a limit on the amount of premiums which may be paid under a policy during the 7-pay testing period (usually the first 7 Policy years after issue or after a material modification of the Policy) without incurring possible adverse tax consequences. If premiums paid exceed such limit during any 7-pay testing period, any partial withdrawals, Policy loan and other distributions may be subject to adverse federal income tax consequences. (See "Federal Tax Matters--Modified Endowment Contracts" below.) Specified Face Amount Choosing Your Initial Specified Face Amount The specified face amount is the basic amount of insurance specified in your Policy. The Minimum Initial Specified Face amount is the smallest amount of specified face amount for which a Policy may be issued. Currently this amount is $100,000. You should consider whether to take all of your coverage as specified face amount or whether to take some coverage, if available, under our yearly renewable term insurance benefit. The yearly renewable term insurance benefit provides coverage on the insured to age 95. You may purchase this rider, if available, only at Policy issue, though the amount of coverage of an existing rider will change with changes to the Policy to maintain the proportionate allocation of the total insurance amount between the Policy and the Rider. Since the amount of annual target premium (see "Charges and Deductions--Annual Target Premium") is not affected by this rider, the amount of sales charge you pay may be less if coverage is obtained through this rider rather than as part of the Policy. However, the current charges for the cost of insurance are higher and commissions that we pay our representatives may be lower under this rider. You should consider these factors before allocating the insurance coverage between the Policy and this rider. [SIDEMARK: You can generally increase or decrease your Policy's specified face amount.] Changing Your Specified Face Amount Generally, you may change your specified face amount at any time after the first Policy year. Any change will be effective on: the monthly anniversary on or next following the (a) Date of Receipt of your request; or (b) if we require evidence of insurability, the date we approve your request. No reduction may decrease the specified face amount below the Minimum Initial Specified Face Amount during the first five Policy years or one half that amount thereafter. These minimums also apply to decreases that result from partial withdrawals or changes in death benefit options. If there have been previous specified face amount increases, any decreases in specified face amount will be made in the following order: (i) the specified face amount provided by the most recent increase; (ii) the next most recent increases successively; and (iii) the initial specified face amount. You may increase the specified face amount only if the cash surrender value after the change is large enough to cover at least two monthly deductions based on your most recent 24 cost of term insurance charge. Any increase may require that we receive additional evidence of insurability that is satisfactory to us. We may also impose a one-time underwriting charge. Before you change your specified face amount you should consider the following: .. The term insurance portion of your death benefit will likely change and so will the term insurance charge. This will affect the insurance charges, cash value and, in some cases, death benefit levels. .. Reducing your specified face amount in the first 15 Policy years may result in our returning an amount to you which could then be taxed on an income first basis. .. The amount of additional premiums that the tax laws permit you to pay into your Policy may increase or decrease. The additional amount you can pay without causing your Policy to be a modified endowment contract for tax purposes may also increase or decrease. .. In some circumstances, the Policy could become a modified endowment contract. .. For Policies issued on or after May 1, 1996 in connection with other than certain employer sponsored plans effective prior to August 1, 2000, the sales charge and the administration charge may change. .. For some Policies, an increase or decrease in the specified face amount will result in an increase or decrease in the annual target premium. This could, in turn, increase or decrease sales and administrative charges. Income Plans [SIDEBAR: Generally you can receive the Policy's insurance proceeds, amounts payable at the Final Date or amounts paid upon surrender under an income plan instead of in a lump sum.] The insurance proceeds can be paid under a variety of income plans that are available under the Policy. Generally, we currently make the following income plans available: .. Interest income .. Installment Income for a Stated Period .. Installment Income of a Stated Amount .. Single Life Income--Guaranteed Payment Period .. Single Life Income--Guaranteed Return .. Joint and Survivor Life Income Before you purchase an income plan you should consider: .. The tax consequences associated with the Policy proceeds, which can vary considerably, depending on whether a plan is chosen. You or your beneficiary should consult with a qualified tax adviser about tax consequences. .. That your Policy will terminate at the time you purchase an income plan and you will receive a new contract, which describes the terms of the income plan. You should carefully review the terms of the new contract, because it contains important information about the terms and conditions of the income plan. .. That these plans do not have a variable investment return. 25 Cash Value, Transfers and Withdrawals Cash Value [SIDEBAR: Your Policy is designed to accumulate cash value.] Your Policy's cash value equals: .. The Fixed Account cash value, plus .. The Policy Loan Account cash value, plus .. The Separate Account cash value. Your Policy's cash surrender value equals your cash value minus any outstanding Policy loans (plus accrued interest). On your Investment Start Date, the Policy's cash value in an investment division will equal the portion of any net premium allocated to the investment division, reduced by the portion of any monthly deductions allocated to the Policy's cash value in that investment division. Thereafter, at the end of each Valuation Period the cash value in an investment division will equal: .. The cash value in the investment division at the beginning of the Valuation Period; plus .. All net premiums, loan repayments and cash value transfers into the investment division during the Valuation Period; minus .. All partial cash withdrawals, loans and cash value transfers out of the investment division during the Valuation Period; minus .. The portion of any charges and deductions allocated to the cash value in the investment division during the Valuation Period; plus .. The net investment return for the Valuation Period on the amount of cash value in the investment division at the beginning of the Valuation Period. The net investment return currently equals the rate of increase or decrease in the net asset value per share of the underlying Fund Portfolio over the Valuation Period, adjusted upward to take appropriate account of any dividends and other distributions paid by the Portfolio during the period. The net investment return could in the future be reduced by a charge for taxes that we have the right to impose. Cash Value Transfers [SIDEBAR: You can transfer your cash value among the investment divisions and the Fixed Account at any time beginning after the end of the free look period.] The minimum amount you may transfer is $50 or, if less, the total amount in an investment option. You may make transfers at any time. The maximum amount that you may transfer or withdraw from the Fixed Account in any Policy year is the greater of $50 and 25% of the largest amount in the Fixed Account over the last four Policy years. This limit does not apply to a full surrender, any loans taken, or any transfers under a systematic investment strategy. We may also limit the number of investment options to which you may transfer cash value, and, under certain conditions, we may have to approve transfers to the Fixed Account. (See "Payment and Allocation of Premiums--Allocating Net Premiums.") Each Fund may restrict or refuse certain transfers among or purchases of shares in their Portfolios as a result of certain market timing activities. You should read each Fund's prospectus for more details. We reserve the right to refuse to accept any transaction request where the request would tend to disrupt administration of the Policies or is not in the best interests of Policy owners or the Separate Account. 26 Systematic Investment Strategies: You can choose one of four currently available strategies described below. You can also change or cancel your choice at any time. .. Equity Generator/ SM/. Allows you to transfer the interest earned on amounts in the Fixed Account in any Policy month equal to at least $20 to the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. The transfer will be made at the beginning of the Policy month following the Policy month in which the interest was earned. .. Equalizer/ SM/. Allows you to periodically equalize amounts in your Fixed Account and either the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. We currently make equalization each quarter. We will terminate this strategy if you make a transfer out of the investment division or the Fixed Account that isn't part of the strategy. You may then reelect the Equalizer on your next Policy anniversary. .. Rebalancer/ SM/. Allows you to periodically redistribute amounts in the Fixed Account and investment divisions in the same proportion that the net premiums are then being allocated. We currently make the redistribution at the beginning of each quarter. .. Allocator/ SM/. Allows you to systematically transfer money from the State Street Research Money Market investment division to the Fixed Account and/or any investment division(s). You must have enough cash value in the State Street Research Money Market investment division to enable the election to be in effect for three months. The election can be to transfer each month: .. A specific amount until the cash value in the State Street Research Money Market investment division is exhausted. .. A specific amount for a specific number of months. .. Amounts in equal installments until the total amount you have requested has been transferred. Transfers By Telephone: We may, if permitted by state law, decide in the future to allow you to make transfer requests, changes to Systematic Investment Strategies and allocations of future net premium by phone. We may also allow you to authorize your sales representative to make such requests. The following procedures would apply: .. We must have received your authorization in writing satisfactory to us, to act on instructions from any person that claims to be you or your sales representative, as applicable, as long as that person follows our procedures. .. We will institute reasonable procedures to confirm that instructions we receive are genuine. Our procedures will include receiving from the caller your personalized data. .. All telephone calls will be recorded. .. You will receive a written confirmation of any transaction. .. Neither the Separate Account nor we will be liable for any loss, expense or cost arising out of a telephone request if we reasonably believed the request to be genuine. Surrender and Withdrawal Privileges [SIDEBAR: You can surrender your Policy for its cash surrender value.] We may ask you to return the Policy before we honor your request to surrender your Policy. You can choose to have the proceeds paid in a single sum, or under an income plan. If the insured dies after you surrender the Policy but before the end of the Policy month in which you surrendered the Policy, we will pay your beneficiary an amount equal to the difference between the Policy's death benefit and its cash value, computed as of the surrender date. 27 You can make partial withdrawals if: .. The withdrawal would not result in the cash surrender value being less than sufficient to pay 2 monthly deductions. .. The withdrawal is at least $250. .. The withdrawal would not result in total premiums paid exceeding any then current maximum premium limitation determined by Internal Revenue Code rules. .. The withdrawal would not result in your specified face amount falling below the minimum allowable amount after a decrease, as described under "Insurance Proceeds--Specified Amount--Changing Your Specified Face Amount," above. If you make a request for a partial withdrawal that is not permitted, we will tell you and you may then ask for a smaller withdrawal or surrender the Policy. We will deduct your withdrawal from the Fixed Account and the investment divisions in the same proportion that the Policy's cash value in each such option bears to the total cash value of the Policy in the Fixed Account and the investment divisions. As regards payment of amounts attributable to a check, we can wait for a reasonable time (15 days or less) to let the check clear. Before surrendering your Policy or requesting a partial withdrawal you should consider the following: .. Amounts received may be taxable as income and, if your Policy is a modified endowment contract, subject to certain tax penalties. .. Your Policy could become a modified endowment contract. .. For partial withdrawals, your death benefit will decrease, generally by the amount of the withdrawal. .. For partial withdrawals, your specified face amount may also decrease. For Option A Policies, your specified face amount will decrease by the amount of the withdrawal. For Option B Policies, a withdrawal will not decrease the specified face amount. For Option C Policies, your specified face amount will decrease by the amount, if any, by which cumulative withdrawals exceed cumulative premiums paid. In some cases you may be better off taking a Policy loan, rather than a partial withdrawal. Benefit at Final Date The Final Date is the Policy anniversary on which the insured is Age 95. Subject to certain conditions, we will allow you to extend that date where permitted by state law. If the insured is living on the Final Date, we will pay you the cash surrender value of the Policy. You can receive the cash surrender value in a single sum, in an account that earns interest, or under an available income plan. Loan Privileges [SIDEBAR: You can borrow from us and use your Policy as security for the loan.] The amount of each loan must be: .. At least $250. .. No more than the greater of the cash surrender value less two monthly deductions and 75% of the cash surrender value (unless state law requires a different percentage to be applied, as set forth in your Policy) when added to all other outstanding Policy loans. 28 As of your loan request's Date of Receipt, we will: .. Remove an amount equal to the loan from your cash value in the Fixed Account and each investment division of the Separate Account in the same proportion as the Policy's cash value in each such option bears to the total cash value of the Policy in the Fixed Account and the investment divisions. .. Transfer such cash value to the Policy loan account, where it will be credited with interest at a rate equal to the loan rate charged less a percentage charge, based on expenses associated with Policy loans, determined by us. This percentage charge will not exceed 2%, and the minimum rate we will credit to the Policy Loan Account will be 4% per year. At least once a year, we will transfer any interest earned in your Policy loan account to the Fixed Account and the investment divisions, according to the way that we then allocate your net premiums. .. Charge you interest, which will accrue daily. We will tell you the initial interest rate that applies to your loan and mail you advance notices of any increases applicable to existing loans. The interest rate charged for a Policy year will never be more than the maximum allowed by law and will generally be the greater of: .. The published monthly average for the calendar month ending two months before the start of such year; and .. The guaranteed rate used to credit interest to the cash value allocated to the Fixed Account for the Policy, plus no more than 1%. The published monthly average means (a) Moody's Corporate Bond Yield Average Monthly Average Corporates, as published by Moody's Investors Service, Inc. or any successor service; or (b) If the Moody's average is not published, a substantially similar average established by regulation issued by the insurance supervisory official of the state in which your Policy is delivered. Your interest payments are due at the end of each Policy year and if you don't pay the amount within 31 days after it is due, we will treat it as a new Policy loan, which will be taken from the Fixed Account and the investment divisions by the same method as other loans. Repaying your loans (plus accrued interest) is done by sending in payments at least equal to $25. You should designate whether a payment is intended as a loan repayment or a premium payment, since we will treat any payment for which no designation is made as a premium payment. We will allocate your repayment to the Fixed Account and the investment divisions, in the same proportion that net premiums are then allocated, except that amounts borrowed from the Fixed Account will be repaid to the Fixed Account first. Before taking a Policy loan you should consider the following: .. Interest payments on loans are generally not deductible for tax purposes. .. Under certain situations, Policy loans could be considered taxable distributions. .. Amounts held in your Policy loan account do not participate in the investment experience of the investment divisions or receive the interest rate credited to the Fixed Account, either of which may be higher than the interest rate credited on the amount you borrow. .. If you surrender your Policy or if we terminate your Policy, or at the Final Date, any outstanding loan amounts (plus accrued interest) will be taxed as a distribution. (See "Federal Tax Matters--Loans" below.) .. A Policy loan increases the chances of our terminating your Policy due to insufficient cash value. We will terminate your Policy with no value if: (a) on a monthly anniversary your loans (plus accrued interest) exceed your cash value 29 minus the monthly deduction; and (b) we tell you of the insufficiency and you do not make a sufficient payment within 61 days of the monthly anniversary. .. Your Policy's death proceeds will be reduced by any unpaid loan (plus accrued interest). Optional Rider Benefits You may be eligible for certain benefits provided by rider, subject to certain underwriting requirements and the payment of additional premiums. We will deduct any charges for the rider(s) (other than the charge for the interim term insurance rider) as part of the monthly deduction. Generally, we currently make the following benefits available by rider: . Disability Waiver of . Interim Term Insurance Monthly Deduction Benefit Benefit/(1)/ ----------------------------------------------------- . Accidental Death . Yearly Renewable Term Benefit Insurance Benefit/(3)/ ----------------------------------------------------- . Accelerated Death . Enhanced Cash Benefit/(2)/ Surrender Value Rider/(4)/ ----------------------------------------------------- - -------- /1/ An increase in specified face amount may not be covered by this rider. If not, the portion of the monthly deduction associated with the increase will continue to be deducted from the cash value, which if insufficient, could result in the Policy's termination. For this reason, it may be advantageous for the owner, at the time of total disability, to reduce the specified face amount to that covered by this rider. /2/ Payment under this rider may affect eligibility for benefits under state or federal law. This rider is currently not available in New Jersey or Massachusetts. /3/ Generally not available in connection with large groups. /4/ This rider may be attached at issue if you request it. Each rider contains important information, including limits and conditions that apply to the benefits. If you decide to purchase any of the riders, you should carefully review their provisions to be sure the benefit is something that you want. These riders may not be available in all states. You should also consider: .. That the addition of certain riders can restrict your ability to exercise certain rights under the Policy. .. That the amount of benefits provided under the rider is not based on investment performance of a separate account; but, if the Policy terminates because of poor investment performance or any other reason, the riders generally will also terminate. .. The tax consequences. You should also consult with your tax advisor before purchasing one of the riders. 30 Charges and Deductions Important Information Applicable to all Policy Charges and Deductions [SIDEBAR: Carefully review the Fee Tables in this Prospectus which set forth the charges that you pay under your Policy.] The charges discussed in the paragraphs that follow are all included in the Fee Tables on pages 6 to 14 of this Prospectus. You should refer to these Fee Tables for information about the rates and amounts of such charges, as well as other information that is not covered below. The Policy charges compensate us for our expenses and risks. Any distinctions we make about the specific purposes of the different charges are imprecise, and we are free to keep and use our revenues or profits for any other purpose, including paying any of our costs and expenses in connection with the Policies. Our revenues from any particular charge may be more or less than any costs or expenses that charge may be intended primarily to cover. The following sets forth additional information about Policy charges. Charges Deducted from Premiums Annual Target Premium: We use the concept of annual target premium to determine certain limits on sales and administrative charges (discussed immediately below). We define the annual target premium to be: For Policies issued prior to May 1, 1996 or issued in connection with certain employer sponsored plans effective prior to August 1, 2000, 50% of the estimated annual amount which satisfied the 7-Pay test under federal tax law based on the issue age of the insured and the initial specified face amount. (See "Federal Tax Matters--Modified Endowment Contracts".) For all other Policies, 100% of the estimated annual amount that satisfied the 7-Pay test based on the issue age of the insured, the specified face amount of insurance and standard underwriting class. For such Policies, the annual target premium amount is increased and decreased proportionately for increases and decreases in the specified face amount of the Policy. For some Policies, an increase or decrease in the specified face amount will result in a proportionate increase or decrease in the annual target premium. This could, in turn, increase or decrease sales and administrative charges. Sales Charge: We deduct this charge primarily to help pay the cost of compensating sales representatives and other direct and indirect expenses of distributing the Policies. The charge is assessed directly against each premium. For premiums received in Policy years 1 through 10, the current rate is up to 6.5% of the premium paid until the total payments in each such year equals the annual target premium, and for Policy years 11 and later the rate we charge is up to 3% of each premium until the total payments in the year equals the annual target premium. No sales charge is or will be assessed against any premiums paid in any Policy year in excess of a total equal to the annual target premium. The maximum rate we can charge for premiums received up to a total equal to the annual target premium during Policy years 1 through 10 is 9%, and the maximum for Policy years 11 and later is the same as currently charged in those years. 31 Administrative Charge: We incur expenses in the administration of the Policy, including our underwriting and start-up expenses. We deduct up to 1.05% of each premium payment primarily to cover this expense up to a total of payments in any Policy year equal to the annual target premium, and .05% on any excess payments in any Policy year exceeding that total amount. Our charge will never exceed this rate. Charge for Average Expected State and Local Taxes Attributable To Premiums: We make this charge to reimburse us for the state premium taxes that we must pay on premiums we receive. Premium taxes vary from state to state and currently range from 0 to 3.5%. Our charge of 2.25% approximates the average tax rate we expect to pay on premiums we receive from all states. Charge for Expected Federal Taxes Attributable to Premiums: Federal income tax law requires us to pay certain amounts of taxes that are related to the amount of premiums we receive. We deduct 1.2% of each premium payment to offset the cost to us of those additional taxes. Charge for Interim Term Insurance Benefit: This charge is deducted only from your initial premium payment, and only if you elect the interim term insurance benefit. The interim term insurance benefit provides temporary initial life insurance coverage on the insured prior to the time that coverage under the Policy takes effect. This coverage is provided by adding a "rider" and is subject to several conditions and limitations. The charge for this benefit is described in the rider form. This charge is primarily to compensate us for the risk that the insured will die while coverage under this rider is in force. Loan Interest Spread: We charge interest on Policy loans but credit you with interest on the amount of the cash value we hold as collateral for the loan. The loan interest spread is the excess of the interest rate we charge over the interest rate we credit. This charge is primarily to cover our expense in providing the loan. The charge is guaranteed to never exceed 2%. Charges Included in the Monthly Deduction We allocate the monthly deduction (except for the monthly mortality and expense risk charge) among the Fixed Account and each investment division of the Separate Account in the same proportion as the Policy's cash value in each such option bears to the total cash value of the Policy in the Fixed Account and the investment divisions. We deduct the monthly deductions as of each monthly anniversary, commencing with the Date of Policy. .. Cost of Term Insurance. This charge varies monthly based on many factors. Each month, we determine the charge by multiplying your cost of insurance rates by the term insurance amount. This is the amount that we are at risk if the insured dies. The term insurance amount is the death benefit at the beginning of the Policy month divided by a discount factor to account for an assumed return during the month; minus the cash value at the beginning of the Policy month after deduction of all other applicable charges. Factors that affect the term insurance amount include the specified face amount, the cash value and the death benefit option you choose (generally, the term insurance amount will be higher for Options B and C). 32 The term insurance rate is based on our expectations as to future experience, taking into account the insured's sex (if permitted by law and applicable under your Policy), age, underwriting class and rate class. The rates will never exceed the guaranteed rates, which are based on certain 1980 Commissioners Standard Ordinary Mortality Tables. Our current rates are lower than the maximums in most cases. We review our rates periodically and may adjust them, but we will apply the same rates to everyone who has had their Policy for the same amount of time and who is the same age, sex and rate class. As a general rule, the cost of insurance rate increases each year you own your Policy, as the insured's age increases. Rate class relates to the level of mortality risk we assume with respect to an insured. It can be the standard rate class, or one that is higher (and may be divided by smoking status). The insured's rate class will affect your cost of term insurance. You can also have more than one rate class in effect, if the insured's rate class has changed and you change your specified face amount. A better rate class will lower the cost of term insurance on your entire Policy and a worse rate class will affect the portion of your cost of term insurance charge attributable to the specified face amount increase. .. Mortality and Expense Risk Charge. We make this monthly charge primarily to compensate us for mortality risks that insureds may live for a shorter period than we expect; and expense risks that our issuing and administrative expenses may be higher than we expect. This monthly charge is allocated proportionately to the cash value in each investment division of the Separate Account. The maximum rate we may charge is equivalent to an effective annual rate of .90% of the cash value in the Separate Account. Charges for Certain Optional Rider Benefits: The charges for most of the optional benefits that you can add by rider to your Policy will be deducted as part of the monthly deduction. This includes the following riders: .. Disability Waiver of Monthly Deduction Benefit .. Accidental Death Benefit .. Accelerated Death Benefit .. Yearly Renewable Term Insurance Benefit The purpose of the charge for each rider is primarily to compensate us for our direct and indirect costs and risks in providing that rider. The charge we deduct for any such additional benefits you can add by rider is described in the rider form. Variations In Charges We may vary a charge by group, based on anticipated variations in our costs or risks associated with the group or individuals in the group that the charge was intended to cover. Our variations in the charges will be made in accordance with our established and uniformly applied administrative procedures. We consider a variety of factors in determining charges, including but not limited to: .. The nature of the group and its organizational framework .. The method by which sales will be made to the individuals associated with the group .. The facility by which premiums will be paid .. The group's capabilities with respect to administrative tasks .. Our anticipated persistency of the Policies .. The size of the group and the number or years it has been in existence .. The aggregate amount of premiums we expect to be paid on the Policies owned by the group or by individuals associated with the group 33 Any variations in charges will be reasonable and will not be unfairly discriminatory to the interests of any Policy owner. Portfolio Company Charges Each of the Portfolios pays an investment management fee to its investment manager. Each Portfolio also incurs other direct expenses. See the fuller description contained in the Fee Table section of this Prospectus (also see the Fund Prospectus and Statement of Additional Information referred to therein for each Fund). You bear indirectly your proportionate share of the fees and expenses of the Portfolios of each Fund that correspond to the Separate Account investment divisions you are using. Other Charges Additional Taxes. In general, we don't expect to incur federal, state or local taxes upon the earnings or realized capital gains attributable to the assets in the Separate Account relating to the cash surrender value of the Policies. If we do incur such taxes, we reserve the right to charge cash value allocated to the Separate Account for these taxes. Cash Value Transfers. We do not currently charge for any transfer amounts. Except for transfers under Systematic Investment Strategies, we reserve the right to assess up to a $25 charge in the future against all transfers. Currently, transfers are not taxable transactions. Policy Termination and Reinstatement Termination: We will terminate your Policy without any cash surrender value if: .. The cash surrender value is less than the monthly deduction; and .. We do not receive a sufficient premium payment within the 61-day grace period to cover the monthly deduction. We will mail you notice if any grace period starts. Reinstatement: Upon your request, we will reinstate your Policy (without reinstating any amounts in a Policy loan account), subject to certain terms and conditions that the Policy provides. We must receive your request within 3 years (or any longer period required by state law) after the end of the grace period and before the Final Date. You also must provide us: .. A written application for reinstatement (the date we approve the application will be the effective date of the reinstatement). .. Evidence of insurability that we find satisfactory. .. An additional premium amount that the Policy prescribes for this purpose. Federal Tax Matters [SIDEBAR: You should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy.] The following is a brief summary of some tax rules that may apply to your Policy. You should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy, especially before you make unscheduled premium payments, change your specified face amount, change your death benefit option, change coverage provided by riders, take a loan or withdrawal, or assign or surrender the Policy. 34 Insurance Proceeds .. Insurance proceeds are generally excludable from your beneficiary's gross income. .. The proceeds may be subject to federal estate tax: (i) if paid to the insured's estate; or (ii) if paid to a different beneficiary if the insured possessed incidents of ownership at or within three years before death. .. If you die before the insured, the value of your Policy (determined under IRS rules) is included in your estate and may be subject to federal estate tax. .. Whether or not any federal estate tax is due is based on a number of factors including the estate size. Cash Value (If Your Policy Is Not a Modified Endowment Contract) .. You are generally not taxed on your cash value until you withdraw it, surrender your Policy or receive a distribution on the Final Date. In these cases, you are generally permitted to take withdrawals up to the amount of premiums paid without any tax consequences. However, withdrawals will be subject to income tax after you have received amounts equal to the total premiums you paid. Somewhat different rules may apply if there is a death benefit reduction in the first 15 Policy years, when a distribution may be subject to tax on an income-out-first basis if there is a gain in your Policy (which is generally when your cash value exceeds the cumulative premiums you paid). Finally, if your Policy is part of an equity split dollar arrangement, there is a risk that some portion of the cash value may be taxed prior to any Policy distribution. Loans .. Loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract, is exchanged or terminates. .. Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. .. If your Policy terminates (upon surrender, cancellation, lapse, the Final Date or, in most cases, exchanges) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. Thus, there will generally be federal income tax payable on the amount by which withdrawals and loans exceed the premiums paid to date. Please be advised that amounts borrowed and withdrawn reduce the Policy's cash value and any remaining Policy cash value may be insufficient to pay the income tax on your gains. Modified Endowment Contracts These contracts are life insurance contracts where the premiums paid during the first 7 years after the Policy is issued, or after a material change in the Policy, exceed tax law limits referred to as the "7-pay test." Material changes in the Policy include changes in the level of benefits and certain other changes to your Policy after the issue date. Reductions in benefits during a 7-pay period may cause your Policy to become a modified endowment contract. Generally, a life insurance policy that is received in exchange for a modified endowment contract will also be considered a modified endowment contract. The IRS has promulgated a procedure for the correction of inadvertent modified endowment contracts. 35 If your Policy is considered a modified endowment contract the following applies: .. The death benefit will generally be income tax free to your beneficiary, as discussed above. .. Amounts withdrawn or distributed before the insured's death, including loans, assignments and pledges, are treated as income first and subject to income tax (to the extent of any gain in your Policy). All modified endowment contracts you purchase from us and our affiliates during the same calendar year are treated as a single contract for purposes of determining the amount of any such income. .. An additional 10% income tax generally applies to the taxable portion of the amounts received before age 591/2 except generally if you are disabled or if the distribution is part of a series of substantially equal periodic payments made over life expectancy. Diversification In order for your Policy to qualify as life insurance, we must comply with certain diversification standards with respect to the investments underlying the Policy. We believe that we satisfy and will continue to satisfy these diversification standards. Inadvertent failure to meet these standards may be able to be corrected. Failure to meet these standards would result in immediate taxation to Policy owners of gains under their Policies. Changes to Tax Rules and Interpretations Changes in applicable tax rules and interpretations can adversely affect the tax treatment of your Policy. These changes may take effect retroactively. We reserve the right to amend the Policy in any way necessary to avoid any adverse tax treatment. Examples of changes that could create adverse tax consequences include: .. Possible taxation of cash value transfers between investment funds. .. Possible taxation as if you were the owner of your allocable portion of the Separate Account's assets. .. Possible limits on the number of investment funds available or the frequency of transfers among them. .. Possible changes in the tax treatment of Policy benefits and rights. Rights We Reserve We reserve the right to make certain changes if we believe the changes are in the best interest of our Policy owners or would help carry out the purposes of the Policy. We will make these changes in the manner permitted by applicable law and only after getting any necessary owner and regulatory approval. We will notify you of any changes that result in a material change in the underlying investments in the investment divisions, and you will have a chance to transfer out of the affected division (without charge). Some of the changes we may make include: .. Operating the Separate Account in any other form that is permitted by applicable law. .. Changes to obtain or continue exemptions from the 1940 Act. .. Transferring assets among investment divisions or to other separate accounts, or our general account or combining or removing investment divisions from the Separate Account. .. Substituting Fund shares in an investment division for shares of another portfolio of a Fund or another fund or investment permitted by law. .. Changing the way we assess charges without exceeding the aggregate amount of the Policy's guaranteed maximum charges. 36 .. Making any necessary technical changes to the Policy to conform it to the changes we have made. Some such changes might require us to obtain regulatory or Policy owner approval. Whether regulatory or Policy owner approval is required would depend on the nature of the change and, in many cases, the manner in which the change is implemented. Circumstances that could influence this determination might include changes in law or interpretations thereof; changes in financial or investment market conditions; changes in accepted methods of conducting operations in the relevant market; or a desire to achieve material operating economies or efficiencies. You should not assume, therefore, that you necessarily will have an opportunity to approve or disapprove any such charges. [SIDEBAR: Carefully review your Policy which contains a full discussion of all its provisions.] Other Policy Provisions Free Look Period You can return the Policy during this period. The period ends on the later of: .. 10 days after you receive the Policy (unless state law requires your Policy to specify a longer specified period); and .. the date we receive a receipt signed by you. If you return your Policy, we will send you a complete refund of any premiums paid (or cash value plus any charges deducted if state law requires) within seven days. Suicide If the insured commits suicide within the first two Policy years (or any other period required by state law), your beneficiary will receive all premiums paid (without interest), less any outstanding loans (plus accrued interest) and withdrawals taken. Similarly, we will pay the beneficiary only the cost of any increase in specified face amount if the insured commits suicide within two years of such increase. Assignment and Change in Ownership You can assign your Policy as collateral if you notify us in writing. The assignment or release of the assignment is effective when it is recorded at the Designated Office. We are not responsible for determining the validity of the assignment or its release. Also, there could be serious adverse tax consequences to you or your beneficiary, so you should consult with your tax adviser before making any change of ownership or other assignment. Reports Generally, you will promptly receive statements confirming your significant transactions such as: .. Change in specified face amount. .. Change in death benefit option. .. Transfers among investment divisions (including those through Systematic Investment Strategies, which are confirmed quarterly). .. Partial withdrawals. .. Loan amounts you request. .. Loan repayments and premium payments. 37 If your premium payments are made through a systematic payment method, we will not send you any confirmation in addition to the one you receive from your employer. We will also send you an annual statement within 30 days after a Policy year that will summarize the year's transactions and include information on: .. Deductions and charges. .. Status of the death benefit. .. Cash and cash surrender values. .. Amounts in the investment divisions and Fixed Account. .. Status of Policy loans. .. Automatic loans to pay interest. .. Information on your modified endowment contract status (if applicable). We will also send you a Fund's annual and semi-annual reports to shareholders. When Your Requests Become Effective Generally, requests, premium payments and other instructions and notifications are effective on the Date of Receipt. In those cases, the effective time is at the end of the Valuation Period during which we receive them at our Designated Office. (Some exceptions to this general rule are noted below and elsewhere in this Prospectus.) A Valuation period is the period between two successive Valuation Dates. It begins at the close of regular trading on the New York Stock Exchange on a Valuation Date and ends at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. The close of regular trading is 4:00 p.m., Eastern Time on most days. Valuation Date is: .. Each day on which the New York Stock Exchange is open for trading. .. Other days, if we think that there has been a sufficient degree of trading in a Fund's portfolio securities that the current net asset value of its shares might be materially affected. The end of the free look period is the effective time of the premium allocation instructions you make in your Policy application (and any changes in allocation or transfer requests you make on or before the end of the free look period). Your Investment Start Date is the date the first net premium is applied to the Fixed Account and/or the Separate Account and is the later of (1) the Date of Policy and (2) the Date of Receipt of your first premium payment. The effective date of your Systematic Investment Strategies will be that set forth in the strategy chosen. Third Party Requests Generally, we accept requests for transactions or information only from you. Therefore, we reserve the right not to process transactions requested on your behalf by your agent with a power of attorney or any other authorization. This includes processing transactions by an agent you designate, through a power of attorney or other authorization, who has the ability to control the amount and timing of transfers for a number of other Policy owners, and who simultaneously makes the same request or series of requests on behalf of other Policy owners. 38 Exchange Privilege If you decide that you no longer want to take advantage of the investment divisions in the Separate Account, you may transfer all of your money into the Fixed Account. No charge will be imposed on a transfer of your entire cash value (or the cash value attributable to a specified face amount increase) to the Fixed Account within the first 24 Policy months (or within 24 Policy months after a specified face amount increase you have requested, as applicable). In some states, in order to exercise your exchange privilege, you must transfer, without charge, the Policy cash value (or the portion attributable to a specified face amount increase) to a flexible premium fixed benefit life insurance policy, which we make available. Sales of Policies We serve as the "principal underwriter," as defined in the 1940 Act, for the Policy. This offering is continuous. We are registered under the Securities Exchange Act of 1934 as a broker-dealer and are a member of the National Association of Securities Dealers, Inc. We sell the Policies through licensed life insurance sales representatives: .. Registered through us. .. Registered through other broker-dealers, including a wholly owned subsidiary. We may pay commissions to representatives (or the broker-dealers through which they are registered) for the sale of our products. Maximum commissions are generally: .. Policy Year 1: 21% of premiums paid up to the target premium 2% of premiums paid above the target premium .. Policy Years 2-4: 10% of premiums paid up to the target premium 1.5% of premiums paid above the target premium .. Policy Years 5-10: 4.5% of premiums paid up to the target premium 1.5% of premiums paid above the target premium .. Policy Years 11 and Later: 3% of premiums paid up to the target premium 1.5% of premiums paid above the target premium .. Policy Years 8 and Later: We may pay up to .10% of the cash value of a Policy in certain circumstances. We may require all or part of the commission to be returned to us by the MetLife representative or other broker-dealer if you do not continue the Policy for at least five years. The commissions do not result in a charge against the Policy in addition to the charges already described elsewhere in this Prospectus. Experts The financial statements included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP's principal business address is 201 E. Kennedy Boulevard, Suite 1200, Tampa, Florida 33602. 39 Financial Statements The financial statements of the Separate Account are attached to this Prospectus. You can find the financial statements of MetLife in the Statement of Additional Information referred to on the back cover of this Prospectus. Our financial statements should be considered only as bearing upon our ability to meet our obligations under the Policy. 40 In order to help you understand how the Policy's values would vary over time under different sets of assumptions, we will provide you with certain illustrations upon request. These will be based on the age and insurance risk characteristics of the covered person under the Policy and such factors as the specified face amount, premium payment amounts and rates of return (within limits) that you request. You can request such illustrations at any time. We have filed an example of such an illustration as an exhibit to the registration statement referred to below. Additional information about the Policy and the Separate Account can be found in the Statement of Additional Information. This Prospectus incorporates by reference all of the information contained in the Statement of Additional Information, which is legally part of this Prospectus. You may obtain, without charge, a copy of the Statement of Additional Information or a personalized illustration of death benefits, cash surrender values and cash values, by calling us at 1-732-602-6400 or contacting us through our website at www.metlife.com/sbr. Information about the Policy and the Separate Account, including the Statement of Additional Information, is available for viewing and copying at the SEC's Public Reference Room in Washington, D.C. Information about the operation of the public reference room may be obtained by calling the SEC at 202-942-8090. The Statement of Additional Information, reports and other information about the Separate Account are available on the SEC Internet site as www.sec.gov. Copies of this information may be obtained upon payment of a duplicating fee, by writing to the SEC's Public Reference Section at 450 Fifth Street, NW, Washington, DC 20549-0102. The Separate Account's Registration Number under the Investment Company Act of 1940 is 811-06025. 41 INDEPENDENT AUDITORS' REPORT To the Policyholders of Metropolitan Life Separate Account UL and the Board of Directors of Metropolitan Life Insurance Company: We have audited the accompanying statement of assets and liabilities of each of the sub-accounts (as disclosed in Note 1 to the financial statements) comprising Metropolitan Life Separate Account UL (the "Separate Account") of Metropolitan Life Insurance Company as of December 31, 2002, and the related statements of operations and changes in net assets for each of the periods in the three years 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 auditing standards generally accepted in the United States of America. 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, 2002, by correspondence with the custodians and the depositors 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, the financial statements referred to above present fairly, in all material respects, the financial position of each of the sub-accounts comprising Metropolitan Life Separate Account UL of Metropolitan Life Insurance Company as of December 31, 2002, and the results of their operations and changes in net assets for each of the periods in the three years then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Tampa, Florida March 26, 2003 F-1 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002
Metropolitan Fund -------------------------------------------------------------------------- State Street State Street State Street Putnam Research Research Research MetLife International Investment Trust Diversified Aggressive Growth Stock Index Stock Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ ----------------- ------------ ------------- ASSETS: Investments at Value: Metropolitan Fund State Street Research Investment Trust Portfolio (14,474,724 shares; cost $440,761,220).......... $276,756,720 $ -- $ -- $ -- $ -- State Street Research Diversified Portfolio (18,221,054 shares; cost $300,082,589).......... -- 238,149,180 -- -- -- State Street Research Aggressive Growth Portfolio (10,255,141 shares; cost $252,928,964).......... -- -- 130,753,042 -- -- MetLife Stock Index Portfolio (13,911,433 shares; cost $442,239,598).......... -- -- -- 325,666,649 -- Putnam International Stock Portfolio (4,241,422 shares; cost $49,020,108)............ -- -- -- -- 32,913,436 Janus Mid Cap Portfolio (11,349,518 shares; cost $227,150,552).......... -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (4,570,520 shares; cost $56,451,446)............ -- -- -- -- -- Scudder Global Equity Portfolio (2,273,932 shares; cost $27,906,569)............ -- -- -- -- -- Harris Oakmark Large Cap Value Portfolio (2,397,225 shares; cost $25,848,040)............ -- -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (1,432,018 shares; cost $19,895,280)............ -- -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (2,468,024 shares; cost $27,759,151)............ -- -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (4,841,080 shares; cost $50,327,819)............ -- -- -- -- -- Morgan Stanley EAFE Index Portfolio (1,843,069 shares; cost $15,649,298)............ -- -- -- -- -- Russell 2000 Index Portfolio (1,794,610 shares; cost $17,132,177)............ -- -- -- -- -- Putnam Large Cap Growth Portfolio (1,449,674 shares; cost $7,190,171)............. -- -- -- -- -- State Street Research Aurora Portfolio (2,626,537 shares; cost $34,513,109)............ -- -- -- -- -- MetLife Mid Cap Stock Index Portfolio (1,752,987 shares; cost $17,286,892)............ -- -- -- -- -- Janus Growth Portfolio (374,303 shares; cost $2,471,214)............... -- -- -- -- -- Franklin Templeton Small Cap Growth Portfolio (197,810 shares; cost $1,523,267)............... -- -- -- -- -- State Street Research Large Cap Value Portfolio (23,763 shares; cost $192,091).................. -- -- -- -- -- Janus Fund Janus Aspen Growth Portfolio (148,078 shares; cost $3,022,525)............... -- -- -- -- -- Invesco Fund Invesco VIF High Yield Portfolio (70,674 shares; cost $517,831).................. -- -- -- -- -- Invesco VIF Equity Income Portfolio (8,467 shares; cost $152,250)................... -- -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (17,086 shares; cost $174,935).................. -- -- -- -- -- Franklin Fund Franklin Templeton International Stock Portfolio (274,662 shares; cost $3,092,787)............... -- -- -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (63,068 shares; cost $980,915).................. -- -- -- -- -- ------------ ------------ ------------ ------------ ----------- Total Investments................................ 276,756,720 238,149,180 130,753,042 325,666,649 32,913,436 Cash and Accounts Receivable..................... 223,249 -- 62,576 561,314 52,662 ------------ ------------ ------------ ------------ ----------- Total assets..................................... 276,979,969 238,149,180 130,815,618 326,227,963 32,966,098 LIABILITIES: Due to Metropolitan Life Insurance Company....... -- 128,827 -- -- -- ------------ ------------ ------------ ------------ ----------- NET ASSETS....................................... $276,979,969 $238,020,353 $130,815,618 $326,227,963 $32,966,098 ============ ============ ============ ============ =========== Outstanding Units (In Thousands)................. 15,060 12,268 11,447 22,140 3,296 Unit Values...................................... $8.11 to $9.78 to $8.32 to $7.48 to $7.78 to $25.66 $25.64 $12.09 $23.03 $10.91
See Notes to Financial Statements. F-2
Metropolitan Fund - -------------------------------------------------------------------------------------------------------------- T. Rowe Neuberger T. Rowe Morgan Janus Price Small Scudder Harris Oakmark Berman Partners Price Large Lehman Brothers Stanley Mid Cap Cap Growth Global Equity Large Cap Mid Cap Value Cap Growth Aggregate Bond EAFE Index Portfolio Portfolio Portfolio Value Portfolio Portfolio Portfolio Index Portfolio Portfolio - ------------ ----------- ------------- --------------- --------------- ----------- --------------- ----------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 118,148,481 -- -- -- -- -- -- -- -- 39,809,233 -- -- -- -- -- -- -- -- 20,419,906 -- -- -- -- -- -- -- -- 23,037,333 -- -- -- -- -- -- -- -- 18,272,550 -- -- -- -- -- -- -- -- 21,990,092 -- -- -- -- -- -- -- -- 54,074,866 -- -- -- -- -- -- -- -- 13,380,681 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- 118,148,481 39,809,233 20,419,906 23,037,333 18,272,550 21,990,092 54,074,866 13,380,681 871,094 70,855 56,027 35,221 13,272 104,793 -- 115,391 - ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- 119,019,575 39,880,088 20,475,933 23,072,554 18,285,822 22,094,885 54,074,866 13,496,072 -- -- -- -- -- -- 28,578 -- - ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- $119,019,575 $39,880,088 $20,475,933 $23,072,554 $18,285,822 $22,094,885 $54,046,288 $13,496,072 ============ =========== =========== =========== =========== =========== =========== =========== 11,521 4,261 1,978 2,346 1,567 2,853 4,147 2,044 $4.22 to $9.05 to $9.90 to $9.23 to $10.24 to $6.35 to $12.43 to $5.76 to $12.07 $10.04 $11.03 $11.71 $14.13 $9.27 $13.19 $7.53
F-3 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002
Metropolitan Fund ---------------------------------------------------------- MetLife Russell Putnam State Street Mid Cap 2000 Large Cap Research Stock Janus Index Growth Aurora Index Growth Portfolio Portfolio Portfolio Portfolio Portfolio ----------- ---------- ------------ ----------- ---------- ASSETS: Investments at Value: Metropolitan Fund State Street Research Investment Trust Portfolio (14,474,724 shares; cost $440,761,220).......... $ -- $ -- $ -- $ -- $ -- State Street Research Diversified Portfolio (18,221,054 shares; cost $300,082,589).......... -- -- -- -- -- State Street Research Aggressive Growth Portfolio (10,255,141 shares; cost $252,928,964).......... -- -- -- -- -- MetLife Stock Index Portfolio (13,911,433 shares; cost $442,239,598).......... -- -- -- -- -- Putnam International Stock Portfolio (4,241,422 shares; cost $49,020,108)............ -- -- -- -- -- Janus Mid Cap Portfolio (11,349,518 shares; cost $227,150,552).......... -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (4,570,520 shares; cost $56,451,446)............ -- -- -- -- -- Scudder Global Equity Portfolio (2,273,932 shares; cost $27,906,569)............ -- -- -- -- -- Harris Oakmark Large Cap Value Portfolio (2,397,225 shares; cost $25,848,040)............ -- -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (1,432,018 shares; cost $19,895,280)............ -- -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (2,468,024 shares; cost $27,759,151)............ -- -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (4,841,080 shares; cost $50,327,819)............ -- -- -- -- -- Morgan Stanley EAFE Index Portfolio (1,843,069 shares; cost $15,649,298)............ -- -- -- -- -- Russell 2000 Index Portfolio (1,794,610 shares; cost $17,132,177)............ 14,805,534 -- -- -- -- Putnam Large Cap Growth Portfolio (1,449,674 shares; cost $7,190,171)............. -- 5,204,328 -- -- -- State Street Research Aurora Portfolio (2,626,537 shares; cost $34,513,109)............ -- -- 29,075,760 -- -- MetLife Mid Cap Stock Index Portfolio (1,752,987 shares; cost $17,286,892)............ -- -- -- 15,548,990 -- Janus Growth Portfolio (374,303 shares; cost $2,471,214)............... -- -- -- -- 2,032,467 Franklin Templeton Small Cap Growth Portfolio (197,810 shares; cost $1,523,267)............... -- -- -- -- -- State Street Research Large Cap Value Portfolio (23,763 shares; cost $192,091).................. -- -- -- -- -- Janus Fund Janus Aspen Growth Portfolio (148,078 shares; cost $3,022,525)............... -- -- -- -- -- Invesco Fund Invesco VIF High Yield Portfolio (70,674 shares; cost $517,831).................. -- -- -- -- -- Invesco VIF Equity Income Portfolio (8,467 shares; cost $152,250)................... -- -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (17,086 shares; cost $174,935).................. -- -- -- -- -- Franklin Fund Franklin Templeton International Stock Portfolio (274,662 shares; cost $3,092,787)............... -- -- -- -- -- Franklin Templeton Valuemark Small Cap Portfolio (63,068 shares; cost $980,915).................. -- -- -- -- -- ----------- ---------- ----------- ----------- ---------- Total Investments................................ 14,805,534 5,204,328 29,075,760 15,548,990 2,032,467 Cash and Accounts Receivable..................... 23,000 48,385 -- 18,967 12,817 ----------- ---------- ----------- ----------- ---------- Total assets..................................... 14,828,534 5,252,713 29,075,760 15,567,957 2,045,284 LIABILITIES: Due to Metropolitan Life Insurance............... -- -- 15,202 -- -- ----------- ---------- ----------- ----------- ---------- NET ASSETS....................................... $14,828,534 $5,252,713 $29,060,558 $15,567,957 $2,045,284 =========== ========== =========== =========== ========== Outstanding Units (In Thousands)................. 1,614 1,463 2,599 1,762 381 Unit Values...................................... $7.43 to $3.51 to $10.30 to $8.18 to $5.35 to $9.99 $3.79 $11.25 $8.98 $5.43
See Notes to Financial Statements. F-4
Metropolitan Fund Janus Fund Invesco Fund Franklin Fund - ----------------------- ---------- ----------------------------------- ----------------------- Franklin State Street Franklin Franklin Templeton Research Janus Invesco VIF Invesco VIF Invesco VIF Templeton Templeton Small Cap Large Cap Aspen High Equity Real Estate International Valuemark Growth Value Growth Yield Income Opportunity Stock Small Cap Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - --------- ------------ ---------- ----------- ----------- ----------- ------------- --------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 1,267,960 -- -- -- -- -- -- -- -- 188,913 -- -- -- -- -- -- -- -- 2,163,422 -- -- -- -- -- -- -- -- 475,634 -- -- -- -- -- -- -- -- 125,063 -- -- -- -- -- -- -- -- 179,233 -- -- -- -- -- -- -- -- 2,612,034 -- -- -- -- -- -- -- -- 800,968 - ---------- --------- ---------- -------- -------- -------- ---------- -------- 1,267,960 188,913 2,163,422 475,634 125,063 179,233 2,612,034 800,968 -- -- -- -- -- -- -- -- - ---------- --------- ---------- -------- -------- -------- ---------- -------- 1,267,960 188,913 2,163,422 475,634 125,063 179,233 2,612,034 800,968 2,227 328 -- -- -- -- -- -- - ---------- --------- ---------- -------- -------- -------- ---------- -------- $1,265,733 $ 188,585 $2,163,422 $475,634 $125,063 $179,233 $2,612,034 $800,968 ========== ========= ========== ======== ======== ======== ========== ======== 198 23 354 65 15 14 344 163 $6.31 to $7.96 to $6.10 $7.37 $7.94 $12.82 $7.57 $4.93 $6.41 $8.00
F-5 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002
Zenith Fund ------------------------------------------------- Loomis MFS Davis Sayles Small Alger Equity Investors Venture Value Cap Growth Trust Portfolio Portfolio Portfolio Portfolio ------------- ------------ ------------ --------- ASSETS: Investments at Value: Zenith Fund Davis Venture Value Portfolio (691,858 shares; cost $15,908,944)....................... $13,415,133 $ -- $ -- $ -- Loomis Sayles Small Cap Portfolio (17,312 shares; cost $2,876,139)......................... -- 2,404,640 -- -- Alger Equity Growth Portfolio (215,204 shares; cost $3,971,211)........................ -- -- 2,982,730 -- MFS Investors Trust Portfolio (101,400 shares; cost $764,507).......................... -- -- -- 690,536 MFS Research Managers Portfolio (45,747 shares; cost $372,528)........................... -- -- -- -- State Street Research Bond Income Portfolio (826,931 shares; cost $87,823,814)....................... -- -- -- -- FI Structured Equity Portfolio (745 shares; cost $99,856)............................... -- -- -- -- Harris Oakmark Focused Value Portfolio (76,214 shares; cost $13,563,953)........................ -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (190,267 shares; cost $2,109,683)........................ -- -- -- -- Salomon Brothers U.S. Government Portfolio (353,985 shares; cost $4,286,785)........................ -- -- -- -- State Street Research Money Market Portfolio (307,784 shares; cost $30,778,444)....................... -- -- -- -- FI Mid Cap Opportunities Portfolio (20,522 shares; cost $164,318)........................... -- -- -- -- Alliance Fund Alliance Growth & Income Portfolio (72,234 shares; cost $1,301,223)......................... -- -- -- -- Alliance Premier Growth Portfolio (2,442 shares; cost $53,408)............................. -- -- -- -- Alliance Technology Portfolio (1,827 shares; cost $29,944)............................. -- -- -- -- Fidelity Fund Fidelity VIP Contrafund Portfolio (13,884 shares; cost $278,912)........................... -- -- -- -- Fidelity VIP Asset Manager Growth Portfolio (12,818 shares; cost $152,436)........................... -- -- -- -- Fidelity VIP Growth Portfolio (5,757 shares; cost $177,657)............................ -- -- -- -- American Fund American Funds Growth Portfolio (289,649 shares; cost $11,296,498)....................... -- -- -- -- American Funds Growth-Income Portfolio (324,009 shares; cost $9,336,164)........................ -- -- -- -- American Funds Global Small Cap Portfolio (219,146 shares; cost $2,372,426)........................ -- -- -- -- Met Investors Fund JPM Enhanced Index Portfolio (711 shares; cost $9,571)................................ -- -- -- -- MFS Mid Cap Growth Portfolio (293,301 shares; cost $1,734,251)........................ -- -- -- -- MFS Research International Portfolio (95,153 shares; cost $713,916)........................... -- -- -- -- PIMCO Total Return Portfolio (548,334 shares; cost $5,961,523)........................ -- -- -- -- PIMCO Innovation Portfolio (412,507 shares; cost $1,910,459)........................ -- -- -- -- Lord Abbett Bond Debenture Portfolio (831,072 shares; cost $8,642,613)........................ -- -- -- -- Met/AIM Mid Cap Core Equity Portfolio (25,740 shares; cost $259,635)........................... -- -- -- -- Met/AIM Small Cap Growth Portfolio (13,390 shares; cost $120,143)........................... -- -- -- -- State Street Research Concentrated International Portfolio (16,867 shares; cost $152,869)........................... -- -- -- -- ----------- ---------- ---------- --------- Total Investments......................................... 13,415,133 2,404,640 2,982,730 690,536 Cash and Accounts Receivable.............................. 15,059 3,753 -- 3,357 ----------- ---------- ---------- --------- Total assets.............................................. 13,430,192 2,408,393 2,982,730 693,893 LIABILITIES: Due to Metropolitan Life Insurance Company................ -- -- -- -- ----------- ---------- ---------- --------- NET ASSETS................................................ $13,430,192 $2,408,393 $2,982,730 $ 693,893 =========== ========== ========== ========= Outstanding Units (In Thousands).......................... 901 18 589 104 Unit Values............................................... $7.48 to $6.80 to $5.06 $6.54 to $21.70 $150.51 $6.84
See Notes to Financial Statements. F-6
Zenith Fund - ------------------------------------------------------------------------------------------------------------- MFS State Street FI Salomon Brothers State Street FI Research Research Structured Harris Oakmark Strategic Bond Salomon Brothers Research Mid Cap Managers Bond Income Equity Focused Value Opportunities U.S. Government Money Market Opportunities Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - --------- ------------ ---------- -------------- ---------------- ---------------- ------------ ------------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 313,368 -- -- -- -- -- -- -- -- 93,228,177 -- -- -- -- -- -- -- -- 93,104 -- -- -- -- -- -- -- -- 12,905,272 -- -- -- -- -- -- -- -- 2,176,655 -- -- -- -- -- -- -- -- 4,368,173 -- -- -- -- -- -- -- -- 30,778,444 -- -- -- -- -- -- -- -- 168,076 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - --------- ----------- --------- ----------- ---------- ---------- ----------- --------- 313,368 93,228,177 93,104 12,905,272 2,176,655 4,368,173 30,778,444 168,076 972 -- -- -- -- -- 32,169 -- - --------- ----------- --------- ----------- ---------- ---------- ----------- --------- 314,340 93,228,177 93,104 12,905,272 2,176,655 4,368,173 30,810,613 168,076 -- 70,245 206 26,739 2,992 2,763 -- 207 - --------- ----------- --------- ----------- ---------- ---------- ----------- --------- $ 314,340 $93,157,932 $ 92,898 $12,878,533 $2,173,663 $4,365,410 $30,810,613 $ 167,869 ========= =========== ========= =========== ========== ========== =========== ========= 47 5,564 12 76 177 340 1,981 21 $5.29 to $12.18 to $6.59 to $167.13 to $12.12 to $12.72 to $13.09 to $8.14 to $6.86 $25.85 $8.32 $169.65 $12.30 $12.91 $15.93 $8.19
F-7 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002
Alliance Fund ------------------------------------------- Alliance Alliance Premier Alliance Growth & Income Growth Technology Portfolio Portfolio Portfolio --------------- ---------------- ---------- ASSETS: Investments at Value: Zenith Fund Davis Venture Value Portfolio (691,858 shares; cost $15,908,944)....................... $ -- $ -- $ -- Loomis Sayles Small Cap Portfolio (17,312 shares; cost $2,876,139)......................... -- -- -- Alger Equity Growth Portfolio (215,204 shares; cost $3,971,211)........................ -- -- -- MFS Investors Trust Portfolio (101,400 shares; cost $764,507).......................... -- -- -- MFS Research Managers Portfolio (45,747 shares; cost $372,528)........................... -- -- -- State Street Research Bond Income Portfolio (826,931 shares; cost $87,823,814)....................... -- -- -- FI Structured Equity Portfolio (745 shares; cost $99,856)............................... -- -- -- Harris Oakmark Focused Value Portfolio (76,214 shares; cost $13,563,953)........................ -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (190,267 shares; cost $2,109,683)........................ -- -- -- Salomon Brothers U.S. Government Portfolio (353,985 shares; cost $4,286,785)........................ -- -- -- State Street Research Money Market Portfolio (307,784 shares; cost $30,778,444)....................... -- -- -- FI Mid Cap Opportunities Portfolio (20,522 shares; cost $164,318)........................... -- -- -- Alliance Fund Alliance Growth & Income Portfolio (72,234 shares; cost $1,301,223)......................... 1,191,135 -- -- Alliance Premier Growth Portfolio (2,442 shares; cost $53,408)............................. -- 42,227 -- Alliance Technology Portfolio (1,827 shares; cost $29,944)............................. -- -- 18,230 Fidelity Fund Fidelity VIP Contrafund Portfolio (13,884 shares; cost $278,912)........................... -- -- -- Fidelity VIP Asset Manager Growth Portfolio (12,818 shares; cost $152,436)........................... -- -- -- Fidelity VIP Growth Portfolio (5,757 shares; cost $177,657)............................ -- -- -- American Fund American Funds Growth Portfolio (289,649 shares; cost $11,296,498)....................... -- -- -- American Funds Growth-Income Portfolio (324,009 shares; cost $9,336,164)........................ -- -- -- American Funds Global Small Cap Portfolio (219,146 shares; cost $2,372,426)........................ -- -- -- Met Investors Fund JPM Enhanced Index Portfolio (711 shares; cost $9,571)................................ -- -- -- MFS Mid Cap Growth Portfolio (293,301 shares; cost $1,734,251)........................ -- -- -- MFS Research International Portfolio (95,153 shares; cost $713,916)........................... -- -- -- PIMCO Total Return Portfolio (548,334 shares; cost $5,961,523)........................ -- -- -- PIMCO Innovation Portfolio (412,507 shares; cost $1,910,459)........................ -- -- -- Lord Abbett Bond Debenture Portfolio (831,072 shares; cost $8,642,613)........................ -- -- -- Met/AIM Mid Cap Core Equity Portfolio (25,740 shares; cost $259,635)........................... -- -- -- Met/AIM Small Cap Growth Portfolio (13,390 shares; cost $120,143)........................... -- -- -- State Street Research Concentrated International Portfolio (16,867 shares; cost $152,869)........................... -- -- -- ---------- ------- ------- Total Investments......................................... 1,191,135 42,227 18,230 Cash and Accounts Receivable.............................. -- -- -- ---------- ------- ------- Total assets.............................................. 1,191,135 42,227 18,230 LIABILITIES: Due to Metropolitan Life Insurance Company................ -- -- -- ---------- ------- ------- NET ASSETS................................................ $1,191,135 $42,227 $18,230 ========== ======= ======= Outstanding Units (In Thousands).......................... 150 9 6 Unit Values............................................... $7.92 $4.94 $3.16
See Notes to Financial Statements. F-8
Fidelity Fund American Fund Met Investors Fund - --------------------------------------- -------------------------------------------- -------------------- Fidelity VIP American Funds American Funds JPM MFS Fidelity VIP Asset Manager Fidelity VIP American Funds Growth- Global Enhanced Mid Cap Contrafund Growth Growth Growth Income Small Cap Index Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------ ------------- ------------ -------------- -------------- -------------- --------- ---------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 249,221 -- -- -- -- -- -- -- -- 130,875 -- -- -- -- -- -- -- -- 133,611 -- -- -- -- -- -- -- -- 9,642,419 -- -- -- -- -- -- -- -- 8,268,707 -- -- -- -- -- -- -- -- 2,022,713 -- -- -- -- -- -- -- -- 7,765 -- -- -- -- -- -- -- -- 1,366,781 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -------- -------- -------- ---------- ---------- ---------- ------ ---------- 249,221 130,875 133,611 9,642,419 8,268,707 2,022,713 7,765 1,366,781 -- -- -- 349,603 138,794 10,200 -- 6,216 -------- -------- -------- ---------- ---------- ---------- ------ ---------- 249,221 130,875 133,611 9,992,022 8,407,501 2,032,913 7,765 1,372,997 -- -- -- -- -- -- -- -- -------- -------- -------- ---------- ---------- ---------- ------ ---------- $249,221 $130,875 $133,611 $9,992,022 $8,407,501 $2,032,913 $7,765 $1,372,997 ======== ======== ======== ========== ========== ========== ====== ========== 35 20 28 221 287 203 1 294 $7.16 $6.50 $4.72 $44.64 to $28.98 to $9.90 to $6.09 $4.62 to $45.32 $29.42 $10.05 $4.69
F-9 Metropolitan Life Separate Account UL STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002
Met Investors Fund ------------------------------------------------- MFS Lord Abbett Research PIMCO PIMCO Bond International Total Return Innovation Debenture Portfolio Portfolio Portfolio Portfolio ------------- ------------ ---------- ----------- ASSETS: Investments at Value: Zenith Fund Davis Venture Value Portfolio (691,858 shares; cost $15,908,944)....................... $ -- $ -- $ -- $ -- Loomis Sayles Small Cap Portfolio (17,312 shares; cost $2,876,139)......................... -- -- -- -- Alger Equity Growth Portfolio (215,204 shares; cost $3,971,211)........................ -- -- -- -- MFS Investors Trust Portfolio (101,400 shares; cost $764,507).......................... -- -- -- -- MFS Research Managers Portfolio (45,747 shares; cost $372,528)........................... -- -- -- -- State Street Research Bond Income Portfolio (826,931 shares; cost $87,823,814)....................... -- -- -- -- FI Structured Equity Portfolio (745 shares; cost $99,856)............................... -- -- -- -- Harris Oakmark Focused Value Portfolio (76,214 shares; cost $13,563,953)........................ -- -- -- -- Salomon Brothers Strategic Bond Opportunities Portfolio (190,267 shares; cost $2,109,683)........................ -- -- -- -- Salomon Brothers U.S. Government Portfolio (353,985 shares; cost $4,286,785)........................ -- -- -- -- State Street Research Money Market Portfolio (307,784 shares; cost $30,778,444)....................... -- -- -- -- FI Mid Cap Opportunities Portfolio (20,522 shares; cost $164,318)........................... -- -- -- -- Alliance Fund Alliance Growth & Income Portfolio (72,234 shares; cost $1,301,223)......................... -- -- -- -- Alliance Premier Growth Portfolio (2,442 shares; cost $53,408)............................. -- -- -- -- Alliance Technology Portfolio (1,827 shares; cost $29,944)............................. -- -- -- -- Fidelity Fund Fidelity VIP Contrafund Portfolio (13,884 shares; cost $278,912)........................... -- -- -- -- Fidelity VIP Asset Manager Growth Portfolio (12,818 shares; cost $152,436)........................... -- -- -- -- Fidelity VIP Growth Portfolio (5,757 shares; cost $177,657)............................ -- -- -- -- American Fund American Funds Growth Portfolio (289,649 shares; cost $11,296,498)....................... -- -- -- -- American Funds Growth-Income Portfolio (324,009 shares; cost $9,336,164)........................ -- -- -- -- American Funds Global Small Cap Portfolio (219,146 shares; cost $2,372,426)........................ -- -- -- -- Met Investors Fund JPM Enhanced Index Portfolio (711 shares; cost $9,571)................................ -- -- -- -- MFS Mid Cap Growth Portfolio (293,301 shares; cost $1,734,251)........................ -- -- -- -- MFS Research International Portfolio (95,153 shares; cost $713,916)........................... 712,696 -- -- -- PIMCO Total Return Portfolio (548,334 shares; cost $5,961,523)........................ -- 6,218,104 -- -- PIMCO Innovation Portfolio (412,507 shares; cost $1,910,459)........................ -- -- 1,262,271 -- Lord Abbett Bond Debenture Portfolio (831,072 shares; cost $8,642,613)........................ -- -- -- 8,510,181 Met/AIM Mid Cap Core Equity Portfolio (25,740 shares; cost $259,635)........................... -- -- -- -- Met/AIM Small Cap Growth Portfolio (13,390 shares; cost $120,143)........................... -- -- -- -- State Street Research Concentrated International Portfolio (16,867 shares; cost $152,869)........................... -- -- -- -- --------- ---------- ---------- ---------- Total Investments......................................... 712,696 6,218,104 1,262,271 8,510,181 Cash and Accounts Receivable.............................. 986 -- 6,810 86,425 --------- ---------- ---------- ---------- Total assets.............................................. 713,682 6,218,104 1,269,081 8,596,606 LIABILITIES: Due to Metropolitan Life Insurance Company................ -- 4,422 -- -- --------- ---------- ---------- ---------- NET ASSETS................................................ $ 713,682 $6,213,682 $1,269,081 $8,596,606 ========= ========== ========== ========== Outstanding Units (In Thousands).......................... 95 534 416 748 Unit Values............................................... $7.41 to $11.55 to $3.01 to $10.87 to $7.52 $11.72 $3.06 $12.51
See Notes to Financial Statements. F-10
Met Investors Fund ------------------------------------------- Met/AIM Met/AIM State Street Research Mid Cap Small Cap Concentrated Core Equity Growth International Portfolio Portfolio Portfolio ----------- --------- --------------------- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 253,284 -- -- -- 115,821 -- -- -- 149,949 --------- --------- --------- 253,284 115,821 149,949 -- -- 21 --------- --------- --------- 253,284 115,821 149,970 304 25 -- --------- --------- --------- $ 252,980 $ 115,796 $ 149,970 ========= ========= ========= 30 15 18 $8.53 to $7.59 to $8.37 to $8.58 $7.63 $8.42
F-11 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Metropolitan Fund ----------------------------------------- State Street Research Investment Trust Portfolio ----------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------- ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 1,708,899 $ 51,437,166 $ 4,838,821 Expenses: Mortality and expense charges................................ 2,678,347 3,136,115 3,798,303 ------------ ------------- ------------ Net investment (loss) income................................... (969,448) 48,301,051 1,040,518 ------------ ------------- ------------ NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (6,132,437) 731,187 5,846,334 Change in unrealized (depreciation) appreciation of investments (90,883,953) (122,469,738) (37,904,600) ------------ ------------- ------------ Net realized and unrealized (losses) gains on investments...... (97,016,390) (121,738,551) (32,058,266) ------------ ------------- ------------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(97,985,838) $ (73,437,500) $(31,017,748) ============ ============= ============
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-12
Metropolitan Fund - --------------------------------------------------------------------------------------------------------------------------- State Street Research Diversified State Street Research Aggressive Growth MetLife Stock Index Portfolio Portfolio Portfolio - --------------------------------------- ---------------------------------------- ---------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 5,726,999 $ 25,415,648 $ 1,174,688 $ -- $ 46,776,659 $ 27,463,699 $ 5,409,402 $ 3,858,667 $ 13,335,508 2,168,000 2,231,404 2,258,802 1,263,240 1,493,070 1,992,343 2,704,257 2,645,594 2,457,289 - ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ------------ 3,558,999 23,184,244 (1,084,114) (1,263,240) 45,283,589 25,471,356 2,705,145 1,213,073 10,878,219 - ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ------------ (1,810,936) (111,095) 1,585,197 (5,953,657) (1,536,972) 3,369,764 (5,045,284) 4,130,927 6,159,583 (41,694,719) (42,080,714) (360,101) (44,703,891) (94,895,107) (48,026,970) (82,559,071) (48,985,481) (49,619,601) - ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ------------ (43,505,655) (42,191,809) 1,225,096 (50,657,548) (96,432,079) (44,657,206) (87,604,355) (44,854,554) (43,460,018) - ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ------------ $(39,946,656) $(19,007,565) $ 140,982 $(51,920,788) $(51,148,490) $(19,185,850) $(84,899,210) $(43,641,481) $(32,581,799) ============ ============ =========== ============ ============ ============ ============ ============ ============
F-13 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Metropolitan Fund -------------------------------------- Putnam International Stock Portfolio -------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 317,077 $ 1,500,375 $ 274,114 Expenses: Mortality and expense charges................................ 298,333 327,499 377,435 ----------- ------------ ----------- Net investment (loss) income................................... 18,744 1,172,876 (103,321) ----------- ------------ ----------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (2,655,399) (1,661,736) 309,181 Change in unrealized (depreciation) appreciation of investments (4,418,288) (9,202,287) (5,241,506) ----------- ------------ ----------- Net realized and unrealized (losses) gains on investments...... (7,073,687) (10,864,023) (4,932,325) ----------- ------------ ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(7,054,943) $ (9,691,147) $(5,035,646) =========== ============ ===========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-14
Metropolitan Fund - ----------------------------------------------------------------------------------------------------------------------- Janus Mid Cap T. Rowe Price Small Cap Growth Scudder Global Equity Portfolio Portfolio Portfolio - ---------------------------------------- -------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ -- $ -- $ 11,303,876 $ -- $ 3,542,193 $ -- $ 350,009 $ 2,319,964 $ 64,757 1,013,088 1,037,631 1,274,377 332,098 332,644 307,077 168,321 164,713 142,655 - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- --------- (1,013,088) (1,037,631) 10,029,499 (332,098) 3,209,549 (307,077) 181,688 2,155,251 (77,898) - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- --------- (5,163,698) (2,451,549) 3,280,184 (297,872) (796,014) 759,159 (466,029) (71,082) 423,877 (34,449,605) (53,291,667) (70,128,825) (12,423,975) (6,595,361) (4,955,737) (3,445,540) (5,825,339) (702,165) - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- --------- (39,613,303) (55,743,216) (66,848,641) (12,721,847) (7,391,375) (4,196,578) (3,911,569) (5,896,421) (278,288) - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- --------- $(40,626,391) $(56,780,847) $(56,819,142) $(13,053,945) $(4,181,826) $(4,503,655) $(3,729,881) $(3,741,170) $(356,186) ============ ============ ============ ============ =========== =========== =========== =========== =========
F-15 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Metropolitan Fund ------------------------------------- Harris Oakmark Large Cap Value Portfolio ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 618,214 $ 12,105 $ 45,533 Expenses: Mortality and expense charges................................ 179,930 68,617 8,356 ----------- -------- -------- Net investment (loss) income................................... 438,284 (56,512) 37,177 ----------- -------- -------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... 173,172 94,596 (27,497) Change in unrealized (depreciation) appreciation of investments (3,824,797) 810,284 217,646 ----------- -------- -------- Net realized and unrealized (losses) gains on investments...... (3,651,625) 904,880 190,149 ----------- -------- -------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,213,341) $848,368 $227,326 =========== ======== ========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-16
Metropolitan Fund - ------------------------------------------------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Value T. Rowe Price Large Cap Growth Lehman Brothers Aggregate Bond Index Portfolio Portfolio Portfolio - -------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 49,885 $ 196,293 $192,122 $ 57,106 $ 8,447 $ 212,097 $1,283,105 $ 366,468 $1,151,414 139,354 89,772 16,357 163,196 103,226 28,064 300,244 154,225 51,779 - ----------- --------- -------- ----------- --------- --------- ---------- ---------- ---------- (89,469) 106,521 175,765 (106,090) (94,779) 184,033 982,861 212,243 1,099,635 - ----------- --------- -------- ----------- --------- --------- ---------- ---------- ---------- 105,666 (68,863) 28,891 (317,124) (100,488) 9,246 515,268 210,509 61,931 (1,888,036) (195,526) 444,118 (5,333,848) (92,461) (515,437) 2,760,523 1,053,501 (39,445) - ----------- --------- -------- ----------- --------- --------- ---------- ---------- ---------- (1,782,370) (264,389) 473,009 (5,650,972) (192,949) (506,191) 3,275,791 1,264,010 22,486 - ----------- --------- -------- ----------- --------- --------- ---------- ---------- ---------- $(1,871,839) $(157,868) $648,774 $(5,757,062) $(287,728) $(322,158) $4,258,652 $1,476,253 $1,122,121 =========== ========= ======== =========== ========= ========= ========== ========== ==========
F-17 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Metropolitan Fund ------------------------------------- Morgan Stanley EAFE Index Portfolio ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 59,278 $ 25,460 $ 90,887 Expenses: Mortality and expense charges................................ 123,406 63,300 22,497 ----------- ----------- --------- Net investment (loss) income................................... (64,128) (37,840) 68,390 ----------- ----------- --------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (800,822) (961,834) (86,470) Change in unrealized (depreciation) appreciation of investments (1,274,363) (729,479) (425,063) ----------- ----------- --------- Net realized and unrealized (losses) gains on investments...... (2,075,185) (1,691,313) (511,533) ----------- ----------- --------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,139,313) $(1,729,153) $(443,143) =========== =========== =========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-18
Metropolitan Fund - ------------------------------------------------------------------------------------------------------------------------- Russell 2000 Index Putnam Large Cap Growth State Street Research Aurora Portfolio Portfolio Portfolio - ------------------------------------- --------------------------------------- ----------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Period For the Year For the Year For the Period Ended Ended Ended Ended Ended May 1, 2000 to Ended Ended July 5, 2000 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ -------------- ------------ ------------ --------------- $ 74,869 $ 21,244 $ 797,642 $ -- $ -- $ -- $ 127,494 $ 44,265 $ 20,669 104,600 68,898 21,802 39,278 22,732 1,713 225,368 95,291 3,697 - ----------- ----------- ----------- ----------- --------- --------- ----------- ---------- -------- (29,731) (47,654) 775,840 (39,278) (22,732) (1,713) (97,874) (51,026) 16,972 - ----------- ----------- ----------- ----------- --------- --------- ----------- ---------- -------- (343,069) (1,016,179) (27,586) (304,226) (113,353) (1,766) 81,843 155,882 3,082 (2,545,881) 1,215,383 (1,037,181) (1,227,374) (585,114) (173,356) (6,958,922) 1,218,805 302,768 - ----------- ----------- ----------- ----------- --------- --------- ----------- ---------- -------- (2,888,950) 199,204 (1,064,767) (1,531,600) (698,467) (175,122) (6,877,079) 1,374,687 305,850 - ----------- ----------- ----------- ----------- --------- --------- ----------- ---------- -------- $(2,918,681) $ 151,550 $ (288,927) $(1,570,878) $(721,199) $(176,835) $(6,974,953) $1,323,661 $322,822 =========== =========== =========== =========== ========= ========= =========== ========== ========
F-19 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Metropolitan Fund -------------------------------------------------------------------- MetLife Mid Cap Stock Index Janus Growth Portfolio Portfolio ---------------------------------------- -------------------------- For the Year For the Year For the Period For the Year For the Period Ended Ended July 5, 2000 to Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 ------------ ------------ --------------- ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends.............................................. $ 42,658 $ 24,102 $ 8,945 $ -- $ -- Expenses: Mortality and expense charges.......................... 98,019 42,826 1,923 13,374 2,780 ----------- -------- ------- --------- -------- Net investment (loss) income............................. (55,361) (18,724) 7,022 (13,374) (2,780) ----------- -------- ------- --------- -------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions... (23,095) (19,531) (300) (78,401) (43,356) Change in unrealized (depreciation) appreciation of investments............................................. (2,089,536) 294,328 57,307 (426,893) (11,854) ----------- -------- ------- --------- -------- Net realized and unrealized (losses) gains on investments (2,112,631) 274,797 57,007 (505,294) (55,210) ----------- -------- ------- --------- -------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $(2,167,992) $256,073 $64,029 $(518,668) $(57,990) =========== ======== ======= ========= ========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-20
Metropolitan Fund Janus Fund Invesco Fund - ------------------------------------------------ ------------------------------------- ------------------------------------- Franklin Templeton State Street Research Small Cap Growth Large Cap Value Janus Aspen Growth Invesco VIF High Yield Portfolio Portfolio Portfolio Portfolio - -------------------------- --------------------- ------------------------------------- ------------------------------------- For the Year For the Period For the Period For the Year For the Year For the Year For the Year For the Year For the Year Ended May 1, 2001 to May 1, 2002 to Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2002 2001 2000 2002 2001 2000 - ------------ -------------- --------------------- ------------ ------------ ------------ ------------ ------------ ------------ $ -- $ -- $ 869 $ 708 $ 210,720 $ 191,433 $ 49,754 $ 29,774 $ -- 8,397 1,124 436 10,078 25,354 19,763 1,346 602 42 --------- ------- ------- --------- ----------- ----------- -------- -------- ------- (8,397) (1,124) 433 (9,370) 185,366 171,670 48,408 29,172 (42) --------- ------- ------- --------- ----------- ----------- -------- -------- ------- (42,766) (3,651) (3,284) (179,152) (1,848,663) (11,878) (31,480) (3,798) (11) (271,373) 16,066 (3,178) (329,490) 498,521 (1,038,841) (7,350) (33,395) (1,445) --------- ------- ------- --------- ----------- ----------- -------- -------- ------- (314,139) 12,415 (6,462) (508,642) (1,350,142) (1,050,719) (38,830) (37,193) (1,456) --------- ------- ------- --------- ----------- ----------- -------- -------- ------- $(322,536) $11,291 $(6,029) $(518,012) $(1,164,776) $ (879,049) $ 9,578 $ (8,021) $(1,498) ========= ======= ======= ========= =========== =========== ======== ======== =======
F-21 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Invesco Fund ------------------------------------- Invesco VIF Equity Income Portfolio ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 2,157 $ 1,779 $ 783 Expenses: Mortality and expense charges................................ 638 304 58 -------- ------- ----- Net investment (loss) income................................... 1,519 1,475 725 -------- ------- ----- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (7,425) (1,414) 18 Change in unrealized (depreciation) appreciation of investments (21,641) (4,995) (596) -------- ------- ----- Net realized and unrealized (losses) gains on investments...... (29,066) (6,409) (578) -------- ------- ----- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(27,547) $(4,934) $ 147 ======== ======= =====
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-22
Invesco Fund Franklin Fund - ------------------------------------- ------------------------------------------------------------------ Invesco VIF Real Estate Franklin Templeton Franklin Templeton Valuemark Opportunity Portfolio International Stock Portfolio Small Cap Portfolio (a) - ------------------------------------- ------------------------------------- --------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 1,881 $ 1,183 $ -- $ 44,446 $ 203,320 $ 34,323 $ 2,327 $ 56 2,129 531 288 13,035 5,484 3,352 3,601 177 ------- ------- ------ --------- --------- -------- --------- ------ (248) 652 (288) 31,411 197,836 30,971 (1,274) (121) ------- ------- ------ --------- --------- -------- --------- ------ 12,032 1,271 445 (325,690) (18,952) (35,953) (49,638) (480) 3,016 (3,692) 4,890 (187,267) (287,060) (6,907) (184,311) 4,364 ------- ------- ------ --------- --------- -------- --------- ------ 15,048 (2,421) 5,335 (512,957) (306,012) (42,860) (233,949) 3,884 ------- ------- ------ --------- --------- -------- --------- ------ $14,800 $(1,769) $5,047 $(481,546) $(108,176) $(11,889) $(235,223) $3,763 ======= ======= ====== ========= ========= ======== ========= ======
F-23 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Zenith Fund ---------------------------------------- Davis Venture Value Portfolio ---------------------------------------- For the Year For the Year For the Period Ended Ended July 5, 2000 to December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ --------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 91,596 $ 192,850 $ -- Expenses: Mortality and expense charges................................ 90,846 39,662 1,697 ----------- --------- ------- Net investment (loss) income................................... 750 153,188 (1,697) ----------- --------- ------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (188,804) (46,987) (482) Change in unrealized (depreciation) appreciation of investments (2,083,879) (437,523) 27,591 ----------- --------- ------- Net realized and unrealized (losses) gains on investments...... (2,272,683) (484,510) 27,109 ----------- --------- ------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,271,933) $(331,322) $25,412 =========== ========= =======
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-24
Zenith Fund - ---------------------------------------------------------------------------------------------------------------------- Loomis Sayles Small Cap Alger Equity Growth MFS Investors Trust MFS Research Managers Portfolio Portfolio (a) Portfolio (a) Portfolio (a) - ---------------------------------------- ------------------------ ------------------------ ------------------------ For the Year For the Year For the Period For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended July 5, 2000 to Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2002 2001 2002 2001 - ------------ ------------ --------------- ------------ ------------ ------------ ------------ ------------ ------------ $ 2,322 $ 86,281 $ -- $ -- $ -- $ 3,660 $ -- $ 705 $ 386 18,464 11,207 629 13,698 121 6,375 1,179 3,132 749 --------- -------- ------ ----------- ------- --------- ------- -------- ------ (16,142) 75,074 (629) (13,698) (121) (2,715) (1,179) (2,427) (363) --------- -------- ------ ----------- ------- --------- ------- -------- ------ (106,829) (35,645) (42) (57,097) (175) (71,866) (5,896) (30,794) 1,304 (414,868) (62,611) 5,980 (983,355) (5,126) (78,498) 4,527 (58,814) (346) --------- -------- ------ ----------- ------- --------- ------- -------- ------ (521,697) (98,256) 5,938 (1,040,452) (5,301) (150,364) (1,369) (89,608) 958 --------- -------- ------ ----------- ------- --------- ------- -------- ------ $(537,839) $(23,182) $5,309 $(1,054,150) $(5,422) $(153,079) $(2,548) $(92,035) $ 595 ========= ======== ====== =========== ======= ========= ======= ======== ======
F-25 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Zenith Fund --------------------------------------------------------------- State Street Research Bond Income FI Structured Equity Portfolio Portfolio (a) ------------------------------------- ------------------------ For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 ------------ ------------ ------------ ------------ ------------ INVESTMENT (LOSS) INCOME: Income: Dividends.............................................. $4,937,322 $5,667,650 $ 3,139 $ 527 $ -- Expenses: Mortality and expense charges.......................... 658,727 572,051 557,064 457 69 ---------- ---------- ---------- -------- ------- Net investment (loss) income............................. 4,278,595 5,095,599 (553,925) 70 (69) ---------- ---------- ---------- -------- ------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions... (378,655) 400,025 (764,188) (9,596) (77) Change in unrealized (depreciation) appreciation of investments............................................. 2,444,438 (137,736) 8,375,071 (4,285) (2,467) ---------- ---------- ---------- -------- ------- Net realized and unrealized (losses) gains on investments 2,065,783 262,289 7,610,883 (13,881) (2,544) ---------- ---------- ---------- -------- ------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $6,344,378 $5,357,888 $7,056,958 $(13,811) $(2,613) ========== ========== ========== ======== =======
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-26
Zenith Fund - ------------------------------------------------------------------------------------------------------------------------- Harris Oakmark Focused Salomon Brothers Strategic Salomon Brothers State Street Research Money Market Value Portfolio Bond Opportunities Portfolio U.S. Government Portfolio Portfolio - -------------------------- -------------------------- -------------------------- ------------------------------------- For the Year For the Period For the Year For the Period For the Year For the Period For the Year For the Year For the Year Ended May 1, 2001 to Ended May 1, 2001 to Ended May 1, 2001 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2001 2002 2001 2002 2001 2000 - ------------ -------------- ------------ -------------- ------------ -------------- ------------ ------------ ------------ $ 15,621 $ -- $ 83,495 $ -- $ 90,377 $ -- $ 527,338 $1,134,017 $1,677,962 79,292 9,775 10,768 894 18,808 1,841 268,010 215,488 291,782 - ----------- -------- -------- ------ -------- ------- --------- ---------- ---------- (63,671) (9,775) 72,727 (894) 71,569 (1,841) 259,328 918,529 1,386,180 - ----------- -------- -------- ------ -------- ------- --------- ---------- ---------- (9,588) (43) 241 117 10,225 5,065 (628,588) (499,341) 1,059,353 (938,481) 279,801 62,351 4,621 83,661 (2,273) 611,711 796,577 (454,099) - ----------- -------- -------- ------ -------- ------- --------- ---------- ---------- (948,069) 279,758 62,592 4,738 93,886 2,792 (16,877) 297,236 605,254 - ----------- -------- -------- ------ -------- ------- --------- ---------- ---------- $(1,011,740) $269,983 $135,319 $3,844 $165,455 $ 951 $ 242,451 $1,215,765 $1,991,434 =========== ======== ======== ====== ======== ======= ========= ========== ==========
F-27 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Zenith Fund Alliance Fund -------------- ----------------------------------------- FI Mid Cap Opportunities Alliance Growth & Income Portfolio Portfolio -------------- ----------------------------------------- For the Period For the Year For the Year For the Period May 1, 2002 to Ended Ended September 30 to December 31, December 31, December 31, December 31, 2002 2002 2001 2000 -------------- ------------ ------------ --------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ -- $ 27,692 $ 3,229 $ -- Expenses: Mortality and expense charges................................ 333 4,105 1,034 -- ------- --------- ------- ------ Net investment (loss) income................................... (333) 23,587 2,195 -- ------- --------- ------- ------ NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (1,950) (18,278) (318) -- Change in unrealized (depreciation) appreciation of investments 3,758 (137,057) 24,267 2,702 ------- --------- ------- ------ Net realized and unrealized (losses) gains on investments...... 1,808 (155,335) 23,949 2,702 ------- --------- ------- ------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................... $ 1,475 $(131,748) $26,144 $2,702 ======= ========= ======= ======
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-28
Alliance Fund Fidelity Fund - -------------------------------------------------- -------------------------------------------------- Fidelity VIP Fidelity VIP Alliance Premier Growth Alliance Technology Contrafund Asset Manager Growth Portfolio (a) Portfolio (a) Portfolio (a) Portfolio (a) - ------------------------ ------------------------ ------------------------ ------------------------ For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2001 2002 2001 2002 2001 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ -- $ -- $ -- $ 782 $ 187 $ -- $ 3,640 $ -- 274 104 96 121 1,113 57 623 233 -------- ------ ------- -------- -------- ----- -------- ------- (274) (104) (96) 661 (926) (57) 3,017 (233) -------- ------ ------- -------- -------- ----- -------- ------- (9,853) (138) (519) (19,763) (348) (27) (5,591) 113 (12,480) 1,299 (9,033) (2,681) (29,437) (253) (19,964) (1,597) -------- ------ ------- -------- -------- ----- -------- ------- (22,333) 1,161 (9,552) (22,444) (29,785) (280) (25,555) (1,484) -------- ------ ------- -------- -------- ----- -------- ------- $(22,607) $1,057 $(9,648) $(21,783) $(30,711) $(337) $(22,538) $(1,717) ======== ====== ======= ======== ======== ===== ======== =======
F-29 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Fidelity Fund American Fund ------------------------ -------------------------- Fidelity VIP Growth American Funds Growth Portfolio (a) Portfolio ------------------------ -------------------------- For the Year For the Year For the Year For the Period Ended Ended Ended May 1, 2001 to December 31, December 31, December December 31, 2002 2001 31, 2002 2001 ------------ ------------ ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 132 $ -- $ 3,067 $ 134,864 Expenses: Mortality and expense charges................................ 649 243 59,610 6,807 -------- ------- ----------- --------- Net investment (loss) income................................... (517) (243) (56,543) 128,057 -------- ------- ----------- --------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (8,400) (3,407) (49,022) (95,342) Change in unrealized (depreciation) appreciation of investments (40,968) (3,078) (1,636,890) (17,189) -------- ------- ----------- --------- Net realized and unrealized (losses) gains on investments...... (49,368) (6,485) (1,685,912) (112,531) -------- ------- ----------- --------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................... $(49,885) $(6,728) $(1,742,455) $ 15,526 ======== ======= =========== =========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-30
American Fund Met Investors Fund - ------------------------------------------------------ ---------------------------------------------------- American Funds Growth- American Funds Global Small JPM Enhanced Index MFS Mid Cap Growth Income Portfolio Cap Portfolio Portfolio (a) Portfolio - -------------------------- -------------------------- ------------------------ -------------------------- For the Year For the Period For the Year For the Period For the Year For the Year For the Year For the Period Ended May 1, 2001 to Ended May 1, 2001 to Ended Ended Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2001 2002 2001 2002 2001 - ------------ -------------- ------------ -------------- ------------ ------------ ------------ -------------- $ 83,225 $ 20,236 $ 10,794 $ 7,147 $ 117 $ -- $ 7,906 $ -- 48,157 5,104 12,245 1,216 39 13 6,944 940 - ----------- -------- --------- -------- ------- ----- --------- ------- 35,068 15,132 (1,451) 5,931 78 (13) 962 (940) - ----------- -------- --------- -------- ------- ----- --------- ------- (51,319) (13,398) 35,746 (18,714) (1,186) (25) (55,314) (1,372) (1,122,854) 55,397 (396,292) 46,579 (1,483) (320) (378,709) 11,239 - ----------- -------- --------- -------- ------- ----- --------- ------- (1,174,173) 41,999 (360,546) 27,865 (2,669) (345) (434,023) 9,867 - ----------- -------- --------- -------- ------- ----- --------- ------- $(1,139,105) $ 57,131 $(361,997) $ 33,796 $(2,591) $(358) $(433,061) $ 8,927 =========== ======== ========= ======== ======= ===== ========= =======
F-31 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
Met Investors Fund ------------------------------------------------------ MFS Research International PIMCO Total Return Portfolio Portfolio -------------------------- -------------------------- For the Year For the Period For the Year For the Period Ended May 1, 2001 to Ended May 1, 2001 to December 31, December 31, December 31, December 31, 2002 2001 2002 2001 ------------ -------------- ------------ -------------- INVESTMENT (LOSS) INCOME: Income: Dividends.................................................... $ 1,203 $ 174 $ -- $ 26,164 Expenses: Mortality and expense charges................................ 3,324 525 28,120 2,322 -------- ------- -------- -------- Net investment (loss) income................................... (2,121) (351) (28,120) 23,842 -------- ------- -------- -------- NET REALIZED AND UNREALIZED (LOSSES) GAINS ON INVESTMENTS: Net realized (losses) gains from security transactions......... (66,559) (4,107) 60,373 1,564 Change in unrealized (depreciation) appreciation of investments (2,664) 1,444 270,736 (14,155) -------- ------- -------- -------- Net realized and unrealized (losses) gains on investments...... (69,223) (2,663) 331,109 (12,591) -------- ------- -------- -------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................... $(71,344) $(3,014) $302,989 $ 11,251 ======== ======= ======== ========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-32
Met Investors Fund - -------------------------------------------------------------------------------------------------------------------- Met/AIM State Street Research Mid Cap Met/AIM Concentrated PIMCO Innovation Lord Abbett Bond Debenture Core Equity Small Cap Growth International Portfolio Portfolio Portfolio Portfolio Portfolio - -------------------------- ------------------------------------- ----------- ---------------- --------------------- For the For the Year For the Period For the Year For the Year For the Year Period May For the Period For the Period Ended May 1, 2001 to Ended Ended Ended 1, 2002 to May 1, 2002 to May 1, 2002 to December 31, December 31, December 31, December 31, December 31, December December 31, December 31, 2002 2001 2002 2001 2000 31, 2002 2002 2002 - ------------ -------------- ------------ ------------ ------------ ----------- ---------------- --------------------- $ -- $ -- $ 996,547 $ 923,897 $ 2,401 $ 291 $ -- $ 210 9,521 1,528 71,674 64,809 50,458 638 281 298 --------- ------- ----------- ----------- --------- ------- ------- ------- (9,521) (1,528) 924,873 859,088 (48,057) (347) (281) (88) --------- ------- ----------- ----------- --------- ------- ------- ------- (111,879) (9,873) (1,886,218) (134,223) (62,427) (1,242) (593) (843) (652,366) 4,179 949,375 (902,997) (65,158) (6,351) (4,322) (2,920) --------- ------- ----------- ----------- --------- ------- ------- ------- (764,245) (5,694) (936,843) (1,037,220) (127,585) (7,593) (4,915) (3,763) --------- ------- ----------- ----------- --------- ------- ------- ------- $(773,766) $(7,222) $ (11,970) $ (178,132) $(175,642) $(7,940) $(5,196) $(3,851) ========= ======= =========== =========== ========= ======= ======= =======
F-33 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Metropolitan Fund ----------------------------------------- State Street Research Investment Trust Portfolio ----------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------- ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (969,448) $ 48,301,051 $ 1,040,518 Net realized (losses) gains from security transactions..................... (6,132,437) 731,187 5,846,334 Change in unrealized (depreciation) appreciation of investments............ (90,883,953) (122,469,738) (37,904,600) ------------ ------------- ------------ Net (decrease) increase in net assets resulting from operations............ (97,985,838) (73,437,500) (31,017,748) ------------ ------------- ------------ From capital transactions: Net premiums............................................................... 78,160,135 80,046,712 78,775,448 Redemptions................................................................ (10,399,853) (15,513,042) (15,714,936) Net portfolio transfers.................................................... (11,186,400) 2,751,095 (7,049,932) Other net transfers........................................................ (38,309,389) (40,534,492) (41,272,460) ------------ ------------- ------------ Net increase (decrease) in net assets resulting from capital transactions.. 18,264,493 26,750,273 14,738,120 ------------ ------------- ------------ NET CHANGE IN NET ASSETS...................................................... (79,721,345) (46,687,227) (16,279,628) NET ASSETS--BEGINNING OF PERIOD............................................... 356,701,314 403,388,541 419,668,169 ------------ ------------- ------------ NET ASSETS--END OF PERIOD..................................................... $276,979,969 $ 356,701,314 $403,388,541 ============ ============= ============
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-34
Metropolitan Fund - ---------------------------------------------------------------------------------------------------------------------------- State Street Research Diversified State Street Research Aggressive Growth MetLife Stock Index Portfolio Portfolio Portfolio - ---------------------------------------- ---------------------------------------- ---------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 3,558,999 $ 23,184,244 $ (1,084,114) $ (1,263,240) $ 45,283,589 $ 25,471,356 $ 2,705,145 $ 1,213,073 $ 10,878,219 (1,810,936) (111,095) 1,585,197 (5,953,657) (1,536,972) 3,369,764 (5,045,284) 4,130,927 6,159,583 (41,694,719) (42,080,714) (360,101) (44,703,891) (94,895,107) (48,026,970) (82,559,071) (48,985,481) (49,619,601) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (39,946,656) (19,007,565) 140,982 (51,920,788) (51,148,490) (19,185,850) (84,899,210) (43,641,481) (32,581,799) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 54,194,120 55,767,097 53,773,281 40,003,786 42,942,155 41,898,360 114,022,950 113,949,042 101,155,153 (9,523,000) (8,333,720) (9,860,611) (4,831,140) (6,486,474) (10,429,472) (13,779,170) (11,030,629) (8,709,802) (383,162) 8,413,016 (3,492,574) (6,485,783) 1,097,789 (209,434) 11,797,286 19,393,554 32,416,473 (32,044,615) (31,250,185) (28,128,760) (17,642,321) (19,697,556) (21,759,150) (47,844,806) (45,631,351) (39,683,105) - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 12,243,343 24,596,208 12,291,336 11,044,542 17,855,914 9,500,304 64,196,260 76,680,616 85,178,719 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (27,703,313) 5,588,643 12,432,318 (40,876,246) (33,292,576) (9,685,546) (20,702,950) 33,039,135 52,596,920 265,723,666 260,135,023 247,702,705 171,691,864 204,984,440 214,669,986 346,930,913 313,891,778 261,294,858 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $238,020,353 $265,723,666 $260,135,023 $130,815,618 $171,691,864 $204,984,440 $326,227,963 $346,930,913 $313,891,778 ============ ============ ============ ============ ============ ============ ============ ============ ============
F-35 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Metropolitan Fund ------------------------------------- Putnam International Stock Portfolio ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 18,744 $ 1,172,876 $ (103,321) Net realized (losses) gains from security transactions..................... (2,655,399) (1,661,736) 309,181 Change in unrealized (depreciation) appreciation of investments............ (4,418,288) (9,202,287) (5,241,506) ----------- ----------- ----------- Net (decrease) increase in net assets resulting from operations............ (7,054,943) (9,691,147) (5,035,646) ----------- ----------- ----------- From capital transactions: Net premiums............................................................... 9,783,594 9,615,907 9,900,638 Redemptions................................................................ (1,287,021) (1,289,983) (2,135,289) Net portfolio transfers.................................................... (2,781,604) 323,092 760,648 Other net transfers........................................................ (3,974,969) (4,148,436) (3,943,304) ----------- ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.. 1,740,000 4,500,580 4,582,693 ----------- ----------- ----------- NET CHANGE IN NET ASSETS...................................................... (5,314,943) (5,190,567) (452,953) NET ASSETS--BEGINNING OF PERIOD............................................... 38,281,041 43,471,608 43,924,561 ----------- ----------- ----------- NET ASSETS--END OF PERIOD..................................................... $32,966,098 $38,281,041 $43,471,608 =========== =========== ===========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-36
Metropolitan Fund - ----------------------------------------------------------------------------------------------------------------------- Janus Mid Cap T. Rowe Price Small Cap Growth Scudder Global Equity Portfolio Portfolio Portfolio - ---------------------------------------- -------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Ended Ended Ended Ended Ended Ended Ended Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 2002 2001 2000 2002 2001 2000 2002 2001 31, 2000 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- $ (1,013,088) $ (1,037,631) $ 10,029,499 $ (332,098) $ 3,209,549 $ (307,077) $ 181,688 $ 2,155,251 $ (77,898) (5,163,698) (2,451,549) 3,280,184 (297,872) (796,014) 759,159 (466,029) (71,082) 423,877 (34,449,605) (53,291,667) (70,128,825) (12,423,975) (6,595,361) (4,955,737) (3,445,540) (5,825,339) (702,165) - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- (40,626,391) (56,780,847) (56,819,142) (13,053,945) (4,181,826) (4,503,655) (3,729,881) (3,741,170) (356,186) - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- 64,528,237 74,363,749 64,927,917 14,332,234 15,023,523 13,173,661 7,029,500 7,562,752 6,536,768 (2,804,544) (3,144,623) (3,404,065) (1,348,311) (2,577,320) (960,930) (936,418) (630,613) (543,240) (5,298,371) 3,860,189 39,706,625 753,895 (372,409) 7,018,243 (322,915) 603,395 1,878,567 (21,964,497) (23,970,747) (26,632,666) (5,463,573) (5,350,422) (4,758,398) (2,670,700) (2,572,779) (2,129,044) - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- 34,460,825 51,108,568 74,597,811 8,274,245 6,723,372 14,472,576 3,099,467 4,962,755 5,743,051 - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- (6,165,566) (5,672,279) 17,778,669 (4,779,700) 2,541,546 9,968,921 (630,414) 1,221,585 5,386,865 125,185,141 130,857,420 113,078,751 44,659,788 42,118,242 32,149,321 21,106,347 19,884,762 14,497,897 - ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- $119,019,575 $125,185,141 $130,857,420 $ 39,880,088 $44,659,788 $42,118,242 $20,475,933 $21,106,347 $19,884,762 ============ ============ ============ ============ =========== =========== =========== =========== ===========
F-37 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Metropolitan Fund ------------------------------------- Harris Oakmark Large Cap Value Portfolio ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 438,284 $ (56,512) $ 37,177 Net realized (losses) gains from security transactions..................... 173,172 94,596 (27,497) Change in unrealized (depreciation) appreciation of investments............ (3,824,797) 810,284 217,646 ----------- ----------- ---------- Net (decrease) increase in net assets resulting from operations............ (3,213,341) 848,368 227,326 ----------- ----------- ---------- From capital transactions: Net premiums............................................................... 10,115,432 4,073,390 715,820 Redemptions................................................................ (287,586) (268,807) (22,511) Net portfolio transfers.................................................... 6,291,525 9,043,603 1,142,472 Other net transfers........................................................ (4,169,815) (1,466,228) (296,592) ----------- ----------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 11,949,556 11,381,958 1,539,189 ----------- ----------- ---------- NET CHANGE IN NET ASSETS...................................................... 8,736,215 12,230,326 1,766,515 NET ASSETS--BEGINNING OF PERIOD............................................... 14,336,339 2,106,013 339,498 ----------- ----------- ---------- NET ASSETS--END OF PERIOD..................................................... $23,072,554 $14,336,339 $2,106,013 =========== =========== ==========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-38
Metropolitan Fund - ------------------------------------------------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Value T. Rowe Price Large Cap Growth Lehman Brothers Aggregate Bond Index Portfolio Portfolio Portfolio - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (89,469) $ 106,521 $ 175,765 $ (106,090) $ (94,779) $ 184,033 $ 982,861 $ 212,243 $ 1,099,635 105,666 (68,863) 28,891 (317,124) (100,488) 9,246 515,268 210,509 61,931 (1,888,036) (195,526) 444,118 (5,333,848) (92,461) (515,437) 2,760,523 1,053,501 (39,445) - ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- (1,871,839) (157,868) 648,774 (5,757,062) (287,728) (322,158) 4,258,652 1,476,253 1,122,121 - ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- 8,172,686 5,746,048 1,424,997 9,447,412 8,996,035 2,941,543 10,479,062 8,533,067 6,001,873 (1,215,338) (57,006) (48,928) (125,856) (60,227) (19,075) (1,839,866) (1,024,276) (253,963) 2,321,678 4,766,372 4,051,096 873,833 8,736,398 4,471,715 8,318,943 11,244,179 12,581,907 (3,236,171) (2,321,908) (529,061) (3,453,967) (3,536,498) (1,062,875) (4,492,832) (2,262,688) (657,185) - ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- 6,042,855 8,133,506 4,898,104 6,741,422 14,135,708 6,331,308 12,465,307 16,490,282 17,672,632 - ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- 4,171,016 7,975,638 5,546,878 984,360 13,847,980 6,009,150 16,723,959 17,966,535 18,794,753 14,114,806 6,139,168 592,290 21,110,525 7,262,545 1,253,395 37,322,329 19,355,794 561,041 - ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- $18,285,822 $14,114,806 $6,139,168 $22,094,885 $21,110,525 $ 7,262,545 $54,046,288 $37,322,329 $19,355,794 =========== =========== ========== =========== =========== =========== =========== =========== ===========
F-39 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Metropolitan Fund ------------------------------------- Morgan Stanley EAFE Index Portfolio ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (64,128) $ (37,840) $ 68,390 Net realized (losses) gains from security transactions..................... (800,822) (961,834) (86,470) Change in unrealized (depreciation) appreciation of investments............ (1,274,363) (729,479) (425,063) ----------- ----------- ---------- Net (decrease) increase in net assets resulting from operations............ (2,139,313) (1,729,153) (443,143) ----------- ----------- ---------- From capital transactions: Net premiums............................................................... 6,625,665 4,890,376 1,984,111 Redemptions................................................................ (1,101,621) (722,285) (25,611) Net portfolio transfers.................................................... 1,672,217 4,395,203 3,730,891 Other net transfers........................................................ (2,360,586) (1,819,787) (682,554) ----------- ----------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 4,835,675 6,743,507 5,006,837 ----------- ----------- ---------- NET CHANGE IN NET ASSETS...................................................... 2,696,362 5,014,354 4,563,694. NET ASSETS--BEGINNING OF PERIOD............................................... 10,799,710 5,785,356 1,221,662. ----------- ----------- ---------- NET ASSETS--END OF PERIOD..................................................... $13,496,072 $10,799,710 $5,785,356. =========== =========== ==========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-40
Metropolitan Fund - ----------------------------------------------------------------------------------------------------------------------- Russell 2000 Index Putnam Large Cap Growth State Street Research Aurora Portfolio Portfolio Portfolio - ------------------------------------- --------------------------------------- --------------------------------------- For the Period For the Period For the Year For the Year For the Year For the Year For the Year May 1, 2000 For the Year For the Year July 5, 2000 Ended Ended Ended Ended Ended to Ended Ended to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ -------------- ------------ ------------ -------------- $ (29,731) $ (47,654) $ 775,840 $ (39,278) $ (22,732) $ (1,713) $ (97,874) $ (51,026) $ 16,972 (343,069) (1,016,179) (27,586) (304,226) (113,353) (1,766) 81,843 155,882 3,082 (2,545,881) 1,215,383 (1,037,181) (1,227,374) (585,114) (173,356) (6,958,922) 1,218,805 302,768 - ----------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- (2,918,681) 151,550 (288,927) (1,570,878) (721,199) (176,835) (6,974,953) 1,323,661 322,822 - ----------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- 7,082,371 5,343,692 2,510,031 3,461,165 2,425,615 306,843 15,376,489 7,040,736 335,643 (266,570) (375,673) (45,875) (27,865) (23,841) (5,695) (302,359) (81,569) (11,356) 2,834,125 1,811,235 3,956,271 548,678 2,239,800 915,075 6,843,668 11,247,758 2,585,881 (2,527,437) (2,007,235) (882,331) (1,159,060) (878,209) (80,881) (5,887,521) (2,656,308) (102,034) - ----------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- 7,122,489 4,772,019 5,538,096 2,822,918 3,763,365 1,135,342 16,030,277 15,550,617 2,808,134 - ----------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- 4,203,808 4,923,569 5,249,169 1,252,040 3,042,166 958,507 9,055,324 16,874,278 3,130,956 10,624,726 5,701,157 451,988 4,000,673 958,507 -- 20,005,234 3,130,956 -- - ----------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- $14,828,534 $10,624,726 $ 5,701,157 $ 5,252,713 $4,000,673 $ 958,507 $29,060,558 $20,005,234 $3,130,956 =========== =========== =========== =========== ========== ========== =========== =========== ==========
F-41 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Metropolitan Fund ---------------------------------------- MetLife Mid Cap Stock Index Portfolio ---------------------------------------- For the Year For the Year For the Period Ended Ended July 5, 2000 to December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ --------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ (55,361) $ (18,724) $ 7,022 Net realized (losses) gains from security transactions..................... (23,095) (19,531) (300) Change in unrealized (depreciation) appreciation of investments............ (2,089,536) 294,328 57,307 ----------- ----------- ---------- Net (decrease) increase in net assets resulting from operations............ (2,167,992) 256,073 64,029 ----------- ----------- ---------- From capital transactions: Net premiums............................................................... 7,438,484 4,147,919 240,407 Redemptions................................................................ (109,971) (16,900) (8,675) Net portfolio transfers.................................................... 4,006,261 4,052,437 1,949,602 Other net transfers........................................................ (2,617,681) (1,566,864) (99,172) ----------- ----------- ---------- Net increase (decrease) in net assets resulting from capital transactions.. 8,717,093 6,616,592 2,082,162 ----------- ----------- ---------- NET CHANGE IN NET ASSETS...................................................... 6,549,101 6,872,665 2,146,191 NET ASSETS--BEGINNING OF PERIOD............................................... 9,018,856 2,146,191 -- ----------- ----------- ---------- NET ASSETS--END OF PERIOD..................................................... $15,567,957 $ 9,018,856 $2,146,191 =========== =========== ==========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-42
Metropolitan Fund Janus Fund - ---------------------------------------------------------------------------- ------------------------------------- Franklin Templeton State Street Research Janus Growth Small Cap Growth Large Cap Value Janus Aspen Growth Portfolio Portfolio Portfolio Portfolio - -------------------------- -------------------------- --------------------- ------------------------------------- For the Year For the Period For the Year For the Period For the Period For the Year For the Year For the Year Ended May 1, 2001 to Ended May 1, 2001 to May 1, 2002 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2001 2002 2002 2001 2000 - ------------ -------------- ------------ -------------- --------------------- ------------ ------------ ------------ $ (13,374) $ (2,780) $ (8,397) $ (1,124) $ 433 $ (9,370) $ 185,366 $ 171,670 (78,401) (43,356) (42,766) (3,651) (3,284) (179,152) (1,848,663) (11,878) (426,893) (11,854) (271,373) 16,066 (3,178) (329,490) 498,521 (1,038,841) ---------- ---------- ---------- -------- -------- ---------- ----------- ----------- (518,668) (57,990) (322,536) 11,291 (6,029) (518,012) (1,164,776) (879,049) ---------- ---------- ---------- -------- -------- ---------- ----------- ----------- 1,567,918 311,526 626,488 107,629 64,977 913,602 779,753 1,494,340 (23,600) -- (5,592) (802) (313) (13,590) (2,741,484) (102) 607,036 817,361 745,849 369,945 153,138 34,319 254,486 4,654,955 (540,084) (118,215) (235,608) (30,931) (23,188) (211,649) (189,372) (346,372) ---------- ---------- ---------- -------- -------- ---------- ----------- ----------- 1,611,270 1,010,672 1,131,137 445,841 194,614 722,682 (1,896,617) 5,802,821 ---------- ---------- ---------- -------- -------- ---------- ----------- ----------- 1,092,602 952,682 808,601 457,132 188,585 204,670 (3,061,393) 4,923,772 952,682 -- 457,132 -- -- 1,958,752 5,020,145 96,373 ---------- ---------- ---------- -------- -------- ---------- ----------- ----------- $2,045,284 $ 952,682 $1,265,733 $457,132 $188,585 $2,163,422 $ 1,958,752 $ 5,020,145 ========== ========== ========== ======== ======== ========== =========== ===========
F-43 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Invesco Fund ------------------------------------- Invesco VIF High Yield Portfolio ------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 48,408 $ 29,172 $ (42) Net realized (losses) gains from security transactions..................... (31,480) (3,798) (11) Change in unrealized (depreciation) appreciation of investments............ (7,350) (33,395) (1,445) -------- -------- ------- Net (decrease) increase in net assets resulting from operations............ 9,578 (8,021) (1,498) -------- -------- ------- From capital transactions: Net premiums............................................................... 216,788 213,527 2,194 Redemptions................................................................ -- -- -- Net portfolio transfers.................................................... 2,473 71,476 7,138 Other net transfers........................................................ (27,503) (13,506) (239) -------- -------- ------- Net increase (decrease) in net assets resulting from capital transactions.. 191,758 271,497 9,093 -------- -------- ------- NET CHANGE IN NET ASSETS...................................................... 201,336 263,476 7,595 NET ASSETS--BEGINNING OF PERIOD............................................... 274,298 10,822 3,227 -------- -------- ------- NET ASSETS--END OF PERIOD..................................................... $475,634 $274,298 $10,822 ======== ======== =======
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-44
Invesco Fund Franklin Fund - ---------------------------------------------------------------------------- ------------------------------------- Invesco VIF Equity Income Invesco VIF Real Estate Opportunity Franklin Templeton International Stock Portfolio Portfolio Portfolio - ------------------------------------- ------------------------------------- ------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 1,519 $ 1,475 $ 725 $ (248) $ 652 $ (288) $ 31,411 $ 197,836 $ 30,971 (7,425) (1,414) 18 12,032 1,271 445 (325,690) (18,952) (35,953) (21,641) (4,995) (596) 3,016 (3,692) 4,890 (187,267) (287,060) (6,907) -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- (27,547) (4,934) 147 14,800 (1,769) 5,047 (481,546) (108,176) (11,889) -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- 30,604 5,886 7,244 9,629 3,478 1,795 937,164 461,547 199,820 -- (780) -- -- -- -- (90,063) (236,261) (1,160) 7,548 112,018 1,027 64,182 (24,700) 107,017 643,475 589,847 922,250 (8,020) (3,589) (413) 1,520 (2,641) (709) (163,651) (39,531) (16,624) -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- 30,132 113,535 7,858 75,331 (23,863) 108,103 1,326,925 775,602 1,104,286 -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- 2,585 108,601 8,005 90,131 (25,632) 113,150 845,379 667,426 1,092,397 122,478 13,877 5,872 89,102 114,734 1,584 1,766,655 1,099,229 6,832 -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- $125,063 $122,478 $13,877 $179,233 $ 89,102 $114,734 $2,612,034 $1,766,655 $1,099,229 ======== ======== ======= ======== ======== ======== ========== ========== ==========
F-45 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Franklin Fund Zenith Fund ------------------------ --------------------------------------- Franklin Templeton Valuemark Small Cap Davis Venture Value Portfolio (a) Portfolio ------------------------ --------------------------------------- For the Period For the Year For the Year For the Year For the Year July 5, 2000 Ended Ended Ended Ended to December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................ $ (1,274) $ (121) $ 750 $ 153,188 $ (1,697) Net realized (losses) gains from security transactions.. (49,638) (480) (188,804) (46,987) (482) Change in unrealized (depreciation) appreciation of investments............................................ (184,311) 4,364 (2,083,879) (437,523) 27,591 --------- -------- ----------- ----------- ---------- Net (decrease) increase in net assets resulting from operations............................................. (235,223) 3,763 (2,271,933) (331,322) 25,412 --------- -------- ----------- ----------- ---------- From capital transactions: Net premiums............................................ 40,174 32,699 5,157,409 3,338,434 199,454 Redemptions............................................. -- -- (86,825) (44,938) (6,528) Net portfolio transfers................................. 995,374 69,587 5,300,022 4,710,785 973,687 Other net transfers..................................... (102,364) (3,042) (2,166,021) (1,312,198) (55,246) --------- -------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from capital transactions................................... 933,184 99,244 8,204,585 6,692,083 1,111,367 --------- -------- ----------- ----------- ---------- NET CHANGE IN NET ASSETS................................... 697,961 103,007 5,932,652 6,360,761 1,136,779 NET ASSETS--BEGINNING OF PERIOD............................ 103,007 -- 7,497,540 1,136,779 -- --------- -------- ----------- ----------- ---------- NET ASSETS--END OF PERIOD.................................. $ 800,968 $103,007 $13,430,192 $ 7,497,540 $1,136,779 ========= ======== =========== =========== ==========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-46
Zenith Fund - --------------------------------------------------------------------------------------------------------------------- Loomis Sayles Small Cap Alger Equity Growth MFS Investors Trust MFS Research Managers Portfolio Portfolio (a) Portfolio (a) Portfolio (a) - --------------------------------------- ------------------------ ------------------------ ------------------------ For the Period For the Year For the Year July 5, 2000 For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended to Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2002 2001 2002 2001 - ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------ ------------ $ (16,142) $ 75,074 $ (629) $ (13,698) $ (121) $ (2,715) $ (1,179) $ (2,427) $ (363) (106,829) (35,645) (42) (57,097) (175) (71,866) (5,896) (30,794) 1,304 (414,868) (62,611) 5,980 (983,355) (5,126) (78,498) 4,527 (58,814) (346) ---------- ---------- -------- ----------- ------- --------- --------- --------- --------- (537,839) (23,182) 5,309 (1,054,150) (5,422) (153,079) (2,548) (92,035) 595 ---------- ---------- -------- ----------- ------- --------- --------- --------- --------- 1,200,038 909,510 62,643 40,283 -- 657,381 122,835 256,687 72,571 (11,815) (7,864) (6,573) -- -- (4,428) (1,444) (250) (3,984) 268,407 960,425 403,213 4,290,312 52,468 480,329 486,210 151,712 231,621 (436,811) (356,458) (20,610) (338,952) (1,809) (608,417) (282,946) (153,237) (149,340) ---------- ---------- -------- ----------- ------- --------- --------- --------- --------- 1,019,819 1,505,613 438,673 3,991,643 50,659 524,865 324,655 254,912 150,868 ---------- ---------- -------- ----------- ------- --------- --------- --------- --------- 481,980 1,482,431 443,982 2,937,493 45,237 371,786 322,107 162,877 151,463 1,926,413 443,982 -- 45,237 -- 322,107 -- 151,463 -- ---------- ---------- -------- ----------- ------- --------- --------- --------- --------- $2,408,393 $1,926,413 $443,982 $ 2,982,730 $45,237 $ 693,893 $ 322,107 $ 314,340 $ 151,463 ========== ========== ======== =========== ======= ========= ========= ========= =========
F-47 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Zenith Fund -------------------------------------- State Street Research Bond Income Portfolio -------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income............................................... $ 4,278,595 $ 5,095,599 $ (553,925) Net realized (losses) gains from security transactions..................... (378,655) 400,025 (764,188) Change in unrealized (depreciation) appreciation of investments............ 2,444,438 (137,736) 8,375,071 ----------- ------------ ----------- Net (decrease) increase in net assets resulting from operations............ 6,344,378 5,357,888 7,056,958 ----------- ------------ ----------- From capital transactions: Net premiums............................................................... 18,007,464 14,237,318 16,247,550 Redemptions................................................................ (3,078,401) (3,623,665) (2,164,427) Net portfolio transfers.................................................... 1,121,089 3,289,281 (4,736,604) Other net transfers........................................................ (8,719,726) (15,760,945) (6,051,666) ----------- ------------ ----------- Net increase (decrease) in net assets resulting from capital transactions.. 7,330,426 (1,858,011) 3,294,853 ----------- ------------ ----------- NET CHANGE IN NET ASSETS...................................................... 13,674,804 3,499,877 10,351,811 NET ASSETS--BEGINNING OF PERIOD............................................... 79,483,128 75,983,251 65,631,440 ----------- ------------ ----------- NET ASSETS--END OF PERIOD..................................................... $93,157,932 $ 79,483,128 $75,983,251 =========== ============ ===========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-48
Zenith Fund - ------------------------------------------------------------------------------------------------------------ Salomon Brothers Salomon Brothers FI Structured Equity Harris Oakmark Focused Value Strategic Bond Opportunities U.S. Government Portfolio (a) Portfolio Portfolio Portfolio - ------------------------ -------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Period For the Year For the Period For the Year For the Period Ended Ended Ended May 1, 2001 to Ended May 1, 2001 to Ended May 1, 2001 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2001 2002 2001 2002 2001 - ------------ ------------ ------------ -------------- ------------ -------------- ------------ -------------- $ 70 $ (69) $ (63,671) $ (9,775) $ 72,727 $ (894) $ 71,569 $ (1,841) (9,596) (77) (9,588) (43) 241 117 10,225 5,065 (4,285) (2,467) (938,481) 279,801 62,351 4,621 83,661 (2,273) -------- ------- ----------- ---------- ---------- -------- ---------- -------- (13,811) (2,613) (1,011,740) 269,983 135,319 3,844 165,455 951 -------- ------- ----------- ---------- ---------- -------- ---------- -------- 51,077 -- 6,333,512 999,657 890,271 97,914 1,641,232 162,934 -- -- (161,171) (7,188) (17,732) (566) (35,283) (10,909) 41,277 28,886 5,880,885 3,223,723 1,049,918 396,753 2,382,469 755,686 (10,863) (1,055) (2,377,498) (271,630) (348,947) (33,111) (637,762) (59,363) -------- ------- ----------- ---------- ---------- -------- ---------- -------- 81,491 27,831 9,675,728 3,944,562 1,573,510 460,990 3,350,656 848,348 -------- ------- ----------- ---------- ---------- -------- ---------- -------- 67,680 25,218 8,663,988 4,214,545 1,708,829 464,834 3,516,111 849,299 25,218 -- 4,214,545 -- 464,834 -- 849,299 -- -------- ------- ----------- ---------- ---------- -------- ---------- -------- $ 92,898 $25,218 $12,878,533 $4,214,545 $2,173,663 $464,834 $4,365,410 $849,299 ======== ======= =========== ========== ========== ======== ========== ========
F-49 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Zenith Fund ------------------------------------------------------ FI Mid Cap State Street Research Opportunities Money Market Portfolio Portfolio --------------------------------------- -------------- For the Year For the Year For the Year For the Period Ended Ended Ended May 1, 2002 to December 31, December 31, December 31, December 31, 2002 2001 2000 2002 ------------ ------------ ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income........................................ $ 259,328 $ 918,529 $ 1,386,180 $ (333) Net realized (losses) gains from security transactions.............. (628,588) (499,341) 1,059,353 (1,950) Change in unrealized (depreciation) appreciation of investments..... 611,711 796,577 (454,099) 3,758 ------------ ----------- ------------ -------- Net (decrease) increase in net assets resulting from operations..... 242,451 1,215,765 1,991,434 1,475 ------------ ----------- ------------ -------- From capital transactions: Net premiums........................................................ 25,769,284 17,936,134 35,316,006 49,033 Redemptions......................................................... (4,958,930) (1,689,474) (18,249,957) (19) Net portfolio transfers............................................. (33,048,287) (4,603,225) (27,922,080) 149,230 Other net transfers................................................. 10,079,748 (1,666,768) (2,674,970) (31,850) ------------ ----------- ------------ -------- Net increase (decrease) in net assets resulting from capital transactions....................................................... (2,158,185) 9,976,667 (13,531,001) 166,394 ------------ ----------- ------------ -------- NET CHANGE IN NET ASSETS............................................... (1,915,734) 11,192,432 (11,539,567) 167,869 NET ASSETS--BEGINNING OF PERIOD........................................ 32,726,347 21,533,915 33,073,482 -- ------------ ----------- ------------ -------- NET ASSETS--END OF PERIOD.............................................. $ 30,810,613 $32,726,347 $ 21,533,915 $167,869 ============ =========== ============ ========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-50
Alliance Fund Fidelity Fund - -------------------------------------------------------------------------------------------------- ------------------------ Fidelity VIP Alliance Growth & Income Alliance Premier Growth Alliance Technology Contrafund Portfolio Portfolio (a) Portfolio (a) Portfolio (a) - ----------------------------------------------- ------------------------ ------------------------ ------------------------ For the Year For the Year For the Period For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended September 30, 2000 to Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 2002 2001 2002 2001 2002 2001 - ------------ ------------ --------------------- ------------ ------------ ------------ ------------ ------------ ------------ $ 23,587 $ 2,195 $ -- $ (274) $ (104) $ (96) $ 661 $ (926) $ (57) (18,278) (318) -- (9,853) (138) (519) (19,763) (348) (27) (137,057) 24,267 2,702 (12,480) 1,299 (9,033) (2,681) (29,437) (253) ---------- -------- ------- -------- ------- ------- -------- -------- ------- (131,748) 26,144 2,702 (22,607) 1,057 (9,648) (21,783) (30,711) (337) ---------- -------- ------- -------- ------- ------- -------- -------- ------- 560,351 422,139 -- 29,958 -- 17,162 463 22,932 3,356 (14,526) -- -- -- -- -- -- -- -- 192,482 160,474 54,402 (60,622) 97,128 -- 36,082 237,002 21,462 (71,035) (11,019) 769 (2,820) 133 (1,833) (2,213) (3,862) (621) ---------- -------- ------- -------- ------- ------- -------- -------- ------- 667,272 571,594 55,171 (33,484) 97,261 15,329 34,332 256,072 24,197 ---------- -------- ------- -------- ------- ------- -------- -------- ------- 535,524 597,738 57,873 (56,091) 98,318 5,681 12,549 225,361 23,860 655,611 57,873 -- 98,318 -- 12,549 -- 23,860 -- ---------- -------- ------- -------- ------- ------- -------- -------- ------- $1,191,135 $655,611 $57,873 $ 42,227 $98,318 $18,230 $ 12,549 $249,221 $23,860 ========== ======== ======= ======== ======= ======= ======== ======== =======
F-51 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Fidelity Fund -------------------------------------------------- Fidelity VIP Fidelity VIP Asset Manager Growth Growth Portfolio (a) Portfolio (a) ------------------------ ------------------------ For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, December 31, December 31, December 31, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income.................................. $ 3,017 $ (233) $ (517) $ (243) Net realized (losses) gains from security transactions........ (5,591) 113 (8,400) (3,407) Change in unrealized (depreciation) appreciation of investments.................................................. (19,964) (1,597) (40,968) (3,078) -------- ------- -------- ------- Net (decrease) increase in net assets resulting from operations................................................... (22,538) (1,717) (49,885) (6,728) -------- ------- -------- ------- From capital transactions: Net premiums.................................................. 105,094 16,990 102,972 22,338 Redemptions................................................... (2,162) -- -- -- Net portfolio transfers....................................... (31,085) 84,590 (1,143) 74,755 Other net transfers........................................... (12,942) (5,355) (5,581) (3,117) -------- ------- -------- ------- Net increase (decrease) in net assets resulting from capital transactions................................................. 58,905 96,225 96,248 93,976 -------- ------- -------- ------- NET CHANGE IN NET ASSETS......................................... 36,367 94,508 46,363 87,248 NET ASSETS--BEGINNING OF PERIOD.................................. 94,508 -- 87,248 -- -------- ------- -------- ------- NET ASSETS--END OF PERIOD........................................ $130,875 $94,508 $133,611 $87,248 ======== ======= ======== =======
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-52
American Fund Met Investors Fund - -------------------------------------------------------------------------------------- ------------------------ American Funds Growth American Funds Growth-Income American Funds Global Small Cap JPM Enhanced Index Portfolio Portfolio Portfolio Portfolio (a) - -------------------------- -------------------------- ------------------------------ ------------------------ For the Year For the Period For the Year For the Period For the Year For the Period For the Year For the Year Ended May 1, 2001 to Ended May 1, 2001 to Ended May 1, 2001 to Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 2002 2001 2002 2001 2002 2001 2002 31, 2001 - ------------ -------------- ------------ -------------- ------------ -------------- ------------ ------------ $ (56,543) $ 128,057 $ 35,068 $ 15,132 $ (1,451) $ 5,931 $ 78 $ (13) (49,022) (95,342) (51,319) (13,398) 35,746 (18,714) (1,186) (25) (1,636,890) (17,189) (1,122,854) 55,397 (396,292) 46,579 (1,483) (320) - ----------- ---------- ----------- ---------- ---------- -------- ------- ------ (1,742,455) 15,526 (1,139,105) 57,131 (361,997) 33,796 (2,591) (358) - ----------- ---------- ----------- ---------- ---------- -------- ------- ------ 5,515,691 700,197 4,324,156 553,810 1,071,636 138,839 6,165 -- (51,220) (1,570) (62,519) (6,270) (8,869) -- -- -- 5,147,713 2,173,706 4,404,613 1,876,550 1,067,611 476,691 1,869 5,908 (2,053,980) 288,414 (1,573,001) (27,864) (354,525) (30,269) (3,041) (187) - ----------- ---------- ----------- ---------- ---------- -------- ------- ------ 8,558,204 3,160,747 7,093,249 2,396,226 1,775,853 585,261 4,993 5,721 - ----------- ---------- ----------- ---------- ---------- -------- ------- ------ 6,815,749 3,176,273 5,954,144 2,453,357 1,413,856 619,057 2,402 5,363 3,176,273 -- 2,453,357 -- 619,057 -- 5,363 -- - ----------- ---------- ----------- ---------- ---------- -------- ------- ------ $ 9,992,022 $3,176,273 $ 8,407,501 $2,453,357 $2,032,913 $619,057 $ 7,765 $5,363 =========== ========== =========== ========== ========== ======== ======= ======
F-53 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Met Investors Fund ------------------------------------------------------ MFS Mid Cap Growth MFS Research International Portfolio Portfolio -------------------------- -------------------------- For the Year For the Period For the Year For the Period Ended May 1, 2001 to Ended May 1, 2001 to December 31, December 31, December 31, December 31, 2002 2001 2002 2001 ------------ -------------- ------------ -------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income................................... $ 962 $ (940) $ (2,121) $ (351) Net realized (losses) gains from security transactions......... (55,314) (1,372) (66,559) (4,107) Change in unrealized (depreciation) appreciation of investments................................................... (378,709) 11,239 (2,664) 1,444 ---------- -------- -------- -------- Net (decrease) increase in net assets resulting from operations.................................................... (433,061) 8,927 (71,344) (3,014) ---------- -------- -------- -------- From capital transactions: Net premiums................................................... 820,210 82,192 323,700 38,580 Redemptions.................................................... (1,344) (543) (1,956) -- Net portfolio transfers........................................ 375,032 264,649 254,704 77,076 Other net transfers............................................ 47,743 209,192 (28,935) 124,871 ---------- -------- -------- -------- Net increase (decrease) in net assets resulting from capital transactions.................................................. 1,241,641 555,490 547,513 240,527 ---------- -------- -------- -------- NET CHANGE IN NET ASSETS.......................................... 808,580 564,417 476,169 237,513 NET ASSETS--BEGINNING OF PERIOD................................... 564,417 -- 237,513 -- ---------- -------- -------- -------- NET ASSETS--END OF PERIOD......................................... $1,372,997 $564,417 $713,682 $237,513 ========== ======== ======== ========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-54
Met Investors Fund - ---------------------------------------------------------------------------------------------- PIMCO Total Return PIMCO Innovation Lord Abbett Bond Debenture Portfolio Portfolio Portfolio - -------------------------- -------------------------- -------------------------------------- For the Year For the Period For the Year For the Period For the Year For the Year For the Year Ended May 1, 2001 to Ended May 1, 2001 to Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2002 2001 2002 2001 2000 - ------------ -------------- ------------ -------------- ------------ ------------ ------------ $ (28,120) $ 23,842 $ (9,521) $ (1,528) $ 924,873 $ 859,088 $ (48,057) 60,373 1,564 (111,879) (9,873) (1,886,218) (134,223) (62,427) 270,736 (14,155) (652,366) 4,179 949,375 (902,997) (65,158) ---------- ---------- ---------- -------- ------------ ---------- ---------- 302,989 11,251 (773,766) (7,222) (11,970) (178,132) (175,642) ---------- ---------- ---------- -------- ------------ ---------- ---------- 1,998,260 266,987 931,879 138,136 2,500,797 2,653,126 2,272,880 (31,798) (9,397) (7,020) -- (441,582) (478,731) (256,031) 3,693,012 902,199 627,449 661,537 11,019,013 807,014 762,530 (851,347) (68,474) (258,151) (43,761) (13,314,199) (872,472) (644,203) ---------- ---------- ---------- -------- ------------ ---------- ---------- 4,808,127 1,091,315 1,294,157 755,912 (235,971) 2,108,937 2,135,176 ---------- ---------- ---------- -------- ------------ ---------- ---------- 5,111,116 1,102,566 520,391 748,690 (247,941) 1,930,805 1,959,534 1,102,566 -- 748,690 -- 8,844,547 6,913,742 4,954,208 ---------- ---------- ---------- -------- ------------ ---------- ---------- $6,213,682 $1,102,566 $1,269,081 $748,690 $ 8,596,606 $8,844,547 $6,913,742 ========== ========== ========== ======== ============ ========== ==========
F-55 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
Met Investors Fund ----------------------------------------------- Met/AIM Mid Cap State Street Research Core Met/AIM Concentrated Equity Small Cap Growth International Portfolio Portfolio Portfolio --------- ---------------- --------------------- For the Period May 1, For the Period For the Period 2002 to May 1, 2002 to May 1, 2002 to December December 31, December 31, 31, 2002 2002 2002 --------- ---------------- --------------------- (DECREASE) INCREASE IN NET ASSETS From operations: Net investment (loss) income................................... $ (347) $ (281) $ (88) Net realized (losses) gains from security transactions......... (1,242) (593) (843) Change in unrealized (depreciation) appreciation of investments................................................... (6,351) (4,322) (2,920) -------- -------- -------- Net (decrease) increase in net assets resulting from operations.................................................... (7,940) (5,196) (3,851) -------- -------- -------- From capital transactions: Net premiums................................................... 70,763 30,362 59,332 Redemptions.................................................... (929) (129) (178) Net portfolio transfers........................................ 212,616 84,320 122,434 Other net transfers............................................ (21,530) 6,439 (27,767) -------- -------- -------- Net increase (decrease) in net assets resulting from capital transactions.................................................. 260,920 120,992 153,821 -------- -------- -------- NET CHANGE IN NET ASSETS.......................................... 252,980 115,796 149,970 NET ASSETS--BEGINNING OF PERIOD................................... -- -- -- -------- -------- -------- NET ASSETS--END OF PERIOD......................................... $252,980 $115,796 $149,970 ======== ======== ========
- -------- (a) Commenced operations on January 1, 2001. See Notes to Financial Statements. F-56 Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 2002 1. BUSINESS Metropolitan Life Separate Account UL (the "Separate Account"), a separate account of Metropolitan Life Insurance Company ("Metropolitan Life"), was established on December 13, 1988 to support Metropolitan Life's operations with respect to certain variable universal life contracts ("Contracts"). Metropolitan Life is a wholly owned subsidiary of MetLife, Inc. ("MetLife"). The Separate Account was registered as a unit investment trust on January 5, 1990 under the Investment Company Act of 1940, as amended, and exists in accordance with the regulations of the New York Insurance Department. The Separate Account presently consists of fifty-six sub-accounts that support various variable universal life insurance contracts (Flexible Premium Multifunded Life ("UL II"), MetLife Flexible Premium Variable Life ("MetFlex"), Group Variable Universal Life ("GVUL"), Flexible Premium Multifunded Life ("UL 2001"), Variable Additional Insurance ("VAI") and Variable Additional Benefits Rider ("VABR")). The Separate Account is divided into sub-accounts invested in shares of the corresponding portfolios, series or funds of the Metropolitan Series Fund, Inc. ("Metropolitan Fund"), the Janus Aspen Series Funds ("Janus Fund"), the Invesco Variable Investment Funds, Inc. ("Invesco Fund"), the Franklin Templeton Variable Insurance Product Series Funds ("Franklin Fund"), the New England Zenith Series Funds, Inc. ("Zenith Fund"), the Alliance Variable Product Series Funds ("Alliance Fund"), the Fidelity Variable Insurance Products Funds ("Fidelity Fund"), American Series Funds ("American Fund"), and the MetLife Investors Trust Funds ("Met Investors Fund"), collectively, (the "Funds"). For convenience, the portfolios, series or funds are referred to as "portfolios." The assets of the Separate Account are registered in the name of Metropolitan Life. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from Metropolitan Life's other assets and liabilities. The portion of the Separate Account's assets applicable to the variable life contracts is not chargeable with liabilities arising out of any other business Metropolitan Life may conduct. Metropolitan Fund: State Street Research Investment Trust Portfolio State Street Research Diversified Portfolio State Street Research Aggressive Growth Portfolio MetLife Stock Index Portfolio Putnam International Stock Portfolio Janus Mid Cap Portfolio T. Rowe Price Small Cap Growth Portfolio Scudder Global Equity Portfolio Harris Oakmark Large Cap Value Portfolio Neuberger Berman Partners Mid Cap Value Portfolio T. Rowe Price Large Cap Growth Portfolio Lehman Brothers Aggregate Bond Index Portfolio Morgan Stanley EAFE Index Portfolio Russell 2000 Index Portfolio Putnam Large Cap Growth Portfolio State Street Research Aurora Portfolio MetLife Mid Cap Stock Index Portfolio Janus Growth Portfolio (b) Franklin Templeton Small Cap Growth Portfolio (b) State Street Research Large Cap Value Portfolio (c) Janus Fund: Janus Aspen Growth Portfolio Invesco Fund: Invesco VIF High Yield Portfolio Invesco VIF Equity Income Portfolio Invesco VIF Real Estate Opportunity Portfolio Franklin Fund: Franklin Templeton International Stock Portfolio Franklin Templeton Valuemark Small Cap Portfolio (a) Zenith Fund: Davis Venture Value Portfolio Loomis Sayles Small Cap Portfolio Zenith Fund: (continued) Alger Equity Growth Portfolio (a) MFS Investors Trust Portfolio (a) MFS Research Managers Portfolio (a) State Street Research Bond Income Portfolio FI Structured Equity Portfolio (a) Harris Oakmark Focused Value Portfolio (b) Salomon Brothers Strategic Bond Opportunities Portfolio (b) Salomon Brothers U.S. Government Portfolio (b) State Street Research Money Market Portfolio FI Mid Cap Opportunities Portfolio (c) Alliance Fund: Alliance Growth & Income Portfolio Alliance Premier Growth Portfolio (a) Alliance Technology Portfolio (a) Fidelity Fund: Fidelity VIP Contrafund Portfolio (a) Fidelity VIP Asset Manager Growth Portfolio (a) Fidelity VIP Growth Portfolio (a) American Fund: American Funds Growth Portfolio (b) American Funds Growth-Income Portfolio (b) American Funds Global Small Cap Portfolio (b) Met Investors Fund: JPM Enhanced Index Portfolio (a) MFS Mid Cap Growth Portfolio (b) MFS Research International Portfolio (b) PIMCO Total Return Portfolio (b) PIMCO Innovation Portfolio (b) Lord Abbett Bond Debenture Portfolio Met/AIM Mid Cap Core Equity Portfolio (c) Met/AIM Small Cap Growth Portfolio (c) State Street Research Concentrated International Portfolio (c) F-57 NOTES TO FINANCIAL STATEMENTS -- (Continued) (a) On January 1, 2001, operations commenced for eleven new sub-accounts added to the Separate Account on that date: Franklin Templeton Valuemark Small Cap Portfolio, Alger Equity Growth Portfolio, MFS Investors Trust Portfolio, MFS Research Managers Portfolio, FI Structured Equity Portfolio, Alliance Premier Growth Portfolio, Alliance Technology Portfolio, Fidelity VIP Contrafund Portfolio, Fidelity VIP Asset Manager Growth Portfolio, Fidelity VIP Growth Portfolio, and JPM Enhanced Index Portfolio. (b) On May 1, 2001, operations commenced for twelve new sub-accounts added to the Separate Account on that date: Janus Growth Portfolio, Franklin Templeton Small Cap Growth Portfolio, Harris Oakmark Focused Value Portfolio, Salomon Brothers Strategic Bond Opportunities Portfolio, Salomon Brothers U.S. Government Portfolio, American Funds Growth Portfolio, American Funds Growth-Income Portfolio, American Funds Global Small Cap Portfolio, MFS Mid Cap Growth Portfolio, MFS Research International Portfolio, PIMCO Total Return Portfolio, and PIMCO Innovation Portfolio. (c) On May 1, 2002, operations commenced for five new sub-accounts added to the Separate Account on that date: State Street Research Large Cap Value Portfolio, FI Mid Cap Opportunities Portfolio, Met/AIM Mid Cap Core Equity Portfolio, Met/AIM Small Cap Growth Portfolio, and State Street Research Concentrated International Portfolio. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements included herein have been provided in accordance with accounting principles generally accepted in the United States of America for variable universal life separate accounts registered as unit investment trusts. A. Valuation of Investments Investments are made in the portfolios of the Funds and are valued at the reported net asset values of these portfolios. The investments of the Funds are valued at fair value. Money market fund investments are valued utilizing the amortized cost method of valuation. B. Security Transactions Purchases and sales are recorded on the trade date basis. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. Income from dividends, and gains from realized gain distributions, are recorded on the ex-distribution date. C. Federal Income Taxes The operations of the Separate Account are included in the Federal income tax return of Metropolitan Life, which is taxed as a life insurance company under the provisions of the Internal Revenue Code ("IRC"). Under the current provisions of the IRC, Metropolitan Life does not expect to incur Federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Separate Account for Federal income taxes. Metropolitan Life will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any Federal income taxes that would be attributed to the contracts. 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 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 policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. E. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates. F-58 NOTES TO FINANCIAL STATEMENTS -- (Continued) F. Purchase Payments Purchase payments received by Metropolitan Life are credited as Accumulation Units as of the end of the valuation period in which received, as provided in the prospectus. 3. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life deducts a charge from the assets of the Separate Account for the assumption of general administrative expenses and mortality and expense risks. This charge is equivalent to an effective annual rate of 0.45% of the average daily values of the assets in the Separate Account for GVUL contracts, 0.90% for UL II & UL 2001 contracts, 0.60% for MetFlex contracts, 0.75% for VAI and VABR contracts less than $250K and 0.50% for VAI and VABR contracts $250K and greater. F-59 NOTES TO FINANCIAL STATEMENTS -- (Continued) 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2002 were as follows:
Purchases Sales --------- -------- (In Thousands) Metropolitan Fund: State Street Research Investment Trust Portfolio........... $ 32,829 $ 15,670 State Street Research Diversified Portfolio................ 26,136 10,410 State Street Research Aggressive Growth Portfolio.......... 16,339 6,652 MetLife Stock Index Portfolio.............................. 87,889 21,171 Putnam International Stock Portfolio....................... 7,707 5,948 Janus Mid Cap Portfolio.................................... 37,929 4,514 T. Rowe Price Small Cap Growth Portfolio................... 9,717 1,779 Scudder Global Equity Portfolio............................ 4,871 1,590 Harris Oakmark Large Cap Value Portfolio................... 15,367 2,991 Neuberger Berman Partners Mid Cap Value Portfolio.......... 7,400 1,451 T. Rowe Price Large Cap Growth Portfolio................... 7,831 1,174 Lehman Brothers Aggregate Bond Index Portfolio............. 20,492 7,029 Morgan Stanley EAFE Index Portfolio........................ 7,939 3,223 Russell 2000 Index Portfolio............................... 8,157 1,082 Putnam Large Cap Growth Portfolio.......................... 3,172 380 State Street Research Aurora Portfolio..................... 18,753 2,817 MetLife Mid Cap Stock Index Portfolio...................... 8,936 275 Janus Growth Portfolio..................................... 1,927 342 Franklin Templeton Small Cap Growth Portfolio.............. 1,353 236 State Street Research Large Cap Value Portfolio............ 210 15 Janus Fund: Janus Aspen Growth Portfolio............................... 930 218 Invesco Fund: Invesco VIF High Yield Portfolio........................... 353 112 Invesco VIF Equity Income Portfolio........................ 190 159 Invesco VIF Real Estate Opportunity Portfolio.............. 797 722 Franklin Fund: Franklin Templeton International Stock Portfolio........... 1,870 512 Franklin Templeton Valuemark Small Cap Portfolio........... 1,139 207 Zenith Fund: Davis Venture Value Portfolio.............................. 8,847 634 Loomis Sayles Small Cap Portfolio.......................... 1,328 322 Alger Equity Growth Portfolio.............................. 4,181 203 MFS Investors Trust Portfolio.............................. 1,196 920 MFS Research Managers Portfolio............................ 674 555 State Street Research Bond Income Portfolio................ 107,330 95,684 FI Structured Equity Portfolio............................. 119 37 Harris Oakmark Focused Value Portfolio..................... 9,880 248 Salomon Brothers Strategic Bond Opportunities Portfolio.... 1,928 279 Salomon Brothers U.S. Government Portfolio................. 4,209 784 State Street Research Money Market Portfolio............... 73,813 75,754 FI Mid Cap Opportunities Portfolio......................... 188 22 Alliance Fund: Alliance Growth & Income Portfolio......................... 770 80 Alliance Premier Growth Portfolio.......................... 31 64 Alliance Technology Portfolio.............................. 16 1 Fidelity Fund: Fidelity VIP Contrafund Portfolio.......................... 472 217 Fidelity VIP Asset Manager Growth Portfolio................ 125 63 Fidelity VIP Growth Portfolio.............................. 112 16 American Fund: American Funds Growth Portfolio............................ 8,863 234 American Funds Growth-Income Portfolio..................... 7,522 368 American Funds Global Small Cap Portfolio.................. 2,219 445 Met Investors Fund: JPM Enhanced Index Portfolio............................... 8 3 MFS Mid Cap Growth Portfolio............................... 1,567 83 MFS Research International Portfolio....................... 1,710 1,026 PIMCO Total Return Portfolio............................... 5,986 1,202 PIMCO Innovation Portfolio................................. 1,519 242 Lord Abbett Bond Debenture Portfolio....................... 12,824 12,140 Met/AIM Mid Cap Core Equity Portfolio...................... 267 7 Met/AIM Small Cap Growth Portfolio......................... 124 3 State Street Research Concentrated International Portfolio. 160 6 -------- -------- Total...................................................... $588,221 $282,321 ======== ========
F-60 [THIS PAGE INTENTIONALLY LEFT BLANK] F-61 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS The changes in units outstanding for the years ended December 31, 2002 and 2001 were as follows:
Metropolitan Fund --------------------------------------------------- State Street State Street State Street Research MetLife Research Research Aggressive Stock Investment Trust Diversified Growth Index Portfolio Portfolio Portfolio Portfolio ---------------- ------------ ------------ --------- (In Thousands) Outstanding at December 31, 2001 13,264 11,138 10,503 17,015 Activity during 2002: Issued........................ 5,072 3,678 3,343 9,909 Redeemed...................... (3,276) (2,548) (2,399) (4,784) ------ ------ ------ ------ Outstanding at December 31, 2002 15,060 12,268 11,447 22,140 ====== ====== ====== ====== Outstanding at December 31, 2000 11,054 9,234 9,254 11,689 Activity during 2001: Issued........................ 2,828 2,200 1,392 6,525 Redeemed...................... (618) (296) (143) (1,199) ------ ------ ------ ------ Outstanding at December 31, 2001 13,264 11,138 10,503 17,015 ====== ====== ====== ======
F-62 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Metropolitan Fund - ---------------------------------------------------------------------------------------------------------------- Putnam T. Rowe Price Harris Neuberger T. Rowe Price Lehman Brothers International Janus Small Cap Scudder Oakmark Berman Partners Large Cap Aggregate Stock Mid Cap Growth Global Equity Large Cap Value Mid Cap Value Growth Bond Index Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------- --------- ------------- ------------- --------------- --------------- ------------- --------------- 3,106 8,481 3,509 2,000 1,242 1,076 2,124 3,153 1,176 5,867 1,561 687 1,697 906 1,289 1,774 (986) (2,827) (809) (709) (593) (415) (560) (780) ------ ------ ----- ----- ----- ----- ----- ----- 3,296 11,521 4,261 1,978 2,346 1,567 2,853 4,147 ====== ====== ===== ===== ===== ===== ===== ===== 2,709 5,367 2,995 1,848 220 456 632 1,730 1,578 3,701 864 209 1,076 790 2,004 2,267 (1,181) (587) (350) (57) (54) (170) (512) (844) ------ ------ ----- ----- ----- ----- ----- ----- 3,106 8,481 3,509 2,000 1,242 1,076 2,124 3,153 ====== ====== ===== ===== ===== ===== ===== =====
F-63 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
Metropolitan Fund -------------------------------------------------- Morgan Stanley State Street EAFE Russell Putman Large Research Index 2000 Index Cap Growth Aurora Portfolio Portfolio Portfolio Portfolio -------------- ---------- ------------ ------------ (In Thousands) Outstanding at December 31, 2001 1,352 920 792 1,317 Activity during 2002: Issued........................ 1,485 1,015 1,075 1,944 Redeemed...................... (793) (321) (404) (662) ------ ----- ----- ----- Outstanding at December 31, 2002 2,044 1,614 1,463 2,599 ====== ===== ===== ===== Outstanding at December 31, 2000 544 512 131 164 Activity during 2001: Issued........................ 1,865 1,181 704 1,201 Redeemed...................... (1,057) (773) (43) (48) ------ ----- ----- ----- Outstanding at December 31, 2001 1,352 920 792 1,317 ====== ===== ===== =====
F-64 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Metropolitan Fund Janus Fund Invesco Funds - ----------------------------------------------------- ---------- ------------------------------------- Metlife Mid Franklin State Street Janus Invesco Invesco VIF Invesco Cap Stock Janus Templeton Research Aspen VIF Equity VIF Real Estate Index Growth Small Cap Growth Large Cap Value Growth High Yield Income Opportunity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ----------- --------- ---------------- --------------- ---------- ---------- ----------- --------------- 867 122 52 -- 236 37 12 7 1,231 409 215 27 149 38 5 61 (336) (150) (69) (4) (31) (10) (2) (54) ----- ---- --- -- ---- --- -- --- 1,762 381 198 23 354 65 15 14 ===== ==== === == ==== === == === 210 -- -- -- 473 1 2 10 693 148 54 -- 84 45 12 1 (36) (26) (2) -- (321) (9) (2) (4) ----- ---- --- -- ---- --- -- --- 867 122 52 -- 236 37 12 7 ===== ==== === == ==== === == ===
F-65 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
Franklin Fund Zenith Fund ------------------------------------ -------------------------- Franklin Templeton Franklin Templeton International Valuemark Davis Venture Loomis Sayles Stock Small Cap Value Small Cap Portfolio Portfolio Portfolio Portfolio ------------------ ------------------ ------------- ------------- (In Thousands) Outstanding at December 31, 2001 189 16 297 11 Activity during 2002: Issued........................ 183 183 754 12 Redeemed...................... (28) (36) (150) (5) --- --- ---- -- Outstanding at December 31, 2002 344 163 901 18 === === ==== == Outstanding at December 31, 2000 99 -- 39 2 Activity during 2001: Issued........................ 118 17 267 10 Redeemed...................... (28) (1) (9) (1) --- --- ---- -- Outstanding at December 31, 2001 189 16 297 11 === === ==== ==
F-66 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Zenith Fund - --------------------------------------------------------------------------------------------------------------- MFS State Street FI Harris Oakmark Salomon Brothers Alger MFS Research Research Structured Focused Strategic Bond Salomon Brothers Equity Growth Investors Trust Managers Bond Income Equity Value Opportunities U.S. Government Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------- --------------- --------- ------------ ---------- -------------- ---------------- ---------------- 6 43 13 4,202 3 23 41 71 624 110 73 2,094 15 72 195 393 (41) (49) (39) (732) (6) (19) (59) (124) --- --- --- ----- -- --- --- ---- 589 104 47 5,564 12 76 177 340 === === === ===== == === === ==== -- -- -- 3,980 -- -- -- -- 6 47 83 1,197 3 24 42 99 -- (4) (70) (975) -- (1) (1) (28) --- --- --- ----- -- --- --- ---- 6 43 13 4,202 3 23 41 71 === === === ===== == === === ====
F-67 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
Zenith Fund Alliance Fund ------------------------- ---------------------------------- State Street FI Alliance Research Mid Cap Growth & Alliance Alliance Money Market Opportunities Income Premier Growth Technology Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------- --------- -------------- ---------- (In Thousands) Outstanding at December 31, 2001 2,156 -- 65 14 2 Activity during 2002: Issued........................ 1,770 22 95 5 4 Redeemed...................... (1,945) (1) (10) (10) -- ------ -- --- --- --- Outstanding at December 31, 2002 1,981 21 150 9 6 ====== == === === === Outstanding at December 31, 2000 1,479 -- 6 -- -- Activity during 2001: Issued........................ 2,983 -- 60 14 26 Redeemed...................... (2,306) -- (1) -- (24) ------ -- --- --- --- Outstanding at December 31, 2001 2,156 -- 65 14 2 ====== == === === ===
F-68 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Fidelity Fund American Fund Met Investors Fund - -------------------------------------- --------------------------------------- ------------------ Fidelity VIP American JPM MFS Fidelity VIP Asset Manager Fidelity VIP American American Funds Funds Global Enhanced Mid Cap Contrafund Growth Growth Funds Growth Growth-Income Small Cap Index Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------ ------------- ------------ ------------ -------------- ------------ --------- --------- 3 13 13 53 68 49 1 68 33 15 18 217 287 226 1 328 (1) (8) (3) (49) (68) (72) (1) (102) -- -- -- --- --- --- -- ---- 35 20 28 221 287 203 1 294 == == == === === === == ==== -- -- -- -- -- -- -- -- 3 14 17 67 76 55 1 71 -- (1) (4) (14) (8) (6) -- (3) -- -- -- --- --- --- -- ---- 3 13 13 53 68 49 1 68 == == == === === === == ====
F-69 NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. CHANGES IN OUTSTANDING UNITS -- (Continued)
Met Investors Fund ------------------------------------------------ MFS Lord Abbett Research PIMCO PIMCO Bond International Total Return Innovation Debenture Portfolio Portfolio Portfolio Portfolio ------------- ------------ ---------- ----------- (In Thousands) Outstanding at December 31, 2001 28 103 121 774 Activity during 2002: Issued........................ 239 623 437 178 Redeemed...................... (172) (192) (142) (204) ---- ---- ---- ---- Outstanding at December 31, 2002 95 534 416 748 ==== ==== ==== ==== Outstanding at December 31, 2000 -- -- -- 601 Activity during 2001: Issued........................ 113 123 128 246 Redeemed...................... (85) (20) (7) (73) ---- ---- ---- ---- Outstanding at December 31, 2001 28 103 121 774 ==== ==== ==== ====
F-70 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Met Investors Fund - ---------------------------------- State Street Met/AIM Met/AIM Research Mid Cap Small Cap Concentrated Core Equity Growth International Portfolio Portfolio Portfolio - ----------- --------- ------------- -- -- -- 33 17 22 (3) (2) (4) -- -- -- 30 15 18 == == == -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- == == ==
F-71 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES A summary of unit values and units outstanding for the Contracts and the expense as a percentage of average net assets, excluding expenses for the underlying funds, for each of the two years in the period ended December 31, 2002 or lesser time period if applicable.
Metropolitan Fund ------------------------------------------------------------------ State Street State Street State Street Research Research Research Aggressive MetLife Investment Trust Diversified Growth Stock Index Portfolio Portfolio Portfolio Portfolio ---------------- ---------------- ---------------- --------------- 2002 Units (In Thousands)............................. 15,060 12,268 11,447 22,140 Unit Value (1)................................... $8.11 to $25.66 $9.78 to $25.64 $8.32 to $12.09 $7.48 to $23.03 Net Assets (In Thousands)........................ $276,980 $238,020 $130,816 $326,228 Investment Income Ratio to Average Net Assets (2) 0.54% 2.27% 0.00% 1.61% Expenses as a Percent of Average Net Assets (3).. 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% Total Return (4)................................. -27% to -26% -15% to -14% -29% -23% to -22% 2001 Units (In Thousands)............................. 13,264 11,138 10,503 17,015 Unit Value (1)................................... $10.98 to $35.04 $11.35 to $30.04 $11.67 to $17.12 $9.62 to $29.91 Net Assets (In Thousands)........................ $356,701 $265,724 $171,692 $346,931 Investment Income Ratio to Average Net Assets (2) 13.53% 9.67% 24.84% 1.17% Expenses as a Percent of Average Net Assets (3).. 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% Total Return (4)................................. -18% to -17% -7% to -6% -24% -13% to -12%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit value. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-accounts invest. (3) These ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying fund, are excluded. (4) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deduction for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units. Inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. F-72 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Metropolitan Fund - ------------------------------------------------------------------------------------------------------------------- Putnam T. Rowe Price Harris Neuberger T. Rowe Price International Janus Small Cap Scudder Oakmark Large Berman Partners Large Cap Stock Mid Cap Growth Global Equity Cap Value Mid Cap Value Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - --------------- --------------- ---------------- ---------------- ---------------- ---------------- --------------- 3,296 11,521 4,261 1,978 2,346 1,567 2,853 $7.78 to $10.91 $4.22 to $12.07 $9.05 to $10.04 $9.90 to $11.03 $9.23 to $11.71 $10.24 to $14.13 $6.35 to $9.27 $32,966 $119,020 $39,880 $20,476 $23,073 $18,286 $22,095 0.89% 0.00% 0.00% 1.68% 3.31% 0.31% 0.26% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% -18% to -17% -30% to -29% -27% -17% to -16% -15% to -14% -10% -24% to -23% 3,106 8,481 3,509 2,000 1,242 1,076 2,124 $9.47 to $13.35 $5.95 to $17.08 $12.46 to $13.76 $11.79 to $12.88 $10.80 to $13.76 $11.44 to $15.63 $8.35 to $12.08 $38,281 $125,185 $44,660 $21,106 $14,336 $14,115 $21,111 3.67% 0.00% 8.16% 11.32% 0.15% 1.94% 0.06% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% -21% to -20% -37% to -33% -10% to 2% -16% to -15% 17% to 20% -3% to 0% -11% to -6%
Lehman Brothers Aggregate Bond Index Portfolio - ---------------- 4,147 $12.43 to $13.19 $54,046 2.81% 0.45% to 0.90% 9% to 10% 3,153 $11.38 to $11.97 $37,322 1.29% 0.45% to 0.90% 7% F-73 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
Metropolitan Fund -------------------------------------------------------------- State Street Morgan Stanley Russell 2000 Putman Large Research EAFE Index Index Cap Growth Aurora Portfolio Portfolio Portfolio Portfolio -------------- --------------- -------------- ---------------- 2002 Units (In Thousands)............................. 2,044 1,614 1,463 2,599 Unit Value (1)................................... $5.76 to $7.53 $7.43 to $9.99 $3.51 to $3.79 $10.30 to $11.25 Net Assets (In Thousands)........................ $13,496 $14,829 $5,253 $29,061 Investment Income Ratio to Average Net Assets (2) 0.49% 0.59% 0.00% 0.52% Expenses as a Percent of Average Net Assets (3).. 0.45% to 0.90% 0.45% to 0.90% 0.50% to 0.90% 0.50% to 0.90% Total Return (4)................................. -17% -21% to -20% -30% to -29% -22% to -21% 2001 Units (In Thousands)............................. 1,352 920 792 1,317 Unit Value (1)................................... $6.97 to $9.04 $9.42 to $12.56 $4.98 to $5.04 $13.09 to $14.29 Net Assets (In Thousands)........................ $10,800 $10,625 $4,001 $20,005 Investment Income Ratio to Average Net Assets (2) 0.31% 0.26% 0.00% 0.38% Expenses as a Percent of Average Net Assets (3).. 0.45% to 0.90% 0.45% to 0.90% 0.60% to 0.90% 0.60% to 0.90% Total Return (4)................................. -22% to -21% 0% to 6% -46% to -31% 16% to 19%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit value. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-accounts invest. (3) These ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying fund, are excluded. (4) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deduction for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units. Inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. F-74 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Metropolitan Fund Janus Fund Invesco Fund - ------------------------------------------------------------- ---------- -------------------------------- Franklin Metlife Mid Templeton State Street Janus Invesco Invesco Invesco VIF Cap Stock Janus Small Cap Research Aspen VIF High VIF Equity Real Estate Index Growth Growth Large Cap Value Growth Yield Income Opportunity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - --------------- -------------- -------------- --------------- ---------- --------- ---------- ----------- 1,762 381 198 23 354 65 15 14 $8.18 to $8.98 $5.35 to $5.43 $6.31 to $6.41 $7.96 to $8.00 $6.10 $7.37 $7.94 $12.82 $15,568 $2,045 $1,266 $189 $2,163 $476 $125 $179 0.35% 0.00% 0.00% 0.92% 0.03% 13.27% 1.74% 1.40% 0.50% to 0.90% 0.90% 0.90% 0.90% 0.60% 0.60% 0.60% 0.60% -16% to -15% -31% -28% -20% -27% -1% -19% -6% 867 122 52 -- 236 37 12 7 $9.62 to $10.56 $7.73 to $7.82 $8.83 to $8.88 $-- $8.30 $7.46 $9.81 $12.05 $9,019 $953 $457 $-- $1,959 $274 $122 $89 0.43% 0.00% 0.00% -- 6.04% 20.89% 2.61% 1.16% 0.60% to 0.90% 0.90% 0.60% -- 0.60% 0.60% 0.60% 0.60% -1% to 3% -23% to -22% -12% to -11% -- -19% -15% -7% 1%
F-75 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
Franklin Fund Zenith Fund ----------------------- -------------------------------- Franklin Franklin Templeton Templeton Loomis International Valuemark Davis Sayles Small Stock Small Cap Venture Value Cap Series Portfolio Portfolio Portfolio Portfolio ------------- --------- --------------- ---------------- 2002 Units (In Thousands)............................. 344 163 901 18 Unit Value (1)................................... $7.57 $4.93 $7.48 to $21.70 $6.80 to $150.51 Net Assets (In Thousands)........................ $2,612 $801 $13,430 $2,408 Investment Income Ratio to Average Net Assets (2) 2.03% 0.51% 0.88% 0.11% Expenses as a Percent of Average Net Assets (3).. 0.60% 0.60% 0.50% to 0.90% 0.50% to 0.90% Total Return (4)................................. -18% -29% -17% to -16% -22% 2001 Units (In Thousands)............................. 189 16 297 11 Unit Value (1)................................... $9.27 $6.91 $8.94 to $25.95 $8.66 to $191.87 Net Assets (In Thousands)........................ $1,767 $103 $7,498 $1,926 Investment Income Ratio to Average Net Assets (2) 14.19% 0.05% 4.47% 7.28% Expenses as a Percent of Average Net Assets (3).. 0.60% 0.60% 0.60% to 0.90% 0.60% to 0.90% Total Return (4)................................. -16% -9% -11% to -9% -9% to -4%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit value. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-accounts invest. (3) These ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying fund, are excluded. (4) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deduction for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units. Inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. F-76 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Zenith Fund - --------------------------------------------------------------------------------------------------------------------------------- Salomon MFS State Street FI Brothers Salomon Alger MFS Research Research Structured Harris Oakmark Strategic Bond Brothers Equity Growth Investors Trust Managers Bond Income Equity Focused Value Opportunities U.S. Government Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ------------- --------------- -------------- ---------------- -------------- ------------------ ---------------- ---------------- 589 104 47 5,564 12 76 177 340 $5.06 $6.54 to $6.84 $5.29 to $6.86 $12.18 to $25.85 $6.59 to $8.32 $167.13 to $169.65 $12.12 to $12.30 $12.72 to $12.91 $2,983 $694 $314 $93,158 $93 $12,879 $2,174 $4,365 0.00% 0.72% 0.30% 5.72% 0.89% 0.18% 6.33% 3.47% 0.60% 0.60% to 0.90% 0.60% to 0.90% 0.60% to 0.90% 0.60% to 0.90% 0.90% 0.90% 0.90% -33% -21% to -20% -25% to -24% 7% to 8% -19% to -17% -10% to -9% 9% to 10% 7% to 8% 6 43 13 4,202 3 23 41 71 $7.57 $8.19 to $8.57 $6.97 to $9.04 $11.23 to $24.08 $8.19 $184.98 to $186.09 $11.15 to $11.22 $11.89 to $11.96 $45 $322 $151 $79,483 $25 $4,215 $465 $849 0.00% 0.00% 0.25% 5.64% to 7.28% 0.00% 0.00% 0.00% 0.00% 0.60% 0.60% to 0.90% 0.60% to 0.90% 0.45% to 0.90% 0.60% 0.90% 0.90% 0.90% -16% -14% to -3% -17% to -14% 7% to 8% -11% 12% to 13% 3% to 4% 4%
F-77 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
Zenith Fund Alliance Fund ------------------------------- ----------------------------------- State Street FI Alliance Research Mid Cap Growth & Alliance Alliance Money Market Opportunities Income Premier Growth Technology Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- -------------- --------- -------------- ---------- 2002 Units (In Thousands)............................. 1,981 21 150 9 6 Unit Value (1)................................... $13.09 to $15.93 $8.14 to $8.19 $7.92 $4.94 $3.16 Net Assets (In Thousands)........................ $30,811 $168 $1,191 $42 $18 Investment Income Ratio to Average Net Assets (2) 1.57% 0.00% 3.31% 0.00% 5.08% Expenses as a Percent of Average Net Assets (3).. 0.45% to 0.90% 0.90% 0.60% 0.60% 0.60% Total Return (4)................................. 0% to 1% -19% to -18% -22% -31% -42% 2001 Units (In Thousands)............................. 2,156 -- 65 14 2 Unit Value (1)................................... $14.88 to $15.85 $ -- $10.19 $7.15 $5.43 Net Assets (In Thousands)........................ $32,726 $ -- $656 $98 $13 Investment Income Ratio to Average Net Assets (2) 4.18% -- 0.91% 0.00% 6.23% Expenses as a Percent of Average Net Assets (3).. 0.60% to 0.90% -- 0.60% 0.60% 0.60% Total Return (4)................................. 3% to 4% -- 2% -14% -35%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit value. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-accounts invest. (3) These ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying fund, are excluded. (4) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deduction for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units. Inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. F-78 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Fidelity Fund American Fund Met Investors Fund - ------------------------------ -------------------------------------------------- ------------------------ Fidelity VIP American Fidelity Asset Fidelity American American Funds JPM MFS VIP Manager VIP Funds Funds Global Enhanced Mid Cap Contrafund Growth Growth Growth Growth-Income Small Cap Index Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio - ---------- --------- --------- ---------------- ---------------- ---------------- --------- -------------- 35 20 28 221 287 203 1 294 $7.16 $6.50 $4.72 $44.64 to $45.32 $28.98 to $29.42 $ 9.90 to $10.05 $6.09 $4.62 to $4.69 $249 $131 $134 $9,992 $8,408 $2,033 $8 $1,373 0.14% 3.23% 0.12% 0.05% 1.74% 0.81% 1.78% 0.82% 0.60% 0.60% 0.60% 0.90% 0.90% 0.90% 0.60% 0.90% -10% -18% -30% -25% to -24% -19% to -18% -20% to -19% -25% -44% 3 13 13 53 68 49 1 68 $7.96 $7.89 $6.77 $59.63 to $59.99 $35.81 to $36.03 $12.34 to $12.41 $8.12 $8.32 to $8.37 $24 $95 $87 $3,176 $2,453 $619 $5 $564 0.00% 0.00% 0.00% 4.25% 0.82% 1.15% 0.00% 0.00% 0.60% 0.60% 0.60% 0.90% 0.90% 0.90% 0.60% 0.90% -12% -10% -20% -15% to -14% -3% -9% to -8% -9% -16% to -15%
F-79 NOTES TO FINANCIAL STATEMENTS -- (Continued) 6. UNIT VALUES -- (Continued)
Met Investors Fund --------------------------------------------------------------- MFS Lord Abbett Research PIMCO Total PIMCO Bond International Return Innovation Debenture Portfolio Portfolio Portfolio Portfolio -------------- ---------------- -------------- ---------------- 2002 Units (In Thousands)............................. 95 534 416 748 Unit Value (1)................................... $7.41 to $7.52 $11.55 to $11.72 $3.01 to $3.06 $10.87 to $12.51 Net Assets (In Thousands)........................ $714 $6,214 $1,269 $8,597 Investment Income Ratio to Average Net Assets (2) 0.25% 0.00% 0.00% 11.43% Expenses as a Percent of Average Net Assets (3).. 0.90% 0.90% 0.90% 0.45% to 0.90% Total Return (4)................................. -12% 9% to 10% -51% 0% to 1% 2001 Units (In Thousands)............................. 28 103 121 774 Unit Value (1)................................... $8.44 to $8.50 $10.64 to $10.70 $6.15 to $6.19 $10.83 to $12.35 Net Assets (In Thousands)........................ $238 $1,103 $749 $8,845 Investment Income Ratio to Average Net Assets (2) 0.07% 2.37% 0.00% 11.73% Expenses as a Percent of Average Net Assets (3).. 0.90% 0.90% 0.90% 0.45% to 0.90% Total Return (4)................................. -13% to -12% 6% -25% -2% to -1%
- -------- (1) Metropolitan Life sells a number of variable life products which have unique combinations of features and fees that are charged against the contract owners' account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit value. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-accounts invest. (3) These ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units, and expenses of the underlying fund, are excluded. (4) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deduction for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units. Inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Separate Account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. F-80 NOTES TO FINANCIAL STATEMENTS -- (Continued)
Met Investors Fund - ----------------------------------------------------- Met/AIM Met/AIM Mid Cap Small Cap State Street Core Equity Growth Research Concentrated Portfolio Portfolio International Portfolio - -------------- -------------- ----------------------- 30 15 18 $8.53 to $8.58 $7.59 to $7.63 $8.37 to $8.42 $253 $116 $150 0.00% 0.00% 0.00% 0.90% 0.90% 0.90% -15% to -14% -24% -16% -- -- -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- --
F-81 NOTES TO FINANCIAL STATEMENTS -- (Concluded) 7. CHANGE OF PORTFOLIO NAME AND PORTFOLIO MERGERS Effective July 1, 2001, State Street Research became the sub-investment manager of the State Street Research Bond Income Portfolio (formerly Back Bay Advisers Bond Income Portfolio) of the New England Zenith Series Fund. Effective May 1, 2001, State Street Research Growth Portfolio changed its name to State Street Research Investment Trust Portfolio. Effective April 29, 2002, State Street Research Income Portfolio and State Street Research Money Market Portfolio of the Metropolitan Fund were merged respectively into the State Street Research Bond Income Portfolio and the State Street Research Money Market Portfolio of the Zenith Fund. Effective April 29, 2002, Loomis Sayles High Yield Bond Portfolio of the Metropolitan Fund was merged into the Lord Abbett Bond Debenture Portfolio of the Met Investors Fund. Effective May 1, 2002, State Street Research Aurora Small Cap Value Portfolio and the Harris Oakmark Mid Cap Value Portfolio changed their names to State Street Research Aurora Portfolio and Harris Oakmark Focused Value Portfolio, respectively. F-82 METFLEX A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE POLICY Metropolitan Life Separate Account UL Issued by Metropolitan Life Insurance Company STATEMENT OF ADDITIONAL INFORMATION May 1, 2003 This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the prospectus dated May 1, 2003 for MetFlex--A Flexible Premium Variable Universal Life Policy. A copy of that prospectus may be obtained by writing to MetLife SBR, 485-B Route 1 South, Suite 420, Iselin, NJ 08830. B-1 TABLE OF CONTENTS The Company and the Separate Account....................... 3 Additional Information about the Operations of the Policies 3 Limits to MetLife's Right to Challenge the Policy......... 3 Misstatement of Age or Sex................................ 3 Dividends................................................. 3 Payment and Deferment..................................... 3 Showing Performance........................................ 4 Additional Information about Voting........................ 4 Restrictions on Financial Transactions..................... 4 Additional Information about Commissions................... 4 Legal and Actuarial Matters................................ 4 Experts.................................................... 5 Financial Statements....................................... 5
B-2 THE COMPANY AND THE SEPARATE ACCOUNT Metropolitan Life Insurance Company ("MetLife") is a wholly-owned subsidiary of MetLife, Inc., a publicly traded company. Our main office is located at One Madison Avenue, New York, New York 10010. MetLife was formed under the laws of New York State in 1868. MetLife Inc., through its subsidiaries and affiliates, is a leading provider of insurance and other financial services to individual and group customers. The MetLife companies serve approximately 9 million individual households in the United States and companies and institutions with over 33 million employees and members. It also has international insurance operations in 14 countries. We established the Separate Account under New York law on December 13, 1988. The Separate Account receives premium payments from the Policies described in the Prospectus and other variable life insurance policies that we issue. We have registered the Separate Account as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). For more information about MetLife, please visit our website at www.metlife.com ADDITIONAL INFORMATION ABOUT THE OPERATION OF THE POLICIES Limits To Metlife's Right To Challenge The Policy We will not contest: .. Your Policy after 2 Policy years from issue or reinstatement (excluding riders added later). .. An increase in a death benefit after it has been in effect for two years. Misstatement Of Age Or Sex We will adjust benefits to reflect the correct age and sex of the insured, if this information isn't correct in the Policy application. Dividends The Policy is "nonparticipating," which means it is not eligible for dividends from us and does not share in any distributions of our surplus. Payment and Deferment We can delay transfers, withdrawals, surrender and payment of Policy loans from the Fixed Account for up to 6 months. Generally, we will pay or transfer amounts from the Separate Account within seven days after the Date of Receipt of all necessary documentation required for such payment or transfer. We can defer this if: .. The New York Stock Exchange has an unscheduled closing. .. There is an emergency so that we could not reasonably determine the investment experience of a Policy. .. The Securities and Exchange Commission by order permits us to do so for the protection of Policy owners (provided that the delay is permitted under New York State insurance law and regulations). .. With respect to the insurance proceeds, if entitlement to a payment is being questioned or is uncertain. .. We are paying amounts attributable to a check. In that case we can wait for a reasonable time (15 days or less) to let the check clear. We currently pay interest on the amount of insurance proceeds at 3% per year (or higher if state law requires) from the date of death until the date we pay the benefit. B-3 SHOWING PERFORMANCE We may advertise or otherwise show: .. Investment division performance ranking and rating information as it compares among similar investments as compiled by independent organizations. .. Comparisons of the investment divisions with performance of similar investments and appropriate indices. .. Our insurance company ratings that are assigned by independent rating agencies and that are relevant when considering our ability to honor our guarantees. .. Personalized illustrations based on historical Separate Account performance. ADDITIONAL INFORMATION ABOUT VOTING If you are eligible to give us voting instructions, we will send you informational material and a form to send back to us. We are entitled to disregard voting instructions in certain limited circumstances prescribed by the SEC. If we do so, we will give you our reasons in the next semi-annual report to Policy owners. The number of shares for which you can give us voting instructions is determined as of the record date for the Fund shareholder meeting by dividing: .. Your Policy's cash value in the corresponding investment division; by .. The net asset value of one share of that Portfolio. We will count fractional votes. If we do not receive timely voting instructions from Policy owners and other insurance and annuity owners that are entitled to give us voting instructions, we will vote those shares in the same proportion as the shares held in the same separate account for which we did receive voting instructions. Also, we will vote Fund shares that are not attributable to insurance or annuity owners (including shares that we hold in our general account) or that are held in separate accounts that are not registered under the 1940 Act in the same proportion as the aggregate of the shares for which we received voting instructions from all insurance and annuity owners. RESTRICTIONS ON FINANCIAL TRANSACTIONS If mandated under money laundering or anti-terrorist laws, or other applicable law, we may be required to reject a premium payment or refuse to honor any request for transfers, withdrawals, surrenders, loans, or death benefits, until we receive instructions from the appropriate regulator. ADDITIONAL INFORMATION ABOUT COMMISSIONS We paid commissions of $3,464,099, $5,295,786 and $5,371,787 in 2000, 2001 and 2002 respectively. The amount of revenues we received from sales charges was less than the amount of commissions we paid in each of these three years. LEGAL AND ACTUARIAL MATTERS Christopher P. Nicholas, Associate General Counsel at MetLife, has passed upon the legality of the Policies. The law firm of Foley & Lardner, Washington, D.C., has advised us on certain matters relating to the federal securities laws. Sebastian Janssen, FSA, MAAA, Assistant Vice-President and Actuary of MetLife, has examined actuarial matters included in the registration statement, as stated in his opinion filed as an exhibit to the registration statement. MetLife, like other life insurance companies, is involved in lawsuits, including class action lawsuits. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement payments B-4 have been made. Although the outcome of any litigation cannot be predicted with certainty, MetLife believes that, as of the date of this prospectus, there are no pending or threatened lawsuits that will have a materially adverse impact on it or the Separate Account. EXPERTS The financial statements included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP's principal business address is 201 E. Kennedy Boulevard, Suite 1200, Tampa, Florida 33602. FINANCIAL STATEMENTS The financial statements of MetLife are attached to the Statement of Additional Information. Our financial statements should be considered only as bearing upon our ability to meet our obligations under the Policy. B-5 Independent Auditors' Report To the Board of Directors and Shareholder of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries as of December 31, 2002 and 2001, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York February 19, 2003 F-1 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2002 and 2001 (Dollars in millions, except share and per share data)
2002 2001 -------- -------- Assets Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $ 117,781 and $107,630, respectively). $124,525 $110,601 Equity securities, at fair value (cost: $1,242 and $2,421, respectively).................................. 1,286 3,027 Mortgage loans on real estate............................ 25,353 24,626 Policy loans............................................. 8,047 7,894 Real estate and real estate joint ventures held-for-investment.................................... 3,620 3,278 Real estate held-for-sale................................ 229 1,647 Other limited partnership interests...................... 2,380 1,637 Short-term investments................................... 1,199 1,168 Other invested assets.................................... 3,419 3,013 -------- -------- Total investments.................................... 170,058 156,891 Cash and cash equivalents................................... 1,106 3,932 Accrued investment income................................... 1,889 1,981 Premiums and other receivables.............................. 7,945 7,126 Deferred policy acquisition costs........................... 9,666 10,471 Other assets................................................ 4,819 4,750 Separate account assets..................................... 53,912 62,714 -------- -------- Total assets......................................... $249,395 $247,865 ======== ======== Liabilities and Stockholder's Equity Liabilities: Future policy benefits................................... $ 86,039 $ 83,493 Policyholder account balances............................ 54,464 54,764 Other policyholder funds................................. 6,206 6,001 Policyholder dividends payable........................... 1,025 1,042 Policyholder dividend obligation......................... 1,882 708 Short-term debt.......................................... 912 345 Long-term debt........................................... 2,624 2,380 Current income taxes payable............................. 873 162 Deferred income taxes payable............................ 1,947 1,893 Payables under securities loaned transactions............ 16,321 12,662 Other liabilities........................................ 6,848 6,981 Separate account liabilities............................. 53,912 62,714 -------- -------- Total liabilities.................................... 233,053 233,145 -------- -------- Commitments and contingencies (Note 11) Company-obligated mandatorily redeemable securities of subsidiary trusts......................................... 277 276 -------- -------- Stockholder's Equity: Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding at December 31, 2002 and December 31, 2001. 5 5 Additional paid-in capital............................... 13,474 12,825 Retained earnings........................................ 708 -- Accumulated other comprehensive income................... 1,878 1,614 -------- -------- Total stockholder's equity........................... 16,065 14,444 -------- -------- Total liabilities and stockholder's equity........... $249,395 $247,865 ======== ========
See Accompanying Notes to Consolidated Financial Statements. F-2 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in millions)
2002 2001 2000 ------- ------- ------- Revenues Premiums............................................ $18,470 $17,023 $16,263 Universal life and investment-type product policy fees.............................................. 1,918 1,874 1,820 Net investment income............................... 10,700 11,122 11,029 Other revenues...................................... 1,400 1,532 2,259 Net investment (losses) gains (net of amounts allocable to other accounts of $(139), $(33) and $(54), respectively).............................. (730) 927 (418) ------- ------- ------- Total revenues................................... 31,758 32,478 30,953 ------- ------- ------- Expenses Policyholder benefits and claims (excludes amounts directly related to net investment losses and gains of $(150), $(54) and $41, respectively)..... 18,860 18,265 16,935 Interest credited to policyholder account balances.. 2,711 3,035 2,935 Policyholder dividends.............................. 1,911 2,060 1,913 Payments to former Canadian policyholders........... -- -- 327 Demutualization costs............................... -- -- 230 Other expenses (excludes amounts directly related to net investment losses and gains of $11, $21 and $(95), respectively).......................... 6,589 6,920 7,308 ------- ------- ------- Total expenses................................... 30,071 30,280 29,648 ------- ------- ------- Income from continuing operations before provision for income taxes.................................. 1,687 2,198 1,305 Provision for income taxes.......................... 525 797 435 ------- ------- ------- Income from continuing operations................... 1,162 1,401 870 Income from discontinued operations, net of income taxes............................................. 450 86 79 ------- ------- ------- Net income.......................................... $ 1,612 $ 1,487 $ 949 ======= ======= ======= Net income after April 7, 2000 (date of demutualization) (Note 1)......................... $ 1,169 =======
See Accompanying Notes to Consolidated Financial Statements. F-3 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in millions)
Accumulated Other Comprehensive Income (Loss) ------------------------------------ Net Foreign Minimum Additional Unrealized Currency Pension Common Paid-in Retained Investment Translation Liability Stock Capital Earnings (Losses) Gains Adjustment Adjustment Total ------ ---------- -------- -------------- ----------- ---------- ------- Balance at December 31, 1999..................... $-- $ -- $ 14,100 $ (297) $ (94) $(19) $13,690 Policy credits and cash payments to eligible policyholders................................... (2,958) (2,958) Common stock issued in demutualization........... 5 10,917 (10,922) -- Capital contribution from the Holding Company......................................... 3,632 3,632 Dividends on common stock........................ (762) (762) Comprehensive income: Net loss before date of demutualization........ (220) (220) Net income after date of demutualization....... 1,169 1,169 Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes................................. 1,480 1,480 Foreign currency translation adjustments...... (6) (6) Minimum pension liability adjustment.......... (9) (9) ------- Other comprehensive income.................... 1,465 ------- Comprehensive income........................... 2,414 --- ------- -------- ------ ----- ---- ------- Balance at December 31, 2000..................... 5 14,549 407 1,183 (100) (28) 16,016 Sale of subsidiary to the Holding Company........ 96 96 Issuance of warrants--by subsidiary.............. 40 40 Dividends on common stock........................ (1,860) (1,894) (3,754) Comprehensive income: Net income..................................... 1,487 1,487 Other comprehensive income: Cumulative effect of change in accounting for derivatives, net of income taxes and reclassification adjustment.................. 22 22 Unrealized gains on derivative instruments, net of income taxes.......................... 24 24 Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes................................. 570 570 Foreign currency translation adjustments...... (39) (39) Minimum pension liability adjustment.......... (18) (18) ------- Other comprehensive income.................... 559 ------- Comprehensive income........................... 2,046 --- ------- -------- ------ ----- ---- ------- Balance at December 31, 2001..................... 5 12,825 -- 1,799 (139) (46) 14,444 Sale of subsidiaries to the Holding Company...... 149 149 Capital contribution from the Holding Company......................................... 500 500 Dividends on common stock........................ (904) (904) Comprehensive income: Net income..................................... 1,612 1,612 Other comprehensive income: Unrealized losses on derivative instruments, net of income taxes.......................... (58) (58) Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes................................. 250 250 Foreign currency translation adjustments...... 72 72 ------- Other comprehensive income.................... 264 ------- Comprehensive income........................... 1,876 --- ------- -------- ------ ----- ---- ------- Balance at December 31, 2002..................... $ 5 $13,474 $ 708 $1,991 $ (67) $(46) $16,065 === ======= ======== ====== ===== ==== =======
See Accompanying Notes to Consolidated Financial Statements F-4 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in millions)
2002 2001 2000 -------- -------- -------- Cash flows from operating activities Net income............................................................. $ 1,612 $ 1,487 $ 949 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses.............................. 383 318 363 Amortization of premiums and accretion of discounts associated with investments, net.................................................. (456) (358) (451) Losses (gains) from sales of investments and businesses, net........ 870 (894) 472 Interest credited to other policyholder account balances............ 2,711 3,035 2,935 Universal life and investment-type product policy fees.............. (1,918) (1,874) (1,820) Change in premiums and other receivables............................ (2,200) (612) 331 Change in deferred policy acquisition costs, net.................... (766) (553) (519) Change in insurance-related liabilities............................. 4,550 3,522 2,618 Change in income taxes payable...................................... 684 871 246 Change in other liabilities......................................... 32 (226) (997) Other, net.......................................................... (698) (920) (919) -------- -------- -------- Net cash provided by operating activities.............................. 4,804 3,796 3,208 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities.................................................... 61,473 51,438 56,971 Equity securities................................................... 2,676 2,073 748 Mortgage loans on real estate....................................... 2,632 1,936 2,185 Real estate and real estate joint ventures.......................... 179 1,131 606 Other limited partnership interests................................. 340 396 422 Purchases of: Fixed maturities.................................................... (79,527) (51,417) (64,918) Equity securities................................................... (1,217) (3,045) (863) Mortgage loans on real estate....................................... (3,188) (3,412) (2,787) Real estate and real estate joint ventures.......................... (28) (665) (407) Other limited partnership interests................................. (447) (424) (660) Net change in short-term investments................................... (308) (303) 2,382 Purchase of businesses, net of cash received........................... -- -- (416) Proceeds from sales of businesses...................................... 749 831 877 Net change in payable under securities loaned transactions............. 3,659 361 5,840 Other, net............................................................. (814) (534) (821) -------- -------- -------- Net cash used in investing activities.................................. $(13,821) $ (1,634) $ (841) -------- -------- --------
See Accompanying Notes to Consolidated Financial Statements. F-5 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in millions)
2002 2001 2000 -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits........................................................... $ 27,681 $ 29,171 $ 28,452 Withdrawals........................................................ (22,118) (25,593) (28,504) Net change in short-term debt......................................... 567 (740) (3,095) Long-term debt issued................................................. 537 353 1,214 Long-term debt repaid................................................. (221) (1,379) (124) Capital contribution from the Holding Company......................... 649 96 3,632 Net proceeds from issuance of company-obligated mandatorily redeemable securities of subsidiary trust...................................... -- 197 -- Cash payments to eligible policyholders............................... -- -- (2,550) Dividends on common stock............................................. (904) (3,754) (762) -------- -------- -------- Net cash provided by (used in) financing activities................... 6,191 (1,649) (1,737) -------- -------- -------- Change in cash and cash equivalents................................... (2,826) 513 630 Cash and cash equivalents, beginning of year.......................... 3,932 3,419 2,789 -------- -------- -------- Cash and cash equivalents, end of year................................ $ 1,106 $ 3,932 $ 3,419 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid (refunded) during the year for: Interest....................................................... $ 267 $ 336 $ 448 ======== ======== ======== Income taxes................................................... $ 96 $ (335) $ 256 ======== ======== ======== Non-cash transactions during the year: Policy credits to eligible policyholders....................... $ -- $ -- $ 408 ======== ======== ======== Business acquisitions--assets.................................. $ -- $ -- $ 22,936 ======== ======== ======== Business acquisitions--liabilities............................. $ -- $ -- $ 22,437 ======== ======== ======== Business dispositions--assets.................................. $ 17,276 $ 6,162 $ 1,184 ======== ======== ======== Business dispositions--liabilities............................. $ 16,547 $ 5,263 $ 1,014 ======== ======== ======== Real estate acquired in satisfaction of debt................... $ 30 $ 30 $ 24 ======== ======== ======== Mortgage note on sale of real estate........................... $ -- $ 1,530 $ -- ======== ======== ======== Purchase money mortgage on real estate sale.................... $ 954 $ -- $ 49 ======== ======== ========
See Accompanying Notes to Consolidated Financial Statements. F-6 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Accounting Policies Business Metropolitan Life Insurance Company ("Metropolitan Life") and its subsidiaries (the "Company") is a leading provider of insurance and other financial services to a broad section of individual and institutional customers. The Company offers life insurance, annuities, automobile and property insurance and mutual funds to individuals and group insurance, reinsurance, as well as retirement and savings products and services to corporations and other institutions. Metropolitan Life is a wholly-owned subsidiary of MetLife, Inc. ("MetLife" or the "Holding Company"). Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The New York Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in conformity with GAAP in making such determination. The accompanying consolidated financial statements include the accounts of Metropolitan Life and its subsidiaries, partnerships and joint ventures in which the Company has a majority voting interest. Closed block assets, liabilities, revenues and expenses are combined on a line by line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item. See Note 7. Intercompany accounts and transactions have been eliminated. Metropolitan Insurance and Annuity Company ("MIAC"), which was sold to MetLife in 2001, and Cova Corporation, MetLife Investors Group, Inc., MetLife International Holdings, Inc., Walnut Street Securities, Inc., Seguros Genesis S.A., MetLife Pensiones S.A. and Metropolitan Life Seguros de Vida S.A., which were sold to MetLife in 2002, are included in the accompanying Financial Statements until the date of sale. See Note 12. The Company uses the equity method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has more than a minor interest, has influence over the partnership's operating and financial policies and does not have a controlling interest. The Company uses the cost method for minor interest investments and when it has virtually no influence over the partnership's operating and financial policies. Minority interest related to consolidated entities included in other liabilities was $481 million and $442 million at December 31, 2002 and 2001, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2002 presentation. Summary of Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The critical accounting policies, estimates and related judgments underlying the Company's consolidated financial statements are summarized below. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. F-7 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Investments The Company's principal investments are in fixed maturities, mortgage loans and real estate, all of which are exposed to three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values. The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; and (vi) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The determination of fair values in the absence of quoted market values is based on valuation methodologies, securities the Company deems to be comparable and assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. Derivatives The Company enters into freestanding derivative transactions primarily to manage the risk associated with variability in cash flows related to the Company's financial assets and liabilities or to changing fair values. The Company also purchases investment securities and issues certain insurance and reinsurance policies with embedded derivatives. The associated financial statement risk is the volatility in net income, which can result from (i) changes in fair value of derivatives not qualifying as accounting hedges, and (ii) ineffectiveness of designated hedges in an environment of changing interest rates or fair values. In addition, accounting for derivatives is complex, as evidenced by significant authoritative interpretations of the primary accounting standards which continue to evolve, as well as the significant judgments and estimates involved in determining fair value in the absence of quoted market values. These estimates are based on valuation methodologies and assumptions deemed appropriate in the circumstances. Such assumptions include estimated market volatility and interest rates used in the determination of fair value where quoted market values are not available. The use of different assumptions may have a material effect on the estimated fair value amounts. Deferred Policy Acquisition Costs The Company incurs significant costs in connection with acquiring new insurance business. These costs, which vary with, and are primarily related to, the production of new business, are deferred. The recovery of such costs is dependent on the future profitability of the related business. The amount of future profit is dependent principally upon investment returns, mortality, morbidity, persistency, expenses to administer the business creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns are most likely to impact the rate of amortization of such costs. The aforementioned factors enter into management's estimates of gross margins and profits, which generally are used to amortize such costs. Revisions to estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future gross margins and profits are less than amounts deferred. In addition, the Company F-8 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) utilizes the reversion to the mean assumption, a standard industry practice, in its determination of the amortization of deferred policy acquisition costs. This practice assumes that the expectation for long-term appreciation in equity markets is not changed by minor short-term market fluctuations, but that it does change when large interim deviations have occurred. Future Policy Benefits The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, annuities and disability insurance. Generally, amounts are payable over an extended period of time and the profitability of the products is dependent on the pricing of the products. Principal assumptions used in pricing policies and in the establishment of liabilities for future policy benefits are mortality, morbidity, expenses, persistency, investment returns and inflation. The Company also establishes liabilities for unpaid claims and claims expenses for property and casualty insurance. Pricing of this insurance takes into account the expected frequency and severity of losses, the costs of providing coverage, competitive factors, characteristics of the insured and the property covered, and profit considerations. Liabilities for property and casualty insurance are dependent on estimates of amounts payable for claims reported but not settled and claims incurred but not reported. These estimates are influenced by historical experience and actuarial assumptions of current developments, anticipated trends and risk management strategies. Differences between the actual experience and assumptions used in pricing these policies and in the establishment of liabilities result in variances in profit and could result in losses. Reinsurance The Company enters into reinsurance transactions as both a provider and a purchaser of reinsurance. Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish policy benefits and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed above. Additionally, for each of its reinsurance contracts, the Company must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the Company is subject or features that delay the timely reimbursement of claims. If the Company determines that a contract does not expose it to a reasonable possibility of a significant loss from insurance risk, the Company records the contract using the deposit method of accounting. Litigation The Company is a party to a number of legal actions. Given the inherent unpredictability of litigation, it is difficult to estimate the impact of litigation on the Company's consolidated financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including the Company's asbestos-related liability, are especially difficult to estimate due to the limitation of available data and uncertainty regarding numerous variables used to determine amounts recorded. The data and variables that impact the assumption used to estimate the Company's asbestos-related liability include the number of future claims, the cost to resolve claims, the disease mix and severity of disease, the jurisdiction of claims filed, tort reform efforts and the impact of any possible future adverse verdicts and their amounts. It is possible that an adverse outcome in certain of the Company's litigation, F-9 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon the Company's consolidated net income or cash flows in particular quarterly or annual periods. Employee Benefit Plans The Company sponsors pension and other retirement plans in various forms covering employees who meet specified eligibility requirements. The reported expense and liability associated with these plans requires an extensive use of assumptions which include the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company. Management determines these assumptions based upon currently available market and industry data, historical performance of the plan and its assets, and consultation with an independent consulting actuarial firm to aid it in selecting appropriate assumptions and valuing its related liabilities. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. These differences may have a significant effect on the Company's consolidated financial statements and liquidity. Significant Accounting Policies Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as investment losses. Investment gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Valuation allowances are included in net investment gains and losses and are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the principal amount of the loan based on the loan's contractual interest rate. However, interest ceases to be accrued for loans on which interest is generally more than 60 days past due and/or where the collection of interest is not considered probable. Cash receipts on impaired loans are recorded as a reduction of the recorded asset. Real estate held-for-investment including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Real estate held-for-sale is stated at the lower of depreciated cost or fair value less expected disposition costs. Real estate is not depreciated while it is classified as held-for-sale. Cost of real estate held-for-investment is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in net investment gains and losses. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired upon F-10 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) foreclosure of commercial and agricultural mortgage loans is recorded at the lower of estimated fair value or the carrying value of the mortgage loan at the date of foreclosure. Policy loans are stated at unpaid principal balances. Short-term investments are stated at amortized cost, which approximates fair value. Other invested assets consist principally of leveraged leases and funds withheld at interest. The leveraged leases are recorded net of non-recourse debt. The Company participates in lease transactions which are diversified by geographic area. The Company regularly reviews residual values and writes down residuals to expected values as needed. Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets supporting the reinsured policies and equal to the net statutory reserves are withheld and continue to be legally owned by the ceding companies. The Company recognizes interest on funds withheld in accordance with the treaty terms as investment income is earned on the assets supporting the reinsured policies. Structured Investment Transactions and Variable Interest Entities The Company participates in structured investment transactions, primarily asset securitizations and structured notes. These transactions enhance the Company's total return of the investment portfolio principally by generating management fee income on asset securitizations and by providing equity-based returns on debt securities through structured notes and similar type instruments. The Company sponsors financial asset securitizations of high yield debt securities, investment grade bonds and structured finance securities and also is the collateral manager and a beneficial interest holder in such transactions. As the collateral manager, the Company earns management fees on the outstanding securitized asset balance, which are recorded in income as earned. When the Company transfers assets to a bankruptcy-remote special purpose entity ("SPE") and surrenders control over the transferred assets, the transaction is accounted for as a sale. Gains or losses on securitizations are determined with reference to the carrying amount of the financial assets transferred, which is allocated to the assets sold and the beneficial interests retained based on relative fair values at the date of transfer. Beneficial interests in securitizations are carried at fair value in fixed maturities. Income on the beneficial interests is recognized using the prospective method in accordance with Emerging Issues Task Force ("EITF") Issue No. 99-20, Recognition of Interest Income and Impairment on Certain Investments ("EITF 99-20"). The SPEs used to securitize assets are not consolidated by the Company because unrelated third parties hold controlling interests through ownership of equity in the SPEs, representing at least three percent of the value of the total assets of the SPE throughout the life of the SPE, and such equity class has the substantive risks and rewards of the residual interest of the SPE. The Company purchases or receives beneficial interests in SPEs, which generally acquire financial assets, including corporate equities, debt securities and purchased options. The Company has not guaranteed the performance, liquidity or obligations of the SPEs and the Company's exposure to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company uses the beneficial interests as part of its risk management strategy, including asset-liability management. These SPEs are not consolidated by the Company because unrelated third parties hold controlling interests through ownership of equity in the SPEs, representing at least three percent of the value of the total assets of the SPE throughout the life of the SPE, and such equity class has the substantive risks and rewards of the residual interest of the SPE. The beneficial interests in SPEs where the Company exercises significant influence over the operating and financial policies of the SPE are accounted for in accordance with the equity method of accounting. Impairments of these beneficial interests are included in F-11 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) net investment gains and losses. The beneficial interests in SPEs where the Company does not exercise significant influence are accounted for based on the substance of the beneficial interest's rights and obligations. Beneficial interests are accounted for and are included in fixed maturities. These beneficial interests are generally structured notes, as defined by EITF Issue No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes, and their income is recognized using the retrospective interest method or the level yield method, as appropriate. Effective in 2003, Financial Accounting Standards Board ("FASB") Interpretation No. 46, Consolidation of Variable Interest Entities, and Interpretation of APB No. 51 ("FIN 46") will establish new accounting guidance relating to the consolidation of variable interest entities ("VIEs"). Certain of the asset-backed securitizations and structured investment transactions discussed above meet the definition of a VIE under FIN 46. In addition, certain investments in real estate joint ventures and other limited partnership interests also meet the VIE definition. The Company will be required to consolidate any VIE for which it is determined that the Company is the primary beneficiary. The Company is still in the process of evaluating its investments with regard to the implementation of FIN 46. The following table presents the total assets and the maximum exposure to loss relating to the VIEs that the Company believes it is reasonably possible it will need to consolidate in accordance with the provisions of FIN 46 at:
December 31, 2002 ------------------ Maximum Total Exposure to Assets Loss ------ ----------- (Dollars in millions) Financial asset-backed securitizations and collateralized debt and bond obligations.......................................................... $1,719 $ 9(1) Other structured investment transactions............................... 89 38(2) Real estate joint ventures............................................. 443 196(3) Other limited partnership interests.................................... 864 167(3) ------ ---- Total............................................................... $3,115 $410 ====== ====
- -------- (1) The maximum exposure to loss is based on the carrying value of retained interests. (2) The maximum exposure to loss is based on the carrying value of beneficial interests. (3) The maximum exposure to loss is based on the carrying value plus unfunded commitments reduced by amounts guaranteed by other partners. Derivative Instruments The Company uses derivative instruments to manage risk through one of four principal risk management strategies: (i) the hedging of liabilities, (ii) invested assets, (iii) portfolios of assets or liabilities and (iv) firm commitments and forecasted transactions. Additionally, the Company enters into income generation and replication derivative transactions as permitted by its derivatives use plan that was approved by the New York Insurance Department (the "Department"). The Company's derivative hedging strategy employs a variety of instruments, including financial futures, financial forwards, interest rate, credit default and foreign currency swaps, foreign currency forwards contracts, and options, including caps and floors. On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure (fair value, cash flow or foreign currency). If a derivative does not qualify as a hedge, F-12 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) according to Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS 133"), the derivative is recorded at fair value and changes in its fair value are generally reported in net investment gains or losses. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company generally determines hedge effectiveness based on total changes in fair value of a derivative instrument. The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item, (ii) the derivative expires or is sold, terminated, or exercised, (iii) the derivative is de-designated as a hedge instrument, (iv) it is probable that the forecasted transaction will not occur, (v) a hedged firm commitment no longer meets the definition of a firm commitment, or (vi) management determines that designation of the derivative as a hedge instrument is no longer appropriate. The Company designates and accounts for the following as cash flow hedges, when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments, (ii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments, (iii) foreign currency forwards to hedge the exposure of future payments or receipts in foreign currencies, and (iv) other instruments to hedge the cash flows of various other forecasted transactions. For all qualifying and highly effective cash flow hedges, the effective portion of changes in fair value of the derivative instrument is reported in other comprehensive income or loss. The ineffective portion of changes in fair value of the derivative instrument is reported in net investment gains or losses. Hedged forecasted transactions, other than the receipt or payment of variable interest payments, are not expected to occur more than 12 months after hedge inception. The Company designates and accounts for the following as fair value hedges when they have met the effectiveness requirements of SFAS 133: (i) various types of interest rate swaps to convert fixed rate investments to floating rate investments, (ii) receive U.S. dollar floating on foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated investments, and (iii) other instruments to hedge various other fair value exposures of investments. For all qualifying and highly effective fair value hedges, the changes in fair value of the derivative instrument are reported as net investment gains or losses. In addition, changes in fair value attributable to the hedged portion of the underlying instrument are reported in net investment gains and losses. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the derivative continues to be carried on the consolidated balance sheet at its fair value, but the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the consolidated balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the consolidated balance sheet and recognized as a net investment gain or loss in the current period. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative continues to be carried on the consolidated balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income or loss are recognized immediately in net investment gains or losses. When the hedged forecasted F-13 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) transaction is no longer probable, but is reasonably possible, the accumulated gain or loss remains in other comprehensive income or loss and is recognized when the transaction affects net income or loss; however, prospective hedge accounting for the transaction is terminated. In all other situations in which hedge accounting is discontinued, the derivative is carried at its fair value on the consolidated balance sheet, with changes in its fair value generally recognized in the current period as net investment gains or losses. The Company may enter into contracts that are not themselves derivative instruments but contain embedded derivatives. For each contract, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to those of the host contract and determines whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative. Such embedded derivatives are recorded on the consolidated balance sheet at fair value and changes in their fair value are recorded currently in net investment gains or losses. If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the consolidated balance sheet at fair value, with changes in fair value recognized in the current period as net investment gains or losses. The Company also uses derivatives to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These securities, called replication synthetic asset transactions ("RSATs"), are a combination of a derivative and a cash security to synthetically create a third replicated security. These derivatives are not designated as hedges. As of December 31, 2002 and 2001, 19 and 15, respectively, of such RSATs, with notional amounts totaling $285 million and $205 million, respectively, have been created through the combination of a credit default swap and a U.S. Treasury security. The Company records the premiums received on the credit default swaps in investment income over the life of the contract and changes in fair value are recorded in net investment gains and losses. The Company enters into written covered calls and net written covered collars to generate additional investment income on the underlying assets it holds. These derivatives are not designated as hedges. The Company records the premiums received as net investment income over the life of the contract and changes in fair value of such options and collars as net investment gains and losses. Cash and Cash Equivalents The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment, Leasehold Improvements and Computer Software Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years-digits method over the estimated useful lives of the assets. The estimated life for a company occupied real estate property is 40 years. Estimated lives range from five to ten years for leasehold improvements and three to five years for all other property and equipment. Accumulated depreciation and amortization of property, equipment and leasehold improvements was $368 million and $546 million at December 31, 2002 and 2001, respectively. Related depreciation and amortization expense was $81 million, $96 million and $90 million for the years ended December 31, 2002, 2001 and 2000, respectively. F-14 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well as internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized. Such costs are amortized generally over a three-year period using the straight-line method. Accumulated amortization of capitalized software was $297 million and $165 million at December 31, 2002 and 2001, respectively. Related amortization expense was $153 million, $106 million and $45 million for the years ended December 31, 2002, 2001 and 2000, respectively. Deferred Policy Acquisition Costs The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized with interest over the expected life of the contract for participating traditional life, universal life and investment-type products. Generally, deferred policy acquisition costs are amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception or acquisition of the contracts. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management utilizes the reversion to the mean assumption, a standard industry practice, in its determination of the amortization of deferred policy acquisition costs. This practice assumes that the expectation for long-term appreciation is not changed by minor short-term market fluctuations, but that it does change when large interim deviations have occurred. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance or acquisition and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Policy acquisition costs related to internally replaced contracts are expensed at the date of replacement. Deferred policy acquisition costs for property and casualty insurance contracts, which are primarily comprised of commissions and certain underwriting expenses, are deferred and amortized on a pro rata basis over the applicable contract term or reinsurance treaty. Value of business acquired ("VOBA"), included as part of deferred policy acquisition costs, represents the present value of future profits generated from existing insurance contracts in force at the date of acquisition and is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts. F-15 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding VOBA and deferred policy acquisition costs for the year ended December 31, 2002 is as follows:
Deferred Value of Policy Business Acquisition Acquired Costs Total -------- ----------- ------- (Dollars in millions) Balance at January 1, 2002....... $1,502 $ 8,969 $10,471 Capitalizations.................. -- 2,227 2,227 ------ ------- ------- Total..................... 1,502 11,196 12,698 ------ ------- ------- Amortization allocated to: Net investment gains (losses). 16 (5) 11 Unrealized investment gains... 31 173 204 Other expenses................ 121 1,380 1,501 ------ ------- ------- Total amortization........ 168 1,548 1,716 ------ ------- ------- Dispositions and other........... (463) (853) (1,316) ------ ------- ------- Balance at December 31, 2002..... $ 871 $ 8,795 $ 9,666 ====== ======= =======
Information regarding VOBA and deferred policy acquisition costs for the year ended December 31, 2001 is as follows:
Deferred Value of Policy Business Acquisition Acquired Costs Total -------- ----------- ------- (Dollars in millions) Balance at January 1, 2001....... $1,674 $ 8,823 $10,497 Capitalizations.................. -- 2,018 2,018 ------ ------- ------- Total..................... 1,674 10,841 12,515 ------ ------- ------- Amortization allocated to: Net investment (losses) gains. (15) 36 21 Unrealized investment gains... 16 112 128 Other expenses................ 178 1,256 1,434 ------ ------- ------- Total amortization........ 179 1,404 1,583 ------ ------- ------- Dispositions and other........... 7 (468) (461) ------ ------- ------- Balance at December 31, 2001..... $1,502 $ 8,969 $10,471 ====== ======= =======
F-16 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding VOBA and deferred policy acquisition costs for the year ended December 31, 2000 is as follows:
Deferred Value of Policy Business Acquisition Acquired Costs Total -------- ----------- ------- (Dollars in millions) Balance at January 1, 2000.............. $ 632 $ 8,438 $ 9,070 Capitalizations......................... -- 1,805 1,805 Acquisitions............................ 1,480 201 1,681 ------ ------- ------- Total............................ 2,112 10,444 12,556 ------ ------- ------- Amortization allocated to: Net investment gains (losses)........ 28 (123) (95) Unrealized investment gains.......... 93 503 596 Other expenses....................... 310 1,162 1,472 ------ ------- ------- Total amortization............... 431 1,542 1,973 ------ ------- ------- Dispositions and other.................. (7) (79) (86) ------ ------- ------- Balance at December 31, 2000............ $1,674 $ 8,823 $10,497 ====== ======= =======
The estimated future amortization expense allocated to other expenses for VOBA is $83 million in 2003, $78 million in 2004, $73 million in 2005, $70 million in 2006 and $64 million in 2007. Amortization of VOBA and deferred policy acquisition costs is allocated to (i) investment gains and losses to provide consolidated statement of income information regarding the impact of such gains and losses on the amount of the amortization, (ii) unrealized investment gains and losses to provide information regarding the amount of deferred policy acquisition costs that would have been amortized if such gains and losses had been recognized, and (iii) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Investment gains and losses related to certain products have a direct impact on the amortization of VOBA and deferred policy acquisition costs. Presenting investment gains and losses net of related amortization of VOBA and deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. Goodwill The excess of cost over the fair value of net assets acquired ("goodwill") is included in other assets. On January 1, 2002, the Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, ("SFAS 142"). In accordance with SFAS 142, goodwill is not amortized but is tested for impairment at least annually to determine if a write down of the cost of the asset is required. Impairments are recognized in operating results when the carrying amount of goodwill exceeds its implied fair value. Prior to the adoption of SFAS 142, goodwill was amortized on a straight-line basis over a period ranging from ten to 30 years and impairments were recognized in operating results when permanent diminution in value was deemed to have occurred. F-17 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Changes in goodwill were as follows:
Years ended December 31, ----------------------- 2002 2001 2000 ----- ---- ----- (Dollars in millions) Net balance at January 1.. $ 575 $703 $ 611 Acquisitions.............. 7 20 286 Amortization.............. -- (47) (50) Impairment losses......... (2) (61) -- Dispositions and other.... (175) (40) (144) ----- ---- ----- Net balance at December 31 $ 405 $575 $ 703 ===== ==== =====
Accumulated amortization from goodwill was as follows at:
December 31, ------------------ 2002 2001 ---- ---- (Dollars in millions) Accumulated amortization $71 $100 === ====
Future Policy Benefits and Policyholder Account Balances Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the nonforfeiture interest rate, ranging from 3% to 8%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (ii) the liability for terminal dividends, and (iii) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 3% to 9%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 3% to 7%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 3% to 8%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 1% to 13%, less expenses, mortality charges, and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, F-18 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) reduced for anticipated salvage and subrogation. Revisions of these estimates are included in operations in the year such refinements are made. Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges and are recognized in the period in which services are provided. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Other Revenues Other revenues include asset management and advisory fees, broker/dealer commissions and fees, and administrative service fees. Such fees and commissions are recognized in the period in which services are performed. Other revenues also include changes in account value relating to corporate-owned life insurance ("COLI"). Under certain COLI contracts, if the Company reports certain unlikely adverse results in its consolidated financial statements, withdrawals would not be immediately available and would be subject to market value adjustment, which could result in a reduction of the account value. Policyholder Dividends Policyholder dividends are approved annually by the insurance subsidiaries' boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries. Participating Business Participating business represented approximately 16% and 18% of the Company's life insurance in-force, and 90% and 82% of the number of life insurance policies in-force, at December 31, 2002 and 2001, respectively. Participating policies represented approximately 43% and 46%, 44% and 46%, and 47% and 50% of gross and net life insurance premiums for the years ended December 31, 2002, 2001 and 2000, respectively. The percentages indicated are calculated excluding the business of the Reinsurance segment. Income Taxes Metropolitan Life, the Holding Company and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with the provisions of the Internal F-19 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Revenue Code of 1986, as amended (the "Code"). Non-includable subsidiaries file either separate tax returns or separate consolidated tax returns. Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. Metropolitan Life has not been subject to the equity tax since the date of demutualization. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. Reinsurance The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. Deferred policy acquisition costs are reduced by amounts recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are reported in other revenues. The Company assumes and retrocedes financial reinsurance contracts, which represent low mortality risk reinsurance treaties. These contracts are reported as deposits and are included in other assets. The amount of revenue reported on these contracts represents fees and the cost of insurance under the terms of the reinsurance agreement. Separate Accounts Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Investments (stated at estimated fair value) and liabilities of the separate accounts are reported separately as assets and liabilities. Deposits to separate accounts, investment income and recognized and unrealized gains and losses on the investments of the separate accounts accrue directly to contractholders and, accordingly, are not reflected in the Company's consolidated statements of income and cash flows. Mortality, policy administration and surrender charges to all separate accounts are included in revenues. Stock Based Compensation The Company accounts for the stock-based compensation plans using the accounting method prescribed by Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees ("APB 25") and has included in Note 17 the pro forma disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). Foreign Currency Translation Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income or loss. Gains and losses from foreign currency transactions are reported in earnings. Discontinued Operations The results of operations of a component of the Company that either has been disposed of or is classified as held-for-sale on or after January 1, 2002 are reported in discontinued operations if the operations and cash flows F-20 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of the component have been or will be eliminated from the ongoing operations of the Company as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction. Demutualization and Initial Public Offering On April 7, 2000 (the "date of demutualization"), Metropolitan Life converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife. The conversion was pursuant to an order by the New York Superintendent of Insurance (the "Superintendent") approving Metropolitan Life's plan of reorganization, as amended (the "plan"). On the date of demutualization, policyholders' membership interests in Metropolitan Life were extinguished and eligible policyholders received, in exchange for their interests, trust interests representing 494,466,664 shares of common stock of MetLife to be held in a trust, cash payments aggregating $2,550 million and adjustments to their policy values in the form of policy credits aggregating $408 million, as provided in the plan. In addition, Metropolitan Life's Canadian branch made cash payments of $327 million in the second quarter of 2000 to holders of certain policies transferred to Clarica Life Insurance Company in connection with the sale of a substantial portion of Metropolitan Life's Canadian operations in 1998, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale. Application of Accounting Pronouncements In January 2003, the FASB issued FIN 46 which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is in the process of assessing the impact of FIN 46 on its consolidated financial statements. Certain disclosure provisions of FIN 46 were required for December 31, 2002 financial statements. See "Structured Investment Transactions and Variable Interest Entities." As of December 31, 2002, the FASB is deliberating on a proposed statement that would further amend SFAS 133. The proposed statement will address certain SFAS 133 Implementation Issues. The proposed statement is not expected to have a significant impact on the Company's consolidated financial statements. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation --Transition and Disclosure ("SFAS 148"), which provides guidance on how to transition from the intrinsic value method of accounting for stock-based employee compensation under APB 25 to the fair value method of accounting of SFAS 123, if a company so elects. Effective January 1, 2003, the Company adopted the fair value method of recording stock options under SFAS 123. In accordance with alternatives available under the transitional guidance of SFAS 148, the Company has elected to apply the fair value method of accounting for stock options prospectively to awards granted subsequent to January 1, 2003. As permitted, options granted prior to January 1, 2003, will continue to be accounted for under APB 25, and the pro forma impact of accounting for these options at fair value will continue to be disclosed in the consolidated financial statements until the last of those options vest in 2005. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires entities to establish liabilities for certain types of guarantees, and expands financial statement disclosures F-21 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) for others. Disclosure requirements under FIN 45 are effective for financial statements of annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to the provisions of FIN 45. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company does not expect the initial adoption of FIN 45 to have a significant impact on the Company's consolidated financial statements. The adoption of FIN 45 requires the Company to include disclosures in its consolidated financial statements related to guarantees. See Note 11. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"), which must be adopted for exit and disposal activities initiated after December 31, 2002. SFAS 146 will require that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred rather than at the date of an entity's commitment to an exit plan as required by EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF 94-3"). As discussed in Note 13, in the fourth quarter of 2001, the Company recorded a charge of $330 million, net of income taxes of $169 million, associated with business realignment initiatives using the EITF 94-3 accounting guidance. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"). In addition to amending or rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS 145 generally precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS 145 also requires sale-leaseback treatment for certain modifications of a capital lease that result in the lease being classified as an operating lease. SFAS 145 is effective for fiscal years beginning after May 15, 2002, and the initial application of this standard did not have a significant impact on the Company's consolidated financial statements. Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides a single model for accounting for long-lived assets to be disposed of by superseding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less costs to sell, rather than on a net realizable value basis. Future operating losses relating to discontinued operations also are no longer recognized before they occur. SFAS 144 (i) broadens the definition of a discontinued operation to include a component of an entity (rather than a segment of a business); (ii) requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed; and (iii) retains the basic provisions of (a) APB 30 regarding the presentation of discontinued operations in the statements of income, (b) SFAS 121 relating to recognition and measurement of impaired long-lived assets (other than goodwill), and (c) SFAS 121 relating to the measurement of long-lived assets classified as held-for-sale. Adoption of SFAS 144 did not have a material impact on the Company's consolidated financial statements other than the presentation as discontinued operations of net investment income and net investment gains related to operations of real estate on which the Company initiated disposition activities subsequent to January 1, 2002 and the classification of such real estate as held-for-sale on the consolidated balance sheets. See Note 20. Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 142 eliminates the systematic amortization and establishes criteria for measuring the impairment of goodwill and certain other intangible assets by reporting unit. The Company did not amortize F-22 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) goodwill during 2002. Amortization of goodwill was $47 million and $50 million for the years ended December 31, 2001 and 2000, respectively. Amortization of other intangible assets was not material for the years ended December 31, 2002, 2001 and 2000. The Company has completed the required impairment tests of goodwill and indefinite-lived intangible assets. As a result of these tests, the Company recorded a $5 million charge to earnings relating to the impairment of certain goodwill assets in the third quarter of 2002 as a cumulative effect of a change in accounting. There was no impairment of identified intangible assets or significant reclassifications between goodwill and other intangible assets at January 1, 2002. Effective July 1, 2001, the Company adopted SFAS No. 141, Business Combinations ("SFAS 141"). SFAS 141 requires the purchase method of accounting for all business combinations and separate recognition of intangible assets apart from goodwill if such intangible assets meet certain criteria. In accordance with SFAS 141, the elimination of $5 million of negative goodwill was reported in income in the first quarter of 2002 as a cumulative effect of a change in accounting. In July 2001, the U.S. Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 102, Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for loan and lease losses. The application of SAB 102 by the Company did not have a material impact on the Company's consolidated financial statements. Effective April 1, 2001, the Company adopted certain additional accounting and reporting requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a Replacement of FASB Statement No. 125, relating to the derecognition of transferred assets and extinguished liabilities and the reporting of servicing assets and liabilities. The initial adoption of these requirements did not have a material impact on the Company's consolidated financial statements. Effective April 1, 2001, the Company adopted EITF 99-20, Recognition of Interest Income and Impairment on Certain Investments. This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The initial adoption of EITF 99-20 did not have a material impact on the Company's consolidated financial statements. Effective January 1, 2001, the Company adopted SFAS 133 which established new accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The cumulative effect of the adoption of SFAS 133, as of January 1, 2001, resulted in a $33 million increase in other comprehensive income, net of income taxes of $18 million, and had no material impact on net income. The increase to other comprehensive income is attributable to net gains on cash flow-type hedges at transition. Also at transition, the amortized cost of fixed maturities decreased and other invested assets increased by $22 million, representing the fair value of certain interest rate swaps that were accounted for prior to SFAS 133 using fair value-type settlement accounting. During the year ended December 31, 2001, $18 million of the pre-tax gain reported in accumulated other comprehensive income at transition was reclassified into net investment income. The FASB continues to issue additional guidance relating to the accounting for derivatives under SFAS 133, which may result in further adjustments to the Company's treatment of derivatives in subsequent accounting periods. Effective October 1, 2000, the Company adopted SAB No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the Securities and Exchange Commission's views in F-23 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) applying GAAP to revenue recognition in financial statements. The requirements of SAB 101 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 2000, the Company adopted Statement of Position ("SOP") No. 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. Adoption of SOP 98-7 did not have a material effect on the Company's consolidated financial statements. 2. September 11, 2001 Tragedies On September 11, 2001 terrorist attacks occurred in New York, Washington, D.C. and Pennsylvania (the "tragedies") triggering a significant loss of life and property which had an adverse impact on certain of the Company's businesses. The Company has direct exposure to these events with claims arising from its Individual, Institutional, Reinsurance and Auto & Home insurance coverages, and it believes the majority of such claims have been reported or otherwise analyzed by the Company. The Company's original estimate of the total insurance losses related to the tragedies, which was recorded in the third quarter of 2001, was $208 million, net of income taxes of $117 million. Net income for the year ended December 31, 2002 includes a $17 million, net of income taxes of $9 million, benefit from the reduction of the liability associated with the tragedies. This revision of the liability is the result of an analysis completed during the fourth quarter of 2002, which focused on the emerging incidence experienced over the past 12 months associated with certain disability products. As of December 31, 2002, the Company's remaining liability for unpaid and future claims associated with the tragedies was $47 million, principally related to disability coverages. The estimate has been and will continue to be subject to revision in subsequent periods, as claims are received from insureds and the claims to reinsurers are identified and processed. Any revision to the estimate of gross losses and reinsurance recoveries in subsequent periods will affect net income in such periods. Reinsurance recoveries are dependent on the continued creditworthiness of the reinsurers, which may be adversely affected by their other reinsured losses in connection with the tragedies. The Company's general account investment portfolios include investments, primarily comprised of fixed maturities, in industries that were affected by the tragedies, including airline, other travel, lodging and insurance. Exposures to these industries also exist through mortgage loans and investments in real estate. The carrying value of the Company's investment portfolio exposed to industries affected by the tragedies was approximately $3.5 billion at December 31, 2002. The long-term effects of the tragedies on the Company's businesses cannot be assessed at this time. The tragedies have had significant adverse effects on the general economic, market and political conditions, increasing many of the Company's business risks. This may have a negative effect on MetLife's businesses and results of operations over time. In particular, the declines in share prices experienced after the reopening of the U.S. equity markets following the tragedies have contributed, and may continue to contribute, to a decline in separate account assets, which in turn may have an adverse effect on fees earned in the Company's businesses. In addition, the Company has received and expects to continue to receive disability claims from individuals resulting from the tragedies. F-24 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Investments Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 2002 were as follows:
Cost or Gross Unrealized Amortized ---------------- Estimated Cost Gain Loss Fair Value --------- ------ ------ ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. corporates securities........ $ 42,265 $2,914 $ 896 $ 44,283 Mortgage-backed securities........ 30,444 1,534 20 31,958 Foreign corporate securities...... 15,405 1,295 185 16,515 U.S. treasuries/agencies.......... 13,256 1,514 3 14,767 Asset-backed securities........... 8,070 204 181 8,093 Foreign government securities..... 4,649 516 50 5,115 States and political subdivisions. 2,575 181 20 2,736 Other fixed income assets......... 312 126 82 356 -------- ------ ------ -------- Total bonds..................... 116,976 8,284 1,437 123,823 Redeemable preferred stocks......... 805 13 116 702 -------- ------ ------ -------- Total fixed maturities............ $117,781 $8,297 $1,553 $124,525 ======== ====== ====== ======== Equity Securities: Common stocks....................... $ 827 $ 114 $ 80 $ 861 Nonredeemable preferred stocks...... 415 13 3 425 -------- ------ ------ -------- Total equity securities........... $ 1,242 $ 127 $ 83 $ 1,286 ======== ====== ====== ========
Fixed maturities and equity securities at December 31, 2001 were as follows:
Cost or Gross Unrealized Amortized ---------------- Estimated Cost Gain Loss Fair Value --------- ------ ------ ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. corporates securities........ $ 41,552 $1,371 $ 671 $ 42,252 Mortgage-backed securities........ 24,579 839 190 25,228 Foreign corporate securities...... 15,682 657 528 15,811 U.S. treasuries/agencies.......... 7,923 1,007 42 8,888 Asset-backed securities........... 7,856 147 204 7,799 Foreign government securities..... 5,130 522 36 5,616 States and political subdivisions. 2,243 68 21 2,290 Other fixed income assets......... 1,881 284 211 1,954 -------- ------ ------ -------- Total bonds..................... 106,846 4,895 1,903 109,838 Redeemable preferred stocks.......... 784 12 33 763 -------- ------ ------ -------- Total fixed maturities............ $107,630 $4,907 $1,936 $110,601 ======== ====== ====== ======== Equity Securities: Common stocks....................... $ 1,938 $ 655 $ 75 $ 2,518 Nonredeemable preferred stocks...... 483 28 2 509 -------- ------ ------ -------- Total equity securities........... $ 2,421 $ 683 $ 77 $ 3,027 ======== ====== ====== ========
F-25 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company held foreign currency derivatives with notional amounts of $2,372 million and $1,958 million to hedge the exchange rate risk associated with foreign bonds at December 31, 2002 and 2001, respectively. The Company held fixed maturities at estimated fair values that were below investment grade or not rated by an independent rating agency that totaled $10,731 million and $9,618 million at December 31, 2002 and 2001, respectively. Non-income producing fixed maturities were $395 million and $236 million at December 31, 2002 and 2001, respectively. The cost or amortized cost and estimated fair value of bonds at December 31, 2002, by contractual maturity date (excluding scheduled sinking funds), are shown below:
Cost or Amortized Estimated Cost Fair Value --------- ---------- (Dollars in millions) Due in one year or less.................... $ 3,702 $ 3,765 Due after one year through five years...... 22,212 23,250 Due after five years through ten years..... 20,504 21,985 Due after ten years........................ 32,044 34,772 -------- -------- Subtotal................................ 78,462 83,772 Mortgage-backed and asset-backed securities 38,514 40,051 -------- -------- Subtotal................................ 116,976 123,823 Redeemable preferred stock................. 805 702 -------- -------- Total fixed maturities.................. $117,781 $124,525 ======== ========
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of fixed maturities and equity securities classified as available-for-sale were as follows:
Years ended December 31, ------------------------- 2002 2001 2000 ------- ------- ------- (Dollars in millions) Proceeds............... $34,918 $27,576 $46,205 Gross investment gains. $ 1,683 $ 634 $ 599 Gross investment losses $ (973) $ (934) $(1,520)
Gross investment losses above exclude writedowns recorded during 2002, 2001 and 2000 for other than temporarily impaired available-for-sale fixed maturities and equity securities of $1,342 million, $278 million and $324 million, respectively. Excluding investments in U.S. Treasury securities and obligations of U.S. government corporations and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. Securities Lending Program The Company participates in securities lending programs whereby blocks of securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company requires a minimum F-26 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $13,477 million and $11,416 million and an estimated fair value of $16,120 million and $12,066 million were on loan under the program at December 31, 2002 and 2001, respectively. The Company was liable for cash collateral under its control of $16,321 million and $12,662 million at December 31, 2002 and 2001, respectively. Security collateral on deposit from customers may not be sold or repledged and is not reflected in the consolidated financial statements. Structured Investment Transactions The Company securitizes high yield debt securities, investment grade bonds and structured finance securities. The Company has sponsored five securitizations with a total of approximately $1,719 million in financial assets as of December 31, 2002. Two of these transactions included the transfer of assets totaling approximately $289 million in 2001, resulting in the recognition of an insignificant amount of investment gains. The Company's beneficial interests in these SPEs as of December, 31, 2002 and 2001 and the related investment income for the years ended December 31, 2002, 2001 and 2000 were insignificant. The Company also invests in structured notes and similar type instruments, which generally provide equity-based returns on debt securities. The carrying value of such investments was approximately $870 million and $1.6 billion at December 31, 2002 and 2001, respectively. The related income recognized was $1 million, $44 million and $62 million for the years ended December 31, 2002, 2001 and 2000, respectively. Assets on Deposit and Held in Trust The Company had investment assets on deposit with regulatory agencies with a fair market value of $939 million and $835 million at December 31, 2002 and 2001, respectively. Company securities held in trust to satisfy collateral requirements had an amortized cost of $1,430 million and $1,336 million at December 31, 2002 and 2001, respectively. Mortgage Loans on Real Estate Mortgage loans on real estate were categorized as follows:
December 31, ------------------------------- 2002 2001 --------------- --------------- Amount Percent Amount Percent ------- ------- ------- ------- (Dollars in millions) Commercial mortgage loans.. $20,433 80% $19,503 79% Agricultural mortgage loans 5,042 20% 5,267 21% ------- ---- ------- ---- Total................... 25,475 100% 24,770 100% ======= ==== ======= ==== Less: Valuation allowances. 122 144 ------- ------- Mortgage loans.......... $25,353 $24,626 ======= =======
Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 2002, approximately 18%, 13% and 7% of the properties were located in California, New York and Florida, respectively. Generally, the Company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. Mortgage loans at December 31, 2002 and 2001 include $1,515 million and $1,530 million, respectively from MIAC, a related party, in connection with MIAC's purchase of real estate from the Company in 2001. F-27 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $620 million and $644 million at December 31, 2002 and 2001, respectively. Changes in mortgage loan valuation allowances were as follows:
Years ended December 31, -------------------- 2002 2001 2000 ---- ---- ---- (Dollars in millions) Balance at January 1...................... $144 $ 83 $ 90 Additions................................. 39 106 38 Deductions for writedowns and dispositions (56) (45) (74) (Dispositions) acquisitions of affiliates. (5) -- 29 ---- ---- ---- Balance at December 31.................... $122 $144 $ 83 ==== ==== ====
A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
December 31, ----------- 2002 2001 ---- ------ (Dollars in millions) Impaired mortgage loans with valuation allowances... $604 $ 816 Impaired mortgage loans without valuation allowances 257 315 ---- ------ Total............................................... 861 1,131 Less: Valuation allowances on impaired mortgages.... 121 140 ---- ------ Impaired mortgage loans.......................... $740 $ 991 ==== ======
The average investment in impaired mortgage loans on real estate was $1,068 million, $938 million and $912 million for the years ended December 31, 2002, 2001 and 2000, respectively. Interest income on impaired mortgage loans was $88 million, $103 million and $80 million for the years ended December 31, 2002, 2001 and 2000, respectively. The investment in restructured mortgage loans on real estate was $410 million and $684 million at December 31, 2002 and 2001, respectively. Interest income of $44 million, $76 million and $77 million was recognized on restructured loans for the years ended December 31, 2002, 2001 and 2000, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $41 million, $60 million and $74 million for the years ended December 31, 2002, 2001 and 2000, respectively. Mortgage loans on real estate with scheduled payments of 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $28 million and $43 million at December 31, 2002 and 2001, respectively. F-28 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, -------------- 2002 2001 ------ ------ (Dollars in millions) Real estate and real estate joint ventures held-for-investment $3,808 $3,435 Impairments................................................... (188) (157) ------ ------ Total...................................................... 3,620 3,278 ------ ------ Real estate held-for-sale..................................... 327 1,859 Impairments................................................... (82) (177) Valuation allowance........................................... (16) (35) ------ ------ Total...................................................... 229 1,647 ------ ------ Real estate and real estate joint ventures............. $3,849 $4,925 ====== ======
Accumulated depreciation on real estate was $1,319 million and $1,882 million at December 31, 2002 and 2001, respectively. Related depreciation expense was $180 million, $217 million and $224 million for the years ended December 31, 2002, 2001 and 2000, respectively. These amounts include $48 million, $79 million and $80 million of depreciation expense related to discontinued operations for the years ended December 31, 2002, 2001 and 2000, respectively. Real estate and real estate joint ventures were categorized as follows:
December 31, ----------------------------- 2002 2001 -------------- -------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in millions) Office..... $2,244 58% $3,079 63% Retail..... 697 18% 779 16% Apartments. 454 12% 495 10% Land....... 87 2% 184 4% Agriculture 7 0% 14 0% Other...... 360 10% 374 7% ------ ---- ------ ---- Total... $3,849 100% $4,925 100% ====== ==== ====== ====
F-29 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's real estate holdings are primarily located throughout the United States. At December 31, 2002, approximately 26%, 23% and 16% of the Company's real estate holdings were located in California, New York and Texas, respectively. Changes in real estate and real estate joint ventures held-for-sale valuation allowance were as follows:
Years ended December 31, ----------------------- 2002 2001 2000 ---- ---- ---- (Dollars in millions) Balance at January 1...................... $ 35 $ 39 $ 34 Additions charged to operations........... 21 16 17 Deductions for writedowns and dispositions (40) (20) (12) ---- ---- ---- Balance at December 31.................... $ 16 $ 35 $ 39 ==== ==== ====
Investment income related to impaired real estate and real estate joint ventures held-for-investment was $40 million, $22 million and $11 million for the years ended December 31, 2002, 2001 and 2000, respectively. Investment income related to impaired real estate held-for-sale was $11 million, $31 million and $52 million for the years ended December 31, 2002, 2001 and 2000, respectively. The carrying value of non-income producing real estate and real estate joint ventures was $62 million and $9 million at December 31, 2002 and 2001, respectively. The Company owned real estate acquired in satisfaction of debt of $8 million and $49 million at December 31, 2002 and 2001, respectively. Leveraged Leases Leveraged leases, included in other invested assets, consisted of the following:
December 31, -------------------- 2002 2001 ------ ------ (Dollars in millions) Investment............... $ 985 $1,070 Estimated residual values 428 505 ------ ------ Total................. 1,413 1,575 Unearned income.......... (368) (404) ------ ------ Leveraged leases...... $1,045 $1,171 ====== ======
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from two to 15 years, but in certain circumstances are as long as 30 years. These receivables are generally collateralized by the related property. The Company's deferred tax provision related to leveraged leases was $981 million and $1,077 million at December 31, 2002 and 2001, respectively. F-30 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net Investment Income The components of net investment income were as follows:
Years ended December 31, ----------------------- 2002 2001 2000 ------- ------- ------- (Dollars in millions) Fixed maturities................................. $ 7,861 $ 8,462 $ 8,529 Equity securities................................ 25 48 41 Mortgage loans on real estate.................... 1,840 1,838 1,693 Real estate and real estate joint ventures(1).... 756 910 990 Policy loans..................................... 512 527 515 Other limited partnership interests.............. 57 48 142 Cash, cash equivalents and short-term investments 224 264 271 Other............................................ 318 268 192 ------- ------- ------- Total......................................... 11,593 12,365 12,373 Less: Investment expenses(1)..................... 893 1,243 1,344 ------- ------- ------- Net investment income......................... $10,700 $11,122 $11,029 ======= ======= =======
- -------- (1) Excludes amounts related to real estate held-for-sale presented as discontinued operations in accordance with SFAS 144. Net Investment (Losses) Gains Net investment (losses) gains, including changes in valuation allowances, were as follows:
Years ended December 31, ---------------------- 2002 2001 2000 ----- ------ ------- (Dollars in millions) Fixed maturities............................. $(862) $ (644) $(1,437) Equity securities............................ 230 66 192 Mortgage loans on real estate................ (21) (91) (18) Real estate and real estate joint ventures(1) (6) 1,626 101 Other limited partnership interests.......... (2) (161) (7) Sales of businesses.......................... (7) 25 632 Other........................................ (201) 73 65 ----- ------ ------- Total................................. (869) 894 (472) Amounts allocable to: Deferred policy acquisition costs......... (11) (21) 95 Participating contracts................... (7) (105) (126) Policyholder dividend obligation.......... 157 159 85 ----- ------ ------- Net investment (losses) gains......... $(730) $ 927 $ (418) ===== ====== =======
- -------- (1) The amount presented for the year ended December 31, 2002 excludes amounts related to sales of real estate held-for-sale presented as discontinued operations in accordance with SFAS 144. Investment gains and losses are net of related policyholder amounts. The amounts netted against investment gains and losses are (i) amortization of deferred policy acquisition costs to the extent that such amortization results from investment gains and losses, (ii) adjustments to participating contractholder accounts when amounts equal to such investment gains and losses are applied to the contractholder's accounts, and (iii) adjustments to the F-31 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) policyholder dividend obligation resulting from investment gains and losses. This presentation may not be comparable to presentations made by other insurers. Real estate and real estate joint ventures net investment gains for 2001 include $1,630 million related to the sale of real estate to MIAC. Net Unrealized Investment Gains The components of net unrealized investment gains, included in accumulated other comprehensive income, were as follows:
Years ended December 31, ------------------------- 2002 2001 2000 ------- ------- ------- (Dollars in millions) Fixed maturities........................... $ 6,713 $ 2,971 $ 1,696 Equity securities.......................... 44 606 744 Derivatives................................ (24) 71 -- Other invested assets...................... 1 59 58 ------- ------- ------- Total............................... 6,734 3,707 2,498 ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition.. (1,242) (30) (284) Deferred policy acquisition costs....... (366) (6) 113 Participating contracts................. (129) (127) (133) Policyholder dividend obligation........ (1,882) (708) (385) Deferred income taxes...................... (1,124) (1,037) (626) ------- ------- ------- Total............................... (4,743) (1,908) (1,315) ------- ------- ------- Net unrealized investment gains..... $ 1,991 $ 1,799 $ 1,183 ======= ======= =======
The changes in net unrealized investment gains were as follows:
Years ended December 31, ----------------------- 2002 2001 2000 ------- ------ ------ (Dollars in millions) Balance at January 1................................................. $ 1,799 $1,183 $ (297) Unrealized investment gains during the year.......................... 2,803 1,391 3,298 Unrealized investment (losses) gains relating to: Future policy benefit (loss) gain recognition..................... (1,212) 254 (35) Deferred policy acquisition costs................................. (204) (128) (596) Participating contracts........................................... (2) 6 (15) Policyholder dividend obligation.................................. (1,174) (323) (385) Deferred income taxes................................................ (72) (475) (787) Unrealized investment gains (losses) of subsidiaries at date of sale, net of deferred income taxes....................................... 53 (109) -- ------- ------ ------ Balance at December 31............................................... $ 1,991 $1,799 $1,183 ======= ====== ====== Net change in unrealized investment gains............................ $ 192 $ 616 $1,480 ======= ====== ======
F-32 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Derivative Instruments The table below provides a summary of the notional amount and fair value of derivative financial instruments held at December 31, 2002 and 2001:
2002 2001 --------------------------- --------------------------- Current Market or Current Market Fair Value or Fair Value Notional ------------------ Notional ------------------ Amount Assets Liabilities Amount Assets Liabilities -------- ------ ----------- -------- ------ ----------- Financial futures................ $ 4 $ -- $ -- $ -- $ -- $-- Interest rate swaps.............. 3,866 196 126 1,823 73 9 Floors........................... 325 9 -- 325 11 -- Caps............................. 7,770 -- -- 8,010 5 -- Financial forwards............... 1,870 -- 12 -- -- -- Foreign currency swaps........... 2,371 92 181 1,925 188 26 Options.......................... 78 9 -- 1,880 8 12 Foreign currency forwards........ 1 -- -- 33 4 -- Written covered calls............ -- -- -- 40 -- -- Credit default swaps............. 376 2 -- 270 -- -- ------- ---- ---- ------- ---- --- Total contractual commitments. $16,661 $308 $319 $14,306 $289 $47 ======= ==== ==== ======= ==== ===
The following is a reconciliation of the notional amounts by derivative type and strategy at December 31, 2002 and 2001:
December 31, 2001 Terminations/ December 31, 2002 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- (Dollars in millions) BY DERIVATIVE TYPE Financial futures................ $ -- $ 760 $ 756 $ 4 Interest rate swaps.............. 1,823 3,005 962 3,866 Floors........................... 325 -- -- 325 Caps............................. 8,010 3,750 3,990 7,770 Financial forwards............... -- 2,870 1,000 1,870 Foreign currency swaps........... 1,925 760 314 2,371 Options.......................... 1,880 55 1,857 78 Foreign currency forwards........ 33 1 33 1 Written covered calls............ 40 -- 40 -- Credit default swaps............. 270 121 15 376 ------- ------- ------ ------- Total contractual commitments. $14,306 $11,322 $8,967 $16,661 ======= ======= ====== ======= BY DERIVATIVE STRATEGY Liability hedging................ 9,008 3,817 4,142 8,683 Invested asset hedging........... 4,768 4,488 3,972 5,284 Portfolio hedging................ 530 2,104 -- 2,634 Forecasted transaction hedging... -- 913 853 60 ------- ------- ------ ------- Total contractual commitments. $14,306 $11,322 $8,967 $16,661 ======= ======= ====== =======
F-33 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 2002:
Remaining Life --------------------------------------------------------------------- One Year After One Year After Five Years or Less Through Five Years Through Ten Years After Ten Years Total -------- ------------------ ----------------- --------------- ------- (Dollars in millions) Financial futures........ $ 4 $ -- $ -- $ -- $ 4 Interest rate swaps...... 64 1,887 1,630 285 3,866 Floors................... -- -- 325 -- 325 Caps..................... 1,000 6,770 -- -- 7,770 Financial forwards....... 1,870 -- -- -- 1,870 Foreign currency swaps... 88 962 851 470 2,371 Options.................. 3 20 -- 55 78 Foreign currency forwards -- 1 -- -- 1 Written covered calls.... -- -- -- -- -- Credit default swaps..... 45 331 -- -- 376 ------ ------ ------ ---- ------- Total contractual commitments......... $3,074 $9,971 $2,806 $810 $16,661 ====== ====== ====== ==== =======
The following table presents the notional amounts and fair values of derivatives by type of hedge designation at December 31, 2002 and 2001:
2002 2001 --------------------------- --------------------------- Fair Value Fair Value Notional ------------------ Notional ------------------ Amount Assets Liabilities Amount Assets Liabilities -------- ------ ----------- -------- ------ ----------- (Dollars in millions) BY TYPE OF HEDGE Fair value...... $ 418 $ -- $ 64 $ -- $ -- $-- Cash flow....... 3,445 69 72 607 61 1 Non qualifying.. 12,798 239 183 13,699 228 46 ------- ---- ---- ------- ---- --- Total........ $16,661 $308 $319 $14,306 $289 $47 ======= ==== ==== ======= ==== ===
For the years ended December 2002, 2001 and 2000, the Company recognized net investment income of $23 million, $32 million and $13 million, respectively, from the periodic settlement of interest rate and foreign currency swaps. During the year ended December 31, 2002, the Company recognized $30 million in net investment losses related to qualifying fair value hedges. Accordingly, $34 million of unrealized gains on fair value hedged investments were recognized in net investment gains and losses. There were no derivatives designated as fair value hedges during the year ended December 31, 2001. There were no discontinued hedges during the year ended December 31, 2002. For the years ended December 31, 2002 and 2001, the amounts accumulated in other comprehensive income relating to cash flow hedges were losses of $24 million and gains of $71 million, respectively. During the year ended December 31, 2002, the Company recognized other comprehensive losses of $142 million relating to the effective portion of cash flow hedges. During the year ended December 31, 2002, $10 million of other comprehensive income and $57 million of other comprehensive losses were reclassified into net investment F-34 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) income and net investment losses, respectively. During the year ended December 31, 2001, $19 million of other comprehensive income was reclassified into net investment income due to the SFAS No. 133 transition adjustment. Approximately $6 million and $12 million of the losses reported in accumulated other comprehensive income at December 31, 2002 are expected to be reclassified during the year ending December 31, 2003 into net investment income and net investment gains and losses, respectively, as the underlying investments mature or expire according to their original terms. For the years ended December 31, 2002 and 2001, the Company recognized net investment income of $32 million and $24 million, respectively, and net investment losses of $172 million and net investment gains of $100 million, respectively, from derivatives not qualifying as accounting hedges. The use of these non-speculative derivatives is permitted by the Department. 5. Fair Value Information The estimated fair values of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments were as follows:
Notional Carrying Estimated December 31, 2002 Amount Value Fair Value - ----------------- -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities.................................................. $124,525 $124,525 Equity securities................................................. $ 1,286 $ 1,286 Mortgage loans on real estate..................................... $ 25,353 $ 27,935 Policy loans...................................................... $ 8,047 $ 8,047 Short-term investments............................................ $ 1,199 $ 1,199 Cash and cash equivalents......................................... $ 1,106 $ 1,106 Mortgage loan commitments......................................... $ 859 $ -- $ 12 Commitments to fund partnership investments....................... $1,667 $ -- $ -- Liabilities: Policyholder account balances..................................... $ 34,706 $ 35,063 Short-term debt................................................... $ 912 $ 912 Long-term debt.................................................... $ 2,624 $ 2,794 Payable under securities loaned transactions...................... $ 16,321 $ 16,321 Other: Company-obligated mandatorily redeemable securities of subsidiary trusts.......................................................... $ 277 $ 310
F-35 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notional Carrying Estimated December 31, 2001 Amount Value Fair Value - ----------------- -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities.................................................. $110,601 $110,601 Equity securities................................................. $ 3,027 $ 3,027 Mortgage loans on real estate..................................... $ 24,626 $ 25,815 Policy loans...................................................... $ 7,894 $ 7,894 Short-term investments............................................ $ 1,168 $ 1,168 Cash and cash equivalents......................................... $ 3,932 $ 3,932 Mortgage loan commitments......................................... $ 532 $ -- $ (4) Commitments to fund partnership investments....................... $1,898 $ -- $ -- Liabilities: Policyholder account balances..................................... $ 47,494 $ 47,833 Short-term debt................................................... $ 345 $ 345 Long-term debt.................................................... $ 2,380 $ 2,442 Payable under securities loaned transactions...................... $ 12,662 $ 12,662 Other: Company-obligated mandatorily redeemable securities of subsidiary trusts.......................................................... $ 276 $ 276
The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: Fixed Maturities and Equity Securities The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities for which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. Mortgage Loans on Real Estate, Mortgage Loan Commitments and Commitments to Fund Partnership Agreements Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. For mortgage loan commitments, the estimated fair value is the net premium or discount of the commitments. Commitments to fund partnership agreements have no stated interest rate and are assumed to have a fair value of zero. Policy Loans The carrying values for policy loans approximate fair value. Cash and Cash Equivalents and Short-term Investments The carrying values for cash and cash equivalents and short-term investments approximated fair values due to the short-term maturities of these instruments. Policyholder Account Balances The fair value of policyholder account balances are estimated by discounting expected future cash flows, based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. F-36 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Short-term and Long-term Debt, Payables Under Securities Loaned Transactions and Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts The fair values of short-term and long-term debt, payables under securities loaned transactions and Company-obligated mandatorily redeemable securities of subsidiary trusts are determined by discounting expected future cash flows, using risk rates currently available for debt with similar terms and remaining maturities. Derivative Instruments The fair value of derivative instruments, including financial futures, financial forwards, interest rate, credit default and foreign currency swaps, floors, foreign currency forwards, caps, floors, options and written covered calls are based upon quotations obtained from dealers or other reliable sources. See Note 4 for derivative fair value disclosures. F-37 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Employee Benefit Plans Pension Benefit and Other Benefit Plans The Company is both the sponsor and administrator of defined benefit pension plans covering eligible employees and sales representatives of the Company. Retirement benefits are based upon years of credited service and final average earnings history. The Company also provides certain postemployment benefits and certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to the postretirement benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company.
December 31, ------------------------------ Pension Benefits Other Benefits -------------- -------------- 2002 2001 2002 2001 ------ ------ ------ ------ (Dollars in millions) Change in projected benefit obligation: Projected benefit obligation at beginning of year. $4,426 $4,145 $1,669 $1,542 Service cost.................................... 104 104 36 34 Interest cost................................... 307 308 123 115 Acquisitions and divestitures................... (110) (12) -- -- Actuarial losses................................ 307 169 342 66 Curtailments and terminations................... (3) (49) (2) 9 Change in benefits.............................. -- 29 (168) -- Benefits paid................................... (284) (268) (122) (97) ------ ------ ------ ------ Projected benefit obligation at end of year....... 4,747 4,426 1,878 1,669 ------ ------ ------ ------ Change in plan assets: Contract value of plan assets at beginning of year 4,161 4,619 1,169 1,318 Actual return on plan assets.................... (185) (201) (92) (49) Acquisitions and divestitures................... (110) (12) -- -- Employer and participant contributions.......... 426 23 1 1 Benefits paid................................... (284) (268) (113) (101) ------ ------ ------ ------ Contract value of plan assets at end of year...... 4,008 4,161 965 1,169 ------ ------ ------ ------ Under funded....................................... (739) (265) (913) (500) Unrecognized net actuarial losses (gains).......... 1,507 693 262 (258) Unrecognized prior service cost (credit)........... 101 116 (208) (49) ------ ------ ------ ------ Prepaid benefit (accrued) cost..................... $ 869 $ 544 $ (859) $ (807) ====== ====== ====== ====== Qualified plan prepaid pension cost................ $1,164 $ 805 Non-qualified plan accrued pension cost............ (341) (323) Unamortized prior service cost..................... -- 16 Accumulated other comprehensive loss............... 46 46 ------ ------ Prepaid benefit cost............................... $ 869 $ 544 ====== ======
F-38 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Qualified Plan Non-Qualified Plan Total ---------------- ----------------- ---------------- 2002 2001 2002 2001 2002 2001 ------- ------- ----- ----- ------- ------- (Dollars in millions) Aggregate projected benefit obligation........................... $(4,273) $(4,006) $(474) $(420) $(4,747) $(4,426) Aggregate contract value of plan assets (principally Company contracts)...... 4,008 4,161 -- -- 4,008 4,161 ------- ------- ----- ----- ------- ------- (Under) over funded.................... $ (265) $ 155 $(474) $(420) $ (739) $ (265) ======= ======= ===== ===== ======= =======
The assumptions used in determining the aggregate projected benefit obligation and aggregate contract value for the pension and other benefits were as follows:
Pension Benefits Other Benefits ---------------- ------------------ 2002 2001 2002 2001 ------ --------- ---------- ------- (Dollars in millions) Weighted average assumptions at December 31: Discount rate............................ 6.75% 6.9%-7.4% 6.5%-7.25% 6%-7.4% Expected rate of return on plan assets... 8%-9% 8%-9% 5.2%-9% 6%-9% Rate of compensation increase............ 4%-6% 4%-6% N/A N/A
The assumed health care cost trend rates used in measuring the accumulated nonpension postretirement benefit obligation were as follows:
December 31, ----------------------------------------------- 2002 2001 ---------------------- ------------------------ Pre-Medicare eligible claims 9% down to 5% in 2010 9.5% down to 5% in 2010 Medicare eligible claims.... 11% down to 5% in 2014 11.5% down to 5% in 2014
Assumed health care cost trend rates may have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
One Percent One Percent Increase Decrease ----------- ----------- (Dollars in millions) Effect on total of service and interest cost components $10 $10 Effect on accumulated postretirement benefit obligation $90 $88
The components of net periodic benefit cost were as follows:
Pension Benefits Other Benefits ------------------- ----------------- 2002 2001 2000 2002 2001 2000 ----- ----- ----- ---- ----- ---- (Dollars in millions) Service cost.................................. $ 104 $ 104 $ 98 $ 36 $ 34 $ 29 Interest cost................................. 307 308 291 123 115 113 Expected return on plan assets................ (354) (402) (420) (93) (108) (97) Amortization of prior actuarial losses (gains) 33 (2) (19) (9) (27) (22) Curtailment cost (credit)..................... 11 21 (3) 4 6 2 ----- ----- ----- ---- ----- ---- Net periodic benefit cost (credit)............ $ 101 $ 29 $ (53) $ 61 $ 20 $ 25 ===== ===== ===== ==== ===== ====
F-39 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Savings and Investment Plans The Company sponsors savings and investment plans for substantially all employees under which the Company matches a portion of employee contributions. The Company contributed $49 million, $55 million and $65 million for the years ended December 31, 2002, 2001 and 2000, respectively. 7. Closed Block On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. At least annually, the Company compares actual and projected experience against the experience assumed in the then-current dividend scales. Dividend scales are adjusted periodically to give effect to changes in experience. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years. The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in-force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block is greater than the expected cumulative earnings of the closed block, the Company will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block is less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the F-40 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) expected cumulative earnings. Amounts reported for the period after demutualization are as of April 1, 2000 and for the period beginning on April 1, 2000 (the effect of transaction from April 1, 2000 through April 6, 2000 is not considered material). Closed block liabilities and assets designated to the closed block are as follows:
December 31, -------------------- 2002 2001 ------- ------- (Dollars in millions) CLOSED BLOCK LIABILITIES Future policy benefits...................................................................... $41,207 $40,325 Other policyholder funds.................................................................... 279 321 Policyholder dividends payable.............................................................. 719 757 Policyholder dividend obligation............................................................ 1,882 708 Payables under securities loaned transactions............................................... 4,851 3,350 Other liabilities........................................................................... 433 90 ------- ------- Total closed block liabilities....................................................... 49,371 45,551 ------- ------- ASSETS DESIGNATED TO THE CLOSED BLOCK Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $28,334 and $25,761, respectively).......................................................................... 29,981 26,331 Equity securities, at fair value (amortized cost: $236 and $240, respectively)........... 218 282 Mortgage loans on real estate............................................................ 7,032 6,358 Policy loans............................................................................. 3,988 3,898 Short-term investments................................................................... 24 170 Other invested assets.................................................................... 604 159 ------- ------- Total investments.................................................................... 41,847 37,198 Cash and cash equivalents................................................................... 435 1,119 Accrued investment income................................................................... 540 550 Deferred income taxes....................................................................... 1,151 1,060 Premiums and other receivables.............................................................. 130 244 ------- ------- Total assets designated to the closed block.......................................... 44,103 40,171 ------- ------- Excess of closed block liabilities over assets designated to the closed block............... 5,268 5,380 ------- ------- Amounts included in accumulated other comprehensive loss: Net unrealized investment gains, net of deferred income tax of $577 and $219, respectively........................................................................... 1,047 389 Unrealized derivative gains, net of deferred income tax of $7 and $9, respectively....... 13 17 Allocated to policyholder dividend obligation, net of deferred income tax of $668 and $255, respectively..................................................................... (1,214) (453) ------- ------- (154) (47) ------- ------- Maximum future earnings to be recognized from closed block assets and liabilities........... $ 5,114 $ 5,333 ======= =======
F-41 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding the policyholder dividend obligation is as follows:
For the period Years ended April 7, 2000 December 31, through ------------- December 31, 2002 2001 2000 ------ ----- -------------- (Dollars in millions) Balance at beginning of period........................................ $ 708 $ 385 $ -- Impact on net income before amounts allocable to policyholder dividend obligation.......................................................... 157 159 85 Net investment losses................................................. (157) (159) (85) Change in unrealized investment and derivative gains.................. 1,174 323 385 ------ ----- ---- Balance at end of period.............................................. $1,882 $ 708 $385 ====== ===== ====
Closed block revenues and expenses were as follows:
For the period Years ended April 7, 2000 December 31, through ------------- December 31, 2002 2001 2000 ------ ------ -------------- (Dollars in millions) REVENUES Premiums..................................................................... $3,551 $3,658 $2,900 Net investment income and other revenues..................................... 2,568 2,555 1,789 Net investment gains (losses) (net of amounts allocable to the policyholder dividend obligation of $(157), $(159) and $(85), respectively)............. 168 (20) (150) ------ ------ ------ Total revenues............................................................ 6,287 6,193 4,539 ------ ------ ------ EXPENSES Policyholder benefits and claims............................................. 3,770 3,862 2,874 Policyholder dividends....................................................... 1,573 1,544 1,132 Change in policyholder dividend obligation (excludes amounts directly related to net investment losses of $(157), $(159) and $(85), respectively)........ 157 159 85 Other expenses............................................................... 310 352 265 ------ ------ ------ Total expenses............................................................ 5,810 5,917 4,356 ------ ------ ------ Revenues net of expenses before income taxes................................. 477 276 183 Income taxes................................................................. 173 97 67 ------ ------ ------ Revenues net of expenses and income taxes.................................... $ 304 $ 179 $ 116 ====== ====== ======
F-42 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The change in maximum future earnings of the closed block was as follows:
For the period Years ended April 7, 2000 December 31, through -------------- December 31, 2002 2001 2000 ------ ------ -------------- (Dollars in millions) Balance at the end of period...... $5,114 $5,333 $5,512 Less: Reallocation of assets......... 85 -- -- Balance at beginning of period. 5,333 5,512 5,628 ------ ------ ------ Change during period.............. $ (304) $ (179) $ (116) ====== ====== ======
During the year ended December 31, 2002, the allocation of assets to the closed block was revised to appropriately classify assets in accordance with the plan of demutualization. The reallocation of assets had no impact on consolidated assets or liabilities. Metropolitan Life charges the closed block with Federal income taxes, state and local premium taxes, and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the plan of demutualization. Metropolitan Life also charges the closed block for expenses of maintaining the policies included in the closed block. Many of the derivative instrument strategies used by the Company are also used for the closed block. The table below provides a summary of the notional amount and fair value of derivatives by hedge accounting classification at:
December 31, 2002 December 31, 2001 --------------------------- --------------------------- Fair Value Fair Value Notional ------------------ Carrying ------------------ Amount Assets Liabilities Value Assets Liabilities -------- ------ ----------- -------- ------ ----------- (Dollars in millions) By Type of Hedge Fair value...... $ -- $-- $-- $ -- $-- $-- Cash flow....... 128 2 11 171 22 -- Non-qualifying.. 258 32 2 112 13 5 ---- --- --- ---- --- --- Total........ $386 $34 $13 $283 $35 $ 5 ==== === === ==== === ===
The amounts accumulated in other comprehensive loss relating to cash flow hedges were gains of $21 million for both the years ended December 31, 2002 and 2001. During the year ended December 31, 2002, the Company recognized other comprehensive gains of $4 million relating to the effective portion of cash flow hedges. Reclassifications are recognized over the life of the hedged item. During the year ended December 31, 2002, $4 million of other comprehensive loss was reclassified into net investment income. Approximately $3 million of the gains reported in accumulated other comprehensive loss is expected to be reclassified into net investment income during the year ending December 31, 2003, as the underlying investments mature or expire according to their original terms. For the years ended December 31, 2002 and 2001, the Company recognized net investment losses of $11 million and net investment gains of $5 million, respectively, from derivatives not qualifying as accounting hedges. The use of these non-speculative derivatives is permitted by the Department. F-43 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The cumulative effect of the adoption of SFAS 133, as of January 1, 2001, resulted in $11 million of other comprehensive income, net of income taxes of $6 million. 8. Separate Accounts Separate accounts include two categories of account types: non-guaranteed separate accounts totaling $39,157 million and $48,912 million at December 31, 2002 and 2001, respectively, for which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $14,755 million and $13,802 million at December 31, 2002 and 2001, respectively, for which the Company contractually guarantees either a minimum return or account value to the policyholder. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $463 million, $564 million and $667 million for the years ended December 31, 2002, 2001 and 2000, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rates credited on these contracts were 4.8% and 7.0% at December 31, 2002 and 2001, respectively. The assets that support these liabilities were comprised of $12,531 million and $11,888 million in fixed maturities at December 31, 2002 and 2001, respectively. The portfolios are segregated from other investments and are managed to minimize liquidity and interest rate risk. In order to minimize the risk of early withdrawals to invest in instruments yielding a higher return, these investment products carry a graded surrender charge as well as a market value adjustment. 9. Debt Debt consisted of the following:
December 31, ------------- 2002 2001 ------ ------ (Dollars in millions) Surplus notes, interest rates ranging from 6.30% to 7.88%, maturity dates ranging from 2003 to 2025.............................................................. $1,632 $1,630 Capital notes payable to the Holding Company, interest rate of 7.13%, maturity dates ranging from 2032 to 2033................................................ 500 -- Senior notes, interest rates ranging from 6.75% to 7.25%, maturity dates ranging from 2006 to 2011.............................................................. 298 298 Investment related exchangeable debt, interest rate of 4.90%..................... -- 195 Fixed rate notes, interest rates ranging from 4.39% to 12.00%, maturity dates ranging from 2005 to 2019...................................................... 33 87 Capital lease obligations........................................................ 21 23 Other notes with varying interest rates.......................................... 140 147 ------ ------ Total long-term debt............................................................. 2,624 2,380 Total short-term debt............................................................ 912 345 ------ ------ Total......................................................................... $3,536 $2,725 ====== ======
The Company maintains committed and unsecured credit facilities aggregating $2,434 million ($1,140 million expiring in 2003 and $1,294 million expiring in 2005). If these facilities were drawn upon, they would bear interest at rates stated in the agreements. The facilities can be used for general corporate purposes and also F-44 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) provide support for the Company's commercial paper program. At December 31, 2002, the Company had drawn approximately $28 million under the facilities expiring in 2005 at interest rates ranging from 4.39% to 5.57%. At December 31, 2002, the Company had approximately $508 million in letters of credit from various banks. Payments of interest and principal on the surplus notes, subordinated to all other indebtedness, may be made only with the prior approval of the insurance department of the state of domicile. Subject to the prior approval of the Superintendent, the $300 million 7.45% surplus notes due 2023 may be redeemed, in whole or in part, at the election of Metropolitan Life at any time on or after November 1, 2003 and, if redeemed prior to November 2013, would include a premium. The investment-related exchangeable debt instrument is payable in cash or by delivery of an underlying security owned by the Company. The amount of the debt payable at maturity is greater than the principal of the debt if the market value of the underlying security appreciates above certain levels at the date of debt repayment as compared to the market value of the underlying security at the date of debt issuance. At December 31, 2001, the underlying security pledged as collateral had a market value of $240 million. The aggregate maturities of long-term debt for the Company are $405 million in 2003, $9 million in 2004, $392 million in 2005, $100 million in 2006, $4 million in 2007 and $1,714 million thereafter. Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 1.4% and a weighted average maturity of 63 days at December 31, 2002. Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 2.1% and a weighted average maturity of 87 days at December 31, 2001. The Company also has other collaterlized borrowings with a weighted average coupon rate of 5.83% and a weighted average maturity of 34 days at December 31, 2002. Such securities had a weighted average coupon rate of 7.25% and a weighted average maturity of 30 days at December 31, 2001. Interest expense related to the Company's indebtedness included in other expenses was $208 million, $313 million and $417 million for the years ended December 31, 2002, 2001 and 2000, respectively. 10. Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trusts GenAmerica Capital I. In June 1997, GenAmerica Corporation ("GenAmerica") issued $125 million of 8.525% capital securities through a wholly-owned subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally guaranteed, on a subordinated basis, the obligation of the trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities any time after June 30, 2007. Capital securities outstanding were $119 million and $118 million, net of unamortized discounts of $6 million and $7 million at December 31, 2002 and 2001, respectively. Interest expense on these instruments is included in other expenses and was $11 million for each of the years ended December 31, 2002, 2001 and 2000. RGA Capital Trust I. In December 2001, a subsidiary of the Company, RGA, through its wholly-owned trust, RGA Capital Trust I (the "Trust"), issued 4,500,000 Preferred Income Equity Redeemable Securities ("PIERS") Units. Each PIERS unit consists of (i) a preferred security issued by the Trust, having a stated liquidation amount of $50 per unit, representing an undivided beneficial ownership interest in the assets of the Trust, which consist solely of junior subordinated debentures issued by RGA which have a principal amount at maturity of $50 and a stated maturity of March 18, 2051, and (ii) a warrant to purchase, at any time prior to December 15, 2050, 1.2508 shares of RGA stock at an exercise price of $50. The fair market value of the warrant on the issuance date was $14.87 and is detachable from the preferred security. RGA fully and unconditionally guarantees, on a subordinated basis, the obligations of the Trust under the preferred securities. The preferred F-45 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) securities and subordinated debentures were issued at a discount (original issue discount) to the face or liquidation value of $14.87 per security. The securities will accrete to their $50 face/liquidation value over the life of the security on a level yield basis. The weighted average effective interest rate on the preferred securities and the subordinated debentures is 8.25% per annum. Capital securities outstanding were $158 million, net of unamortized discount of $67 million, at both December 31, 2002 and 2001. 11. Commitments, Contingencies and Guarantees Litigation Sales Practices Claims Over the past several years, Metropolitan Life, New England Mutual Life Insurance Company ("New England Mutual") and General American Life Insurance Company ("General American") have faced numerous claims, including class action lawsuits, alleging improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." In December 1999, a federal court approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. Similar sales practices class actions against New England Mutual, with which Metropolitan Life merged in 1996, and General American, which was acquired in 2000, have been settled. In October 2000, a federal court approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies issued by New England Mutual between January 1, 1983 through August 31, 1996. The class includes owners of approximately 600,000 in-force or terminated policies. A federal court has approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies issued by General American between January 1, 1982 through December 31, 1996. An appellate court has affirmed the order approving the settlement. The class includes owners of approximately 250,000 in-force or terminated policies. Implementation of the General American class action settlement is proceeding. Certain class members have opted out of the class action settlements noted above and have brought or continued non-class action sales practices lawsuits. In addition, other sales practices lawsuits have been brought. As of December 31, 2002, there are approximately 420 sales practices lawsuits pending against Metropolitan Life, approximately 60 sales practices lawsuits pending against New England Mutual and approximately 35 sales practices lawsuits pending against General American. Metropolitan Life, New England Mutual and General American continue to defend themselves vigorously against these lawsuits. Some individual sales practices claims have been resolved through settlement, won by dispositive motions, or, in a few instances, have gone to trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance may be commenced in the future. The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada, and these actions remain pending. In March 2002, a purported class action complaint was filed in a federal court in Kansas by S-G Metals Industries, Inc. ("S-G Metals") against New England Mutual. The complaint seeks certification of a class on behalf of corporations and F-46 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) banks that purchased participating life insurance policies, as well as persons who purchased participating policies for use in pension plans or through work site marketing. These policyholders were not part of the New England Mutual class action settlement noted above. The action was transferred to a federal court in Massachusetts. New England Mutual moved to dismiss the case and in November 2002, the federal district court dismissed the case. S-G Metals has filed a notice of appeal. New England Mutual intends to continue to defend itself vigorously against the case. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices claims against Metropolitan Life, New England Mutual and General American. Regulatory authorities in a small number of states have had investigations or inquiries relating to Metropolitan Life's, New England Mutual's or General American's sales of individual life insurance policies or annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief. The Company may continue to resolve investigations in a similar manner. Asbestos-Related Claims Metropolitan Life is a defendant in thousands of lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Metropolitan Life has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products nor has Metropolitan Life issued liability or workers' compensation insurance to companies in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits have principally been based upon allegations relating to certain research, publication and other activities of one or more of Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and alleging that Metropolitan Life learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Metropolitan Life believes that it should not have legal liability in such cases. Legal theories asserted against Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. Although Metropolitan Life believes it has meritorious defenses to these claims, and has not suffered any adverse monetary judgments in respect of these claims, due to the risks and expenses of litigation, almost all past cases have been resolved by settlements. Metropolitan Life's defenses (beyond denial of certain factual allegations) to plaintiffs' claims include that: (i) Metropolitan Life owed no duty to the plaintiffs--it had no special relationship with the plaintiffs and did not manufacture, produce, distribute or sell the asbestos products that allegedly injured plaintiffs; (ii) plaintiffs cannot demonstrate justifiable detrimental reliance; and (iii) plaintiffs cannot demonstrate proximate causation. In defending asbestos cases, Metropolitan Life selects various strategies depending upon the jurisdictions in which such cases are brought and other factors which, in Metropolitan Life's judgment, best protect Metropolitan Life's interests. Strategies include seeking to settle or compromise claims, motions challenging the legal or factual basis for such claims or defending on the merits at trial. In early 2002 and in early 2003, two trial courts granted motions dismissing claims against Metropolitan Life on some or all of the above grounds. Other courts have denied motions brought by Metropolitan Life to dismiss cases without the necessity of trial. There can be no assurance that Metropolitan Life will receive favorable decisions on motions in the future. Metropolitan Life intends to continue to exercise its best judgment regarding settlement or defense of such cases, including when trials of these cases are appropriate. F-47 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth the total number of asbestos personal injury claims pending against Metropolitan Life as of the dates indicated, the number of new claims during the years ended on those dates and the total settlement payments made to resolve asbestos personal injury claims during those years:
At or for the years ended December 31, ------------------------ 2002 2001 2000 -------- ------- ------- Asbestos personal injury claims at year end (approximate)... 106,500 89,000 73,000 Number of new claims during the year (approximate).......... 66,000 59,500 54,500 Settlement payments during the year (dollars in millions)(1) $ 95.1 $ 90.7 $ 71.1
- -------- (1) Settlement payments represent payments made by Metropolitan Life during the year in connection with settlements made in that year and in prior years. Amounts do not include Metropolitan Life's attorneys' fees and expenses and do not reflect amounts received from insurance carriers. During the fourth quarter of 2002, Metropolitan Life analyzed its claims experience and reviewed external publications and numerous variables to identify trends and assessed their impact on its recorded asbestos liability. Certain publications suggest a trend towards more asbestos-related claims and a greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers. Plaintiffs' lawyers continue to advertise heavily with respect to asbestos litigation. Bankruptcies and reorganizations of other defendants in asbestos litigation may increase the pressures on remaining defendants, including Metropolitan Life. Through the first nine months of 2002, the number of new claims received by Metropolitan Life was lower than those received during the comparable 2001 period. However, the number of new claims received by Metropolitan Life during the fourth quarter of 2002 was significantly higher than those received in the prior year quarter, resulting in more new claims being received by Metropolitan Life in 2002 than in 2001. Factors considered also included expected trends in filing cases, the dates of initial exposure of plaintiffs to asbestos, the likely percentage of total asbestos claims which included Metropolitan Life as a defendant and experience in claims settlement negotiations. Metropolitan Life also considered views derived from actuarial calculations it made in the fourth quarter of 2002. These calculations were made using, among other things, current information regarding Metropolitan Life's claims and settlement experience, information available in public reports, as well as a study regarding the possible future incidence of mesothelioma. Based on all of the above information, including greater than expected claims experience over the last three years, Metropolitan Life expects to receive more claims in the future than it had previously expected. Previously, Metropolitan Life's liability reflected that the increase in asbestos-related claims was a result of an acceleration in the reporting of such claims; the liability now reflects that such an increase is also the result of an increase in the total number of asbestos-related claims expected to be received by Metropolitan Life. Accordingly, Metropolitan Life increased its recorded liability for asbestos-related claims by $402 million from approximately $820 million to $1,225 million at December 31, 2002. This total recorded asbestos-related liability (after the self-insured retention) is within the coverage of the excess insurance policies discussed below. During 1998, Metropolitan Life paid $878 million in premiums for excess insurance policies for asbestos-related claims. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500 million, which is in excess of a $400 million self-insured retention. The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. Although amounts paid by Metropolitan Life in any given year that may be recoverable in the next calendar year under the policies will be reflected as a reduction in the Company's operating cash flows for the year in which they are paid, management believes that the payments will not have a material adverse effect on the Company's liquidity. F-48 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to the Company at the commutation date if the reference fund is greater than zero at commutation or pro rata reductions from time to time in the loss reimbursements to the Company if the cumulative return on the reference fund is less than the return specified in the experience fund. The return in the reference fund is tied to performance of the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. A claim will be made under the excess insurance policies in 2003 for the amounts paid with respect to asbestos litigation in excess of the retention. Based on performance of the reference fund, at December 31, 2002, the loss reimbursements to the Company in 2003 and the amount recoverable with respect to later periods will be $42 million less than the amount of the recorded losses. Such foregone loss reimbursements may be recovered upon commutation depending upon future performance of the reference fund. The foregone loss reimbursements are estimated to be $9 million with respect to 2002 claims and $42 million in the aggregate. The $402 million increase in the recorded liability for asbestos claims less the foregone loss reimbursement adjustment of $42 million ($27 million net of income tax) resulted in an increase in the recoverable of $360 million. At December 31, 2002, a portion ($136 million) of the $360 million recoverable was recognized in income while the remainder ($224 million) was recorded as a deferred gain which is expected to be recognized in income in the future over the estimated settlement period of the excess insurance policies. The $402 million increase in the recorded liability, less the portion of the recoverable recognized in income, resulted in a net expense of $266 million ($169 million net of income tax). The $360 million recoverable may change depending on the future performance of the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. As a result of the excess insurance policies, $1,237 million is recorded as a recoverable at December 31, 2002 ($224 million of which is recorded as a deferred gain as mentioned above); the amount includes recoveries expected to be obtained in 2003 for amounts paid in 2002. If at some point in the future, the Company believes the liability for probable and estimable losses for asbestos-related claims should be increased, an expense would be recorded and the insurance recoverable would be adjusted subject to the terms, conditions and limits of the excess insurance policies. Portions of the change in the insurance recoverable would be recorded as a deferred gain and amortized into income over the estimated remaining settlement period of the insurance policies. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. The ability of Metropolitan Life to estimate its ultimate asbestos exposure is subject to considerable uncertainty due to numerous factors. The availability of data is limited and it is difficult to predict with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease, the jurisdiction of claims filed, tort reform efforts and the impact of any possible future adverse verdicts and their amounts. Recent bankruptcies of other companies involved in asbestos litigation, as well as advertising by plaintiffs' asbestos lawyers, may be resulting in an increase in the number of claims and the cost of resolving claims, as well as the number of trials and possible adverse verdicts Metropolitan Life may experience. Plaintiffs are seeking additional funds from defendants, including Metropolitan Life, in light of such recent bankruptcies by certain other defendants. It is likely that bills will be introduced in 2003 in the United States Congress to reform asbestos litigation. While the Company strongly supports reform efforts, there can be no assurance that legislative reforms will be enacted. Metropolitan Life will continue to study its claims experience, review external literature regarding asbestos claims experience in the United States and consider numerous variables that can affect its asbestos liability exposure, including bankruptcies of other companies involved in asbestos litigation and legislative and judicial developments, to identify trends and to assess their impact on the recorded asbestos liability. F-49 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The number of asbestos cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. Accordingly, it is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its consolidated financial statements and that future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. Property and Casualty Actions Purported class action suits involving claims by policyholders for the alleged diminished value of automobiles after accident-related repairs have been filed in Rhode Island, Texas, Georgia and Tennessee against Metropolitan Property and Casualty Insurance Company. Rhode Island and Texas trial courts denied plaintiffs' motions for class certification and a hearing on plaintiffs' motion in Tennessee for class certification is to be scheduled. A settlement has been reached in the Georgia class action; the Company determined to settle the case in light of a Georgia Supreme Court decision involving another insurer. The settlement is being implemented. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance Company, in Florida. The complaint alleges breach of contract and unfair trade practices with respect to allowing the use of parts not made by the original manufacturer to repair damaged automobiles. Discovery is ongoing and a motion for class certification is pending. Total loss valuation methods are the subject of national class actions involving other insurance companies. A Pennsylvania state court purported class action lawsuit filed in 2001 alleges that Metropolitan Property and Casualty Insurance Company improperly took depreciation on partial homeowner losses where the insured replaced the covered item. The court has dismissed the action. An appeal has been filed. Metropolitan Property and Casualty Insurance Company and Metropolitan Casualty Insurance Company are vigorously defending themselves against these lawsuits. Demutualization Actions Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions name as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the Superintendent and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the New York state court in New York County were consolidated within the commercial part. In addition, there remained a separate purported class action in New York state court in New York County. Another purported class action in New York state court in Kings County has been voluntarily held in abeyance by plaintiffs. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting and, in some instances, punitive damages. Some of the plaintiffs in the above described actions also have brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the Superintendent who approved the plan. In this proceeding, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. This case also is being held in abeyance by plaintiffs. Another purported class action was filed in New York state court in New York County on behalf of a purported class of beneficiaries of Metropolitan Life annuities purchased to fund structured settlements claiming that the class members should have received common stock or cash in connection with the demutualization. Metropolitan Life's motion to dismiss this case was granted in a decision filed on October 31, 2002. Plaintiff has withdrawn her notice of appeal. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. Metropolitan Life's motion to dismiss these three cases was denied in 2001. On February 4, 2003, plaintiffs filed a consolidated amended complaint adding a fraud F-50 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) claim under the Securities Exchange Act of 1934. A purported class action also was filed in the United States District Court for the Southern District of New York seeking damages from Metropolitan Life and the Holding Company for alleged violations of various provisions of the Constitution of the United States in connection with the plan of reorganization. In 2001, pursuant to a motion to dismiss filed by Metropolitan Life, this case was dismissed by the District Court. In January 2003, the United States Court of Appeals for the Second Circuit affirmed the dismissal. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario, Canada on behalf of a proposed class of certain former Canadian policyholders against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance Company of Canada. Plaintiffs' allegations concern the way that their policies were treated in connection with the demutualization of Metropolitan Life; they seek damages, declarations, and other non-pecuniary relief. The defendants believe they have meritorious defenses to the plaintiffs' claims and will contest vigorously all of plaintiffs' claims in this matter. In July 2002, a lawsuit was filed in the United States District Court for the Eastern District of Texas on behalf of a proposed class comprised of the settlement class in the Metropolitan Life sales practices class action settlement approved in December 1999 by the United States District Court for the Western District of Pennsylvania. The Holding Company, Metropolitan Life, the trustee of the policyholder trust, and certain present and former individual directors and officers of Metropolitan Life are named as defendants. Plaintiffs' allegations concern the treatment of the cost of the settlement in connection with the demutualization of Metropolitan Life and the adequacy and accuracy of the disclosure, particularly with respect to those costs. Plaintiffs seek compensatory, treble and punitive damages, as well as attorneys' fees and costs. The defendants' motion to transfer the lawsuit to the Western District of Pennsylvania was granted on February 14, 2003. The defendants' motion to dismiss is pending. Plaintiffs have filed a motion for class certification which the Texas court has adjourned. The defendants believe they have meritorious defenses to the plaintiffs' claims and will contest them vigorously. Race-Conscious Underwriting Claims Insurance Departments in a number of states initiated inquiries in 2000 about possible race-conscious underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in their respective states, including Metropolitan Life and certain of its subsidiaries. The New York Insurance Department has concluded its examination of Metropolitan Life concerning possible past race-conscious underwriting practices. Metropolitan Life has cooperated fully with that inquiry. Four purported class action lawsuits filed against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the marketing, sale, and administration of life insurance policies have been consolidated in the United States District Court for the Southern District of New York. The plaintiffs seek unspecified monetary damages, punitive damages, reformation, imposition of a constructive trust, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices and adjust policy values, and other relief. Metropolitan Life has entered into settlement agreements to resolve the regulatory examination and the actions pending in the United States District Court for the Southern District of New York. The class action settlement, which has received preliminary approval from the court, must receive final approval before it can be implemented. A fairness hearing was held on February 7, 2003. The regulatory settlement agreement is conditioned upon final approval of the class action settlement. Metropolitan Life recorded a charge in the fourth quarter of 2001 in connection with the anticipated resolution of these matters and believes that charge is adequate to cover the costs associated with these settlements. F-51 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Sixteen lawsuits involving approximately 125 plaintiffs have been filed in federal and state court in Alabama, Mississippi and Tennessee alleging federal and/or state law claims of racial discrimination in connection with the sale, formation, administration or servicing of life insurance policies. Metropolitan Life is contesting vigorously plaintiffs' claims in these actions. Other In 2001, a putative class action was filed against Metropolitan Life in the United States District Court for the Southern District of New York alleging gender discrimination and retaliation in the MetLife Financial Services unit of the Individual segment. The plaintiffs seek unspecified compensatory damages, punitive damages, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices, an order restoring class members to their rightful positions (or appropriate compensation in lieu thereof), and other relief. Metropolitan Life is vigorously defending itself against these allegations. A lawsuit has been filed against Metropolitan Life in Ontario, Canada by Clarica Life Insurance Company regarding the sale of the majority of Metropolitan Life's Canadian operation to Clarica in 1998. Clarica alleges that Metropolitan Life breached certain representations and warranties contained in the sale agreement, that Metropolitan Life made misrepresentations upon which Clarica relied during the negotiations and that Metropolitan Life was negligent in the performance of certain of its obligations and duties under the sale agreement. Metropolitan Life is vigorously defending itself against this lawsuit. A putative class action lawsuit is pending in the United States District Court for the District of Columbia, in which plaintiffs allege that they were denied certain ad hoc pension increases awarded to retirees under the Metropolitan Life retirement plan. The ad hoc pension increases were awarded only to retirees (i.e., individuals who were entitled to an immediate retirement benefit upon their termination of employment) and were not available to individuals like plaintiffs whose employment, or whose spouses' employment, had terminated before they became eligible for an immediate retirement benefit. The district court denied the parties' cross-motions for summary judgment to allow for discovery. Discovery has not yet commenced pending the court's ruling as to the timing of a class certification motion. The plaintiffs seek to represent a class consisting of former Metropolitan Life employees, or their surviving spouses, who are receiving deferred vested annuity payments under the retirement plan and who were allegedly eligible to receive the ad hoc pension increases awarded in 1977, 1980, 1989, 1992, 1996 and 2001, as well as increases awarded in earlier years. Metropolitan Life is vigorously defending itself against these allegations. A reinsurer of universal life policy liabilities of Metropolitan Life and certain affiliates is seeking rescission and has commenced an arbitration proceeding claiming that, during underwriting, material misrepresentations or omissions were made. The reinsurer also has sent a notice purporting to increase reinsurance premium rates. Metropolitan Life and these affiliates intend to vigorously defend themselves against the claims of the reinsurer, including the purported rate increase. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. F-52 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Summary It is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, except as noted above in connection with specific matters. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's consolidated financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's consolidated net income or cash flows in particular quarterly or annual periods. Leases In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants is contingent upon the level of the tenants' sales revenues. Additionally, the Company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental and sublease income, and minimum gross rental payments relating to these lease agreements were as follows:
Rental Income Sublease Income Gross Rental Payments ------------- --------------- --------------------- (Dollars in millions) 2003...... $ 540 $14 $184 2004...... 510 12 160 2005...... 464 11 145 2006...... 428 10 130 2007...... 379 9 114 Thereafter 1,724 8 643
Commitments to Fund Partnership Investments The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $1,667 million and $1,898 million at December 31, 2002 and 2001, respectively. The Company anticipates that these amounts will be invested in the partnerships over the next three to five years. Guarantees In the course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties pursuant to which it may be required to make payments now or in the future. In the context of disposition transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities, and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from $1 million to $800 million, while in other cases such limitations are not specified or applicable. Since certain of F-53 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount due under these guarantees in the future. In addition, Metropolitan Life and its subsidiaries indemnify their respective directors and officers as provided in their charters and by-laws. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under these indemnities in the future. The Company has not recorded any liability for these indemnities, guarantees and commitments in the accompanying consolidated balance sheets at December 31, 2002 or 2001. 12. Acquisitions and Dispositions Dispositions In December 2002, the Company completed its sales of Cova Corporation, MetLife Investors Group, Inc., MetLife International Holdings, Inc., Walnut Street Securities, Inc., Seguros Genesis S.A., MetLife Pensiones S.A. and Metropolitan Life Seguros de Vida S.A. to the Holding Company. The amount received in excess of book value of $149 million was recorded as a capital contribution from the Holding Company. Total assets and total liabilities of the entities sold at the date of sale were $17,853 million and $16,545 million, respectively. Total revenues of the entities sold included in the consolidated statements of income were $1,648 million, $1,463 million, and $1,256 million for the years ended December 31, 2002, 2001 and 2000, respectively. In December 2001, the Company completed its sale of MIAC to the Holding Company. The amount received in excess of book value of $96 million was recorded as a capital contribution from the Holding Company. Total assets and total liabilities of MIAC at the date of sale were $6,240 million and $5,219 million, respectively. Total revenues of MIAC included in the consolidated statements of income were $391 million and $509 million for the years ended December 31, 2001 and 2000, respectively. In July 2001, the Company completed its sale of Conning Corporation ("Conning"), an affiliate acquired in the acquisition of GenAmerica Financial Corporation ("GenAmerica"). Conning specialized in asset management for insurance company investment portfolios and investment research. The Company received $108 million in the transaction and reported a gain of approximately $25 million in the third quarter of 2001. In October 2000, the Company completed the sale of its 48% ownership interest in its affiliates, Nvest, L.P. and Nvest Companies L.P. This transaction resulted in an investment gain of $663 million. Acquisitions In January 2000, Metropolitan Life completed its acquisition of GenAmerica, a holding company which included General American Life Insurance Company, approximately 49% of the outstanding shares of RGA common stock, and 61% of the outstanding shares of Conning common stock which was subsequently sold in 2001. Metropolitan Life owned 9% of the outstanding shares of RGA common stock prior to the completion of the GenAmerica acquisition. During 2002, MetLife, Inc. purchased additional shares of RGA's outstanding common stock. These purchases are intended to offset potential future dilution of the Company's holding of RGA's common stock arising from the issuance by RGA of company-obligated mandatorily redeemable securities of a subsidiary trust on December 10, 2001. At December 31, 2002 and 2001, Metropolitan Life's ownership percentage of the outstanding shares of common stock was approximately 58%. F-54 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In April 2000, Metropolitan Life acquired the outstanding shares of Conning common stock not already owned by Metropolitan Life for $73 million. The shares of Conning were subsequently sold in their entirety in July 2001. 13. Business Realignment Initiatives During the fourth quarter of 2001, the Company implemented several business realignment initiatives, which resulted from a strategic review of operations and an ongoing commitment to reduce expenses. The following tables represent the original expenses recorded in the fourth quarter of 2001 and the remaining liability as of December 31, 2002:
Pre-tax Charges Recorded in the Fourth Quarter of 2001 ------------------------------------------------------ Institutional Individual Auto & Home Total ------------- ---------- ----------- ----- (Dollars in millions) Severance and severance-related costs $ 9 $32 $ 3 $ 44 Facilities' consolidation costs...... 3 65 -- 68 Business exit costs.................. 387 -- -- 387 ---- --- --- ---- Total............................. $399 $97 $ 3 $499 ==== === === ==== Remaining Liability as of December 31, 2002 ------------------------------------------------------ Institutional Individual Auto & Home Total ------------- ---------- ----------- ----- (Dollars in millions) Severance and severance-related costs $ -- $ 1 $-- $ 1 Facilities' consolidation costs...... -- 13 -- 13 Business exit costs.................. 40 -- -- 40 ---- --- --- ---- Total............................. $ 40 $14 $-- $ 54 ==== === === ====
The 2001 facilities' consolidation costs include $15 million of charges related to MetLife Investors Group, Inc., a subsidiary sold to the Holding Company in December 2002. The remaining liability as of December 31, 2002 related to this subsidiary, which is not included in the above table, was $4 million. Institutional. The charges to this segment in the fourth quarter of 2001 include costs associated with exiting a business, including the write-off of goodwill, severance and severance-related costs, and facilities' consolidation costs. These expenses are the result of the discontinuance of certain 401(k) recordkeeping services and externally-managed guaranteed index separate accounts. These actions resulted in charges to policyholder benefits and claims and other expenses of $215 million and $184 million, respectively. During the fourth quarter of 2002, approximately $30 million of the charges recorded in 2001 were released into income primarily as a result of the accelerated implementation of the Company's exit from the large market 401(k) business. The business realignment initiatives will result in the elimination of approximately 930 positions. As of December 31, 2002, there were approximately 340 terminations to be completed. The Company continues to carry a liability as of December 31, 2002 since the exit plan could not be completed within one year due to circumstances outside the Company's control, and since certain of its contractual obligations extended beyond one year. F-55 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Individual. The charges to this segment in the fourth quarter of 2001 include facilities' consolidation costs, severance and severance-related costs, which predominately stem from the elimination of approximately 560 non-sales positions and 190 operations and technology positions supporting this segment. As of December 31, 2002, there were approximately 25 terminations to be completed. These costs were recorded in other expenses. The remaining liability as of December 31, 2002 is due to certain contractual obligations that extended beyond one year. Auto & Home. The charges to this segment in the fourth quarter of 2001 include severance and severance-related costs associated with the elimination of approximately 200 positions. All terminations were completed as of December 31, 2002. The costs were recorded in other expenses. 14. Income Taxes The provision for income taxes for continuing operations was as follows:
Years ended December 31, ----------------------- 2002 2001 2000 ----- ---- ----- (Dollars in millions) Current: Federal................ $ 841 $(22) $(131) State and local........ (18) (4) 34 Foreign................ (5) 15 5 ----- ---- ----- 818 (11) (92) ----- ---- ----- Deferred: Federal................ (322) 775 513 State and local........ 17 32 8 Foreign................ 12 1 6 ----- ---- ----- (293) 808 527 ----- ---- ----- Provision for income taxes $ 525 $797 $ 435 ===== ==== =====
Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes for continuing operations were as follows:
Years ended December 31, ----------------------- 2002 2001 2000 ---- ---- ----- (Dollars in millions) Tax provision at U.S. statutory rate........ $590 $771 $ 457 Tax effect of: Tax exempt investment income............. (86) (82) (52) Surplus tax.............................. -- -- (145) State and local income taxes............. 21 35 30 Prior year taxes......................... (8) 36 (37) Demutualization costs.................... -- -- 21 Payment to former Canadian policyholders. -- -- 114 Sales of businesses...................... -- 5 31 Other, net............................... 8 32 16 ---- ---- ----- Provision for income taxes.................. $525 $797 $ 435 ==== ==== =====
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. F-56 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net deferred income tax assets and liabilities consisted of the following:
December 31, -------------------- 2002 2001 ------- ------- (Dollars in millions) Deferred income tax assets: Policyholder liabilities and receivables. $ 3,020 $ 3,033 Net operating losses..................... 187 318 Employee benefits........................ -- 123 Litigation related....................... 95 279 Other.................................... 286 438 ------- ------- 3,588 4,191 Less: Valuation allowance................ 14 114 ------- ------- 3,574 4,077 ------- ------- Deferred income tax liabilities:............ Investments.............................. 1,597 2,053 Deferred policy acquisition costs........ 2,699 2,756 Employee benefits........................ 65 -- Net unrealized investment gains.......... 1,124 1,037 Other.................................... 36 124 ------- ------- 5,521 5,970 ------- ------- Net deferred income tax liability........... $(1,947) $(1,893) ======= =======
Domestic net operating loss carryforwards amount to $503 million at December 31, 2002 and will expire beginning in 2019. Foreign net operating loss carryforwards amount to $42 million at December 31, 2002 and were generated in various foreign countries with expiration periods of five years to infinity. The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable. The Internal Revenue Service has audited the Company for the years through and including 1996. The Company is being audited for the years 1997, 1998, and 1999. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 15. Reinsurance The Company's life insurance operations participate in reinsurance activities in order to limit losses, minimize exposure to large risks, and to provide additional capacity for future growth. The Company currently reinsures up to 90% of the mortality risk for all new individual life insurance policies that it writes through its various franchises. This practice was initiated by different franchises for different products starting at various points in time between 1992 and 2000. Risks in excess of $25 million on single life policies and $30 million on survivorship policies are 100% coinsured. In addition, in 1998, the Company reinsured substantially all of the F-57 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) mortality risk on its universal life policies issued since 1983. RGA retains a maximum of $4 million of coverage per individual life with respect to its assumed reinsurance business. The Company reinsures its business through a diversified group of reinsurers. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks of specific characteristics. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. In addition to reinsuring mortality risk, the Company reinsures other risks and specific coverages. The Company routinely reinsures certain classes of risks in order to limit its exposure to particular travel, avocation and lifestyle hazards. The Company has exposure to catastrophes, which are an inherent risk of the property and casualty business and could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The Company has also protected itself through the purchase of combination risk coverage. This reinsurance coverage pools risks from several lines of business and includes individual and group life claims in excess of $2 million per policy, as well as excess property and casualty losses, among others. See Note 11 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales practices claims. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The effects of reinsurance were as follows:
Years ended December 31, ------------------------- 2002 2001 2000 ------- ------- ------- (Dollars in millions) Direct premiums............................................ $17,811 $16,257 $15,661 Reinsurance assumed........................................ 2,973 2,786 2,858 Reinsurance ceded.......................................... (2,314) (2,020) (2,256) ------- ------- ------- Net premiums............................................... $18,470 $17,023 $16,263 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits $ 2,631 $ 2,069 $ 1,934 ======= ======= =======
Reinsurance recoverables, included in premiums and other receivables, were $3,533 million and $3,312 million at December 31, 2002 and 2001, respectively, including $1,348 million and $1,356 million, respectively, relating to reinsurance of long-term guaranteed interest contracts and structured settlement lump sum contracts accounted for as a financing transaction. Reinsurance and ceded commissions payables, included in other liabilities, were $45 million and $103 million at December 31, 2002 and 2001, respectively. Included in premiums and other receivables are reinsurance recoverables due from Exeter Reassurance Company, Limited, a related party, of $502 million and $644 million at December 31, 2002 and 2001, respectively. Included in other policyholder funds are reinsurance liabilities assumed from MIAC, a related party, of $763 and $778 million at December 31, 2002 and 2001, respectively. Included in future policy benefits and other policyholder funds are reinsurance liabilities assumed from Cova Corporation , MetLife Investor's Group, Inc. and MetLife International Holdings, Inc., related parties, of $772 million and $931 million, respectively, at December 31, 2002. These entities were sold at December 31, 2002. See note 12. F-58 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following provides an analysis of the activity in the liability for benefits relating to property and casualty and group accident and non-medical health policies and contracts:
Years ended December 31, ------------------------- 2002 2001 2000 ------- ------- ------- (Dollars in millions) Balance at January 1............. $ 4,597 $ 4,226 $ 3,790 Reinsurance recoverables...... (457) (410) (415) ------- ------- ------- Net balance at January 1......... 4,140 3,816 3,375 ------- ------- ------- Incurred related to: Current year.................. 4,116 4,182 3,786 Prior years................... (85) (84) (112) ------- ------- ------- 4,031 4,098 3,674 ------- ------- ------- Paid related to: Current year.................. (2,503) (2,538) (2,215) Prior years................... (1,303) (1,236) (1,018) ------- ------- ------- (3,806) (3,774) (3,233) ------- ------- ------- Net Balance at December 31....... 4,365 4,140 3,816 Add: Reinsurance recoverables. 478 457 410 ------- ------- ------- Balance at December 31........... $ 4,843 $ 4,597 $ 4,226 ======= ======= =======
16. Other Expenses Other expenses were comprised of the following:
Years ended December 31, ------------------------- 2002 2001 2000 ------- ------- ------- (Dollars in millions) Compensation................................................................... $ 2,423 $ 2,447 $ 2,712 Commissions.................................................................... 1,938 1,649 1,638 Interest and debt issue costs.................................................. 242 312 436 Amortization of policy acquisition costs (excludes amortization of $11, $21 and $(95), respectively, related to investment gains (losses))................... 1,501 1,434 1,472 Capitalization of policy acquisition costs..................................... (2,227) (2,018) (1,805) Rent, net of sublease income................................................... 289 280 230 Minority interest.............................................................. 74 57 115 Other.......................................................................... 2,349 2,759 2,510 ------- ------- ------- Total other expenses........................................................ $ 6,589 $ 6,920 $ 7,308 ======= ======= =======
17. Stockholder's Equity Dividend Restrictions Under the New York Insurance Law, Metropolitan Life is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Holding Company as long as the aggregate amount of all such F-59 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus to policyholders as of the immediately preceding calendar year and (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). Metropolitan Life will be permitted to pay a stockholder dividend to the Holding Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. For the year ended December 31, 2002, Metropolitan Life paid to MetLife, Inc. $535 million in dividends for which prior insurance regulatory clearance was not required and $369 million in special dividends, as approved by the Superintendent. For the year ended December 31, 2001, Metropolitan Life paid to MetLife, Inc. $721 million in dividends for which prior insurance regulatory clearance was not required and $3,033 million in special dividends, as approved by the Superintendent. For the year ended December 31, 2000, Metropolitan Life paid to MetLife, Inc. $763 million in dividends for which prior insurance regulatory clearance was not required. Of the total dividend paid, $1,894 million (retained earnings from date of demutualization through the month the dividend was paid) was charged to retained earnings and $1,860 million was charged to additional paid-in-capital. At December 31, 2002, Metropolitan Life could pay the Holding Company a dividend of $662 million without prior approval of the Superintendent. Stock Compensation Plans Under the MetLife, Inc. 2000 Stock Incentive Plan (the "Stock Incentive Plan"), awards may be granted to Metropolitan Life employees in the form of non-qualified or incentive stock options qualifying under Section 422A of the Internal Revenue Code. Under the MetLife, Inc. 2000 Directors Stock Plan, (the "Directors Stock Plan") awards granted may be in the form of stock awards or non-qualified stock options or a combination of the foregoing to outside Directors of the Company. The aggregate number of shares of stock that may be awarded under the Stock Incentive Plan is subject to a maximum limit of 37,823,333 shares for the duration of the plan. The Directors Stock Plan has a maximum limit of 500,000 share awards. All options granted have an exercise price equal to the fair market value price of the Company's common stock on the date of grant, and an option's maximum term is ten years. Certain options under the Stock Incentive Plan become exercisable over a three-year period commencing with date of grant, while other options become exercisable three years after the date of grant. Options issued under the Directors Stock Plan are exercisable at any time after April 7, 2002. MetLife, Inc. applies APB 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, in the measurement of compensation expense, the excess of market price over exercise price is utilized on the first date that both the number of shares and award price are known. For the years ended December 31, 2002 and 2001, compensation expense for non-employees related to MetLife, Inc.'s Stock Incentive Plan and Directors Stock Plan was $2 million and $1 million, respectively. This expense is allocated to the Company to properly reflect compensation expense related to Metropolitan Life employees. Had the compensation cost for the MetLife, Inc. Stock Incentive Plan and Directors Stock Plan allocable to the Company been determined based on fair value at the grant date for awards under those plans consistent with the method of SFAS No. 123, the Company's net income for the years ended December 31, 2002 and 2001 would have been reduced to a pro forma amount of $1,570 million and $1,468 million, respectively. The pro forma net income is not necessarily representative of the effects on net income in future years. The pro forma net income includes the Company's ownership share of compensation costs related to RGA's incentive stock plan determined in accordance with SFAS 123. F-60 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants for the:
2002 2001 ----------- --------- Dividend yield:......... 0.68% 0.68% Risk-free rate of return 4.74%-5.52% 5.72% Volatility.............. 25.3%-30.3% 31.6% Expected duration....... 4-6 years 4-6 years
Statutory Equity and Income Applicable insurance department regulations require that the insurance subsidiaries prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis. As of December 31, 2001, New York State Statutory Accounting Practices did not provide for deferred income taxes. The Department has adopted a modification to its regulations, effective December 31, 2002, with respect to the admissibility of deferred taxes by New York insurers, subject to certain limitations. Statutory net income of Metropolitan Life, as filed with the Department, was $1,478 million, $2,782 million and $1,027 million for the years ended 2002, 2001 and 2000, respectively; statutory capital and surplus, as filed, was $6,986 million and $5,358 million at December 31, 2002 and 2001, respectively. The National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"), which is intended to standardize regulatory accounting and reporting to state insurance departments, and became effective January 1, 2001. However, statutory accounting principles continue to be established by individual state laws and permitted practices. The Department required adoption of the Codification, with certain modifications, for the preparation of statutory financial statements effective January 1, 2001. Further modifications by state insurance departments may impact the effect of the Codification on the statutory capital and surplus of Metropolitan Life and the Holding Company's other insurance subsidiaries. F-61 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 18. Other Comprehensive Income The following table sets forth the reclassification adjustments required for the years ended December 31, 2002, 2001 and 2000 to avoid double-counting in other comprehensive income items that are included as part of net income for the current year that have been reported as a part of other comprehensive income in the current or prior year:
Years ended December 31, ----------------------- 2002 2001 2000 ------- ------ ------ (Dollars in millions) Holding gains on investments arising during the year.............................. $ 2,904 $1,287 $2,807 Income tax effect of holding gains................................................ (976) (509) (975) Reclassification adjustments: Recognized holding losses included in current year income...................... 339 579 989 Amortization of premiums and accretion of discounts associated with investments.................................................................. (440) (475) (498) Recognized holding gains allocated to other policyholder amounts............... (139) (33) (54) Income tax effect.............................................................. 75 (27) (152) Allocation of holding losses on investments relating to other policyholder amounts......................................................................... (2,453) (158) (977) Income tax effect of allocation of holding losses to other policyholder amounts... 829 61 340 Unrealized investment gain (losses) of subsidiary at date of sale................. 68 (173) -- Deferred income taxes on unrealized investment gain (losses) of subsidiary at date of sale......................................................................... (15) 64 -- ------- ------ ------ Net unrealized investment gains................................................... 192 616 1,480 ------- ------ ------ Foreign currency translation adjustments arising during the year.................. 137 (58) (6) Foreign currency translation of subsidiary at date of sale........................ (65) 19 -- ------- ------ ------ Foreign currency translation adjustment........................................... 72 (39) (6) Minimum pension liability adjustment.............................................. -- (18) (9) ------- ------ ------ Other comprehensive income........................................................ $ 264 $ 559 $1,465 ======= ====== ======
19. Business Segment Information The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe, South Africa, Asia and Australia. The Company's business is divided into six major segments: Individual, Institutional, Reinsurance, Auto & Home, Asset Management and International. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care, and dental insurance, and other insurance products and services. Reinsurance provides primarily reinsurance of life and annuity policies in North America and various international markets. Additionally, reinsurance of critical illness policies is provided in select international markets. Auto & Home provides insurance coverages, including private passenger automobile, homeowners and personal excess liability insurance. Asset Management provides a broad variety of asset management products and services to individuals F-62 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and institutions. International provides life insurance, accident and health insurance, annuities and retirement and savings products to both individuals and groups, and auto and homeowners coverage to individuals. Set forth in the tables below is certain financial information with respect to the Company's operating segments as of or for the years ended December 31, 2002, 2001 and 2000. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation and the accounting for gains and losses from inter-company sales which are eliminated in consolidation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company evaluates the performance of each operating segment based upon income or loss from operations before provision for income taxes and non-recurring items (e.g. items of unusual or infrequent nature). The Company allocates certain non-recurring items (primarily consisting of expenses associated with the resolution of proceedings alleging race-conscious underwriting practices, sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products and demutualization costs) to Corporate & Other.
At or for the year ended Auto Asset Corporate December 31, 2002 Individual Institutional Reinsurance & Home Management International & Other Total - ------------------------ ---------- ------------- ----------- ------ ---------- ------------- --------- -------- (Dollars in millions) Premiums......................... $ 4,419 $ 8,254 $1,984 $2,828 $ -- $992 $ (7) $ 18,470 Universal life and investment- type product policy fees....... 1,267 614 -- -- -- 37 -- 1,918 Net investment income............ 6,036 3,926 378 177 59 241 (117) 10,700 Other revenues................... 454 607 42 26 166 10 95 1,400 Net investment (losses) gains.... (131) (508) 7 (46) (4) (9) (39) (730) Policyholder benefits and claims.......................... 5,162 9,337 1,517 2,020 -- 821 3 18,860 Interest credited to policyholder account balances................ 1,608 930 146 -- -- 28 (1) 2,711 Policyholder dividends........... 1,769 115 -- (1) -- 28 -- 1,911 Other expenses................... 2,543 1,529 616 794 211 373 523 6,589 Income (loss) from continuing operations before provision for income taxes.................... 963 982 132 172 10 21 (593) 1,687 Income from discontinued operations, net of income taxes........................... 201 122 -- -- -- -- 127 450 Net income (loss)................ 811 759 86 131 6 21 (202) 1,612 Total assets..................... 120,284 94,911 9,458 4,944 191 795 18,812 249,395 Deferred policy acquisition costs........................... 7,448 608 1,429 175 -- 5 1 9,666 Goodwill, net.................... 73 62 96 156 18 -- -- 405 Separate account assets.......... 21,982 31,935 11 -- -- -- (16) 53,912 Policyholder liabilities......... 84,844 55,460 6,734 2,673 -- 248 (343) 149,616 Separate account liabilities..... 21,982 31,935 11 -- -- -- (16) 53,912
F-63 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At or for the year ended Auto Asset Corporate December 31, 2001 Individual Institutional Reinsurance & Home Management International & Other Total - ------------------------ ---------- ------------- ----------- ------ ---------- ------------- --------- -------- (Dollars in millions) Premiums......................... $ 4,531 $ 7,288 $1,664 $2,755 $ -- $ 788 $ (3) $ 17,023 Universal life and investment- type product policy fees........ 1,245 592 -- -- -- 38 (1) 1,874 Net investment income............ 6,130 3,965 349 200 71 256 151 11,122 Other revenues................... 527 649 35 22 198 16 85 1,532 Net investment gains (losses).... 838 (15) (10) (17) 25 (16) 122 927 Policyholder benefits and claims.......................... 5,213 8,924 1,373 2,121 -- 632 2 18,265 Interest credited to policyholder account balances................ 1,850 1,012 122 -- -- 51 -- 3,035 Policyholder dividends........... 1,767 259 -- -- -- 34 -- 2,060 Other expenses................... 2,763 1,746 478 800 252 315 566 6,920 Income (loss) from continuing operations before provision for income taxes................ 1,678 538 65 39 42 50 (214) 2,198 Income from discontinued operations, net of income taxes........................... 38 23 -- -- -- -- 25 86 Net income (loss)................ 1,092 383 39 41 27 16 (111) 1,487 Total assets..................... 127,499 89,620 7,496 4,567 256 3,385 15,042 247,865 Deferred policy acquisition costs........................... 8,371 509 1,147 179 -- 263 2 10,471 Goodwill, net.................... 223 55 106 159 20 12 -- 575 Separate account assets.......... 31,261 31,177 13 -- -- 277 (14) 62,714 Policyholder liabilities......... 84,637 52,035 5,062 2,610 -- 1,987 (323) 146,008 Separate account liabilities..... 31,261 31,177 13 -- -- 277 (14) 62,714 For the year ended Auto & Asset Corporate December 31, 2000 Individual Institutional Reinsurance Home Management International & Other Total - ------------------ ---------- ------------- ----------- ------ ---------- ------------- --------- -------- (Dollars in millions) Premiums......................... $ 4,625 $ 6,900 $1,444 $2,636 $ -- $ 660 $ (2) $ 16,263 Universal life and investment- type product policy fees........ 1,221 547 -- -- -- 53 (1) 1,820 Net investment income............ 6,110 3,712 368 194 90 254 301 11,029 Other revenues................... 680 650 29 40 760 9 91 2,259 Net investment gains (losses).... 199 (475) (2) (20) -- 18 (138) (418) Policyholder benefits and claims.......................... 5,045 8,178 1,147 2,005 -- 562 (2) 16,935 Interest credited to policyholder account balances................ 1,680 1,090 109 -- -- 56 -- 2,935 Policyholder dividends........... 1,742 124 15 -- -- 32 -- 1,913 Payments to former Canadian policyholders................... -- -- -- -- -- 327 -- 327 Demutualization costs............ -- -- -- -- -- -- 230 230 Other expenses................... 3,005 1,514 452 827 784 292 434 7,308 Income (loss) from continuing operations before provision for income taxes................ 1,363 428 116 18 66 (275) (411) 1,305 Income from discontinued operations, net of income taxes........................... 36 21 -- -- -- -- 22 79 Net income (loss)................ 892 307 68 30 34 (285) (97) 949
F-64 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) For the year ended December 31, 2001 the Institutional, Individual, Reinsurance and Auto & Home segments include $287 million, $24 million, $9 million and $5 million, respectively, of pre-tax losses associated with the September 11, 2001 tragedies. See Note 2. The Institutional, Individual and Auto & Home segments include $399 million, $97 million and $3 million, respectively, in pre-tax charges associated with business realignment initiatives for the year ended December 31, 2001. See Note 13. For the year ended December 31, 2001, the Individual segment includes $118 million of pre-tax expenses associated with the establishment of a policyholder liability for certain group annuity policies. For the year ended December 31, 2001, pre-tax gross investment gains of $1,027 million, $142 million and $357 million resulting from the sale of certain real estate properties to MIAC are included in the Individual segment, Institutional segment and Corporate & Other, respectively. The Individual segment included an equity ownership interest in Nvest under the equity method of accounting. Nvest was included within the Asset Management segment due to the types of products and strategies employed by the entity. The Individual segment's equity in earnings of Nvest, which is included in net investment income, was $30 million for the year ended December 31, 2000. The Individual segment includes $538 million (after allocating $118 million to participating contracts) of the pre-tax gross investment gain on the sale of Nvest in 2000. As part of the GenAmerica acquisition in 2000, the Company acquired Conning, the results of which are included in the Asset Management segment due to the types of products and strategies employed by the entity from its acquisition date to July 2001, the date of its disposition. The Company sold Conning, receiving $108 million in the transaction and reported a gain of approximately $25 million in the third quarter of 2001. The Corporate & Other segment consists of various start-up entities and run-off entities, as well as the elimination of all intersegment amounts. The principal component of the intersegment amounts relates to intersegment loans, which bear interest rates commensurate with related borrowings. In addition, the elimination of the Individual segment's ownership interest in Nvest is included for the year ended December 31, 2000. Net investment income and net investment gains and losses are based upon the actual results of each segment's specifically identifiable asset portfolio adjusted for allocated capital. Other costs and operating costs were allocated to each of the segments based upon: (i) a review of the nature of such costs, (ii) time studies analyzing the amount of employee compensation costs incurred by each segment, and (iii) cost estimates included in the Company's product pricing. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. continuing operations were $30,487 million, $31,396 million and $29,959 million for the years ended December 31, 2002, 2001 and 2000, respectively, which represented 96%, 97% and 97%, respectively, of consolidated revenues. 20. Discontinued Operations The Company actively manages its real estate portfolio with the objective to maximize earnings through selective acquisitions and dispositions. Accordingly, the Company sold certain real estate holdings out of its F-65 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) portfolio during 2002. In accordance with SFAS No. 144, income related to real estate classified as held-for-sale on or after January 1, 2002 is presented as discontinued operations. The following table presents the components of income from discontinued operations:
Years Ended December 31, ----------------------- 2002 2001 2000 ----- ----- ----- (Dollars in millions) Investment income...................... $ 375 $ 422 $ 418 Investment expense..................... (251) (297) (297) Net investment gains................... 582 -- -- ----- ----- ----- Total revenues...................... 706 125 121 Provision for income taxes............. 256 39 42 ----- ----- ----- Income from discontinued operations. $ 450 $ 86 $ 79 ===== ===== =====
The carrying value of real estate related to discontinued operations was $223 million and $1,580 million at December 31, 2002, and 2001, respectively. See Note 19 for discontinued operations by business segment. 21. Related Parties Effective January 1, 2003, MetLife Group, Incorporated, a New York corporation and wholly owned subsidiary of the Holding Company, was formed as a personnel services company to provide personnel, as needed, to support the activities of the Company. F-66 Metropolitan Life Separate Account UL PART C. OTHER INFORMATION Item 27. Exhibits (a) Resolution of Board of Directors of Metropolitan Life effecting the establishment of Metropolitan Life Separate Account UL++++ (b) Not Applicable (c) (1) Not Applicable (2) Form of Selected Broker Agreement* (3) Schedule of Sales Commissions+++ (d) (1) Specimen Flexible Premium Variable Life Insurance Policy* (2) Alternate pages required by State Law* (3) Endorsement for calculation of minimum death benefit using the Cash Value Accumulation test* (4) Accelerated Death Benefit and Zero Cost Loan riders* (5) Yearly Renewable Term rider+++++ (6) Refund of sales load rider+++++ (7) Amended Policy Specifications Page indicating alternate premium expense charges+++++ (8) Enhanced Cash Surrender Value Rider****** (e) Amended Application Forms for Policy and Form of Receipt (including State variations)* (f) Restated Charter and By-Laws of Metropolitan Life*** (g) Reinsurance Contracts (h) (1) Participation Agreements with INVESCO and Janus** (2) Form of Participation Agreement with Templeton** (3) Participation Agreements with New England and Alliance***** (4) Form of Participation Agreement with COVA***** (5) (i) Participation Agreement with Fidelity**** (ii) Supplemental Agreements with Fidelity***** (i) Not Applicable (j) Not Applicable (k) Opinion and consent of Counsel as to the legality of the securities being registered+++++ (l) Opinion and consent of Sebastian Janssen, relating to the Policies+ (m) Not Applicable (n) Powers of Attorney++++ (o) Not Applicable (p) Not Applicable (q) Memoranda describing certain procedures filed pursuant to Rule 6e-3 (T)(b)(12)(iii)* (r) Form of Personalized illustration.***** + Filed herewith ++ Included in the filing of Post-Effective Amendment No. 4 to this Registration Statement on C-1 March 1, 1996. +++ Incorporated by reference from "Distribution of the Policies" in the Prospectus included herein. ++++ Incorporated by reference to the filing of Post-Effective Amendment No. 5 to the Registration Statement of Separate Account UL (File No. 033-47927) filed April 30, 1997 except for Robert H. Benmosche's power of attorney, which is incorporated by reference to the Registration Statement of Separate Account UL (File No. 333-40161) filed on November 13, 1997, Stewart G. Nagler's power of attorney which is included in the filing of Post-Effective Amendment No. 6 to the Registration Statement of Separate Account UL (File No. 033-47927) on December 23, 1997, Virginia M. Wilson's power of attorney, which is incorporated by reference to Pre-Effective Amendment No. 2 to the Registration Statement on Metropolitan Life Separate Account E (File No. 333-80547) filed on November 1, 1999, William C. Steere's power of attorney, which is incorporated by reference to the filing of Post-Effective Amendment No. 8 to this Registration Statement (File No. 033-57320) on April 23, 1999, and John C. Danforth's power of attorney, which is incorporated by reference to the filing of Post-Effective Amendment No. 27 to the Registration Statement of Separate Account E (File no. 002-90380) on April 3, 2001. +++++ Included in the filing of Post-Effective Amendment No. 5 to this Registration Statement on April 26, 1996. * Included in the filing of Post-Effective Amendment No. 6 to this Registration Statement on April 30, 1997. ** Included in the filing of Post-Effective Amendment No. 8 to this Registration Statement on April 23, 1999. *** Incorporated by reference to the filing of Post-Effective Amendment No. 3 to the Registration Statement of Separate Account UL (File No. 333-40161) on April 6, 2000. **** Incorporated by reference to the filing of Post-Effective Amendment No. 26 to the Registration Statement of Separate Account E (File No. 2-90380) on Form N-4 on April 30, 1997. ***** Incorporated by reference to the filing of Post-Effective Amendment No. 10 to this Registration Statement on September 18, 2000. ****** Incorporated by reference to the filing of Post-Effective Amendment No. 12 to this Registration Statement on April 22, 2002. Item 28. Directors and Officers of Depositor
Name and Principal Business Address Positions and Offices with Depositor - ----------------------------------- ------------------------------------ Robert H. Benmosche Chairman of the Board, President and Chief Metropolitan Life Insurance Company Executive Officer One Madison Avenue, New York, NY 10010 Curtis H. Barnette Director Chairman Emeritus Bethlehem Steel Corporation 1170 Eighth Avenue, Martin Tower 2118 Bethlehem, PA 18016-7699
C-2 Gerald Clark Vice Chairman of the Board and Chief Metropolitan Life Insurance Company Investment Officer One Madison Avenue New York, NY 10010 John C. Danforth Director Partner Bryan Cave LLP One Metropolitan Square 211 North Broadway, Suite 3600 St. Louis, MO 63102 Burton A. Dole, Jr. Director Retired Chairman Nellcor Puritan Bennett, Inc. P.O. Box 208 Carlsbad, CA 92018 James R. Houghton Director Chairman and Chief Executive Officer Corning Incorporated 80 East Market Street, 2nd Floor Corning, NY 14830 Harry P. Kamen Director Retired Chairman and Chief Executive Officer Metropolitan Life Insurance Company 200 Park Avenue, Suite 5700 New York, NY 10166 Helene L. Kaplan Director Of Counsel, Skadden, Arps, Slate, Meagher and Flom Four Times Square New York, NY 10036 Catherine R. Kinney Director Group Executive Vice President, Co-Chief Operating Officer President and Executive Vice Chairman New York Stock Exchange, Inc. 11 Wall Street, 6th floor New York, NY 10005
C-3 Charles H. Leighton Director Retired Chairman and Chief Executive Officer CML Group, Inc. 51 Vaughn Hill Road Bolton, MA 01720 Stewart G. Nagler Vice Chairman of the Board and Chief Metropolitan Life Insurance Company Financial Officer One Madison Avenue New York, NY 10010 John J. Phelan, Jr. Director Retired Chairman and Chief Executive Officer New York Stock Exchange, Inc. P. O. Box 524 Locust Valley, NY 11560 Hugh B. Price Director President and Chief Executive Officer National Urban League, Inc. 120 Wall Street, 7th & 8th Floors New York, NY 10005 William C. Steere, Jr. Director Chairman and Chief Executive Officer Pfizer, Inc. 235 East 42nd Street New York, NY 10016
Set forth below is a list of certain principal officers of Metropolitan Life. The principal business address of each officer of Metropolitan Life is One Madison Avenue, New York, New York 10010.
Name Position with Metropolitan Life Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer Gerald Clark Vice Chairman of the Board and Chief Investment Officer Stewart C. Nagler Vice Chairman of the Board and Chief Financial Officer Gary A. Beller Senior Executive Vice-President and General Counsel Gwenn L. Carr Vice President and Secretary Daniel J. Cavanagh Executive Vice President C. Robert Henrikson President- Institutional Business Jeffrey J. Hogman Executive Vice President Catherine A. Rein Senior Executive Vice President; President and Chief Executive Officer of Metropolitan Property and Casualty Insurance
C-4 Company Stanley J. Talbi Senior Vice President and Chief Actuary William J. Toppeta President, International Lisa Weber Senior Executive Vice President, Chief Administration Officer Judy E. Weiss Executive Vice President and Chief Actuary Anthony J. Williamson Senior Vice President and Treasurer Virginia M. Wilson Senior Vice President and Controller
The business address of each officer is One Madison Avenue, New York, New York 10010. Item 29. Persons Controlled by or Under Common Control with the Depositor or the Registrant The registrant is a separate account of Metropolitan Life Insurance Company under the New York Insurance law. Under said law the assets allocated to the separate account are the property of Metropolitan Life Insurance Company. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. a publicly traded company. The following outline indicates those persons who are controlled by or under common control with Metropolitan Life Insurance Company: [Module of the List of Companies under Common Control appears here] C-5 Item 30. Indemnification MetLife, Inc. has secured a Financial Institutions Bond in the amount of $50,000,000 subject to a $5,000,000 deductible. MetLife maintains a directors' and officers' liability policy with a maximum coverage of $300 million under which Metropolitan Life Insurance Company ("Metropolitan"), which is the Depositor and the Registrant's underwriter (the "Underwriter"), as well as certain other subsidiaries of MetLife are covered. A provision in Metropolitan's by-laws provides for the indemnification (under certain circumstances) of individuals serving as directors or officers of Metropolitan. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Metropolitan pursuant to the foregoing provisions, or otherwise, Metropolitan Life Insurance Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification may be against public policy as expressed in the Act and may be, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Metropolitan of expenses incurred or paid by a director, officer or controlling person or Metropolitan Life Insurance Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Metropolitan will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 31. Principal Underwriters (a) Other Activity. The principal underwriter for the registrant is Metropolitan Life Insurance Company. Metropolitan Life Insurance Company acts in the following capacities with respect to the following investment companies: Metropolitan Tower Life Separate Account One (principal underwriter) Metropolitan Tower Life Separate Account Two (principal underwriter) Metropolitan Life Separate Account E (principal underwriter and depositor) Metropolitan Series Fund, Inc. (principal underwriter and sub-investment manager) New England Variable Annuity Fund I (depositor) New England Life Retirement Investment Account (depositor) The New England Variable Account (depositor) (b) Management. See response to Item 28 above. (c) Compensation from the Registrant. C-6
(1) (2) (3) (4) (5) Compensation on Net Underwriting Events Occasioning Name of Principal Discounts and the Deduction of a Brokerage Other Underwriter Commissions Deferred Sales Commissions Compensation ----------- ----------- Load ----------- ------------ ---- Metropolitan Life Insurance Company $5,371,787 0 0 0
Commissions are paid by the Company directly to agents who are registered representatives of the Principal Underwriter or to broker-dealers that have entered into a selling agreement with the principal underwriter with respect to sales of the Contracts. Item 32. Location of Accounts and Records The following companies will maintain possession of the documents required by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder: (a) Registrant (b) Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 Item 33. Management Services Not applicable Item 34. Fee Representation Metropolitan Life represents that the fees and charges deducted under the Policies offered and sold pursuant to this amended Registration Statement, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred, and the risks assumed by Metropolitan Life under the Policies. Metropolitan Life bases its representation on its assessment of all of the facts and circumstances, including such relevant factors as: the nature and extent of such services, expenses and risks, the need for Metropolitan Life to earn a profit, the degree to which the Policies include innovative features, and regulatory standards for exemptive relief under the Investment Company Act of 1940 used prior to October 1996, including the range of industry practice. This representation applies to all policies issued pursuant to this Registration Statement, including those sold on the terms specifically described in the prospectuses contained herein, or any variations therein based on supplements, amendments, endorsements or other riders to such policies or prospectuses, or otherwise. C-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Metropolitan Life Separate Account UL, has caused this Amendment to the Registration Statement to be signed on its behalf, in the City of New York, and the State of New York on the 29th day of April, 2003. Metropolitan Life Separate Account UL By: Metropolitan Life Insurance Company By: /s/ Gary A. Beller -------------- Gary A. Beller, Esq. Senior Executive Vice President and General Counsel Attest: /s/ James D. Gaughan -------------------- James D. Gaughan Assistant Secretary C-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, Metropolitan Life Insurance Company has caused this Amendment to the Registration Statement to be signed on its behalf, in the City of New York, and the State of New York on the 29th day of April, 2003. Metropolitan Life Insurance Company BY: /s/ Gary A. Beller ------------------ Gary A. Beller, Esq. Senior Executive Vice President and General Counsel Attest: /s/ James D. Gaughan -------------------- James D. Gaughan Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons, in the capacities indicated, on April 29th, 2003.
SIGNATURE Title * - ------------------------------------------------- Chairman of the Board, President and Chief Robert H. Benmosche Executive Officer * Vice-Chairman of the Board and - --------------------------------------- Chief Financial Officer (Principal Financial Stewart G. Nagler Officer) * - --------------------------------------- Senior Vice President and Controller Virginia M. Wilson (Principal Accounting Officer) * - --------------------------------------- Curtis H. Barnette Director * - --------------------------------------- Vice Chairman of the Board and Gerald Clark Chief Investment Officer * - --------------------------------------- John C. Danforth Director * - --------------------------------------- Burton A. Dole, Jr. Director * - ---------------------------------------
C-9 James R. Houghton Director * - --------------------------------------- Harry P. Kamen Director * - --------------------------------------- Helene L. Kaplan Director - --------------------------------------- Catherine R. Kinney Director * - --------------------------------------- Charles M. Leighton Director - --------------------------------------- John J. Phelan, Jr. Director * - --------------------------------------- Hugh B. Price Director * - --------------------------------------- William C. Steere, Jr. Director April 29, 2003 /s/ Christopher P. Nicholas - --------------------------- Christopher P. Nicholas, Esq. Attorney- in - fact
* Executed by Christopher P. Nicholas, Esq. on behalf of those indicated pursuant to Powers of Attorney filed with Post-Effective Amendment No. 5 to the Registration Statement of Separate Account UL (File No. 033-47927) filed April 30, 1997 except for Robert H. Benmosche's power of attorney, which is incorporated by reference to the Registration Statement of Separate Account UL (File No. 333-40161) filed on November 13, 1997, Stewart G. Nagler's power of attorney which is included in the filing of Post-Effective Amendment No. 6 to the Registration Statement of Separate Account UL (File No. 033-47927) on December 23, 1997, Virginia M. Wilson's power of attorney, which is incorporated by reference to Pre-Effective Amendment No. 2 to the Registration Statement on Metropolitan Life Separate Account E (File No. 333-80547) filed on November 1, 1999, William C. Steere's power of attorney, which is incorporated by reference to the filing of Post-Effective Amendment No. 8 to this Registration Statement (File No. 033-57320) on April 23, 1999, and John C. Danforth's power of attorney, which is incorporated by reference to the filing of Post-Effective Amendment No. 27 to the Registration Statement of Separate Account E (File no. 002-90380) on April 3, 2001. C-10 EX-99.L 3 dex99l.txt OPINION LETTER EXHIBIT l April 25, 2003 Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 Dear Sirs: This opinion is furnished in connection with the filing of Post-Effective Amendment No. 14 to Registration Statement No. 33-57320 on Form S-6 ("Registration Statement") which covers premiums received under Flexible Premium Variable Life Insurance Policies ("Policies") offered by Metropolitan Life Insurance Company ("MLIC") in each State where they have been approved by appropriate State insurance authorities. As an Assistant Vice-President and Actuary of MLIC, I have reviewed the Policy forms and I am familiar with the Registration Statement and Exhibits thereto. In my opinion, the illustrations of Policy death benefits, cash values, cash surrender values and accumulated premiums referenced as Exhibit (r) in the amended Registration Statement, based on the assumptions stated therein, are consistent with the provisions of the Policy forms. Also, in my opinion, the amounts assumed in the illustrations for current Policy charges (including the decrease in mortality and expense risk charge after 9 years) remain reasonable, based on MLIC's current expectations. The Policies have not been designed so as to make the relationship between premiums and benefits, as shown in these illustrations appear to be disproportionately more favorable to a prospective purchaser of the Policy for standard risk males age 45, than to prospective purchasers of Policies for a male at other ages or in other underwriting classes or for a female. Nor have the particular illustrations shown been selected for the purpose of making that relationship appear more favorable. The representative insured assumed for purposes of the Fee Tables in the prospectus has not been selected for the purpose of showing lower charges in those tables than would apply for a different assumed insured. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Legal and Actuarial Matters" in the Statement of Additional Information contained in the Registration Statement. Very truly yours, /s/ Sebastian Janssen - --------------------- Sebastian Janssen, FSA, MAAA Assistant Vice-President and Actuary EX-99.10 4 dex9910.txt INDEPENDENT AUDITORS' CONSENT Independent Auditors' Consent Metropolitan Life Separate Account UL: We consent to the use in this Post-Effective Amendment No. 14 to Registration Statement No. 033-57320/811-06025 of Metropolitan Life Separate Account UL on Form N-6 of our report dated March 26, 2003, relating to Metropolitan Life Separate Account UL appearing in the Prospectus, which is a part of such Registration Statement, our report dated February 19, 2003 relating to Metropolitan Life Insurance Company, appearing in the Statement of Additional Information, which is part of such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus and Statement of Additional Information which are parts of such Registration Statement. Deloitte & Touche LLP New York, New York April 24, 2003 -----END PRIVACY-ENHANCED MESSAGE-----