-----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, V62gLOent6cV5wmxCFh4UlmSg6ehqOlblbaSWonsPAKoOYmksjngXCzBnw34WZoO f4iR0Iu7ZurvZLAlPolyog== 0000950130-98-001727.txt : 19980403 0000950130-98-001727.hdr.sgml : 19980403 ACCESSION NUMBER: 0000950130-98-001727 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980402 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN LIFE SEPARATE ACCOUNT UL CENTRAL INDEX KEY: 0000858997 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-40161 FILM NUMBER: 98586435 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 S-6/A 1 MET LIFE VARIABLE ADDITIONAL INSURANCE AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1998 REGISTRATION NO. 333-40161 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- PRE-EFFECTIVE AMENDMENT NO. 1 To FORM S-6 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------- METROPOLITAN LIFE SEPARATE ACCOUNT UL (EXACT NAME OF TRUST) METROPOLITAN LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) 1 Madison Avenue New York, New York 10010 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) ---------------- GARY A. BELLER, ESQ. Senior Executive Vice-President and General Counsel Metropolitan Life Insurance Company 1 Madison Avenue New York, New York 10010 (NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE) ---------------- Copies to: GARY O. COHEN, ESQ. and THOMAS C. LAUERMAN, ESQ. Freedman, Levy, Kroll & Simonds 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 ---------------- Title and amount of securities being offered: An indefinite amount of separate account interests under a variable additional insurance dividend option. AMOUNT OF FILING FEE: None required. APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practical after the effective date of the Registration Statement. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ---------------- Registrant elects to be governed by Rule 6e-3(T)(B) under the Investment Company Act of 1940 with respect to the variable additional insurance dividend option. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- METROPOLITAN LIFE SEPARATE ACCOUNT UL METROPOLITAN LIFE INSURANCE COMPANY CROSS-REFERENCE TABLE
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS - ----------- ---------------------- 1...................... Cover Page 2...................... SUMMARY--About Metropolitan Life 3...................... Inapplicable 4...................... SALES AND ADMINISTRATION OF THE VAI; SUMMARY--About Metropolitan Life 5, 6, 7................ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account; STATE REGULATION 8...................... FINANCIAL STATEMENTS 9...................... Inapplicable 10(a)................... General Account and The Policy 10(c), 10(d)............ DEFINITIONS--Valuation Date; SUMMARY--Withdrawals and Transfers; VAI BENEFITS; VAI RIGHTS--Withdrawal and Transfer Privileges; VAI RIGHTS--Surrenders; PAYMENTS; GENERAL ACCOUNT AND THE POLICY 10(e)................... VAI TERMINATION AND REINSTATEMENT 10(f)................... VOTING RIGHTS 10(g)(1)-(3), 10(h)(1)- (3).................... RIGHTS RESERVED BY METROPOLITAN LIFE 10(g)(4), 10(h)(4)...... Inapplicable 10(i)................... VAI BENEFITS--VAI Death Benefits; VAI Cash Value; Optional Income Plans; PAYMENTS; ISSUANCE OF A VAI; VAI TERMINATION AND REINSTATEMENT 11...................... SUMMARY--The Separate Account and the Metropolitan Series Fund; SEPARATE ACCOUNT AND METROPOLITAN SE- RIES FUND--Metropolitan Series Fund 12(a)................... Cover Page 12(b), 12(e)............ Inapplicable 12(c), 12(d)............ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met- ropolitan Series Fund 13(a), 13(b), 13(c), SUMMARY--The Separate Account and the Metropolitan 13(d).................. Series Fund; GENERAL ACCOUNT AND THE POLICY; Sepa- rate Account Charge; Other Charges; Surrenders 13(e)................... SALES AND ADMINISTRATION OF THE VAI 13(f), 13(g)............ Inapplicable 14...................... PAYMENTS--Issuance of a VAI; SALES AND ADMINISTRA- TION OF THE VAI
i
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS - ----------- ---------------------- 15...................... PAYMENTS 16...................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met- ropolitan Series Fund 17(a), 17(b)............ Captions referenced under Items 10(c), 10(d), 10(e) and 10(i) above 17(c)................... Inapplicable 18(a), 18(c)............ SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND 18(b), 18(d)............ Inapplicable 19...................... SALES AND ADMINISTRATION OF THE VAI; VOTING RIGHTS; REPORTS 20(a), 20(b)............ RIGHTS RESERVED BY METROPOLITAN LIFE; SEPARATE AC- COUNT AND METROPOLITAN SERIES FUND--The Separate Account 20(c), 20(d), 20(e), 20(f).................. Inapplicable 21(a), 21(b)............ VAI RIGHTS--Loan Privileges; GENERAL ACCOUNT AND THE POLICY--Payment and Deferment 21(c), 22............... Inapplicable 23...................... SALES AND ADMINISTRATION OF THE VAI 24...................... GENERAL ACCOUNT AND THE POLICY 25...................... SUMMARY--About Metropolitan Life 26...................... Inapplicable 27...................... SUMMARY--About Metropolitan Life 28...................... MANAGEMENT 29...................... Inapplicable 30, 31, 32, 33, 34...... Inapplicable 35...................... STATE REGULATION 36, 37.................. Inapplicable 38...................... SALES AND ADMINISTRATION OF THE VAI; DISTRIBUTION OF THE VAI 39...................... SUMMARY--About Metropolitan Life; SALES AND ADMINIS- TRATION OF THE VAI; DISTRIBUTION OF THE VAI 40(a)................... Inapplicable 40(b)................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met- ropolitan Series Fund 41(a)................... SUMMARY--About Metropolitan Life; SALES AND ADMINIS- TRATION OF THE VAI 41(b), 41(c), 42, 43.... Inapplicable 44(a)................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--Met- ropolitan Series Fund; VAI BENEFITS--Cash Value 44(b)................... Inapplicable 44(c)................... CHARGES--Separate Account Charge--Cost of Insurance Charge
ii
ITEMS OF FORM N-8B-2 CAPTIONS IN PROSPECTUS - ----------- ---------------------- 45......................... Inapplicable 46......................... Captions referenced under Item 44 above 47......................... Captions referenced under Items 10(c) and 16 above 48, 49..................... Inapplicable 50......................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND--The Separate Account 51(a), 51(b)............... SUMMARY--About Metropolitan Life; Cover Page; VAI in Brief 51(c), 51(d), 51(e)........ Captions referenced under Item 10(i) above 51(f)...................... TERMINATION AND REINSTATEMENT 51(g)...................... Captions referenced under Items 10(i) and 13 above 51(h), 51(j)............... Inapplicable 51(i)...................... DISTRIBUTION OF THE VAI 52(a), 52(c)............... RIGHTS RESERVED BY METROPOLITAN LIFE 52(b), 52(d)............... Inapplicable 53(a)...................... FEDERAL TAX MATTERS 53(b), 54 through 58....... Inapplicable 59......................... FINANCIAL STATEMENTS
iii MAY 1, 1998 PROSPECTUS for EQUITY ADDITIONS(TM) DIVIDEND OPTION Issued by METROPOLITAN LIFE INSURANCE COMPANY The Variable Additional Insurance Dividend Option, Equity Additions ("VAI") is available as a rider to a fixed benefit life insurance base policy which is offered by Metropolitan Life Insurance Company ("Metropolitan Life"). The VAI can accept (1) VAI premium payments ("payments") that are derived from dividends from the base policy and any other additional benefit riders to the base policy as well as (2) dividends or transfers of cash value from certain other dividend options that have been selected for the base policy. The owner has the flexibility to vary the frequency and amount of payments, subject to certain restrictions and conditions. The VAI cash value and death benefit will vary with the investment experience of the MetLife Stock Index investment division of the Metropolitan Life Separate Account UL ("Separate Account)" to which amounts held pursuant to the VAI are allocated. The VAI cash value and the VAI death benefit will also be adjusted for other factors, including the amount of charges imposed and the payments made into the VAI. The owner may withdraw all or a portion of the VAI cash value at any time and for any reason, without charge. The owner may also transfer the VAI cash value to the fixed benefit additional insurance dividend option, or for use as a payment of any premium, loan interest or charges due under the base policy, its additional benefit riders or its dividend options. The payments to the VAI will be allocated to the MetLife Stock Index investment division of the Separate Account. The assets in the investment division are invested in shares of a corresponding portfolio of the Metropolitan Series Fund, Inc. ("Fund"). Metropolitan Life is the investment manager of the Fund and the Portfolio and the distributor of its shares. Metropolitan Life also distributes and administers the VAI. The prospectus for the Fund describes the investment objective and certain attendant risks of the MetLife Stock Index Portfolio, which is currently the only Portfolio available under the VAI. The Fund and the Separate Account have additional funding options which Metropolitan Life may, in the future, make available under the VAI. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. INTERESTS IN THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, OR GUARANTEED BY THE U.S. GOVERNMENT, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO THE CURRENT PROSPECTUS FOR THE METROPOLITAN SERIES FUND, INC., WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. 1 Madison Avenue, New York, New York 10010 Telephone (800) 638-5000 TABLE OF CONTENTS
PAGE ---- DEFINITIONS............................... 3 SUMMARY................................... 5 Purpose of Summary....................... 5 About Metropolitan Life.................. 5 VAI in Brief............................. 5 Payments................................. 5 VAI Cash Value........................... 5 VAI Death Benefit........................ 5 The Separate Account and the Metropolitan Series Fund............................. 5 Separate Account Charge.................. 6 Cost of Insurance Charge................. 6 Withdrawals and Transfers................ 6 Loans.................................... 6 Fund Investment Management Fees and Di- rect Expenses........................... 6 Tax Treatment of Cash Value.............. 6 Tax Treatment of the Death Benefit....... 7 Communications........................... 7 SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND.............................. 8 The Separate Account..................... 8 Metropolitan Series Fund................. 8 VAI BENEFITS.............................. 9 VAI Death Benefits....................... 9 VAI Cash Value........................... 9 Optional Income Plans.................... 9 ISSUANCE OF A VAI......................... 10 PAYMENTS.................................. 10 VAI TERMINATION AND REINSTATEMENT......... 10
PAGE ---- CHARGES................................................................. 11 Separate Account Charge................................................ 11 Charge for Income Taxes................................................ 11 Cost of Insurance Charge............................................... 11 Guarantee of Certain Charges........................................... 12 Other Charges.......................................................... 12 NET SINGLE PREMIUM...................................................... 12 ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, AND ACCUMULATED PREMIUMS.. 12 VAI RIGHTS.............................................................. 15 Loan Privileges........................................................ 15 Withdrawal and Transfer Privileges..................................... 15 Surrenders............................................................. 16 Automatic Transfers of VAI Cash Value.................................. 16 GENERAL ACCOUNT AND THE POLICY.......................................... 16 RIGHTS RESERVED BY METROPOLITAN LIFE.................................... 17 SALES AND ADMINISTRATION OF THE VAI..................................... 17 DISTRIBUTION OF THE VAI................................................. 18 FEDERAL TAX MATTERS..................................................... 18 Taxation of the Policy................................................. 18 Taxation of Metropolitan Life.......................................... 20 MANAGEMENT.............................................................. 21 VOTING RIGHTS........................................................... 24 Disregard of Voting Instructions....................................... 24 REPORTS................................................................. 24 STATE REGULATION........................................................ 24 REGISTRATION STATEMENT.................................................. 24 LEGAL MATTERS........................................................... 25 EXPERTS................................................................. 25 FINANCIAL STATEMENTS.................................................... 25 APPENDIX TO PROSPECTUS.................................................. 69
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. METROPOLITAN LIFE DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED PROSPECTUS OR ANY SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY METROPOLITAN LIFE. 2 DEFINITIONS Attained Age--the age in years and days of the insured on any given date. The attained age is computed using the issue age. Base Policy--the fixed benefit life insurance policy offered by Metropolitan Life to which the VAI is an endorsement. Beneficiary--The beneficiary is the person or persons designated by the Owner to receive the death benefit upon the death of the insured. The beneficiary must be the same for the VAI and the base policy. Cash Value--Amounts in the VAI or other components of the Policy. Policy cash value refers to the sum of all these amounts. Cost of Insurance Charge--A charge that is deducted monthly from the VAI cash value and which compensates Metropolitan Life for insurance coverage provided under the VAI. Date of Base Policy--The date set forth in the base policy that is used to determine base policy years and base policy months from issue. Base policy anniversaries are measured from the date of the base policy. VAI years are measured from the date Metropolitan Life approves the application for the VAI. Designated Office--The home office of Metropolitan Life at 1 Madison Avenue, New York, New York 10010, to which all Policy owner communications are to be sent. Metropolitan Life may, by written notice, name other locations within the United States to serve as designated offices, in place of or in addition to the home office. Dividend Option--The method elected by the Owner under which any dividends from the Policy, as well as cash value transfers from other dividend options, may be applied to accumulate additional cash value and purchase additional death benefits. The VAI is a dividend option made available by rider to the base policy. Dividend Payment Date--The last day of the base policy year. The dividend payment date is the same for each component of the Policy and is set forth in the base policy. DWI--The dividends with interest dividend option that allows the Owner to accumulate dividends from the Policy. The accumulated dividends under this option will earn currently taxable interest at a rate declared periodically. No dividends are credited on accumulated amounts in this dividend option. General Account--The assets of Metropolitan Life other than those allocated to the Separate Account or any other legally-segregated separate account. Indebtedness--The total of any unpaid loan and loan interest. Insured--The person upon whose life the VAI is issued. The insured must be the same for the VAI and the base policy. Investment Start Date--The dividend payment date of the first base policy dividend that is allocated to the Separate Account or, if sooner, the date of the first transfer of cash value to the VAI from another dividend option. Investment Division--A subdivision of the Separate Account. The assets in an investment division are invested exclusively in the shares of a specified portfolio. Issue Age--The age of the insured as of the birthday prior to or coincident with the date of base policy. Net Single Premium--The single premium amount based on the insured's attained age, sex and rate class by which the VAI cash value is divided in order to determine the daily VAI death benefit in thousands of dollars. A table of net single premiums will be included in each VAI. Owner--The person so designated in the application or as subsequently changed as VAI owner. The Owner must be the same for the VAI and the base policy. 3 Payments--any amounts that are applied to the VAI as premium payments. Policy--For ease of reference, the term Policy shall be used in this Prospectus to refer collectively to the base policy, dividend options (including the VAI) and any other riders or additional benefits that an Owner has purchased or elected in connection with the base policy. Portfolio--A portfolio represents a different class (or series) of stock of the Metropolitan Series Fund, Inc., a mutual fund in which the Separate Account assets are invested. Riders--documents through which additional benefits can be purchased by an Owner and which are available as supplemental benefits to the base policy. Separate Account--Metropolitan Life Separate Account UL, a separate investment account of Metropolitan Life in which payments to the VAI are invested. Separate Account Charge--A charge that is deducted monthly from the VAI cash value and which compensates Metropolitan Life for administration services and the mortality and expense risks assumed by Metropolitan Life under the VAI. VAI--The variable additional insurance dividend option offered by Metropolitan Life for use with the base policy and described in this Prospectus. Valuation Date--Each day on which the New York Stock Exchange is open for trading or, on days other than when the New York Stock Exchange is open, on which it is determined that there is a sufficient degree of trading in the Fund's portfolio securities that the current net asset value of its redeemable securities might be materially affected. Valuations for any date other than a Valuation Date will be determined as of the next Valuation Date. Valuation Period--The period between two successive Valuation Dates, commencing at the close of regular trading on the New York Stock Exchange on each Valuation Date and ending at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. This Prospectus describes only the VAI, since it is only through the VAI that interests in the Separate Account are currently being offered. Other aspects of the Policy are referred to only to give a better understanding of how the VAI functions. 4 SUMMARY ................................................................................ PURPOSE OF SUMMARY This summary was written to give you an overview of the VAI and is qualified by the more detailed information provided in the prospectus and the VAI. You may find it helpful to review the definitions of terms described preceding this summary before reading the prospectus in full. ABOUT METROPOLITAN LIFE Metropolitan Life, the issuer of the VAI, is a mutual life insurance company incorporated under the laws of the State of New York in 1866. Its home office is located at 1 Madison Avenue, New York, New York 10010. MetLife is authorized to transact business in all states of the United States, the District of Columbia, Puerto Rico, and all Provinces of Canada. Metropolitan Life, serving millions of people, is one of the largest financial services companies in the world with many of the largest United States corporations for its clients. On December 31, 1997, Metropolitan Life and its affiliates had total life insurance in force of approximately $1.7 trillion and total assets under management of approximately $330.3 billion. VAI IN BRIEF The VAI is offered as an optional rider to the base policy. It is designed to allow the Owner to participate in equity investing through the Separate Account using dividends from the Policy as well as transfers of cash value from other dividend options as payments for the VAI. Once elected, the VAI comes into existence when a base policy dividend is first credited to the VAI or, if earlier, when a cash value transfer from another dividend option is allocated to the VAI. This cannot currently be any earlier than the end of the second year that the base policy has been in effect. The VAI cannot be elected while any term insurance is in effect under the base policy's Flexible Additional Insurance Rider ("FLAIR"). Once the FLAIR becomes fully funded, or if the term insurance provided by "FLAIR" is discontinued, the VAI may be elected. The VAI provides death benefit and cash value accumulation through the investment experience of the MetLife Stock Index Portfolio. PAYMENTS The Owner decides whether dividends from the Policy will be used as VAI payments. The Owner may direct any such payment derived from dividends to be applied to the VAI, provided such direction is received at the designated office at least sixty days prior to the date any such dividend is paid. Currently, these dividends are declared annually. The Owner can also at any time transfer cash value from other dividend options to the VAI. The VAI rider does not assure or guarantee any amount of dividends or cash value under the Policy. DIVIDENDS THAT ARE USED AS VAI PAYMENTS ARE BASED ON METROPOLITAN LIFE'S CURRENT DIVIDEND SCALE WHICH CANNOT BE GUARANTEED AND IS SUBJECT TO CHANGE ANNUALLY BY METROPOLITAN LIFE. (See "Payments to the VAI.") VAI CASH VALUE The VAI cash value is the value in the MetLife Stock Index investment division which reflects the investment experience of the investment division, partial withdrawals or transfers of amounts from the VAI and charges. There is no guaranteed minimum cash value (see "VAI Benefits" and "VAI Rights"). VAI DEATH BENEFIT The VAI provides a death benefit that varies each day. It is determined by dividing the VAI cash value at the end of the Valuation Period in which the insured dies, after deduction of the Separate Account charge and the cost of insurance charge (on a pro rata basis), by the net single premium amount for that day. THE SEPARATE ACCOUNT AND THE METROPOLITAN SERIES FUND Separate Account UL is a separate investment account of Metropolitan Life. Currently only the MetLife Stock Index investment division is available under the VAI; however, Metropolitan Life, in its 5 sole discretion, may make other investment divisions available in the future. The assets of this investment division are invested in the corresponding portfolio of the Metropolitan Series Fund, Inc. (See "Separate Account and Metropolitan Series Fund," and the prospectus for the Fund, which is attached at the end of this Prospectus.) SEPARATE ACCOUNT CHARGE This charge is deducted monthly from the VAI cash value. The charge compensates Metropolitan Life for the administrative services provided, and the mortality and expense risks assumed, by Metropolitan Life in connection with the VAI. This charge is equal to an effective annual rate of .75%, if the face amount of the base policy then in effect is less than $250,000, or .50%, if the face amount of the base policy then in effect is $250,000 or more, of the value at the end of the prior Policy month of the net assets in the Separate Account which are attributable to the VAI. (See "Separate Account Charge.") COST OF INSURANCE CHARGE This is a monthly charge deducted from the VAI cash value which compensates Metropolitan Life for the cost of insurance coverage provided under the VAI. The charge will vary based on several factors including age, sex (except in Montana), rating class and base policy face amount then in effect. (See "Cost of Insurance Charge.") WITHDRAWALS AND TRANSFERS At any time, the Owner may request in writing a partial or full withdrawal of the VAI cash value without charge. The Owner may also request in writing a partial or full transfer of the VAI cash value to be used as a payment of any base policy premium, loan interest or charge due under the Policy. LOANS An Owner may obtain a loan from Metropolitan Life whenever the Policy has a loan value. The VAI cash value is available as security for a loan and will be used to the extent amounts from certain other components of the Policy are not sufficient to provide security for the entire loan amount. (See "Loan Privileges.") If there is an existing loan, the Owner may increase it to not more than the full loan value. The loan value equals the Policy cash value less the anticipated loan interest for the remainder of that base policy year. Any loan amount withdrawn from the VAI is transferred to a fixed additional insurance dividend option as security for the loan, where it will be eligible for dividends. The loan interest accrues daily at a rate set from time to time which will never be more than the maximum allowed by law and will not change more often than once a year. Loans and accrued interest may be repaid in whole or in part (but not less than $50) at any time. FUND INVESTMENT MANAGEMENT FEES AND DIRECT EXPENSES Metropolitan Life receives a fee from the Fund for providing investment management services to the MetLife Stock Index Portfolio. The following chart shows the fee and other Fund expenses for the Portfolio. METROPOLITAN SERIES FUND ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
MANAGEMENT OTHER FEES EXPENSES TOTAL ---------- -------- ----- MetLife Stock Index Portfolio....................... .25% .08% .33%
For a full description of the Fund, see the prospectus for the Fund, which is attached at the end of this Prospectus, and the Fund's Statement of Additional Information referred to therein. TAX TREATMENT OF CASH VALUE Under current law the VAI cash value is not subject to income tax until it is withdrawn from the Policy. Moreover, under current law, except for transfers to the DWI, transfers from the VAI will not be 6 considered withdrawals from the Policy for tax purposes. In general, an Owner will be taxed on the amount of cash value withdrawn from the Policy (including transfers to the DWI) that is in excess of the remaining investment in the Policy (i.e., premiums paid less prior nontaxable withdrawals). This excess is treated as ordinary income. Withdrawals and loans from contracts referred to as modified endowment contracts are taxed on an income first basis to the extent of gain in the contract. A 10% additional tax also applies in certain circumstances. If the VAI is added to a base policy that is part of a collateral assignment equity split-dollar arrangement with an employer, any increase in cash value may be taxable annually. An individual should consult with and rely on the advice of a tax advisor with respect to any type of split- dollar arrangement involving a Policy. (See "Federal Tax Matters.") TAX TREATMENT OF THE DEATH BENEFIT The beneficiary generally will not be subject to income tax on the death benefit proceeds of the Policy. The death benefit under the Policy may be subject to Federal estate tax. (See "Federal Tax Matters.") COMMUNICATIONS Communications should be sent to the Designated Office for the VAI. Metropolitan Life may establish different Designated Offices for various VAI transactions. The Owner should use the forms that Metropolitan Life has prepared for these purposes. The forms may be obtained from an account representative or the Designated Office. A payment or other communication is considered received on the date that it is actually received in the Designated Office (the "Date of Receipt") with two exceptions: 1) if received on a day that is not a Valuation Date or 2) if received by other than U.S. mail after the close of regular trading on the New York Stock Exchange. The Date of Receipt will then be the next Valuation Date. Absent extraordinary circumstances, regular trading on the Exchange ends at 4:00 p.m., New York City time. 7 ............................................................... SEPARATE ACCOUNT AND METROPOLITAN SERIES FUND ............................................................................... THE SEPARATE ACCOUNT The Separate Account, which is a separate investment account of Metropolitan Life, was established by Metropolitan Life pursuant to the New York Insurance Law on December 13, 1988. The Separate Account also receives premium payments in connection with other flexible premium variable life insurance products is- sued by Metropolitan Life. The assets allocated to the Separate Account are the property of Metropolitan Life. Metropolitan Life may accumulate in the Separate Account charges, mortality gains and other amounts in excess of Met- ropolitan Life's liabilities and reserves with respect to the Separate Ac- count, as well as investment gains on such accumulations. The Separate Account meets the definition of "separate account" under the federal securities laws. All income, gains and losses, whether or not real- ized, from assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to other income, gains or losses of Metropolitan Life. Each VAI provides that such portion of the assets in the Separate Account as equals the liabilities (and reserves) of Metropolitan Life with respect to the Separate Account shall not be chargeable with liabilities arising out of any other business of Metropolitan Life. Metropolitan Life may from time to time transfer to its General Account any assets in the Separate Account in excess of such reserves and liabilities. The liabilities are Metro- politan Life's total commitments under the flexible premium variable life products for which the Separate Account receives premium payments; the re- serves are the assets allocated to pay these commitments. Although the Separate Account is an integral part of Metropolitan Life, the Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 ("1940 Act"). Registration does not involve supervision of management or investment prac- tices or policies of the Separate Account or of Metropolitan Life by the Com- mission. Currently, only the MetLife Stock Index investment division is available un- der the VAI in the Separate Account. The assets in this investment division are invested in a separate class (or series) of stock issued by the Fund. This class of stock represents a separate portfolio within the Fund. New investment divisions may be added as new portfolios are added to the Fund or made avail- able to Owners. MetLife may also, in its sole discretion make additional ex- isting investment divisions available under the VAI. In addition, investment divisions may be eliminated from the Separate Account. METROPOLITAN SERIES FUND The Fund is a "series" type of mutual fund which is registered with the Se- curities and Exchange Commission as a diversified open-end management invest- ment company under the 1940 Act. The Fund has served as the investment medium for the Separate Account since the Separate Account commenced operations. MetLife Stock Index Portfolio. The investment objective of this portfolio is to equal the performance of the Standard & Poor's 500 Composite Stock Price Index (adjusted to assume reinvestment of dividends) by investing in the com- mon stock of companies which are included in the index. Metropolitan Life acts as the investment manager for the MetLife Stock Index Portfolio. Metropolitan Life purchases and redeems Fund shares for the Separate Account at their net asset value without the imposition of any sales or redemption charges. With respect to the VAI, such shares represent an interest in the portfolio of the Fund which corresponds to the MetLife Stock Index investment division. Any dividend or capital gain distributions received from the Fund are likewise reinvested in Fund shares at net asset value as of the dates paid. The distributions have the effect of reducing the value of each share of the Fund and increasing the number of Fund shares outstanding. However, the total cash value in the Separate Account does not change as a result of such distributions. On each Valuation Date, shares of the portfolio are purchased or redeemed by Metropolitan Life for the Separate Account, based on, among other things, the amounts of payments allocated to the VAI, dividends and distributions rein- vested, and benefit payments to be effected pursuant to the terms of the VAI as of that date. Such purchases and redemptions for the Separate Account are effected at the net asset value per share for the portfolio determined as of the close of regular trading on the New York Stock Exchange on that same Valu- ation Date. A full description of the Fund, its investment policies and restrictions, its charges and other aspects of its operation is contained in the prospectus for the Fund, which is attached at the end of this Prospectus, and in the Statement of Additional Information referred to therein. See "The Fund and its Purpose," in the prospectus for the Fund for a discussion of the different separate accounts of Metropolitan Life and its affiliates that invest in the Fund and the risks related thereto. 8 ............................................................... VAI BENEFITS ................................................................................ VAI DEATH BENEFIT As long as the VAI remains in force (see "Termination and Reinstatement--Ter- mination"), Metropolitan Life will, upon due proof of the insured's death, pay the VAI death benefit as of the date of death to the named beneficiary. The proceeds may be received by the beneficiary in a single sum or under one or more of the optional income plans set forth in the base policy. The death benefit for the VAI is computed by dividing the VAI cash value at the end of the Valuation Period on which the insured dies, after deduction of the Separate Account charge and the cost of insurance charge (on a pro rata ba- sis), by the net single premium for that day. The result is multiplied by $1,000 to determine the amount of the death benefit. Conditional Guaranteed Minimum VAI Death Benefit. Metropolitan Life will provide a conditional guaranteed minimum VAI death benefit that will be in effect during any "7-pay test" period required under the tax law (see "Taxation of the Policy"). During any "7-pay test" period, the conditional guaranteed minimum VAI death benefit will equal the VAI death benefit at the beginning of any such "7-pay test" period, reduced for any loans, withdrawals or cash value transfers that are taken from the VAI since the beginning of the "7-pay test" period. The conditional guaranteed minimum VAI death benefit will end if the dividend option for the next dividend payment date is changed from VAI to any other dividend option or any loan, withdrawal or cash value transfer causes the Policy to become a modified endowment contract. Minimum Death Benefit. In no event will the death benefit under the Policy (excluding DWI) be lower than the minimum amount required to maintain the Pol- icy (excluding DWI) as life insurance under federal income tax law and applica- ble Internal Revenue Service rules. VAI CASH VALUE The total VAI cash value at any time is allocated to the MetLife Stock Index investment division of the Separate Account. The VAI cash value may increase or decrease on each Valuation Date depending on the investment return of that in- vestment division (see "Net Investment Return"). There is no guaranteed minimum cash value in the Separate Account. Calculation of VAI Cash Value. On the Investment Start Date, the VAI cash value will equal the payment allocated to the VAI (see "Payments"). Thereafter, on each Valuation Date, the VAI cash value will equal: (1)The VAI cash value as of the last Valuation Date; plus (2)Any payments; minus (3)Any partial cash withdrawal or transfer from the VAI; minus (4)Any Separate Account charge; minus (5)Any Cost of Insurance charge; plus or minus (6)The net investment return (discussed below) on the net amount of VAI cash value in the MetLife Stock Index investment division. Net Investment Return. The MetLife Stock Index investment division net in- vestment return is determined as of the close of the New York Stock Exchange on each Valuation Date. All transactions and calculations with respect to the VAI as of any Valuation Date are determined as of such time. The MetLife Stock Index division is credited with a rate of net investment return equal to its gross rate of investment return during the Valuation Period less an adjustment for the Separate Account charges (see "Separate Account Charges"). The investment division's gross rate of investment return is equal to the rate of increase or decrease in the net asset value per share of the un- derlying Fund portfolio over the Valuation Period, adjusted upward to take ap- propriate account of any dividends paid by the portfolio during the period. Depending primarily on the investment experience of the underlying Fund port- folio, the MetLife Stock Index investment division's net investment return may be either positive or negative during a Valuation Period. From time to time the Separate Account may advertise its performance ranking and rating information among similar investments as compiled by Lipper Analyti- cal Services Inc., Morningstar, Inc. and other independent organizations. From time to time the Separate Account may compare the performance of its in- vestment division with the performance of common stocks, long-term government bonds, long-term corporate bonds, intermediate-term government bonds, Treasury Bills, certificates of deposit and savings accounts. The Separate Account may use the Consumer Price Index in its advertisements as a measure of inflation for comparison purposes. OPTIONAL INCOME PLANS During the insured's lifetime, the Owner may arrange for the VAI cash value to be paid in a single sum to an account that earns interest or under one or more of the optional income plans which are available under the Policy. The election of one of these options causes the VAI to terminate. For more specif- ics regarding optional income plans, see the Appendix to this Prospectus. 9 ............................................................... When the death benefits due under a Policy are payable in a single sum, the beneficiary also may, within one year of the insured's death, select one or more of these optional income plans, if no payments have yet been made to such beneficiary. If the insurance proceeds become payable under an optional income plan and the beneficiary has the right to withdraw the entire amount, the ben- eficiary may name and change contingent beneficiaries. ISSUANCE OF A VAI ............................................................................... Individuals wishing to purchase the VAI must complete an application which will be sent to the Designated Office. The VAI is available as a rider to base policies meeting the minimum face amount and eligibility requirements estab- lished by Metropolitan Life. In determining eligibility requirements, Metro- politan Life will not discriminate unreasonably or unfairly against base pol- icy owners. The application may be completed either at the same time as the application for the base policy or after the base policy has been issued. No evidence of insurability, other than that required in connection with issuance of the base policy, will be required unless the owner desires to make a VAI payment that is derived from another dividend option that does not itself have a death benefit. Acceptance is subject to Metropolitan Life's underwriting rules, and Metropolitan Life reserves the right to reject an application for any reason permitted by law. The VAI cannot be applied for while any term in- surance is in effect under the FLAIR. Once the FLAIR becomes fully funded, or if the term insurance provided by FLAIR is discontinued, the individual may apply for the VAI. Once the application has been accepted by Metropolitan Life, the VAI will come into existence on the Investment Start Date, which cannot currently be earlier than the end of the second year that the base pol- icy has been in effect. PAYMENTS ............................................................................... VAI payments are derived from dividends declared on the Policy, as well as transfers of cash value from other dividend options. Dividends are currently declared annually by Metropolitan Life's Board of Directors and are based upon the face amounts, death benefits and dividend class of the Policy and other factors relating to Metropolitan Life's earnings. THESE DIVIDENDS CANNOT BE GUARANTEED AND ARE SUBJECT TO CHANGE. PAYMENTS TO THE VAI WILL NOT GUARANTEE THAT THERE WILL BE ANY VAI DEATH BENEFIT. The death benefit depends upon the VAI cash value. The Owner may direct that dividends from the Policy be used as payments for the VAI. Such direction must be made in writing at least sixty days prior to the dividend payment date. Only one election may be made for any dividend pay- ment date and will apply to all dividends payable under the Policy. Metropolitan Life will allocate the initial payment to the investment divi- sion on the Investment Start Date. All payments derived from dividends after the initial payment are credited to the investment division as of the Valua- tion Date next following the dividend payment date. Payments derived from the cash value transfers from other dividend options can be used at any time as payments for the VAI and will be credited as of the close of the Valuation Pe- riod on the Date of Receipt of the transfer request. There may be cases where the total of all premiums paid could cause the Pol- icy (other than the DWI) to be classified as a modified endowment contract (see "Federal Tax Matters"). The annual statement (see "Reports") sent to each Owner will include information regarding the modified endowment contract sta- tus of a Policy. In cases where a Policy is not an irrevocable modified endow- ment contract, the annual statement will indicate what action the Owner can take to reverse the modified endowment contract status of the Policy. VAI TERMINATION AND REINSTATEMENT ............................................................................... Termination. The VAI will terminate if the base policy terminates. The base policy generally will terminate if no base policy premium payment is made within the 31 day grace period after its due date; or if any loan plus inter- est due on the loan is greater than the available cash value in the Policy for more than 31 days after Metropolitan Life mails notice to the Owner. If the insured dies during the grace period, the insurance proceeds will still be payable, but any due and unpaid base policy premiums and any loan and loan in- terest will be deducted from the proceeds. At the end of the grace period, any due and unpaid base policy premiums may be paid with an automatic loan if: 1. the Owner has requested this feature either in the application for the base policy or by written request while no premium is due and unpaid; and 2. the available cash value in the Policy is sufficient to pay the due and unpaid base policy premium. If the automatic loan feature has not been requested, or if it was requested but there is not sufficient cash value to pay any due and unpaid premiums, the base policy will terminate. Insurance coverage may con- tinue after termination of the base policy depending on how long the base pol- icy was in effect before it terminated, the amount of available cash value at the time of its termination and the option upon termination elected by the Owner as included in the base policy. The VAI will also terminate if the face amount of the base policy is reduced to an 10 ............................................................... amount less than the minimum face amount requirement for VAI eligibility then in effect. Any VAI cash value as of the end of the Valuation Period in which the VAI terminates will be paid out to the Owner, if requested, or applied to any continued coverage, as the case may be. Reinstatement. The VAI will be reinstated when the base policy is reinstated. The reinstated VAI will have no cash value until a VAI payment is made. A ter- minated base policy may be reinstated any time within 3 years (5 years in Mis- souri and North Carolina) of the due date of the first unpaid base policy pre- mium by submitting the following items to Metropolitan Life: (1) evidence of insurability satisfactory to Metropolitan Life; (2) all overdue base policy premiums to the date of reinstatement with compound interest at the rate of 6% a year; and (3) payment of any loan (plus interest) in effect on the due date of the first unpaid base policy premium plus any loan taken after that. Com- pound interest to the date of reinstatement will be charged on any unpaid loan at the applicable Policy loan interest rate, as would have been charged if all due premiums had been paid. The date of Policy reinstatement will be the date of approval of the rein- statement. The terms of the original Policy, including the VAI net single pre- mium and maximum percentages for insurance coverage provided therein, will ap- ply to the reinstated Policy. CHARGES ................................................................................ The Separate Account charge and cost of insurance charge discussed below are deducted as of each monthly anniversary of the date on which Metropolitan Life approved the VAI coverage. SEPARATE ACCOUNT CHARGE A monthly charge is made against the VAI cash value to compensate Metropoli- tan Life for administrative services provided and mortality and expense risks assumed by Metropolitan Life. This charge is equal to an effective annual rate of .75%, if the base policy face amount then in effect is less than $250,000 or .50%, if the base policy face amount then in effect is $250,000 or more, of the value at the end of the prior Policy month of the net assets in the Separate Account which are attributable to the VAI. Administrative services rendered with respect to the VAI include the cost of processing applications, establish- ing and maintaining VAI records, and communicating with Owners. The mortality risk assumed is that insureds may live for a shorter period of time than esti- mated and, thus, a greater amount of death benefit than expected will be pay- able. The expense risk assumed is that expenses incurred in issuing and admin- istering the VAI will be greater than estimated. Metropolitan Life will realize a gain if the Separate Account charge proves ultimately to be more than sufficient to cover its actual costs. If the charge is not sufficient, the loss will fall on Metropolitan Life. If its estimates of future mortality and expense experience are accurate, Metropolitan Life antici- pates that it will realize a profit from the Separate Account charge; however if such estimates are inaccurate, Metropolitan Life could incur a loss. CHARGE FOR INCOME TAXES Currently, no charge is made against the Separate Account for income taxes. However, Metropolitan Life may decide to make such a charge in the future (see "Federal Tax Matters--Taxation of Metropolitan Life"). COST OF INSURANCE CHARGE A monthly charge is made to compensate Metropolitan Life for the insurance coverage provided under the VAI. Because the cost of insurance depends upon a number of variables, it can vary from month to month. Metropolitan Life will determine the monthly cost of insurance charge by multiplying the applicable cost of insurance percent by the cash value at the end of the prior Policy month. Thus, the insurance amount may be affected by changes in the cash value. Cost of Insurance Percent. The current cost of insurance percentages are based on the sex (except in Montana or if the Policy is issued in connection with certain types of employee benefit plans), attained age, base policy face amount then in effect, rate class and smoking status of the insured. The actual monthly cost of insurance percentages will be based on Metropolitan Life's ex- pectations as to future experience. They will not, however, be greater than the guaranteed cost of insurance percentages set forth in the VAI. These guaranteed percentages are based on certain of the 1980 Commissioners Standard Ordinary Mortality Tables and the insured's sex (except in Montana or if the Policy is issued in connection with certain types of employee benefit plans), rate class and age. The Tables used for this purpose set forth different mortality esti- mates for males and females. Any change in the cost of insurance percentages will apply to all persons of the same insuring age, sex (where applicable), and rate class whose VAI have been in force for the same length of time. Metropoli- tan Life reviews its cost of insurance percentages periodically and may adjust them from time to time. Rate Class. The rate class of an insured affects the charge for insurance coverage. Metropolitan Life currently places insureds into a standard rate class or rate classes involving a higher or lower mortality risk. For attained ages 18 and over, each such rate class is further 11 ............................................................... divided into a smoker division and a nonsmoker division. Under an otherwise identical VAI, insureds in the standard rate class will have a lower current charge for insurance coverage than those in the rate class with a higher mor- tality risk, and a higher current charge for insurance coverage than those in the rate class with a lower mortality risk. Also, those insureds in the nonsmoker division of a rate class will have lower current charge for insur- ance coverage than those in the smoker division of the same rate class. GUARANTEE OF CERTAIN CHARGES Metropolitan Life guarantees, and may not increase, the Separate Account charge and the maximum cost of insurance percentages set forth in the VAI. OTHER CHARGES Fund Investment Management Fee. Shares of the Fund are purchased for the Separate Account at their net asset value. The net asset value of Fund shares is determined after deduction of the fee for investment management services and the deduction of direct expenses from the assets of the Fund as more fully described under "Fund Investment Management Fees and Direct Expenses" and in the attached prospectus for the Fund. NET SINGLE PREMIUM ............................................................................... The net single premium is not a charge or expense that is deducted from the cash value of a VAI. Nevertheless, the lower the net single premium, the higher the death benefit for a VAI with a given amount of cash value, and vice versa. The net single premium varies from day to day and is based on the 1980 Commissioners Standard Ordinary Mortality Tables and the insured's sex (except in Montana or if the Policy is issued in connection with certain types of em- ployee benefit plans) and age. This means that for a given cash value an older insured would have a lower death benefit. The net single premiums set forth in the VAI for each base policy anniversary are guaranteed and will not change. ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, AND ACCUMULATED PREMIUMS ............................................................................... The tables in this section illustrate the way in which a VAI death benefit and VAI cash value could vary over an extended period of time assuming hypo- thetical gross investment rates of return for the Fund (i.e., investment in- come and capital gains and losses, realized or unrealized) equivalent to con- stant gross (after tax) annual rates of 0%, 6% and 12%. The tables are based on the payment of annual VAI payments equal to the annual base policy divi- dends for a male aged 40 with a base policy face amount of $100,000 under Met- ropolitan Life's 1998 dividend scale. Each illustration assumes that the in- sured is in Metropolitan Life's standard nonsmoker underwriting rate classifi- cation. Illustrations for an insured in Metropolitan Life's standard smoker underwriting rate classification would show, for the same age and payments, lower cash values and, therefore, lower death benefits. The death benefits and cash values would be different from those shown if the actual gross investment rates of return averaged 0%, 6% or 12% over a pe- riod of years, but fluctuated above or below such averages for individual VAI years. The amounts shown for the VAI death benefits and VAI cash values take into account a daily charge to the Fund for investment management services equiva- lent to an annual rate of .25% of the average daily value of the aggregate net assets of the MetLife Stock Index Portfolio and .08% for other direct expenses for the Portfolio. The guaranteed charge illustration assumes that the maximum monthly charges for insurance coverage are deducted. The current charge illus- tration assumes that the monthly charge for insurance coverage is deducted at the currently applicable rates. These illustrations do not take into account the benefits provided under any other components of the Policy other than the VAI. Taking account of the Separate Account charge, investment management serv- ices and other Fund expenses, the gross annual investment rates of return of 0%, 6% and 12% correspond to actual (or net) annual rates of: -1.08%, 4.92% and 10.92%, respectively. The hypothetical returns shown in the tables do not reflect any charges for income taxes against the Separate Account since no such charges are currently made. However, if in the future such charges are made, in order to produce the death benefits and cash values illustrated, the gross annual investment rate of return would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. (See "Federal Tax Matters--Taxation of Metropolitan Life.") The second column of the tables shows the amount which would accumulate if an amount equal to the assumed annual payments were invested to earn interest, after taxes, at 5% compounded annually. Upon request, Metropolitan Life will furnish an illustration reflecting the proposed insured's attained age, sex, and requested frequency of payments. 12 VAI(1) MALE ISSUE AGE 40 STANDARD NONSMOKER UNDERWRITING RISK GUARANTEED CHARGES
TOTAL VAI CASH VALUE(2) TOTAL VAI DEATH BENEFIT(2) PAYMENTS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT END OF AT 5% RATES OF RETURN OF RATES OF RETURN OF BASE POLICY ANNUAL INTEREST -------------------------- ----------------------------- YEAR PAYMENTS PER YEAR 0% 6% 12% 0% 6% 12% ----------- -------- ----------- ------- ------- -------- -------- -------- --------- 1...................... 0 0 0 0 0 0 0 0 2...................... 0 0 0 0 0 0 0 0 3...................... 5 5 4 5 5 14 15 16 4...................... 6 12 10 11 12 31 33 36 5...................... 91 108 99 106 113 282 302 322 6...................... 187 310 281 305 330 772 838 908 7...................... 285 624 555 613 676 1,479 1,635 1,802 8...................... 381 1,056 917 1,033 1,161 2,373 2,673 3,003 9...................... 478 1,610 1,367 1,570 1,800 3,432 3,942 4,518 10...................... 519 2,236 1,848 2,170 2,546 4,503 5,288 6,203 11...................... 559 2,935 2,357 2,834 3,407 5,577 6,706 8,062 12...................... 601 3,712 2,896 3,566 4,398 6,657 8,196 10,107 13...................... 640 4,570 3,461 4,365 5,525 7,730 9,748 12,339 14...................... 679 5,511 4,050 5,231 6,800 8,793 11,358 14,766 15...................... 719 6,542 4,663 6,169 8,239 9,847 13,028 17,401 16...................... 758 7,665 5,298 7,178 9,854 10,887 14,751 20,250 17...................... 796 8,884 5,953 8,260 11,659 11,910 16,525 23,326 18...................... 875 10,247 6,668 9,459 13,717 12,992 18,430 26,726 19...................... 953 11,760 7,440 10,777 16,047 14,123 20,458 30,464 20...................... 1,038 13,438 8,271 12,222 18,681 15,305 22,615 34,565 25...................... 1,519 24,751 13,384 21,618 37,513 21,946 35,447 61,512 30...................... 1,986 42,014 19,899 34,942 69,068 29,317 51,480 101,756 35...................... 2,478 66,733 27,341 52,268 118,777 36,740 70,235 159,606
- ------- (1) Assumes annual payments of the base policy dividend (under the 1998 dividend scale) paid in full at the dividend declaration dates. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no loan or partial withdrawal has been made and that the base policy continues in force. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN OR DIVIDEND PAYMENT RATES. ACTUAL RATES MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE AMOUNT AND TIMING OF PAYMENTS MADE BY AN OWNER AND THE LEVEL OF DIVIDENDS DECLARED BY METROPOLITAN LIFE ON THE BASE POLICY. THE DEATH BENEFIT AND CASH VALUE FOR VAI WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL YEARS. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 13 VAI(1) MALE ISSUE AGE 40 STANDARD NONSMOKER UNDERWRITING RISK CURRENT CHARGES
TOTAL VAI DEATH TOTAL VAI CASH VALUE(2) BENEFIT(2) PAYMENTS ASSUMING HYPOTHETICAL ASSUMING HYPOTHETICAL ACCUMULATED GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT AT 5% RATES OF RETURN OF RATES OF RETURN OF ANNUAL INTEREST ------------------------ ------------------------ END OF BASE POLICY YEAR PAYMENTS PER YEAR 0% 6% 12% 0% 6% 12% ----------------------- -------- ----------- ------- ------- -------- ------- ------- -------- 1...................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 2...................... 0 0 0 0 0 0 0 0 3...................... 5 5 4 5 5 14 15 16 4...................... 6 12 10 11 12 31 33 36 5...................... 91 108 100 107 114 284 303 324 6...................... 187 310 283 307 333 779 846 916 7...................... 285 624 561 620 683 1,495 1,653 1,822 8...................... 381 1,056 929 1,047 1,177 2,404 2,709 3,044 9...................... 478 1,610 1,388 1,595 1,829 3,485 4,005 4,592 10...................... 519 2,236 1,881 2,211 2,596 4,584 5,388 6,325 11...................... 559 2,935 2,406 2,896 3,486 5,694 6,853 8,248 12...................... 601 3,712 2,965 3,656 4,515 6,815 8,402 10,376 13...................... 640 4,570 3,553 4,489 5,693 7,936 10,026 12,715 14...................... 679 5,511 4,170 5,399 7,035 9,054 11,723 15,275 15...................... 719 6,542 4,816 6,389 8,558 10,170 13,494 18,074 16...................... 758 7,665 5,488 7,462 10,279 11,278 15,334 21,123 17...................... 796 8,884 6,186 8,618 12,215 12,375 17,242 24,438 18...................... 875 10,247 6,947 9,904 14,433 13,536 19,297 28,121 19...................... 953 11,760 7,772 11,324 16,960 14,754 21,498 32,197 20...................... 1,038 13,438 8,664 12,891 19,835 16,032 23,852 36,700 25...................... 1,519 24,751 14,217 23,256 40,874 23,311 38,133 67,023 30...................... 1,986 42,014 21,434 38,404 77,510 31,579 56,579 114,194 35...................... 2,478 66,733 29,908 58,873 137,984 40,189 79,110 185,415
- ------- (1) Assumes annual payments of the base policy divided (under the 1998 dividend scale) paid in full at the dividend declaration dates. The values would vary from those shown if the amount or frequency of payments varies. (2) Assumes no policy loan or partial withdrawal has been made and that the base policy continues in force. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN OR DIVIDEND PAYMENT RATES. ACTUAL RATES MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS, INCLUDING THE AMOUNT AND TIMING OF PAYMENTS MADE BY AN OWNER AND THE LEVEL OF DIVIDENDS DECLARED BY METROPOLITAN LIFE ON THE BASE POLICY. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL YEARS. NO REPRESENTATIONS CAN BE MADE BY METROPOLITAN LIFE OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 14 ............................................................... VAI RIGHTS ................................................................................ LOAN PRIVILEGES An Owner may obtain a loan from Metropolitan Life whenever the Policy has a loan value. If there is an existing loan, the Owner may increase it. The loan value equals the Policy cash value less the anticipated loan interest for the remainder of that base policy year. If an Owner would like to take a loan, then security shall be taken first from any available cash value in the components of the Policy except the VAI and then from any available cash value in the VAI. For situations where a loan may be treated as a taxable distribution, see "Federal Tax Matters." Interest. The interest charged on a loan accrues daily. The interest rate will never be more than the maximum allowed by law and will not change more than once a year, on the anniversary of the date of the base policy. Interest payments are due at the end of each base policy year. Metropolitan Life will test the Policy prior to the date interest payments are due. If some or all of the VAI cash value would be required as security for any unpaid accrued inter- est, then Metropolitan Life will transfer such VAI cash value to a fixed bene- fit additional insurance dividend option as of the date the test is performed. If the interest is paid by the Owner, then the Owner may transfer back to the VAI any fixed benefit additional insurance cash value not needed as security for the loan on the Valuation Date next following the Date of Receipt of the interest payment. If the interest is unpaid within 31 days after it is due, it will be treated as a new loan subject to the interest rates applicable at that time. The rate of interest for a base policy year may not be more than the higher of: (a) the published monthly average for the calendar month ending two months before the start of the base policy year; or (b) the rate used to com- pute the guaranteed cash value of the base policy and its riders for the base policy year plus 1%. The published monthly average means (a) Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Invest- ors Service, Inc. or any successor to that service; or (b) If that average is no longer published, a substantially similar average, established by regulation issued by the insurance supervisory official of the state in which the base policy is delivered. If the maximum limit for a base policy year is at least 1/2% higher than the rate set for the prior base policy year, the actual rate will be increased to no more than that limit. If the maximum limit for a base policy year is at least 1/2% lower than the rate set for the prior base policy year the rate will be reduced to at least that limit. Metropolitan Life will inform the Owner of the initial rate applicable to a loan and mail advance no- tice if there is to be an increase in the rate applicable to an existing loan. Generally, pursuant to legislation enacted in 1997, no tax deduction is al- lowed for interest on loans on life insurance policies, subject to certain ex- ceptions for key person insurance covering a limited number of individuals. The 1997 legislation also generally disallows in part an interest deduction to businesses which own cash value life insurance issued after June 8, 1997 for debt unrelated to the contract, subject to certain exceptions for contracts covering employees and certain other individuals. Counsel and other competent advisors should be consulted regarding the impact of these rules on the deduct- ibility of interest for income tax purposes. (See "Federal Tax Matters.") Effect of a Loan. As of the Date of Receipt of the loan request that affects the VAI, the loan amount is withdrawn from the VAI and transferred to a fixed additional insurance dividend option as security for the loan, reducing the VAI cash value and therefore the VAI death benefit. In the fixed benefit additional insurance dividend option, the amount will be credited with any applicable de- clared dividends but not with any other interest or investment return. THE CASH VALUE UNDER THE FIXED ADDITIONAL INSURANCE DIVIDEND OPTION WILL NOT PARTICIPATE IN ANY INVESTMENT EXPERIENCE APPLICABLE TO THE SEPARATE ACCOUNT. Indebtedness. Indebtedness equals the outstanding loan plus accrued interest thereon. If any loan plus interest due on the loan is greater than the avail- able cash value in the Policy, Metropolitan Life will notify the Owner and any assignee of record. If a sufficient payment is not made to Metropolitan Life within 31 days after Metropolitan Life mails notice, the Policy, including the VAI, will terminate without value. The Owner could be subject to tax at the time of such termination even though no cash value will be distributed at such time. The Policy may, however, later be reinstated, subject to certain condi- tions (see "Termination and Restatement"). Repayment of Indebtedness. Loans and accrued interest thereon may be repaid in whole or in part (but not less than $50) at any time. As of the Date of Re- ceipt of the repayment, the amount in the fixed benefit additional insurance rider securing such loan amount for which the repayment was received shall be available to be transferred to the VAI. Thereafter, the Owner may transfer such available amounts to the VAI at any time. WITHDRAWAL AND TRANSFER PRIVILEGES Subject to the limitations set forth below, at any time before the death of the insured, the Owner may make a partial or total withdrawal of or transfer the VAI cash value by sending a written request to the Designated Office. With- drawals and transfers are generally effected at the value computed at the close of the Date of Receipt of the request. 15 ............................................................... Metropolitan Life may require that these requests be made on forms provided for these purposes. The maximum amount available for withdrawal or transfer is the VAI cash value on the Date of Receipt of the request. No charge will be imposed on withdrawals or transfers. If an Owner would like to take a partial withdrawal and does not indicate in writing from where such withdrawal should be made, or if it is not possible to follow the Owner's instructions then it will be taken first from any currently declared dividend that has not been paid or applied to a dividend option, then from available cash value in any dividends with interest dividend option, then from any available cash value in any fixed benefit additional insurance dividend option, then from any avail- able VAI cash value, then from any available cash value in any fixed benefit paid-up additions rider, then from any cash value in FLAIR, and finally from any cash value in any variable paid-up additions rider. For any tax consequences in connection with a withdrawal or transfer, see "Federal Tax Matters". A transfer to the DWI would be treated as a distribu- tion to the Owner and could be taxable. In the event that an Owner elects to make a transfer of VAI cash value to a rider or dividend option that is permitted to receive payments, any dividend that might be payable on the rider or dividend option will be appropriately adjusted to reflect the timing of receipt of such transferred amount. Any par- tial withdrawal or transfer from the VAI will reduce the VAI death benefit be- cause the amount of cash value that is divided by the net single premium will be smaller than if no partial withdrawal had been made. Metropolitan Life reserves the right, if permitted by state law, to allow Owners to make transfer requests by telephone and to allow Owners to authorize their sales representatives to make requests on behalf of the Owners by tele- phone on a form Metropolitan Life will supply to Owners. If Metropolitan Life decides to permit either of these transfer procedures, and an Owner elects to participate in either of these transfer procedures, the following will apply: the Owner will authorize Metropolitan Life to act upon the telephone instruc- tions of any person purporting to be the Owner (or, if applicable, the Owner's sales representative), assuming Metropolitan Life's procedures have been fol- lowed, to make transfers from the VAI. Metropolitan Life will institute rea- sonable procedures to confirm that any instructions communicated by telephone are genuine. All telephone calls will be recorded, and the Owner (or, if ap- plicable, the Owner's sales representative) will be asked to produce the Own- er's personalized data prior to Metropolitan Life initiating any transfer re- quests by telephone. Additionally, as with other transactions, the Owner will receive a written confirmation of any such transfer. Neither Metropolitan Life nor the Separate Account will be liable for any loss, expense or cost arising out of any requests that Metropolitan Life or the Separate Account reasonably believe to be genuine. In the event that these transfer procedures are insti- tuted and in the further event that the Owner who has elected to use such pro- cedures encounters difficulty with them, such Owner should make the request to the Designated Office. SURRENDERS The Owner may surrender the VAI for its cash value. Surrenders are generally effected at the value computed at the close of the Date of Receipt of the re- quest. In addition, a request for surrender of the base policy will also be deemed a request for surrender of the VAI. An Owner may elect to have the pro- ceeds applied, without charge, as a transfer to any rider or dividend option that is permitted to receive premiums at that time. In this event, any divi- dend that might be payable on amounts in such rider or dividend option will be appropriately adjusted to reflect the timing of receipt of such transferred amount and Metropolitan Life's expenses associated with such transfer. AUTOMATIC TRANSFERS OF VAI CASH VALUE An Owner may elect in writing that VAI cash value be used to make base pol- icy premium payments on their due dates if the Owner does not otherwise pro- vide for the making of such premium payment. Metropolitan Life may make other arrangements for automatic transfers of the VAI cash value available in the future which an Owner will be able to request in writing. All automatic transfer arrangements will continue in effect as long as there is sufficient VAI cash value or until the Owner requests in writing that an arrangement be stopped. GENERAL ACCOUNT AND THE POLICY ............................................................................... Subject to certain limits and conditions, cash value in the fixed benefit portions of the Policy is guaranteed by the General Account of Metropolitan Life (the "Policy fixed benefits"). Because of exemptive and exclusionary pro- visions, interests in the General Account have not been registered under the Securities Act of 1933 and the General Account has not been registered as an investment company under the 1940 Act. Accordingly, neither the Policy fixed benefits nor the General Account nor any interests therein are generally sub- ject to the provisions of these Acts and Metropolitan Life has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this Pro- 16 ............................................................... spectus relating to the Policy fixed benefits nor the General Account. Disclo- sures regarding these may, however, be subject to certain generally applicable provisions of the Federal securities laws relating to the accuracy and com- pleteness of statements made in prospectuses. This Prospectus is generally intended to serve as a disclosure document only for the aspects of the VAI involving the Separate Account and contains only selected information regarding the Policy fixed benefits and the General Ac- count. For complete details regarding the Policy fixed benefits and the Gen- eral Account, see the base policy, fixed benefit riders and fixed benefit div- idend options themselves. GENERAL DESCRIPTION The General Account consists of all assets owned by Metropolitan Life other than those in the Separate Account and other legally-segregated separate ac- counts. Subject to applicable law, Metropolitan Life has sole discretion over the investment of the assets of the General Account. Unlike the assets of the Separate Account, the assets in the General Account, are chargeable with lia- bilities arising out of any other business of Metropolitan Life. Any amounts allocated to Policy fixed benefits (including cash value trans- fers from the VAI) do not entitle an Owner to share in the investment experi- ence of the General Account. Instead, these amounts are eligible for dividends or interest, as applicable. Metropolitan Life periodically reevaluates the amount of dividends it pays and no assurance can be given as to the amount of dividends that will be de- clared in the future. WITHDRAWALS, SURRENDERS, AND POLICY LOANS Metropolitan Life reserves the right to delay withdrawals, surrenders and the payment of the loan proceeds allocated to Policy fixed benefits for up to six months. Nevertheless, payments to pay premiums on another policy with Met- ropolitan Life will not be delayed. RIGHTS RESERVED BY METROPOLITAN LIFE ............................................................................... Metropolitan Life reserves the right to make certain changes if, in its judgment, they would best serve the interests of the Owners or would be appro- priate in carrying out the purposes of the VAI. Any changes will be made only to the extent and in the manner permitted by applicable laws. Also, when re- quired by law, Metropolitan Life will obtain Owner approval of the changes and approval from any appropriate regulatory authority. Examples of the changes Metropolitan Life may make include: . To operate the Separate Account in any form permitted under the 1940 Act or in any other form permitted by law. . To take any action necessary to comply with or obtain and continue any ex- emptions from the 1940 Act. . To transfer any assets in any investment division to another investment division, or to one or more separate accounts; or to add, combine or re- move investment divisions in the Separate Account. . To substitute, for the Fund shares held in any investment division, the shares of another portfolio of the Fund or the shares of another invest- ment company or any other investment permitted by law. . To change the way Metropolitan Life assesses charges, but without increas- ing the aggregate amount charged in connection with the VAI. . To make any other necessary technical changes in the VAI in order to con- form with any action the above provisions permit Metropolitan Life to take. If any of these changes result in a material change in the underlying in- vestments of the MetLife Stock Index investment division. Metropolitan Life will notify the Owner of such change. SALES AND ADMINISTRATION OF THE VAI ............................................................................... Metropolitan Life performs the sales and administrative services relating to the VAI. The offices of Metropolitan Life which may administer the VAI are lo- cated in: Aurora, Illinois; Johnstown, Pennsylvania; Pearl River, New York; Princeton, New Jersey; San Ramon, California; Tampa, Florida; Tulsa, Oklahoma; and Warwick, Rhode Island. Each Owner will be notified which office will be the Designated Office for servicing the VAI. Metropolitan Life may name dif- ferent Designated Offices for different transactions. Metropolitan Life acts as the principal underwriter (distributor) of the VAI as defined in the 1940 Act (see "Distribution of the VAI," below). In addition to selling insurance and annuities, Metropolitan Life also serves as invest- ment adviser to certain other advisory clients, and is also principal under- writer for Metropolitan Tower Separate Accounts One and Two of Metropolitan Tower Life Insurance Company, a wholly-owned subsidiary of Metropolitan Life, and Metropolitan Life Separate Ac- 17 ............................................................... count E of Metropolitan Life, each of which is registered as a unit investment trust under the 1940 Act. Finally, Metropolitan Life acts as principal under- writer for other forms of flexible premium variable life insurance, premiums for which are also allocated to the Separate Account. Bonding. The directors, officers and employees of Metropolitan Life are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. DISTRIBUTION OF THE VAI ............................................................................... The VAI will be sold as a dividend option to the base policy by individuals who are licensed life insurance sales representatives and registered repre- sentatives of Metropolitan Life, the principal underwriter of the VAI. Metro- politan Life is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. The VAI may in the future be sold through other registered broker-dealers, including MetLife Securities, Inc., a wholly owned broker-dealer subsidiary of Metropolitan Life. No commis- sions are payable for the sale of a VAI. However commissions are payable for sale of the base policy and certain riders. Certain computer systems Metropolitan Life uses to process the VAI transactions and valuations need to be adjusted to be able to continue to administer the VAI beginning January 1, 2000. As is the case with most system conversion projects, risks and uncertainties exist, due in part to reliance on third party vendors, and a project could be delayed. Metropolitan Life is, however, devoting substantial resources to make these systems modifications and expects that the necessary changes will be completed on time and in a way that will result in no disruption to the VAI servicing operations. FEDERAL TAX MATTERS ............................................................................... The following description is a brief summary of some of the tax rules, pri- marily related to federal income and estate taxes, which in the opinion of Metropolitan Life are currently in effect. TAXATION OF THE POLICY The Policy generally, receives the same federal income and estate tax treat- ment as fixed benefit life insurance. Therefore the VAI death benefit is gen- erally excludable from the gross income of the beneficiary under Section 101 of the Internal Revenue Code ("Code"), and the Owner is not deemed to be in constructive receipt of the cash values under the VAI prior to the time such amounts are distributed to the Owner or transferred to DWI. Under current law, a transfer of VAI cash value to riders or dividend options (excluding DWI) or to pay Policy premiums will not be considered a distribution to the Owner for federal income tax purposes. Under existing tax law, unless the Policy is a modified endowment contract as discussed below, an Owner generally will be taxed on cash value, including VAI cash value, distributed from the Policy or transferred to DWI. Under most circumstances, unless the distribution occurs during the first 15 base policy years, only the amount distributed that exceeds the Owner's remaining invest- ment in the Policy will be treated as ordinaryincome. Out-of-pocket premiums, including DWI amounts applied as premiums, increase the Owner's investment in the Policy. Non-taxable distributions, including any non-taxable transfers to DWI, reduce the Owner's investment in the Policy. Dividends used to pay Policy premiums will have no impact on the Owner's in- vestment in the Policy. During the first 15 base policy years, cash distribu- tions made as a result of a change that reduces death benefits (or other bene- fits) will be taxable to the Owner, under a complex formula, to the extent that cash value exceeds the Owner's remaining investment in the Policy. Not- withstanding the foregoing, if a Policy is part of a collateral assignment eq- uity split-dollar arrangement with an employer, any increase in cash value in- cluding increases in VAI cash value may be taxable annually. This type of ar- rangement involves premium advances by an employer which are secured through a collateral assignment of the Policy. A purchaser should consult with and rely on the advice of a qualified tax advisor with respect to any type of split- dollar arrangement involving the Policy. Any assignment or other transfer of rights under a Policy may have adverse tax consequences, causing the death benefit to become taxable to the beneficiary, or causing all or part of any value assigned to be taxed as a distribution to the owner. Therefore, it is very important to consult with a qualified tax adviser before making any assignment. The United States Treasury Department has adopted regulations which set di- versification rules for the investments in separate accounts underlying life insurance policies, in order for policies to be treated as life insurance. Metropolitan Life believes that these diversification standards will be satis- fied with respect to the VAI. There is a provision in the regulations which allows for the correction of an inadvertent failure to diversify. Failure to comply with the rules found in the regulations would result in immediate taxa- tion to Policy owners of all positive investment experience credited to a Pol- icy. There is a possibility that regulations may be proposed or that a control- ling ruling may be issued in the future describing the extent to which owner control over 18 ............................................................... allocation of cash value may cause owners to be treated as the owners of Sepa- rate Account assets for tax purposes. Metropolitan Life reserves the right to amend the VAI in any way necessary to avoid any such result. As of the date of this Prospectus, no such regulations or ruling have been issued, although such regulations or ruling could limit the number of investment funds or the fre- quency of transfers among such funds. It is not known whether any such regula- tions or ruling would have a retroactive effect. Metropolitan Life also believes that loans received will be treated as in- debtedness of an owner for federal tax purposes, and, unless the Policy is or becomes a modified endowment contract as described below or terminates, that no part of any loan received under a Policy will constitute income to the Own- er. Generally, interest on Policy loans is not deductible. However, an Owner should consult a tax advisor to determine how the rules governing the deduct- ibility of interest would apply in the Owner's situation. Legislation enacted in 1997 and effective for policies issued after June 8, 1997 generally disallows, in part, interest deductions to businesses which own cash value life insurance for debt unrelated to the policy. There are excep- tions for policies covering employees, officers, directors, 20 percent owner and joint life policies covering a 20% owner and a spouse. The rules are com- plex. Consult your tax adviser. A total surrender, cancellation, or other termination where there is an out- standing loan also may have tax consequences depending on the amount of gain in the Policy. Special rules govern the federal income tax treatment of pre-death withdraw- als from a class of life insurance contracts referred to as modified endowment contracts. Unlike other life insurance contracts, amounts received before death from a modified endowment contract, including policy loans, assignments and pledges, are treated first as income (to the extent of gain) and then as recovered investment. For purposes of determining the amount includible in in- come, all modified endowment contracts issued by the same company (or affili- ate) to the same policyholder during any calendar year will be treated as one modified endowment contract. Finally, an additional 10% income tax is gener- ally imposed on the taxable portion of pre-death amounts received before age 59 1/2. In general, a modified endowment contract is a life insurance contract en- tered into or materially changed after June 20, 1988 that fails to meet a "7- pay test". Under the 7-pay test, if the amount of premiums paid under the life insurance contract at any time during the first 7 base policy years exceeds the sum of the net level premiums which would have been paid if the contract provided for paid-up future benefits after the payment of 7 level annual pay- ments, the contract is a modified endowment contract. A policy may have to be reviewed under the 7-pay test even after the first seven base policy years in the case of certain events such as a material modification to the policy as discussed below. If there is a reduction in benefits under the policy during any 7-pay testing period, the 7-pay test is applied using the reduced benefits level. Any distribution made within two years before a policy fails the 7-pay test may be treated as made in anticipation of such failure. Whether or not a particular policy meets these definitional requirements is dependent on the date the policy was entered into, premium payments made and to be made and the level of death benefits, any changes in the level of death benefits, the extent of any prior cash withdrawals, and other factors. Generally, a life insurance policy which is received in exchange for a modified endowment contract will also be considered a modified endowment contract. A Policy should be reviewed upon issuance, upon making a cash withdrawal, upon making a change in future benefits and upon making a material modifica- tion to determine to what extent, if any, these tax rules apply. A material modification includes, but is not limited to, any increase in the future bene- fits. However, in general, increases in benefits that are attributable to the payment of premiums necessary to fund the lowest death benefit payable in the first 7 base policy years will not be considered material modifications. The annual statement sent to each Owner will include information regarding the modified endowment contract status of the Policy. Counsel and other competent advisors should be consulted to determine how these rules apply to an individ- ual situation. Congress may, in the future, consider other legislation that, if enacted, could adversely affect the tax treatment of life insurance policies. For exam- ple, legislation could be enacted which could adversely impact transfers of cash value to and from the VAI. In addition, the Treasury Department may by regulation or interpretation modify the above described tax effects. Any leg- islative or administrative action could be applied retroactively. The death benefit payable under the Policy, is includable in the insured's gross estate for federal estate tax purposes if the death benefit is paid to the insured's estate or if the death benefit is paid to a beneficiary other than the estate and the insured either possessed incidents of ownership at the time of death or transferred incidents of ownership to another person within three years of death. Whether or not any federal estate tax is payable with respect to the death benefit of the Policy which is included in the insured's gross estate depends on a va- 19 ............................................................... riety of factors including the following. A smaller size estate may be exempt from federal estate tax because of an estate tax credit which generally is equivalent to an exemption of $625,000 in 1998, gradually increasing to $1 mil- lion in 2006 and thereafter. In addition, a death benefit paid to a surviving spouse may not be taxable because of a 100% estate tax marital deduction. Fur- ther-more, a death benefit paid to a tax-exempt charity may not be taxable be- cause of the allowance of an estate tax charitable deduction. If the Owner is not the insured, and the Owner dies before the insured, the value of the Policy, as determined under Internal Revenue Service regulations, is includable in the federal gross estate of the Owner for federal estate tax purposes. Whether a federal estate tax is payable depends on a variety of fac- tors, including those listed in the preceding paragraph. State and local income, estate, inheritance and other tax consequences of ownership or receipt of proceeds depend on the circumstances of each insured, owner or beneficiary. The foregoing summary does not purport to be complete or to cover all situa- tions. Counsel and other competent advisors should be consulted for more com- plete information. TAXATION OF METROPOLITAN LIFE Metropolitan Life does not initially expect to incur any federal income tax upon the earnings or the realized capital gains attributable to the Separate Account. Based upon these expectations, no charge is currently being made against the Separate Account for federal income taxes, with respect to earnings or capital gains, which may be attributable to the Separate Account. If, howev- er, Metropolitan Life determines that it may incur such taxes, it may assess a charge against or make provisions in the Separate Account for those taxes. Under present laws, Metropolitan Life may incur state and local taxes (in ad- dition to premium taxes) in several states. At present, these taxes are not significant. If they increase, however, Metropolitan Life may decide to make charges for such taxes against or provisions for such taxes in the Separate Ac- count. 20 MANAGEMENT The present directors and the senior officers and secretary of Metropolitan Life are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE ---- ---------------------- ---------------------- Curtis H. Barnette...... Chairman and Chief Executive Officer, Director Bethlehem Steel Corp., 1170 Eighth Avenue, Martin Tower 2118, Bethlehem, PA 18016-7699. Robert H. Benmosche..... President and Chief Operating Officer, President, Chief Operating Metropolitan Life Insurance Company, Officer and Director One Madison Avenue, New York, N.Y. 10010. Gerald Clark............ Senior Executive Vice-President Senior Executive Vice- and Chief Investment Officer, President and Chief Metropolitan Life Insurance Company, Investment Officer, One Madison Avenue, Director New York, N.Y. 10010. Joan Ganz Cooney........ Chairman, Executive Committee, Director Children's Television Workshop, One Lincoln Plaza, New York, NY 10023. Burton A. Dole.......... Retired Chairman, President and Chief Director Executive Officer, Puritan Bennett, 2200 Faraday Avenue, Carlsbad, CA 92008-7208. James R. Houghton....... Retired Chairman of the Board, Director Corning Incorporated, 80 East Market Street, 2nd Floor, Corning, NY 14830. Harry P. Kamen.......... Chairman of the Board and Chairman of the Board, Chief Executive Officer, Chief Executive Officer and Metropolitan Life Insurance Company, Director One Madison Avenue, New York, NY 10010. Helene L. Kaplan........ Of Counsel, Skadden, Arps, Slate, Director Meagher & Flom, 919 Third Avenue, New York, NY 10022. Charles M. Leighton..... Retired Chairman, Director CML Group, Inc., 524 Main Street, Acton, MA 01720.
21
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METROPOLITAN LIFE ---- ---------------------- ---------------------- Allen E. Murray......... Retired Chairman of the Board Director and Chief Executive Officer, Mobil Corporation, 375 Park Avenue Suite 2901, New York, NY 10152. Stewart G. Nagler....... Senior Executive Vice-President and Senior Executive Chief Financial Officer Vice-President and Metropolitan Life Insurance Company Chief Financial Officer One Madison Avenue and Director New York, NY 10010. John J. Phelan, Jr. .... Retired Chairman and Chief Executive Director Officer, New York Stock Exchange, Inc., P.O. Box 312, Mill Neck, NY 11765. Hugh B. Price........... President and Chief Executor Officer, Director National Urban League, Inc., 12 Wall Street, New York, NY 10005. Robert G. Schwartz...... Retired Chairman, Director President and Chief Executive Officer, Metropolitan Life Insurance Company, 200 Park Avenue, Suite 5700, New York, NY 10166. Ruth J. Simmons, Ph.D. . President, Director Smith College, College Hall 20, Northhampton, MA 01063. William C. Steere, Jr. . Chairman of the Board and Chief Director Executive Officer, Pfizer, Inc., 235 East 42nd Street, New York, NY 10017.
22 OFFICERS*
NAME OF OFFICER POSITION WITH METROPOLITAN LIFE --------------- ------------------------------- Harry P. Kamen.......... Chairman and Chief Executive Officer Robert H. Benmosche..... President and Chief Operating Officer Gary A. Beller.......... Senior Executive Vice-President and General Counsel Gerald Clark............ Senior Executive Vice-President and Chief Investment Officer Stewart G. Nagler....... Senior Executive Vice-President and Chief Financial Officer Catherine A. Rein....... Senior Executive Vice-President William J. Toppeta...... Senior Executive Vice-President C. Robert Henrikson..... Senior Executive Vice-President Jeffrey J. Hodgman...... Executive Vice-President Terence I. Lennon....... Executive Vice-President David A. Levene......... Executive Vice-President John D. Moynahan, Jr. .. Executive Vice-President John H. Tweedie......... Executive Vice-President Judy E. Weiss........... Executive Vice-President and Chief Actuary William Livesey......... Senior Vice-President Alexander D. Brunini.... Senior Vice President Richard M. Blackwell.... Senior Vice-President Jon F. Danski........... Senior Vice-President and Controller James B. Digney......... Senior Vice-President William T. Friedewald... Senior Vice-President Ira Friedman............ Senior Vice-President Anne E. Hayden.......... Senior Vice-President Sybil C. Jacobsen....... Senior Vice-President Joseph W. Jordan........ Senior Vice-President Kernan F. King.......... Senior Vice President Nicholas D. Latrenta.... Senior Vice-President Leland C. Launer, Jr. .. Senior Vice-President Gary E. Lineberry....... Senior Vice-President James L. Lipscomb....... Senior Vice-President William Livesey......... Senior Vice-President James M. Logan.......... Senior Vice-President Eugene Marks, Jr........ Senior Vice President Dominick A. Prezzano.... Senior Vice-President Joseph A. Reali......... Senior Vice-President Vincent P. Reusing...... Senior Vice-President Felix Schirripa......... Senior Vice-President Robert E. Sollmann, Jr.. Senior Vice-President Thomas L. Stapleton..... Senior Vice-President and Tax Director James F. Stenson........ Senior Vice-President Stanley J. Talbi........ Senior Vice-President Richard R. Tartre....... Senior Vice-President James A. Valentino...... Senior Vice-President Lisa Weber.............. Senior Vice-President William J. Wheeler...... Senior Vice-President and Treasurer Anthony J. Williamson... Senior Vice-President Louis Ragusa............ Vice-President and Secretary
- ------- * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. Gary A. Beller has been an officer of Metropolitan Life since November, 1994; prior thereto, he was a Consultant and Executive Vice- President and General Counsel of the American Express Company. Robert H. Benmosche has been an officer of Metropolitan Life since September, 1995; prior thereto, he was an Executive Vice-President of Paine Webber. Terence I. Lennon has been an officer of Metropolitan Life since March, 1994; prior thereto, he was Assistant Deputy Superintendent and Chief Examiner of the New York State Department of Insurance. Richard R. Tartre has been an officer of Metropolitan Life since January 13, 1997, prior thereto he was President and CEO of Astra Management Corp. William J. Wheeler became an officer of Metropolitan Life since October 13, 1997; prior thereto he was Senior Vice-President, Investment Banking of Donaldson, Lufkin and Jenrette. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto she was a Director of Diversity Strategy and Development and an Associate Director of Human Resources of PaineWebber. Jon F. Danski has been an officer of Metropolitan Life since March 25, 1998; prior thereto he was Senior Vice-President, Controller and General Auditor at ITT Corporation. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 23 ............................................................... VOTING RIGHTS ............................................................................... In accordance with its view of present applicable law, Metropolitan Life will vote the shares of the MetLife Stock Index Portfolio of the Fund which are deemed attributable to VAIs at regular and special meetings of the share- holders of the Fund based on instructions received from persons having the voting interest in the MetLife Stock Index investment division of the Separate Account. However, if the 1940 Act or any rules thereunder should be amended or if the present interpretation thereof should change, and as a result Metropol- itan Life determines that it is permitted to vote such shares of the Fund in its own right, it may elect to do so. Accordingly, the Owner will have a voting interest under a VAI. The number of shares held in the MetLife Stock Index investment division deemed attribut- able to each Owner is determined by dividing a VAI's cash value in that divi- sion, if any, by the net asset value of one share in the corresponding Fund portfolio. Fractional votes will be counted. The number of shares concerning which an Owner has the right to give instructions will be determined as of the record date for the meeting. Fund shares held in each registered separate account of Metropolitan Life or any affiliate that are or are not attributable to life insurance policies (in- cluding the VAIs) or annuity contracts and for which no timely instructions are received will be voted in the same proportion as the shares for which vot- ing instructions are received by that separate account. Fund shares held in the general accounts or unregistered separate accounts of Metropolitan Life or its affiliates will be voted in the same proportion as the aggregate of (i) the shares for which voting instructions are received and (ii) the shares that are voted in proportion to such voting instructions. However, if Metropolitan Life or an affiliate determines that it is permitted to vote any such shares of the Fund in its own right, it may elect to do so subject to the then cur- rent interpretation of the 1940 Act or any rules thereunder. The Owners may give instructions regarding, among other things, the election of the Board of Directors of the Fund, ratification of the selection of the Fund's independent auditors, and the approval of the Fund's investment manager and sub-investment manager, if applicable. Each Owner having a voting interest will be sent voting instruction solicit- ing material and a form for giving voting instructions to Metropolitan Life. DISREGARD OF VOTING INSTRUCTIONS Notwithstanding the foregoing, Metropolitan Life may vote Fund shares con- trary to Owner voting instructions in certain limited circumstances specified by the Commission. In the event that Metropolitan Life does disregard voting instructions, a summary of the action and the reasons for such action will be included in the next annual or semiannual report to Owners. REPORTS ............................................................................... Owners will receive promptly statements of significant transactions such as partial withdrawals, increases in loan principal by the Owner, termination for any reason, reinstatement and payments. An annual statement will also be sent to the Owner on or before base policy anniversary summarizing all of the above transactions for the period and setting forth the status of the death benefit, cash value, any Policy loan and unpaid loan interest added to loan principal. The annual statement will also discuss the modified endowment contract status of a Policy. In addition, an Owner will be sent semiannual reports containing financial statements for the Fund, as required by the 1940 Act. STATE REGULATION ............................................................................... Metropolitan Life is subject to regulation and supervision by the Insurance Department of the State of New York, which periodically examines its affairs. It is also subject to the insurance laws and regulations of all jurisdictions where it is authorized to do business. Where required, a copy of the form of VAI has been filed for approval with insurance officials in each jurisdiction where the VAIs are sold. VAI is not yet available in all jurisdictions. Indi- viduals should consult with their Metropolitan Life sales representatives to determine if VAI is available in their jurisdictions. Metropolitan Life is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business, for the purposes of determining sol- vency and compliance with local insurance laws and regulations. Such state- ments are available for public inspection at state insurance department of- fices. REGISTRATION STATEMENT ............................................................................... A registration statement under the Securities Act of 1933 has been filed with the Securities and Exchange Commission relating to the offering described in this Prospectus. This Prospectus does not contain all the information set forth in the registration statement and amendments thereto and the exhibits filed as a part thereof, to all of which reference is hereby made for addi- tional information concerning the Separate Account, Metropolitan Life and the Policies. The additional information may be obtained at the Commission's main office in Washington, D.C., upon payment of the prescribed fees. 24 ............................................................... LEGAL MATTERS ............................................................................... The legality of the VAI described in this Prospectus has been passed upon by Christopher P. Nicholas, Associate General Counsel of Metropolitan Life. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised Metropolitan Life on certain matters relating to the federal securities laws. EXPERTS ............................................................................... The financial statements included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Actuarial matters included in this Prospectus have been examined by Marian Zeldin, FSA, MAAA, Vice-President and Actuary of Metropolitan Life, as stated in her opinion filed as an exhibit to the registration statement. FINANCIAL STATEMENTS ............................................................................... The financial statements of Metropolitan Life included in this Prospectus should be considered only as bearing upon the ability of Metropolitan Life to meet its obligations under the VAI. 25 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, State Street Research International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL (the "Separate Account") as of December 31, 1997, and the related statements (i) of operations for the year then ended and of changes in net assets for the years ended December 31, 1997 and 1996 of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index and State Street Research International Stock Divisions and (ii) of operations and of changes in net assets for the period March 3, 1997 (commencement of operations) to December 31, 1997 of the Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1997 by correspondence with the custodian and depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the State Street Research Growth, State Street Research Income, State Street Research Money Market, State Street Research Diversified, State Street Research Aggressive Growth, MetLife Stock Index, State Street Research International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth and Scudder Global Equity Divisions of Metropolitan Life Separate Account UL at December 31, 1997 and the results of their operations and the changes in their net assets for the respective stated periods, in conformity with generally accepted accounting principles. As discussed in Note 4, the accompanying 1996 financial statements have been restated. DELOITTE & TOUCHE LLP New York, New York March 31, 1998 METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1997
STATE STREET STATE STREET STATE STREET STATE STREET STATE STREET RESEARCH STATE STREET RESEARCH METLIFE RESEARCH RESEARCH RESEARCH MONEY RESEARCH AGGRESSIVE STOCK INTERNATIONAL GROWTH INCOME MARKET DIVERSIFIED GROWTH INDEX STOCK DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ------------ ------------ ------------ ------------ ------------ ----------- ------------- ASSETS: Investments in Metropol- itan Series Fund, Inc. at Value (Note 1A): State Street Research Growth Portfolio (7,500,517 shares; cost $207,140,190).......... $239,416,510 -- -- -- -- -- -- State Street Research Income Portfolio (3,451,828 shares; cost $43,468,874)........... -- $43,700,145 -- -- -- -- -- State Street Research Money Market Portfolio (770,408 shares; cost $8,291,617)............ -- -- $7,996,630 -- -- -- -- State Street Research Diversified Portfolio (9,161,690 shares; cost $143,847,786).......... -- -- -- $155,565,502 -- -- -- State Street Research Aggressive Growth Port- folio (4,299,153 shares; cost $110,480,495).......... -- -- -- -- $181,699,529 -- -- MetLife Stock Index Portfolio (2,992,597 shares; cost $67,138,007)........... -- -- -- -- -- $86,126,949 -- State Street Research International Stock Portfolio (2,324,516 shares; cost $28,974,736)........... -- -- -- -- -- -- $27,127,110 Loomis Sayles High Yield Bond Portfolio (146,279 shares; cost $1,553,369)............ -- -- -- -- -- -- -- Janus Mid Cap Portfolio (302,556 shares; cost $3,640,229)............ -- -- -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (383,687 shares; cost $4,511,133)............ -- -- -- -- -- -- -- Scudder Global Equity Portfolio (278,937 shares; cost $3,035,018 )........... -- -- -- -- -- -- -- ------------ ----------- ---------- ------------ ------------ ----------- ----------- Total Assets........... 239,416,510 43,700,145 7,996,630 155,565,502 118,699,529 86,126,949 27,127,110 LIABILITIES............. 530,268 (749) 395 165,745 43,493 30,337 1,155 ------------ ----------- ---------- ------------ ------------ ----------- ----------- NET ASSETS.............. $238,886,242 $43,700,894 $7,996,235 $155,399,757 $118,656,036 $86,096,612 $27,125,955 ============ =========== ========== ============ ============ =========== ===========
See Notes to Financial Statements.
LOOMIS T. ROWE SAYLES PRICE SCUDDER HIGH YIELD JANUS SMALL CAP GLOBAL BOND MID CAP GROWTH EQUITY DIVISION DIVISION DIVISION DIVISION ---------- ---------- ---------- ---------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $1,483,275 -- -- -- -- $3,863,631 -- -- -- -- $4,558,201 -- -- -- -- $3,026,461 ---------- ---------- ---------- ---------- 1,483,275 3,863,631 4,558,201 3,026,461 150 393 89 3,120 ---------- ---------- ---------- ---------- $1,483,125 $3,863,238 $4,558,112 $3,023,341 ========== ========== ========== ==========
METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------------------------------- STATE STATE STATE STATE STATE STREET STATE STREET STREET STREET STREET RESEARCH STREET RESEARCH METLIFE RESEARCH RESEARCH RESEARCH MONEY RESEARCH AGGRESSIVE STOCK INTERNATIONAL GROWTH INCOME MARKET DIVERSIFIED GROWTH INDEX STOCK DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION ----------- ---------- -------- ----------- ---------- ----------- ------------- INVESTMENT INCOME: Income: Dividends (Note 2)..... $42,138,867 $2,922,583 $421,931 $23,433,922 $4,355,881 $ 1,696,231 -- Expenses: Mortality and expense charges (Note 3)...... 1,720,073 304,795 68,737 1,130,927 885,075 509,584 $ 232,079 ----------- ---------- -------- ----------- ---------- ----------- ----------- Net investment income (loss)................. 40,418,794 2,617,788 353,194 22,302,995 3,470,806 1,186,647 (232,079) ----------- ---------- -------- ----------- ---------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1B) Net realized gain (loss) from security transac- tions.................. 1,080,724 32,950 68,458 418,723 136,827 1,210,648 (84,952) Change in unrealized ap- preciation (deprecia- tion) of investments... 6,378,588 748,796 (49,717) 1,103,869 2,615,059 13,344,725 (691,181) ----------- ---------- -------- ----------- ---------- ----------- ----------- Net realized and unrealized gain (loss) on investments......... 7,459,312 781,746 18,741 1,522,592 2,751,886 14,555,373 (776,133) ----------- ---------- -------- ----------- ---------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ $47,878,106 $3,399,534 $371,935 $23,825,587 $6,222,692 $15,742,020 $(1,008,212) =========== ========== ======== =========== ========== =========== ===========
See Notes to Financial Statements.
FOR THE PERIOD MARCH 3, 1997 TO DECEMBER 31, 1997 ----------------------------------------------------------------------------------- T. ROWE LOOMIS SAYLES PRICE SCUDDER HIGH YIELD JANUS SMALL CAP GLOBAL BOND MID CAP GROWTH EQUITY DIVISION DIVISION DIVISION DIVISION ------------- ------------ ------------ ----------- $ 63,593 $ 14,490 $ 471 $ 30,685 4,044 8,553 9,261 7,271 ------------ ------------ ----------- ----------- 59,549 5,937 (8,790) 23,414 ------------ ------------ ----------- ----------- 9,361 26,779 47,764 21,982 (70,093) 223,402 47,067 (8,556) ------------ ------------ ----------- ----------- (60,732) 250,181 94,831 13,426 ------------ ------------ ----------- ----------- $ (1,183) $ 256,118 $ 86,041 $ 36,840 ============ ============ =========== ===========
METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (AS RESTATED--SEE NOTE 4)
STATE STREET RESEARCH STATE STREET RESEARCH STATE STREET RESEARCH GROWTH DIVISION INCOME DIVISION MONEY MARKET DIVISION -------------------------- ------------------------ ------------------------- AS RESTATED AS RESTATED AS RESTATED 1997 1996 1997 1996 1997 1996 ------------ ------------ ----------- ----------- ------------ ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 40,418,794 $ 14,318,113 $ 2,617,788 $ 1,769,924 $ 353,194 $ 340,213 Net realized gain (loss) from security transactions.......... 1,080,724 3,249,072 32,950 13,127 68,458 21,159 Change in unrealized appreciation (depreci- ation) of invest- ments................. 6,378,588 9,530,521 748,796 (824,310) (49,717) (111,136) ------------ ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets result- ing from operations... 47,878,106 27,097,706 3,399,534 958,741 371,935 250,236 ------------ ------------ ----------- ----------- ------------ ----------- From capital transactions: Net premiums........... 59,834,638 51,991,970 13,090,983 11,838,904 13,691,749 13,703,314 Redemptions............ (7,416,220) (5,657,523) (1,082,695) (1,098,660) (357,692) (370,938) Net portfolio trans- fers.................. 3,569,720 (676,324) 1,296,485 (342,990) (12,877,177) (8,370,773) Other net transfers.... (29,309,077) (23,203,846) (4,895,666) (4,686,537) (887,059) (1,089,670) ------------ ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets result- ing from capital transactions.......... 26,679,061 22,454,277 8,409,107 5,710,717 (430,179) 3,871,933 ------------ ------------ ----------- ----------- ------------ ----------- NET CHANGE IN NET ASSETS................. 74,557,167 49,551,983 11,808,641 6,669,458 (58,244) 4,122,169 ------------ ----------- ----------- NET ASSETS--BEGINNING OF YEAR, AS PREVIOUSLY RE- PORTED................. 112,440,622 22,311,472 2,974,740 ADJUSTMENT FOR EXCLUDED CONTRACTS (NOTE 4)............... 2,336,470 2,911,323 957,570 ------------ ------------ ----------- ----------- ------------ ----------- NET ASSETS--BEGINNING OF YEAR, AS RESTATED............ 164,329,075 114,777,092 31,892,253 25,222,795 8,054,479 3,932,310 ------------ ------------ ----------- ----------- ------------ ----------- NET ASSETS--END OF YEAR................... $238,886,242 $164,329,075 $43,700,894 $31,892,253 $ 7,996,235 $ 8,054,479 ============ ============ =========== =========== ============ ===========
See Notes to Financial Statements.
STATE STREET RESEARCH STATE STREET RESEARCH STATE STREET RESEARCH DIVERSIFIED AGGRESSIVE METLIFE STOCK INDEX INTERNATIONAL DIVISION GROWTH DIVISION DIVISION STOCK DIVISION ---------------------------- ------------------------- ------------------------- ------------------------ AS RESTATED AS RESTATED AS RESTATED AS RESTATED 1997 1996 1997 1996 1997 1996 1997 1996 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- $ 22,302,995 $ 9,021,710 $ 3,470,806 $ 1,735,559 $ 1,186,647 $ 668,041 $ (232,079) $ 26,852 418,723 626,567 136,827 356,580 1,210,648 992,755 (84,952) 7,882 1,103,869 3,195,414 2,615,059 1,727,152 13,344,725 3,305,639 (691,181) (643,946) ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 23,825,587 12,843,691 6,222,692 3,819,291 15,742,020 4,966,435 (1,008,212) (609,212) ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 41,236,061 34,685,709 52,235,040 47,883,634 38,059,853 18,825,744 11,240,912 12,149,313 (4,829,385) (4,063,905) (3,613,975) (2,963,448) (1,198,193) (754,780) (1,139,393) (680,851) 1,557,340 444,154 (5,941,719) 2,977,777 9,580,428 6,207,785 (3,084,541) (323,788) (19,209,913) (16,290,905) (20,670,473) (18,671,965) (13,547,536) (6,979,516) (5,008,528) (2,938,187) ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 18,754,103 14,775,053 22,008,873 29,225,998 32,894,552 17,299,233 2,008,450 8,206,487 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 42,579,690 27,618,744 28,231,565 33,045,289 48,636,572 22,265,668 1,000,238 7,597,275 ------------ ----------- ----------- ----------- 84,180,741 54,331,797 13,425,770 17,296, 137 1,020,582 3,047,385 1,768,602 1,232,305 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- 112,820,067 85,201,323 90,424,471 57,379,182 37,460,040 15,194,372 26,125,717 18,528,442 ------------ ------------ ------------ ----------- ------------ ----------- ----------- ----------- $155,399,757 $112,820,067 $118,656,036 $90,424,471 $ 86,096,612 $37,460,040 $27,125,955 $26,125,717 ============ ============ ============ =========== ============ =========== =========== ===========
METROPOLITAN LIFE SEPARATE ACCOUNT UL STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD MARCH 3, 1997 TO DECEMBER 31, 1997 -------------------------------------------------------------- LOOMIS SAYLES T. ROWE PRICE HIGH YIELD JANUS SMALL CAP SCUDDER GLOBAL BOND DIVISION MID CAP DIVISION GROWTH DIVISION EQUITY DIVISION ------------- ---------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 59,549 $ 5,937 $ (8,790) $ 23,414 Net realized gain from security transac- tions................. 9,361 26,779 47,764 21,982 Change in unrealized appreciation (depreci- ation) of investments........ (70,093) 223,402 47,067 (8,556) ---------- ---------- ---------- ---------- Net increase (decrease) in net assets result- ing from operations............ (1,183) 256,118 86,041 36,840 ---------- ---------- ---------- ---------- From capital transactions: Net premiums........... 590,158 2,676,784 1,816,732 1,425,649 Redemptions............ (1,126) (46,974) (40,707) (7,873) Net portfolio trans- fers.................. 1,002,454 1,554,471 3,110,800 1,855,028 Other net transfers.... (107,178) (577,161) (414,754) (286,303) ---------- ---------- ---------- ---------- Net increase in net as- sets resulting from capital transactions.......... 1,484,308 3,607,120 4,472,071 2,986,501 ---------- ---------- ---------- ---------- NET CHANGE IN NET ASSETS................. 1,483,125 3,863,238 4,558,112 3,023,341 ---------- ---------- ---------- ---------- NET ASSETS--BEGINNING OF PERIOD................. -- -- -- -- ---------- ---------- ---------- ---------- NET ASSETS--END OF PERI- OD..................... $1,483,125 $3,863,238 $4,558,112 $3,023,341 ========== ========== ========== ==========
See Notes to Financial Statements. METROPOLITAN LIFE SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 Metropolitan Life Separate Account UL (the "Separate Account") is a multi- division unit investment trust registered under the Investment Company Act of 1940 and presently consists of eleven investment divisions used to support variable universal life insurance policies. The assets in each division are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc. (the "Fund'). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by Metropolitan Life Insurance Company ("Metropolitan Life") on December 13, 1988, and registered as a unit investment trust on January 5, 1990. The assets of the Separate Account are the property of Metropolitan Life. On March 3, 1997, operations commenced for the four new investment divisions added to the Separate Account on that date: the Loomis Sayles High Yield Bond Division, the Janus Mid Cap Division, the T. Rowe Price Small Cap Growth Division and the Scudder Global Equity Division. A summary of significant accounting policies, all of which are in accordance with generally accepted accounting principles, is set forth below: 1.SIGNIFICANT ACCOUNTING POLICIES A.VALUATION OF INVESTMENTS Investments in shares of the Fund are valued at the reported net asset values of the respective portfolios. A summary of investments of the eleven designated portfolios of the Fund in which the eleven investment divisions of the Separate Account invests as of December 31, 1997 is included as Note 5. B.SECURITY TRANSACTIONS Purchases and sales are recorded on the trade date. Realized gains and losses on sales of investments are determined on the basis of identified cost. C.FEDERAL INCOME TAXES In the opinion of counsel of Metropolitan Life, the Separate Account will be treated as a part of Metropolitan Life and its operations, and the Separate Account will not be taxed separately as a "regulated investment company" under existing law. Metropolitan Life is taxed as a life insurance company. The policies permit Metropolitan Life to charge against the Separate Account any taxes, or reserves for taxes, attributable to the maintenance or operation of the Separate Account. Metropolitan Life is not currently charging any Federal income taxes against the Separate Account arising from the earnings or realized capital gains attributable to the Separate Account. Such charges may be imposed in future years depending on market fluctuations and transactions involving the Separate Account. D.NET PREMIUMS Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain of the policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain of the policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. 2.DIVIDENDS On April 16, 1997 and December 18, 1997, the Fund declared dividends for all shareholders of record on April 25, 1997 and December 30, 1997, respectively. The amount of dividends received by the Separate Account was $75,078,657. The dividends were paid to Metropolitan Life on April 25, 1997 and December 30, 1997, respectively, and were immediately reinvested in additional shares of the portfolios in which the investment divisions invest. As a NOTES TO FINANCIAL STATEMENTS--(CONTINUED) result of this reinvestment, the number of shares of the Fund held by each of the eleven investment divisions increased by the following: State Street Research Growth Portfolio, 1,371,274 shares; State Street Research Income Portfolio, 231,057 shares; State Street Research Money Market Portfolio, 40,663 shares; State Street Research Diversified Portfolio, 1,404,733 shares; State Street Research Aggressive Growth Portfolio, 182,267 shares; MetLife Stock Index Portfolio, 60,453 shares; State Street Research International Stock Portfolio, 0 shares; Loomis Sayles High Yield Bond Portfolio, 6,294 shares; Janus Mid Cap Portfolio, 1,175 shares; T. Rowe Price Small Cap Growth Portfolio, 41 shares; and Scudder Global Equity Portfolio, 2,836 shares. 3.EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life applies a charge against the assets attributable to the Separate Account for the mortality and expense risks assumed by Metropolitan Life. This charge varies by policy type but will not be higher than an effective annual rate of .90% of the average daily value of the net assets or the monthly anniversary value of the net assets in the Separate Account which are attributable to such policies. 4.RESTATEMENT FOR EXCLUDED CONTRACTS Subsequent to the issuance of the Separate Account 1996 financial statements, Metropolitan Life management determined that the 1996 and prior year financial statements inadvertently excluded amounts related to two groups of insurance contracts included in subsidiary accounting records applicable to the Separate Account. As a result the 1996 financial statements have been restated from the amounts previously reported to include such amounts. A summary of the effects of the restatement on net increase (decrease) in net assets resulting from operations ("Operations") and net increase in net assets resulting from capital transactions ("Capital Transactions") for the year ended December 31, 1996 is as follows:
OPERATIONS CAPITAL TRANSACTIONS ------------------------ ----------------------- AS AS PREVIOUSLY PREVIOUSLY AS RESTATED REPORTED AS RESTATED REPORTED ----------- ----------- ----------- ----------- State Street Research Growth Division.................... $27,097,706 $26,165,771 $22,454,277 $20,291,179 State Street Research Income Division.................... 958,741 789,262 5,710,717 4,157,019 State Street Research Money Market Division............. 250,236 162,166 3,871,933 2,982,949 State Street Research Diver- sified Division............. 12,843,691 12,559,668 14,775,053 13,727,050 State Street Research Aggres- sive Growth Division........ 3,819,291 3,487,444 29,225,998 25,921,962 MetLife Stock Index Divi- sion........................ 4,966,435 4,138,300 17,299,233 14,469,444 State Street Research Inter- national Stock Division..... (609,212) (550,732) 8,206,487 6,923,935
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997 Below are summarized information of the investments of the portfolios of the Fund in which each of the investment divisions invest. METROPOLITAN SERIES FUND, INC.
STATE STREET STATE STREET STATE STREET STATE STREET RESEARCH RESEARCH RESEARCH RESEARCH GROWTH INCOME MONEY MARKET DIVERSIFIED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------------- ------------ ------------ -------------- COMMON STOCK Aerospace.............. $ 55,477,881 (2.4%) $ 25,844,668 (1.3%) Automotive............. 43,379,027 (1.8%) 20,079,121 (1.0%) Banking................ 205,479,175 (8.7%) 95,552,627 (4.8%) Broadcasting........... 124,133,525 (5.3%) 56,726,174 (2.9%) Business Services...... 25,546,853 (1.1%) 11,853,663 (0.6%) Chemicals.............. 105,409,887 (4.5%) 48,725,475 (2.5%) Drugs & Health Care.... 150,504,102 (6.4%) 70,602,148 (3.6%) Electrical Equipment... 94,815,937 (4.0%) 43,986,787 (2.2%) Electronics............ 77,962,605 (3.3%) 36,467,790 (1.8%) Entertainment & 22,431,812 (1.0%) 10,385,217 (0.5%) Leisure............... Financial Services..... 35,764,865 (1.5%) 16,588,059 (0.8%) Food & Beverages....... 74,536,480 (3.2%) 34,639,368 (1.7%) Forest Products & 45,897,963 (2.0%) 21,753,294 (1.1%) Paper................. Hospital Management.... 16,383,625 (0.7%) 7,608,812 (0.4%) Household Products..... 36,627,032 (1.6%) 17,004,594 (0.9%) Insurance.............. 101,332,113 (4.3%) 47,329,837 (2.4%) Machinery.............. 16,361,400 (0.7%) 7,592,400 (0.4%) Medical Supply......... 45,413,162 (1.9%) 21,172,712 (1.1%) Metals--Steel & Iron... 23,359,400 (1.0%) 10,840,668 (0.5%) Miscellaneous.......... 68,513,025 (2.9%) 31,886,225 (1.6% Office & Business 111,018,537 (4.7%) 51,900,043 (2.6%) Equipment............. Oil.................... 40,733,670 (1.7%) 19,133,347 (1.0%) Oil & Gas Exploration.. 54,241,001 (2.3%) 25,252,861 (1.3%) Oil--Domestic.......... 47,151,675 (2.0%) 20,900,250 (1.1%) Oil--International..... 23,614,913 (1.0%) 10,994,644 (0.6%) Retail Grocery......... 74,417,500 (3.2%) 34,970,447 (1.8%) Retail Trade........... 183,384,019 (7.8%) 85,473,643 (4.3%) Software............... 25,740,375 (1.1%) 12,118,958 (0.6%) Tobacco................ 47,328,906 (2.0%) 22,112,500 (1.1%) Transportation-- 0 (0.0%) 63 (0.0%) Trucking.............. Utilities--Electric.... 91,202,222 (3.9%) 25,835,899 (1.3%) Utilities--Telephone... 43,652,700 (1.9%) 36,947,828 (1.8%) -------------- -------------- Total Common Stock..... 2,111,815,387 (89.9%) 982,280,122 (49.6%) -------------- -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Asset Backed........... $ 12,067,182 (2.9%) 29,417,837 (1.5%) Banking................ 23,128,825 (5.6%) 42,344,898 (2.1%) Broadcasting........... 3,944,733 (1.0%) 7,737,746 (0.4%) Collateralized Mortgage 24,819,316 (6.0%) 49,612,357 (2.5%) Obligations........... Financial Services..... 60,775,829 (14.8%) 129,445,268 (6.5%) Government Sponsored : Federally Chartered... 5,506,656 (1.3%) 6,323,235 (0.3%) Government Sponsored : 2,042,474 (0.5%) 4,057,347 (0.2%) State Chartered....... Healthcare Services.... 10,036,465 (2.4%) 15,063,888 (0.8%) Household Products..... 3,962,600 (1.0%) 7,724,563 (0.4%) Industrials............ 24,078,102 (5.9%) 66,622,264 (3.4%) Newspapers............. 4,677,541 (1.1%) 7,990,940 (0.4%) Restaurant............. 3,362,275 (0.8%) 4,226,860 (0.2%) Utilities--Electric.... 12,459,882 (3.0%) 13,174,510 (0.7%) Utilities--Telephone... 0 (0.0%) 5,119,400 (0.2%) ------------ -------------- Total Corporate Bonds.. 190,861,880 (46.3%) 388,861,113 (19.6%) ------------ -------------- Federal Agency 21,608,734 (5.2%) 32,463,133 (1.6%) Obligations........... Federal Treasury 121,993,026 (29.6%) 296,514,139 (15.0%) Obligations........... Foreign Obligations.... 29,919,864 (7.3%) 64,010,479 (3.2%) Yankee Bonds........... 22,911,597 (5.6%) 40,757,635 (2.1%) ------------ -------------- Total Bonds............ 387,295,101 (94.0%) 822,606,499 (41.5%) ------------ -------------- SHORT-TERM OBLIGATIONS Banker's Acceptance.... $ 1,999,504 (5.1%) Commercial Paper....... 35,110,031 (88.9%) Federal Agency 1,999,174 (5.1%) Obligations........... Financial Services..... 260,576,843 (11.1%) 18,926,000 (4.6%) 175,117,291 (8.8%) -------------- ------------ ----------- -------------- Total Short-Term 260,576,843 (11.1%) 18,926,000 (4.6%) 39,108,709 (99.1%) 175,117,291 (8.8%) Obligations........... -------------- ------------ ----------- -------------- TOTAL INVESTMENTS....... 2,372,392,230 (101.0%) 406,221,101 (98.6%) 39,108,709 (99.1%) 1,980,003,912 (99.9%) Other Assets Less (23,330,647) (-1.0%) 5,969,530 (1.4%) 371,130 (0.9%) 2,227,802 (0.1%) Liabilities........... -------------- ------------ ----------- -------------- NET ASSETS.............. $2,349,061,583 (100.0%) $412,190,631 (100.0%) $39,479,839 (100.0%) $1,982,231,714 (100.0%) ============== ============ =========== ==============
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED) METROPOLITAN SERIES FUND, INC.
STATE STREET STATE STREET RESEARCH RESEARCH METLIFE AGGRESSIVE INTERNATIONAL STOCK INDEX GROWTH STOCK PORTFOLIO PORTFOLIO PORTFOLIO -------------- -------------- ------------- COMMON STOCK Aerospace............... $ 40,637,466 (2.0%) $ 11,289,881 (0.8%) $ 2,387,852 (0.9%) Automotive.............. 45,456,508 (2.3%) 28,967,250 (2.1%) 5,015,967 (1.9%) Banking................. 184,244,814 (9.1%) 29,889,600 (2.1%) 40,150,993 (15.0%) Broadcasting............ 34,958,314 (1.7%) 34,642,109 (2.5%) 3,027,948 (1.1%) Building & 13,042,869 (0.7%) 1,588,198 (0.6%) Construction............ Business Services....... 25,038,859 (1.2%) 264,032,617 (19.0%) 5,966,734 (2.2%) Chemicals............... 55,137,636 (2.7%) 4,039,673 (1.5%) Computer Equipment & 34,881,231 (2.5%) Service................. Construction Materials.. 7,498,217 (2.8%) Construction & Mining 8,304,900 (0.6%) Equipment............... Consumer Products....... 1,829,846 (0.7%) Containers & Glass...... 5,472,575 (0.3%) 1,006,387 (0.4%) Cosmetics............... 5,512,025 (0.3%) 11,648,975 (0.8%) Drugs & Health Care..... 157,334,686 (7.8%) 42,144,363 (3.0%) 21,570,856 (8.1%) Education............... 7,437,875 (0.5%) Electrical Equipment.... 82,536,849 (4.1%) 2,041,231 (0.7%) Electronics............. 84,752,427 (4.2%) 123,061,789 (8.8%) 7,720,814 (2.9%) Energy.................. 1,160,064 (0.4%) Entertainment & 18,716,901 (0.9%) 46,907,107 (3.4%) 3,136,901 (1.2%) Leisure................. Financial Services...... 84,711,977 (4.2%) 72,052,419 (5.2%) 982,925 (0.4%) Food & Beverages........ 114,340,308 (5.7%) 9,929,888 (0.7%) 11,047,677 (4.1%) Forest Products & 22,113,212 (1.1%) 4,201,571 (1.6%) Paper................... General Business........ 588,933 (0.2%) Healthcare Services..... 43,554 (0.0%) Hospital Management..... 11,028,388 (0.5%) 14,045,000 (1.0%) Hotel & Motel........... 5,444,538 (0.3%) 23,227,899 (1.7%) Household Appliances & 4,813,163 (0.2%) 2,290,994 (0.9%) Home Furnishings........ Household Products...... 64,582,375 (3.2%) 1,266,205 (0.5%) Insurance............... 79,897,474 (4.0%) 35,200,306 (2.5%) 19,743,473 (7.4%) Liquor.................. 2,688,400 (0.1%) Machinery............... 21,529,430 (1.1%) 5,393,875 (2.0%) Medical Supply.......... 52,060,343 (2.6%) 21,603,563 (1.6%) Metals--Aluminum........ 4,689,262 (0.2%) Metals--Gold............ 4,638,780 (0.2%) Metals--Non-Ferrous..... 2,126,308 (0.1%) 5,000,016 (1.9%) Metals--Steel & Iron.... 3,137,730 (0.2%) 1,647,825 (0.1%) 2,926,945 (1.1%) Mining.................. 2,634,900 (0.1%) 1,189,500 (0.1%) 620,596 (0.2%) Miscellaneous........... 12,701,499 (0.6%) 22,837,675 (1.6%) 1,002,644 (0.4%) Multi-Industry.......... 12,758,726 (0.6%) 9,623,993 (3.6%) Newspapers.............. 13,177,443 (0.7%) 789,576 (0.3%) Office & Business 108,801,022 (5.4%) 120,385,619 (8.7%) Equipment............... Oil & Gas Exploration... 905,738 (0.0%) 3,386,080 (1.3%) Oil--Domestic........... 34,654,774 (1.7%) Oil--International...... 107,077,494 (5.3%) 14,022,941 (5.2%) Oil--Services........... 24,773,387 (1.2%) 12,017,500 (0.9%) Personal Care........... 618,289 (0.2%) Photography............. 6,809,362 (0.3%) Pollution Control....... 4,725,750 (0.2%) 3,842,575 (0.3%) Printing & Publishing... 6,863,863 (0.3%) 10,278,600 (0.7%) 1,324,259 (0.5%) Real Estate............. 3,294,667 (1.2%) Restaurant.............. 9,458,756 (0.5%) 2,436,537 (0.2%) Retail Grocery.......... 10,371,392 (0.5%) 21,435,425 (1.5%) Retail Trade............ 85,410,978 (4.2%) 130,225,513 (9.4%) 9,107,736 (3.4%)[ Software................ 59,131,545 (2.9%) 68,992,501 (5.0%) Telecommunications 15,880,518 (1.1%) 4,694,678 (1.8%) Equipment & Services.... Textiles & Apparel...... 6,077,783 (0.3%) 26,273,281 (1.9%) 954,522 (0.4%) Tires & Rubber.......... 5,458,800 (0.3%) 1,191,661 (0.4%) Tobacco................. 29,937,401 (1.5%) 14,880,625 (1.1%) Toys & Amusements....... 4,075,259 (0.2%) 3,087,999 (1.2%) Transportation-- 11,143,931 (0.6%) 2,799,020 (1.0%) Airlines................ Transportation-- 13,732,100 (0.7%) 3,894,818 (1.5%) Railroad................ Transportation-- 1,172,450 (0.1%) Trucking................ Utilities--Electric..... 59,636,673 (3.0%) 4,866,641 (1.8%) Utilities--Gas 14,279,257 (0.7%) 1,658,516 (0.6%) Distribution & Pipelines............... Utilities-- 8,432,787 (3.2%) Miscellaneous........... Utilities--Telephone.... 130,153,229 (6.4%) 27,899,850 (2.0%) 11,476,736 (4.3%) -------------- -------------- ------------ Total Common Stock...... 2,006,567,129 (99.3%) 1,299,533,870 (93.4%) 248,432,454 (93.0%) -------------- -------------- ------------ PREFERRED STOCK Banking................. $ 1,885,762 (0.7%) Chemicals............... 706,634 (0.3%) Retail Trade............ 484,538 (0.2%) Software................ 808,024 (0.3%) -------------- -------------- ------------ Total Preferred Stock... 0 (0.0%) 0 (0.0%) 3,884,958 (1.5%) -------------- -------------- ------------ Total Equity 2,006,567,129 (99.3%) 1,299,533,870 (93.4%) 252,317,412 (94.5%) Securities.............. SHORT-TERM OBLIGATIONS Federal Treasury 947,146 (0.1%) Obligations............. Financial Services...... 82,499,000 (5.9%) Finance................. 8,748,846 (0.4%) Time Deposit............ 11,000,000 (4.1%) -------------- -------------- ------------ Total Short-Term 9,695,992 (0.5%) 82,499,000 (5.9%) 11,000,000 (4.1%) Obligations............. -------------- -------------- ------------ TOTAL INVESTMENTS....... 2,016,263,121 (99.8%) 1,382,032,870 (99.3%) 263,317,412 (98.6%) Other Assets Less 4,216,915 (0.2%) 9,922,742 (0.7%) 3,771,397 (1.4%) Liabilities............. -------------- -------------- ------------ NET ASSETS.............. $2,020,480,036 (100.0%) $1,391,955,612 (100.0%) $267,088,809 (100.0%) ============== ============== ============
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED) METROPOLITAN SERIES FUND, INC.
LOOMIS SAYLES HIGH YIELD BOND PORTFOLIO --------------- COMMON STOCK Banking............................................... $ 29,699 (0.1%) Forest Products & Paper............................... 171,511 (0.6%) Real Estate........................................... 299,587 (1.1%) Utilities--Electric................................... 105,000 (0.4%) Utilities--Telephone.................................. 8,409 (0.0%) ----------- Total Common Stock.................................... 614,206 (2.2%) ----------- PREFERRED STOCK Metals--Steel & Iron.................................. 269,750 (1.0%) Oil--Services......................................... 30,400 (0.1%) Transportation--Trucking.............................. 66,800 (0.2%) Utilities--Electric................................... 87,336 (0.3%) ----------- Total Preferred Stock................................. 454,286 (1.6%) ----------- LONG-TERM DEBT SECURITIES Convertible Bonds: Broadcasting.......................................... 96,750 (0.4%) Business Services..................................... 152,250 (0.6%) Computer Equipment & Service.......................... 1,038,775 (3.7%) Electrical Equipment.................................. 32,800 (0.1%) Electronics........................................... 638,250 (2.3%) Entertainment & Leisure............................... 234,750 (0.9%) Foreign Obligations................................... 1,350,438 (4.9%) Industrials........................................... 633,650 (2.3%) Medical Supply........................................ 298,500 (1.1%) Metals--Steel & Iron.................................. 2,000 (0.0%) Mining................................................ 522,250 (1.9%) Miscellaneous......................................... 452,050 (1.6%) Oil--International.................................... 37,167 (0.1%) Pollution Control..................................... 255,469 (0.9%) Real Estate........................................... 96,000 (0.3%) Restaurant............................................ 682,625 (2.5%) Retail Trade.......................................... 84,250 (0.3%) Textiles & Apparel.................................... 317,000 (1.1%) Transportation--Trucking.............................. 116,800 (0.4%) Utilities--Telephone.................................. 310,000 (1.1%) ----------- Total Convertible Bonds............................... 7,351,774 (26.5%) ----------- Corporate Bonds: Automotive............................................ 177,500 (0.6%) Broadcasting.......................................... 1,445,555 (5.2%) Collateralized Mortgage Obligations................... 98,000 (0.4%) Computer Equipment & Service.......................... 1,017,754 (3.7%) Electronics........................................... 275,525 (1.0%) Financial Services.................................... 793,750 (2.9%) Food & Beverages...................................... 997,719 (3.6%) Industrials........................................... 525,236 (1.9%) Metals--Steel & Iron.................................. 152,004 (0.5%) Pollution Control..................................... 120,000 (0.4%) Real Estate........................................... 247,500 (0.9%) Retail Grocery........................................ 169,500 (0.6%) Retail Trade.......................................... 526,625 (1.9%) Telecommunications Equipment & Services............... 525,825 (1.9%) Utilities--Electric................................... 778,000 (2.8%) Utilities--Telephone.................................. 2,393,688 (8.6%) ----------- Total Corporate Bonds................................. 10,244,181 (36.9%) ----------- Foreign Obligations................................... 4,150,064 (14.9%) Yankee Bonds.......................................... 3,152,009 (11.3%) ----------- Total Bonds........................................... 24,898,028 (89.6%) TOTAL SHORT-TERM OBLIGATIONS--REPURCHASE AGREEMENTS.... 1,782,000 (6.4%) ----------- TOTAL INVESTMENTS...................................... 27,748,520 (99.8%) Other Assets Less Liabilities......................... 55,146 (0.2%) ----------- NET ASSETS............................................. $27,803,666 (100.0%) ===========
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5.SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONTINUED) METROPOLITAN SERIES FUND, INC.
JANUS T. ROWE PRICE SCUDDER MID CAP SMALL CAP GROWTH GLOBAL EQUITY PORTFOLIO PORTFOLIO PORTFOLIO ------------ ---------------- ------------- COMMON STOCK Aerospace............... $ 1,929,398 2.1%) $ 582,356 (1.0%) Automotive.............. $ 868,848 (0.8%) 1,535,550 (1.6%) 334,050 (0.6%) Banking................. 2,514,292 (2.4%) 3,793,175 (4.0%) 2,528,176 (4.2%) Biotechnology........... 737,930 (0.8%) 109,238 (0.2%) Broadcasting............ 9,592,084 (9.2%) 2,176,161 (2.3%) 668,014 (1.1%) Building & 1,339,459 (1.4%) Construction........... Business Services....... 8,259,757 (8.0%) 9,108,644 (9.7%) 473,850 (0.8%) Chemicals............... 488,150 (0.5%) 4,301,881 (7.1%) Computer Equipment & 1,355,650 (1.3%) 4,896,551 (5.2%) Service................ Construction Materials.. 5,772,605 (5.6%) 911,288 (1.0%) 511,486 (0.8%) Construction & Mining 512,742 (0.5%) Equipment.............. Consumer Products....... 327,816 (0.4%) 1,038,234 (1.7%) Consumer Services....... 230,503 (0.4%) Cosmetics............... 269,325 (0.3%) Drugs & Health Care..... 9,479,980 (9.1%) 7,326,342 (7.8%) 1,893,125 (3.1%) Education............... 4,412,464 (4.3%) 985,719 (1.0%) Electrical Equipment.... 3,993,096 (3.9%) 2,149,376 (2.3%) 1,121,131 (1.7%) Electronics............. 5,015,736 (4.8%) 6,660,654 (7.1%) 850,606 (1.4%) Energy.................. 605,906 (0.6%) Entertainment & 2,498,617 (2.4%) 2,547,108 (2.7%) Leisure................ Financial Services...... 9,266,979 (8.9%) 1,936,243 (2.1%) 1,252,399 (2.1%) Food & Beverages........ 1,822,511 (1.8%) 552,782 (0.6%) 1,693,834 (2.8%) Forest Products & 52,594 (0.1%) 261,625 (0.4%) Paper.................. Healthcare Services..... 1,858,959 (1.8%) 2,159,197 (2.3%) Hotel & Motel........... 981,770 (1.0%) Household Appliances & 617,587 (0.7%) Home Furnishings....... Insurance............... 2,665,512 (2.6%) 3,326,513 (3.5%) 7,298,843 (12.0%) Machinery............... 69,400 (0.1%) 584,593 (1.0%) Medical Supply.......... 1,846,006 (2.0%) 1,113,861 (1.8%) Metals--Gold............ 14,688 (0.0%) 247,458 (0.4%) Metals--Non-Ferrous..... 364,000 (0.4%) 213,760 (0.4%) Metals--Steel & Iron.... 458,394 (0.8%) Mining.................. 443,368 (0.7%) Miscellaneous........... 1,842,291 (2.0%) Multi-Industry.......... 1,319,463 (1.3%) 1,727,416 (2.8%) Office & Business 1,772,944 (1.7%) 2,371,144 (2.5%) 1,768,470 (2.9%) Equipment.............. Oil & Gas Exploration... 1,892,111 (2.0%) Oil--Domestic........... 46,575 (0.0%) Oil--International...... 1,329,968 (2.2%) Oil--Services........... 1,363,250 (1.4%) 523,959 (0.9%) Plastics................ 1,356,956 (1.3%) 333,450 (0.4%) Pollution Control....... 448,322 (0.5%) Printing & Publishing... 38,375 (0.0%) 148,548 (0.2%) Real Estate............. 2,574,758 (2.5%) 453,506 (0.5%) 326,281 (0.5%) Restaurant.............. 9,003,672 (8.7%) 956,133 (1.0%) Retail Grocery.......... 323,275 (0.3%) 565,025 (0.6%) Retail Trade............ 3,673,828 (3.5%) 6,760,914 (7.2%) 264,075 (0.4%) Shipbuilding............ 416,500 (0.4%) Software................ 3,020,850 (2.9%) 6,090,820 (6.5%) 1,565,031 (2.6%) Technology.............. 16,949 (0.0%) Telecommunications 4,621,813 (4.9%) 521,314 (0.9%) Equipment & Services... Textiles & Apparel...... 1,289,919 (1.4%) Tires & Rubber.......... 458,339 (0.8%) Transportation.......... 327,750 (0.3%) Transportation-- 1,388,156 (1.3%) 567,225 (0.6%) 1,067,700 (1.8%) Airlines............... Transportation-- 494,413 (0.5%) 711,123 (1.2%) Railroad............... Transportation-- 346,544 (0.4%) Trucking............... Utilities--Electric..... 2,729,894 (2.6%) 3,366,089 (5.5%) Utilities--Gas 619,281 (1.0%) Distribution & Pipelines.............. Utilities-- 552,834 (0.5%) Miscellaneous.......... Utilities--Telephone.... 1,637,908 (1.6%) 1,031,758 (1.1%) 963,189 (1.6%) ------------ ----------- ----------- Total Common Stock...... 99,244,370 (95.6%) 91,984,119 (97.8%) 43,571,568 (71.8%) ------------ ----------- ----------- PREFERRED STOCK Food & Beverages........ 369,607 (0.6%) Metals--Steel & Iron.... 651,921 (1.1%) Oil--International...... 950,554 (1.6%) Software................ 686,984 (1.1%) ------------ ----------- ----------- Total Preferred Stock... -- (0.0%) -- (0.0%) 2,659,066 (4.4%) ------------ ----------- ----------- Total Equity 99,244,370 (95.6%) 91,984,119 (97.8%) 46,230,634 (76.2%) Securities............. LONG-TERM DEBT SECURITIES Federal Treasury 8,051,582 (13.2%) Obligations............ Foreign Obligations..... 1,873,970 (3.1%) ------------ ----------- ----------- Total Long-Term Debt -- (0.0%) -- (0.0%) 9,925,552 (16.3%) Securities............. SHORT-TERM OBLIGATIONS Commercial Paper........ 1,879,000 (3.1%) Banking................. 410,282 (0.4%) Federal Agency 4,999,167 (4.8%) 1,518,800 (1.6%) 3,999,472 (6.6%) Obligations............ Financial Services...... 4,899,088 (4.7%) 1,657,167 (1.8%) ------------ ----------- ----------- Total Short-Term 9,898,255 (9.5%) 3,586,249 (3.8%) 5,878,472 (9.7%) Obligations............ ------------ ----------- ----------- TOTAL INVESTMENTS....... 109,142,625 (105.1%) 95,570,368 (101.6%) 62,034,658 (102.2%) Other Assets Less (5,290,984) (-5.1%) (1,550,362) (-1.6%) (1,322,516) (-2.2%) Liabilities............ ------------ ----------- ----------- NET ASSETS.............. $103,851,641 (100.0%) $94,020,006 (100.0%) $60,712,142 (100.0%) ============ =========== ===========
METROPOLITAN TOWER SEPARATE ACCOUNT UL NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) 5. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 1997--(CONCLUDED) The value of the investments of the Fund's portfolios are determined using the following valuation techniques. Portfolio securities that are traded on domestic stock exchanges are valued at the last price as of the close of business on the day the securities are being valued, or, lacking any sales, at the mean between closing bid and asked prices (except for the Loomis Sayles High Yield Bond Portfolio, which in the latter case would value such securities at the last bid price). Securities trading primarily on non- domestic exchanges are valued at the preceding closing price on the exchange where it primarily trades (or, in the case of the Loomis Sayles High Yield Bond and Scudder Global Equity Portfolios, the last sale). A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for that security by the Board of Directors or its delegates. If no closing price is available, then such securities are valued by using the mean between the last current bid and asked prices or, second, by using the last available closing price (except for the Scudder Global Equity Portfolio which second values such securities at the last current bid, and third by using the last available price). Domestic securities traded in the over-the-counter market are valued at the mean between the bid and asked prices or yield equivalent as obtained from two or more dealers that make markets in the securities (except for the Loomis Sayles High Yield Bond Portfolio, which, in the latter case, would value such security at the last bid price; or the Scudder Global Equity Portfolio which would value such security first at the last sale, and second at the bid price). All non-U.S. securities traded in the over-the-counter securities market are valued at the last sale quote, if market quotations are available, or the last closing bid price, if there is no active trading in a particular security for a given day. Where market quotations are not readily available such non-domestic over-the-counter securities, then such securities will be valued in good faith by a method that the Board of Directors, or it delegates, believe accurately reflects fair value. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, and it is expected that for debt securities this ordinarily will be the over-the-counter market. Securities and assets for which market quotations are not readily available (e.g. certain long-term bonds and notes) are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained for this purpose and typically utilized by other institutional-sized trading organizations. Forward foreign currency exchange contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Short-term instruments with a remaining maturity of sixty days or less are valued utilizing the amortized cost, method of valuation. If for any reason the fair value of any security is not fairly reflected by such method, such security will be valued by the same methods as securities having a maturity of more than sixty days. Options, whether on securities, indices, or futures contracts, are valued at the last sales price available as of the close of business on the day of valuation or, if no sale, at the mean between the bid and asked prices. Options on currencies are valued at the spot price each day. As a general matter, futures contracts are marked-to-market daily. The value of futures contracts will be the sum of the margin deposit plus or minus the difference between the value of the futures contract on each day the net asset value is calculated and the value on the date the futures contract originated, value being that established on a recognized commodity exchange, or by reference to other customary sources, with gain or loss being realized when the futures contract closes or expires. INDEPENDENT AUDITORS' REPORT Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company (the "company") as of December 31, 1997 and 1996 and the related consolidated statements of earnings, equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the company at December 31, 1997 and 1996 and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the company has changed the method of accounting for investment income on certain structured securities. Deloitte & Touche LLP New York, New York February 12, 1998, except for Note 17, as to which the date is March 12, 1998 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (IN MILLIONS)
NOTES 1997 1996 ----- -------- -------- ASSETS Investments: Fixed Maturities:.................................... 2,15 Available for Sale, at Estimated Fair Value........ $ 92,630 $ 75,039 Held to Maturity, at Amortized Cost................ -- 11,322 Equity Securities.................................... 2,15 4,250 2,816 Mortgage Loans on Real Estate........................ 2,15 20,247 18,964 Policy Loans......................................... 15 5,846 5,842 Real Estate.......................................... 2 6,111 7,498 Real Estate Joint Ventures........................... 4 680 851 Other Limited Partnership Interests.................. 4 855 1,004 Leases and Leveraged Leases.......................... 2 2,123 1,763 Short-Term Investments............................... 15 705 741 Other Invested Assets................................ 2,338 2,692 -------- -------- Total Investments.................................. 135,785 128,532 Cash and Cash Equivalents.............................. 15 2,871 2,325 Deferred Policy Acquisition Costs...................... 6,436 7,227 Accrued Investment Income.............................. 1,860 1,611 Premiums and Other Receivables......................... 5 3,280 2,916 Deferred Income Taxes Recoverable...................... 6 -- 37 Other Assets........................................... 3,055 2,340 Separate Account Assets................................ 48,620 43,763 -------- -------- Total Assets........................................... $201,907 $188,751 ======== ======== LIABILITIES AND EQUITY Liabilities Future Policy Benefits................................. 5 $ 72,125 $ 69,115 Policyholder Account Balances.......................... 15 48,533 47,674 Other Policyholder Funds............................... 4,681 4,758 Policyholder Dividends Payable......................... 1,373 1,348 Short- and Long-Term Debt.............................. 9,15 7,203 5,257 Income Taxes Payable:.................................. 6 Current.............................................. 480 599 Deferred............................................. 472 -- Other Liabilities...................................... 4,695 4,618 Separate Account Liabilities........................... 48,338 43,399 -------- -------- Total Liabilities...................................... 187,900 176,768 -------- -------- Commitments and Contingencies (Notes 2 and 10) Equity Retained Earnings...................................... 12,140 10,937 Net Unrealized Investment Gains........................ 3 1,898 1,028 Foreign Currency Translation Adjustments............... (31) 18 -------- -------- Total Equity........................................... 16 14,007 11,983 -------- -------- Total Liabilities and Equity........................... $201,907 $188,751 ======== ========
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1997, AND 1996 AND 1995 (IN MILLIONS)
NOTES 1997 1996 1995 ----- ------- ------- ------- REVENUES Premiums...................................... 5 $11,299 $11,462 $11,178 Universal Life and Investment-Type Product Policy Fee Income............................ 1,458 1,243 1,177 Net Investment Income......................... 3 9,475 8,993 8,837 Investment Gains (Losses), Net................ 3 798 231 (157) Commissions, Fees and Other Income............ 1,344 1,256 834 ------- ------- ------- Total Revenues............................ 24,374 23,185 21,869 ------- ------- ------- BENEFITS AND OTHER DEDUCTIONS Policyholder Benefits......................... 5 12,328 12,399 11,915 Interest Credited to Policyholder Account Bal- ances........................................ 2,874 2,868 3,143 Policyholder Dividends........................ 1,720 1,728 1,786 Other Operating Costs and Expenses............ 11 5,759 4,784 4,281 ------- ------- ------- Total Benefits and Other Deductions....... 22,681 21,779 21,125 ------- ------- ------- Earnings from Continuing Operations Before In- come Taxes................................... 1,693 1,406 744 Income Taxes.................................. 6 476 482 407 ------- ------- ------- Earnings from Continuing Operations........... 1,217 924 337 ------- ------- ------- Discontinued Operations: 13 Loss from Discontinued Operations (Net of Income Tax (Benefit) Expense of $(8) in 1997, $(18) in 1996 and $32 in 1995)....... (14) (52) (54) (Loss) Gain on Disposal of Discontinued Op- erations (Net of Income Tax (Benefit) Ex- pense of $(11) in 1996 and $106 in 1995)... -- (19) 416 ------- ------- ------- (Loss) Earnings from Discontinued Operations.. (14) (71) 362 ------- ------- ------- Net Earnings.................................. 16 $ 1,203 $ 853 $ 699 ======= ======= =======
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
NOTES 1997 1996 1995 ----- ------- ------- ------- Retained Earnings, Beginning of Year.......... $10,937 $10,084 $ 9,385 Net Earnings.................................. 1,203 853 699 ------- ------- ------- Retained Earnings, End of Year................ 12,140 10,937 10,084 ------- ------- ------- Net Unrealized Investment Gains (Losses), Be- ginning of Year.............................. 1,028 1,646 (955) Change in Unrealized Investment Gains (Loss- es).......................................... 3 870 (618) 2,601 ------- ------- ------- Net Unrealized Investment Gains, End of Year.. 1,898 1,028 1,646 ------- ------- ------- Foreign Currency Translation Adjustments, Be- ginning of Year.............................. 18 24 (2) Change in Foreign Currency Translation Adjust- ments........................................ (49) (6) 26 ------- ------- ------- Foreign Currency Translation Adjustments, End of Year...................................... (31) 18 24 ------- ------- ------- Total Equity, End of Year..................... 16 $14,007 $11,983 $11,754 ======= ======= =======
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN MILLIONS)
1997 1996 1995 -------- -------- -------- Net Earnings $ 1,203 $ 853 $ 699 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Change in Deferred Policy Acquisition Costs, Net. (159) (391) (376) Change in Accrued Investment Income.............. (215) 350 (191) Change in Premiums and Other Receivables......... (819) (106) (29) Change in Undistributed Income of Real Estate Joint Ventures and Other Limited Partnership Interests................... 163 (45) (221) Gains from Sales of Investments and Businesses, Net............................................. (1,029) (428) (595) Depreciation and Amortization Expenses........... 516 (18) 30 Interest Credited to Policyholder Account Bal- ances........................................... 2,874 2,868 3,143 Universal Life and Investment-Type Product Policy Fee Income...................................... (1,458) (1,243) (1,177) Change in Future Policy Benefits................. 1,641 2,149 2,332 Change in Other Policyholder Funds............... 88 181 (66) Change in Income Taxes Payable................... (99) (134) 327 Other, Net....................................... 512 (348) 947 -------- -------- -------- Net Cash Provided by Operating Activities.......... 3,218 3,688 4,823 -------- -------- -------- Cash Flows from Investing Activities Sales, Maturities and Repayments of: Fixed Maturities................................ 75,346 76,117 64,372 Equity Securities............................... 1,821 2,069 694 Mortgage Loans on Real Estate................... 2,381 2,380 3,182 Real Estate..................................... 1,875 1,948 1,193 Real Estate Joint Ventures...................... 205 410 387 Other Limited Partnership Interests............. 166 178 42 Leases and Leveraged Leases..................... 192 102 123 Purchases of: Fixed Maturities................................ (76,603) (76,225) (66,693) Equity Securities............................... (2,121) (2,742) (781) Mortgage Loans on Real Estate................... (4,119) (4,225) (2,491) Real Estate..................................... (387) (859) (904) Real Estate Joint Ventures...................... (72) (130) (285) Other Limited Partnership Interests............. (338) (307) (87) Assets to be Leased............................. (738) (585) (383) Net Change in Short-Term Investments.............. 37 1,028 (634) Net Change in Policy Loans........................ 17 (128) (112) Other, Net........................................ 442 45 (308) -------- -------- -------- Net Cash Used by Investing Activities.............. (1,896) (924) (2,685) -------- -------- -------- Cash Flows from Financing Activities Policyholder Account Balances: Deposits....................................... 16,061 17,167 16,017 Withdrawals.................................... (18,831) (19,321) (19,142) Additions to Long-Term Debt....................... 828 -- 692 Repayments of Long-Term Debt...................... (99) (284) (389) Net Increase (Decrease) in Short-Term Debt........ 1,265 69 (78) -------- -------- -------- Net Cash Used by Financing Activities.............. (776) (2,369) (2,900) -------- -------- -------- Change in Cash and Cash Equivalents................ 546 395 (762) Cash and Cash Equivalents, Beginning of Year....... 2,325 1,930 2,692 -------- -------- -------- Cash and Cash Equivalents, End of Year............. $ 2,871 $ 2,325 $ 1,930 ======== ======== ======== Supplemental Cash Flow Information Interest Paid.................................... $ 422 $ 310 $ 280 ======== ======== ======== Income Taxes Paid................................ $ 589 $ 497 $ 283 ======== ======== ========
See accompanying notes to consolidated financial statements. METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNLESS OTHERWISE INDICATED, ALL AMOUNTS ARE IN MILLIONS OF DOLLARS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (collectively, the "company") provide life insurance and annuity products and pension, pension-related and investment-related products and services to individuals, corporations and other institutions. The company also provides nonmedical health, disability and property and casualty insurance and offers investment management, investment advisory and commercial finance services. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The New York State Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determination. The consolidated financial statements include the accounts of MetLife and its subsidiaries, partnerships and joint venture interests in which MetLife has control. Other equity investments in affiliated companies, partnerships and joint ventures are generally reported on the equity basis. Minority interest relating to certain consolidated entities amounted to $277 and $149 at December 31, 1997 and 1996, respectively, and is included in other liabilities. Significant intercompany transactions and balances have been eliminated in consolidation. Prior years' amounts have been reclassified to conform to the 1997 presentation. On December 31, 1995, the company reclassified (under one-time accounting implementation guidance) to available for sale certain held to maturity securities. On July 1, 1997, the company reclassified to available for sale all securities classified as held to maturity on that date as management concluded that all securities are now available for sale. As a result, consolidated equity at July 1, 1997 and December 31, 1995 increased by $198 and $135, respectively, excluding the effects of deferred income taxes, amounts attributable to participating pension contracts, and adjustments of deferred policy acquisition costs and future policy benefit loss recognition. During 1997 management changed to the retrospective interest method of accounting for investment income on structured note securities in accordance with authoritative guidance issued in late 1996. As a result, net investment income increased by $175. The cumulative effect of this accounting change on prior years' income is not material. VALUATION OF INVESTMENTS SECURITIES--As mentioned above, during 1997 management reclassified all of the company's fixed maturity securities to available for sale. Accordingly, as of December 31, 1997, all of the company's investment securities are carried at estimated fair value. Prior to this reclassification, certain fixed maturity securities (principally bonds and redeemable preferred stock) were carried at amortized cost. Unrealized investment gains and losses on investment securities are recorded directly as a separate component of equity net of related deferred income taxes, amounts attributable to participating pension contracts and adjustments of deferred policy acquisition costs and future policy benefit loss recognition. Costs of securities are adjusted for impairments in value considered other than temporary. Such adjustments are recorded as realized investment losses. All security transactions are recorded on a trade date basis. MORTGAGE LOANS in good standing are carried at amortized cost. A provision is made for a realized investment loss (and a corresponding allowance is established) when it becomes probable that the company will be unable to collect all amounts due under the terms of the loan agreement. The provision generally is equal to the excess of the carrying value of the mortgage loan over its estimated fair value. Estimated fair value is based on either the present value of NOTES TO FINANCIAL STATEMENTS--(CONTINUED) expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral. Mortgage loans considered to be uncollectible are charged against the allowance and subsequent recoveries are credited to the allowance. Interest income earned on loans where the collateral value is used to measure impairment is recorded on a cash basis. Interest income earned on loans where the present value method is used to measure impairment is accrued on the net carrying value amount of the loan at the interest rate used to discount the cash flows. POLICY LOANS are stated at unpaid principal balances. INVESTMENT REAL ESTATE is generally stated at depreciated cost. Real estate acquired in satisfaction of debt is recorded at estimated fair value at the date of foreclosure. If events or changes in circumstances indicate that the carrying amount of the investment exceeds its expected future cash flows, a realized investment loss is recorded for the impairment. Real estate investments that management intends to sell in the near term are reported at the lower of cost or estimated fair market value less allowances for the estimated cost of sales. Changes in the allowance relating to real estate to be disposed of and impairments of real estate are reported as realized investment gains or losses. Depreciation of real estate is computed evenly over the estimated useful lives of the properties (20 to 40 years). LEASES AND LEVERAGED LEASES--The company is the lessor of equipment in both direct financing and operating lease transactions. At lease commencement, the company records the aggregate future minimum lease payments due and the estimated residual value of the leased equipment less the unearned lease income for direct financing leases. The unearned lease income represents the excess of aggregate future minimum lease receipts plus the estimated residual value over the cost of the leased equipment. Lease income is recognized over the term of the lease in a manner which reflects a level yield on the net investment in the lease. Certain origination fees and costs are deferred and recognized over the term of the lease using the interest method. For operating lease transactions, the cost of equipment or its net realizable value is depreciated evenly over its estimated economic life. The company participates in leasing transactions in which it supplies only a portion of the purchase price, but generally has the entire equity interest in the equipment and rentals receivable (leveraged leases). These interests, however, are subordinated to the interests of the lenders supplying the nonequity portion of the purchase price. The financing is generally in the form of long-term debt that provides for no recourse against the company and is collateralized by the property. The investment in leveraged leases is recorded net of the nonrecourse debt. Revenue, including related tax benefits, is recorded over the term of the lease at a level rate of return. Management regularly reviews residual values and writes down residuals to expected values as needed. SHORT-TERM INVESTMENTS are stated at amortized cost, which approximates fair value. INVESTMENT RESULTS Realized investment gains and losses are determined by specific identification and are presented as a component of revenues. Valuation allowances are deducted from asset categories to which they apply and provisions for losses for investments are included in investment gains and losses. Investment gains and losses are reduced by amounts attributable to participating pension contracts and adjustments of deferred policy acquisition costs and future policy benefit loss recognition. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments purchased with an original maturity of three months or less. PROPERTY AND EQUIPMENT Property and equipment and leasehold improvements are included in other assets, and are stated at cost, less accumulated depreciation and amortization. Depreciation, including charges relating to capitalized leases, is provided evenly or using sum of the years digits method over the lesser of estimated useful lives of the assets or, where NOTES TO FINANCIAL STATEMENTS--(CONTINUED) appropriate, the term of the lease. Estimated lives range from 20 to 40 years for real estate and 5 to 15 years for all other property and equipment. Amortization of leasehold improvements is provided evenly over the lesser of the term of the lease or the estimated useful life of the improvements. DEFERRED POLICY ACQUISITION COSTS The costs of acquiring new business that vary with and are primarily related to the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized over 40 years for participating traditional life and 30 years for universal life and investment-type products. Amortization is recorded based on a constant percentage of estimated gross margins or profits (arising principally from surrender charges and interest, mortality and expense margins based on historical and anticipated future experience). Changes to amounts previously amortized are reflected in earnings in the period related estimates are revised. For nonparticipating traditional life and annuity policies with life contingencies, deferred policy acquisition costs are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issue and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in earnings when they occur. For these contracts, the amortization periods generally are for the estimated life of the policy. For nonmedical health insurance contracts, deferred policy acquisition costs are amortized over the estimated life of the contracts (generally 10 years) in proportion to anticipated premium revenue at the time of issue. For property and liability insurance, deferred policy acquisition costs are amortized over the terms of policies or reinsurance treaties. OTHER INTANGIBLE ASSETS The value of insurance acquired and the excess of purchase price over the fair value of net assets acquired are included in other assets. The value of insurance acquired is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts. The excess of purchase price over the fair value of net assets acquired is amortized evenly over 10 years. FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (a) net level premium reserves for death and endowment policy benefits (calculated based on the nonforfeiture interest rate, ranging from 2.5 percent to 7.0 percent, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (b) the liability for terminal dividends, and (c) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 6.0 percent to 8.25 percent. 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 less expense and mortality charges and withdrawals. Benefit liabilities for nonmedical 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. Benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) For property and liability insurance, the liability for unpaid reported losses is based on a case by case or overall estimate using the company's past experience. A provision is also made for losses incurred but not reported on the basis of estimates and past experience. Revisions of estimates are reflected in net earnings in the year such refinements are made. RECOGNITION OF INCOME AND EXPENSE Premiums from traditional life and annuity policies with life contingencies are recognized as income when due. Benefits and expenses are matched with such income resulting in the recognition of profits over the life of the contract. This match is accomplished through the provision for future policy benefits and the deferral and subsequent amortization of policy acquisition costs. Premiums due over a significantly shorter period than the total period over which benefits are provided are recorded as income when due with any excess profit deferred and recognized as income in a constant relationship to insurance in-force or, for annuities, the amount of expected future benefit payments. Premiums from nonmedical health contracts are recognized as income on a pro rata basis over the contract term. Premiums from universal life and investment-type contracts are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to expense include benefit claims incurred in the period in excess of related policyholder account balances and interest credited to policyholder account balances. Property and liability premiums are generally recognized as revenue on a pro rata basis over the policy term. Unearned premiums are included in other liabilities. POLICYHOLDER DIVIDENDS The amount of policyholder dividends to be paid is determined annually by the board of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year and management's judgment as to the appropriate level of statutory surplus to be retained by the company. INCOME TAXES MetLife and its eligible life insurance and nonlife insurance subsidiaries file a consolidated U.S. federal income tax return and separate income tax returns as required. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured as of the balance sheet dates and are recorded as deferred income tax assets or liabilities. SEPARATE ACCOUNT OPERATIONS 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 held in the Separate Accounts (stated at estimated fair value) and liabilities of the Separate Accounts (including participants' corresponding equity in the Separate Accounts) are reported separately as assets and liabilities. Deposits to Separate Accounts are reported as increases in Separate Account liabilities and are not reported in revenues. Mortality, policy administration and surrender charges to all Separate Accounts are included in revenues. DISCONTINUED OPERATIONS Certain operations have been discontinued and, accordingly, are segregated in the consolidated statements of earnings. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign operations and subsidiaries are translated at the exchange rate in effect at year-end. Revenues and benefits and other expenses are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are charged or credited directly to equity. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FUTURE APPLICATION OF ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 125 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and SFAS No. 127 Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125 provide accounting and reporting standards relating to transfers of security interests, repurchase agreements, dollar rolls, securities lending and similar transactions which will be effective in 1998. The company believes that the application of these standards will not have a material impact on the company's results of operations, financial position or liquidity. SFAS No. 130 Reporting Comprehensive Income establishes standards for reporting and presentation of comprehensive income and its components and will be effective in 1998. Comprehensive income, which includes all changes to equity except those resulting from investments by owners or distributions to owners, was $2,024, $229 and $3,326 in 1997, 1996 and 1995, respectively. Consolidated statements of comprehensive income have not been presented, as the company has not determined the individual amounts to be displayed in such statements. 2. INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES The cost or amortized cost, gross unrealized gain and loss, and estimated fair value of fixed maturity and equity securities, by category, were as follows:
COST OR GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- --------- ----------------- DECEMBER 31, 1997 Available for Sale Securities: Fixed Maturities: Bonds: U. S. Treasury securities and obligations of U. S. government corporations and agencies............ $ 10,619 $ 1,511 $ 2 $ 12,128 States and political subdivisions..... 486 22 -- 508 Foreign governments................... 3,420 371 52 3,739 Corporate............................. 41,191 2,343 290 43,244 Mortgage-backed securities............ 22,191 572 21 22,742 Other................................. 9,463 428 134 9,757 -------- --------- ------ -------- Total bonds......................... 87,370 5,247 499 92,118 Redeemable preferred stocks............. 494 19 1 512 -------- --------- ------ -------- Total fixed maturities.............. $ 87,864 $ 5,266 $ 500 $ 92,630 ======== ========= ====== ======== Equity Securities: Common stocks........................... $ 2,444 $ 1,716 $ 105 $ 4,055 Nonredeemable preferred stocks.......... 201 5 11 195 -------- --------- ------ -------- Total equity securities............. $ 2,645 $ 1,721 $ 116 $ 4,250 ======== ========= ====== ========
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
COST OR GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- --------- ------------------ DECEMBER 31, 1996 Available for Sale Securities: Fixed Maturities: Bonds: U. S. Treasury securities and obligations of U. S. government corporations and agencies........... $12,949 $ 901 $128 $13,722 States and political subdivisions.... 536 13 1 548 Foreign governments.................. 2,597 266 6 2,857 Corporate............................ 32,520 1,102 294 33,328 Mortgage-backed securities........... 21,200 407 91 21,516 Other................................ 2,511 90 30 2,571 ------- --------- ------- ------- Total bonds........................ 72,313 2,779 550 74,542 Redeemable preferred stocks............ 500 -- 3 497 ------- --------- ------- ------- Total fixed maturities............. $72,813 $ 2,779 $ 553 $75,039 ======= ========= ======= ======= Equity Securities: Common stocks.......................... $ 1,882 $ 648 $ 55 $ 2,475 Nonredeemable preferred stocks......... 371 51 81 341 ------- --------- ------- ------- Total equity securities............ $ 2,253 $ 699 $ 136 $ 2,816 ======= ========= ======= =======
GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- -------- -------- ---------- DECEMBER 31, 1996 Held to Maturity Securities: Fixed Maturities: Bonds: U.S. Treasury securities and obliga- tions of U.S. government corpora- tions and agencies............................ $ 48 $ 3 $ 51 States and political subdivisions.... 58 1 59 Foreign governments.................. 260 5 265 Corporate............................ 7,520 236 $ 64 7,692 Mortgage-backed securities........... 689 1 16 674 Other................................ 2,746 85 24 2,807 ------- -------- -------- ------- Total bonds........................ 11,321 331 104 11,548 Redeemable preferred stocks............ 1 -- -- 1 ------- -------- -------- ------- Total fixed maturities............. $11,322 $ 331 $ 104 $11,549 ======= ======== ======== =======
The amortized cost and estimated fair value of bonds, by contractual maturity, were as follows:
AMORTIZED ESTIMATED COST FAIR VALUE --------- ---------- DECEMBER 31, 1997 Due in one year or less.............................. $ 1,916 $ 1,927 Due after one year through five years................ 15,830 16,260 Due after five years through 10 years................ 23,023 24,067 Due after 10 years................................... 24,410 27,122 ------- ------- Subtotal........................................... 65,179 69,376 Mortgage-backed securities........................... 22,191 22,742 ------- ------- Total.............................................. $87,370 $92,118 ======= =======
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) MORTGAGE LOANS Mortgage loans are collateralized by properties principally located throughout the United States and Canada. At December 31, 1997, approximately 15 percent, 7 percent and 6 percent of the properties were located in California, Illinois 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. The mortgage loan investments were categorized as follows:
1997 1996 ---- ---- DECEMBER 31 Office buildings................................................ 32% 30% Retail.......................................................... 16% 19% Residential..................................................... 15% 16% Agricultural.................................................... 18% 18% Other........................................................... 19% 17% ---- ---- Total......................................................... 100% 100% ==== ====
Many of the company's real estate joint ventures have mortgage loans with the company. The carrying values of such mortgages were $753 and $869 at December 31, 1997 and 1996, respectively. Mortgage loan valuation allowances and changes thereto were as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Balance, January 1............................... $ 444 $ 466 $ 483 Additions charged to income...................... 61 144 107 Deductions for writedowns and dispositions....... (241) (166) (124) ------ ------ ------ Balance, December 31............................. $ 264 $ 444 $ 466 ====== ====== ====== Impaired mortgage loans and related valuation allowances were as follows: 1997 1996 ------ ------ DECEMBER 31 Impaired mortgage loans with valuation allow- ances........................................... $1,231 $1,677 Impaired mortgage loans with no valuation allow- ances........................................... 306 165 ------ ------ Recorded investment in impaired mortgage loans... 1,537 1,842 Valuation allowances............................. (250) (427) ------ ------ Net impaired mortgage loans...................... $1,287 $1,415 ====== ====== 1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Average recorded investment in impaired mortgage loans........................................... $1,680 $2,113 $2,365 ====== ====== ======
Interest income on impaired mortgage loans recorded on a cash basis totaled $110 , $122 and $169 for the years ended December 31, 1997, 1996 and 1995, respectively. REAL ESTATE Accumulated depreciation on real estate was as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Balance, January 1................................ $2,109 $2,187 $2,757 Depreciation expense.............................. 332 348 427 Deductions for dispositions....................... (475) (426) (997) ------ ------ ------ Balance, December 31.............................. $1,966 $2,109 $2,187 ====== ====== ======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Real estate valuation allowances and changes thereto were as follows:
1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Balance, January 1................................... $ 529 $ 743 $ 622 (Credited) charged to income......................... (52) 127 358 Deductions for writedowns and dispositions........... (436) (341) (237) ----- ----- ----- Balance, December 31................................. $ 41 $ 529 $ 743 ===== ===== =====
The above table does not include valuation allowances of $55, $118 and $167 at December 31, 1997, 1996 and 1995, respectively, relating to investments in real estate joint ventures. Prior to 1996, the company established valuation allowances for all impaired real estate investments including real estate held for investment. During 1996, $150 of allowances relating to real estate held for investment were applied as writedowns to specific properties. During 1997, allowances of $94 relating to real estate held for sale were applied as writedowns to specific properties. The balances in the real estate valuation allowances at December 31, 1997 and 1996, relate to properties that management has committed to a plan of sale. The carrying values, net of valuation allowances, of properties committed to a plan of sale were $206 and $1,844 at December 31, 1997 and 1996, respectively. Net investment income relating to such properties was $8 and $60 for the years ended December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996, the company owned real estate acquired in satisfaction of debt of $218 and $456, respectively. LEASES AND LEVERAGED LEASES The company's investment in direct financing leases and leveraged leases was as follows:
DIRECT FINANCING LEVERAGED LEASES LEASES TOTAL -------------- ------------- -------------- 1997 1996 1997 1996 1997 1996 ------ ------ ------ ----- ------ ------ DECEMBER 31 Investment................ $1,137 $1,247 $ 851 $ 387 $1,988 $1,634 Estimated residual values. 183 238 641 543 824 781 ------ ------ ------ ----- ------ ------ Total................... 1,320 1,485 1,492 930 2,812 2,415 Unearned income........... (261) (336) (428) (316) (689) (652) ------ ------ ------ ----- ------ ------ Net investment............ $1,059 $1,149 $1,064 $ 614 $2,123 $1,763 ====== ====== ====== ===== ====== ======
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from three to eight years, but in certain circumstances are as long as 20 years. Average yields range from 7 percent to 12 percent. These receivables are generally collateralized by the related property. Scheduled aggregate receipts for the investment and estimated residual values in direct financing leases were as follows:
DIRECT FINANCING RESIDUALS TOTAL --------- --------- ------ YEARS ENDED DECEMBER 31 1998......................................... $ 229 $ 14 $ 243 1999......................................... 211 19 230 2000......................................... 192 25 217 2001......................................... 147 19 166 2002......................................... 114 22 136 Thereafter................................... 244 84 328 ------ ---- ------ Total........................................ $1,137 $183 $1,320 ====== ==== ======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Historical collection experience indicates that a portion of the above amounts will be paid prior to contractual maturity. Accordingly, the future receipts, as shown above, should not be regarded as a forecast of future cash flows. FINANCIAL INSTRUMENTS The company has a securities lending program whereby large blocks of securities are loaned to third parties, primarily major brokerage firms. Company policy requires a minimum of 102 percent of the fair value of the loaned securities to be separately maintained as collateral for the loans. The collateral is recorded in memorandum records and is not reflected in the consolidated balance sheets. To further minimize the credit risks related to this lending program, the company regularly monitors the financial condition of the borrowers. The company engages in a variety of derivative transactions. Certain derivatives, such as forwards, futures, options and swaps, which do not themselves generate interest or dividend income, are acquired or sold in order to hedge or reduce risks applicable to assets held, or expected to be purchased or sold, and liabilities incurred or expected to be incurred. The company also may occasionally sell covered call options. The company does not engage in trading of derivatives. Derivative financial instruments involve varying degrees of market risk resulting from changes in the volatility of interest rates, foreign currency exchange rates or market values of the underlying financial instruments. The company's risk of loss is typically limited to the fair value of these instruments and not by the notional or contractual amounts which reflect the extent of involvement but not necessarily the amounts subject to risk. Credit risk arises from the possible inability of counterparties to meet the terms of the contracts. Credit risk due to counterparty nonperformance associated with these instruments is the unrealized gain, if any, reflected by the fair value of such instruments. During the three year period ended December 31, 1997, the company employed several ongoing derivatives strategies. The company entered into a number of anticipatory hedge agreements using securities forwards, futures and interest rate swaps to limit the interest rate exposure of investments expected to be acquired or sold within one year. The company also executed swaps and foreign currency forwards to hedge, including on an anticipatory basis, the foreign currency risk of foreign currency denominated investments. The company also used interest rate swaps and forwards to reduce risks from changes in interest rates and exposures arising from mismatches between assets and liabilities. In addition, the company has used interest rate caps to reduce the market and interest rate risks relating to certain assets and liabilities. Income and expense related to derivatives used to hedge or manage risks are recorded on the accrual basis as an adjustment to the yield of the related securities over the periods covered by the derivative contracts. Gains and losses relating to early terminations of interest rate swaps used to hedge or manage interest rate risk are deferred and amortized over the remaining period originally covered by the swap. Gains and losses relating to derivatives used to hedge the risks associated with anticipated transactions are deferred and utilized to adjust the basis of the transaction once it has closed. If it is determined that the transaction will not close, such gains and losses are included in realized investment gains and losses. ASSETS ON DEPOSIT As of December 31, 1997 and 1996, the company had assets on deposit with regulatory agencies of $4,695 and $4,062, respectively. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. NET INVESTMENT INCOME AND INVESTMENT GAINS The sources of net investment income were as follows:
1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Fixed maturities............................ $ 6,455 $ 6,042 $ 6,006 Equity securities........................... 50 60 45 Mortgage loans on real estate............... 1,684 1,523 1,501 Policy loans................................ 368 399 394 Real estate................................. 1,566 1,647 1,833 Real estate joint ventures.................. 42 21 41 Other limited partnership interests......... 302 215 149 Leases and leveraged leases................. 131 135 113 Cash, cash equivalents and short-term in- vestments.................................. 169 214 231 Other investment income..................... 235 281 326 ------- ------- ------- Gross investment income..................... 11,002 10,537 10,639 Investment expenses......................... (1,527) (1,544) (1,802) ------- ------- ------- Investment income, net...................... $ 9,475 $ 8,993 $ 8,837 ======= ======= ======= Investment gains (losses), including changes in valuation allowances, were as follows: 1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Fixed maturities............................ $ 118 $ 234 $ 621 Equity securities........................... 224 78 (5) Mortgage loans on real estate............... 56 (86) (51) Real estate................................. 249 165 (375) Real estate joint ventures.................. 117 61 (142) Other limited partnership interests......... 103 82 117 Other....................................... 162 (76) (92) ------- ------- ------- Subtotal................................ 1,029 458 73 Investment gains relating to: Participating pension contracts........... (35) (20) -- Amortization of deferred policy acquisi- tion costs............................... (70) (4) (78) Future policy benefit loss recognition.... (126) (203) (152) ------- ------- ------- Net investment gains (losses)............... $ 798 $ 231 $ (157) ======= ======= ======= Sales of bonds were as follows: 1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Bonds classified as available for sale Proceeds.................................. $72,396 $74,580 $58,537 Gross realized gains...................... 691 1,069 1,013 Gross realized losses..................... 584 842 402 Bonds classified as held to maturity Proceeds.................................. $ 352 $ 1,281 $ 1,806 Gross realized gains...................... 5 10 17 Gross realized losses..................... 1 1 4
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The net unrealized investment gains (losses), which are included in the consolidated balance sheets as a component of equity, and the changes for the corresponding years were as follows:
1997 1996 1995 ------ ------ ------- DECEMBER 31 Balance, comprised of: Unrealized investment gains on: Fixed maturities.......................... $4,766 $2,226 $ 5,166 Equity securities......................... 1,605 563 210 Other..................................... 294 474 380 ------ ------ ------- 6,665 3,263 5,756 ------ ------ ------- Amounts allocable to: Participating pension contracts............. 312 9 350 Loss recognition............................ 2,189 1,219 2,064 Deferred policy acquisition cost............ 1,147 420 748 Deferred income taxes....................... 1,119 587 948 ------ ------ ------- 4,767 2,235 4,110 ------ ------ ------- Total................................... $1,898 $1,028 $ 1,646 ====== ====== ======= 1997 1996 1995 ------ ------ ------- YEARS ENDED DECEMBER 31 Balance, January 1............................ $1,028 $1,646 $ (955) Unrealized investment gains (losses) during year......................................... 3,402 (2,493) 7,665 Unrealized investment (gains) losses allocable to: Participating pension contracts............. (303) 341 (258) Loss recognition............................ (970) 845 (2,063) Deferred policy acquisition costs........... (727) 328 (1,247) Deferred income taxes......................... (532) 361 (1,496) ------ ------ ------- Balance, December 31.......................... $1,898 $1,028 $ 1,646 ====== ====== =======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. JOINT VENTURES AND OTHER LIMITED PARTNERSHIPS Combined financial information for real estate joint ventures and other limited partnership interests accounted for under the equity method, in which the company has an investment of at least $10 and an equity interest of at least 10 percent, was as follows:
1997 1996 ------ ------ DECEMBER 31 Assets: Investments in real estate, at depreciated cost........ $ 938 $1,030 Investments in securities, at estimated fair value..... 717 621 Cash and cash equivalents.............................. 141 37 Other.................................................. 984 1,030 ------ ------ Total assets......................................... 2,780 2,718 ------ ------ Liabilities: Borrowed funds--third party............................ 384 243 Borrowed funds--MetLife................................ 136 69 Other.................................................. 678 915 ------ ------ Total liabilities.................................... 1,198 1,227 ------ ------ Partners' capital........................................ $1,582 $1,491 ====== ====== MetLife equity in partners' capital included above....... $ 822 $ 786 ====== ======
1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Operations: Revenues of real estate joint ventures......... $ 291 $ 275 $ 364 Revenues of other limited partnership inter- ests.......................................... 276 297 417 Interest expense--third party.................. (25) (11) (26) Interest expense--MetLife...................... (16) (19) (31) Other expenses................................. (396) (411) (501) ----- ----- ----- Net earnings..................................... $ 130 $ 131 $ 223 ===== ===== ===== MetLife earnings from real estate joint ventures and other limited partnership interests included above........................................... $ 59 $ 34 $ 28 ===== ===== =====
5. REINSURANCE AND OTHER INSURANCE TRANSACTIONS The company assumes and cedes insurance with other insurance companies. The consolidated statements of earnings are presented net of reinsurance ceded. The effect of reinsurance on premiums earned was as follows:
1997 1996 1995 ------- ------- ------- YEARS ENDED DECEMBER 31 Direct premiums............................ $12,749 $12,569 $11,944 Reinsurance assumed........................ 360 508 812 Reinsurance ceded.......................... (1,810) (1,615) (1,578) ------- ------- ------- Net premiums earned........................ $11,299 $11,462 $11,178 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits..................... $ 1,689 $ 1,667 $ 1,523 ======= ======= =======
Premiums and other receivables in the consolidated balance sheets include reinsurance recoverables of $1,579 and $700 at December 31, 1997 and 1996, respectively. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Activity in the liability for unpaid losses and loss adjustment expenses relating to property and casualty and group accident and nonmedical health policies and contracts was as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Balance at January 1........................... $3,345 $3,296 $2,670 Reinsurance recoverables..................... (215) (214) (104) ------ ------ ------ Net balance at January 1....................... 3,130 3,082 2,566 ------ ------ ------ Incurred related to: Current year................................. 2,855 2,951 3,420 Prior years.................................. 88 (114) (68) ------ ------ ------ Total incurred............................. 2,943 2,837 3,352 ------ ------ ------ Paid related to: Current year................................. 1,832 1,998 2,053 Prior years.................................. 815 791 783 ------ ------ ------ Total paid................................. 2,647 2,789 2,836 ------ ------ ------ Net balance at December 31..................... 3,426 3,130 3,082 Plus reinsurance recoverables................ 229 215 214 ------ ------ ------ Balance at December 31......................... $3,655 $3,345 $3,296 ====== ====== ======
The company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to material fluctuations in the company's results of operations. The company uses excess of loss and quota share reinsurance arrangements to reduce its catastrophe losses and provide diversification of risk. 6. INCOME TAXES Income tax expense for U. S. operations has been calculated in accordance with the provisions of the Internal Revenue Code, as amended (the "Code"). Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated by a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. The income tax expense (benefit) of continuing operations was as follows:
CURRENT DEFERRED TOTAL ------- -------- ----- 1997 Federal......................................... $432 $(26) $406 State and local................................. 10 9 19 Foreign......................................... 26 25 51 ---- ---- ---- Total......................................... $468 $ 8 $476 ==== ==== ==== 1996 Federal......................................... $346 $ 66 $412 State and local................................. 25 6 31 Foreign......................................... 27 12 39 ---- ---- ---- Total......................................... $398 $ 84 $482 ==== ==== ==== 1995 Federal......................................... $241 $ 65 $306 State and local................................. 52 3 55 Foreign......................................... 22 24 46 ---- ---- ---- Total......................................... $315 $ 92 $407 ==== ==== ====
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Reconciliations of the differences between income taxes of continuing operations computed at the federal statutory tax rates and consolidated provisions for income taxes were as follows:
1997 1996 1995 ------ ------ ---- YEARS ENDED DECEMBER 31 Earnings from continuing operations before income taxes................................... $1,693 $1,406 $744 Income tax rate................................. 35% 35% 35% ------ ------ ---- Expected income tax expense at federal statutory income tax rate................................ 593 492 260 Tax effect of: Tax exempt investment income.................. (30) (18) (9) Goodwill...................................... 9 -- -- Differential earnings amount.................. (40) 38 67 State and local income taxes.................. 15 23 37 Foreign operations............................ 7 (7) 25 Tax credits................................... (15) (15) (15) Prior year taxes.............................. (2) (46) (3) Sale of subsidiary............................ (41) -- -- Other, net.................................... (20) 15 45 ------ ------ ---- Income taxes.................................... $ 476 $ 482 $407 ====== ====== ====
The deferred income tax assets or liabilities recorded at December 31, 1997 and 1996 represent the net temporary differences between the tax bases of assets and liabilities and their amounts for financial reporting. The components of the net deferred income tax asset or liability were as follows:
1997 1996 ------ ------ DECEMBER 31 Deferred income tax assets: Policyholder liabilities and receivables........ $3,010 $2,889 Net operating loss carryforwards................ 33 38 Other, net...................................... 938 698 ------ ------ Total gross deferred income tax assets........ 3,981 3,625 Less valuation allowance........................ 24 14 ------ ------ Deferred income tax assets, net of valuation al- lowance.......................................... 3,957 3,611 ------ ------ Deferred income tax liabilities: Investments..................................... 1,227 848 Deferred policy acquisition costs............... 1,890 1,940 Net unrealized capital gains.................... 1,119 587 Other, net...................................... 193 199 ------ ------ Total deferred income tax liabilities......... 4,429 3,574 ------ ------ Net deferred income tax (liability) asset......... $ (472) $ 37 ====== ======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The sources of deferred income tax expense (benefit) and their tax effects were as follows:
1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Policyholder liabilities and receivables........... $(109) $ 53 $(105) Net operating loss carryforwards................... 5 (19) 89 Investments........................................ 382 50 199 Deferred policy acquisition costs.................. (51) 55 49 Change in valuation allowance...................... 10 4 (6) Other, net......................................... (229) (59) (134) ----- ----- ----- Total............................................ $ 8 $ 84 $ 92 ===== ===== ===== The valuation allowance for the tax benefits of net operating loss carryforwards reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for net operating loss carryforwards will not be realized. The benefit will be recognized when management believes that it is more likely than not that the deferred income tax asset is realizable. U.S. tax basis net operating loss carryforwards of $15 are available, subject to statutory limitation, to offset taxable income through the year 2012. 7. EMPLOYEE BENEFIT PLANS PENSION PLANS The company is both the sponsor and administrator of defined benefit pension plans covering all eligible employees and sales representatives of MetLife and certain of its subsidiaries. Retirement benefits are based on years of credited service and final average earnings history. Components of the net periodic pension (credit) cost for the defined benefit qualified and nonqualified pension plans were as follows: 1997 1996 1995 ----- ----- ----- YEARS ENDED DECEMBER 31 Service cost....................................... $ 73 $ 77 $ 62 Interest cost on projected benefit obligation...... 244 232 222 Actual return on assets............................ (318) (273) (280) Net amortization and deferrals..................... (5) (12) (13) ----- ----- ----- Net periodic pension (credit) cost................. $ (6) $ 24 $ (9) ===== ===== =====
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The funded status of the qualified and nonqualified defined benefit pension plans and a comparison of the accumulated benefit obligation, plan assets and projected benefit obligation were as follows:
1997 1996 ---------------------- ---------------------- OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED ---------- ----------- ---------- ----------- DECEMBER 31 Actuarial present value of obligations: Vested.................... $2,804 $ 251 $2,668 $223 Nonvested................. 33 2 36 2 ------ ----- ------ ---- Accumulated benefit obliga- tion...................... $2,837 $ 253 $2,704 $225 ====== ===== ====== ==== Projected benefit obliga- tion...................... $3,170 $ 353 $2,958 $310 Plan assets (principally company investment contracts) at contract value 3,831 151 3,495 133 ------ ----- ------ ---- Plan assets in excess of (less than) projected benefit obligation........ 661 (202) 537 (177) Unrecognized prior service cost...................... 125 25 139 26 Unrecognized net (gain) loss from past experience different from that assumed................... (130) 21 (27) 60 Unrecognized net asset at transition................ (140) -- (176) -- ------ ----- ------ ---- Prepaid (accrued) pension cost at December 31....... $ 516 $(156) $ 473 $(91) ====== ===== ====== ====
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation ranged from 7.25 percent to 7.75 percent for 1997 and 7.25 percent to 8.0 percent for 1996. The weighted average assumed rate of increase in future compensation levels ranged from 4.5 percent to 8.5 percent in 1997 and from 4.0 percent to 8.0 percent in 1996. The assumed long-term rate of return on assets used in determining the net periodic pension cost was 8.75 percent in 1997 and ranged from 8.0 percent to 8.5 percent in 1996. In addition, several other factors, such as expected retirement dates and mortality, enter into the determination of the actuarial present value of the accumulated benefit obligation. SAVINGS AND INVESTMENT PLANS The company sponsors savings and investment plans available for substantially all employees under which the company matches a portion of employee contributions. During 1997, 1996 and 1995, the company contributed $44, $42 and $49, respectively, to the plans. OTHER POSTRETIREMENT BENEFITS The company also provides certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the company's employees may, in accordance with the plans applicable to such benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the company. The components of the net periodic nonpension postretirement benefit cost were as follows:
1997 1996 1995 ---- ---- ---- YEARS ENDED DECEMBER 31 Service cost......................................... $ 31 $ 41 $ 28 Interest cost on accumulated postretirement benefit obligation.......................................... 122 127 115 Actual return on plan assets (company insurance contracts).......................................... (66) (58) (63) Net amortization and deferrals....................... (5) 2 (9) ---- ---- ---- Net periodic nonpension postretirement benefit cost.. $ 82 $112 $ 71 ==== ==== ====
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the postretirement health care and life insurance plans' combined status reconciled with the amount included in the company's consolidated balance sheets.
1997 1996 ------ ------ DECEMBER 31 Accumulated postretirement benefit obligation: Retirees............................................. $1,251 $1,228 Fully eligible active employees...................... 115 145 Active employees not eligible to retire.............. 397 400 ------ ------ Total............................................... 1,763 1,773 Plan assets (company insurance contracts) at contract value................................................ 1,004 897 ------ ------ Plan assets less than accumulated postretirement benefit obligation................................... (759) (876) Unrecognized net gain from past experience different from that assumed and from changes in assumptions.... (173) (60) ------ ------ Accrued nonpension postretirement benefit cost at December 31.......................................... $ (932) $ (936) ====== ======
The assumed health care cost trend rate used in measuring the accumulated nonpension postretirement benefit obligation was generally 9.0 percent in 1997, gradually decreasing to 5.25 percent over five years and generally 9.5 percent in 1996 decreasing to 5.25 percent over 12 years. The weighted average discount rate used in determining the accumulated postretirement benefit obligation ranged from 7.25 percent to 7.75 percent at December 31, 1997 and 7.0 percent to 7.75 percent at December 31, 1996. If the health care cost trend rate assumptions were increased 1.0 percent, the accumulated postretirement benefit obligation as of December 31, 1997 would be increased 6.75 percent. The effect of this change on the sum of the service and interest cost components of the net periodic postretirement benefit cost for the year ended December 31, 1997, would be an increase of 9.7 percent. 8. LEASES RENTAL INCOME ON REAL ESTATE OWNED AND LEASE EXPENSE In accordance with industry practice, certain of the company's lease agreements with retail tenants result in income that is contingent on the level of the tenants' sales revenues. Additionally, the company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental income, gross minimum rental payments and minimum sublease rental income relating to these lease agreements were as follows:
GROSS RENTAL RENTAL SUBLEASE INCOME PAYMENTS INCOME ------ -------- -------- DECEMBER 31 1998.......................................... $ 697 $146 $55 1999.......................................... 657 127 52 2000.......................................... 604 103 50 2001.......................................... 560 82 44 2002.......................................... 496 59 36 2003 and thereafter........................... 2,724 103 68
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 9. DEBT Debt consisted of the following:
SCHEDULED MATURITY 1997 1996 --------- ------ ------ DECEMBER 31 Surplus notes: 6.300% 2003 $ 397 $ 396 7.000% 2005 249 248 7.700% 2015 198 197 7.450% 2023 296 296 7.875% 2024 148 148 7.800% 2025 248 248 Floating rate notes, interest rates based on LIBOR................................. 1999-2007 358 49 Fixed rate notes, interest rates ranging from 5.80%-10.50%................................... 1998-2007 519 135 Zero coupon Eurobonds........................... 1999 79 71 Other........................................... 124 158 ------ ------ Total long-term debt............................ 2,616 1,946 Short-term debt................................. 4,587 3,311 ------ ------ Total........................................... $7,203 $5,257 ====== ======
Payments of interest and principal on the surplus notes may be made only with the prior approval of the Superintendent of Insurance of the State of New York (Superintendent). Subject to the prior approval of the Superintendent, the 7.45 percent surplus notes may be redeemed, in whole or in part, at the election of the company at any time on or after November 1, 2003. At December 31, 1997, aggregate maturities of the long-term debt based on required principal payments at maturity for 1998 and the succeeding four years amounted to $80, $377, $178, $9 and $11, respectively, and $1,979 thereafter. 10. CONTINGENCIES The company is currently a defendant in numerous state and federal lawsuits (including individual suits and putative class actions) raising allegations of improper marketing of individual life insurance. Litigation seeking compensatory and/or punitive damages relating to the marketing by the company of individual life insurance (including putative class and individual actions) continues to be brought by or on behalf of policyholders and others. These cases, most of which are in the early stages of litigation, seek substantial damages, including in some cases claims for punitive and treble damages and attorneys' fees, and raise, among other claims, allegations that individual life insurance policies were improperly sold in replacement transactions or with inadequate or inaccurate disclosure as to the period for which premiums would be payable, or were misleadingly sold as savings or retirement plans. Putative classes have been certified, conditionally or subject to appeal, in state court actions covering certain policyholders in California and West Virginia; class certification has been denied in a state court action in Ohio thus far. A number of the federal cases alleging improper marketing of individual life insurance have been consolidated in the United States District Court for the Western District of Pennsylvania and the United States District Court in Massachusetts for pretrial proceedings. Additional litigation relating to the company's marketing of individual life insurance may be commenced in the future. The company is vigorously defending itself in these actions. Regulatory authorities in a small number of states, including both insurance departments and attorneys general, have ongoing investigations of the company's sales of individual life insurance, including investigations of alleged improper replacement transactions and alleged improper sales of insurance with inaccurate or inadequate disclosures NOTES TO FINANCIAL STATEMENTS--(CONTINUED) as to the period for which premiums would be payable. In addition, an investigation by the Office of the United States Attorney for the Middle District of Florida, which commenced in 1994, into certain of the retirement and savings plan selling allegations that have been a subject of regulatory inquiries, has not been closed. In addition to the foregoing matters, the company is a defendant in a large number of asbestos lawsuits relating to allegations regarding certain research, advice and publication activity that occurred decades ago. While the company believes that it has significant defenses to these claims and has effected settlements in many of these cases and has prevailed in certain cases, it is not possible to predict the number of such cases that may be brought or the aggregate amount of any liability that may ultimately be incurred by the company. Various litigation, claims and assessments against the company, in addition to the aforementioned and those otherwise provided for in the company's financial statements, have arisen in the course of the company's business, including in connection with its activities as an insurer, employer, investor and taxpayer. Further, state insurance regulatory authorities and other state authorities regularly make inquiries and conduct investigations concerning the company's compliance with applicable insurance and other laws and regulations. In certain of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome in all such matters, it is the opinion of the company's management that their outcome, after consideration of the provisions made in the company's financial statements, is not likely to have a material adverse effect on the company's financial position. 11. OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses were as follows:
1997 1996 1995 ------ ------ ------ YEARS ENDED DECEMBER 31 Compensation costs............................. $2,072 $1,813 $1,607 Commissions.................................... 766 722 853 Interest and debt issue costs.................. 453 311 285 Amortization of policy acquisition costs....... 771 633 606 Capitalization of policy acquisition costs..... (1,000) (1,028) (1,060) Rent expense, net of sublease.................. 179 180 184 Restructuring charges.......................... -- 18 88 Minority interest.............................. 51 30 22 Other.......................................... 2,467 2,105 1,696 ------ ------ ------ Total.......................................... $5,759 $4,784 $4,281 ====== ====== ======
During 1996 and 1995, the company recorded restructuring charges primarily related to the consolidation of administration and agency sales force leased office space and costs relating to workforce reductions. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 12. OTHER INTANGIBLE ASSETS The value of business acquired and the excess of purchase price over the fair value of net assets acquired and changes thereto were as follows:
EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF VALUE OF BUSINESS ACQUIRED NET ASSETS ACQUIRED ---------------------------- ---------------------------- 1997 1996 1995 1997 1996 1995 -------- -------- -------- -------- -------- -------- YEARS ENDED DECEMBER 31 Net Balance, January 1.. $ 358 $ 381 $ 6 $ 544 $ 377 $ 413 Acquisitions............ 176 7 396 387 197 221 Dispositions............ -- -- -- -- -- (236) Amortization............ (36) (30) (21) (47) (30) (21) -------- -------- -------- -------- -------- -------- Net balance, December 31..................... $ 498 $ 358 $ 381 $ 884 $ 544 $ 377 ======== ======== ======== ======== ======== ======== 1997 1996 1995 1997 1996 1995 -------- -------- -------- -------- -------- -------- DECEMBER 31 Accumulated amortiza- tion................... $ 87 $ 51 $ 21 $ 148 $ 101 $ 71 ======== ======== ======== ======== ======== ========
13. DISCONTINUED OPERATIONS In January 1995 the company contributed its group medical benefits businesses to a corporate joint venture, The MetraHealth Companies, Inc. ("MetraHealth"). In October 1995, the company sold its investment in MetraHealth to United HealthCare Corporation. For its interest in MetraHealth, the company received $485 face amount of United HealthCare Corporation convertible preferred stock and $326 in cash (including additional consideration of $50 in 1996). The sale resulted in an aftertax loss of $36 in 1996 and an aftertax gain of $372 in 1995. Operating losses in 1997 and 1996 related principally to the finalization of the transfer of group medical contracts to United HealthCare Corporation. During 1995 the company also sold its real estate brokerage, mortgage banking and mortgage administration operations for an aggregate consideration of $251 (including additional cash consideration of $25 in 1996), resulting in aftertax gains of $17 in 1996 and $44 in 1995. 14. CONSOLIDATED CASH FLOWS INFORMATION During 1997 the company acquired assets of $3,777 and assumed liabilities of $3,347 through the acquisition of certain insurance and noninsurance companies. The aggregate purchase prices were allocated to the assets and liabilities acquired based upon their estimated fair values. During 1997 the company also reduced assets and liabilities by $4,342 and $4,207, respectively, through the sale of certain insurance operations, resulting in a pretax gain of $139. During 1995 the company also reduced assets and liabilities by $919 and $413, respectively, through the sale of its real estate brokerage, mortgage banking and mortgage administration operations. During 1997 the company assumed liabilities of $227 and received assets of $227 and during 1995 the company assumed liabilities of $1,573 and received assets of $1,573 through assumption of certain businesses from other insurance companies. For the years ended December 31, 1997, 1996 and 1995, respectively, real estate of $151, $189 and $429 was acquired in satisfaction of debt. During 1997 and 1995, fixed maturity securities with an amortized cost of $11,682 and $3,058, respectively, were transferred from held to maturity to available for sale. 15. FAIR VALUE INFORMATION The estimated fair value amounts of financial instruments presented below have been determined by the company using market information available as of December 31, 1997 and 1996, and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value for financial instruments for which there are no available market value quotations. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The estimates presented below were not necessarily indicative of the amounts the company could have realized in a market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE -------- -------- ---------- DECEMBER 31, 1997 Assets: Fixed maturities................................ $92,630 $92,630 Equity securities............................... 4,250 4,250 Mortgage loans on real estate................... 20,247 21,133 Policy loans.................................... 5,846 6,110 Short-term investments.......................... 705 705 Cash and cash equivalents....................... 2,871 2,871 Liabilities: Policyholder account balances................... 36,433 36,664 Short- and long-term debt....................... 7,203 7,258 Other financial instruments: Interest rate swaps............................. $1,464 (1) (19) Interest rate caps.............................. 1,545 16 12 Foreign currency swaps.......................... 254 -- (28) Foreign currency forwards....................... 150 -- -- Covered call options............................ 88 (31) (31) Other options................................... 565 -- (2) Futures contracts............................... 2,262 10 10 Unused lines of credit.......................... 2,310 -- 2 NOTIONAL CARRYING ESTIMATED AMOUNT VALUE FAIR VALUE -------- -------- ---------- DECEMBER 31, 1996 Assets: Fixed maturities................................ $86,361 $86,588 Equity securities............................... 2,816 2,816 Mortgage loans on real estate................... 18,964 19,342 Policy loans.................................... 5,842 5,796 Short-term investments.......................... 741 741 Cash and cash equivalents....................... 2,325 2,325 Liabilities: Policyholder account balances................... 30,470 30,611 Short- and long-term debt....................... 5,257 5,223 Other Financial Instruments: Interest rate swaps............................. $1,242 -- (14) Interest rate caps.............................. 1,946 20 14 Foreign currency swaps.......................... 207 -- (23) Foreign currency forwards....................... 151 3 3 Covered call options............................ 25 (2) (2) Unused lines of credit.......................... 1,821 -- 1
Estimated fair values were determined as follows: publicly traded fixed maturities (approximately 78 percent of the estimated fair value of total fixed maturities) from an independent market pricing service; all other bonds at estimated fair value determined by management (based primarily on interest rates, maturity, credit quality and average life); equity securities, on quoted market prices; mortgage loans, based on discounted projected cash flows using interest rates offered for loans to borrowers with comparable credit ratings and for the same maturities; policy loans, based on NOTES TO FINANCIAL STATEMENTS--(CONTINUED) discounted projected cash flows using U.S. Treasury rates to approximate interest rates and company experience to project patterns of loan accrual and repayment; cash and cash equivalents and short-term investments, at carrying amount, which is considered to be a reasonable estimate of fair value. Included in fixed maturities are loaned securities with estimated fair values of $6,537 and $7,293 at December 31, 1997 and 1996, respectively. The fair values for policyholder account balances are estimated using discounted projected cash flows, based on interest rates being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. The estimated fair value of short- and long-term debt was determined using rates currently available to the company for debt with similar terms and remaining maturities. For interest rate and foreign currency swaps, interest rate caps, foreign currency forwards, covered call options, other options and futures contracts, estimated fair value is the amount at which the contracts could be settled based on estimates obtained from dealers. The estimated fair values of unused lines of credit were based on fees charged to enter into similar agreements. 16. STATUTORY FINANCIAL INFORMATION The reconciliation of the net change in statutory surplus and statutory surplus determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities with net earnings and equity on a GAAP basis was as follows:
1997 1996 1995 ------ ---- ---- YEARS ENDED DECEMBER 31 Net change in statutory surplus...................... $ 227 $366 $229 Adjustments for GAAP: Future policy benefits and policyholder account balances.......................................... (445) (165) (17) Deferred policy acquisition costs.................. 159 391 376 Deferred income taxes.............................. 62 (74) (97) Valuation of investments........................... (387) (84) 106 Statutory asset valuation reserves................. 1,170 599 30 Statutory interest maintenance reserve............. 53 19 284 Surplus notes...................................... -- -- (622) Other, net......................................... 364 (199) 410 ------ ---- ---- Net earnings..................................... $1,203 $853 $699 ====== ==== ====
1997 1996 ------- ------- DECEMBER 31 Statutory surplus..................................... $ 7,378 $ 7,151 Adjustments for GAAP: Future policy benefits and policyholder account bal- ances (7,305) (5,742) Deferred policy acquisition costs................... 6,436 7,227 Deferred income taxes............................... (242) 264 Valuation of investments............................ 3,474 610 Statutory asset valuation reserves.................. 3,854 2,684 Statutory interest maintenance reserve.............. 1,261 1,208 Surplus notes....................................... (1,396) (1,393) Other, net.......................................... 601 (26) ------- ------- Equity............................................ $14,061 $11,983 ======= =======
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 17. SUBSEQUENT EVENT On March 12, 1998 the company reached an agreement, subject to regulatory approval, to sell substantially all of its Canadian operations to a nonaffiliated life insurance company at a gain. Financial information for the Canadian operations was as follows:
1997 1996 1995 ----- ----- ---- YEARS ENDED DECEMBER 31 Total revenue......................................... $ 969 $ 920 $903 Total benefits and other deductions................... 831 802 804 Net earnings.......................................... 87 83 22 1997 1996 ----- ----- DECEMBER 31 Total assets.......................................... 5,881 5,826 Total equity.......................................... 957 917
APPENDIX TO PROSPECTUS OPTIONAL INCOME PLANS The insurance proceeds when the insured dies, the value payable on surrender of a VAI, and the full withdrawal of VAI cash values, instead of being paid in one lump sum, may be applied under one or more of the following income plans. Values under the income plans do not depend upon the investment experience of a separate account. The selection of an income plan can significantly affect the federal income tax consequences associated with the Policy proceeds. Owners and beneficiaries should consult with qualified tax advisers in this regard. OPTION 1. Interest income The amount applied will earn interest which will be paid monthly. Withdrawals of at least $500 each may be made at any time by written request. OPTION 2. Installment Income for a Stated Period Monthly installment payments will be made so that the amount applied, with interest, will be paid over the period chosen (from 1 to 30 years). OPTION 2A. Installment Income of a Stated Amount Monthly installment payments of a chosen amount will be made until the entire amount applied, with interest, is paid. OPTION 3. Single Life Income--Guaranteed Payment Period Monthly payments will be made during the lifetime of the payee with a chosen guaranteed payment period of 10, 15 or 20 years. OPTION 3A. Single Life Income--Guaranteed Return Monthly payments will be made during the lifetime of the payee. If the payee dies before the total amount applied under this plan has been paid, the remainder will be paid in one sum as a death benefit. OPTION 4. Joint and Survivor Life Income Monthly payments will be made jointly to two persons during their lifetime and will continue during the remaining lifetime of the survivor. A total payment period of 10 years is guaranteed. Other Frequencies and Plans. Instead of monthly payments, the owner may elect to have payments made quarterly, semiannually or annually. Other income plans may be arranged with Metropolitan Life's approval. Choice of Income Plans. When an income plan starts, a separate contract will be issued describing the terms of the plan. Specimen contracts may be obtained from Metropolitan Life sales representatives, and reference should be made to these forms for further details. Limitations. If the payee is not a natural person, the choice of an income plan will be subject to Metropolitan Life's approval. A collateral assignment will modify a prior choice of income plan. The amount due the assignee will be payable in one sum and the balance will be applied under the income plan. A choice of an income plan will not become effective unless each payment under the plan would be at least $50. Income plan payments may not be assigned and, to the extent permitted by law, will not be subject to the claims of creditors. Income Plan Rates. Amounts applied under the interest income and installment income plans will earn interest at a rate set from time to time by Metropolitan Life but never less than 3% per year. Life income payments will be based on a rate set by Metropolitan Life and in effect on the date the amount to be applied becomes payable, but never less than the minimum payments guaranteed in the Policy. Such minimum guaranteed payments are based on certain assumed mortality rates and an interest rate of 3%. 69 METLIFE (R) EQUITY ADDITIONS - ---------------- VARIABLE ADDITIONAL INSURANCE DIVIDEND OPTION PROSPECTUSES FOR . VARIABLE ADDITIONAL INSURANCE DIVIDEND OPTION ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY . METROPOLITAN SERIES FUND, INC. [ART] ML-VAI (5/98 EDITION) PRINTED IN U.S.A. 98032EXO (EXP0599) MLIC-LD PART II REPRESENTATION WITH RESPECT TO FEES AND CHARGES Metropolitan Life represents that the fees and charges deducted under the rider described in this Registration Statement, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred, and the risks assumed by Metropolitan Life under the rider. 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 rider includes 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 riders issued pursuant to this Registration Statement, including those sold on the terms specifically described in the prospectus contained herein, or any variations therein based on supplements, amendments, endorsements or other riders to such riders or any related base policies or prospectus, or otherwise. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. Cross-Reference Table. The Prospectus, consisting of 69 pages. Undertaking to File Reports (filed with the initial filing of this Registration Statement on November 13, 1997). Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933 (filed with the initial filing of this Registration Statement on November 13, 1997). Representation with respect to fees and charges. The signatures. Written Consents of the following persons: Independent Auditors Counsel (included in Exhibit 2 listed below) Company Actuary (included in Exhibit 5 listed below) The following exhibits: 1.A (1) --Resolution of Board of Directors of Metropolitan Life effecting the establishment of Metropolitan Life Separate Account UL.................................... ++++ (2) --Not Applicable (3) --(a) Not Applicable --(b) Form of Selected Broker Agreement................. ++++ --(c) Schedule of Sales Commissions..................... ++ (4) --Not applicable (5) --(a) Variable Additional Insurance Rider............... + --(b) L98 fixed benefit Life Insurance Policy........... ++++++ (6) --(a) Charter and By-Laws of Metropolitan Life.......... +++ --(b) Amendment to By-laws.............................. +++ (7) --Not Applicable (8) --Not Applicable
II-1 (9) --Not Applicable (10) --Form of Application for Rider (included in Exhibits 5(a) and (b) listed above) 2. --Opinion and consent of Counsel as to the legality of the securities being registered................................ ++++++ 3. --Not Applicable 4. --Not Applicable 5. --Opinion and consent of Marian Zeldin, FSA, MAAA relating to the VAI................................................. + 6. --Powers of Attorney........................................ +++++ 7. --Method of Computing Exchange pursuant to Rule 6e- 3(T)(b)(13)(v)(B) under the Investment Company Act of 1940 (not required because there will be no cash value adjustments) 8. --Memoranda describing certain procedures filed pursuant to Rule 6e-3(T)(b)(12)(iii)................................... ++++ 27. --Financial Data Schedule (not applicable)
- -------- + Filed herewith. ++ Incorporated by reference from "Distribution of the VAI" in the Prospectus included herein. +++ Incorporated by reference to the filing of Post-Effective Amendment No. 4 to the Registration Statement of Separate Account UL (File No. 33- 57320) on March 1, 1996. ++++ Incorporated by reference to the filing of Post-Effective Amendment No. 5 to the Registration Statement of Separate Account UL (File No. 33- 47927) on April 30, 1997. +++++ Incorporated by reference to the filing of Post-Effective Amendment No. 5 to the Registration Statement of Separate Account UL (File No. 33- 47927) on April 30, 1997 except for Robert H. Benmosche whose power of attorney was filed with this Registration Statement on November 13, 1997 and Jon F. Danski whose power of attorney is filed herewith. ++++++ Included in the filing of this Registration Statement on November 13, 1997. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, METROPOLITAN LIFE INSURANCE COMPANY HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL IN THE CITY OF NEW YORK, STATE OF NEW YORK, THIS 1ST DAY OF APRIL, 1998. METROPOLITAN LIFE INSURANCE COMPANY (Seal) /s/ Gary A. Beller By: ---------------------------------- GARY A. BELLER, ESQ. SENIOR EXECUTIVE VICE-PRESIDENT & GENERAL COUNSEL /s/ Ruth Gluck Attest: ------------------------------- RUTH GLUCK, ESQ. ASSISTANT SECRETARY PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE * Chairman, Chief - ------------------------------------- Executive Officer HARRY P. KAMEN and Director (Principal Executive Officer) * President, Chief - ------------------------------------- Operating Officer ROBERT H. BENMOSCHE and Director * - ------------------------------------- Senior Executive STEWART G. NAGLER Vice-President and Chief Financial Officer (Principal Financial Officer) and Director * - ------------------------------------- Senior Vice- President and JON F. DANSKI Controller (Principal Accounting Officer) * Director - ------------------------------------- CURTIS H. BARNETTE * Director - ------------------------------------- GERALD CLARK * Director - ------------------------------------- JOAN GANZ COONEY /s/ Christopher P. Nicholas *By _________________________________ April 1, 1998 CHRISTOPHER P. NICHOLAS, ESQ. ATTORNEY-IN-FACT II-3 SIGNATURE TITLE DATE * Director - ------------------------------------ BURTON A. DOLE, JR. * Director - ------------------------------------ JAMES R. HOUGHTON * Director - ------------------------------------ HELENE L. KAPLAN * Director - ------------------------------------ CHARLES M. LEIGHTON * Director - ------------------------------------ ALLEN E. MURRAY * Director - ------------------------------------ JOHN J. PHELAN, JR. * Director - ------------------------------------ HUGH B. PRICE * Director - ------------------------------------ ROBERT G. SCHWARTZ * Director - ------------------------------------ RUTH J. SIMMONS, PH.D. Director * - ------------------------------------ WILLIAM C. STEERE, JR. /s/ Christopher P. Nicholas *By ________________________________ April 1, 1998 CHRISTOPHER P. NICHOLAS, ESQ. ATTORNEY-IN-FACT II-4 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, METROPOLITAN LIFE SEPARATE ACCOUNT UL, HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT TO BE SIGNED, ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL IN THE CITY OF NEW YORK, STATE OF NEW YORK THIS 1ST DAY OF APRIL, 1998. METROPOLITAN LIFE SEPARATE ACCOUNT UL (REGISTRANT) By: METROPOLITAN LIFE INSURANCE COMPANY (DEPOSITOR) (Seal) /s/ Gary A. Beller By: _____________________________ GARY A. BELLER, ESQ. SENIOR EXECUTIVE VICE-PRESIDENT AND GENERAL COUNSEL /s/ Ruth Gluck Attest: _____________________________ RUTH GLUCK, ESQ. ASSISTANT SECRETARY II-5 INDEPENDENT AUDITORS' CONSENT Metropolitan Life Insurance Company: We consent to the use in this Pre-Effective Amendment No. 1 to the Registration Statement No. 333-40161 of Metropolitan Life Separate Account UL on Form S-6 of our report dated March 31, 1998 relating to Metropolitan Life Separate Account UL appearing in the Prospectus, which is a part of such Registration Statement and of our report dated February 12, 1998, except for Note 17, as to which the date is March 12, 1998, relating to Metropolitan Life Insurance Company also appearing in the Prospectus, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP - ------------------------- Deloitte & Touche LLP New York, New York April 2, 1998 II-6 EX-99.1A5(A) 2 VARIABLE ADDITIONAL INSURANCE RIDER EXHIBIT 99.1A5(a) METROPOLITAN LIFE INSURANCE COMPANY RIDER: VARIABLE ADDITIONAL INSURANCE BOUGHT WITH DIVIDENDS This rider is a part of the policy to which it is attached. This rider provides an additional dividend option. While this option is in effect, we will use the annual dividends credited to your policy to buy variable life insurance. DEFINITIONS The "Date of Rider" is shown on page 3. It is the effective date of this rider. "Dividends" mean all dividends credited under your policy. They include any dividends from any optional benefit rider in your policy, as well as any dividend amounts transferred or converted from other dividend options. The "Investment Start Date" is the date the first dividend under this option is applied to the Separate Account. A "Valuation Date" is each day on which there is enough trading in a portfolio's securities that the current value of its shares could change materially. In general, Valuation Dates will be days when the New York Stock Exchange is open for trading. We reserve the right, on 30 days notice, to change the basis for such Valuation Date, as long as the basis is not inconsistent with applicable laws. A "Valuation Period" is the period between two successive Valuation Dates starting at 4:00 P.M., New York City time, on each Valuation Date and ending at 4:00 P.M., New York City time, on the next succeeding Valuation Date. We reserve the right, on 30 days notice, to change the basis for such Valuation Period as long as the basis is not inconsistent with applicable law. The "Separate Account" is the Metropolitan Life Separate Account UL, the account to which we will apply your dividends. The "Investment Division" in the Separate Account is the METLIFE STOCK INDEX PORTFOLIO. The investment objective of this portfolio is to equal the performance of the Standard & Poor's 500 Composite Stock Price Index (adjusted to assume the reinvestment of dividends) by investing in the common stock of companies that are included in the index. The "Cash Value" is the value of your funds in the Separate Account. The cash value is based on the dividends applied to the Separate Account. The cash value reflects the investment experience of the Separate Account and may increase or decrease daily. It is not guaranteed. The "Conditional Guaranteed Death Benefit" is the amount of death benefit needed at a given point in time to maintain this benefit as life insurance under the Internal Revenue Code. Any transfer of insurance under this option will reduce or eliminate the Conditional Guaranteed Death Benefit. This guarantee will also end if you change to another dividend option. (Continued on next page) RIDER: VARIABLE ADDITIONAL INSURANCE BOUGHT WITH DIVIDENDS (CONTINUED) "Net Single Premiums" are used to calculate the amount of variable additional insurance under this benefit. A table showing the net single premiums for each policy anniversary is attached to this rider. A "Cost of Insurance Charge" is deducted each month from the cash value of your account. We may change these charges, but they will never be more than the guaranteed monthly percentages shown in the table at the end of this rider. The "Separate Account Charge" is .75 % a year if your policy has a face amount of less than $250,000. This is equal to a monthly charge of .062286%. If your policy's face amount is $250,000 or more, your charge is .50% a year. This is equal to a monthly charge of .041571%. The Separate Account Charge covers our administrative costs and the mortality and expense risks that we assume. It is deducted each month from the cash value. The "net cash value" is the cash value of your variable additional insurance minus the monthly cost of insurance and separate account charges. VARIABLE ADDITIONAL INSURANCE DEATH BENEFIT--We will use your dividends to buy variable insurance that will be included in the insurance proceeds payable on the death of the insured. The amount of insurance is subject to change on each Valuation Date. We determine the amount of the death benefit on the date of death of the Insured as follows: 1. On the Investment Start Date, we take the sum of all dividend amounts and then divide by the applicable Net Single Premium at the insured's attained age to provide the variable additional insurance death benefit. 2. For each day in the Valuation Period until another dividend amount is credited, transferred, or converted, the variable insurance death benefit is the net cash value divided by the Net Single Premium for that day. If the Conditional Guaranteed Death Benefit is larger, we will pay that amount instead. 3. On a policy anniversary, we take all the dividends credited on that anniversary and add them to the net cash value of the variable additional insurance determined on the last Valuation Date of the last policy year and then divide that sum by the Net Single Premium for the insured's attained age. This is the total variable additional insurance death benefit for the first day of the new policy year. CASH VALUE--The cash value of the variable additional insurance under this rider is determined as follows: 1. On the Investment Start Date, the cash value is equal to the sum of any dividends credited. 2. For each day in the Valuation Period until another dividend amount is credited transferred, or converted, the cash value is equal to the value of the Investment Division of the Separate Account. 3. On a policy anniversary, the cash value is equal to the net cash value on the last Valuation Date of the previous year and all dividends credited on that anniversary. (Continued on next page) RIDER: VARIABLE ADDITIONAL INSURANCE BOUGHT WITH DIVIDENDS (CONTINUED) SEPARATE ACCOUNT Separate Account UL is an investment account set up and kept by us, apart from our general account or other separate investment accounts. It is used for variable additional insurance and for other policies and contracts as permitted by law. We own the assets of the Separate Account. Assets equal to our reserves and other liabilities of the Separate Account will not be charged with the liabilities that arise from any other business that we conduct. We may from time to time transfer to our general account assets in excess of such reserves and liabilities. Income and realized and unrealized gains or losses from the assets of the Separate Account are credited to or charged against the Separate Account without regard to our other income, gains or losses. The Separate Account will be valued at the end of each Valuation Period. RIGHT TO MAKE CHANGES--We reserve the right to make certain changes if, in our judgment, they would best serve the interests of the owners of benefits such as this one, or would be appropriate in carrying out the purposes of such benefits. Any changes will be made only to the extent and in the manner permitted by applicable laws. Also, when required by law, we will obtain your approval of the changes and the approval of any appropriate regulatory authority. Some examples of the changes we may make include: * To operate the Separate Account in any form permitted under the Investment Company Act of 1940, or in any other form permitted by law. * To take any action necessary to comply with or obtain any exemptions from the Investment Company Act of 1940. * To transfer any assets in the Investment Division to one or more separate accounts, or to our general account, or to add Investment Divisions to the Separate Account. * To substitute, for the investment company shares held in the Investment Division, the shares of another class of the investment company or the shares of another investment company or any other investment permitted by law. * To change the way we assess charges, but without increasing the aggregate charged to the Separate Account. * To make any other necessary technical changes in this benefit in order to conform with any action this provision permits us to take. (Continued on next page) RIDER: VARIABLE ADDITIONAL INSURANCE BOUGHT WITH DIVIDENDS (CONTINUED) If any of these changes result in a material change in the underlying investments of the Separate Account, we will notify you of such change. TRANSFERS--You may transfer existing paid-up insurance under the paid-up additions dividend option described in your policy to this rider. You may also transfer the variable paid-up insurance under this rider to the paid-additions option in your policy. For both types of transfers, you must request the transfer in writing. We will take the cash value of the existing paid-up insurance, determined on the date of your request, add it to the cash value of the paid-up insurance to which you have asked it to be transferred and will apply the total cash value as a net single premium, based on the insured's sex and attained age, to buy additional insurance under that option. No transfer will take effect before the Investment Start Date. WITHDRAWALS--You may withdraw all or part of the cash value of this option at any time. To do so, you must send us a written request. A withdrawal will reduce the amount of variable additional insurance payable as of the date of withdrawal. The reduced amount of insurance will be the amount of additional insurance that the remaining net cash value, if any, will buy at the net single premium for the Insured's sex and attained age on the date of withdrawal. When we receive your request, we will transfer the amount requested to the paid-up additions dividend option described in your policy and then pay you the cash value. DEFERMENT--We reserve the right to defer the calculation and payment of the variable additional insurance benefit under certain circumstances. Generally, it will not be practical for us to determine the value of the Investment Division of the Separate Account during any period when the New York Stock Exchange is closed for trading (except for customary weekend and holiday closings) or when the Securities and Exchange Commission restricts trading or determines an emergency exists. In these cases, we reserve the right to defer: (a) the determination, application, or payment of a cash withdrawal; (b) the transfer of a cash value amount; and (c) the payment of the variable additional insurance as part of the policy's insurance proceeds. PREMIUM PAYMENT ARRANGEMENT--Once the cash value of your variable additional insurance is large enough to pay 3 annual premiums under your policy, you may ask us in writing to transfer cash value amounts from this option to the paid- up additions option in your policy to pay future annual premiums as they are due. The Premium Payment Arrangement will continue as long as the cash value of the variable additional insurance is sufficient to pay the total annual premium under your policy. You may ask us to cancel this arrangement at any time. CHANGE OF OPTION--You may change dividend options at any time. To do so you must write to us and request the change. A request for a change to the Variable Additional Insurance option from another option must be made at least 60 days before a policy anniversary. REINSTATEMENT--If your policy is in force but dividends can no longer be used to buy variable additional insurance under this rider, you may write to us and ask us to reinstate your rider. (Continued on next page) RIDER: VARIABLE ADDITIONAL INSURANCE BOUGHT WITH DIVIDENDS (CONTINUED) If your policy has ended because premiums due were not paid before the end of the grace period, your rider will be reinstated when you reinstate your policy. AGE AND SEX--If the insured's age or sex on the Date of Rider is not correct as shown on page 3 of the policy, we will recalculate the amount of variable additional insurance by using the Cost of Insurance Charges and the Net Single Premiums applicable to the insured's correct age and sex. INCONTESTABILITY AND SUICIDE--The Incontestability and Suicide provisions of the policy will also apply to this rider but will be measured from the Date of Rider. ANNUAL REPORTS--Each year we will send you a report showing the current amount of variable additional insurance and cash value. The report will also show the amount and type of credits to and deductions from the cash value during the past year. It will also include any other information required by state laws and regulations. TERMINATION--Your dividends will continue to buy variable additional insurance under this rider until the earliest of the following dates: 1. At the end of the grace period of the first unpaid premium. 2. On the date we receive your written request to end this rider. 3. On the date you change the plan of insurance of this policy. We will transfer any remaining variable additional insurance to the paid-up additions dividend option described in your policy. ENDORSEMENT When this rider is part of the policy, any dividends credited to an Option for Paid-Up Additional Insurance rider will be applied to buy variable additional insurance in the same way as any other dividend amounts under this policy. TABLE OF NET SINGLE PREMIUMS
AGE ON POLICY AGE ON POLICY ANNIVERSARY MALE FEMALE ANNIVERSARY MALE FEMALE - -------------------------------------------------------------------------------------------------------------------- 2 .09034 .07490 51 .42268 .36232 3 .09303 .07714 52 .43512 .37326 4 .09586 .07949 53 .44776 .38443 5 .09884 .08195 54 .46057 .39582 6 .10198 .08453 55 .47352 .40746 7 .10530 .08723 56 .48662 .41936 8 .10880 .09006 57 .49986 .43154 9 .11248 .09301 58 .51325 .44405 10 .11631 .09609 59 .52678 .45692 11 .12028 .09931 60 .54046 .47014 12 .12437 .10264 61 .55426 .48369 13 .12853 .10608 62 .56814 .49753 14 .13272 .10962 63 .58205 .51159 15 .13693 .11326 64 .59597 .52581 16 .14116 .11701 65 .60986 .54017 17 .14542 .12086 66 .62371 .55466 18 .14974 .12484 67 .63752 .56932 19 .15415 .12894 68 .65130 .58420 20 .15870 .13318 69 .66506 .59933 21 .16342 .13758 70 .67876 .61470 22 .16834 .14213 71 .69236 .63026 23 .17348 .14686 72 .70579 .64592 24 .17887 .15176 73 .71895 .66156 25 .18452 .15684 74 .73177 .67706 26 .19045 .16211 75 .74419 .69233 27 .19665 .16757 76 .75623 .70735 28 .20312 .17322 77 .76791 .72211 29 .20987 .17907 78 .77929 .73664 30 .21688 .18513 79 .79043 .75096 31 .22417 .19140 80 .80134 .76505 32 .23171 .19789 81 .81199 .77887 33 .23952 .20461 82 .82233 .79231 34 .24760 .21155 83 .83226 .80528 35 .25594 .21872 84 .84170 .81770 36 .26453 .22612 85 .85064 .82954 37 .27338 .23374 86 .85911 .84083 38 .28248 .24156 87 .86718 .85161 39 .29183 .24958 88 .87496 .86196 40 .30142 .25780 89 .88256 .87198 41 .31125 .26620 90 .89014 .88179 42 .32131 .27480 91 .89787 .89155 43 .33160 .28360 92 .90599 .90143 44 .34214 .29262 93 .91475 .91165 45 .35291 .30185 94 .92441 .92247 46 .36392 .31132 95 .93512 .93402 47 .37518 .32103 96 .94681 .94629 48 .38668 .33099 97 .95910 .95890 49 .39844 .34118 98 .97112 .97100 50 .41044 .35163 99 .98054 .98066 100 1.00000 1.00000 - --------------------------------------------------------------------------------------------------------------------
THE NET SINGLE PREMIUM ON A DATE DURING A POLICY YEAR IS DETERMINED BY INTERPOLATION BETWEEN THE VALUES FOR THE ANNIVERSARIES IMMEDIATELY FOLLOWING THAT DATE. TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
Attained Guaranteed Maximum Attained Guaranteed Maximum Age Monthly Percentage Age Monthly Percentage - --------------------------------------------------------------------------------------------- 2 .082954 51 .086256 3 .078824 52 .089558 4 .073039 53 .093682 5 .066423 54 .096981 6 .060631 55 .101103 7 .054834 56 .104398 8 .050692 57 .107693 9 .048205 58 .110987 10 .047376 59 .115102 11 .049034 60 .118393 12 .054006 61 .122505 13 .060631 62 .126615 14 .067251 63 .131544 15 .074692 64 .136471 16 .080476 65 .140575 17 .083780 66 .145497 18 .085431 67 .149596 19 .085431 68 .153694 20 .083780 69 .156971 21 .080476 70 .161884 22 .077172 71 .166795 23 .073039 72 .172520 24 .068905 73 .178242 25 .063941 74 .184777 26 .060631 75 .190491 27 .058147 76 .196202 28 .055663 77 .200279 29 .054006 78 .203539 30 .052349 79 .206798 31 .051520 80 .210056 32 .051520 81 .214127 33 .051520 82 .217382 34 .051520 83 .222263 35 .052349 84 .226328 36 .054006 85 .229579 37 .054834 86 .232016 38 .056491 87 .233641 39 .058147 88 .234453 40 .060631 89 .233641 41 .063114 90 .232016 42 .064769 91 .228766 43 .067251 92 .223076 44 .069732 93 .216568 45 .072213 94 .208427 46 .073866 95 .201094 47 .076345 96 .195387 48 .078824 97 .190491 49 .081302 98 .183144 50 .083780 99 .163521 - ---------------------------------------------------------------------------------------------
Monthly cost of insurance charges are assessed as a percentage of the beginning of month fund value. Monthly cost of insurance charges will never be less than $0.01. EX-99.5 3 OPINION AND CONSENT RELATING TO VAI EXHIBIT 99.5 March 20, 1998 Metropolitan Life Insurance Company One Madison Avenue New York, New York 10010 Dear Sirs: This opinion is furnished in connection with the filing of Pre-Effective Amendment No. 1 to Registration Statement No. 333-40160 on Form S-6 ("Registration Statement") which covers premiums received under the Variable Additional Insurance Dividend Option (VAI) offered by Metropolitan Life Insurance Company ("MLIC") in each State where it has been approved by appropriate State insurance authorities. As a Vice-President and Actuary of MLIC, I have reviewed the VAI form and I am familiar with the Registration Statement and Exhibits thereto. In my opinion the illustrations of VAI death benefits, VAI cash values in the Section "Illustrations of Death Benefits, Cash Values and Accumulated Premiums" of the prospectus included in the Registration Statement ("Prospectus"), based on the assumptions stated in the illustrations, are consistent with the provisions of the VAI. The rate structure of the VAI has not been designed so as to make the relationship between premiums and benefits, as shown in these illustrations appear to be correspondingly more favorable to a prospective purchaser of the VAI for males age 40, than to prospective purchasers of VAI for a male at other ages or for a female. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Experts" in the Prospectus. Very truly yours, /s/ Marian Zeldin ----------------- Marian Zeldin Vice-President and Actuary EX-99.6 4 POWER OF ATTORNEY EXHIBIT 99.6 POWER OF ATTORNEY ----------------- Jon F. Danski Officer KNOW ALL MEN BY THESE PRESENTS, that I, an officer of Metropolitan Life Insurance Company, do hereby appoint Gary A. Beller, Louis J. Ragusa, Richard G. Mandel and Christopher P. Nicholas, and each of them severally, my true and lawful attorney-in-fact, for me and in my name, place and stead to execute and file any instrument or document to be filed as part of or in connection with or in any way related to the Registration Statements and any and all amendments thereto, filed by said Company under the Securities Act of 1933 and/or the Investment Company Act of 1940, in connection with Metropolitan Life Separate Account UL, Metropolitan Life Separate Account E, The New England Variable Account, New England Variable Annuity Fund I or New England Retirement Investment Account of said Company, and to have full power and authority to do or cause to be done in my name, place and stead each and every act and thing necessary or appropriate in order to effectuate the same, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any of them, may do or cause to be done by virtue hereof. Each said attorney-in-fact shall have power to act hereunder with or without the others. IN WITNESS WHEREOF, I have hereunto set my hand this 31st ---- day of March, 1998. /s/ Jon F. Danski ------------------- Signature -----END PRIVACY-ENHANCED MESSAGE-----