497 1 d497.txt METROPOLITAN LIFE SEPARATE ACCOUNT UL [SIDEBAR: UL 2001] PROSPECTUS FOR UL 2001, A FLEXIBLE PREMIUM MULTIFUNDED LIFE INSURANCE POLICY ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY MAY 1, 2001 The Policy is designed to provide: . Life insurance coverage . Flexible premium payments . A choice among three death benefit options . A choice among different guaranteed minimum death benefit durations . Funding options for allocating premium payments to and transferring cash value among a fixed interest account and 35 different investment divisions of Metropolitan Life Separate Account UL. Each investment division, in turn, invests solely in one of the corresponding fund "Portfolios": METROPOLITAN SERIES FUND, INC. PORTFOLIOS: Lehman Brothers(R) State Street Research Aggressive Growth Aggregate Bond Index Loomis Sayles High Yield Bond State Street Research Income Russell 2000 (R) Index State Street Research Diversified T. Rowe Price Small Cap Growth MetLife Stock Index Harris Oakmark Large State Street Research Aurora Small Cap Value Cap Value T. Rowe Price Large Cap Growth Scudder Global Equity State Street Research Investment Trust Morgan Stanley EAFE(R) Index (formerly State Street Research Putnam International Stock Growth) Putnam Large Cap Growth Janus Growth* MetLife Mid Cap Stock Index Franklin Templeton Small Cap Growth* Neuberger Berman Partners Mid Cap Value Janus Mid Cap NEW ENGLAND ZENITH FUND PORTFOLIOS:** Davis Venture Value Harris Oakmark Mid Cap Value* Salomon Brothers Strategic Bond Opportunities* Loomis Sayles Small Cap MFS Investors Trust* (formerly MFS Salomon Brothers U.S. Government* Investors) MFS Research Managers* MET INVESTORS SERIES TRUST PORTFOLIOS: MFS Mid-Cap Growth* PIMCO Total Return* MFS Research PIMCO Innovation* International* AMERICAN FUNDS INSURANCE SERIES PORTFOLIOS:*** American Funds Growth* American Funds Global Small Capitalization* American Funds Growth- Income* ----- * Availability is subject to any state insurance department approval. ** The New England Zenith Fund calls these "Series", but this Prospectus calls them "Portfolios." *** The American Funds Insurance Series calls these "Funds", but this Prospectus calls them "Portfolios." A word about risk: This Prospectus discusses the risks associated with purchasing the Policy. Separate prospectuses for the Metropolitan Series Fund, Inc., the New England Zenith Fund, the Met Investors Series Trust and the American Funds Insurance Series (each a "Fund") discuss the risks associated with investment in the Portfolios listed above. This Prospectus is not valid unless you also receive or have received current Fund prospectuses. The purchase of the Policy involves risk. You could lose money. You might have to pay additional amounts of premium to avoid losing the life insurance protection you purchased through a Policy. How to learn more: Before purchasing a Policy, read the information in this Prospectus and in each Fund prospectus. Keep these prospectuses for future reference. ----------- Neither the Securities and Exchange Commission ("SEC") nor any state securities authority has approved or disapproved these securities, nor have they determined if this Prospectus is accurate or complete. This Prospectus does not constitute an offering in any jurisdiction where such offering may not lawfully be made. Any representation otherwise is a criminal offense. Interests in the Separate Account, the Fixed Account and the Portfolios are not deposits or obligations of, or insured or guaranteed by, the U.S. Government, any bank or other depository institution including the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board or any other agency or entity or person. We do not authorize any representations about this offering other than as contained in this Prospectus or its supplements or in our authorized supplemental sales material.
PAGE IN THIS SUBJECT PROSPECTUS ------- ---------- Summary......................................... 2 MetLife......................................... 9 Separate Account UL............................. 10 The Fixed Account............................... 10 The Funds....................................... 11 Issuing a Policy................................ 13 Policy Benefits................................. 14 Policy Rights................................... 20 Payment and Allocation of Premiums.............. 23 Charges and Deductions.......................... 25 Federal Tax Matters............................. 29 Showing Performance............................. 31 Rights We Reserve............................... 31 Other Policy Provisions......................... 32 Sales and Administration of the Policies........ 33 Voting Rights................................... 34 Reports......................................... 35 Illustration of Policy Benefits................. 36 Getting More Information........................ 36 Legal, Accounting, and Actuarial Matters........ 36 Management...................................... 37 Financial Statements............................
SUMMARY This summary gives an overview of the Policy and is qualified by the more detailed information in the balance of this Prospectus and the Policy. Metropolitan Life Insurance Company ("MetLife") issues the Policy. The Policy is designed to meet your changing life insurance needs. In addition to the base Policy, optional insurance benefits may also be added to your coverage. PREMIUMS The Policy allows flexibility in making premium payments. There are certain minimum premium requirements to keep the Policy in force during the first Policy year and, if you wish, to keep the guaranteed minimum death benefit in effect. Other than these minimum premium payment requirements, the Policy will remain in force as long as the cash surrender value is large enough to cover one monthly deduction, regardless of whether or not premium payments have been made. CASH VALUE Your cash value in the Policy reflects your premium payments, the charges we deduct, interest we credit if you have cash value in our fixed interest account, any investment experience you have in our Separate Account, as well as your loan and withdrawal activity. MetLife doesn't guarantee the investment performance of the Separate Account UL investment divisions and you should consider your risk tolerance before selecting any of these funding options. 2 TRANSFERS AND AUTOMATED INVESTMENT STRATEGIES You may transfer cash value among the funding options, subject to certain limits. You may also choose among five automated investment strategies: the Equity Generator SM, the Equalizer SM, the Allocator SM, the Rebalancer SM and the Index Selector SM. SPECIFIED FACE AMOUNT OF INSURANCE Within certain limits, you may choose your specified face amount of insurance when the Policy is issued. You may also change the amount once every 24 months, subject to our rules and procedures. THE GUARANTEED MINIMUM DEATH BENEFIT Generally, you may choose, in your Policy application, a period of time during which your Policy will include a guaranteed minimum death benefit. If you choose a guarantee, you will need to pay minimum premium amounts in order to keep it in force. You may later cancel or reduce the length of the guarantee. DEATH BENEFIT OPTIONS Generally, you have a choice among three options. These range from an amount equal to the specified face amount to an amount equal to the specified face amount plus the policy cash value at the date of death. SURRENDERS, PARTIAL WITHDRAWALS AND LOANS Within certain limits, you may take partial withdrawals and loans from the Policy. You may also surrender your Policy for its cash surrender value. TAX TREATMENT In most cases, you will not pay income taxes on withdrawals or surrenders or at the Final Date of the Policy, until your cumulative withdrawn amounts exceed the cumulative premiums you have paid. If your Policy is a modified endowment contract, you will pay income taxes on loans and withdrawals to the extent of any gains (which is generally the excess of cash value over the premiums paid). In this case, an additional 10% tax may also apply. If the Policy is part of a collateral assignment equity split dollar arrangement with an employer, any increases in cash value that are not due to premium payments may be taxed annually. The death benefit may be subject to Federal and state estate taxes, but your beneficiary will generally not be subject to income tax on the death benefit. As with any taxation matter, you should consult with and rely on the advice of your own tax advisor. TABLE OF CHARGES AND EXPENSES This table shows the charges and expenses that you pay under your Policy. See "Charges and Deductions," below for more information about your Policy's charges:
TYPE OF CHARGE OR EXPENSE AMOUNT OF CHARGE OR EXPENSE --------------------------------------------------------------------- CHARGES WE DEDUCT FROM EACH PREMIUM PAYMENT Sales charge: 2.25% of each premium payment Charge for average expected state taxes attributable to premiums: 2% of each premium payment Charge for expected federal taxes attributable to premiums: 1.25% of each premium payment Total Expense Charge: 5.50% of each premium payment
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TYPE OF CHARGE OR EXPENSE AMOUNT OF CHARGE OR EXPENSE -------------------------------------------------------------------------------- MONTHLY DEDUCTION FROM YOUR POLICY'S CASH VALUE Cost of term insurance charges: Amount varies depending on the specifics of your Policy/1/ Administration charge: First Policy year/2/: (a) $20 per month for insureds Age 25 and under (b) $30 per month for insureds Age 26-40 (c) $35 per month for insureds Age 41 and over. Second and later Policy years: $10 per month unless you pay the Required Administrative Premium shown on page 3 of your Policy. If you pay these premiums, the monthly charge will be: (a) $5 per month for a specified face amount of $250,000 or more (b) $6 per month for a specified face amount between $100,000 and $249,999 (c) $7 per month for a specified face amount of less than $100,000. Mortality and expense risk charge: .075% of the cash value in the Separate Account on each monthly anniversary. We intend to (but, except for Policies issued in New York, do not guarantee that we will) reduce this charge for Policy years 11 through 15 to .05% and after Policy year 15 to .025%. Underwriting charge: (applies only if $5 per month for the first twelve you request an increase in your months after the month you increase specified face amount) your specified face amount. Charge for optional benefits added by As specified in the form of each rider: rider. -------------------------------------------------------------------------------- SURRENDER CHARGE ON CERTAIN TRANSACTIONS: Full surrender or termination of your The lesser of (a) the first year Policy during its 1st year: "Maximum Surrender Charge Premium"/3/ or (b) the amount of premiums you have actually paid Full surrender or termination of your The lesser of (a) the second year Policy during its 2nd year: "Maximum Surrender Charge Premium"/3/ or (b) the amount of all premiums you have actually paid Full surrender or termination of your A declining percentage of the Policy during its 3rd through 15th surrender charge at the end of Policy year: year 2, beginning with 90% during Policy year 3 and declining periodically until it is 0% during Policy years 16 and later./4/ (We also will deduct the amount of any surrender charge remaining for any specified face amount increase, as discussed immediately below.) Full surrender or termination of your An amount of surrender charge that we Policy during the 15 years after you compute on essentially the same basis have increased your policy's as if each such specified face amount specified face amount: increase had been a separate, newly issued UL 2001 Policy/5/ Reduction in specified face amount A pro-rata portion of the surrender (i.e. "partial" surrender): charge that would apply to a full surrender/6/ Partial withdrawals of up to 10% of No surrender charge the Policy's cash value/7/ each year: Partial withdrawal amounts in excess A pro-rata portion of the surrender of the 10% free withdrawal limit: charge that would apply to a full surrender/8/
-------- /1/See "Cost of Term Insurance" under "Charges and Deductions" for a more detailed discussion of factors affecting this charge. If you would like, we will provide you with an illustration of the impact of these and other charges under the Policy based on various assumptions. /2/We will deduct any amount of the first year's administration charges that remain unpaid at the time of any full surrender or other termination of your Policy during its first year. /3/The Maximum Surrender Charge Premium will not exceed, in the first Policy year 75%, and in the second Policy year and thereafter 100%, of the amount of the level premium you would need to pay each year for your policy based on the same assumptions as are used to determine the Smoker Federal Guideline Annual Premium for Death Benefit Option A and all applicable riders. These assumptions are discussed under "Charges and Deductions -- Surrender Charge." /4/The precise timetable of how this percentage declines over this period is set forth under "Charges and Deductions--Surrender Charge." /5/For this purpose, however, premiums paid after the date you apply for the increase will be assumed to be attributable to the original specified face amount and each specified amount increase in the manner reflected below under "Changes and Deductions--Surrender Charge." 4 /6/If there have been prior face amount increases, we take the reduction in face amount from each increase in reverse chronological order and then from the original specified amount. As we thus cancel each portion of specified face amount, we deduct the amount of any remaining surrender charge associated with that portion. /7/This limit applies as of the date of the requested withdrawal, which is aggregated for this purpose with all previous withdrawals during the same Policy year. /8/The amount deducted would be the same proportion of the full surrender charge as the excess withdrawal bears to the Policy's total cash value. If there have been prior face amount increases, this amount is assumed to represent the surrender charge attributable to the most recent increases in reverse chronological order and then to any remaining surrender charge on the Policy's original specified face amount. FUND INVESTMENT MANAGEMENT FEES AND DIRECT EXPENSES Our affiliate, MetLife Advisers, LLC ("MetLife Advisers"), formerly New England Investment Management, LLC, became the investment manager for the Metropolitan Series Fund Portfolios on May 1, 2001. Prior to that time, MetLife was the investment manager. MetLife Advisers is also the investment adviser to the New England Zenith Fund. Our affiliate, Met Investors Advisory Corp. ("Met Investors Advisory"), is the investment manager for the Met Investors Series Trust. Capital Research and Management Company ("Capital Research") is the investment adviser for the American Funds Insurance Series. Each of the Funds pays investment management fees to its investment manager or adviser. Each of the Funds also incurs other direct expenses (see the Fund Prospectus and Statement of Additional Information referred to therein for each Fund). You bear indirectly your proportionate share of the fees and expenses for the Portfolios of each Fund that correspond to the Separate Account investment divisions you are using. The Funds offer various classes of shares, each of which has a different level of expenses and not all of which are available under the Policy. For the Portfolios of the Metropolitan Series Fund, Inc., the New England Zenith Fund and the Met Investors Series Trust, we offer Class A shares only under the Policy. For the Portfolios of the American Funds Insurance Series, we offer Class 2 shares only under the Policy. 5 The following table sets forth the fees and expenses for each Portfolio, expressed as an annual percentage of average net assets, for the year ending December 31, 2000 for all available Portfolios of each Fund, except those Portfolios that commenced operations on July 5, 2000 (referred to in footnotes (f) and (g) below), or on May 1, 2001 (referred to in footnote (d) below), or on February 12, 2001 (referred to in footnote (k) below). For these more recently created Portfolios, estimates for the current year are used. The percentages in the table are before taking into account the expense reimbursements and reductions referred to in the footnotes that follow the table.
TOTAL TOTAL MANAGE- OTHER ANNUAL MANAGE- OTHER ANNUAL PORTFOLIO MENT FEE EXPENSES EXPENSES PORTFOLIO MENT FEE EXPENSES EXPENSES ---------------------------------------------------------------------------------- METROPOLITAN SERIES FUND (CLASS A SHARES) ---------------------------------------------------------------------------------- Lehman Brothers(R) Aggregate Bond Index .25% .12% .37% Janus Mid Cap .66% .04% .70% ---------------------------------------------------------------------------------- State Street State Street Research Research Aggressive Income .33% .05% .38% Growth(a) .69% .04% .73% ---------------------------------------------------------------------------------- State Street Loomis Sayles Research High Yield Diversified .43% .03% .46% Bond .70% .18% .88% ---------------------------------------------------------------------------------- Russell MetLife Stock 2000(R) Index .25% .03% .28% Index(e) .25% .30% .55% ---------------------------------------------------------------------------------- Harris Oakmark Large T. Rowe Price Cap Small Cap Value(a)(c) .75% .19% .94% Growth .52% .06% .58% ---------------------------------------------------------------------------------- State Street T. Rowe Price Research Large Cap Aurora Small Growth(a)(c) .64% .14% .78% Cap Value(g) .85% .20% 1.05% ---------------------------------------------------------------------------------- State Street Research Investment Scudder Trust(a) .47% .03% .50% Global Equity .61% .17% .78% ---------------------------------------------------------------------------------- Morgan Stanley Putnam Large EAFE(R) Cap Growth(b) .80% .59% 1.39% Index(e) .30% .48% .78% ---------------------------------------------------------------------------------- MetLife Mid Putnam Inter- Cap Stock national Index(f) .25% .58% .83% Stock(h) .90% .24% 1.14% ---------------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Janus Value(a)(c) .70% .19% .89% Growth(d) .80% .29% 1.09% ---------------------------------------------------------------------------------- Franklin Templeton Small Cap Growth(d) .90% .71% 1.61%
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TOTAL TOTAL MANAGE- OTHER ANNUAL MANAGE- OTHER ANNUAL PORTFOLIO MENT FEE EXPENSES EXPENSES PORTFOLIO MENT FEE EXPENSES EXPENSES ------------------------------------------------------------------------------------- NEW ENGLAND ZENITH FUND (CLASS A SHARES) ------------------------------------------------------------------------------------- Loomis Sayles Davis Venture Small Value .75% .04% .79% Cap(a)(i) .90% .06% .96% ------------------------------------------------------------------------------------- MFS Investors MFS Research Trust(j) .75% .82% 1.57% Managers(j) .75% .50% 1.25% ------------------------------------------------------------------------------------- Salomon Brothers Harris Strategic Oakmark Mid Bond Cap Value(j) .75% .21% .96% Opportunities .65% .13% .78% ------------------------------------------------------------------------------------- Salomon Brothers U.S. Government(j) .55% .16% .71% ------------------------------------------------------------------------------------- MET INVESTORS SERIES TRUST (CLASS A SHARES) ------------------------------------------------------------------------------------- MFS Mid-Cap PIMCO Total Growth(k) .65% .18% .83% Return(k) .50% .24% .74% ------------------------------------------------------------------------------------- MFS Research PIMCO International(k) .80% .29% 1.09% Innovation(k) 1.05% .41% 1.46%
MANAGEMENT 12B- OTHER TOTAL PORTFOLIO FEE 1 FEES EXPENSES EXPENSES ----------------------------------------------------------------------------- AMERICAN FUNDS INSURANCE SERIES (CLASS 2 SHARES) ----------------------------------------------------------------------------- American Funds Growth(l) .36% .25% .02% .63% ----------------------------------------------------------------------------- American Funds Growth-Income (l) .34% .25% .01% .60% ----------------------------------------------------------------------------- American Funds Global Small Capitalization (l) .80% .25% .06% 1.11%
-------- (a) The Metropolitan Series Fund and the New England Zenith Fund directed certain of their Portfolios' trades to brokers who paid a portion of the Funds' expenses. In addition, the Metropolitan Series Fund has entered into arrangements with its custodian whereby credits realized as a result of this practice were used to reduce a portion of its Portfolios' custodian fees. These expense reductions are reflected in the second table following footnote (l) below. (b) MetLife Advisers voluntarily pays all Portfolio operating expenses (other than management fees, brokerage commissions, taxes, interest, extraordinary and non-recurring expenses) (hereinafter "Expenses") that exceed an annual rate of .20% of the average net assets of the Putnam Large Cap Growth Portfolio. This subsidy ceases when the Portfolio's total assets reach $100 million or on April 30, 2002, whichever comes first. This expense reimbursement is reflected in the first table following footnote (l) below. (c) The Metropolitan Series Fund's former investment manager, MetLife, ceased subsidizing Expenses for the Neuberger Berman Partners Mid Cap Value Portfolio, the T. Rowe Price Large Cap Growth Portfolio and the Harris Oakmark Large Cap Value Portfolio on November 9, 2000. (d) These Portfolios commenced operations on or about May 1, 2001. MetLife Advisers voluntarily pays all expenses (other than brokerage commissions, taxes, interest and any extraordinary or nonrecurring expenses) that exceed an annual rate of .95% of the average net assets of the Janus Growth Portfolio and 1.05% for the Franklin Templeton Small Cap Growth Portfolio through April 30, 2002. Such subsidies are subject to each Portfolio's obligation to repay MetLife Advisers in future years, if any, when the Portfolio's actual total operating expenses fall below the stated expense limit of .95% or 1.05%, respectively. The first table following footnote (l) shows estimated current year expenses for these Portfolios after expense reimbursements. (e) MetLife Advisers voluntarily pays all Expenses that exceed an annual rate of .30% of the average net assets of the Russell 2000(R) Index Portfolio and .40% for the Morgan Stanley EAFE(R) Index Portfolio. Each subsidy ceases when the Portfolio reaches $200 million in total assets or April 30, 2002, whichever comes first. This expense reimbursement for the Morgan Stanley EAFE(R) Index Portfolio is reflected in the first table following footnote (l) below. Prior to November 8, 2000, Metropolitan Series Fund's former investment manager, MetLife, paid all Expenses that exceeded an annual rate of .25% of the average net assets of the Morgan Stanley EAFE(R) Index Portfolio until the Portfolio's total assets reached $100 million or November 8, 2000, whichever came first. (f) This Portfolio commenced operations on July 5, 2000. MetLife Advisers voluntarily pays all Expenses that exceed an annual rate of .20% of the average net assets of the MetLife Mid Cap Stock Index Portfolio. The subsidy ceases the earlier of the date when the Portfolio's total assets reach $100 million or June 30, 2002 but in no event earlier than April 30, 2002. The first table following footnote (l) shows estimated current year expenses for this Portfolio after expense reimbursements. (g) This Portfolio commenced operations on July 5, 2000. MetLife Advisers voluntarily pays all expenses that exceed an annual rate of .20% of the average net assets of the State Street Research Aurora Small Cap Value Portfolio until April 30, 2002. The first table following footnote (1) shows estimated current year expenses for this Portfolio after expense reimbursements. 7 (h) The expenses of the Putnam International Stock Portfolio have been restated to reflect a change in the management fee effective May 1, 2000. (i) MetLife Advisers voluntarily pays all Portfolio operating expenses (other than brokerage costs, interest, taxes or extraordinary expenses) that exceed 1.00% of the average net assets of the Loomis Sayles Small Cap Portfolio. (j) MetLife Advisers voluntarily pays all Portfolio operating expenses (other than brokerage costs, interest, taxes or extraordinary expenses) that exceed a certain limit in the year the Portfolio incurs them and charges those expenses to the Portfolio in a future year if the actual expenses of the Portfolio are below the limit. The limits on expenses for these Portfolios are: .90% per annum of the average net assets for the Harris Oakmark Mid Cap Value Portfolio, the MFS Investors Trust Portfolio and the MFS Research Managers Portfolio and .70% per annum for the Salomon Brothers U.S. Government Portfolio. These expense reimbursements are reflected in the first table following footnote (l) below. (k) These Portfolios commenced operations on February 12, 2001. Met Investors Advisory and Met Investors Series Trust have entered into an expense limitation agreement whereby, for a period of at least one year from commencement of operations, the total of management fees and other expenses of certain Portfolios will not exceed, in any year in which the agreement is in effect, the following percentages: .80% for the MFS Mid-Cap Growth Portfolio, 1.00% for the MFS Research International Portfolio, .65% for the PIMCO Total Return Portfolio, and 1.10% for the PIMCO Innovation Portfolio. Under certain circumstances, any fees waived or expenses reimbursed by the investment manager may, with the approval of the Trust's Board of Trustees, be repaid to the investment manager. The first table following footnote (l) below shows estimated current year expenses for these Portfolios after these expense reimbursements. (l) The American Funds Insurance Series has adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940. Under the Distribution Plan the Portfolios pay an annual fee to compensate certain other parties for promoting, selling and servicing the shares of the Portfolio. These other parties may include MetLife (or its affiliates) and other broker-dealers and financial intermediaries involved in the offer and sale of the contracts. The Distribution Plan is described in more detail in the American Funds Insurance Series prospectus.
TOTAL ANNUAL TOTAL ANNUAL MANAGEMENT OTHER EXPENSES MANAGEMENT OTHER EXPENSES FEE AFTER EXPENSES AFTER AFTER EXPENSE FEE AFTER EXPENSES AFTER AFTER EXPENSE PORTFOLIO REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT PORTFOLIO REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT ------------------------------------------------------------------------------------------------------------------ METROPOLITAN SERIES FUND ------------------------------------------------------------------------------------------------------------------ Morgan Putnam Large Stanley Cap Growth .80% .20% 1.00% EAFE(R) Index .30% .40% .70% ------------------------------------------------------------------------------------------------------------------ MetLife Mid Cap Stock Index .25% .20% .45% Janus Growth .80% .15% .95% ------------------------------------------------------------------------------------------------------------------ State Street Franklin Research Templeton Aurora Small Small Cap Cap Value .85% .20% 1.05% Growth .90% .15% 1.05% ------------------------------------------------------------------------------------------------------------------ NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------------------------------------ MFS Investors MFS Research Trust .75% .15% .90% Managers .75% .15% .90% ------------------------------------------------------------------------------------------------------------------ Harris Salomon Oakmark Mid- Brothers U.S. Cap Value .75% .15% .90% Government .55% .15% .70% ------------------------------------------------------------------------------------------------------------------ MET INVESTORS SERIES TRUST ------------------------------------------------------------------------------------------------------------------ MFS Mid-Cap PIMCO Total Growth .62% .18% .80% Return .41% .24% .65% ------------------------------------------------------------------------------------------------------------------ MFS Research PIMCO International .71% .29% 1.00% Innovation .69% .41% 1.10%
OTHER TOTAL ANNUAL OTHER TOTAL ANNUAL EXPENSES EXPENSES EXPENSES EXPENSES AFTER AFTER AFTER AFTER REDUCTION REDUCTION REDUCTION REDUCTION FROM DIRECTED FROM DIRECTED FROM DIRECTED FROM DIRECTED PORTFOLIO BROKERAGE BROKERAGE PORTFOLIO BROKERAGE BROKERAGE ------------------------------------------------------------------------------------ METROPOLITAN SERIES FUND ------------------------------------------------------------------------------------ Neuberger Harris Berman Oakmark Large Partners Mid- Cap .10% .85% Cap Fund .06% .76% ------------------------------------------------------------------------------------ State Street T. Rowe Price Research Ag- Large Cap gressive Growth .13% .77% Growth .03% .72% ------------------------------------------------------------------------------------ State Street Research Investment Trust .02% .49% ------------------------------------------------------------------------------------ NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------ Loomis Sayles Small Cap .05% .95%
8 OTHER Please refer to "Federal Tax Matters-Our taxation" and "Policy Benefits--Cash Value Transfers" for a description of certain charges that we currently do not impose but may impose in the future. METLIFE MetLife is a wholly-owned subsidiary of MetLife, Inc., a publicly traded company. Our main office is located at One Madison Avenue, New York, New York 10010. MetLife was formed under the laws of New York State in 1868. MetLife Inc., through its subsidiaries and affiliates, is a leading provider of insurance and other financial services to individual and group customers. The MetLife companies serve approximately 9 million individual households in the United States and companies and institutions with over 33 million employees and members. It also has international insurance operations in 12 countries. We have listed our directors and certain key officers under "Management", and our financial information under "Financial Statements", below. [SIDEBAR: You can contact us at our Designated Office.] GIVING US REQUESTS, INSTRUCTIONS OR NOTIFICATIONS Contacting us: You can communicate all of your requests, instructions and notifications to us by contacting us in writing at our Designated Office. We may require that certain requests, instructions and notifications be made on forms that we provide. These include: changing your beneficiary; taking a Policy loan; changing your death benefit option; taking a partial withdrawal; surrendering your Policy; making transfer requests (including elections with respect to the automated investment strategies) or changing your premium allocations. Our Designated Office is P.O. Box 300 Warwick, RI 02887. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. When your requests, instructions and notifications become effective: . Generally, requests, premium payments and other instructions and notifications are effective on the Date of Receipt. In those cases, the effective time is at the end of the Valuation Period during which we receive them at our Designated Office. (Some exceptions to this general rule are noted below and elsewhere in this Prospectus.) . A Valuation Period is the period between two successive Valuation Dates. It begins at the close of regular trading on the New York Stock Exchange on a Valuation Date and ends at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. The close of regular trading is 4:00 p.m., Eastern Time on most days. . A Valuation Date is: . Each day on which the New York Stock Exchange is open for trading. . Other days, if we think that there has been a sufficient degree of trading in a Fund's portfolio securities that the current net asset value of its shares might be materially affected. . Your Investment Start Date is the date the first net premium is applied to the Fixed Account and is the later of (A) the Date of Policy and (B) the Date of Receipt of your first premium payment. However, we are considering modifying our procedures in order to provide an earlier 9 Investment Start Date for an application that is submitted without an advance payment of the initial premium or when an advance payment has been refunded by us prior to the issuance of a Policy. You can consult your sales representative as to the status of any such change. Your premium allocation instructions and transfer requests for investment in the separate account that you make in your Policy application, or within 20 days after your Investment Start Date, will take effect on the end of the first Valuation Date that is 20 days after your Investment Start Date. . The effective date of your Automated Investment Strategies will be that set forth in the strategy chosen. SEPARATE ACCOUNT UL We established the Separate Account under New York law on December 13, 1988. The Separate Account receives premium payments from the Policy described in this Prospectus and other variable life insurance policies that we issue. We have registered the Separate Account as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). The assets in the Separate Account legally belong to us, but they are held solely for the benefit of investors in the Separate Account and no one else, including our other creditors. We will keep an amount in the Separate Account that at least equals the value of our commitments to policy owners that are based on their investments in the Separate Account. We can also keep charges that we deduct and other excess amounts in the Separate Account or we can transfer the excess out of the Separate Account. [SIDEBAR: Each Separate Account investment division invests in a corresponding Portfolio of a Fund.] The Separate Account has subdivisions, called "investment divisions." Each investment division invests its assets exclusively in shares of a corresponding Portfolio of a Fund. We can add new investment divisions to or eliminate investment divisions from the Separate Account. You can designate how you would like your net premiums and cash value to be allocated among the available investment divisions and our Fixed Account. Amounts you allocate to each investment division receive the investment experience of the investment division, and you bear this investment risk. THE FIXED ACCOUNT The Fixed Account is part of our general assets that are not in any legally- segregated separate accounts. Amounts in the Fixed Account are credited with interest at an effective annual rate of at least 3%. We may also credit excess interest on such amounts. Different excess interest rates may apply to different amounts based upon when such amounts were allocated to the Fixed Account and whether they were premium payments or transfers from the investment divisions. Any partial amounts we remove from the Fixed Account (such as any portion of your Policy's monthly deduction that is allocable to the Fixed Account) will be taken from the most recently allocated amounts first. Any excess interest rate will be credited for at least 12 months before a new rate is credited. We can delay transfers, withdrawals, surrender and payment of Policy loans from the Fixed Account for up to 6 months. Since the Fixed Account is not registered under the federal securities laws, this Prospectus contains only limited information about the Fixed Account. The Policy gives you more information on the operation of the Fixed Account. 10 THE FUNDS [SIDEBAR: You should carefully review the investment objectives, practices, and risks of each Portfolios, which are described in the appropriate Fund prospectus you have also received.] Each of the Funds is a "series" type of mutual fund, which is registered as an open-end management investment company under the 1940 Act. Each Fund is divided into Portfolios, each of which represents a different class of stock in which a corresponding investment division of the Separate Account invests. You should read the Fund prospectuses, which you have also received. They contain information about each Fund and its Portfolios, including the investment objectives, strategies, risks and sub-investment managers or advisers that are associated with each Portfolio. They also contain information on the different separate accounts that invest in each Fund (which may or may not be related to MetLife) and certain risks that may arise when diverse separate accounts, funding diverse types of insurance products, all invest in the same Fund. The Funds offer various classes of shares, each of which has a different level of expenses. The Fund prospectuses may provide information for share classes that are not available through the Policy. When you consult the Fund prospectus for a Portfolio, you should be careful to refer only to the information regarding the class of shares that is available through the Policy. The following classes of shares are available under the Policy: . For the Metropolitan Series Fund, Inc., the New England Zenith Fund and the Met Investors Series Trust Portfolios, we offer Class A shares only. . For the American Funds Insurance Series Portfolios, we offer Class 2 shares only. The investment objectives of the Portfolios that are available under the Policies are as follows: Metropolitan Lehman Brothers(R) Aggregate Bond Index Portfolio: to equal the performance of the Lehman Brothers Aggregate Bond Index. Metropolitan State Street Research Income Portfolio: a combination of: (a) the highest possible total return, by combining current income with capital gains, consistent with prudent investment risk, and (b) secondarily, the preservation of capital. Metropolitan State Street Research Diversified Portfolio: high total return while attempting to limit investment risk and preserve capital. Metropolitan MetLife Stock Index Portfolio: to equal the performance of the Standard & Poor's 500 Composite Stock Price Index. Metropolitan Harris Oakmark Large Cap Value Portfolio: long-term capital appreciation. Metropolitan T. Rowe Price Large Cap Growth Portfolio: long-term growth of capital and, secondarily, dividend income. Metropolitan State Street Research Investment Trust Portfolio: long-term growth of capital and income and moderate current income. Metropolitan Putnam Large Cap Growth Portfolio: capital appreciation. Metropolitan MetLife Mid Cap Stock Index Portfolio: to equal the performance of the Standard & Poor's MidCap 400 Composite Stock Index. Metropolitan Neuberger Berman Partners Mid Cap Value Portfolio: capital growth. Metropolitan Janus Mid Cap Portfolio: long-term growth of capital. Metropolitan State Street Research Aggressive Growth Portfolio: maximum capital appreciation. Metropolitan Loomis Sayles High Yield Bond Portfolio: high total investment return through a combination of current income and capital appreciation. 11 Metropolitan Russell 2000(R) Index Portfolio: to equal the return of the Russell 2000 Index. Metropolitan T. Rowe Price Small Cap Growth Portfolio: long-term growth of capital. Metropolitan State Street Research Aurora Small Cap Value Portfolio: high total return, consisting principally of capital appreciation. Metropolitan Scudder Global Equity Portfolio: long-term growth of capital. Metropolitan Morgan Stanley EAFE(R) Index Portfolio: to equal the performance of the MSCI EAFE Index. Metropolitan Putnam International Stock Portfolio: long-term growth of capital. Metropolitan Janus Growth Portfolio: long-term growth of capital. Metropolitan Franklin Templeton Small Cap Growth Portfolio: long-term growth of capital. Zenith Davis Venture Value Portfolio: long-term growth of capital. Zenith Loomis Sayles Small Cap Portfolio: long-term capital growth from investments in common stocks or other equity securities. Zenith MFS Investors Trust Portfolio: long-term growth of capital with a secondary objective to seek reasonable current income. Zenith MFS Research Managers Portfolio: long-term growth of capital. Zenith Harris Oakmark Mid Cap Value Portfolio: long-term capital appreciation. Zenith Salomon Brothers U.S. Government Portfolio: a high level of current income consistent with preservation of capital and maintenance of liquidity. Zenith Salomon Brothers Strategic Bond Opportunities Portfolio: a high level of total return consistent with preservation of capital. Met Investors MFS Mid-Cap Growth Portfolio: long-term growth of capital. Met Investors Research International Portfolio: capital appreciation. Met Investors PIMCO Total Return Portfolio: maximum total return, consistent with the preservation of capital and prudent investment management. Met Investors PIMCO Innovation Portfolio: capital appreciation; no consideration is given to income. American Funds Growth Portfolio: capital appreciation through stocks. American Fund Growth-Income Portfolio: capital appreciation and income. American Funds Global Small Capitalization Portfolio: capital appreciation through stocks. A Portfolio may have a name and/or objective that is very similar to that of a publicly available mutual fund that is managed by the same sub-investment manager or adviser. The Portfolios are not publicly available and will not have the same performance as those publicly available mutual funds. Different performance will result from differences in implementation of investment policies, cash flows, fees and size of the Portfolio. As of the end of each Valuation Period, we purchase and redeem Fund shares for the Separate Account at their net asset value without any sales or redemption charges. These purchases and redemptions reflect the amount of any of the following transactions that take effect at the end of the Valuation Period: . The allocation of net premiums to the Separate Account. 12 . Dividends and distributions on Fund shares, which are reinvested as of the dates paid (which reduces the value of each share of the Fund and increases the number of Fund shares outstanding, but has no affect on the cash value in the Separate Account). . Policy loans and loan repayments allocated to the Separate Account. . Transfers to and among investment divisions. . Withdrawals and surrenders taken from the Separate Account. [SIDEBAR: We will issue a Policy to you as owner. You will have all the rights under the Policy, including the ability to name a new owner or contingent owner.] ISSUING A POLICY If you want to own a Policy, then you must complete an application, which must be received by the Designated Office. We reserve the right to reject an application for any reason permitted by law, and our acceptance of an application is subject to our underwriting rules. Generally, we will issue a Policy only for insureds that are age 80 or less (although we may decide to permit an insured that is older) that have provided evidence of insurability that we find acceptable. An "insured" is the person upon whose life we issue the Policy. You do not have to be the insured. For the purpose of computing the insured's age under the Policy, we start with the insured's age on the Date of Policy which is set forth in the Policy. Age under the Policy at any other time is then computed using that issue age and adding the number of full Policy years completed. The Date of Policy is usually the date the Policy application is approved. (Under our current administrative rules, a Policy which would be dated the 28th day or later in a month will receive a Date of Policy of the 28th.) In certain situations when payroll deduction is being used for remittance of premiums, we may adjust the Date of Policy. We use the Date of Policy to calculate the Policy years (and Policy months and monthly anniversaries). We may permit a Date of Policy that is earlier than the date the application is approved if there have been no material misrepresentations in the application (but not earlier than the date that the application is completed) in order to preserve a younger age for the insured. Your Date of Policy can also be the date the application is completed if you ask us and if we receive a payment of at least $2,500 with the application. We are considering changing the way we define the Date of Policy in order to delay the date as of which charges and deductions commence if the application for the Policy was submitted without an advance payment of the initial premium or if we have refunded an advance payment prior to the issuance of the Policy. You can consult your sales representative as to the status of any such change. Temporary insurance will be provided for up to 90 days from the date of the application, provided that we receive a payment equal to at least one "check-o- matic" payment and any necessary medical examination has been completed. Even if the insured hasn't completed the medical examination, there will be coverage if the insured dies from an accident within 30 days of the date of the application. The temporary insurance does not cover death by suicide. The temporary insurance provided is equal to the specified face amount applied for up to a maximum of $500,000 (as may be increased by us). There will be no charge for the insurance protection under the temporary insurance. 13 Insurance coverage under the Policy will begin, and any temporary insurance that is then in force will end, at the time the Policy is delivered and the Date of Receipt of the first premium payment has occurred. For coverage to be effective, the insured's health must be the same as stated in the application and, in most states, the insured must not have sought medical advice or treatment after the date of the application. As to when charges under this Policy begin, see "Charges Included in the Monthly Deduction." POLICY BENEFITS THIS PROSPECTUS PROVIDES A GENERAL DESCRIPTION OF THE POLICY. POLICIES ISSUED IN YOUR STATE MAY PROVIDE DIFFERENT FEATURES AND BENEFITS FROM, AND IMPOSE DIFFERENT COSTS THAN, THOSE DESCRIBED IN THIS PROSPECTUS. YOUR ACTUAL POLICY AND ANY ENDORSEMENTS ARE THE CONTROLLING DOCUMENTS. YOU SHOULD READ THE POLICY CAREFULLY FOR ANY VARIATIONS IN YOUR STATE. INSURANCE PROCEEDS If the Policy is in force, we will pay your beneficiary the insurance proceeds as of the end of the Valuation Period that includes the insured's date of death. We will pay this amount after we receive documents that we request as due proof of the insured's death. The beneficiary can receive the death benefit in a single sum or under an income plan described below. You may make this choice during the insured's lifetime. If no selection is made we will place the amount in an account to which we will credit interest, and the beneficiary will have immediate access to all or part of that amount. The beneficiary has one year from the date the insurance proceeds are paid to change the selection from a single sum payment to an income plan, as long as we have made no payments from the interest-bearing account. If the terms of the income plan permit the beneficiary to withdraw the entire amount from the plan, the beneficiary can also name contingent beneficiaries. The insurance proceeds equal: . The death benefit under the death benefit option, alternate death benefit or minimum guaranteed death benefit that is then in effect; plus . Any additional insurance proceeds provided by rider; minus . Any unpaid Policy loans and accrued interest thereon, and any due and unpaid charges accruing during a grace period. [SIDEBAR: The Policy generally offers a choice of three death benefit options.] DEATH BENEFIT OPTIONS Generally, you can choose among three options, although the choice may be limited based upon the insured's age. You select which option you want in the Policy application. The three options are: . Option A: The death benefit is a level amount and equals the specified face amount of the Policy. . Option B: The death benefit varies and equals the specified face amount of the Policy plus the cash value on the date of death. . Option C: The death benefit is one of two amounts and is available only if insured is age 60 or less when we issue the Policy: . The death benefit varies and equals the specified face amount plus the cash value on the date of death, until the insured is age 65 ("CI"). 14 . At age 65, the death benefit becomes a level amount equal to the specified face amount under CI plus the cash value at the end of the Valuation Date immediately preceding the date on which the insured became age 65. This new amount then becomes the specified face amount ("CII"). There are issues that you should consider in choosing your death benefit option. For example, under Options B and CI, the cash value is added to the specified face amount. Therefore, the death benefit will generally be greater under these options than under Options A and CII, for Policies with the same specified face amount and premium payments. By the same token, the cost of insurance will generally be greater under Options B and CI than under Options A and CII. [SIDEBAR: You can generally change your death benefit option.] You can change your death benefit option after the second Policy year and, thereafter, once in any 12 month period, provided that: . Your cash surrender value after the change would be enough to pay at least two monthly deductions. . The specified face amount continues to be no less than the minimum we allow after a decrease. . The total premiums you have paid do not exceed the then current maximum premium limitations permitted under Internal Revenue Service rules. . If the change is to Option C, the insured is age 60 or less. Any change will be effective on the monthly anniversary on or immediately following the Date of Receipt of the request. A change in death benefit will have the following effects on your specified face amount: . Change from A or CII to B or CI: The specified face amount will decrease to equal the death benefit less the cash value on the effective date of the change. . Change from B or CI to A or CII: The specified face amount will increase to equal the death benefit plus the cash value of the Policy on the effective date of the change. . Change from B to CI or A to CII: The specified face amount will remain the same. Before you change your death benefit option you should consider the following: . If the term insurance portion of your death benefit changes, as it may with a change from A or CII to B or CI and vice versa, the term insurance charge will also change. This will affect your cash value and, in some cases, the amount of the death benefit. . The premium requirements for maintaining the guaranteed minimum death benefit may change, which could affect your ability to maintain it. . If your specified face amount changes because of the change in death benefit option, consider also the issues presented by changing your specified face amount that are described under "Specified Face Amount," below. These issues include the possibility: that your Policy would become a modified endowment contract; that you would receive a taxable distribution; of an increase or decrease in the monthly administration charge; and of changes in the maximum premium amounts that you can pay. A specified face amount decrease resulting from a death benefit option change, however, will not result in deduction of a surrender charge. 15 ALTERNATE DEATH BENEFIT In order to ensure that the Policy qualifies as life insurance under the federal income tax laws, the beneficiary will receive an alternate death benefit if it is greater than the amount that the beneficiary would have received under the death benefit option that you chose. The alternate death benefit is as follows: Age of Insured at Death 40 and 45 50 55 60 65 70 75 to 90 95 less % of Cash Value: * 250 215 185 150 130 120 115 105 100
-------- *For the ages not listed, the percentage decreases by a ratable portion for each full year. [SIDEBAR: The Policy offers a guaranteed minimum death benefit.] GUARANTEED MINIMUM DEATH BENEFIT You can choose to have a guaranteed minimum death benefit for one of several specified periods of time, if you meet certain requirements. Generally, the amount of guaranteed minimum death benefit equals the specified face amount of insurance, plus any additional death benefits provided by rider. Availability may be restricted in your state or by the insured's rating class, however. There is no additional charge for the guarantee, but in order to keep the guarantee in effect, you will need to pay certain minimum premiums, which vary based on many factors (see "Premiums" below). We test the Policy on each monthly anniversary or upon the Policy's lapse date (depending on state requirements)--the "testing date"--to make sure that you have paid the minimum premiums required to keep the guarantee for the duration you chose. If you haven't made the minimum premium payments, we will tell you and give you 61 days from the testing date to make any additional payment to keep the guarantee at the then current duration. If we do not receive the required payment, we will reduce the duration of the guarantee to one that the premiums you have paid would support and that would have been available to you. If no shorter duration is available to you, we will terminate the guarantee. A duration cannot be reactivated, once we terminate it. Each duration for the guaranteed minimum death benefit has its own premium requirement that supports it. The longer the duration, the greater the premiums required. At issue, we will look at the premium you plan to pay and give you which ever duration that premium supports. You can reduce the duration by reducing the premiums paid to an amount that will only support a shorter duration. A duration cannot be increased by subsequently paying additional premiums nor can a duration be reinstated once it is terminated. The durations for the guaranteed minimum death benefit are*: . For the first five Policy years. . To age 65, but only if the insured is age 60 or less when the Policy is issued. . To age 75, but only if the insured is age 70 or less when the Policy is issued. . To age 85, but only if the insured is age 80 or less when the Policy is issued. -------- *For Policies issued in New York, the guaranteed minimum death benefit guarantees payment of the specified face amount of insurance only (and not any rider benefits), and the options for the duration of the guarantee are generally: (i) for the first five Policy years; (ii) to age 55 (available only if the insured was between age 18 and age 50 on the date the Policy was issued) or for the first 20 Policy years (if the insured was less than age 18 on the date the Policy was issued); or (iii) to age 65 (available only if the insured was between age 18 and age 60 on the date the Policy was issued) or to age 60 (if the insured was less than age 18 on the date the Policy was issued). For Policies issued in Massachusetts, New Jersey and Texas, the only available duration of the guaranteed minimum death benefit is the first five Policy years. It is possible that other states may, in the future, require similar variations in the durations that are available. 16 SPECIFIED FACE AMOUNT The specified face amount is the basic amount of insurance specified in your Policy. The Minimum Initial Specified Face amount is the smallest amount of specified face amount for which a Policy may be issued. Currently these amounts are generally: . $100,000 for insureds in the preferred rate class . $50,000 for most other insureds . $25,000 for certain insureds over age 59. . $250,000 for most Policies distributed through broker-dealers not affiliated with us. [SIDEBAR: You can generally increase or decrease your Policy's specified face amount.] Generally, you may change your specified face amount after the second Policy year, and thereafter, once in any 24 month period, as long as the insured is age 79 or under. Any change will be effective on the monthly anniversary on or next following (a) the Date of Receipt of your request; or (b) if we require evidence of insurability, the date we approve your request. You are permitted to decrease the specified face amount to as low as $25,000 except that no reduction may decrease the specified face amount below the Minimum Initial Specified Face Amount during the first five Policy years or one half that amount thereafter. The lowest available specified face amount requirements also apply to decreases that result from partial withdrawals or changes in death benefit option. If there have been previous specified face amount increases, any decreases in specified face amount will be made in the following order: (i) the specified face amount provided by the most recent increase; (ii) the next most recent increases successively; and (iii) the initial specified face amount. You may increase the specified face amount only if: (a) the guaranteed minimum death benefit is in effect; or (b) the cash surrender value after the change is large enough to cover at least two monthly deductions. Generally, the minimum specified face amount increase is $5,000 ($10,000 for Policies issued in New York). Any increase will require that we receive additional evidence of insurability that is satisfactory to us. We will also impose an underwriting charge. Before you change your specified face amount you should consider the following: . The term insurance portion of your death benefit will likely change and so will the term insurance charge. This will affect the insurance charges, cash value and, in some cases, death benefit levels. . Reducing your specified face amount in the first 15 Policy years may result in our returning an amount to you which could then be taxed on an income first basis. . We will deduct a portion of any applicable surrender charge at the time of any decrease in specified face amount that you request. . We will establish an additional amount of surrender charge at the time of any increase in the specified face amount, other than an increase resulting automatically from a change of death benefit option. . The premium requirements for maintaining the guaranteed minimum death benefit will change, which could affect your ability to maintain it. . The amount of additional premiums that the tax laws permit you to pay into your Policy may increase or decrease. The additional amount you can pay without causing your Policy to be a modified endowment contract for tax purposes may also increase or decrease. 17 . In some circumstances, the Policy could become a modified endowment contract. . The monthly administration charge may change. [SIDEBAR: Your Policy is designed to accumulate cash value.] CASH VALUE [SIDEBAR: Your Policy is designed to accumulate cash value.] Your Policy's cash value equals: . The Fixed Account cash value, plus . The Policy Loan Account cash value, plus . The Separate Account cash value. Your Policy's cash surrender value equals your cash value minus: . Any outstanding Policy loans (plus accrued interest); . Any surrender charges; and . The administration charge for any full Policy month remaining in the first Policy year. The Separate Account cash value allocated to each investment division is calculated as follows: . 20 days after your Investment Start Date, we will allocate your cash value among the investment divisions as you requested your net premiums to be allocated in your application. . Thereafter, at the end of each Valuation Period the cash value in an investment division will equal: . The cash value in the investment division at the beginning of the Valuation Period; plus . All net premiums, loan repayments and cash value transfers into the investment division during the Valuation Period; minus . All partial cash withdrawals, loans and cash value transfers out of the investment division during the Valuation Period; minus . The portion of any charges and deductions allocated to the cash value in the investment division during the Valuation Period; plus . The net investment return for the Valuation Period on the amount of cash value in the investment division at the beginning of the Valuation Period. The net investment return currently equals the rate of increase or decrease in the net asset value per share of the underlying Fund portfolio over the Valuation Period, adjusted upward to take appropriate account of any dividends and other distributions paid by the portfolio during the period. The net investment return could in the future be reduced by a charge for taxes that we have the right to impose. BENEFIT AT FINAL DATE The Final Date is the Policy anniversary on which the insured is Age 95. We will allow you to extend that date, however, where permitted by state law. If the insured is living on the Final Date, we will pay you the cash value of the Policy, reduced by any outstanding loans (plus accrued interest). You can receive the cash value in a single sum, in an account that earns interest, or under an available income plan. OPTIONAL BENEFITS ADDED BY RIDER You may be eligible for certain benefits provided by rider, subject to certain underwriting requirements and the payment of additional premiums. We will 18 deduct any charges for the rider(s) as part of the monthly deduction. Each rider contains important information, including limits and conditions that apply to the benefits. If you decide to purchase any of the riders, you should carefully review their provisions to be sure the benefit is something that you want. You should also consider: . That the premium requirements to maintain the guaranteed minimum death benefit may increase, which could affect your ability to maintain it. . That the addition of certain riders can restrict your ability to exercise certain rights under the Policy. . That the amount of benefits provided under the rider is not based on investment performance of a separate account; but, if the Policy terminates because of poor investment performance or any other reason, the riders generally will also terminate. . The tax consequences. You should also consult with your tax advisor before purchasing one of the riders. Generally, we currently make the following benefits available by rider: . Disability Waiver of Premium Benefit/1/ .Children's Term Insurance Benefit ------------------------------------------------------------------------------- . Disability Waiver of Monthly Deduction .Spouse Term Insurance Benefit Benefit/2/ ------------------------------------------------------------------------------- . Accidental Death Benefit .Accelerated Death Benefit/3/ ------------------------------------------------------------------------------- . Long Term Care Guaranteed Purchase Option/4/
-------- /1/This rider is designed for owners who seek to build cash value or maintain the guaranteed minimum death benefit during a period of disability. In order to qualify for this rider, you must maintain a premium level equal to that required under the rider. Otherwise, the rider will operate like the Disability Waiver of Monthly Deduction benefit rider, which in some cases could increase the cost of the rider. The selected premium level will not necessarily be sufficient to keep the Policy in force to the Final Date. Therefore, the Policy could terminate before the Final Date, although not while a guaranteed minimum death benefit is in effect. If your Policy was issued in New York and your Policy includes this rider, you may not add any other rider. /2/An increase in specified face amount may not be covered by this rider. If not, the portion of the monthly deduction associated with the increase will continue to be deducted from the cash value, which if insufficient, could result in the Policy's termination. For this reason, it may be advantageous for the owner, at the time of total disability, to reduce the specified face amount to that covered by this rider. /3/Payment under this rider may affect eligibility for benefits under state or federal law. /4/This rider gives the Policy owner the option to purchase long-term care insurance for the insured, at future specified Purchase Option Dates, without additional underwriting. The new long term care insurance policy will be offered by MetLife or by an affiliate designated by us on the Purchase Option Date, subject to rider specifications about plan benefits. This rider will be available only in states that have approved such long-term care insurance plans. [SIDEBAR: Generally, you can receive the Policy's insurance proceeds, amounts payable at the Final Date or amounts paid upon surrender under an income plan instead of in a lump sum.] INCOME PLANS Before you purchase an income plan you should consider: . The tax consequences associated with the Policy proceeds, which can vary considerably, depending on whether a plan is chosen. You or your beneficiary should consult with a qualified tax adviser about tax consequences. . That your Policy will terminate at the time you purchase an income plan and you will receive a new contract, which describes the terms of the income plan. You should carefully review the terms of the new contract, because it contains important information about the terms and conditions of the income plan. . That these plans do not have a variable investment return. 19 Generally, we currently make the following income plans available: . Interest income .Installment Income for a Stated Period ---------------------------------------------------------------------------- . Installment Income for a Stated . Single Life Income--Guaranteed Amount Payment Period ---------------------------------------------------------------------------- . Joint and Survivor Life Income .Single Life Income--Guaranteed Return
POLICY RIGHTS [SIDEBAR: You can transfer your cash value among the investment divisions and the Fixed Account at any time beginning 20 days after the Investment Start Date.] CASH VALUE TRANSFERS The minimum amount you may transfer is $50 or, if less, the total amount in an investment option. You may make transfers at any time, but we do reserve the right to limit transfers to four per Policy year and to limit transfers from the Fixed Account to one each year on the Policy anniversary date. We do not currently charge for transfers, but we do reserve the right to charge up to $25 per transfer, except for transfers under the Automated Investment Strategies. Currently, transfers are not taxable transactions. Each Fund may restrict or refuse certain transfers among, or purchases of shares in their Portfolios as a result of certain market timing activities. You should read each Fund's prospectus for more details. We reserve the right to refuse to accept any transaction request where the request would tend to disrupt the administration of the Policies or is not in the best interest of Policy owners or the Separate Account. . AUTOMATED INVESTMENT STRATEGIES: You can choose one of five currently available strategies. You can also change or cancel your choice at any time. . Equity Generator: allows you to transfer an amount equal to the interest earned in the Fixed Account in any Policy month equal to at least $20 to the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. The transfer will be made at the beginning of the Policy month following the Policy month in which the interest was earned. . Equalizer: allows you to periodically equalize amounts in your Fixed Account and either the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. We currently make equalization each quarter. We will terminate this strategy if you make a transfer out of the investment division or the Fixed Account that isn't part of the strategy. You may then reelect the Equalizer on your next Policy anniversary. . Rebalancer: allows you to periodically redistribute amounts in the Fixed Account and investment divisions in the same proportion that the net premiums are then being allocated. We currently make the redistribution each quarter. . Allocator: allows you to systematically transfer money from the Fixed Account to any investment division(s). You must have enough cash value in the Fixed Account to enable the election to be in effect for three months. The election can be to transfer each month: . A specific amount until the cash value in the Fixed Account is exhausted, . A specific amount for a specific number of months, or 20 . Amounts in equal installments until the total amount you have requested has been transferred. . Index Selector: Allows you to choose one of five asset allocation models which are designed to correlate to various risk tolerance levels. Based on your selection, 100% of your cash value will be allocated among the Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, MetLife Stock Index, Russell 2000 Index and MetLife Mid Cap Stock Index investment divisions and the Fixed Account. Each quarter we will redistribute amounts in the Fixed Account and investment divisions in the same proportion as you originally requested. We may, in the future, change the available models and allow you to allocate less than 100% to this strategy. Before electing this strategy, you should consider the fact that investment returns using this strategy may be more volatile than the other strategies. . TRANSFERS BY TELEPHONE: We may, if permitted by state law, allow you to make transfer requests, changes to Automated Investment Strategies and allocations of future net premiums by phone. We may also allow you to authorize your sales representative to make such requests. The following procedures apply: . We must have received your authorization in writing satisfactory to us, to act on instructions from any person that claims to be you or your sales representative, as applicable, as long as that person follows our procedures. . We will institute reasonable procedures to confirm that instructions we receive are genuine. Our procedures will include receiving from the caller your personalized data. . All telephone calls will be recorded. . You will receive a written confirmation of any transaction. . Neither the Separate Account nor we will be liable for any loss, expense or cost arising out of a telephone request if we reasonably believed the request to be genuine. . You should contact our Designated Office with any questions regarding the procedures. We do not currently offer Internet transfer capability, but may do so in the future. We will notify you if we begin to offer Internet transactions. [SIDEBAR: You can borrow from us and use your Policy as security for the loan.] LOAN PRIVILEGES The amount of each loan must be: . At least $500. . No more than the cash surrender value less two monthly deductions (unless your Policy provides for a different amount required by state law) when added to all other outstanding Policy loans. As of your loan request's Date of Receipt, we will: . Remove an amount equal to the loan first from your cash value in the Fixed Account. If an additional amount is required, we will remove it from the cash value in the investment divisions of the Separate Account in the same proportion as your cash value is then allocated. . Transfer such cash value to the Policy loan account, where it will be credited with interest at the rate of 4% per year. At least once a year, we will transfer any interest earned in your Policy loan account to the Fixed 21 Account and the investment divisions, according to the way that we allocate monthly deductions. . Charge you interest, which will accrue daily at a rate of 6% per year (which is the maximum rate we will ever charge). We currently intend to (but don't guarantee that we will, except for Policies issued in New York) reduce this rate to 4.6% for Policy years 11 through 15 and to 4.3% after Policy year 15. Your interest payments are due at the end of each Policy year. If you don't pay the amount within 31 days after it is due, we will treat it as a new Policy loan. Repaying your loans (plus accrued interest) is done by sending in payments at least equal to your voluntary planned periodic premium, or $50, if less. Any payments we receive while a loan (plus accrued interest) is outstanding, will be applied first to repaying the loan, and, if any amounts remain after repayment, they will be considered premium. Even though we will repay the loan with these payments, the resulting reduction in outstanding loans will have the same effect as premium payments for purpose of maintaining your guaranteed minimum death benefit. We will allocate your repayment to the Fixed Account and the investment divisions, in the same proportion that any new net premiums would be allocated. Before taking a Policy loan you should consider the following: . Interest payments on loans are generally not deductible for tax purposes. . Under certain situations, Policy loans could be considered taxable distributions. . If you surrender your Policy or if we terminate your Policy, or at the Final Date, any outstanding loan amounts (plus accrued interest) will be taxed as a distribution. Generally, there will be federal income tax payable on the amount by which withdrawals and loans exceed the premiums paid to date. (See "Federal Tax Matters--The Policy--Loans" below.) In addition, the amounts borrowed and withdrawn reduce the Policy's cash value and any remaining cash value of the Policy may be insufficient to pay the income tax on your gains. . A policy loan increases the chances of our terminating your policy due to insufficient cash value. Unless the guaranteed minimum death benefit is in effect, we will terminate your Policy with no value if: (A) on a monthly anniversary your loans (plus accrued interest) exceed your cash value minus the monthly deduction; and (B) we tell you of the insufficiency and you do not make a sufficient payment within 61 days of the monthly anniversary. . Your Policy's death benefit will be reduced by any unpaid loan (plus accrued interest). [SIDEBAR: You can surrender your Policy for its cash surrender value.] SURRENDER AND WITHDRAWAL PRIVILEGES We may ask you to return the Policy before we honor your request to surrender your Policy. You can choose to have the proceeds paid in a single sum, or under an income plan. If the insured dies after you surrender the Policy but before the end of the Policy month in which you surrendered the Policy, we will pay your beneficiary an amount equal to the difference between the Policy's death benefit and its cash value, computed as of the surrender date. You can make partial withdrawals at any time if: . The withdrawal would not result in a reduction in your specified face amount during the first 2 Policy years, as described under "Specified Face Amount" above. 22 . The withdrawal would not result in the cash surrender value being less than sufficient to pay 2 monthly deductions. . The withdrawal is at least $500. . The withdrawal would not result in your specified face amount falling below the minimum allowable amount, as described under "Specified Face Amount," above. . The withdrawal would not result in total premiums paid exceeding the then current maximum premium limitation determined by the Internal Revenue Code rules. If you make a request for a partial withdrawal that is not permitted, we will tell you and you may then ask for a smaller withdrawal or surrender the Policy. We will deduct your withdrawal from the Fixed Account and the investment divisions in the same way we allocate the monthly deduction. Before surrendering your Policy or requesting a partial withdrawal you should consider the following: . Surrender charges may apply. . Amounts received may be taxable as income and, if your Policy is a modified endowment contract, subject to certain tax penalties. . Your Policy could become a modified endowment contract. . For partial withdrawals, your death benefit will decrease by the amount of the withdrawal. For Options A and CII, your specified face amount also will decrease, generally by the amount of the withdrawal, but this decrease will not cause any surrender charge to be deducted other than any surrender charge attributable to the amount withdrawn. . Any withdrawal that causes the specified face amount to decrease could cause an increase in the monthly administrative charge. . In some cases you may be better off taking a Policy loan, rather than a partial withdrawal. EXCHANGE PRIVILEGE If you decide that you no longer want to take advantage of the investment divisions in the Separate Account, you may transfer all of your money into the Fixed Account. There is currently no charge on transfers. Even if we do have a transfer charge in the future, such charge will never be imposed on a transfer of your entire cash value (or the cash value attributable to a specified face amount increase) to the Fixed Account within the first 24 Policy months (or within 24 Policy months after a specified face amount increase you have requested, as applicable). In some states, in order to exercise your exchange privilege, you must transfer, without charge, the Policy cash value (or the portion attributable to a specified face amount increase) to a flexible premium fixed benefit life insurance policy, which we make available. THIRD PARTY REQUESTS Generally, we accept requests for transactions or information only from you. Therefore, we reserve the right not to process transactions requested on your behalf by your agent with a power of attorney or any other authorization. This includes processing transactions by an agent you designate, through a power of attorney or other authorization, who has the ability to control the amount and timing of transfers for a number of other Policy owners, and who simultaneously makes the same request or series of requests on behalf of other Policy owners. 23 PAYMENT AND ALLOCATION OF PREMIUMS PREMIUMS Unless your Policy has a guaranteed minimum death benefit in effect, the payment of premiums won't guarantee that your Policy will remain in force. Rather, this depends on your Policy's cash surrender value. [SIDEBAR: You can make voluntary planned periodic premium payments and unscheduled premium payments.] PAYING PREMIUMS You can make premium payments, subject to certain limitations discussed below, through the: . Voluntary planned periodic premium schedule: You choose the schedule on your application. The schedule sets forth the amount of premiums, fixed payment intervals, and the period of time that you intend to pay premiums. The schedule can be: (A) annual; (B) semi-annual; (C) periodic automatic pre- authorized transfers from your checking account ( "check-o-matic"); (D) systematic through payment plans that your employer makes available; or (E) through another method to which we agree. You do not have to pay premiums in accordance with your voluntary planned premium schedule. . Unscheduled premium payment option: You can make premium payments at any time. We may adopt a practice of holding a premium payment received before its due date in a non-interest bearing holding account until the due date, if necessary, to prevent a Policy becoming a modified endowment contract. (See "Modified Endowment Contracts" under "Federal Tax Matters" below.) Under any such procedures we would send you an additional notice of this arrangement by letter immediately after receiving your payment. We would also give you the option to either have the money held until the due date or applied on our Date of Receipt of your instructions to apply the money (unless the due date has already passed). PAYING PREMIUMS TO MAINTAIN THE GUARANTEED MINIMUM DEATH BENEFIT You can pay certain levels of premiums that entitle you to a guaranteed minimum death benefit for a specified period of time. To keep the guarantee you will need to pay these premium levels for the entire duration of the guarantee. We will test your Policy on each monthly anniversary or upon the Policy lapse date (depending on state requirements) to verify that you have paid the minimum premium (after taking into account partial withdrawals and outstanding Policy loans) to keep the guarantee in force. The level of premium to keep the guaranteed minimum death benefit in effect varies based on several factors including: . Duration of the guarantee (generally higher levels are required for longer durations). . Specified face amount (generally higher levels are required for higher amounts). . Smoking class and underwriting class (generally higher levels are required for classes that we consider to pose a greater mortality risk ). . Death benefit option (generally higher levels are required for death benefit options B and CI). . Except for Policies issued in New York, Policy riders (generally higher levels are required if you have riders in force). 24 MAXIMUM AND MINIMUM PREMIUM PAYMENTS . During the first Policy year you must pay an amount of premium that we call the minimum initial premium (after taking account of partial withdrawals and outstanding Policy loans) or we will terminate your Policy after the grace period. . After the first Policy year, your voluntary planned periodic payments must be at least: . $200 annually (or, for some Policies distributed by certain brokers, $2,500 annually) . $100 semi-annually . $15 on a "check-o-matic" or other systematic payment schedule. . Unscheduled premium payments must be at least $250 each. . You may not pay premiums that exceed tax law premium limitations for life insurance policies. We will return any amounts that exceed these limits except that we will keep any amounts that are required to keep the Policy from terminating. We will let you make premium payments that would turn your Policy into a modified endowment contract, but we will tell you of this status in your annual statement, and if possible, we will tell you how to reverse the status. [SIDEBAR: Net premiums are your premiums minus the charges deducted from those premiums.] ALLOCATING NET PREMIUMS We will allocate your net premiums to the Fixed Account from the Investment Start Date until 20 days after such date. We will then allocate your cash value according to your net premium allocation instructions in your application. You can instruct us to allocate your net premiums among the Fixed Account and the investment divisions. The percentage of your net premium allocation into each of these investment options must be a minimum of 1% and in whole numbers. You can change your allocations (effective after the 20th day referred to above) at any time by giving us written notification at our Designated Office or in any other manner that we permit. POLICY TERMINATION AND REINSTATEMENT Termination: We will terminate your Policy without any cash surrender value if: . The cash surrender value is less than the monthly deduction; . No minimum guaranteed death benefit is in effect; and . We do not receive a sufficient premium payment within the 61-day grace period to cover two monthly deductions. We will mail you notice if any grace period starts. Reinstatement: Upon your request, we will reinstate your Policy (without reinstating the guaranteed minimum death benefit or any amounts in a Policy loan account), subject to certain terms and conditions that the Policy provides. We must receive your request within 3 years (or any longer period provided by state law) after the end of the grace period and before the Final Date. You also must provide us: . A written application for reinstatement (the date we approve the application will be the effective date of the reinstatement). . Evidence of insurability that we find satisfactory. . An additional premium amount that the Policy prescribes for this purpose. 25 CHARGES AND DEDUCTIONS The Policy charges compensate us for our expenses and risks. Our revenues from any particular charge may be more or less than any costs or expenses that charge may be intended primarily to cover. We may use our revenues from one charge to pay other costs and expenses in connection with the Policies. We may also profit from our revenues from all the charges combined. The following sets forth additional information about some (but not all) of the Policy charges. [SIDEBAR: Carefully review the "Table of Charges and Expenses" in the "Summary", which sets forth the charges that you pay under your Policy.] CHARGE FOR AVERAGE EXPECTED STATE TAXES ATTRIBUTABLE TO PREMIUMS: We make this charge to reimburse us for the state premium taxes that we must pay on premiums we receive. Premium taxes vary from state to state and currently range from 0 to 3.5%. Our charge approximates the average tax rate we expect to pay on premiums we receive from all states. CHARGES INCLUDED IN THE MONTHLY DEDUCTION: At issue, or within 30 days of any Policy anniversary, you can choose to have the monthly deduction taken from either: (a) the Fixed Account and each investment division in which you have cash value in the same proportion as your cash value is allocated among these options at the beginning of the policy month; or (b) if there is sufficient cash value, entirely from your Fixed Account. If no election is made or if amounts in the Fixed Account are insufficient, we will take the monthly deduction in accordance with (a). We deduct the monthly deductions as of each monthly anniversary beginning as of the Date of Policy. . Cost of term insurance: This charge varies monthly based on many factors. Each month, we determine the charge by multiplying your cost of insurance rates by the term insurance amount. . The term insurance amount is the death benefit at the beginning of the Policy month divided by a discount factor to account for an assumed return during the month; minus the cash value at the beginning of the Policy month after deduction of all other applicable charges. Factors that affect the term insurance amount include the specified face amount, the cash value and the death benefit you choose. (Generally, the term insurance amount will be higher for Options B and CI). . The term insurance rate is based on our expectations as to future experience, taking into account the insured's sex (if permitted by law), age and rate class. The rates will never exceed the guaranteed rates, which are based on certain 1980 Commissioners Standard Ordinary Mortality Tables and the insured's sex, age and smoking status. Our current rates are lower than the maximums in most cases. We review our rates periodically and may adjust them, but we will apply the same rates to everyone who has had their Policy for the same amount of time and who is the same age, sex and rate class. As a general rule, the cost of insurance rate increases each year you own your Policy, as the insured's age increases. . Rate class relates to the level of mortality risk we assume with respect to an insured. It can be the standard rate class, or one that is higher or lower (and, if the insured is 18 or older, we divide rate class by smoking status). The insured's rate class will affect your cost of term insurance. You can also have more than one rate class in effect, if the insured's rate class has changed and you change your specified 26 face amount. A better rate class will lower the cost of term insurance on your entire Policy and a worse rate class will affect the portion of your cost of term insurance charge attributable to the specified face amount increase. . Administration charge: We make this monthly charge primarily to compensate us for expenses we incur in the administration of the Policy, and also, in the first year, our underwriting and start-up expenses. . Mortality and expense risk charge: We make this monthly charge primarily to compensate us for: . mortality risks that insureds may live for a shorter period than we expect; and . expense risks that our issuing and administrative expenses may be higher than we expect. [SIDEBAR: Your Policy sets forth the maximum surrender charges to which your cash value could be subject.] SURRENDER CHARGE The method by which we calculate the surrender charges that apply under certain circumstances is complex, because they are based on several factors that are specific to your Policy. You can request a personalized illustration that will show you how this charge (along with other charges plus your loans and accrued interest) affect your cash surrender value. We have summarized the basic principles used to determine the surrender charges in the table that appears under "Summary--Table of Charges and Expenses." The discussion that follows gives additional detail on how we calculate surrender charges. In order to determine the Surrender Charge, we first determine the: . Surrender Charge Measure, which is: . For the first Policy year the lesser of: (A) actual cumulative premiums paid; and (B) the Maximum Surrender Charge Premium. . For the second Policy year and later Policy years, the lesser of: (A) actual cumulative premiums paid within the first two Policy years; and (B) the Maximum Surrender Charge Premium. .Increase Surrender Charge Measure, which is: . For the first year following the increase, the lesser of: (A) the amount by which the actual cumulative premiums paid within twelve months following the date of the application for the specified face amount increase exceeds the sum of: (i) the Surrender Charge Measure for the first Policy year, plus (ii) the Increase Surrender Charge Measure for the first year following any prior increases; and (B) the Maximum Surrender Charge Premium at the time of the increase. . For the second Policy year and later following the increase, the lesser of: (A) the amount by which actual cumulative premiums paid within twenty- four months following the date of the application for the specified face amount increase exceeds the sum of: (i) the Surrender Charge Measure for the second Policy year, plus (ii) the Increase Surrender Charge Measure for the second year following any prior increases; and (B) the Maximum Surrender Charge Premium for the second Policy year following the increase. 27 . Maximum Surrender Charge Premium, which is the amount determined at issue (or for a specified face amount increase, at the time of the increase) which will not exceed: . For the first Policy year, or the first year after the increase, 75% of the Smoker Federal Guideline Annual Premium for Death Benefit Option A and all riders at issue, or at the time of the increase, respectively; and . For the second Policy year and thereafter, or the second and later years after the increase, 100% of the Smoker Federal Guideline Annual Premium for Death Benefit Option A and all riders at issue or at the time of the increase. [SIDEBAR: There is no surrender charge on partial withdrawals of up to 10% of the Policy's Cash Value each year.] . Federal Guideline Annual Premium, which is the level annual amount of premium that you would need to pay through the Final Date of your Policy for the specified face amount of your Policy if we set your premiums both as to timing and amount, based on: . the 1980 Commissioners Standard Ordinary Mortality Tables; . net investment earnings at an annual effective rate of 4%; and . fees and charges as set forth in your Policy and Policy riders. This premium is based on the insured's age, sex, smoking status and rate class and is generally higher for older ages, for males, for smokers and for those in a higher rate class. Using the above determinations, we will then compute the full surrender charge by first locating the Policy year in the table below that contains the date as of which we are computing the charge. Then we multiply the indicated percentage by the then-applicable Surrender Charge Measure. This gives us the surrender charge for the initial specified face amount. We compute the surrender charge for each specified face amount increase that is then in effect by a similar method, except that we multiply the percentage for the actual year following the date of the increase by the Increase Surrender Charge Measure for that increase. By totaling the surrender charge we compute for the original specified face amount with any that we compute for each specified face amount increase, we arrive at the full surrender charge.
POLICY YEAR (OR ACTUAL YEAR SINCE SPECIFIED FACE AMOUNT 16 AND INCREASE) 1 2 3 4 5 6* 7 8 9 10 11 12 13 14 15 LATER ---------------------------------------------------------------------------------- % of Measure 100 100 90 80 70 60 54 48 42 36 30 24 18 12 6 0
*After the fifth year, the surrender charges will decrease each Policy month. We deduct any surrender charge that results from a partial withdrawal or specified face amount decrease from the same sources as we take the monthly deduction. If the cash value is insufficient, we reduce the amount we pay you. Because of the surrender charge, your Policy will probably not have any cash surrender value for at least the first Policy year unless you pay significantly more than the Minimum Initial Premium. Since the Surrender Charge Measure and Increase Surrender Charge Measure are capped at the end of the first two Policy years after issue, and after increase in specified face amount, respectively, you may be able to limit your surrender charges by limiting your premium payments to levels necessary to keep the Policy and the guaranteed minimum death benefit in effect. 28 FEDERAL TAX MATTERS The following is a brief summary of some tax rules that may apply to your Policy. You should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy, especially before you make unscheduled premium payments, change your specified face amount, change your death benefit option, change coverage provided by riders, take a loan or withdrawal, or assign or surrender the Policy. [SIDEBAR: You should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy.] THE POLICY Insurance proceeds . Generally excludable from your beneficiary's gross income. . The proceeds may be subject to federal estate tax: (i) if paid to the insured's estate; or (ii) if paid to a different beneficiary if the insured possessed incidents of ownership at or within three years before death. . If you die before the insured, the value of your Policy (determined under IRS rules) is included in your estate and may be subject to federal estate tax. . Whether or not any federal estate tax is due is based on a number of factors including the estate size. Cash value (if your Policy is not a modified endowment contract) . You are generally not taxed on your cash value until you withdraw it, surrender your Policy or receive a distribution on the Final Date. In these cases, you are generally permitted to take withdrawals up to the amount of premiums paid without any tax consequences. However, withdrawals will be subject to income tax after you have received amounts equal to the total premiums you paid. Somewhat different rules apply in the first 15 Policy years, when a distribution may be subject to tax if there is a gain in your Policy (which is generally when your cash value exceeds the cumulative premiums you paid). If your Policy is part of a collateral assignment equity split dollar arrangement, there is a risk that increases in cash value may be taxed annually. The IRS has recently issued guidance on split dollar insurance plans. A tax advisor should be consulted with respect to this new guidance if you have purchased or are considering the purchase of a Policy for a split dollar insurance plan. There may be an indirect tax upon the income in the Policy or the proceeds of a Policy under the Federal corporate alternative minimum tax, if you are subject to that tax. Loans . Loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract, is exchanged or terminates. . Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. . If your Policy terminates (upon surrender, cancellation lapse, the Final Date or, in most cases, exchange) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. Modified Endowment Contracts These contracts are life insurance contracts where the premiums paid during the first 7 years after the Policy is issued, or after a material change in the 29 Policy, exceeds tax law limits referred to as the "7-pay test." Material changes in the Policy, include changes in the level of benefits and certain other changes to your Policy after the issue date. Reductions in benefits during a 7-pay period may cause your Policy to become a modified endowment contract. Generally, a life insurance policy that is received in exchange for a modified endowment contract will also be considered a modified endowment contract. If your Policy is considered a modified endowment contract the following applies: . The death benefit will generally be income tax free to your beneficiary, as discussed above. . Amounts withdrawn or distributed before the insured's death, including loans, assignments and pledges, are (to the extent of any gains on your policy) treated as income first and subject to income tax. All modified endowment contracts you purchase from us and our affiliates during the same calendar year are treated as a single contract for purposes of determining the amount of any such income. . An additional 10% income tax generally applies to the taxable portion of the amounts received before age 59 1/2, except generally if you are disabled or the distribution is part of a series of substantially equal periodic payments. Diversification In order for your Policy to qualify as life insurance, we must comply with certain diversification standards with respect to the investments underlying the Policy. We believe that we satisfy and will continue to satisfy these diversification standards. Inadvertent failure to meet these standards may be able to be corrected. Failure to meet these standards would result in immediate taxation to Policy owners of gains under their Policies. Changes to tax rules and interpretations Changes in applicable tax rules and interpretations can adversely affect the tax treatment of your Policy. These changes may take effect retroactively. We reserve the right to amend the Policy in any way necessary to avoid any adverse tax treatment. Examples of changes that could create adverse tax consequences include: . Possible taxation of cash value transfers. . Possible taxation as if you were the owner of your allocable portion of the Separate Account's assets. . Possible limits on the number of investment funds available or the frequency of transfers among them. . Possible changes in the tax treatment of Policy benefits and rights. OUR TAXATION In general ,we don't expect to incur federal, state or local taxes upon the earnings or realized capital gains attributable to the assets in the Separate Account relating to the Policies' cash surrender value. If we do incur such taxes, we reserve the right to charge the cash value allocated to the Separate Account for these taxes. 30 SHOWING PERFORMANCE We may advertise or otherwise show: . Investment division performance ranking and rating information as it compares among similar investments as compiled by independent organizations. . Comparisons of the investment divisions with performance of similar investments and appropriate indices. . Our insurance company ratings that are assigned by independent rating agencies and that are relevant when considering our ability to honor our guarantees. . Personalized illustrations based on historical Separate Account performance. UL I EXCHANGE PROGRAM On or about July 1, 2000, owners of certain eligible UL I (flexible premium life insurance policies issued by Metlife and one of its affiliates) will be notified that they may exchange their existing policy for a UL 2001 Policy. The new UL 2001 Policy will have the same provisions as described in this Prospectus, except for the following: . The 5.5% sales charge that we deduct from each premium payment will be waived for the initial accumulation fund transfer into the UL 2001 Policy. . The surrender charges associated with the initial specified face amount of the UL 2001 Policy will apply only during the first five Policy years after the exchange. After that time, no surrender charges will be deducted. . The Disability Waiver of Premium Benefit (DWP) will not be available on the new UL 2001 Policy. . In the first Policy year after the exchange, a 25% commission rate will apply to any premium increase between the current billed premium for the old UL I policy and the actual premium received for the new UL 2001 Policy (or the maximum commissionable premium (MCP) for the new UL 2001 Policy, if less.) . If you choose to exercise your free look provision during the time period described below, we will reinstate your old UL I policy by transferring back without charge the entire initial accumulation fund. Any additional premiums paid to the new UL 2001 Policy will be refunded to you as described under "Free Look Period" below. RIGHTS WE RESERVE We reserve the right to make certain changes if we believe the changes are in the best interest of our Policy owners or would help carry out the purposes of the Policy. We will make these changes in the manner permitted by applicable law and only after getting any necessary owner and regulatory approval. We will notify you of any changes that result in a material change in the underlying investments in the investment divisions, and you will have a chance to transfer out of the affected division (without charge). Some of the changes we may make include: . Operating the Separate Account in any other form that is permitted by applicable law. . Changes to obtain or continue exemptions from the 1940 Act. 31 . Transferring assets among investment divisions or to other separate accounts, or our general account or combining or removing investment divisions from the Separate Account. . Substituting Fund shares in an investment division for shares of another portfolio of a Fund or another fund or investment permitted by law. . Changing the way we assess charges without exceeding the aggregate amount of the Policy's guaranteed maximum charges. . Making any necessary technical changes to the Policy to conform it to the changes we have made. [SIDEBAR: Carefully review your Policy which contains a full discussion of all its provisions.] OTHER POLICY PROVISIONS You should read your Policy for a full discussion of its provisions. The following is a brief discussion of some of the provisions that you should consider: FREE LOOK PERIOD You can return the Policy during this period. The period is the later of: . 10 days after you receive the Policy (unless state law requires your Policy to specify a longer specified period); and . 45 days after we receive Part A of the completed application. If you return your Policy, we will send you a complete refund of any premiums paid (or cash value plus any charges deducted if state law requires) within seven days. INCONTESTABILITY We will not contest: . Your Policy after 2 Policy years from issue or reinstatement (excluding riders added later). . An increase in a death benefit after it has been in effect for two years. SUICIDE If the insured commits suicide within the first two Policy years (or any different period provided by state law), your beneficiary will receive all premiums paid (without interest), less any outstanding loans (plus accrued interest) and withdrawals taken. Similarly, we will pay the beneficiary only the cost of any increase in specified face amount if the insured commits suicide within two years of such increase. AGE AND SEX We will adjust benefits to reflect the correct age and sex of the insured, if this information isn't correct in the Policy application. ASSIGNMENT AND CHANGE IN OWNERSHIP You can assign your Policy as collateral if you notify us in writing. The assignment or release of the assignment is effective when it is recorded at the Designated Office. We are not responsible for determining the validity of the assignment or its release. Also, there could be serious adverse tax consequences to you or your beneficiary, so you should consult with your tax adviser before making any change of ownership or other assignment. 32 [SIDEBAR: Under certain situations, we may defer payments.] PAYMENT AND DEFERMENT Generally, we will pay or transfer amounts from the Separate Account within seven days after the Date of Receipt of all necessary documentation required for such payment or transfer. We can defer this if: . The New York Stock Exchange has an unscheduled closing. . There is an emergency so that we could not reasonably determine the investment experience of a Policy. . The Securities and Exchange Commission by order permits us to do so for the protection of Policy owners (provided that the delay is permitted under New York State insurance law and regulations). . With respect to the insurance proceeds, if entitlement to a payment is being questioned or is uncertain. . We are paying amounts attributable to a check. In that case we can wait for a reasonable time (15 days or less) to let the check clear. We currently pay interest on the amount of insurance proceeds at 3% per year (or higher if state law requires) from the date of death until the date we pay the benefit. DIVIDENDS The Policy is "nonparticipating," which means it is not eligible for dividends from us and does not share in any distributions of our surplus. [SIDEBAR: We perform the sales and administrative services for the Policies.] SALES AND ADMINISTRATION OF THE POLICIES We serve as the "principal underwriter," as defined in the 1940 Act, for the Policy and other variable life insurance and variable annuity contracts issued by our subsidiary and us. We are registered under the Securities Exchange Act of 1934 as a broker-dealer and are a member of the National Association of Securities Dealers, Inc. We are a sub-investment manager to certain Portfolios of the Metropolitan Series Fund, Inc. and may also provide advisory services to other clients. BONDING Our directors, officers and employees are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. DISTRIBUTING THE POLICIES We sell the Policies through licensed life insurance sales representatives: . Registered through us. . Registered through other broker-dealers, including a wholly owned subsidiary. COMMISSIONS We pay commissions to representatives (or the broker-dealers through which they are registered) for the sale of our products. The commissions do not result in a charge against the Policy in addition to the charges already described elsewhere in this Prospectus. We paid no commissions in 1997 on the Policies, because the product was not sold before 1998. Commissions paid in 1998, 1999 and 2000 totaled $4,514,429, $28,275,367, and $63,777,296, respectively. Maximum commissions are: 33 . First Policy Year: . 50% of the lesser of : (A) Actual premiums paid in the first year; (B) The initial voluntary planned periodic premium for the first year; or (C) The annual premium necessary to keep the longest duration of the guaranteed minimum death benefit effective for a like Policy with Option A and the preferred nonsmoking rating class for standard risks (or the actual rating class for other risks) in place ("MCP"); OR . 50% of actual premiums paid in the first year up to the MCP, if: (A) Actual premiums paid in the first year are equal to or greater than three times the MCP; and (B) The initial voluntary planned periodic premium for the first year is equal to or greater than one-half of the MCP; OR . 50% of the lesser of : (A) the amount by which premiums paid in the first 12 months following the application to increase the specified face amount exceed the cumulative amount of premiums on which a 50% commission has previously been paid; or (B) the portion of (C) above, computed using the difference between the old and new specified face amounts and rating information of the insured at the time of the increase; PLUS . 3% of amounts not eligible for the above commission schedules. .Policy Years 2-4: 5% of premiums paid in the Policy year. . Policy Years 5-10: A servicing fee of 2% of premiums paid in the Policy year. . Policy Years 11 and later: A servicing fee of 1% of premiums paid in the Policy year. We also pay the sales manager of a sales representative employed by us an override commission based on many factors including the commissions paid to the representative who sold the Policy and to other representatives the sales manager supervises. There is a cap on commissions--a commission paid in any year will not exceed $40 per $1,000 current specified face amount. We may require all or part of the commissions to be returned to us if you do not continue your Policy for at least 2 years. [SIDEBAR: You can give us voting instructions on shares of each Portfolio of a Fund that are attributed to your Policy.] VOTING RIGHTS The Funds have shareholder meetings from time to time to, for example, elect directors and approve some changes in investment management arrangements. We will vote the shares of each Portfolio that are attributed to your Policy based on your instructions. Should we determine that the 1940 Act no longer requires us to do this, we may decide to vote Fund shares in our own right, without input from you or any other owners of variable life insurance policies or variable annuity contracts that participate in a Fund. 34 If you are eligible to give us voting instructions, we will send you informational material and a form to send back to us. We are entitled to disregard voting instructions in certain limited circumstances prescribed by the SEC. If we do so, we will give you our reasons in the next semi-annual report to Policy owners. The number of shares for which you can give us voting instructions is determined as of the record date for the Fund shareholder meeting by dividing: . Your Policy's cash value in the corresponding investment division; by . The net asset value of one share of that Portfolio. We will count fractional votes. If we do not receive timely voting instructions from Policy owners and other insurance and annuity owners that are entitled to give us voting instructions, we will vote those shares in the same proportion as the shares held in the same separate account for which we did receive voting instructions. Also, we will vote Fund shares that are not attributable to insurance or annuity owners (including shares that we hold in our general account) or that are held in separate accounts that are not registered under the 1940 Act in the same proportion as the aggregate of the shares for which we received voting instructions from all insurance and annuity owners. REPORTS Generally, you will promptly receive statements confirming your significant transactions such as: . Change in specified face amount. . Change in death benefit options. . Changes in guarantees. . Transfers among investment divisions (including those through Automated Investment Strategies, which are confirmed quarterly). . Partial withdrawals. . Loan amounts you request. . Loan repayments and premium payments. If your premium payments are made through check-o-matic or another systematic payment method, we will not send you any confirmation in addition to the one you receive from your bank or employer. We will also send you an annual statement within 30 days after a Policy year that will summarize the year's transactions and include information on: . Deductions and charges. . Status of the death benefit. . Cash and cash surrender values. . Amounts in the investment divisions and Fixed Account. . Status of Policy loans. . Automatic loans to pay interest. . Information on your modified endowment contract status (if applicable). We will also send you a Fund's annual and semi-annual reports to shareholders. 35 [SIDEBAR: Personalized illustrations can help you understand how your policy values can vary.] ILLUSTRATION OF POLICY BENEFITS In order to help you understand how your Policy values would vary over time under different sets of assumptions, we will provide you with certain illustrations upon request. These will be based on the age and insurance risk characteristics of the insured under your Policy and such factors as the specified face amount, death benefit option, premium payment amounts and rates of return (within limits) that you request. You can request such illustrations at any time. We have filed an example of such an illustration as an exhibit to the registration statement referred to below. GETTING MORE INFORMATION We are regulated by the New York Insurance Department and periodically are examined by them. We are also subject to the laws and regulations of all the jurisdictions in which we do business and, if required, we have filed the Policy for approval in every jurisdiction in which the Policy is sold. The Policy and /or the guaranteed minimum death benefit may not be available in every jurisdiction. You should ask your sales representative whether the Policy is available in your jurisdiction. We file annual statements on our operations, including financial statements, with insurance departments of various jurisdictions so that they can review our solvency and compliance with applicable laws and regulations. You can review these statements which are available at the offices of the various insurance departments. This Prospectus is part of a registration statement that we filed with the Securities and Exchange Commission under the Securities Act of 1933. The registration statement includes additional information, amendments and exhibits. You can get this information from the Securities and Exchange Commission (a copying fee may apply) by visiting or writing to its Public Reference Room or using its Internet site at: . Securities and Exchange Commission Public Reference Room Washington, D.C. 20549 Call 1-800-SEC-0330 (for information about using the Public Reference Room) Internet site: http://www.sec.gov LEGAL, ACCOUNTING AND ACTUARIAL MATTERS Anne M. Goggin, Chief Counsel--Individual Business at MetLife, has passed upon the legality of the Policies. The law firm of Foley & Lardner, Washington, D.C., has advised us on certain matters relating to the federal securities laws. Deloitte & Touche LLP, independent auditors, audited the financial statements included in this Prospectus, as stated in their reports appearing herein. The financial statements are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Our financial statements should be considered only as bearing upon our ability to meet our obligations under the Policy. Marian Zeldin, FSA, MAAA, Vice-President and Actuary of MetLife, has examined actuarial matters included in the registration statement, as stated in her opinion filed as an exhibit to the registration statement. 36 MANAGEMENT The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE ----------------------------------------------------------------------------------- Curtis H. Chairman Emeritus Director Barnette Bethlehem Steel Corp. 1170 Eight Ave. -- Martin Tower 101 Bethlehem, PA 18016 ----------------------------------------------------------------------------------- Robert H. Chairman of the Board, President and Chairman of the Board, Benmosche Chief Executive Officer President, MetLife, Inc. and Chief Executive Officer and Metropolitan Life Insurance Company Director One Madison Ave. New York, NY 10010 ----------------------------------------------------------------------------------- Gerald Vice Chairman of the Board and Vice Chairman of the Board, Clark Chief Investment Officer Chief Investment Officer and MetLife, Inc. and Metropolitan Director Life Insurance Company One Madison Ave. New York, NY 10010 ----------------------------------------------------------------------------------- Joan Ganz Chairman, Executive Committee Director Cooney Sesame Street Workshop One Lincoln Plaza New York, NY 10023 ----------------------------------------------------------------------------------- John C. Partner Director Danforth Bryan Cave LLP One Metropolitan Square 211 North Broadway, Suite 3600 St. Louis, MO 63102 ----------------------------------------------------------------------------------- Burton A. Retired Chairman of the Board Director Dole, Jr. Nellcor Puritan Bennett P.O. Box 208 Pauma Valley, CA 92061 ----------------------------------------------------------------------------------- James R. Chairman of the Board Emeritus Director Houghton and Director Corning Incorporated 80 East Market Street, 2nd Floor Corning, NY 14830 ----------------------------------------------------------------------------------- Harry P. Chairman and Director Kamen Chief Executive Officer (Retired) Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 ----------------------------------------------------------------------------------- Helene L. Of Counsel Director Kaplan Skadden Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 ----------------------------------------------------------------------------------- Charles Retired Chairman and Director M. Leigh- Chief Executive Officer ton CML Group, Inc. P.O. Box 247 Bolton, MA 01740 ----------------------------------------------------------------------------------- Stewart Vice Chairman of the Board and Vice Chairman of the Board and Nagler Chief Financial Officer Chief Financial Officer and MetLife, Inc. and Metropolitan Life Director Insurance Company One Madison Avenue New York, NY 10010
37
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE ------------------------------------------------------------------------------------- John J. Phelan, Jr. Retired Chairman and Director Chief Executive Officer New York Stock Exchange, Inc. P.O. Box 524 Locust Valley, NY 11560 ------------------------------------------------------------------------------------- Hugh B. Price President and Chief Executive Officer Director National Urban League, Inc. 120 Wall Street New York, NY 10005 ------------------------------------------------------------------------------------- Ruth J. Simmons, Ph.D. President Director Smith College College Hall 20 Northhampton, MA 01063 ------------------------------------------------------------------------------------- William C. Steere, Jr. Chairman of the Board Director Pfizer, Inc. 235 East 42nd Street New York, NY 10016
NAME OF OFFICER* POSITION WITH METROPOLITAN LIFE ---------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer ---------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board, Chief Investment Officer and Director ---------------------------------------------------------------------------------------- Stewart G. Nagler Vice Chairman of the Board, Chief Financial Officer and Director ---------------------------------------------------------------------------------------- Gary A. Beller Senior Executive Vice-President and General Counsel ---------------------------------------------------------------------------------------- James M. Benson President, Individual Business; Chairman, Chief Executive Officer and President, New England Life Insurance Company ---------------------------------------------------------------------------------------- Daniel J. Cavanagh Executive Vice President ---------------------------------------------------------------------------------------- Gwenn L. Carr Vice President and Secretary ---------------------------------------------------------------------------------------- C. Robert Henrikson President, Institutional Business ---------------------------------------------------------------------------------------- Jeffrey J. Hodgman Executive Vice President ---------------------------------------------------------------------------------------- Kernan F. King Executive Vice President ---------------------------------------------------------------------------------------- Leland Launer Senior Vice President and Treasurer ---------------------------------------------------------------------------------------- Terence I. Lennon Executive Vice President ---------------------------------------------------------------------------------------- David A. Levene Executive Vice President ---------------------------------------------------------------------------------------- William J. Toppeta President, Client Services and Chief Administrative Officer ---------------------------------------------------------------------------------------- Catherine A. Rein Senior Executive Vice-President; President and Chief Executive Officer, Metropolitan Property and Casualty Insurance Company ---------------------------------------------------------------------------------------- Stanley J. Talbi Senior Vice-President and Chief Actuary ---------------------------------------------------------------------------------------- John H. Tweedie Senior Executive Vice-President ---------------------------------------------------------------------------------------- Lisa M. Weber Executive Vice-President ---------------------------------------------------------------------------------------- Judy E. Weiss Executive Vice-President and Chief Actuary
------------ * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. Robert H. Benmosche has been an officer of Metropolitan Life since September, 1995; prior thereto, he was an Executive Vice- President of Paine Webber. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto, she was a Director of Diversity Strategies and Development and an Associate Director of Human Resources of Paine Webber. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 38 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the Metropolitan Life Separate Account UL including 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, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Templeton International Stock, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Zenith Davis Venture Value Series, Zenith Loomis Sayles Small Cap Series, and Alliance Series Growth & Income--Class B Portfolios, collectively (the "Separate Account"), including the schedule of investments as of December 31, 2000, and the related statements (i) of operations for the year ended December 31, 2000, the statements of changes in net assets for the years ended December 31, 2000, and 1999 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, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, and Templeton International Stock Portfolios, and (ii) of operations and of changes in net assets for the period May 1, 2000 (commencement of operations) to December 31, 2000 of Putnam Large Cap Growth, July 5, 2000 (commencement of operations) to December 31, 2000 of State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Zenith Davis Venture Value Series, and Zenith Loomis Sayles Small Cap Series, and September 30, 2000 (commencement of operations) to December 31, 2000 of Alliance Series Growth & Income--Class B Portfolio. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2000 by correspondence with the custodian and the depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Metropolitan Life Separate Account UL including 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, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Templeton International Stock, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Zenith Davis Venture Value Series, Zenith Loomis Sayles Small Cap Series, and Alliance Series Growth & Income--Class B Portfolios as of December 31, 2000, the results of its operations, and the changes in its net assets for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Tampa, Florida March 5, 2001 1 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES At December 31, 2000
State Street State Street State Street State Street State Street Research Research Research Research Research Aggressive Growth Income Money Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------ ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069).................... $404,569,260 -- -- -- -- State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)..................... -- $76,023,451 -- -- -- State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)..................... -- -- $21,535,554 -- -- State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614).................... -- -- -- $260,533,637 -- State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).................... -- -- -- -- $205,338,640 MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332).................... -- -- -- -- -- Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)..................... -- -- -- -- -- Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)...................... -- -- -- -- -- Janus Mid Cap Portfolio (5,597,930 shares; cost $152,196,373)....... -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)..................... -- -- -- -- -- Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)..................... -- -- -- -- -- Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391)...................... -- -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226)...................... -- -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090)...................... -- -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048)..................... -- -- -- -- -- Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)...................... -- -- -- -- -- Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)...................... -- -- -- -- -- Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)...................... -- -- -- -- -- Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273)..... -- -- -- -- -- Invesco VIF Equity Income Portfolio (670 shares; cost $14,429)......................... -- -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760)... -- -- -- -- -- Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)...................... -- -- -- -- -- Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)...................... -- -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656). -- -- -- -- -- MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)...................... -- -- -- -- -- Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)...................... -- -- -- -- Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576)................... -- -- -- -- Alliance Series Growth & Income-- Class B Portfolio (2,480 shares; cost $55,171).................... -- -- -- -- -- ------------ ----------- ----------- ------------ ------------ Total Investments................. 404,569,260 76,023,451 21,535,554 260,533,637 205,338,640 Cash and Accounts Receivable...... 0 0 0 0 0 ------------ ----------- ----------- ------------ ------------ Total Assets...................... 404,569,260 76,023,451 21,535,554 260,533,637 205,338,640 LIABILITIES....................... 1,180,719 40,200 1,639 398,614 354,200 ------------ ----------- ----------- ------------ ------------ NET ASSETS........................ $403,388,541 $75,983,251 $21,533,915 $260,135,023 $204,984,440 ============ =========== =========== ============ ============
See Notes to Financial Statements. 2
Loomis Harris Neuberger Putnam Sayles T. Rowe Scudder Oakmark Berman MetLife International High Yield Janus Price Small Global Large Cap Partners Stock Index Stock Bond Mid Cap Cap Growth Equity Value Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------- ---------- ------------ ----------- ----------- ---------- ------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $314,228,935 -- -- -- -- -- -- -- -- $43,493,178 -- -- -- -- -- -- -- -- $6,884,686 -- -- -- -- -- -- -- -- $130,935,575 -- -- -- -- -- -- -- -- $42,134,910 -- -- -- -- -- -- -- -- $19,865,074 -- -- -- -- -- -- -- -- $2,078,196 -- -- -- -- -- -- -- -- $6,157,057 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------ ----------- ---------- ------------ ----------- ----------- ---------- ---------- 314,228,935 43,493,178 6,884,686 130,935,575 42,134,910 19,865,074 2,078,196 6,157,057 951 0 29,056 0 0 19,688 27,817 0 ------------ ----------- ---------- ------------ ----------- ----------- ---------- ---------- 314,229,886 43,493,178 6,913,742 130,935,575 42,134,910 19,884,762 2,106,013 6,157,057 338,108 21,570 0 78,155 16,668 0 0 17,889 ------------ ----------- ---------- ------------ ----------- ----------- ---------- ---------- $313,891,778 $43,471,608 $6,913,742 $130,857,420 $42,118,242 $19,884,762 $2,106,013 $6,139,168 ============ =========== ========== ============ =========== =========== ========== ==========
See Notes to Financial Statements. 3 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES (Continued) At December 31, 2000
T. Rowe Price Large Cap Lehman Brothers Morgan Stanley Russell 2000 Growth Aggregate Bond EAFE Index Index Portfolio Index Portfolio Portfolio Portfolio ------------- --------------- -------------- ------------ ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069)..... -- -- -- -- State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)........... -- -- -- -- State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)........... -- -- -- -- State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614)..... -- -- -- -- State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).......... -- -- -- -- MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332).......... -- -- -- -- Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)........... -- -- -- -- Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)............ -- -- -- -- Janus Mid Cap Portfolio (5,597,930 shares; cost $152,196,373).......... -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)........... -- -- -- -- Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)........... -- -- -- -- Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391)............ -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226)....... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090)............ $7,203,340 -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048)........... -- $19,364,071 -- -- Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)............ -- -- $5,773,075 -- Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)............ -- -- -- $5,716,281 Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)............ -- -- -- -- Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273).. -- -- -- -- Invesco VIF Equity Income Portfolio (670 shares; cost $14,429).. -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760).............. -- -- -- -- Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)............ -- -- -- -- Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)............ -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656)............ -- -- -- -- MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)............ -- -- -- -- Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)............ -- -- -- -- Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576). -- -- -- -- Alliance Series Growth & Income--Class B Portfolio (2,480 shares; cost $55,171).. -- -- -- -- ---------- ----------- ---------- ---------- Total Investments....... 7,203,340 19,364,071 5,773,075 5,716,281 Cash and Accounts Receivable............. 59,205 0 12,281 0 ---------- ----------- ---------- ---------- Total Assets............ 7,262,545 19,364,071 5,785,356 5,716,281 LIABILITIES............. 0 8,277 0 15,124 ---------- ----------- ---------- ---------- NET ASSETS.............. $7,262,545 $19,355,794 $5,785,356 $5,701,157 ========== =========== ========== ==========
See Notes to Financial Statements. 4
Invesco Invesco VIF Invesco VIF Templeton Putnam Janus VIF High Equity Real Estate International Large Cap Aspen Growth Yield Income Opportunity Stock Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ --------- --------- ----------- ------------- --------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $5,020,145 -- -- -- -- -- -- $10,822 -- -- -- -- -- -- $13,877 -- -- -- -- -- -- $114,734 -- -- -- -- -- -- $1,099,229 -- -- -- -- -- -- $951,174 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ---------- ------- ------- -------- ---------- -------- 5,020,145 10,822 13,877 114,734 1,099,229 951,174 0 0 0 0 0 7,333 ---------- ------- ------- -------- ---------- -------- 5,020,145 10,822 13,877 114,734 1,099,229 958,507 0 0 0 0 0 0 ---------- ------- ------- -------- ---------- -------- $5,020,145 $10,822 $13,877 $114,734 $1,099,229 $958,507 ========== ======= ======= ======== ========== ========
See Notes to Financial Statements. 5 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES (Continued) At December 31, 2000
State Street Zenith Zenith Research Aurora Metlife Mid Davis Venture Loomis Sayles Small Cap Value Cap Stock Index Value Series Small Cap Series Portfolio Portfolio Portfolio Portfolio --------------- --------------- ------------- ---------------- ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069)..... -- -- -- -- State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)........... -- -- -- -- State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)........... -- -- -- -- State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614)..... -- -- -- -- State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).......... -- -- -- -- MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332).......... -- -- -- -- Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)........... -- -- -- -- Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)............ -- -- -- -- Janus Mid Cap Portfolio (5,597,930 shares; cost $152,196,373).......... -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)........... -- -- -- -- Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)........... -- -- -- -- Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391)............ -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226)............ -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090)............ -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048) .......... -- -- -- -- Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)............ -- -- -- -- Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)............ -- -- -- -- Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)............ -- -- -- -- Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273).. -- -- -- -- Invesco VIF Equity Income Portfolio (670 shares; cost $14,429).. -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760).............. -- -- -- -- Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)............ -- -- -- -- Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)............ -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656)............ $3,133,424 -- -- -- MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)............ -- $2,143,563 -- -- Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)............ -- -- $1,138,605 -- Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576).............. -- -- -- $444,556 Alliance Series Growth & Income--Class B Portfolio (2,480 shares; cost $55,171)............... -- -- -- -- ---------- ---------- ---------- -------- Total Investments....... 3,133,424 2,143,563 1,138,605 444,556 Cash and Accounts Receivable............. 0 2,628 0 0 ---------- ---------- ---------- -------- Total Assets............ 3,133,424 2,146,191 1,138,605 444,556 LIABILITIES............. 2,468 0 1,826 574 ---------- ---------- ---------- -------- NET ASSETS.............. $3,130,956 $2,146,191 $1,136,779 $443,982 ========== ========== ========== ========
See Notes to Financial Statements. 6 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES (Continued) At December 31, 2000
Alliance Series Growth & Income--Class B Portfolio Total --------------- -------------- ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069)......... -- $ 404,569,260 State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)........... -- 76,023,461 State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)........... -- 21,535,554 State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614)......... -- 260,533,637 State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).................................. -- 205,338,640 MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332)............................. -- 314,228,935 Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)...................... -- 43,493,178 Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)....................... -- 6,884,686 Janus Mid Cap Portfolio (5,597,980 shares; cost $152,196,373).................................. -- 130,935,575 T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)........... -- 42,134,910 Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)...................... -- 19,865,074 Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391).............. -- 2,078,196 Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226).... -- 6,167,057 T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090).............. -- 7,203,340 Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048)........... -- 19,364,071 Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)....................... -- 5,773,075 Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)............................... -- 5,716,281 Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)............................... -- 5,020,145 Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273).................................. -- 10,822 Invesco VIF Equity Income Portfolio (670 shares; cost $14,429).................................. -- 13,877 Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760)................. -- 114,734 Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)....................... -- 1,099,229 Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)....................... -- 951,174 State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656).... -- 3,133,424 MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)....................... -- 2,143,563 Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)............... -- 1,138,605 Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576).................. -- 444,556 Alliance Series Growth & Income--Class B Portfolio (2,480 shares; cost $55,171) ........ $57,873 57,873 ------- -------------- Total Investments............................... 57,873 1,585,962,922 Cash and Accounts Receivable.................... 0 158,959 ------- -------------- Total Assets.................................... 57,873 1,586,121,881 LIABILITIES..................................... 0 2,476,031 ------- -------------- NET ASSETS...................................... $57,873 $1,583,645,850 ======= ==============
See Notes to Financial Statements. 7 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2000 ----------------------------------------------------------------- State Street State Street State Street State Street State Street Research Research Research Research Research Aggressive Growth Income Money Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 4,838,821 $ 3,139 $1,677,962 $1,174,688 $ 27,463,699 Expenses: Mortality and expense charges (Note 4).............. 3,798,303 557,064 291,782 2,258,802 1,992,343 ------------ ---------- ---------- ---------- ------------ Net investment income (loss)................. 1,040,518 (553,925) 1,386,180 (1,084,114) 25,471,356 ------------ ---------- ---------- ---------- ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 5,846,334 (764,188) 1,059,353 1,585,197 3,369,764 Change in unrealized (depreciation) appreciation of investments............ (37,904,600) 8,375,071 (454,099) (360,101) (48,026,970) ------------ ---------- ---------- ---------- ------------ Net realized and unrealized (loss) gain on investments......... (32,058,266) 7,610,883 605,254 1,225,096 (44,657,206) ------------ ---------- ---------- ---------- ------------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(31,017,748) $7,056,958 $1,991,434 $ 140,982 $(19,185,850) ============ ========== ========== ========== ============
See Notes to Financial Statements. 8
---------------------------------------------------------------------------------------- Loomis T. Rowe Harris Putnam Sayles Price Scudder Oakmark MetLife International High Yield Janus Small Cap Global Large Cap Stock Index Stock Bond Mid Cap Growth Equity Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ----------- ------------- ---------- --------- --------- --------- --------- $ 13,335,508 $ 274,114 $ 2,401 $ 11,303,876 $ 0 $ 64,757 $ 45,533 2,457,289 377,435 50,458 1,274,377 307,077 142,655 8,356 ------------ ----------- --------- ------------ ----------- --------- -------- 10,878,219 (103,321) (48,057) 10,029,499 (307,077) (77,898) 37,177 ------------ ----------- --------- ------------ ----------- --------- -------- 6,159,583 309,181 (62,427) 3,280,184 759,159 423,877 (27,497) (49,619,601) (5,241,506) (65,158) (70,128,825) (4,955,737) (702,165) 217,646 ------------ ----------- --------- ------------ ----------- --------- -------- (43,460,018) (4,932,325) (127,585) (66,848,641) (4,196,578) (278,288) 190,149 ------------ ----------- --------- ------------ ----------- --------- -------- $(32,581,799) $(5,035,646) $(175,642) $(56,819,142) $(4,503,655) $(356,186) $227,326 ============ =========== ========= ============ =========== ========= ========
9 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 2000 ---------------------------------------------------------------- T. Rowe Lehman Morgan Neuberger Price Brothers Stanley Berman Partners Large Cap Aggregate Bond EAFE Russell Mid Cap Growth Index Index 2000 Index Value Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------- -------------- --------- ----------- INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 192,122 $ 212,097 $1,151,414 $ 90,887 $ 797,642 Expenses: Mortality and expense charges (Note 4).............. 16,357 28,064 51,779 22,497 21,802 --------- --------- ---------- --------- ----------- Net investment income (loss)................. 175,765 184,033 1,099,635 68,390 775,840 --------- --------- ---------- --------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 28,891 9,246 61,931 (86,470) (27,586) Change in unrealized (depreciation) appreciation of investments............ 444,118 (515,437) (39,445) (425,063) (1,037,181) --------- --------- ---------- --------- ----------- Net realized and unrealized (loss) gain on investments......... 473,009 (506,191) 22,486 (511,533) (1,064,767) --------- --------- ---------- --------- ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $648,774 $(322,158) $1,122,121 $(443,143) $ (288,927) ========= ========= ========== ========= ===========
See Notes to Financial Statements. 10
For the Period For the Period May 1, 2000 July 5, 2000 to to December 31, 2000 December 31, 2000 ------------------------------------------------------------------------------------------------ Invesco Invesco Invesco VIF Templeton State Street Janus Aspen VIF High VIF Equity Real Estate International Research Aurora Growth Yield Income Opportunity Stock Putman Large Cap Small Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Growth Portfolio Portfolio ----------- --------- ---------- ----------- ------------- ---------------- --------------- $ 191,433 $ 0 $ 783 $ 0 $ 34,323 $ 0 $ 20,669 19,763 42 58 288 3,352 1,713 3,697 ----------- ------- ----- ------ -------- --------- -------- 171,670 (42) 725 (288) 30,971 (1,713) 16,972 ----------- ------- ----- ------ -------- --------- -------- (11,878) (11) 18 445 (35,953) (1,766) 3,082 (1,038,841) (1,445) (596) 4,890 (6,907) (173,356) 302,768 ----------- ------- ----- ------ -------- --------- -------- (1,050,719) (1,456) (578) 5,335 (42,860) (175,122) 305,850 ----------- ------- ----- ------ -------- --------- -------- $ (879,049) $(1,498) $147 $5,047 $(11,889) $(176,835) $322,822 =========== ======= ===== ====== ======== ========= ========
11 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS (Continued)
For the Period July 5, 2000 to December 31, 2000 ---------------------------------------- MetLife Mid Cap Zenith Zenith Stock Davis Venture Loomis Sayles Index Value Series Small Cap Series Portfolio Portfolio Portfolio --------- ------------- ---------------- INVESTMENT INCOME: Income: Dividends (Note 3).................. $ 8,945 $ 0 $ 0 Expenses: Mortality and expense charges (Note 4)........................... 1,923 1,697 629 ------- ------- ------ Net investment income (loss)......... 7,022 (1,697) (629) ------- ------- ------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions............... (300) (482) (42) Change in unrealized (depreciation) appreciation of investments......... 57,307 27,591 5,980 ------- ------- ------ Net realized and unrealized (loss) gain on investments................. 57,007 27,109 5,938 ------- ------- ------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $64,029 $25,412 $5,309 ======= ======= ======
See Notes to Financial Statements. 12 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS (Continued)
Alliance Series Growth & Income-- Class B Portfolio Total ----------------- ------------- INVESTMENT INCOME: Income: Dividends (Note 3).......................... $ 0 $ 62,884,813 Expenses: Mortality and expense charges (Note 4)................................... 0 13,689,602 ------ ------------- Net investment income (loss)................. 0 49,195,211 ------ ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions................................ 0 21,877,645 Change in unrealized (depreciation) appreciation of investments................. 2,702 (211,258,960) ------ ------------- Net realized and unrealized (loss) gain on investments................................. 2,702 (189,381,315) ------ ------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $2,702 $(140,186,104) ====== =============
13 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Reasearch State Street Reasearch State Street Reasearch Growth Portfolio Income Portfolio Money Market Portfolio -------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 1,040,518 $ 40,828,191 $ (553,925) $ 3,681,974 $ 1,386,180 $ 1,296,852 Net realized gain (loss) from security transactions.......... 5,846,334 3,593,964 (764,188) 15,187 1,059,353 245,673 Change in unrealized (depreciation) appreciation of investments........... (37,904,600) 16,515,105 8,375,071 (5,496,396) (454,099) (275,023) ------------ ------------ ----------- ----------- ------------ ----------- Net (decrease) increase in net assets resulting from operations............ (31,017,748) 60,937,260 7,056,958 (1,799,235) 1,991,434 1,267,502 ------------ ------------ ----------- ----------- ------------ ----------- From capital transactions: Net premiums........... 78,775,448 76,267,713 16,247,550 15,797,917 35,316,006 35,768,800 Redemptions............ (15,714,936) (15,563,840) (2,164,427) (1,719,595) (18,249,957) (296,905) Net portfolio transfers............. (7,049,932) 3,590,588 (4,736,604) 2,922,342 (27,922,080) (23,898,442) Other net transfers.... (41,272,460) (38,125,701) (6,051,666) (6,009,960) (2,674,970) (2,027,635) ------------ ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from capital transactions.......... 14,738,120 26,168,760 3,294,853 10,990,704 (13,531,001) 9,545,818 ------------ ------------ ----------- ----------- ------------ ----------- NET CHANGE IN NET ASSETS................. (16,279,628) 87,106,020 10,351,811 9,191,469 (11,539,567) 10,813,320 NET ASSETS--BEGINNING OF PERIOD................. 419,668,169 332,562,149 65,631,440 56,439,971 33,073,482 22,260,162 ------------ ------------ ----------- ----------- ------------ ----------- NET ASSETS--END OF PERIOD................. $403,388,541 $419,668,169 $75,983,251 $65,631,440 $ 21,533,915 $33,073,482 ============ ============ =========== =========== ============ ===========
See Notes to Financial Statements. 14
State Street Research Putnam State Street Research Aggressive Growth MetLife International Stock Diversified Portfolio Portfolio Stock Index Portfolio Portfolio --------------------------- -------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (1,084,114) $ 18,825,455 $ 25,471,356 $ 3,037,862 $ 10,878,219 $ 10,353,423 $ (103,321) $ 6,403,093 1,585,197 743,624 3,369,764 1,280,373 6,159,583 3,899,836 309,181 528,185 (360,101) (2,237,161) (48,026,970) 47,914,985 (49,619,601) 24,029,258 (5,241,506) (1,137,521) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 140,982 17,331,918 (19,185,850) 52,233,220 (32,581,799) 38,282,517 (5,035,646) 5,793,757 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 53,773,281 54,466,186 41,898,360 41,977,555 101,155,153 80,432,444 9,900,638 8,765,614 (9,860,611) (8,542,813) (10,429,472) (6,935,090) (8,709,802) (5,037,136) (2,135,289) (1,805,287) (3,492,574) 2,267,794 (209,434) (8,586,687) 32,416,473 20,459,060 760,648 (1,507,125) (28,128,760) (26,640,820) (21,759,150) (18,101,172) (39,683,105) (31,708,703) (3,943,304) (3,575,131) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 12,291,336 21,550,347 9,500,304 8,354,606 85,178,719 64,145,665 4,582,693 1,878,071 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 12,432,318 38,882,265 (9,685,546) 60,587,826 52,596,920 102,428,182 (452,953) 7,671,828 247,702,705 208,820,440 214,669,986 154,082,160 261,294,858 158,866,676 43,924,561 36,252,733 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- $260,135,023 $247,702,705 $204,984,440 $214,669,986 $313,891,778 $261,294,858 $43,471,608 $43,924,561 ============ ============ ============ ============ ============ ============ =========== ===========
15 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
T. Rowe Price Loomis Sayles Janus Small Cap Growth High Yield Bond Portfolio Mid Cap Portfolio Portfolio ------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ (48,057) $ 351,127 $ 10,029,499 $ 4,984,315 $ (307,077) $ (159,812) Net realized gain (loss) from security transactions.......... (62,427) (159,077) 3,280,184 1,140,427 759,159 41,394 Change in unrealized (depreciation) appreciation of investments........... (65,158) 384,776 (70,128,825) 44,344,823 (4,955,737) 6,830,580 ---------- ---------- ------------ ------------ ----------- ----------- Net (decrease) increase in net assets resulting from operations ........... (175,642) 576,826 (56,819,142) 50,469,565 (4,503,655) 6,712,162 ---------- ---------- ------------ ------------ ----------- ----------- From capital transactions: Net premiums........... 2,272,880 1,766,270 64,927,917 31,140,404 13,173,661 10,707,741 Redemptions............ (256,031) (387,694) (3,404,065) (1,283,943) (960,930) (556,621) Net portfolio transfers............. 762,530 1,046,383 39,706,625 24,344,237 7,018,243 5,288,531 Other net transfers.... (644,203) (587,488) (26,632,666) (12,718,059) (4,758,398) (3,307,953) ---------- ---------- ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.......... 2,135,176 1,837,471 74,597,811 41,482,639 14,472,576 12,131,698 ---------- ---------- ------------ ------------ ----------- ----------- NET CHANGE IN NET ASSETS................. 1,959,534 2,414,297 17,778,669 91,952,204 9,968,921 18,843,860 NET ASSETS--BEGINNING OF PERIOD................. 4,954,208 2,539,911 113,078,751 21,126,547 32,149,321 13,305,461 ---------- ---------- ------------ ------------ ----------- ----------- NET ASSETS--END OF PERIOD................. $6,913,742 $4,954,208 $130,857,420 $113,078,751 $42,118,242 $32,149,321 ========== ========== ============ ============ =========== ===========
See Notes to Financial Statements. 16
T. Rowe Price Scudder Harris Oakmark Neuberger Berman Partners Large Cap Growth Global Equity Portfolio Large Cap Value Portfolio Mid Cap Value Portfolio Portfolio ---------------------------- ------------------------- ------------------------------ -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (77,898) $ 399,116 $ 37,177 $ 2,358 $ 175,765 $ 12,881 $ 184,033 $ 782 423,877 272,213 (27,497) (5,489) 28,891 679 9,246 2,027 (702,165) 1,937,990 217,646 (13,841) 444,118 16,713 (515,437) 172,687 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- (356,186) 2,609,319 227,326 (16,972) 648,774 30,273 (322,158) 175,496 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- 6,536,768 4,574,226 715,820 125,384 1,424,997 162,181 2,941,543 141,433 (543,240) (541,665) (22,511) (8,780) (48,928) 0 (19,075) 0 1,878,567 985,125 1,142,472 224,137 4,051,096 433,203 4,471,715 1,037,195 (2,129,044) (1,431,966) (296,592) 15,729 (529,061) (33,367) (1,062,875) (100,729) ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- 5,743,051 3,585,720 1,539,189 356,470 4,898,104 562,017 6,331,308 1,077,899 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- 5,386,865 6,195,039 1,766,515 339,498 5,546,878 592,290 6,009,150 1,253,395 14,497,897 8,302,858 339,498 0 592,290 0 1,253,395 0 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- $19,884,762 $14,497,897 $2,106,013 $339,498 $ 6,139,168 $ 592,290 $ 7,262,545 $1,253,395 =========== =========== ========== ======== ============== ============ =========== ==========
17 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Lehman Brothers Aggregate Morgan Stanley Russell 2000 Bond Index Portfolio EAFE Index Portfolio Index Portfolio -------------------------- ------------------------- ------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 1,099,635 $ 22,843 $ 68,390 $ 11,037 $ 775,840 $ 12,267 Net realized gain (loss) from security transactions.......... 61,931 (1,189) (86,470) 92,428 (27,586) 10,610 Change in unrealized (depreciation) appreciation of investments........... (39,445) (27,533) (425,063) 160,288 (1,037,181) 41,036 ----------- -------- ---------- ---------- ---------- -------- Net (decrease) increase in net assets resulting from operations............ 1,122,121 (5,879) (443,143) 263,753 (288,927) 63,913 ----------- -------- ---------- ---------- ---------- -------- From capital transactions: Net premiums........... 6,001,873 93,732 1,984,111 139,276 2,510,031 214,532 Redemptions............ (253,963) (1,012) (25,611) (1,812) (45,875) (1,472) Net portfolio transfers............. 12,581,907 484,526 3,730,891 862,477 3,956,271 219,845 Other net transfers.... (657,185) (10,326) (682,554) (42,032) (882,331) (44,830) ----------- -------- ---------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from capital transactions.......... 17,672,632 566,920 5,006,837 957,909 5,538,096 388,075 ----------- -------- ---------- ---------- ---------- -------- NET CHANGE IN NET ASSETS................. 18,794,753 561,041 4,563,694 1,221,662 5,249,169 451,988 NET ASSETS--BEGINNING OF PERIOD................. 561,041 0 1,221,662 0 451,988 0 ----------- -------- ---------- ---------- ---------- -------- NET ASSETS--END OF PERIOD................. $19,355,794 $561,041 $5,785,356 $1,221,662 $5,701,157 $451,988 =========== ======== ========== ========== ========== ========
See Notes to Financial Statements. 18
Janus Aspen Invesco VIF High Invesco VIF Equity Invesco VIF Real Estate Growth Portfolio Yield Portfolio Income Portfolio Opportunity Portfolio ----------------------------------------------------- ------------------------- ------------------------- For the For the For the For the Period Period Period Period For the Year May 3, 1999 For the Year May 3, 1999 For the Year May 3, 1999 For the Year May 3, 1999 Ended to Ended to Ended to Ended to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 171,670 $ (61) $ (42) $ 0 $ 725 $ 0 $ (288) $ (1) (11,878) 79 (11) 0 18 0 445 0 (1,038,841) 10,708 (1,445) (6) (596) 45 4,890 84 ----------- ------- ------- ------ ------- ------ -------- ------ (879,049) 10,726 (1,498) (6) 147 45 5,047 83 ----------- ------- ------- ------ ------- ------ -------- ------ 1,494,340 99 2,194 0 7,244 0 1,795 0 (102) 0 0 0 0 0 0 0 4,654,955 86,070 7,138 3,236 1,027 5,802 107,017 1,524 (346,372) (522) (239) (3) (413) 25 (709) (23) ----------- ------- ------- ------ ------- ------ -------- ------ 5,802,821 85,647 9,093 3,233 7,858 5,827 108,103 1,501 ----------- ------- ------- ------ ------- ------ -------- ------ 4,923,772 96,373 7,595 3,227 8,005 5,872 113,150 1,584 96,373 0 3,227 0 5,872 0 1,584 0 ----------- ------- ------- ------ ------- ------ -------- ------ $ 5,020,145 $96,373 $10,822 $3,227 $13,877 $5,872 $114,734 $1,584 =========== ======= ======= ====== ======= ====== ======== ======
19 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Templeton International Putnam Large Cap Stock Portfolio Growth Portfolio ------------------------- ---------------- For the Period For the Year May 3, 1999 For the Period Ended to May 1, 2000 to December 31, December 31, December 31, 2000 1999 2000 ------------ ------------ ---------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)....... $ 30,971 $ (5) $ (1,713) Net realized gain (loss) from security transactions............. (35,953) 32 (1,766) Change in unrealized (depreciation) appreciation of investments....... (6,907) 481 (173,356) ---------- ------ ---------- Net (decrease) increase in net assets resulting from operations.. (11,889) 508 (176,835) ---------- ------ ---------- From capital transactions: Net premiums....................... 199,820 1,166 306,843 Redemptions........................ (1,160) 0 (5,695) Net portfolio transfers............ 922,250 5,208 915,075 Other net transfers................ (16,624) (50) (80,881) ---------- ------ ---------- Net increase (decrease) in net assets resulting from capital transactions...................... 1,104,286 6,324 1,135,342 ---------- ------ ---------- NET CHANGE IN NET ASSETS............ 1,092,397 6,832 958,507 NET ASSETS--BEGINNING OF PERIOD..... 6,832 0 0 ---------- ------ ---------- NET ASSETS--END OF PERIOD........... $1,099,229 $6,832 $ 958,507 ========== ====== ==========
See Notes to Financial Statements. 20
State Street Research Aurora MetLife Mid Cap Zenith Davis Venture Zenith Loomis Sayles Small Small Cap Value Portfolio Stock Index Portfolio Value Series Portfolio Cap Series Portfolio ---------------------------- --------------------- ---------------------- -------------------------- For the Period For the Period For the Period For the Period July 5, 2000 to July 5, 2000 to July 5, 2000 to July 5, 2000 to December 31, 2000 December 31, 2000 December 31, 2000 December 31, 2000 ---------------------------- --------------------- ---------------------- -------------------------- $ 16,972 $ 7,022 $ (1,697) $ (629) 3,082 (300) (482) (42) 302,768 57,307 27,591 5,980 ---------- ---------- ---------- -------- 322,822 64,029 25,412 5,309 ---------- ---------- ---------- -------- 335,643 240,407 199,454 62,643 (11,356) (8,675) (6,528) (6,573) 2,585,881 1,949,602 973,687 403,213 (102,034) (99,172) (55,246) (20,610) ---------- ---------- ---------- -------- 2,808,134 2,082,162 1,111,367 438,673 ---------- ---------- ---------- -------- 3,130,956 2,146,191 1,136,779 443,982 0 0 0 0 ---------- ---------- ---------- -------- $3,130,956 $2,146,191 $1,136,779 $443,982 ========== ========== ========== ========
21 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Alliance Series Growth & Income-- Class B Portfolio Total -------------------- ----------------------------------- For the Period For the Year For the Year September 30, 2000 Ended Ended to December 31, 2000 December 31, 2000 December 31, 1999 -------------------- ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 0 $ 49,195,211 $ 90,063,697 Net realized gain (loss) from security transactions.......... 0 21,877,645 11,700,976 Change in unrealized (depreciation) appreciation of investments........... 2,702 (211,258,960) 133,172,078 ------- -------------- -------------- Net (decrease) increase in net assets resulting from operations............ 2,702 (140,186,104) 234,936,751 ------- -------------- -------------- From capital transactions: Net premiums........... 0 442,406,420 362,542,673 Redemptions............ 0 (72,884,812) (42,683,665) Net portfolio transfers............. 54,402 81,641,061 30,275,029 Other net transfers.... 769 (182,509,855) (144,450,716) ------- -------------- -------------- Net increase (decrease) in net assets resulting from capital transactions.......... 55,171 268,652,814 205,683,321 ------- -------------- -------------- NET CHANGE IN NET ASSETS................. 57,873 128,466,710 440,620,072 NET ASSETS--BEGINNING OF PERIOD................. 0 1,455,179,140 1,014,559,068 ------- -------------- -------------- NET ASSETS--END OF PERIOD................. $57,873 $1,583,645,850 $1,455,179,140 ======= ============== ==============
See Notes to Financial Statements. 22 Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 2000 1. BUSINESS Metropolitan Life Separate Account UL (the "Separate Account") is a multi- division unit investment trust registered under the Investment Company Act of 1940, as amended. The six divisions are UL II, IVUL, GVUL, UL2001, VAI, and VABR. The Separate Account presently consists of twenty-eight investment portfolios used to support variable universal life insurance policies. The assets in each portfolio are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc., the New England Zenith Series Fund, Inc., the Templeton Variable Product Series Fund, the Invesco Variable Investment Fund, Inc., the Janus Aspen Series Fund, and the Alliance Variable Product Series Fund, collectively, (the "Funds"). The Metropolitan Series Fund, Inc. and the New England Zenith Series Fund, Inc. are both affiliated with Metropolitan Life Insurance Company ("Metropolitan Life"). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by "Metropolitan Life", on December 13, 1988 and registered as a unit investment trust on January 5, 1990. The assets of the Separate Account are the property of Metropolitan Life. On May 1, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date, the Putnam Large Cap Growth Portfolio. On July 5, 2000 operations commenced for four new investment portfolios added to the Separate Account on that date: State Street Research Aurora Small Cap Value Portfolio, MetLife Mid Cap Stock Index Portfolio, Zenith Davis Venture Value Series Portfolio, and the Zenith Loomis Sayles Small Cap Series Portfolio. On September 30, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date, Alliance Series Growth & Income-- Class B Portfolio. On May 3, 1999, operations commenced for the five new investment portfolios added to the Separate Account on that date: the Janus Aspen Growth Portfolio, the Invesco VIF High Yield Portfolio, the Invesco VIF Equity Income Portfolio, the Invesco VIF Real Estate Opportunity Portfolio, and the Templeton International Stock. 2. SIGNIFICANT ACCOUNTING POLICIES A. Valuation of Investments Investments are made in the portfolios of the Funds and are valued at the reported net asset values of such portfolios. A summary of investments of the twenty-eight designated portfolios of the Funds in which the six investment divisions of the Separate Account invest as of December 31, 2000 is included as Note 7. B. Security Transactions Purchases and sales are recorded on the trade date basis. Realized gains and losses on sales of investments are computed on the basis of identified cost of the investment sold. Income from dividends, and gains from realized gain distributions, are recorded on the ex-distribution date. C. Federal Income Taxes The operations of the Separate Account are included in the Federal income tax return of Metropolitan Life, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (IRC). Under the current provisions of the IRC, Metropolitan Life does not expect to incur Federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the contracts. Based of this, no charge is being made currently to the Separate Account for Federal income taxes. Metropolitan Life will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any Federal income taxes that would be attributable to the contracts. 23 NOTES TO FINANCIAL STATEMENTS--(Continued) 2. SIGNIFICANT ACCOUNTING POLICIES--(Continued) D. Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. E. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United State of America requires management to make estimates that affect amounts reported therein. Actual results could differ from these estimates. 3. DIVIDENDS On September 13, 2000 and December 28, 2000, the Metropolitan Series Fund, Inc. declared dividends for all shareholders of record on September 13, 2000 and December 28, 2000, respectively. On June 29, 2000, July 28, 2000, and December 28, 2000, the Janus Aspen Series Fund declared dividends for all shareholders of record on June 29, 2000, July 28, 2000, and December 28, 2000. On December 28, 2000, the Invesco Variable Investment Fund, Inc. declared dividends for all shareholders of record on December 28, 2000. On February 28, 2000 and April 26, 2000, the Templeton Variable Product Series Fund declared dividends for all shareholders of record on February 28, 2000 and April 26, 2000, respectively. The amount of dividends received by the Separate Account was $62,884,813. The dividends were paid to Metropolitan Life on September 14, 2000 and December 29, 2000 by the Metropolitan Series Fund, Inc., on June 30, 2000, July 29, 2000, and December 29, 2000 by the Janus Aspen Series Fund, on December 29, 2000 by the Invesco Variable Investment Fund, Inc., and on February 29, 2000 and April 27, 2000 by the Templeton Variable Products Series Fund. The dividends received were immediately reinvested in additional shares of the portfolios in which the investment portfolios invest. As a result of this reinvestment, the number of shares of the Funds, held by each of the twenty-eight investment portfolios increased by the following:
Portfolio Shares --------- ------- State Street Research Growth Portfolio.............................. 115,046 State Street Research Income Portfolio.............................. 254 State Street Research Money Market Portfolio........................ 165,336 State Street Research Diversified Portfolio......................... 60,302 State Street Research Aggressive Growth Portfolio................... 697,225 MetLife Stock Index Portfolio....................................... 364,172 Putnam International Stock Portfolio................................ 2,135 Loomis Growth Sayles High Yield Bond Portfolio...................... 245 Janus Mid Cap Portfolio............................................. 349,016 T. Rowe Price Small Cap Growth Portfolio............................ 0 Scudder Global Equity Portfolio..................................... 4,447 Harris Oakmark Large Cap Value Portfolio............................ 4,823 Neuberger Berman Partners Mid Cap Value Portfolio................... 12,901 T. Rowe Price Large Cap Growth Portfolio............................ 16,053 Lehman Brothers Aggregate Bond Index Portfolio...................... 116,415 Morgan Stanley EAFE Index Portfolio................................. 8,150 Russell 2000 Index Portfolio........................................ 75,117 Janus Aspen Growth Portfolio........................................ 12,531 Putnam Large Cap Growth Portfolio................................... 0 State Street Research Aurora Small Cap Value Portfolio.............. l,686 MetLife Mid Cap Stock Index Portfolio............................... 826 Zenith Davis Venture Value Series Portfolio......................... 0 Zenith Loomis Sayles Small Cap Series Portfolio..................... 1
24 NOTES TO FINANCIAL STATEMENTS--(Continued) 3. DIVIDENDS--(Continued)
Portfolio Shares --------- ------ Invesco VIF High Yield Portfolio..................................... 10 Invesco VIF Equity Income Portfolio.................................. 40 Invesco VIF Real Estate Opportunity Portfolio........................ 27 Templeton International Stock Portfolio.............................. 1,817 Alliance Series Growth & Income-Class B Portfolio.................... 0
4. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life deducts a charge from the assets of the Separate Account for the assumption of mortality and expense risks. This charge varies by policy type but will be higher than an effective annual rate of .90% of the average daily value of the net assets of the monthly anniversary value of the net assets in the Separate Account, which are attributable to such policies. 5. CHANGE OF FUND NAME Effective January 24, 2000, Putnam became the sub-investment manager of the Putnam International Stock Portfolio (formerly Santander International Stock Portfolio) of the Metropolitan Series Fund, Inc. Effective February 15, 2000, Invesco VIF Realty Portfolio changed its name to Invesco VIF Real Estate Opportunity Portfolio and Invesco Industrial Income changed its name to Invesco Equity Income on same said date. 6. NEW DIVISION On June 5, 2000, the Separate Account offered a new division, VABR. 25 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000 (UNAUDITED) Investment information, summarized by investment type and industry sector, for each portfolio in which the Separate Account invests is presented below: Metropolitan Series Fund, Inc.
State Street State Street State Street State Street Research Research Research Research Growth Income Money Market Diversified Portfolio Portfolio Portfolio Portfolio -------------- ------------ ------------ -------------- Value Value Value Value (Note 2A) (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Banks................... $ 178,383,221 5.4% $ 84,659,529 3.1% Biotechnology........... 38,812,528 1.2% 18,367,847 0.7% Broadcasting............ 17,340,816 0.5% 38,227,212 1.4% Business Services....... 58,736,250 1.8% 27,878,835 1.0% Communication Services.. 113,069,017 3.5% 21,994,513 0.8% Communications.......... 8,785,063 0.3% 3,945,250 0.1% Computer & Business Equipment.............. 332,848,184 10.2% 154,838,550 5.6% Conglomerates........... 231,603,719 7.1% 109,908,012 4.0% Containers & Glass...... 5 0.0% Domestic Oil............ 151,208,900 4.6% 71,586,520 2.6% Drugs & Health Care..... 479,669,780 14.6% 226,474,534 8.2% Electric Utilities...... 46,923,969 1.4% 22,269,131 0.8% Electronics............. 95,937,024 2.9% 54,434,459 2.0% Financial Services...... 122,013,975 3.7% 57,769,875 2.1% Food & Beverages........ 97,532,500 3.0% 46,246,769 1.7% Gas & Pipeline Utilities.............. 55,201,387 1.7% 26,178,938 1.0% Household Appliances & Home Furnishings....... 26,830,913 0.8% 12,052,463 0.4% Insurance............... 259,891,758 7.9% 123,301,839 4.5% International Oil....... 36,906,351 1.1% 17,397,390 0.6% Internet................ 23,479,560 0.7% 10,544,400 0.4% Leisure................. 45,015,175 1.4% 21,338,557 0.8% Petroleum Services...... 85,795,350 2.6% 39,648,375 1.4% Retail.................. 172,889,094 5.3% 81,800,237 3.0% Software................ 217,107,031 6.6% 101,970,198 3.7% Telephone............... 64,864,600 2.0% 30,726,512 1.1% Tobacco................. 59,624,400 1.8% 28,274,400 1.0% -------------- -------------- Total Common Stock...... 3,020,470,565 92.1% 1,431,834,350 52.0% -------------- -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Aerospace & Defense..... $ 2,725,256 0.6% 9,442,771 0.3% Automobiles............. 3,033,772 0.6% 3,235,410 0.1% Biotechnology........... 2,295,287 0.5% 6,416,930 0.2% Business Services....... 3,614,523 0.8% 8,846,359 0.3% Chemicals............... 502,945 0.1% 1,413,035 0.1% Collateralized Mortgage Obligations............ 23,867,535 5.0% 44,108,035 1.6% Communication Services.. 1,820,711 0.4% 5,088,015 0.2% Conglomerates........... 8,359,255 0.3% Corporate............... 6,616,751 0.2% Domestic Oil............ 1,457,500 0.3% 4,028,000 0.1% Drugs & Health Care..... 5,843,456 1.2% 16,147,312 0.6% Electric Utilities...... 30,005,788 6.3% 71,825,874 2.6% Electrical Equipment.... 5,374,789 0.2% Electronics............. 5,854,056 0.2% Finance & Banking....... 71,364,431 15.0% 169,565,907 6.2% Financial Services...... 25,593,458 5.4% 64,765,401 2.3% Food & Beverages........ 5,722,206 1.2% 24,621,964 0.9% Foreign Governments..... 15,411,874 0.6% Gas & Pipeline Utilities.............. 4,149,877 0.9% 10,881,376 0.4% Gas Exploration......... 2,329,785 0.5% 6,558,851 0.2% Hotels & Restaurants.... 3,222,090 0.7% 7,012,743 0.3% Household Products...... 2,451,998 0.5% 6,891,404 0.2% Industrial Machinery.... 10,003,876 0.4% Leisure................. 4,613,250 1.0% 13,389,000 0.5% Newspapers.............. 1,130,963 0.2% 3,019,845 0.1% Paper & Forest.......... 4,944,850 1.0% 13,522,173 0.5% Petroleum Services...... 2,158,288 0.5% 5,003,304 0.2%
26 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
State Street State Street State Street State Street Research Research Research Research Growth Income Money Market Diversified Portfolio Portfolio Portfolio Portfolio -------------- ------------ ------------ -------------- Value Value Value Value (Note 2A) (Note 2A) (Note 2A) (Note 2A) Pollution Control....... $ 1,880,000 0.4% $ 68,625 0.0% Retail.................. 11,154,694 2.4% 17,372,011 0.6% State Housing Authorities............ 5,410,080 1.1% 12,650,040 0.5% Telephone............... 11,192,154 2.4% 34,511,206 1.3% Utilities............... 2,813,453 0.6% 11,189,361 0.4% ------------ -------------- Total Corporate Bonds... 235,298,350 49.6% 623,195,553 22.6% ------------ -------------- Federal Agency Obligations............ 61,285,869 12.9% 131,108,933 4.8% Federal Treasury Obligations............ 99,148,992 20.9% 303,171,940 11.0% Foreign Obligations..... 8,179,133 1.7% 93,476 0.0% Yankee Bonds............ 25,262,556 5.3% 72,558,473 2.6% ------------ -------------- Total Bonds............. 193,876,550 40.8% 506,932,822 18.4% ------------ -------------- SHORT-TERM OBLIGATIONS Bank Notes.............. $ 3,676,683 7.6% Certificates of Deposit- Euro................... 6,448,025 13.3% Commercial Paper........ $ 287,499,835 8.8% 54,073,357 11.4% 38,044,503 78.8% 234,802,428 8.5% Repurchase Agreements... 452,000 0.0% -------------- ------------ ----------- -------------- Total Short-Term Obligations............ 287,499,835 8.8% 54,073,357 11.4% 48,169,211 99.7% 235,254,428 8.5% -------------- ------------ ----------- -------------- TOTAL INVESTMENTS....... 3,307,970,400 100.9% 483,248,257 101.8% 48,169,211 99.7% 2,797,217,153 101.5% Other Assets Less Liabilities............ (29,007,023) (0.9%) (8,350,224) (1.8%) 127,089 0.3% (40,295,318) (1.5%) -------------- ------------ ----------- -------------- NET ASSETS.............. $3,278,963,377 100.0% $474,898,033 100.0% $48,296,300 100.0% $2,756,921,835 100.0% ============== ============ =========== ==============
27 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
State Street Putnam Research MetLife International Aggressive Stock Index Stock Growth Portfolio Portfolio Portfolio -------------- ------------- -------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Advertising............. $ 5,632,298 1.3% Aerospace & Defense..... $ 53,268,907 1.3% 1,047,018 0.3% Air Travel.............. 10,780,594 0.3% 438,184 0.1% Aluminum................ 9,837,945 0.2% Apparel & Textiles...... 7,791,135 0.2% 7,640,951 1.8% $ 32,465,375 2.2% Auto Parts.............. 6,699,799 0.2% Automobiles............. 29,162,758 0.7% 7,375,092 1.7% Banks................... 320,974,292 8.0% 26,933,643 6.3% 17,881,500 1.2% Biotechnology........... 38,210,156 2.5% Building & Construction. 5,318,157 0.1% 3,945,340 0.9% 6,543,769 0.4% Business Services....... 68,574,974 1.7% 520,375 0.1% 58,007,559 3.9% Chemicals............... 64,675,688 1.6% 11,945,748 2.8% Communication Services.. 154,562,325 3.9% 71,386,539 16.7% 35,410,403 2.4% Communications.......... 7,474,242 1.7% Computer & Business Equipment.............. 431,245,676 10.8% 22,785,992 5.3% 259,349,478 17.3% Conglomerates........... 194,941,051 4.9% 2,942,651 0.7% Construction Materials.. 8,097,172 1.9% Containers & Glass...... 2,051,969 0.1% Cosmetics & Toiletries.. 16,769,257 0.4% 1,360,654 0.3% Domestic Oil............ 249,615,272 6.2% 51,627,191 12.1% 116,310,259 7.7% Drugs & Health Care..... 560,897,690 14.0% 50,524,690 11.8% 262,751,462 17.5% Electric Utilities...... 108,344,840 2.7% 9,096,478 2.1% Electrical Equipment.... 26,013,291 0.6% 32,227,200 2.1% Electronics............. 162,869,292 4.1% 3,533,240 0.8% 59,011,209 3.9% Financial Services...... 205,488,204 5.1% 40,609,065 9.5% Food & Beverages........ 151,087,883 3.8% 12,791,706 3.0% 12,938,344 0.9% Gas & Pipeline Utilities.............. 42,150,264 1.1% 7,349,678 1.7% Hotels & Restaurants.... 29,593,014 0.7% 16,893,297 1.1% Household Appliances & Home Furnishings....... 10,055,610 0.3% Household Products...... 54,125,451 1.4% Industrial Machinery.... 32,276,782 0.8% 7,241,153 1.7% 32,922,563 2.2% Insurance............... 170,586,846 4.3% 23,451,157 5.5% 120,992,997 8.1% International Oil....... 1,754,875 0.4% Internet................ 27,531,602 0.7% Leisure................. 33,679,388 0.8% 2,077,222 0.5% Mining.................. 7,073,891 0.2% 2,592,886 0.6% Non-Ferrous Metals...... 5,935,057 0.1% Paper & Forest.......... 31,776,020 0.8% 2,268,422 0.5% Petroleum Services...... 10,840,718 0.3% 42,872,813 2.8% Publishing.............. 9,424,076 0.2% 15,063,500 1.0% Railroads & Equipment... 11,695,189 0.3% 128,223 0.0% Real Estate............. 6,308,791 1.5% Retail.................. 240,243,233 6.0% 2,532,071 0.6% 44,677,844 3.0% Software................ 194,191,019 4.9% 7,279,121 1.7% 168,097,456 11.2% Steel................... 541,350 0.0% Technology.............. 971,963 0.0% Telephone............... 182,533,463 4.6% Tobacco................. 34,686,091 0.9% 5,100,157 1.2% Trucking & Freight Forwarding............. 3,860,456 0.1% 1,307,959 0.3% -------------- ------------ -------------- Total Common Stock...... 3,974,742,482 99.4% 417,099,984 97.4% 1,372,627,184 91.4% -------------- ------------ -------------- SHORT-TERM OBLIGATIONS Commercial Paper........ 15,108,314 3.5% 158,881,250 10.6% Discount Note........... 13,797,980 0.3% -------------- ------------ -------------- Total Short-Term Obligations............ 13,797,980 0.3% 15,108,314 3.5% 158,881,250 10.6% -------------- ------------ -------------- TOTAL INVESTMENTS....... 3,988,540,462 99.7% 432,208,298 100.9% 1,531,508,434 102.0% Other Assets Less Liabilities............ 11,363,013 0.3% (3,689,444) (0.9%) (30,436,296) (2.0%) -------------- ------------ -------------- NET ASSETS.............. $3,999,903,475 100.0% $428,518,854 100.0% $1,501,072,138 100.0% ============== ============ ==============
28 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Loomis Sayles High Yield Bond Portfolio -------------- Value (Note 2A) COMMON STOCK Communication Services................................... $ 511,125 0.7% Domestic Oil............................................. 733,404 1.1% Foreign Corporate........................................ 159,244 0.2% Paper & Forest........................................... 659,419 1.0% Real Estate Investment Trust............................. 393,281 0.5% Transportation........................................... 176,633 0.3% ----------- Total Common Stock....................................... 2,633,106 3.8% ----------- PREFERRED STOCK Communication Services................................... 407,456 0.6% Corporate................................................ 642,000 0.9% Finance & Banking........................................ 1,320,887 1.9% Financial Service........................................ 6,625 0.0% Food & Beverages......................................... 4,594 0.0% Foreign Corporate........................................ 3,468 0.0% Gas & Pipeline........................................... 138,394 0.2% Mining................................................... 52,000 0.1% Real Estate Investment Trust............................. 1,035,356 1.5% Utilities-Electric....................................... 314,505 0.5% Utilities-Telephone...................................... 128,250 0.2% ----------- Total Preferred Stock.................................... 4,053,535 5.9% ----------- LONG-TERM DEBT SECURITIES Bonds & Notes Apparel & Textiles....................................... 273,000 0.4% Automotive............................................... 218,540 0.3% Banks.................................................... 588,000 0.8% Broadcasting............................................. 754,000 1.1% Chemicals................................................ 457,780 0.7% Communication Services................................... 296,700 0.4% Communications........................................... 2,100,400 3.0% Computer & Business Equipment............................ 197,000 0.3% Domestic Oil............................................. 2,695,860 3.9% Drugs & Health Care...................................... 896,627 1.3% Electric Utilities....................................... 2,839,166 4.1% Electrical Equipment..................................... 1,080,000 1.6% Finance & Banking........................................ 1,905,231 2.8% Food & Beverages......................................... 455,000 0.7% Foreign Corporate........................................ 2,076,832 3.0% Foreign Government....................................... 602,997 0.9% Gas & Pipeline Utilities................................. 647,000 0.9% Government Sponsored..................................... 935,250 1.4% Hotels & Restaurants..................................... 703,448 1.0% Household Appliance & Home Furnishings................... 63,600 0.1% Industrial Machinery..................................... 186,284 0.3% Industrials.............................................. 1,135,813 1.6% International Oil........................................ 738,000 1.1% Internet................................................. 330,375 0.5% Mining................................................... 723,201 1.0% Paper & Forest........................................... 360,000 0.5% Real Estate Investment Trust............................. 1,089,112 1.6% Retail................................................... 1,013,504 1.5% Semiconductors........................................... 118,623 0.2% Telephone................................................ 8,401,658 12.2% Transportation........................................... 851,648 1.2% Yankee................................................... 5,897,909 8.5% ----------- Total Bonds & Notes...................................... 40,632,558 58.9% -----------
29 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Loomis Sayles High Yield Bond Portfolio -------------- Value (Note 2A) Convertible Bonds Aerospace & Defense..................................... $ 558,625 0.8% Automobiles............................................. 612,750 0.9% Banks................................................... 538,508 0.8% Biotechnology........................................... 802,687 1.2% Building & Construction................................. 88,000 0.1% Business Services....................................... 705,804 1.0% Computer & Business Equipment........................... 1,839,050 2.7% Construction Materials.................................. 388,500 0.6% Domestic Oil............................................ 903,992 1.3% Drugs & Health Care..................................... 2,027,997 2.9% Electronics............................................. 1,954,547 2.8% Finance & Banking....................................... 367,250 0.5% Food & Beverages........................................ 146,250 0.2% Foreign Corporate....................................... 2,112,742 3.1% Forest Products......................................... 248,500 0.4% Hotels & Restaurants.................................... 255,000 0.4% Industrial Machinery.................................... 938,575 1.4% International Oil....................................... 286,163 0.4% Internet................................................ 176,750 0.2% Mining.................................................. 128,127 0.2% Retail.................................................. 57,158 0.1% Semiconductors.......................................... 339,918 0.5% Telephone............................................... 679,012 1.0% Transportation.......................................... 198,750 0.3% Yankee.................................................. 1,965,900 2.8% ----------- Total Convertible Bonds................................. 18,320,555 26.6% ----------- Warrants Domestic Oil............................................ 122,188 0.2% Foreign Corporate....................................... 435 0.0% Transportation.......................................... 3,307 0.0% ----------- Total Warrants.......................................... 125,930 0.2% ----------- Short-Term Obligations Repurchase Agreements................................... 2,117,000 3.1% ----------- TOTAL INVESTMENTS....................................... 67,882,684 98.5% Other Assets Less Liabilities........................... 1,061,686 1.5% ----------- NET ASSETS.............................................. $68,944,370 100.0% ===========
30 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
T. Rowe Price Scudder Small Cap Global Equity Growth Janus Mid Cap Portfolio Portfolio Portfolio ------------- ------------- -------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense..... $ 4,200,645 2.0% $ 1,829,684 0.5% Air Travel.............. 2,181,928 0.6% Apparel & Textiles...... 5,846,906 1.7% Auto Parts.............. 216,450 0.1% Banks................... 3,090,239 1.5% 11,793,781 3.5% Biotechnology........... 9,972,987 3.0% Broadcasting............ 1,927,412 0.6% $ 48,936,398 2.7% Building & Construction. 4,081,201 1.2% Business Services....... 3,897,638 1.8% 21,866,604 6.5% 170,336,512 9.6% Chemicals............... 18,036,759 8.5% 4,343,889 1.3% Communication Services.. 24,942,895 11.8% 13,340,138 4.0% 206,188,576 11.6% Communications.......... 11,676,986 3.5% 26,693,840 1.5% Computer & Business Equipment.............. 10,275,194 4.9% 47,207,574 14.0% 358,247,740 20.1% Conglomerates........... 3,031,841 1.4% 863,519 0.3% Construction Materials.. 579,656 0.2% 47,229,566 2.6% Domestic Oil............ 22,574,142 10.7% 10,518,619 3.1% 164,069,201 9.2% Drugs & Health Care..... 16,704,314 7.9% 55,510,028 16.5% 389,437,044 21.8% Electric Utilities...... 14,569,261 6.9% 1,140,081 0.3% Electrical Equipment.... 10,593,697 3.1% 26,236,478 1.5% Electronics............. 1,354,444 0.6% 17,762,303 5.3% 131,447,150 7.4% Financial Services...... 2,256,176 1.1% 11,206,529 3.3% 16,564,238 0.9% Food & Beverages........ 3,061,966 1.5% 1,985,551 0.6% Gas & Pipeline Utilities.............. 4,528,258 2.1% Hotels & Restaurants.... 4,881,720 1.4% Household Appliances & Home Furnishings....... 1,791,025 0.8% 2,277,625 0.7% Industrial Machinery.... 494,213 0.2% 4,617,194 1.4% Insurance............... 15,160,913 7.2% 5,561,905 1.6% Internet................ 842,160 0.4% Leisure................. 2,139,819 0.6% Mining.................. 17,802,425 8.4% 389,565 0.1% Miscellaneous........... 85,786 0.0% Non-Ferrous Metals...... 2,109,744 1.0% Paper & Forest.......... 548,206 0.3% Petroleum Services...... 867,825 0.3% Radio................... 1,683,369 0.5% 44,624,834 2.5% Railroads & Equipment... 3,707,854 1.8% 2,473,444 0.7% Real Estate............. 3,397,965 1.6% 1,975,869 0.6% Real Estate Investment Trust.................. 4,118,494 1.9% 646,840 0.2% Retail.................. 4,422,932 2.1% Retail Trade............ 14,613,620 4.3% Software................ 2,286,581 1.1% 41,816,210 2.3% Steel................... 884,250 0.4% Telecommunications Equipment & Services... 43,475,347 12.9% Telephone............... 1,881,824 0.9% 4,443,522 1.3% 8,631,327 0.5% Trucking & Freight Forwarding............. 1,115,379 0.5% ------------ ------------ -------------- Total Common Stock...... 193,087,737 91.3% 336,578,973 99.8% 1,680,459,114 94.2% ------------ ------------ -------------- LONG-TERM DEBT SECURITIES Participating Loan Notes.................. 354,942 0.2% ------------ Total Long-Term Debt Securities............. 354,942 0.2% ------------ SHORT-TERM OBLIGATIONS Commercial Paper........ 80,385,483 4.5% Discount Note........... 14,938,667 0.9% Repurchase Agreements... 7,869,000 3.7% 115,000 0.0% Regulated Investment Companies.............. 18,093,343 6.5% ------------ ------------ -------------- Total Short-Term Obligations............ 7,869,000 3.7% 18,093,343 6.5% 95,439,150 5.4% ------------ ------------ -------------- TOTAL INVESTMENTS....... 201,311,679 95.2% 354,672,316 106.3% 1,775,898,264 99.6% Other Assets Less Liabilities............ 10,042,133 4.8% (17,329,559) (6.3%) 7,480,476 0.4% ------------ ------------ -------------- NET ASSETS.............. $211,353,812 100.0% $337,342,757 100.0% $1,783,378,740 100.0% ============ ============ ==============
31 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Morgan Stanley Russell Harris Oakmark EAFE Index 2000 Index Large Cap Value Portfolio Portfolio Portfolio -------------- ------------ --------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Advertising............. $ 219,259 0.2% Aerospace & Defense..... 362,238 0.4% $ 1,471,459 1.2% $ 2,699,100 5.0% Air Travel.............. 608,639 0.6% 629,514 0.5% Apparel & Textiles...... 845,424 0.8% 1,151,820 0.9% 1,126,563 2.1% Auto Parts.............. 636,212 0.6% 1,335,674 1.1% Automobiles............. 3,052,007 3.0% 108,382 0.1% 1,237,988 2.3% Banks................... 14,193,161 14.1% 10,066,105 8.0% 2,822,125 5.3% Biotechnology........... 2,786,485 2.2% Broadcasting............ 817,826 0.6% Building & Construction. 991,817 1.0% 626,500 0.5% 1,310,062 2.4% Business Services....... 1,150,142 1.1% 5,227,294 4.2% 7,256,681 13.5% Chemicals............... 2,297,369 2.3% 2,859,945 2.3% Communication Services.. 13,573,909 13.4% 3,067,078 2.4% 2,610,312 4.9% Communications.......... 1,111,479 1.1% 1,989,190 1.6% Computer & Business Equipment.............. 7,452,359 7.4% 5,898,985 4.7% 1,118,375 2.1% Conglomerates........... 2,415,251 2.4% 99,305 0.1% Construction Materials.. 541,340 0.5% 477,248 0.4% Containers & Glass...... 197,132 0.2% 641,932 0.5% Cosmetics & Toiletries.. 818,072 0.8% 189,209 0.1% Domestic Oil............ 4,442,092 4.4% 3,675,834 2.9% Drugs & Health Care..... 9,365,710 9.3% 14,511,358 11.5% 1,241,500 2.3% Electric Utilities...... 2,914,144 2.9% 3,052,118 2.4% 1,285,063 2.4% Electrical Equipment.... 985,430 1.0% 2,760,925 2.2% 4,131,375 7.7% Electronics............. 1,676,139 1.7% 3,682,479 2.9% Financial Services...... 3,789,423 3.7% 3,346,749 2.7% 911,906 1.7% Food & Beverages........ 4,326,637 4.3% 2,714,155 2.2% 1,963,500 3.7% Gas & Pipeline Utilities.............. 1,408,162 1.4% 3,032,715 2.4% Hotels & Restaurants.... 713,609 0.7% 2,293,187 1.8% 1,364,250 2.5% Household Appliances & Home Furnishings....... 1,420,891 1.4% 3,407,803 2.7% 5,344,125 10.0% Household Products...... 263,313 0.3% 781,054 0.6% 1,126,125 2.1% Industrial Machinery.... 1,706,807 1.7% 4,126,032 3.3% 966,813 1.8% Industrials............. 114,966 0.1% Insurance............... 6,367,803 6.3% 3,619,247 2.9% 876,688 1.6% Insurance Contracts..... 8,464 0.0% Internet................ 6,914 0.0% Leisure................. 629,572 0.6% 902,381 0.7% 4,429,869 8.3% Mining.................. 1,214,053 1.2% 1,623,460 1.3% Miscellaneous........... 61,141 0.0% Mutual Funds............ 3,487,311 2.8% Paper & Forest.......... 368,990 0.4% 604,862 0.5% Petroleum Services...... 1,488,902 1.5% Publishing.............. 78,095 0.1% Railroads & Equipment... 790,095 0.8% 793,665 0.6% Real Estate............. 1,272,610 1.3% 1,247,002 1.0% Real Estate Investment Trust.................. 7,136,661 5.7% Retail.................. 2,615,275 2.6% 4,558,409 3.6% 5,011,812 9.4% Shipbuilding............ 437,831 0.4% 199,823 0.2% Software................ 1,463,136 1.4% 7,810,792 6.2% 848,250 1.6% Technology.............. 1,024 0.0% Telephone............... 2,591,187 4.8% Tobacco................. 465,337 0.5% 219,215 0.2% Transportation.......... 182,513 0.2% Trucking & Freight Forwarding............. 253,982 0.2% 551,665 0.4% Utilities............... 123,891 0.1% ------------ ------------ ----------- Total Common Stock ..... 101,151,696 100.2% 119,853,918 95.3% 52,273,669 97.5% ------------ ------------ -----------
32 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Morgan Stanley Russell Harris Oakmark EAFE Index 2000 Index Large Cap Value Portfolio Portfolio Portfolio -------------- ------------ --------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) PREFERRED STOCK Communication Services.. $ 177,259 0.2% Retail.................. 28,645 0.0% ------------ Total Preferred Stock... 205,904 0.2% ------------ Total Equity Securities. 101,357,600 100.4% ------------ SHORT-TERM OBLIGATIONS Discount Notes.......... 2,274,667 2.3% Federal Agency Obligations............ $ 6,324,074 5.0% Repurchase Agreements... $ 3,842,000 7.2% ------------ ------------ ----------- Total Short-Term Obligations............ 2,274,667 2.3% 6,324,074 5.0% 3,842,000 7.2% ------------ ------------ ----------- TOTAL INVESTMENTS....... 103,632,267 102.7% 126,177,992 100.3% 56,115,669 104.7% Other Assets Less Liabilities............ (2,682,027) (2.7%) (440,052) (0.3%) (2,540,732) (4.7%) ------------ ------------ ----------- NET ASSETS.............. $100,950,240 100.0% $125,737,940 100.0% $53,574,937 100.0% ============ ============ ===========
33 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
State Street Neuberger Berman T. Rowe Price Research Aurora Partners Mid Cap Large Cap Growth Small Cap Value Portfolio Portfolio Portfolio ---------------- ---------------- --------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense..... $ 2,343,900 1.8% $ 841,288 0.5% $ 2,028,094 3.7% Air Travel.............. 2,443,473 1.9% 751,094 1.4% Apparel & Textiles...... 46,094 0.1% Auto Parts.............. 1,821,238 1.4% 3,659,597 6.7% Automobiles............. 665,681 1.2% Banks................... 7,849,109 6.0% 12,070,044 6.7% 861,467 1.6% Biotechnology........... 251,738 0.2% Broadcasting............ 413,475 0.2% Building & Construction. 1,148,875 0.9% 769,750 1.4% Business Services....... 8,390,425 6.4% 6,772,563 3.8% 1,081,506 2.0% Chemicals............... 5,257,331 4.0% 2,582,541 4.7% Communication Services.. 4,862,412 3.7% 8,938,811 5.0% 1,309,856 2.4% Communications.......... 1,081,175 0.8% 1,044,366 0.6% 910,356 1.7% Computer & Business Equipment.............. 3,936,359 3.0% 16,327,297 9.1% 649,209 1.2% Conglomerates........... 684,375 0.5% 5,336,244 3.0% 93,588 0.2% Containers & Glass...... 161,250 0.3% Cosmetics & Toiletries.. 1,091,363 0.8% 419,050 0.2% Domestic Oil............ 10,444,209 7.9% 6,102,146 3.4% 5,923,961 10.9% Drugs & Health Care..... 8,554,004 6.5% 24,698,030 13.7% 1,774,203 3.3% Electric Utilities...... 8,906,232 6.8% Electrical Equipment.... 3,726,500 2.8% 1,075,250 2.0% Electronics............. 2,347,744 1.8% 14,775,913 8.2% 349,813 0.6% Finance & Banking....... 1,818,094 1.4% 236,500 0.4% Financial Services...... 7,272,425 5.5% 17,556,726 9.7% 725,537 1.3% Food & Beverages........ 1,788,563 1.4% 3,341,406 1.8% 563,038 1.0% Foreign Corporate....... 8,693,053 4.8% Gas & Pipeline Utilities.............. 1,867,700 1.4% 802,200 0.4% 696,750 1.3% Hotels & Restaurants.... 912,975 0.5% 7,810,862 14.4% Household Appliances & Home Furnishings....... 1,649,375 1.3% 315,938 0.6% Industrial Machinery.... 1,928,381 1.5% 1,599,975 0.9% 1,328,872 2.4% Insurance............... 10,486,369 8.0% 6,152,381 3.4% 2,514,259 4.6% Internet................ 1,767,840 1.0% Leisure................. 687,119 0.5% 659,775 0.4% 1,556,737 2.9% Mining.................. 143,750 0.3% Paper & Forest.......... 1,821,963 1.4% Petroleum Services...... 3,000,356 1.7% Radio................... 286,544 0.5% Railroads & Equipment... 3,616,087 2.8% 1,333,469 2.5% Real Estate............. 985,300 0.7% Real Estate Investment Trust.................. 2,480,587 1.9% Retail.................. 3,403,037 2.6% 13,128,539 7.3% 2,224,062 4.1% Shipbuilding............ 386,250 0.7% Software................ 4,271,841 3.2% 10,294,670 5.7% 2,378,111 4.4% Telephone............... 2,573,875 1.4% Tobacco................. 2,719,200 1.5% ------------ ------------ ----------- Total Common Stock...... 119,217,303 90.8% 170,942,198 94.9% 47,193,989 86.8% ------------ ------------ ----------- SHORT-TERM OBLIGATIONS Commercial Paper........ 7,874,047 14.5% Money Market Fund....... 8,162,371 4.5% Repurchase Agreements... 16,725,000 12.7% 2,656,000 1.5% ------------ ------------ ----------- Total Short-Term Obligations............ 16,725,000 12.7% 10,818,371 6.0% 7,874,047 14.5% ------------ ------------ ----------- TOTAL INVESTMENTS....... 135,942,303 103.5% 181,760,569 100.9% 55,068,036 101.3% Other Assets Less Liabilities............ (4,586,128) (3.5%) (1,688,522) (0.9%) (689,311) (1.3%) ------------ ------------ ----------- NET ASSETS.............. $131,356,175 100.0% $180,072,047 100.0% $54,378,725 100.0% ============ ============ ===========
34 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
MetLife Mid Cap Putnam Stock Index Large Cap Portfolio Portfolio --------------- ----------- Value Value (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense ............. $ 530,537 0.9% Air Travel....................... 55,989 0.1% Apparel & Textiles............... 291,962 0.5% Auto Parts....................... 438,440 0.7% Banks............................ 5,184,211 8.4% $ 695,362 1.9% Biotechnology ................... 894,960 1.4% Broadcasting .................... 185,589 0.3% Building & Construction.......... 369,077 0.6% Business Services................ 4,699,956 7.6% Chemicals........................ 1,271,481 2.1% Communication Services........... 3,196,749 5.2% 2,233,643 6.0% Communications .................. 2,129,012 3.4% 243,759 0.7% Computer & Business Equipment.... 4,040,824 6.5% 6,970,584 18.9% Conglomerates.................... 4,601,544 12.5% Construction Materials........... 399,797 0.6% Containers & Glass .............. 188,378 0.3% Cosmetics & Toiletries........... 143,134 0.2% Domestic Oil .................... 1,108,924 1.8% Drugs & Health Care ............. 7,339,684 11.9% 8,970,497 24.3% Electric Utilities............... 3,115,676 5.0% Electrical Equipment............. 1,324,504 2.1% Electronics...................... 2,230,099 3.6% 2,266,272 6.1% Finance & Banking................ 216,072 0.3% Financial Services .............. 1,884,501 3.0% 1,492,181 4.0% Food & Beverages ................ 1,477,409 2.4% 317,200 0.9% Gas & Pipeline Utilities ........ 1,772,015 2.9% Hotels & Restaurants............. 1,245,577 2.0% Household Appliances & Home Furnishings .................... 748,561 1.2% Household Products .............. 254,694 0.4% Industrial Machinery............. 763,152 1.2% Insurance........................ 1,984,404 3.2% 931,416 2.5% Internet ........................ 396,720 1.1% Leisure.......................... 182,434 0.3% Mining........................... 155,865 0.3% Paper & Forest................... 489,861 0.8% Petroleum Services .............. 1,110,377 1.8% Publishing....................... 269,454 0.4% Railroads & Equipment............ 542,996 0.9% Real Estate ..................... 64,406 0.1% Retail .......................... 1,848,085 3.0% 409,063 1.1% Shipbuilding..................... 124,640 0.2% Software......................... 4,729,688 7.6% 4,887,010 13.2% Telephone ....................... 707,775 1.9% Tobacco.......................... 396,061 0.6% Trucking & Freight Forwarding.... 484,191 0.8% Unit Investment Trust............ 593,524 1.0% ----------- ----------- Total Common Stock............... 60,476,950 97.6% 35,123,026 95.1% ----------- ----------- SHORT-TERM OBLIGATIONS Commercial Paper ................ 2,486,558 6.7% Discount Note.................... 1,299,810 2.1% ----------- ----------- Total Short-Term Obligations..... 1,299,810 2.1% 2,486,558 6.7% ----------- ----------- TOTAL INVESTMENTS................ 61,776,760 99.7% 37,609,584 101.8% Other Assets Less Liabilities.... 157,248 0.3% (677,836) (1.8%) ----------- ----------- NET ASSETS....................... $61,934,008 100.0% $36,931,748 100.0% =========== ===========
35 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Lehman Brothers Aggregate Bond Index Portfolio ------------ Value (Note 2A) LONG-TERM DEBT SECURITIES Bonds & Notes: Aerospace & Defense..................................... $ 231,607 0.2% Air Travel.............................................. 799,129 0.5% Auto Parts.............................................. 255,675 0.2% Automobiles............................................. 1,371,852 0.9% Banks................................................... 503,870 0.3% Collateralized Mortgage Obligations..................... 657,778 0.5% Communication Services.................................. 757,065 0.5% Computer & Business Equipment........................... 480,033 0.3% Cosmetics & Toiletries.................................. 410,776 0.3% Drugs & Health Care..................................... 144,145 0.1% Electric Utilities...................................... 1,865,384 1.3% Federal Agencies........................................ 69,383,291 47.6% Finance & Banking....................................... 16,282,127 11.2% Financial Services...................................... 1,368,549 0.9% Food & Beverages........................................ 200,126 0.1% Government Sponsored.................................... 626,786 0.4% Industrials............................................. 1,101,683 0.8% Leisure................................................. 467,370 0.3% Petroleum Services...................................... 756,851 0.5% Railroads & Equipment................................... 312,330 0.2% Retail.................................................. 3,117,520 2.1% Steel................................................... 220,872 0.2% Telephone............................................... 1,857,084 1.3% Transportation.......................................... 300,211 0.2% U.S. Treasury Obligations............................... 37,727,730 25.9% Yankee Bonds............................................ 5,263,959 3.6% ------------ Total Bonds & Notes..................................... 146,463,803 100.4% ------------ SHORT-TERM OBLIGATIONS Discount Notes.......................................... 2,886,014 2.0% ------------ Total Short-Term Obligations............................ 2,886,014 2.0% ------------ TOTAL INVESTMENTS....................................... 149,349,817 102.4% Other Assets Less Liabilities........................... (3,512,601) (2.4%) ------------ NET ASSETS.............................................. $145,837,216 100.0% ============
36 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Janus Aspen Series Fund
Janus Aspen Growth Portfolio -------------- Value (Note 2A) COMMON STOCK Aerospace & Defense................................... $ 181,463,718 5.0% Airlines.............................................. 3,831,022 0.1% Broadcast Services & Programming...................... 97,551,309 2.7% Business to Business/E-Commerce....................... 20,929,590 0.6% Cable Television...................................... 174,454,964 4.8% Casino Hotels......................................... 17,886,696 0.5% Cellular Telecommunications........................... 35,466,892 1.0% Commercial Banks...................................... 13,169,560 0.4% Commercial Services................................... 25,226,504 0.7% Computer Graphics..................................... 6,188,444 0.2% Computers............................................. 30,346,760 0.8% Computer Memory Devices............................... 112,819,630 3.1% Cosmetics & Toiletries................................ 170,956,562 4.7% Data Processing & Management.......................... 26,165,473 0.7% Diversified Operations................................ 139,776,087 3.8% E-Commerce/Services................................... 8,740,611 0.2% Electric-Generations.................................. 13,327,655 0.3% Electronic Components................................. 158,156,114 4.3% Enterprise Software & Services........................ 21,304,541 0.6% Finance-Credit Card................................... 45,928,244 1.3% Finance-Investment Bankers/Brokers.................... 141,313,781 3.9% Food-Retail........................................... 24,342,989 0.7% Hotels & Motels....................................... 19,258,485 0.5% Identification Systems & Devices...................... 27,437,328 0.7% Instruments-Scientific................................ 36,963,749 1.0% Insurance Brokers..................................... 2,796,855 0.1% Internet Brokers...................................... 93,473,663 2.6% Internet Infrastructure Software...................... 17,154,021 0.5% Internet Security..................................... 38,594,044 1.1% Life & Health Insurance............................... 24,320,269 0.7% Medical-Biomedical & Genetic.......................... 30,572,362 0.8% Medical-Drugs......................................... 21,036,778 0.6% Medical-Products...................................... 16,589,184 0.5% Money Center Banks.................................... 99,055,271 2.7% Multimedia............................................ 344,111,123 9.5% Networking Products................................... 99,728,422 2.7% Oil Companies......................................... 18,912,108 0.5% Pipelines............................................. 130,604,421 3.6% Radio................................................. 44,251,204 1.2% Retail-Apparel & Shoe................................. 20,883,174 0.6% Retail-Discount....................................... 45,819,646 1.3% Semiconductor Components/Integrated Circuits.......... 263,639,896 7.3% Semiconductor Equipment............................... 32,951,165 0.9% Super Regional Banks.................................. 15,356,751 0.4% Telecommunication Equipment........................... 217,698,074 6.0% Telecommunication Services............................ 93,698,483 2.6% Telephone-Integrated.................................. 77,543,782 2.1% Television............................................ 44,584,049 1.2% Transportation Services............................... 23,715,847 0.7% Web Hosting/Design.................................... 14,843,740 0.4% Web Portals/Internet Service Provider................. 12,416,988 0.3% Wireless Equipment.................................... 3,151,010 0.1% -------------- Total Common Stock.................................... 3,400,509,038 93.6% -------------- CORPORATE BONDS Telecommunication Services............................ 1,009,800 0.0% Web Hosting/Design.................................... 1,569,100 0.0% -------------- Total Corporate Bonds................................. 2,578,900 0.0% -------------- PREFERRED STOCKS Telecommunications Services........................... 1,301,945 0.0% Repurchase Agreements................................. 187,300,000 5.2% U.S. Government Agencies.............................. 49,511,229 1.4% -------------- TOTAL INVESTMENTS..................................... 3,641,201,112 100.2% Other Assets Less Liabilities......................... (6,737,696) (0.2%) -------------- NET ASSETS............................................ $3,634,463,416 100.0% ==============
37 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Invesco Variable Investment Fund, Inc.
Invesco Invesco Invesco VIF Equity VIF Real Estate VIF High Income Opportunity Yield Portfolio Portfolio Portfolio ------------ --------------- ----------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK & WARRANTS Aerospace & Defense..... $ 1,909,000 1.5% Agricultural Products... 592,669 0.5% Air Freight............. 1,364,475 1.1% $ 48,300 2.1% Aluminum................ 938,000 0.7% Automobiles............. 1,717,382 1.4% Banks................... 9,904,831 7.8% Beverages............... 2,356,900 1.8% Biotechnology........... 1,044,062 0.8% Broadcasting............ 3,877,650 3.0% $ 8,750 0.0% Cable................... 835,450 0.7% Chemicals............... 666,575 0.5% Communications-Equipment Manufacturing.......... 1,167,000 0.9% Computer Related........ 3,115,838 2.5% 8,100 0.0% Containers-Paper........ 638,138 0.5% Electric Utilities...... 1,377,816 1.1% Electrical Equipment.... 2,128,425 1.7% Electronics- Semiconductor.......... 2,493,437 2.0% Entertainment........... 1,068,360 0.8% 37,881 1.5% Financial............... 2,377,776 1.9% Foods................... 6,034,272 4.8% Gaming.................. 1,647,363 1.3% 54,900 2.2% Health Care Drugs- Pharmaceuticals........ 8,976,587 7.1% Insurance............... 8,392,425 6.6% 33,719 1.4% Investment Bank/Broker Firm................... 1,347,250 1.0% Investment Companies.... 3,155,000 2.5% 408,375 0.8% Lodging-Hotels.......... 76,800 3.1% Manufacturing........... 3,927,719 3.1% Metals Mining........... 535,800 0.4% Oil & Gas Related....... 13,252,563 10.5% Paper & Forest Products. 1,127,500 0.9% 50,737 2.1% Personal Care........... 2,167,500 1.7% Publishing.............. 1,172,500 0.9% Railroads............... 1,103,756 0.9% Real Estate Investment Trust.................. 1,699,825 69.2% Real Estate Related..... 22,688 0.9% Retail.................. 4,802,238 3.8% Retail Computers & Electronics............ 42,813 1.7% Retail General Merchandising.......... 53,125 2.2% Savings & Loan.......... 1,926,684 1.5% Services................ 1,160,250 0.9% Telecommunications- Cellular & Wireless.... 730,687 0.6% 143,406 5.8% Telecommunications-Long Distance............... 1,988,507 1.6% 44,000 1.8% 2,362 0.0% Telephone............... 4,791,968 3.8% ------------ ---------- ----------- Total Common Stock...... 107,814,353 85.1% 2,308,194 94.0% 427,587 0.8% ------------ ---------- ----------- PREFERRED STOCK Broadcasting............ 67,800 0.1% Computer Related........ 5,000 0.0% Publishing.............. 262,062 0.5% Telecommunications- Cellular & Wireless.... 1,522,350 3.0% Telecommunications-Long Distance............... 1,689,750 3.3% Telephone............... 840,200 1.6% ----------- Total Preferred Stock... 4,387,162 8.5% ------------ ---------- ----------- Total Equity Securities. 107,814,353 85.1% 2,308,194 94.0% 4,814,749 9.3% ------------ ---------- -----------
38 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Invesco Variable Investment Fund, Inc.
Invesco Invesco Invesco VIF Equity VIF Real Estate VIF High Income Opportunity Yield Portfolio Portfolio Portfolio ------------ --------------- ----------- Value Value Value (Note 2A) (Note 2A) (Note 2A) FIXED INCOME SECURITIES Corporate Bonds Broadcasting............ $ 351,750 0.3% $ 3,888,806 7.6% Cable................... 323,375 0.2% 2,435,313 4.7% Chemicals............... 762,000 1.5% Communications-Equipment & Manufacturing........ 215,625 0.2% 2,456,250 4.8% Computer Related........ 519,375 0.4% 459,000 0.9% Electric Utilities...... 4,435,248 3.5% 1,582,427 3.1% Electrical Equipment.... 204,000 0.4% Engineering & Construction........... 173,000 0.3% Financial Diversified... 650,000 1.3% Healthcare Services..... 254,435 0.2% 350,000 0.7% Insurance............... 434,056 0.3% Iron & Steel............ 331,100 0.6% Lodging-Hotels.......... 238,694 0.2% Metals & Mining......... 139,000 0.3% Oil & Gas Related....... 715,100 0.6% 941,875 1.8% Paper & Forest Products. 105,981 0.1% 1,117,500 2.2% Services................ 1,610,000 3.1% Shipping................ 50,000 0.1% Specialized Services.... 237,500 0.5% Specialty Printing...... 91,000 0.1% 819,000 1.6% Telecommunications- Cellular & Wireless.... 423,250 0.3% 4,320,000 8.4% Telecommunications-Long Distance............... 852,616 0.7% 7,705,102 15.0% Telephone............... 1,267,616 1.0% 10,441,493 20.3% ------------ ----------- Total Corporate Bonds... 10,228,121 8.1% 40,673,366 79.2% US Government Obligations............ 3,303,619 2.6% ------------ ----------- Total Fixed Income Securities............. 13,531,740 10.7% 40,673,366 79.2% ------------ ----------- SHORT TERM INVESTMENTS Repurchase Agreements... 5,415,000 4.3% ------------ Total Short Term Investments............ 5,415,000 4.3% 4,672,000 9.1% ------------ ----------- Total Other Securities.. 405,025 0.8% ------------ ----------- TOTAL INVESTMENTS....... 126,761,093 100.1% $2,308,194 94.0% 50,565,140 98.4% Other Assets Less Liabilities............ (78,489) (0.1%) 147,533 6.0% 835,959 1.6% ------------ ---------- ----------- NET ASSETS.............. $126,682,604 100.0% $2,455,727 100.0% $51,401,099 100.0% ============ ========== ===========
39 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Templeton Variable Products Series Fund
Templeton International Stock Portfolio ------------- Value (Note 2A) COMMON STOCK Aerospace & Defense.................................... $ 19,279,381 2.0% Airfreight & Couriers.................................. 10,123,073 1.1% Airlines............................................... 8,725,188 0.9% Auto Components........................................ 6,173,963 0.6% Automotive............................................. 9,652,942 1.0% Banks.................................................. 83,941,067 8.7% Beverages.............................................. 2,397,617 0.3% Building Products...................................... 8,966,774 0.9% Chemicals.............................................. 54,214,039 5.6% Commercial Services & Supplies......................... 9,237,174 1.0% Communications Equipment............................... 8,710,495 0.9% Computers & Peripherals................................ 6,934,644 0.7% Construction & Engineering............................. 3,176,494 0.3% Diversified Financials................................. 39,938,078 4.1% Diversified Telecommunications Services................ 57,472,882 6.0% Electric Utilities..................................... 79,909,838 8.3% Electrical Equipment................................... 13,646,959 1.4% Electronic Equipment & Instruments..................... 9,610,089 1.0% Food & Drug Retailing.................................. 12,930,648 1.3% Food Products.......................................... 29,079,912 3.0% Forest Products & Paper................................ 13,923,942 1.4% Health & Personal Care................................. 7,496,965 0.8% Hotels Restaurants & Leisure........................... 3,333,186 0.4% Household Durables..................................... 23,981,542 2.5% Insurance.............................................. 96,707,817 10.0% Machinery.............................................. 27,233,151 2.8% Marine................................................. 6,494,609 0.7% Media.................................................. 16,366,201 1.7% Metals & Mining........................................ 32,237,699 3.4% Multiline Retail....................................... 16,744,228 1.7% Oil & Gas.............................................. 51,747,874 5.4% Pharmaceuticals........................................ 60,928,892 6.3% Real Estate............................................ 23,123,586 2.4% Road & Rail............................................ 23,927,432 2.5% Semiconductor Equipment & Products..................... 3,463,409 0.4% Transportation Infrastructure.......................... 976,453 0.1% Wireless Telecommunication Services.................... 6,431,503 0.7% ------------ Total Common Stock..................................... 889,239,746 92.3% ------------ PREFERRED STOCKS....................................... 30,011,908 3.1% SHORT TERM INVESTMENTS................................. 4,999,230 0.5% ------------ Total Investments before Repurchase Agreements......... 924,250,884 95.9% Repurchase Agreements.................................. 51,761,000 5.4% ------------ TOTAL INVESTMENTS...................................... 976,011,884 101.3% Other Assets Less Liabilities.......................... (12,401,366) (1.3%) ------------ NET ASSETS............................................. $963,610,518 100.0% ============
40 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) New England Zenith Fund
Zenith Zenith Loomis Davis Sayles Small Venture Cap Series Value Series ------------ ------------ Value Value (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense................ $ 7,701,600 1.6% Apparel & Textiles................. 6,329,184 1.3% Auto Parts......................... 26,250 0.0% Banks.............................. 19,616,468 4.0% $101,163,078 10.9% Building & Construction............ 2,326,188 0.5% 23,686,444 2.6% Business Services.................. 19,920,947 4.1% 6,430,556 0.7% Chemicals.......................... 15,948,937 3.3% 18,221,225 2.0% Communication Services............. 26,094,741 5.4% 9,427,950 1.0% Communications..................... 17,901,071 3.7% Computer & Business Equipment...... 25,723,641 5.3% 123,153,656 13.3% Conglomerates...................... 45,443,400 4.9% Construction Materials............. 3,614,019 0.7% 6,036,210 0.7% Containers & Glass................. 13,237,000 1.4% Cosmetics & Toiletries............. 2,423,988 0.3% Domestic Oil....................... 4,976,597 1.0% 10,626,626 1.1% Drugs & Health Care................ 74,706,643 15.4% 88,163,699 9.5% Electrical Equipment............... 19,083,130 3.9% 4,364,121 0.5% Electric Utilities................. 9,853,131 2.0% Electronics........................ 15,919,295 3.3% 16,530,396 1.8% Financial Services................. 20,090,623 4.1% 150,566,563 16.3% Food & Beverages................... 11,635,769 2.4% Gas & Pipeline Utilities........... 12,932,825 2.7% Hotels & Restaurants............... 9,635,240 2.0% 29,476,400 3.2% Household Appliances & Home Furnishings....................... 14,723,004 3.0% Industrial Machinery............... 10,942,269 2.2% 7,435,106 0.8% Insurance.......................... 21,040,656 4.3% 86,384,950 9.3% Mining............................. 967,500 0.2% Paper & Forest..................... 1,943,525 0.4% Publishing......................... 1,367,080 0.3% 1,800,675 0.2% Railroads & Equipment.............. 4,924,588 1.0% Real Estate Investment Trust....... 14,145,688 2.9% 4,057,794 0.4% Retail............................. 19,651,362 4.0% 25,376,287 2.7% Software........................... 46,125,981 9.5% 4,380,984 0.5% Telephone.......................... 6,890,236 0.7% Tobacco............................ 25,454,000 2.8% Trucking & Freight Forwarding...... 11,874,244 1.3% ------------ ------------ Total Common Stock................. 459,867,952 94.5% 822,605,588 88.9% ------------ ------------ PREFERRED STOCKS Real Estate Investment Trust....... 3,557,231 0.4% ------------ Total Preferred Stocks............. 3,557,231 0.4% ------------ SHORT-TERM OBLIGATIONS Commercial Paper................... 28,237,453 5.8% Repurchase Agreements.............. 97,904,000 10.6% ------------ ------------ Total Short-Term Obligations....... 28,237,453 5.8% 97,904,000 10.6% ------------ ------------ TOTAL INVESTMENTS.................. 488,105,405 100.3% 924,066,819 99.9% Other Assets Less Liabilities...... (1,666,868) (0.3%) 1,198,297 0.1% ------------ ------------ NET ASSETS......................... $486,438,537 100.0% $925,265,116 100.0% ============ ============
41 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Alliance Variable Product Series Fund
Alliance Series Growth & Income-- Class B Portfolio ----------------- Value (Note 2A) COMMON STOCK Airlines............................................. $ 11,615,625 1.5% Banking.............................................. 92,422,012 12.3% Beverages............................................ 17,971,875 2.4% Broadcast Services and Programming................... 40,049,225 5.3% Capital Goods........................................ 24,373,750 3.3% Chemicals............................................ 26,004,063 3.5% Computers............................................ 37,266,750 5.0% Consumer Manufacturing............................... 8,671,875 1.2% Contract Manufacturing............................... 22,923,750 3.1% Cosmetics and Toiletries............................. 11,968,750 1.6% Drugs & Medical Products............................. 57,027,087 7.6% Electrical & Electronics............................. 7,159,375 1.0% Energy Sources....................................... 81,852,812 10.9% Financial Services................................... 69,438,773 9.3% Food & Household Products............................ 32,819,875 4.4% Insurance Brokers.................................... 9,362,813 1.3% Leisure.............................................. 15,625,937 2.1% Metals & Mining...................................... 5,862,500 0.8% Multi-Industry Companies............................. 29,350,000 3.9% Printing & Publishing................................ 11,035,938 1.5% Retail-Apparel and Shoe.............................. 11,793,750 1.6% Semiconductor Capital................................ 4,773,437 0.6% Semiconductor Components/Integrated Circuits......... 22,612,500 3.0% Telecommunication Services........................... 28,485,938 3.8% Tobacco.............................................. 22,000,000 2.9% Toys................................................. 5,054,000 0.7% ------------ Total Common Stock................................... 707,522,410 94.6% ------------ SHORT-TERM INVESTMENT Time Deposits........................................ 36,910,000 4.9% ------------ Total Short-Term Investments......................... 36,910,000 4.9% ------------ TOTAL INVESTMENTS.................................... 744,432,410 99.5% Other Assets Less Liabilities........................ 3,853,610 0.5% ------------ NET ASSETS........................................... $748,286,020 100.0% ============
42 NOTES TO FINANCIAL STATEMENTS--(Concluded) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(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. Lacking any sales, securities are valued at the mean between closing bid and asked prices (except for the Loomis Sayles High Yield Bond Portfolio, which values such securities at last bid price). Securities trading primarily on non-domestic exchanges are valued at the preceding closing price on the exchange where it primarily trades (or in the case of Loomis Sayles High Yield Bond and Scudder Global Equity Portfolios, the last sale). A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for that security by the Board of Directors or its delegates. If no closing price is available, then such securities are valued, first, by using the mean between last current bid and asked prices or, second, by using the last available closing price (except for the Scudder Global Equity Portfolio, which second values such securities at the last current bid) or, third, by using the last available price. Domestic securities, other than those held in the Money Market Fund, traded on over-the-counter markets 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 would value such security, first, at the last sale price and, second, at the bid price or the Scudder Global Equity and the Neuberger Berman Partners Mid Cap Value Portfolios that value such securities, first, at last sale price and, second, at last bid price). All non-U.S. securities traded on over-the-counter securities markets are valued at the last sale quote, if market quotations are available, or the last closing bid price if there is no active trading in a particular security for a given day (except the Neuberger Berman Partners Mid Cap Value Portfolio, which is valued at the mean between closing bid and asked prices). Where market quotations are not readily available for such non-domestic, over-the-counter securities, then such securities will be valued in good faith by a method that the Board of Directors or its delegates believe accurately reflects fair value. Portfolio securities that are traded both on over-the-counter markets and on a stock exchange are valued according to the broadest and most representative market. For debt securities, this ordinarily will be the over-the-counter market. Securities and assets for which market quotations are not readily available (e.g. certain long term bonds and notes) are valued at fair value as determined in good faith by or under the direction of the Board of Directors, including valuations furnished by a pricing service retained for this purpose and typically utilized by other institutional-sized trading organizations. Forward foreign exchange contracts are valued based on the closing prices of the forward currency contract rates in London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Short-term instruments with a remaining maturity of sixty days or less are valued utilizing the amortized cost method of valuation. If for any reason the fair value of any security is not fairly reflected by such method, such security will be valued by the same method as securities having a maturity of more than sixty days. Options on securities, indices, or futures contracts are valued at the last sales price available as of the close of business on the day of valuation. If no sales have occurred, options are valued at the mean between bid and asked prices. Options on currencies are valued at the spot price each day. As a general matter, futures contracts are marked-to market daily. The value of futures contracts will be the sum of the margin deposits plus or minus the difference between the value of the futures contract on each day the net asset value is calculated and the value on the date the futures contract originated. For this purpose, value is the value established on a recognized commodity exchange, or by reference to other customary sources, with gain or loss being realized when the futures contract closes or expires. 8. PURCHASES AND SALES OF INVESTMENTS SECURITIES The aggregate costs of purchases and proceeds from sales of investments (other than short-term securities) for the year ended December 31, 2000 were $492,553,961 and $173,826,338, respectively. Gains and losses from sales of investments are computed on the basis of average cost. 43 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Financial Statements as of December 31, 2000 and 1999 and for Each of the Three Years in the Period Ended December 31, 2000 and Independent Auditors' Report F-1 Independent Auditors' Report The Board of Directors and Shareholder of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York February 9, 2001 F-2 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 and 1999 (Dollars in millions)
2000 1999 -------- -------- ASSETS Investments: Fixed maturities available-for-sale, at fair value......... $112,445 $ 96,981 Equity securities, at fair value........................... 2,193 2,006 Mortgage loans on real estate.............................. 21,951 19,739 Real estate and real estate joint ventures................. 5,504 5,649 Policy loans............................................... 8,158 5,598 Other limited partnership interests........................ 1,652 1,331 Short-term investments..................................... 930 3,055 Other invested assets...................................... 2,898 1,501 -------- -------- Total investments.......................................... 155,731 135,860 Cash and cash equivalents................................... 3,419 2,789 Accrued investment income................................... 2,040 1,725 Premiums and other receivables.............................. 8,732 6,681 Deferred policy acquisition costs........................... 10,497 9,070 Deferred income taxes....................................... -- 603 Other assets................................................ 3,823 3,563 Separate account assets..................................... 70,250 64,941 -------- -------- Total assets............................................... $254,492 $225,232 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits...................................... $ 81,966 $ 73,582 Policyholder account balances............................... 54,309 45,901 Other policyholder funds.................................... 5,583 4,498 Policyholder dividends payable.............................. 1,082 974 Policyholder dividend obligation............................ 385 -- Short-term debt............................................. 1,094 4,208 Long-term debt.............................................. 3,443 2,514 Current income taxes payable................................ 127 548 Deferred income taxes payable............................... 742 -- Payables under securities loaned transactions............... 12,301 6,461 Other liabilities........................................... 7,076 7,915 Separate account liabilities................................ 70,250 64,941 -------- -------- Total liabilities.......................................... 238,358 211,542 -------- -------- Commitments and contingencies (Note 10) Company-obligated mandatorily redeemable securities of subsidiary trust........................................... 118 -- -------- -------- Stockholder's Equity: Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding................................................ 5 -- Additional paid-in capital.................................. 14,549 -- Retained earnings........................................... 407 14,100 Accumulated other comprehensive income (loss)............... 1,055 (410) -------- -------- Total stockholder's equity................................. 16,016 13,690 -------- -------- Total liabilities and stockholder's equity................. $254,492 $225,232 ======== ========
See accompanying notes to consolidated financial statements. F-3 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
2000 1999 1998 ------- ------- ------- REVENUES Premiums............................................ $16,263 $12,088 $11,503 Universal life and investment-type product policy fees............................................... 1,820 1,433 1,360 Net investment income............................... 11,773 9,816 10,228 Other revenues...................................... 2,462 2,154 1,994 Net investment (losses) gains (net of amounts allocable to other accounts of $(54), $(67) and $608, respectively)................................ (418) (70) 2,021 ------- ------- ------- Total revenues..................................... 31,900 25,421 27,106 ------- ------- ------- EXPENSES Policyholder benefits and claims (excludes amounts directly related to net investment gains (losses) of $41, $(21) and $368, respectively).............. 16,935 13,100 12,638 Interest credited to policyholder account balances.. 2,935 2,441 2,711 Policyholder dividends.............................. 1,913 1,690 1,651 Payments to former Canadian policyholders........... 327 -- -- Demutualization costs............................... 230 260 6 Other expenses (excludes amounts directly related to net investment (losses) gains of $(95), $(46) and $240, respectively)................................ 8,134 6,755 8,019 ------- ------- ------- Total expenses..................................... 30,474 24,246 25,025 ------- ------- ------- Income before provision for income taxes............ 1,426 1,175 2,081 Provision for income taxes.......................... 477 558 738 ------- ------- ------- Net income.......................................... $ 949 $ 617 $ 1,343 ======= ======= ======= Net income after April 7, 2000 (date of demutualization) (Note 1).......................... $ 1,169 =======
See accompanying notes to consolidated financial statements. F-4 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
Accumulated Other Comprehensive Income (Loss) ------------------------------------- Foreign Minimum Additional Net Unrealized Currency Pension Common Paid-in Retained Investment Translation Liability Stock Capital Earnings Gains (Losses) Adjustment Adjustment Total ------ ---------- -------- -------------- ----------- ---------- ------- Balance at January 1, 1998................... $ -- $ -- $12,140 $1,898 $ (31) $ -- $14,007 Comprehensive income: Net income............. 1,343 1,343 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes................. (358) (358) Foreign currency translation adjustments........... (113) (113) Minimum pension liability adjustment.. (12) (12) ------- Other comprehensive loss.................. (483) ------- Comprehensive income... 860 ----- ------- ------- ------ ----- ----- ------- Balance at December 31, 1998................... -- -- 13,483 1,540 (144) (12) 14,867 Comprehensive loss: Net income............. 617 617 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes................. (1,837) (1,837) Foreign currency translation adjustments........... 50 50 Minimum pension liability adjustment.. (7) (7) ------- Other comprehensive loss.................. (1,794) ------- Comprehensive loss..... (1,177) ----- ------- ------- ------ ----- ----- ------- Balance at December 31, 1999................... -- -- 14,100 (297) (94) (19) 13,690 Policy credits and cash payments to eligible policyholders.......... (2,958) (2,958) Common stock issued in demutualization........ 5 10,917 (10,922) -- Capital contribution from Parent............ 3,632 3,632 Dividends on common stock.................. (762) (762) Comprehensive income: Net loss before date of demutualization....... (220) (220) Net income after date of demutualization.... 1,169 1,169 Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes................. 1,480 1,480 Foreign currency translation adjustments........... (6) (6) Minimum pension liability adjustment.. (9) (9) ------- Other comprehensive income................ 1,465 ------- Comprehensive income... 2,414 ----- ------- ------- ------ ----- ----- ------- Balance at December 31, 2000................... $ 5 $14,549 $ 407 $1,183 $(100) $ (28) $16,016 ===== ======= ======= ====== ===== ===== =======
See accompanying notes to consolidated financial statements. F-5 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
2000 1999 1998 -------- -------- -------- Cash flows from operating activities Net Income....................................... $ 949 $ 617 $ 1,343 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses......... 498 173 56 Gains (losses) from sales of investments and businesses, net............................... 471 137 (2,629) Change in undistributed income of real estate joint ventures and other limited partnership interests..................................... (200) (322) (91) Interest credited to other policyholder account balances...................................... 2,935 2,441 2,711 Universal life and investment-type product policy fees................................... (1,820) (1,433) (1,360) Change in accrued investment income............ (171) 269 (181) Change in premiums and other receivables....... (931) (619) (2,681) Change in deferred policy acquisition costs, net........................................... (880) (389) (188) Change in insurance-related liabilities........ 3,144 2,243 1,481 Change in income taxes payable................. 246 22 251 Change in other liabilities.................... (2,180) 857 2,390 Other, net..................................... (764) (131) (260) -------- -------- -------- Net cash provided by operating activities........ 1,297 3,865 842 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities............................... 57,295 73,120 57,857 Equity securities.............................. 899 760 3,085 Mortgage loans on real estate.................. 2,163 1,992 2,296 Real estate and real estate joint ventures..... 655 1,062 1,122 Other limited partnership interests............ 422 469 146 Purchases of: Fixed maturities............................... (63,991) (72,253) (67,543) Equity securities.............................. (863) (410) (854) Mortgage loans on real estate.................. (2,836) (4,395) (2,610) Real estate and real estate joint ventures..... (407) (341) (423) Other limited partnership interests............ (660) (465) (723) Net change in short-term investments............ 2,382 (1,577) (761) Net change in policy loans...................... (315) 2 133 Purchase of businesses, net of cash received.... (416) (2,972) -- Proceeds from sales of businesses............... 877 -- 7,372 Net change in payable under securities loaned transactions................................... 5,840 2,692 3,769 Other, net...................................... (623) (73) (183) -------- -------- -------- Net cash provided by (used in) investing activities...................................... $ 422 $ (2,389) $ 2,683 -------- -------- --------
F-6 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
2000 1999 1998 -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits...................................... $ 28,834 $ 18,428 $ 19,361 Withdrawals................................... (28,235) (20,650) (21,706) Net change in short-term debt.................. (3,114) 623 (1,002) Long-term debt issued.......................... 1,230 44 693 Long-term debt repaid.......................... (124) (433) (481) Capital contribution from Parent............... 3,632 -- -- Cash payments to eligible policyholders........ (2,550) -- -- Dividends on common stock...................... (762) -- -- -------- -------- -------- Net cash used in financing activities........... (1,089) (1,988) (3,135) -------- -------- -------- Change in cash and cash equivalents............. 630 (512) 390 Cash and cash equivalents, beginning of year.... 2,789 3,301 2,911 -------- -------- -------- Cash and cash equivalents, end of year.......... $ 3,419 $ 2,789 $ 3,301 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest....................................... $ 440 $ 388 $ 367 ======== ======== ======== Income taxes................................... $ 222 $ 587 $ 579 ======== ======== ======== Non-cash transactions during the year: Policy credits to eligible policyholders....... $ 408 $ -- $ -- ======== ======== ======== Business acquisitions--assets.................. $ 22,936 $ 4,832 $ -- ======== ======== ======== Business acquisitions--liabilities............. $ 22,437 $ 1,860 $ -- ======== ======== ======== Business dispositions--assets.................. $ 1,879 $ -- $ 10,663 ======== ======== ======== Business dispositions--liabilities............. $ 1,686 $ -- $ 3,691 ======== ======== ======== Real estate acquired in satisfaction of debt... $ 22 $ 37 $ 69 ======== ======== ========
See accompanying notes to consolidated financial statements. F-7 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Summary Of Significant Accounting Policies Business Metropolitan Life Insurance Company ("Metropolitan Life") and its subsidiaries (the "Company") is a leading provider of insurance and financial services to a broad section of institutional and individual customers. The Company offers life insurance, annuities and mutual funds to individuals and group insurance, reinsurance and retirement and savings products and services to corporations and other institutions. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The New York State Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determination. The preparation of financial statements in conformity GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates include those used in determining deferred policy acquisition costs, investment allowances and the liability for future policyholder benefits. Actual results could differ from those estimates. The accompanying consolidated financial statements include the accounts of Metropolitan Life and subsidiaries, partnerships and joint ventures in which the Company has a majority voting interest or general partner interest with limited removal rights by limited partners. Closed block assets, liabilities, revenues and expenses are combined on a line by line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item. Intercompany accounts and transactions have been eliminated. The Company uses the equity method to account for its investments in real estate joint ventures and other limited partnership interests in which it does not have a controlling interest, but has more than a minimal interest. Minority interest related to consolidated entities included in other liabilities was $479 million and $245 million at December 31, 2000 and 1999, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2000 presentation. Demutualization On April 7, 2000 (the "date of demutualization"), Metropolitan Life converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. ("MetLife" or the "Holding Company"), a Delaware corporation. The conversion was pursuant to an order by the New York Superintendent of Insurance ("Superintendent") approving Metropolitan Life's plan of reorganization, as amended (the "plan"). On the date of demutualization, policyholders' membership interests in Metropolitan Life were extinguished and eligible policyholders received, in exchange for their interests, trust interests representing 494,466,664 shares of common stock of MetLife to be held in a trust, cash payments aggregating $2,550 million and adjustments to their policy values in the form of policy credits aggregating $408 million, as provided in the plan. In addition, Metropolitan Life's Canadian branch made cash payments of $327 million to holders of certain policies transferred to Clarica Life Insurance Company in connection with the sale of a substantial portion of Metropolitan Life's Canadian operations in 1998, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale. F-8 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Earnings After Date of Demutualization Net income after the date of demutualization is based on the results of operations after March 31, 2000, adjusted for the payments to the former Canadian policyholders and costs of demutualization recorded in April 2000 which are applicable to the period prior to April 7, 2000. Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income (loss), net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as investment losses. Investment gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Valuation allowances are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the net carrying value amount of the loan based on the loan's effective interest rate. However, interest ceases to be accrued for loans on which interest is more than 60 days past due. Real estate, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Cost is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in net investment gains (losses). Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired in satisfaction of debt is recorded at estimated fair value at the date of foreclosure. Valuation allowances on real estate held-for-sale are computed using the lower of depreciated cost or estimated fair value, net of disposition costs. Policy loans are stated at unpaid principal balances. Short-term investments are stated at amortized cost, which approximates fair value. Derivative Instruments The Company uses derivative instruments to reduce the risk associated with changing market values or variable cash flows related to the Company's financial assets and liabilities. This objective is achieved through one of two principal risk management strategies: hedging the changes in fair value of financial assets, liabilities or firm commitments or hedging the variable cash flows of assets, liabilities or forecasted transactions. Hedged forecasted transactions, other than the receipt or payment of variable interest payments, are not expected to occur more than 12 months after hedge inception. The Company's derivative strategy employs a variety of instruments including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options. The Company's derivative program is monitored by senior management. The Company's risk of loss is typically limited to the fair value of its derivative instruments and not to the notional or contractual amounts of these derivatives. Risk arises from changes in the fair value of the underlying instruments and, with respect to over-the-counter transactions, from the possible inability of counterparties to meet the terms of the contracts. The Company has policies regarding the financial stability and credit standing of its major counterparties. F-9 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company uses derivative instruments to hedge designated risks. The hedge is expected to be highly effective in offsetting the designated risk at the inception of the contract. The Company monitors the effectiveness of its hedges throughout the contract term using an offset ratio of 80 to 125 percent as its minimum acceptable threshold for hedge effectiveness. During any period the derivative instruments are outside their threshold for hedge effectiveness, or if the relationship no longer qualifies as a hedge, all changes in the derivative's value are marked to market through net investment gains and losses. Gains or losses on financial futures contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, recorded as an adjustment to the basis of the purchased assets or to the proceeds on disposition. Gains or losses on financial futures used in asset risk management are deferred and amortized into net investment income over the remaining term of the investment. Gains or losses on financial futures used in portfolio risk management are deferred and amortized into net investment income or policyholder benefits over the remaining life of the hedged sector of the underlying portfolio. Financial forward contracts that are entered into to purchase securities are marked to fair value through other comprehensive income, similar to the accounting for the security to be purchased. Such contracts are accounted for at settlement by recording the purchase of the specified securities at the contracted value. Gains or losses resulting from the termination of forward contracts are recognized immediately as a component of net investment gains (losses). Interest rate and certain foreign currency swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net receipts or payments are accrued and recognized over the term of the swap agreement as an adjustment to net investment income or other expenses. Gains or losses resulting from swap terminations are amortized over the remaining term of the underlying asset or liability. Gains and losses on swaps and certain foreign forward exchange contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, reflected as an adjustment to the basis of the purchased assets or to the proceeds of disposition. In the event the asset or liability underlying a swap is disposed of, the swap position is closed immediately and any gain or loss is recorded in net investment gains and losses. The Company periodically enters into collars, which consist of purchased put and written call options, to lock in unrealized gains on equity securities. Collars are marked to market through other comprehensive income (loss), similar to the accounting for the underlying equity securities. Purchased interest rate caps and floors are used to offset the risk of interest rate changes related to insurance liabilities. Premiums paid on floors, caps and options are amortized over the life of the applicable derivative instrument. Any gains or losses relating to these derivative instruments are deferred and are recognized as a component of net investment income over the original term of the derivative instrument. Cash and Cash Equivalents The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years- digits method over the estimated useful lives of the assets. Estimated lives range from 10 to 40 years for leasehold improvements and three to 15 years for all other property and equipment. Accumulated depreciation of property and equipment and accumulated amortization on leasehold improvements was $1,304 million and $1,224 million at December 31, 2000 and 1999, respectively. Related depreciation and amortization expense was $120 million, $109 million and $116 million for the years ended December 31, 2000, 1999 and 1998, respectively. Deferred Policy Acquisition Costs The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are F-10 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) amortized with interest over the expected life of the contract for participating traditional life, universal life and investment-type products. Generally, deferred policy acquisition costs are amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception or acquisition of the contracts. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance or acquisition and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Deferred policy acquisition costs related to internally replaced contracts are expensed at date of replacement. Deferred policy acquisition costs for property and casualty insurance contracts, which are primarily comprised of commissions and certain underwriting expenses, are deferred and amortized on a pro rata basis over the applicable contract term or reinsurance treaty. Value of business acquired, included as part of deferred policy acquisition costs, represents the present value of future profits generated from existing insurance contracts in force at the date of acquisition and is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts. Information regarding deferred policy acquisition costs is as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------- ------ ------ (Dollars in millions) Balance at January 1................................ $ 9,070 $7,028 $6,948 Capitalization of policy acquisition costs.......... 1,805 1,160 1,025 Value of business acquired.......................... 1,681 156 32 ------- ------ ------ Total........................................... 12,556 8,344 8,005 ------- ------ ------ Amortization allocated to: Net investment (losses) gains..................... (95) (46) 240 Unrealized investment gains (losses).............. 596 (1,628) (216) Other expenses.................................... 1,472 930 641 ------- ------ ------ Total amortization.............................. 1,973 (744) 665 ------- ------ ------ Dispositions and other.............................. (86) (18) (312) ------- ------ ------ Balance at December 31.............................. $10,497 $9,070 $7,028 ======= ====== ======
On September 28, 1999, Metropolitan Life's board of directors adopted a plan of reorganization. Consequently, in the fourth quarter of 1999, Metropolitan Life was able to commit to state insurance regulatory authorities that it would establish investment sub-segments to further align investments with the traditional individual life business of the Individual Business segment. As a result, future dividends for the traditional individual life business will be determined based on the results of such investment sub-segments. Additionally, estimated future gross margins used to determine amortization of deferred policy acquisition costs and the amount of unrealized investment gains and losses relating to these products are based on investments in such sub- segments. Using the investments in the sub-segments to determine estimated gross margins and unrealized investment gains and losses increased 1999 amortization of deferred policy acquisition costs by $56 million, net of income taxes of $32 million, and decreased other comprehensive loss in 1999 by $123 million, net of income taxes of $70 million. F-11 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Amortization of deferred policy acquisition costs is allocated to (1) investment gains and losses to provide consolidated statement of income information regarding the impact of such gains and losses on the amount of the amortization, (2) unrealized investment gains and losses to provide information regarding the amount of deferred policy acquisition costs that would have been amortized if such gains and losses had been recognized and (3) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Investment gains and losses related to certain products have a direct impact on the amortization of deferred policy acquisition costs. Presenting investment gains and losses net of related amortization of deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. Goodwill The excess of cost over the fair value of net assets acquired ("goodwill") is included in other assets. Goodwill is amortized on a straight-line basis over a period ranging from 10 to 30 years. The Company reviews goodwill to assess recoverability from future operations using undiscounted cash flows. Impairments are recognized in operating results if a permanent diminution in value is deemed to have occurred.
Years ended December 31 -------------------------- 2000 1999 1998 -------- ------- ------- (Dollars in millions) Net Balance at January 1............................ $ 611 $ 404 $ 359 Acquisitions........................................ 279 237 67 Amortization........................................ (62) (30) (22) Dispositions........................................ (125) -- -- -------- ------- ------- Net Balance at December 31.......................... $ 703 $ 611 $ 404 ======== ======= =======
December 31 ----------------------- 2000 1999 ---------- ----------- (Dollars in millions) Accumulated Amortization............................... $ 74 $ 118 ========== ===========
Future Policy Benefits and Policyholder Account Balances Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (a) net level premium reserves for death and endowment policy benefits (calculated based upon the nonforfeiture interest rate, ranging from 3% to 11%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (b) the liability for terminal dividends and (c) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 3% to 12%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 3% to 11%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 3% to 11%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 2% to 17%, less expenses, mortality charges and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that F-12 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation. Revisions of these estimates are included in operations in the year such refinements are made. Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Policyholder Dividends Policyholder dividends are approved annually by the boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries. Participating Business Participating business represented approximately 22% and 19% of the Company's life insurance in-force, and 81% and 83% of the number of life insurance policies in-force, at December 31, 2000 and 1999, respectively. Participating policies represented approximately 47% and 50%, 50% and 54%, and 45% and 47% of gross and net life insurance premiums for the years ended December 31, 2000, 1999 and 1998, respectively. The percentages indicated are calculated excluding the business of the Reinsurance segment. Income Taxes Metropolitan Life and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code, as amended (the "Code"). Non-includable subsidiaries file either separate tax returns or separate consolidated tax returns. Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. Metropolitan Life is not subject to the equity tax after the date of demutualization. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. Reinsurance The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. Deferred policy acquisition costs are reduced by amounts F-13 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are reported in other revenues. The Company assumes and retrocedes financial reinsurance contracts, which represent low mortality risk reinsurance treaties. These contracts are reported as deposits and are included in other assets. The amount of revenue reported on these contracts represents fees and the cost of insurance under the terms of the reinsurance agreement. Separate Accounts Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Investments (stated at estimated fair value) and liabilities of the separate accounts are reported separately as assets and liabilities. Deposits to separate accounts, investment income and realized and unrealized gains and losses on the investments of the separate accounts accrue directly to contractholders and, accordingly, are not reflected in the Company's consolidated statements of income and cash flows. Mortality, policy administration and surrender charges to all separate accounts are included in revenues. Foreign Currency Translation Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income (loss). Gains and losses from foreign currency transactions are reported in earnings. Application of Accounting Pronouncements Effective December 31, 2000, the Company early adopted Statement of Position ("SOP") 00-3, Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and for Certain Long-Duration Participating Contracts ("SOP 00-3"). SOP 00-3 provides guidance on accounting by insurance enterprises for demutualizations and the formation of mutual insurance holding companies, including the emergence of earnings from and the financial statement presentation of the closed block formed as a part of a demutualization. Adoption of SOP 00-3 did not have a material effect on the Company's consolidated results of operations other than the reclassification of demutualization costs as operating expenses rather than as an extraordinary item. Effective October 1, 2000, the Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the Securities and Exchange Commission's views in applying generally accepted accounting principles to revenue recognition in financial statements. The requirements of SAB 101 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 2000, the Company adopted Statement of Position 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that 1) transfer only significant timing risk, 2) transfer only significant underwriting risk, 3) transfer neither significant timing nor underwriting risk and 4) have an indeterminate risk. Adoption of SOP 98-7 did not have a material effect on the Company's consolidated financial statements. In September 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125 ("SFAS 140"). SFAS 140 is effective for transfers and extinguishments of liabilities occurring after March 31, 2001 and is effective for disclosures about securitizations and collateral and for recognition and reclassification of collateral for fiscal years ending after F-14 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 15, 2000. The Company is in the process of quantifying the impact, if any, of the provisions of SFAS 140 effective for future periods. Effective January 1, 1999, the Company adopted SOP 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 broadly defines start-up activities. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. Adoption of SOP 98-5 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 1999, the Company adopted SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98- 1"). SOP 98-1 provides guidance for determining when an entity should capitalize or expense external and internal costs of computer software developed or obtained for internal use. Adoption of the provisions of SOP 98-1 had the effect of increasing other assets by $82 million at December 31, 1999. Effective January 1, 1999, the Company adopted SOP 97-3, Accounting for Insurance and Other Enterprises for Insurance Related Assessments ("SOP 97- 3"). SOP 97-3 provides guidance on accounting by insurance and other enterprises for assessments related to insurance activities including recognition, measurement and disclosure of guaranty fund and other insurance related assessments. Adoption of SOP 97-3 did not have a material effect on the Company's consolidated financial statements. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--an Amendment of FASB Statement No. 133 ("SFAS 138"). In June 1999, the FASB also issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133 ("SFAS 137"). SFAS 137 deferred the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") until January 1, 2001. SFAS 133 and SFAS 138 require, among other things, that all derivatives be recognized in the consolidated balance sheets as either assets or liabilities and measured at fair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 and SFAS 138, as of January 1, 2001, are required to be reported in income. The Company estimates that the cumulative effect of the adoption SFAS 133 and SFAS 138 will result in a $32 million, net of income taxes of $19 million, increase in other comprehensive income and an insignificant impact on net income. In July 2000, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 99-20, Recognition of Interest Income and Impairment on Certain Investments ("EITF No. 99-20"). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to evaluate these securities for an other-than- temporary decline in value. This consensus is effective for financial statements with fiscal quarters beginning after December 15, 2000. While the Company currently is in the process of quantifying the impact of EITF No. 99- 20, the provisions of the consensus are not expected to have a material impact on the Company's consolidated financial statements. F-15 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2.Investments Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 2000 were as follows:
Gross Unrealized ----------------- Cost or Amortized Estimated Cost Gain Loss Fair Value --------- -------- -------- ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 8,443 $ 1,188 $ 16 $ 9,615 States and political subdivisions... 1,563 79 3 1,639 Foreign governments................. 5,153 341 153 5,341 Corporate........................... 48,401 1,176 1,466 48,111 Mortgage and asset-backed securities......................... 32,996 697 165 33,528 Other............................... 13,872 384 366 13,890 -------- -------- -------- -------- Total bonds........................ 110,428 3,865 2,169 112,124 Redeemable preferred stocks......... 321 -- -- 321 -------- -------- -------- -------- Total fixed maturities............. $110,749 $ 3,865 $ 2,169 $112,445 ======== ======== ======== ======== Equity Securities: Common stocks....................... $ 872 $ 785 $ 55 $ 1,602 Nonredeemable preferred stocks...... 577 19 5 591 -------- -------- -------- -------- Total equity securities............ $ 1,449 $ 804 $ 60 $ 2,193 ======== ======== ======== ======== Fixed maturities and equity securities at December 31, 1999 were as follows: Gross Unrealized ----------------- Cost or Amortized Estimated Cost Gain Loss Fair Value --------- -------- -------- ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 5,990 $ 456 $ 147 $ 6,299 States and political subdivisions... 1,583 4 45 1,542 Foreign governments................. 4,090 210 94 4,206 Corporate........................... 47,505 585 1,913 46,177 Mortgage and asset-backed securities......................... 27,396 112 847 26,661 Other............................... 12,235 313 462 12,086 -------- -------- -------- -------- Total bonds........................ 98,799 1,680 3,508 96,971 Redeemable preferred stocks......... 10 -- -- 10 -------- -------- -------- -------- Total fixed maturities............. $ 98,809 $ 1,680 $ 3,508 $ 96,981 ======== ======== ======== ======== Equity Securities: Common stocks....................... $ 980 $ 921 $ 35 $ 1,866 Nonredeemable preferred stocks...... 151 -- 11 140 -------- -------- -------- -------- Total equity securities............ $ 1,131 $ 921 $ 46 $ 2,006 ======== ======== ======== ========
The Company held foreign currency derivatives with notional amounts of $3,885 million and $4,002 million to hedge the exchange rate risk associated with foreign bonds at December 31, 2000 and 1999, respectively. At December 31, 2000, fixed maturities at estimated fair values held by the Company that were below investment grade or not rated by an independent rating agency totaled $9,864 million. At December 31, 2000, non-income producing fixed maturities were insignificant. F-16 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The cost or amortized cost and estimated fair value of bonds at December 31, 2000, by contractual maturity date, are shown below:
Cost or Amortized Estimated Cost Fair Value --------- ---------- (Dollars in millions) Due in one year or less................................. $ 3,465 $ 3,460 Due after one year through five years................... 21,041 21,275 Due after five years through ten years.................. 23,831 23,904 Due after ten years..................................... 29,095 29,957 -------- -------- Total................................................. 77,432 78,596 Mortgage and asset-backed securities.................... 32,996 33,528 -------- -------- Total bonds........................................... $110,428 $112,124 ======== ========
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of securities classified as available-for-sale were as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Proceeds............................................ $46,205 $59,852 $46,913 Gross investment gains.............................. $ 599 $ 605 $ 2,053 Gross investment losses............................. $ 1,520 $ 911 $ 486
Gross investment losses above exclude writedowns recorded during 2000 and 1999 for permanently impaired available-for-sale securities of $324 million and $133 million, respectively. Excluding investments in U.S. Treasury securities and obligations of U.S. government corporations and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. Securities Lending Program The Company participates in securities lending programs whereby blocks of securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company requires a minimum of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $11,746 million and $6,458 million and estimated fair value of $12,289 million and $6,391 million were on loan under the program at December 31, 2000 and 1999, respectively. The Company was liable for cash collateral under its control of $12,301 million and $6,461 million at December 31, 2000 and 1999, respectively. Security collateral on deposit from customers may not be sold or repledged and is not reflected in the consolidated financial statements. Assets on Deposit and Held in Trust The Company had investment assets on deposit with regulatory agencies with a fair market value of $597 million and $476 million at December 31, 2000 and 1999, respectively. Company securities held in trust to satisfy collateral requirements had an amortized cost of $1,234 million at December 31, 2000. F-17 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Mortgage Loans on Real Estate Mortgage loans on real estate were categorized as follows:
December 31 ------------------------------- 2000 1999 --------------- --------------- Amount Percent Amount Percent ------- ------- ------- ------- (Dollars in millions) Commercial mortgage loans.................... $16,944 77% $14,931 75% Agricultural mortgage loans.................. 4,980 22 4,816 24 Residential mortgage loans................... 110 1 82 1 ------- --- ------- --- Total...................................... 22,034 100% 19,829 100% === === Less: Valuation allowances................... 83 90 ------- ------- Mortgage loans............................. $21,951 $19,739 ======= =======
Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 2000, approximately 16%, 7% and 6% of the properties were located in California, New York and Georgia, respectively. Generally, the Company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $540 million and $547 million at December 31, 2000 and 1999, respectively. Changes in mortgage loan valuation allowances were as follows:
Years ended December 31, --------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in millions) Balance at January 1............................ $ 90 $ 173 $ 289 Additions....................................... 38 40 40 Deductions for writedowns and dispositions...... (74) (123) (130) Acquisitions (dispositions) of affiliates....... 29 -- (26) ------- -------- -------- Balance at December 31.......................... $ 83 $ 90 $ 173 ======= ======== ========
A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
December 31, --------------------- 2000 1999 ---------- ---------- (Dollars in millions) Impaired mortgage loans with valuation allowances...... $ 592 $ 540 Impaired mortgage loans without valuation allowances... 330 437 ---------- ---------- Total................................................ 922 977 Less: Valuation allowances............................. 77 83 ---------- ---------- Impaired mortgage loans.............................. $ 845 $ 894 ========== ==========
The average investment in impaired mortgage loans on real estate was $912 million, $1,134 million and $1,282 million for the years ended December 31, 2000, 1999 and 1998, respectively. Interest income on impaired mortgage loans was $76 million, $101 million and $109 million for the years ended December 31, 2000, 1999 and 1998, respectively. The investment in restructured mortgage loans on real estate was $784 million and $980 million at December 31, 2000 and 1999, respectively. Interest income of $62 million, $80 million and $74 million was recognized on restructured loans for the years ended December 31, 2000, 1999 and 1998, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $74 million, $92 million and $87 million for the years ended December 31, 2000, 1999 and 1998, respectively. F-18 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Mortgage loans on real estate with scheduled payments of 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $40 million and $44 million at December 31, 2000 and 1999, respectively. Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, ---------------------- 2000 1999 ---------- ---------- (Dollars in millions) Real estate and real estate joint ventures held- for-investment.................................... $ 5,495 $ 5,440 Impairments........................................ (272) (289) ---------- ---------- Total............................................ 5,223 5,151 ---------- ---------- Real estate and real estate joint ventures held- for-sale.......................................... 417 719 Impairments........................................ (97) (187) Valuation allowance................................ (39) (34) ---------- ---------- Total............................................ 281 498 ---------- ---------- Real estate and real estate joint ventures..... $ 5,504 $ 5,649 ========== ==========
Accumulated depreciation on real estate was $2,337 million and $2,235 million at December 31, 2000 and 1999, respectively. Related depreciation expense was $224 million, $247 million and $282 million for the years ended December 31, 2000, 1999 and 1998, respectively. Real estate and real estate joint ventures were categorized as follows:
December 31, ----------------------------- 2000 1999 -------------- -------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in millions) Office......................................... $3,635 66% $3,846 68% Retail......................................... 586 10 587 10 Apartments..................................... 558 10 474 8 Land........................................... 202 4 258 5 Agriculture.................................... 84 2 96 2 Other.......................................... 439 8 388 7 ------ --- ------ --- Total........................................ $5,504 100% $5,649 100% ====== === ====== ===
The Company's real estate holdings are primarily located throughout the United States. At December 31, 2000, approximately 26%, 25% and 10% of the Company's real estate holdings were located in New York, California and Texas, respectively. Changes in real estate and real estate joint ventures held-for-sale valuation allowance were as follows:
Years ended December 31, ---------------- 2000 1999 1998 ---- ---- ---- (Dollars in millions) Balance at January 1....................................... $ 34 $ 33 $110 Additions charged (credited) to operations................. 17 36 (5) Deductions for writedowns and dispositions................. (12) (35) (72) ---- ---- ---- Balance at December 31..................................... $ 39 $ 34 $ 33 ==== ==== ====
F-19 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Investment income related to impaired real estate and real estate joint ventures held-for-investment was $45 million, $61 million and $105 million for the years ended December 31, 2000, 1999 and 1998, respectively. Investment income related to impaired real estate and real estate joint ventures held- for-sale was $18 million, $14 million and $3 million for the years ended December 31, 2000, 1999 and 1998, respectively. The carrying value of non- income producing real estate and real estate joint ventures was $15 million and $22 million at December 31, 2000 and 1999, respectively. The Company owned real estate acquired in satisfaction of debt of $66 million and $47 million at December 31, 2000 and 1999, respectively. Leveraged Leases Leveraged leases, included in other invested assets, consisted of the following:
December 31, ---------------------- 2000 1999 ---------- ---------- (Dollars in millions) Investment........................................... $ 1,002 $ 1,016 Estimated residual values............................ 546 559 ---------- ---------- Total.............................................. 1,548 1,575 Unearned income...................................... (384) (417) ---------- ---------- Leveraged leases................................... $ 1,164 $ 1,158 ========== ==========
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from three to 15 years, but in certain circumstances are as long as 30 years. These receivables are generally collateralized by the related property. Net Investment Income The components of net investment income were as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Fixed maturities..................................... $ 8,529 $ 7,171 $ 6,990 Equity securities.................................... 41 40 78 Mortgage loans on real estate........................ 1,693 1,484 1,580 Real estate and real estate joint ventures........... 1,407 1,426 1,529 Policy loans......................................... 515 340 387 Other limited partnership interests.................. 142 199 196 Cash, cash equivalents and short-term investments.... 271 173 187 Other................................................ 192 91 406 ------- ------- ------- Total.............................................. 12,790 10,924 11,353 Less: Investment expenses............................ 1,017 1,108 1,125 ------- ------- ------- Net investment income.............................. $11,773 $ 9,816 $10,228 ======= ======= =======
F-20 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net Investment Gains (Losses) Net investment gains (losses), including changes in valuation allowances, were as follows:
Years ended December 31, ---------------------- 2000 1999 1998 ------- ----- ------ (Dollars in millions) Fixed maturities..................................... $(1,437) $(538) $ 573 Equity securities.................................... 192 99 994 Mortgage loans on real estate........................ (18) 28 23 Real estate and real estate joint ventures........... 101 265 424 Other limited partnership interests.................. (7) 33 13 Sales of businesses.................................. 632 -- 531 Other................................................ 65 (24) 71 ------- ----- ------ Total.............................................. (472) (137) 2,629 Amounts allocable to: Future policy benefit loss recognition............. -- -- (272) Deferred policy acquisition costs.................. 95 46 (240) Participating contracts............................ (126) 21 (96) Policyholder dividend obligation................... 85 -- -- ------- ----- ------ Net investment (losses) gains.................... $ (418) $ (70) $2,021 ======= ===== ======
Investment gains and losses have been reduced by (1) additions to future policy benefits resulting from the need to establish additional liabilities due to the recognition of investment gains, (2) deferred policy acquisition cost amortization to the extent that such amortization results from investment gains and losses, (3) additions to participating contractholder accounts when amounts equal to such investment gains and losses are credited to the contractholders' accounts, and (4) adjustments to the policyholder dividend obligation resulting from investment gains and losses. This presentation may not be comparable to presentations made by other insurers. Net Unrealized Investment Gains (Losses) The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), were as follows:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Fixed maturities................................... $ 1,696 $(1,828) $ 4,809 Equity securities.................................. 744 875 832 Other invested assets.............................. 70 165 154 ------- ------- ------- Total............................................ 2,510 (788) 5,795 ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition........... (284) (249) (2,248) Deferred policy acquisition costs................ 101 697 (931) Participating contracts.......................... (133) (118) (212) Policyholder dividend obligation................. (385) -- -- Deferred income taxes.............................. (626) 161 (864) ------- ------- ------- Total............................................ (1,327) 491 (4,255) ------- ------- ------- Net unrealized investment gains (losses)....... $ 1,183 $ (297) $ 1,540 ======= ======= =======
F-21 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The changes in net unrealized investment gains (losses) were as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------ ------- ------ (Dollars in millions) Balance at January 1............................... $ (297) $ 1,540 $1,898 Unrealized investment gains (losses) during the year.............................................. 3,298 (6,583) (870) Unrealized investment gains (losses) relating to: Future policy benefit loss recognition........... (35) 1,999 (59) Deferred policy acquisition costs................ (596) 1,628 216 Participating contracts.......................... (15) 94 100 Policyholder dividend obligation................. (385) -- -- Deferred income taxes.............................. (787) 1,025 255 ------ ------- ------ Balance at December 31............................. $1,183 $ (297) $1,540 ====== ======= ====== Net change in unrealized investment gains (losses). $1,480 $(1,837) $ (358) ====== ======= ======
3. Derivative Instruments The table below provides a summary of the carrying value, notional amount and current market or fair value of derivative financial instruments held at December 31, 2000 and 1999:
2000 1999 ------------------------------------ ------------------------------------ Current Market Current Market or Fair Value or Fair Value Carrying Notional ------------------ Carrying Notional ------------------ Value Amount Assets Liabilities Value Amount Assets Liabilities -------- -------- ------ ----------- -------- -------- ------ ----------- (Dollars in millions) Financial futures....... $23 $ 254 $ 23 $-- $ 27 $ 3,140 $37 $ 10 Interest rate swaps..... 41 1,549 49 1 (32) 1,316 11 40 Floors.................. -- 325 3 -- -- -- -- -- Caps.................... -- 9,950 -- -- 1 12,376 3 -- Foreign currency swaps.. (1) 1,469 267 85 -- 4,002 26 103 Exchange traded options. 1 10 -- 1 -- -- -- -- --- ------- ---- ---- ---- ------- --- ---- Total contractual commitments........... $64 $13,557 $342 $ 87 $ (4) $20,834 $77 $153 === ======= ==== ==== ==== ======= === ====
The following is a reconciliation of the notional amounts by derivative type and strategy at December 31, 2000 and 1999:
December 31, 1999 Terminations/ December 31, 2000 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- (Dollars in millions) BY DERIVATIVE TYPE Financial futures....... $ 3,140 $14,255 $17,141 $ 254 Financial forwards...... -- 12 12 -- Interest rate swaps..... 1,316 1,605 1,372 1,549 Floors.................. -- 325 -- 325 Caps.................... 12,376 1,000 3,426 9,950 Foreign currency swaps.. 4,002 687 3,220 1,469 Exchange traded options. -- 41 31 10 ------- ------- ------- ------- Total contractual com- mitments............. $20,834 $17,925 $25,202 $13,557 ======= ======= ======= ======= BY STRATEGY Liability hedging....... $12,571 $ 2,876 $ 3,830 $11,617 Invested asset hedging.. 4,215 781 3,310 1,686 Portfolio hedging....... 2,021 14,255 16,022 254 Anticipated transaction hedging................ 2,027 13 2,040 -- ------- ------- ------- ------- Total contractual com- mitments............. $20,834 $17,925 $25,202 $13,557 ======= ======= ======= =======
F-22 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 2000:
Remaining Life ------------------------------------------------------------- One Year After One Year After Five Years or Less Through Five Years Through Ten Years After Ten Years Total -------- ------------------ ----------------- --------------- ------- (Dollars in millions) Financial futures....... $ 254 $ -- $ -- $-- $ 254 Interest rate swaps..... 243 714 268 324 1,549 Floors.................. -- -- 325 -- 325 Caps.................... 5,210 4,740 -- -- 9,950 Foreign currency swaps.. 91 508 685 185 1,469 Exchange traded options. 10 -- -- -- 10 ------ ------ ------ ---- ------- Total contractual commitments........... $5,808 $5,962 $1,278 $509 $13,557 ====== ====== ====== ==== =======
4.Fair Value Information The estimated fair values of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments were as follows:
Notional Carrying Estimated Amount Value Fair Value December 31, 2000 -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities............................. $112,445 $112,445 Equity securities............................ 2,193 2,193 Mortgage loans on real estate................ 21,951 22,847 Policy loans................................. 8,158 8,914 Short-term investments....................... 930 930 Cash and cash equivalents.................... 3,419 3,419 Mortgage loan commitments.................... $534 -- 17 Liabilities: Policyholder account balances................ 43,196 42,958 Short-term debt.............................. 1,094 1,094 Long-term debt............................... 3,443 3,343 Payable under securities loaned transactions. 12,301 12,301 Other: Company-obligated mandatorily redeemable securities of subsidiary trust.............. 118 118 Notional Carrying Estimated Amount Value Fair Value December 31, 1999 -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities............................. $ 96,981 $ 96,981 Equity securities............................ 2,006 2,006 Mortgage loans on real estate................ 19,739 19,452 Policy loans................................. 5,598 5,618 Short-term investments....................... 3,055 3,055 Cash and cash equivalents.................... 2,789 2,789 Mortgage loan commitments.................... $465 -- (7) Liabilities: Policyholder account balances................ 37,170 36,893 Short-term debt.............................. 4,208 4,208 Long-term debt............................... 2,514 2,466 Payable under securities loaned transactions. 6,461 6,461
F-23 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: Fixed Maturities and Equity Securities The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities in which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. Mortgage Loans on Real Estate and Mortgage Loan Commitments Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. For mortgage loan commitments, the estimated fair value is the net premium or discount of the commitments. Policy Loans Fair values for policy loans are estimated by discounting expected future cash flows using U.S. Treasury rates to approximate interest rates and the Company's past experiences to project patterns of loan accrual and repayment characteristics. Cash and Cash Equivalents and Short-term Investments The carrying values for cash and cash equivalents and short-term investments approximated fair market values due to the short-term maturities of these instruments. Policyholder Account Balances The fair value of policyholder account balances are estimated by discounting expected future cash flows, based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. Short-term and Long-term Debt, Payables Under Securities Loaned Transactions and Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trust The fair values of short-term and long-term debt, payables under securities loaned transactions and Company-obligated mandatorily redeemable securities of subsidiary trust are determined by discounting expected future cash flows, using risk rates currently available for debt with similar terms and remaining maturities. Derivative Instruments The fair value of derivative instruments, including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options are based upon quotations obtained from dealers or other reliable sources. See Note 3 for derivative fair value disclosures. 5.Employee Benefit Plans Pension Benefit and Other Benefit Plans The Company is both the sponsor and administrator of defined benefit pension plans covering all eligible employees and sales representatives of Metropolitan Life and certain of its subsidiaries. Retirement benefits are based upon years of credited service and final average earnings history. The Company also provides certain postemployment benefits and certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to the postretirement benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company. F-24 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, ------------------------------ Pension Other Benefits Benefits -------------- -------------- 2000 1999 2000 1999 ------ ------ ------ ------ (Dollars in millions) Change in projected benefit obligation: Projected benefit obligation at beginning of year........................................ $3,737 $3,920 $1,483 $1,708 Service cost............................... 98 100 29 28 Interest cost.............................. 291 271 113 107 Acquisitions............................... 107 -- 37 -- Actuarial losses (gains)................... 176 (260) 59 (281) Curtailments and terminations.............. (3) (22) 2 10 Change in benefits......................... (2) -- (86) -- Benefits paid.............................. (259) (272) (95) (89) ------ ------ ------ ------ Projected benefit obligation at end of year.... 4,145 3,737 1,542 1,483 ------ ------ ------ ------ Change in plan assets: Contract value of plan assets at beginning of year........................................ 4,726 4,403 1,199 1,123 Actual return on plan assets............... 54 575 179 141 Acquisitions............................... 79 -- -- -- Employer contribution...................... 19 20 3 24 Benefits paid.............................. (259) (272) (63) (89) ------ ------ ------ ------ Contract value of plan assets at end of year... 4,619 4,726 1,318 1,199 ------ ------ ------ ------ Over (under) funded............................ 474 989 (224) (284) Unrecognized net asset at transition........... (31) (66) -- -- Unrecognized net actuarial losses (gains)...... 2 (564) (478) (487) Unrecognized prior service cost................ 109 127 (89) (2) ------ ------ ------ ------ Prepaid (accrued) benefit cost................. $ 554 $ 486 $ (791) $ (773) ------ ------ ------ ------ Qualified plan prepaid pension cost............ $ 775 $ 632 Non-qualified plan accrued pension cost........ (263) (182) Unamortized prior service cost................. 14 17 Accumulated other comprehensive income......... 28 19 ------ ------ Prepaid benefit cost........................... $ 554 $ 486 ====== ======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Non-Qualified Qualified Plan Plan Total ---------------- -------------- ---------------- 2000 1999 2000 1999 2000 1999 ------- ------- ------ ------ ------- ------- (Dollars in millions) Aggregate projected benefit obligation................ $(3,775) $(3,482) $ (370) $ (255) $(4,145) $(3,737) Aggregate contract value of plan assets (principally Company contracts)........ 4,619 4,726 -- -- 4,619 4,726 ------- ------- ------ ------ ------- ------- Over (under) funded........ $ 844 $ 1,244 $ (370) $ (255) $ 474 $ 989 ======= ======= ====== ====== ======= =======
The assumptions used in determining the aggregate projected benefit obligation and aggregate contract value for the pension and other benefits were as follows:
Pension Benefits Other Benefits --------------------- --------------- 2000 1999 2000 1999 --------- ---------- ------ ------- Weighted average assumptions at December 31: Discount rate....................... 6.9%-7.75% 6.25%-7.75% 6%-7.5% 6%-7.75% Expected rate of return on plan assets............................. 8%-9% 8%-10.5% 6%-9% 6%-9% Rate of compensation increase....... 4%-6% 4.5%-8.5% N/A N/A
F-25 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The assumed health care cost trend rates used in measuring the accumulated nonpension postretirement benefit obligation were 6.5% per year for pre- Medicare eligible claims and 6% for Medicare eligible claims in 2000 and 1999. Assumed health care cost trend rates may have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
One Percent One Percent Increase Decrease ----------- ----------- (Dollars in millions) Effect on total of service and interest cost components........................................ $ 16 $ 13 Effect of accumulated postretirement benefit obligation........................................ $143 $118
The components of periodic benefit costs were as follows:
Pension Benefits Other Benefits ------------------- ---------------- 2000 1999 1998 2000 1999 1998 ----- ----- ----- ---- ---- ---- (Dollars in millions) Service cost......................... $ 98 $ 100 $ 90 $ 29 $ 28 $ 31 Interest cost........................ 291 271 257 113 107 114 Expected return on plan assets....... (420) (363) (337) (97) (89) (79) Amortization of prior actuarial gains............................... (19) (6) (11) (22) (11) (13) Curtailment (credit) cost............ (3) (17) (10) 2 10 4 ----- ----- ----- ---- ---- ---- Net periodic benefit (credit) cost... $ (53) $ (15) $ (11) $ 25 $ 45 $ 57 ===== ===== ===== ==== ==== ====
Savings and Investment Plans The Company sponsors savings and investment plans for substantially all employees under which the Company matches a portion of employee contributions. The Company contributed $65 million, $45 million and $43 million for the years ended December 31, 2000, 1999 and 1998, respectively. 6.Closed Block On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years. The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. F-26 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block is greater than the expected cumulative earnings of the closed block, the Company will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block is less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings. Amounts reported at April 7, 2000 and for the period after demutualization are as of April 1, 2000 and for the period beginning on April 1, 2000 (the effect of transaction from April 1, 2000 through April 6, 2000 are not considered material). Closed block liabilities and assets designated to the closed block at December 31, 2000 and April 7, 2000 were as follows:
April December 31, 7, ------------ ------- 2000 2000 ------------ ------- (Dollars in millions) Closed Block Liabilities Future policy benefits................................ $39,415 $38,661 Other policyholder funds.............................. 278 321 Policyholder dividends payable........................ 740 747 Policyholder dividend obligation...................... 385 -- Payable under securities loaned transactions.......... 3,268 1,856 Other................................................. 37 330 ------- ------- Total closed block liabilities.................... 44,123 41,915 ------- ------- Assets Designated To The Closed Block Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $25,660 and $24,725).............. 25,634 23,940 Equity securities, at fair value (cost: $51)........ 54 -- Mortgage loans on real estate....................... 5,801 4,744 Policy loans........................................ 3,826 3,762 Short-term investments.............................. 223 168 Other invested assets............................... 248 325 ------- ------- Total investments................................. 35,786 32,939 Cash and cash equivalents............................. 661 655 Accrued investment income............................. 557 538 Deferred income taxes................................. 1,234 1,390 Premiums and other receivables........................ 117 267 ------- ------- Total assets designated to the closed block....... 38,355 35,789 ------- ------- Excess of closed block liabilities over assets designated to the closed block....................... 5,768 6,126 ------- ------- Amounts included in other comprehensive loss: Net unrealized investment loss, net of deferred income tax of $9 and $287..................................... (14) (498) Allocated to policyholder dividend obligation, net of deferred income tax of $143........................ (242) -- ------- ------- (256) (498) ------- ------- Maximum future earnings to be recognized from closed block assets and liabilities......................... $ 5,512 $ 5,628 ======= =======
F-27 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding the policyholder dividend obligation is as follows:
(Dollars in millions) --------------------- Balance at April 7, 2000................... $-- Change in policyholder dividend obligation.... 85 Net investment losses... (85) Net unrealized investment gains at December 31, 2000...... 385 ---- Balance at December 31, 2000................... $385 ====
Closed block revenues and expenses were as follows:
April 7, 2000 through December 31, 2000 --------------------- (Dollars in millions) REVENUES Premiums.............................................. $2,900 Net investment income................................. 1,949 Net investment losses (net of amounts allocable to the policyholder dividend obligation of $(85))........... (150) ------ Total revenues...................................... 4,699 ------ EXPENSES Policyholder benefits and claims...................... 2,874 Policyholder dividends................................ 1,132 Change in policyholder dividend obligation (includes amounts directly related to net investment losses of $(85))............................................... 85 Other expenses........................................ 425 ------ Total expenses...................................... 4,516 ------ Revenues net of expenses before income taxes.......... 183 Income taxes.......................................... 67 ------ Revenues net of expenses and income taxes............. $ 116 ======
The change in maximum future earnings of the closed block was as follows:
(Dollars in millions) April 7, 2000.......................................... $5,628 December 31, 2000...................................... 5,512 ------ Change during the period............................... $ (116) ======
The Company charges the closed block with federal income taxes, state and local premium taxes, and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the plan of reorganization. The Company also charges the closed block for expenses of maintaining the policies included in the closed block. 7.Separate Accounts Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts totaling $53,656 million and $47,618 million at December 31, 2000 and 1999, respectively, for which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $16,594 million and $17,323 million at December 31, 2000 and 1999, respectively, for which the Company contractually guarantees either a minimum return or account value to the policyholder. F-28 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $667 million, $485 million and $413 million for the years ended December 31, 2000, 1999 and 1998, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rates credited on these contracts were 6.9% and 6.5% at December 31, 2000 and 1999, respectively. The assets that support these liabilities were comprised of $15,708 million and $16,874 million in fixed maturities at December 31, 2000 and 1999, respectively. The portfolios are segregated from other investments and are managed to minimize liquidity and interest rate risk. In order to minimize the risk of disintermediation associated with early withdrawals, these investment products carry a graded surrender charge as well as a market value adjustment. 8.Debt Debt consisted of the following:
December 31, --------------------- 2000 1999 ---------- ---------- (Dollars in millions) Surplus notes, interest rates ranging from 6.30% to 7.80%, maturity dates ranging from 2003 to 2025.... $ 1,650 $ 1,546 Capital note, interest at 8.00%, due 2005........... 1,006 -- Investment related exchangeable debt, interest rates ranging from 4.90% to 5.40%, due 2001 and 2002..... 271 369 Fixed rate notes, interest rates ranging from 5.29% to 10.50%, maturity dates ranging from 2001 to 2009............................................... 316 187 Senior notes, interest rates ranging from 7.06% to 7.25%, maturity dates ranging from 2003 to 2007.... 98 270 Capital lease obligations........................... 42 44 Other notes with varying interest rates............. 60 98 ---------- ---------- Total long-term debt................................ 3,443 2,514 Total short-term debt............................... 1,094 4,208 ---------- ---------- Total............................................. $ 4,537 $ 6,722 ========== ==========
Metropolitan Life and certain of its subsidiaries maintain committed and unsecured credit facilities aggregating $2,000 million (five-year facility of $1,000 million expiring in April 2003 and a 364-day facility of $1,000 million expiring in April of 2001). Both facilities bear interest at LIBOR plus 20 basis points. The facilities can be used for general corporate purposes and also provide backup for the Company's commercial paper program. At December 31, 2000, there were no outstanding borrowings under either of the facilities. Reinsurance Group of America, Incorporated ("RGA"), a subsidiary of the Company, maintains committed and unsecured credit facilities aggregating $178 million (two three-year facilities of $140 million and $22 million expiring May 2003 and a three month $16 million revolving line of credit). The interest on borrowing is based on the terms of each specific borrowing. At December 31, 2000, there was $98 million outstanding under these facilities. Subsequent to December 31, 2000, RGA amended its revolving line of credit agreement into a $20 million facility. Payments of interest and principal on the surplus notes, subordinated to all other indebtedness, may be made only with the prior approval of the insurance department of the state of domicile. Subject to the prior approval of the Superintendent, the $300 million 7.45% surplus notes due 2023 may be redeemed, in whole or in part, at the election of Metropolitan Life at any time on or after November 1, 2003. Each issue of investment related debt is payable in cash or by delivery of an underlying security owned by the Company. The amount payable at maturity of the debt is greater than the principal of the debt if the market value of the underlying security appreciates above certain levels at the date of debt repayment as compared to the market value of the underlying security at the date of debt issuance. At December 31, 2000, the underlying securities pledged as collateral has a market value of $295 million. F-29 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In connection with the demutualization, Metropolitan Life issued to the Holding Company a mandatorily convertible note bearing interest at an annual rate of 8.00% of the principal amount of $1,006 million, payable quarterly in arrears commencing August 15, 2000 and maturing on May 15, 2005. The principal amount of the capital note is mandatorily convertible into common stock of Metropolitan Life upon maturity or acceleration of the capital note and without any further action by the Holding Company or Metropolitan Life. In addition, the capital note provides that Metropolitan Life may not make any payment of principal or interest on the capital note so long as specified payment restrictions exist and have not been waived by the Superintendent. Payment restrictions would exist if Metropolitan Life fails to exceed certain thresholds relative to the level of its statutory risk-based capital or the amount of its outstanding capital notes, surplus notes or similar obligations. At December 31, 2000, Metropolitan Life's statutory total adjusted capital exceeded these limitations. The aggregate maturities of long-term debt for the Company are $172 million in 2001, $210 million in 2002, $500 million in 2003, $14 million in 2004, $1,398 million in 2005 and $1,149 million thereafter. Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 6.60% and 6.05% and a weighted average maturity of 44 and 74 days at December 31, 2000 and 1999, respectively. Interest expense related to the Company's indebtedness was $417 million, $384 million and $333 million for the years ended December 31, 2000, 1999 and 1998, respectively. 9.Company-obligated Mandatorily Redeemable Securities Of Subsidiary Trust In June 1997, GenAmerica Corporation ("GenAmerica") issued $125 million of 8.525% capital securities through a wholly-owned subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally guaranteed, on a subordinated basis, the obligation of the trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities any time after June 30, 2007. Capital securities outstanding at December 31, 2000 were $118 million, net of unamortized discount of $7 million. 10.Commitments And Contingencies Litigation Metropolitan Life is currently a defendant in approximately 500 lawsuits raising allegations of improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." On December 28, 1999, after a fairness hearing, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving a multidistrict litigation proceeding involving alleged sales practices claims. No appeal was taken, and the settlement is final. The settlement class includes most of the owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. In addition to dismissing the consolidated class actions, the District Court's order also bars sales practices claims by class members with respect to policies or annuities issued by the defendant insurers during the class period, effectively resolving all pending sales practices class actions against these insurers in the United States. Under the terms of the order, only those class members who excluded themselves from the settlement may continue an existing, or start a new, sales practices lawsuit against Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for policies or annuities issued during the class period. Approximately 20,000 class members elected to exclude themselves from the settlement. At December 31, 2000, approximately 300 of these "opt-outs" have filed new individual lawsuits. F-30 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The settlement provides three forms of relief. General relief, in the form of free death benefits, is provided automatically to class members who did not exclude themselves from the settlement or who did not elect the claim evaluation procedures set forth in the settlement. The claim evaluation procedures permit a class member to have a claim evaluated by a third party under procedures set forth in the settlement. Claim awards made under the claim evaluation procedures will be in the form of policy adjustments, free death benefits or, in some instances, cash payments. In addition, class members who have or had an ownership interest in specified policies will also automatically receive deferred acquisition cost tax relief in the form of free death benefits. The settlement fixes the aggregate amounts that are available under each form of relief. Implementation of the class action settlement is proceeding. Metropolitan Life expects that the total cost of the settlement will be approximately $957 million. This amount is equal to the amount of the increase in liabilities for the death benefits and policy adjustments and the present value of expected cash payments to be provided to included class members, as well as attorneys' fees and expenses and estimated other administrative costs, but does not include the cost of litigation with policyholders who are excluded from the settlement. The Company believes that the cost of the settlement will be substantially covered by available reinsurance and the provisions made in the consolidated financial statements, and thus will not have a material adverse effect on its business, results of operations or financial position. Metropolitan Life made some recoveries in 2000 under those reinsurance agreements and, although there is no assurance that other reinsurance claim submissions will be paid, Metropolitan Life believes payment is likely to occur. The Company believes it has made adequate provision in the consolidated financial statements for all probable losses for sales practices claims, including litigation costs involving policyholders who are excluded from the settlement as well as for the two class action settlements described in the two paragraphs immediately following the next paragraph. The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada. A certified class action with conditionally certified subclasses is pending in the United States District Court for the Southern District of New York against Metropolitan Life, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants alleging improper sales abroad; settlement discussions are continuing. Separate from the Metropolitan Life class action settlement, similar sales practices class action litigation against New England Mutual Life Insurance Company ("New England Mutual"), with which Metropolitan Life merged in 1996, and General American, which was acquired in 2000, has been settled. The New England Mutual case, a consolidated multidistrict litigation in the United States District Court for the District of Massachusetts, involves approximately 600,000 life insurance policies sold during the period January 1, 1983 through August 31, 1996. The settlement of this case was approved by the District Court in October 2000 and is not being appealed. Implementation of the class action settlement is proceeding. The Company expects that the total cost of this settlement will be approximately $150 million. Approximately 2,400 class members opted-out of the settlement. As of December 31, 2000, New England Mutual was a defendant in approximately 30 opt-out lawsuits involving sales practices claims. The settlement of the consolidated multidistrict sales practices class action case against General American was approved by the United States District Court for the Eastern District of Missouri. The General American case involves approximately 250,000 life insurance policies sold during the period January 1, 1982 through December 31, 1996. One appeal has been filed. The Company expects that the approximate cost of the settlement will be $55 million, not including legal fees and costs for plaintiffs' counsel. The District Court has scheduled a hearing in March 2001 with respect to plaintiffs' class counsels' request for such fees and costs. Approximately 700 class members have elected to exclude themselves from the General American settlement. As of December 31, 2000, General American was a defendant in approximately ten opt-out lawsuits involving sales practices claims. In the past, some individual sales practices claims have been resolved through settlement, have been won by dispositive motions, or, in a few instances, have gone to trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance may be commenced in the future. F-31 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Regulatory authorities in a small number of states have had investigations or inquiries relating to Metropolitan Life's, New England Mutual's or General American's sales of individual life insurance policies or annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief. The Company may continue to resolve investigations in a similar manner. Metropolitan Life is also a defendant in numerous lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Metropolitan Life has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits, currently numbering in the thousands, have principally been based upon allegations relating to certain research, publication and other activities of one or more of Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and alleging that Metropolitan Life learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Legal theories asserted against Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While Metropolitan Life believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect of these claims, most of the cases have been resolved by settlements. Metropolitan Life intends to continue to exercise its best judgment regarding settlement or defense of such cases, including when trials of these cases are appropriate. The number of such cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. Significant portions of amounts paid in settlement of such cases have been funded with proceeds from a previously-resolved dispute with Metropolitan Life's primary, umbrella and first level excess liability insurance carriers. Metropolitan Life was involved in litigation with several of its excess liability insurers regarding amounts payable under its policies with respect to coverage for these claims. The trial court granted summary judgment to these insurers and Metropolitan Life appealed. The Connecticut Supreme Court in 2001 affirmed the decision of the trial court. The Company believes that Metropolitan Life's asbestos-related litigation with these insurers should have no effect on its recoveries under excess insurance policies that were obtained in 1998 for asbestos-related claims. The Company has recorded, in other expenses, charges of $15 million ($10 million after-tax), $499 million ($317 million after-tax), and $1,895 million ($1,203 million after-tax) for the years ended December 31, 2000, 1999, and 1998, respectively, for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. The 2000 charge was principally related to sales practices claims. The 1999 charge was principally related to the settlement of the multidistrict litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. The 1998 charge was comprised of $925 million and $970 million for sales practices claims and asbestos-related claims, respectively. The Company recorded the charges for sales practices claims in 1998 based on preliminary settlement discussions and the settlement history of other insurers. Prior to the fourth quarter of 1998, Metropolitan Life established a liability for asbestos-related claims based on settlement costs for claims that Metropolitan Life had settled, estimates of settlement costs for claims pending against Metropolitan Life and an estimate of settlement costs for unasserted claims. The amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which management believes are only reasonably possible of assertion. Based on this process, the accrual for asbestos-related claims at December 31, 1997 was $386 million. Potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against Metropolitan Life, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos- containing products, adding to the uncertainty as to the number of claims that may be brought against Metropolitan Life. During 1998, Metropolitan Life decided to pursue the purchase of excess insurance to limit its exposure to asbestos-related claims. In connection with the negotiations with the casualty insurers to obtain this insurance, Metropolitan Life obtained information that caused management to reassess the accruals for asbestos-related claims. This information included: . Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against Metropolitan Life in the future F-32 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) was significantly greater than it had assumed in its accruals. The number of claims brought against Metropolitan Life is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which Metropolitan Life is included as a defendant. The information provided to Metropolitan Life relating to other insureds indicated that Metropolitan Life had been included as a defendant for a significant percentage of total asbestos-related claims and that it may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos defendants; and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. . Information derived from actuarial calculations Metropolitan Life made in the fourth quarter of 1998 in connection with these negotiations, which helped to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding Metropolitan Life's claims and settlement experience (which reflected Metropolitan Life's decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, Metropolitan Life concluded that certain claims that previously were considered as only reasonably possible of assertion were probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, Metropolitan Life increased its liability for asbestos- related claims to $1,278 million at December 31, 1998. During 1998, Metropolitan Life paid $1,407 million of premiums for excess of loss reinsurance agreements and excess insurance policies, consisting of $529 million for the excess of loss reinsurance agreements for sales practices claims and excess mortality losses and $878 million for the excess insurance policies for asbestos-related claims. Metropolitan Life obtained the excess of loss reinsurance agreements to provide reinsurance with respect to sales practices claims made on or prior to December 31, 1999 and for certain mortality losses in 1999. These reinsurance agreements have a maximum aggregate limit of $650 million, with a maximum sublimit of $550 million for losses for sales practices claims. This coverage is in excess of an aggregate self-insured retention of $385 million with respect to sales practices claims and $506 million, plus Metropolitan Life's statutory policy reserves released upon the death of insureds, with respect to life mortality losses. At December 31, 1999, the subject losses under the reinsurance agreements due to sales practices claims and related counsel fees from the time Metropolitan Life entered into the reinsurance agreements did not exceed that self-insured retention. No recoveries were made with respect to the coverage for excess mortality losses for 1999. As noted above, recoveries have been made in 2000 under the reinsurance agreements for the sales practices claims. The maximum sublimit of $550 million for sales practices claims was within a range of losses that management believed were reasonably possible at December 31, 1998. Each excess of loss reinsurance agreement for sales practices claims and mortality losses contains an experience fund, which provides for payments to Metropolitan Life at the commutation date if experience is favorable at such date. The Company accounts for the aggregate excess of loss reinsurance agreements as reinsurance; however, if deposit accounting were applied, the effect on the Company's consolidated financial statements in 2000, 1999 and 1998 would not be significant. Under reinsurance accounting, the excess of the liability recorded for sales practices losses recoverable under the agreements of $550 million over the premium paid of $529 million resulted in a deferred gain of $21 million which was amortized into income over the settlement period from January 1999 through April 2000. Under deposit accounting, the premium would be recorded as an other asset rather than as an expense, and the reinsurance loss recoverable and the deferred gain would not have been recorded. Because the agreements also contain an experience fund which increases with the passage of time, the increase in the experience fund in 1999 and 2000 under deposit accounting would be recognized as interest income in an amount approximately equal to the deferred gain that was amortized into income under reinsurance accounting. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500 million, which is in excess of a $400 million self-insured retention ($878 million of which was recorded as a recoverable at F-33 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000, 1999 and 1998). The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. Although amounts paid in any given year that are recoverable under the policies will be reflected as a reduction in the Company's operating cash flows for that year, management believes that the payments will not have a material adverse effect on the Company's liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to the Company at the commutation date if experience under the policy to such date has been favorable, or pro rata reductions from time to time in the loss reimbursements to the Company if the cumulative return on the reference fund is less than the return specified in the experience fund. The Company believes adequate provision has been made in its consolidated financial statements for all reasonably probable and estimable losses for sales practices and asbestos-related claims. With respect to Metropolitan Life's asbestos litigation, estimates can be uncertain due to the limitations of available data and the difficulty of predicting with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to settle claims and the impact of any possible future adverse verdicts and their amounts. Recent bankruptcies of other companies involved in asbestos litigation may result in an increase in the number of claims and the cost of resolving claims, as well as the number of trials and possible verdicts Metropolitan Life may experience. Plaintiffs are seeking additional funds from defendants, including Metropolitan Life, in light of recent bankruptcy filings by certain other defendants. Accordingly, it is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its consolidated financial statements. Metropolitan Life will continue to study the variables in light of additional information, including legislative and judicial developments, gained over time in order to identify trends that may become evident and to assess their impact on the previously established liability; future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. A purported class action suit involving policyholders in four states has been filed in a Rhode Island state court against a Metropolitan Life subsidiary, Metropolitan Property and Casualty Insurance Company, with respect to claims by policyholders for the alleged diminished value of automobiles after accident-related repairs. The trial court recently denied a motion by Metropolitan Property and Casualty Insurance Company for summary judgment, and discovery has commenced. A class certification motion has been denied. Similar "diminished value" purported class action suits have been filed in Texas and Tennessee against Metropolitan Property and Casualty Insurance Company. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance Company, in Florida by a policyholder alleging breach of contract and unfair trade practices with respect to allowing the use of parts not made by the original manufacturer to repair damaged automobiles. A motion for class certification is pending. In addition, a plaintiff in Louisiana state court recently amended an individual lawsuit to state a putative class action on behalf of Louisiana insureds challenging the method that Metropolitan Property and Casualty Insurance Company uses to determine the value of a motor vehicle that has sustained a total loss. A class certification motion is pending. These suits are in the early stages of litigation and Metropolitan Property and Casualty Insurance Company and Metropolitan Casualty Insurance Company intend to defend themselves vigorously against these suits. Similar suits have been filed against many other personal lines property and casualty insurers. The United States, the Commonwealth of Puerto Rico and various hotels and individuals have sued MetLife Capital Corporation, a former subsidiary of the Company, seeking damages for clean up costs, natural resource damages, personal injuries and lost profits and taxes based upon, among other things, a release of oil from a barge which was being towed by the M/V Emily S. In connection with the sale of MetLife Capital, the Company acquired MetLife Capital's potential liability with respect to the M/V Emily S. lawsuits. MetLife Capital had entered into a sale and leaseback financing arrangement with respect to the M/V Emily S. The plaintiffs have taken the position that MetLife Capital, as the owner of record of the M/V Emily S., is responsible for all damages caused by the barge, including the oil spill. The claims of the governments of the United States and Puerto Rico were settled in 2000 within amounts previously accrued by the Company. F-34 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Metropolitan Life has completed a tender offer to purchase the shares of Conning Corporation that it had not already owned. After Metropolitan Life had announced its intention to make a tender offer, three putative class actions were filed by Conning shareholders alleging that the prospective offer was inadequate and constituted a breach of fiduciary duty. The parties to the litigation have reached an agreement providing for a settlement of the actions; a motion seeking court approval for the settlement will be filed with the New York State Supreme Court in New York County after a final agreement is signed. Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions name as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the New York Superintendent of Insurance and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the Supreme Court of the State of New York for New York County have been consolidated within the commercial part. In addition, there remains a separate purported class action in New York state court in New York County and another in Kings County. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting. Some of the plaintiffs in the above described actions have also brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the New York Superintendent of Insurance that approved the plan. In this proceeding, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. Another purported class action is pending in the Supreme Court of the State of New York for New York County and has been brought on behalf of a purported class of beneficiaries of Metropolitan Life annuities purchased to fund structured settlements claiming that the class members should have received common stock or cash in connection with the demutualization. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. A purported class action was filed in the United States District Court for the Southern District of New York seeking damages from Metropolitan Life and the Holding Company for alleged violations of various provisions of the Constitution of the United States in connection with the plan of reorganization. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. The defendants have moved to dismiss most of these actions; the Kings County action and the Article 78 proceeding are being voluntarily held in abeyance. Three lawsuits were also filed against Metropolitan Life in 2000 in the United States District Courts for the Southern District of New York, for the Eastern District of Louisiana, and for the District of Kansas, alleging racial discrimination in the marketing, sale, and administration of life insurance policies, including "industrial" life insurance policies, sold by Metropolitan Life decades ago. The plaintiffs in these three purported class actions seek unspecified compensatory damages, punitive damages, reformation, imposition of a constructive trust, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices and adjust policy values, and other relief. Metropolitan Life believes it has meritorious defenses to the plaintiffs' claims and is contesting vigorously plaintiffs' claims in these actions. Metropolitan Life has successfully transferred the Louisiana action to the United States District Court for the Southern District of New York and has also filed a motion to transfer the Kansas action to the same court. Metropolitan Life has moved for summary judgment in the two actions pending in New York, citing the applicable statute of limitations. The New York cases are scheduled for trial in November 2001. Insurance departments in a number of states have initiated inquiries in 2000 about possible race-based underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in the respective states, including Metropolitan Life and certain of its subsidiaries. The New York Insurance Department has commenced examinations of certain domestic life insurance companies, including Metropolitan Life and certain of its subsidiaries, concerning possible past race-based underwriting practices. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's F-35 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other Federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. It is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have a material adverse effect on the Company's consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's operating results or cash flows in particular quarterly or annual periods. Leases In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants is contingent upon the level of the tenants' sales revenues. Additionally, the Company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental and subrental income, and minimum gross rental payments relating to these lease agreements were as follows:
Gross Rental Sublease Rental Income Income Payments ------ -------- -------- (Dollars in millions) 2001................................................ $ 881 $17 $145 2002................................................ 679 15 114 2003................................................ 631 12 93 2004................................................ 574 11 76 2005................................................ 538 11 61 Thereafter.......................................... 2,322 21 264
Commitments to Fund Partnership Investments The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $1,311 million and $1,131 million at December 31, 2000 and 1999, respectively. The Company anticipates that these amounts will be invested in the partnerships over the next three to five years. 11.Acquisitions and Dispositions Acquisitions On January 6, 2000, Metropolitan Life completed its acquisition of GenAmerica for $1.2 billion. As part of the GenAmerica acquisition, General American Life Insurance Company paid Metropolitan Life a fee of $120 million in connection with the assumption of certain funding agreements. The fee has been considered as part of the purchase price of GenAmerica. GenAmerica is a holding company which includes General American Life Insurance Company, approximately 49% of the outstanding shares of RGA common stock, a provider of reinsurance, and 61% of the outstanding shares of Conning Corporation ("Conning") common stock, an asset manager. Metropolitan Life owned 10% of the outstanding shares of RGA common stock prior to the completion of the GenAmerica acquisition. At December 31, 2000 Metropolitan Life's ownership percentage of the outstanding shares of RGA common stock was approximately 59%. In April 2000, Metropolitan Life acquired the outstanding shares of Conning common stock not already owned by Metropolitan Life for $73 million. F-36 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's total revenues and net income for the year ended December 31, 1999 on both a historical and pro forma basis as if the acquisition of GenAmerica had occurred on January 1, 1999 were as follows:
Total Revenues Net Income -------------- ---------- (Dollars in millions) Historical......................................... $25,421 $617 Pro forma (unaudited).............................. $29,278 $403
The pro forma results include adjustments to give effect to the amortization of discounts on fixed maturities, goodwill and value of business acquired, adjustments to liabilities for future policy benefits, and certain other adjustments, together with related income tax effects. The pro forma information is not necessarily indicative of the results that would have occurred had the purchase been made on January 1, 1999 or the future results of the combined operations. Dispositions During 2000, the Company completed the sale of its 48% ownership interest in its affiliates, Nvest, L.P. and Nvest Companies L.P. This transaction resulted in an investment gain of $663 million. Effective October 31, 2000, the Company sold Exeter Reassurance Company, Ltd. ("Exeter") to the Holding Company and recorded an investment loss of $27 million. During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial financing company) and a substantial portion of its Canadian and Mexican insurance operations, which resulted in an investment gain of $531 million. 12. Income Taxes The provision for income taxes was as follows:
Years ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in millions) Current: Federal...................................... $ (131) $ 608 $ 666 State and local.............................. 34 24 60 Foreign...................................... 5 4 99 -------- -------- -------- (92) 636 825 -------- -------- -------- Deferred: Federal...................................... 555 (78) (25) State and local.............................. 8 2 (8) Foreign...................................... 6 (2) (54) -------- -------- -------- 569 (78) (87) -------- -------- -------- Provision for income taxes..................... $ 477 $ 558 $ 738 ======== ======== ========
F-37 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes as reported were as follows:
Years ended December 31, --------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in millions) Tax provision at U.S. statutory rate............. $ 499 $ 411 $ 728 Tax effect of: Tax exempt investment income................... (52) (39) (40) Surplus tax.................................... (145) 125 18 State and local income taxes................... 30 18 31 Prior year taxes............................... (37) (31) 4 Demutualization costs.......................... 21 56 -- Payment to former Canadian policyholders....... 114 -- -- Sales of businesses............................ 31 -- (19) Other, net..................................... 16 18 16 -------- ------- ------- Provision for income taxes....................... $ 477 $ 558 $ 738 ======== ======= =======
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
December 31, -------------- 2000 1999 ------ ------ (Dollars in millions) Deferred income tax assets: Policyholder liabilities and receivables................... $3,034 $3,042 Net operating losses....................................... 258 72 Net unrealized investment losses........................... -- 161 Employee benefits.......................................... 167 192 Litigation related......................................... 232 468 Other...................................................... 350 242 ------ ------ 4,041 4,177 Less: Valuation allowance.................................. 78 72 ------ ------ 3,963 4,105 ------ ------ Deferred income tax liabilities: Investments................................................ 1,329 1,472 Deferred policy acquisition costs.......................... 2,713 1,967 Net unrealized investment gains............................ 626 -- Other...................................................... 37 63 ------ ------ 4,705 3,502 ------ ------ Net deferred income tax (liability) asset.................... $ (742) $ 603 ====== ======
Domestic net operating loss carryforwards amount to $393 million at December 31, 2000 and expire in 2020. Foreign net operating loss carryforwards amount to $354 million at December 31, 2000 and were generated in various foreign countries with expiration periods of five years to infinity. The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable. F-38 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Internal Revenue Service has audited the Company for the years through and including 1996. The Company is being audited for the years 1997, 1998 and 1999. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 13. Reinsurance The Company's life insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks and to provide additional capacity for future growth. Risks in excess of $25 million on single survivorship policies and $35 million on joint survivorship policies are 100 percent coinsured. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. In addition, the Company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The Company is engaged in life reinsurance whereby it indemnifies another insurance company for all or a portion of the insurance risk underwritten by the ceding company. See Note 10 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales practices claims. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The effects of reinsurance were as follows:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Direct premiums.................................. $15,661 $13,249 $12,763 Reinsurance assumed.............................. 2,858 484 409 Reinsurance ceded................................ (2,256) (1,645) (1,669) ------- ------- ------- Net premiums..................................... $16,263 $12,088 $11,503 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits........................... $ 1,934 $ 1,626 $ 1,744 ======= ======= =======
Reinsurance recoverables, included in premiums and other receivables, were $3,304 million and $2,898 million at December 31, 2000 and 1999, respectively, including $1,359 million and $1,372 million, respectively, relating to reinsurance of long-term guaranteed interest contracts and structured settlement lump sum contracts accounted for as a financing transaction. Reinsurance and ceded commissions payables, included in other liabilities, were $225 million and $148 million at December 31, 2000 and 1999, respectively. F-39 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following provides an analysis of the activity in the liability for benefits relating to property and casualty and group accident and non-medical health policies and contracts:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Balance at January 1.............................. $ 3,789 $ 3,320 $ 3,655 Reinsurance recoverables........................ (415) (382) (378) ------- ------- ------- Net balance at January 1.......................... 3,374 2,938 3,277 ------- ------- ------- Acquisition of business........................... 35 204 -- ------- ------- ------- Incurred related to: Current year.................................... 3,773 3,129 2,726 Prior years..................................... (111) (16) (245) ------- ------- ------- 3,662 3,113 2,481 ------- ------- ------- Paid related to: Current year.................................... (2,243) (2,012) (1,967) Prior years..................................... (1,023) (869) (853) ------- ------- ------- (3,266) (2,881) (2,820) ------- ------- ------- Net Balance at December 31........................ 3,805 3,374 2,938 Add: Reinsurance recoverables................... 214 415 382 ------- ------- ------- Balance at December 31............................ $ 4,019 $ 3,789 $ 3,320 ======= ======= =======
14. Other Expenses Other expenses were comprised of the following:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Compensation..................................... $ 2,712 $ 2,590 $ 2,478 Commissions...................................... 1,710 937 902 Interest and debt issue costs.................... 365 405 379 Amortization of policy acquisition costs (excludes amortization of $(95), $(46) and $240, respectively, related to investment (losses) gains).......................................... 1,472 930 641 Capitalization of policy acquisition costs....... (1,805) (1,160) (1,025) Rent, net of sublease income..................... 296 239 155 Minority interest................................ 115 55 67 Restructuring charge............................. -- -- 81 Other............................................ 3,269 2,759 4,341 ------- ------- ------- Total other expenses........................... $ 8,134 $ 6,755 $ 8,019 ======= ======= =======
During 1998, the Company recorded charges of $81 million to restructure headquarters operations and consolidate certain agencies and other operations. These costs were paid during 1999. 15. Stockholder's Equity Dividend Restrictions Under the New York Insurance Law, Metropolitan Life is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Holding Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus to policyholders as of the immediately preceding F-40 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) calendar year and (ii) its net gain from operations for the immediately preceding calendar year (excluding realized investment gains). Metropolitan Life will be permitted to pay a stockholder dividend to the Holding Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. At December 31, 2000, Metropolitan Life could pay the Holding Company a stockholder dividend of $721 million without prior approval of the Superintendent. During 2000, the Company paid an ordinary dividend of $762 million to its parent, the Holding Company. Statutory Equity and Income The reconciliations of insurance subsidiaries' statutory capital and surplus and net change in statutory capital and surplus determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities, with stockholder's equity and net income determined in conformity with generally accepted accounting principles were as follows:
December 31, ---------------- 2000 1999 ------- ------- (Dollars in millions) Statutory capital and surplus of insurance subsidiaries... $ 7,213 $ 7,630 GAAP adjustments for: Future policy benefits and policyholder account balances............................................... (3,469) (4,167) Deferred policy acquisition costs....................... 8,740 8,381 Deferred income taxes................................... (57) 886 Valuation of investments................................ 1,077 (2,102) Statutory asset valuation reserves...................... 3,344 3,189 Statutory interest maintenance reserves................. 547 1,114 Surplus notes........................................... (1,650) (1,546) Other, net.............................................. 271 305 ------- ------- Stockholder's Equity...................................... $16,016 $13,690 ======= =======
Years ended December 31, ------------------- 2000 1999 1998 ----- ---- ------ (Dollars in millions) Net change in statutory capital and surplus of insurance subsidiaries............................... $(417) $242 $ 10 GAAP adjustments for: Future policy benefits and policyholder account balances........................................... 133 556 127 Deferred policy acquisition costs................... 214 379 224 Deferred income taxes............................... (496) 154 234 Valuation of investments............................ 1,229 473 1,158 Statutory asset valuation reserves.................. 88 (226) (461) Statutory interest maintenance reserves............. (571) (368) 312 Dividends on common stock........................... 762 -- -- Other, net.......................................... 7 (593) (261) ----- ---- ------ Net income............................................ $ 949 $617 $1,343 ===== ==== ======
In March 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"). The Codification, which is intended to standardize regulatory accounting and reporting to state insurance departments, is effective January 1, 2001. However, statutory accounting F-41 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) principles will continue to be established by individual state laws and permitted practices. The Department requires adoption of the Codification, with certain modifications, for the preparation of statutory financial statements effective January 1, 2001. The Company believes that the adoption of Codification by the NAIC and the Codification as modified by the Department, as currently interpreted, will not adversely affect statutory capital and surplus as of January 1, 2001. 16. Other Comprehensive Income (Loss) The following table sets forth the reclassification adjustments required for the years ended December 31, 2000, 1999 and 1998 to avoid double-counting in other comprehensive income (loss) items that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
2000 1999 1998 ------ ------- ------ (Dollars in millions) Holding gains (losses) on investments arising during the year............................................. $2,807 $(6,314) $1,493 Income tax effect of holding gains or losses.......... (975) 2,262 (617) Reclassification adjustments: Recognized holding losses (gains) included in current year income................................ 989 38 (2,013) Amortization of premium and discount on investments. (498) (307) (350) Recognized holding (losses) gains allocated to other policyholder amounts............................... (54) (67) 608 Income tax effect................................... (152) 120 729 Allocation of holding (gains) losses on investments relating to other policyholder amounts............... (977) 3,788 (351) Income tax effect of allocation of holding gains or losses to other policyholder amounts................. 340 (1,357) 143 ------ ------- ------ Net unrealized investment gains (losses).............. 1,480 (1,837) (358) ------ ------- ------ Foreign currency translation adjustments arising during the year...................................... (6) 50 (115) Reclassification adjustment for sale of investment in foreign operation.................................... -- -- 2 ------ ------- ------ Foreign currency translation adjustment............... (6) 50 (113) ------ ------- ------ Minimum pension liability adjustment.................. (9) (7) (12) ------ ------- ------ Other comprehensive income (loss)..................... $1,465 $(1,794) $ (483) ====== ======= ======
17. Business Segment Information The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe, South Africa, Asia and Australia. The Company's business is divided into six major segments: Individual Business, Institutional Business, Reinsurance, Auto & Home, Asset Management and International. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual Business offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional Business offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care and dental insurance and other insurance products and services. Reinsurance provides life reinsurance and international life and disability on a direct and reinsurance basis. Auto & Home provides insurance coverages including private passenger automobile, homeowners and personal excess liability insurance. Asset Management provides a broad variety of asset management products and services to individuals and institutions. International provides life insurance, accident and health insurance, annuities and retirement and savings products to both individuals and groups, and auto and homeowners coverage to individuals. F-42 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Set forth in the tables below is certain financial information with respect to the Company's operating segments for the years ended December 31, 2000, 1999 and 1998. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company evaluates the performance of each operating segment based upon income or loss from operations before provision for income taxes and non-recurring items (e.g. items of unusual or infrequent nature). The Company allocates non-recurring items (primarily consisting of sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products and demutualization costs) and, prior to its sale in 1998, the results of MetLife Capital Holdings, Inc., to the Corporate segment.
At or for the year ended December 31, Auto & Asset Consolidation/ 2000 Individual Institutional Reinsurance Home Management International Corporate Elimination Total ------------- ---------- ------------- ----------- ------ ---------- ------------- --------- -------------- -------- (Dollars in millions) $ Premiums........ $ 4,673 $ 6,900 $1,396 $2,636 $-- $ 660 -- $ (2) $ 16,263 Universal life and investment- type product policy fees.... 1,221 547 -- -- -- 53 -- (1) 1,820 Net investment income......... 6,475 3,959 368 194 90 254 678 (245) 11,773 Other revenues.. 838 673 29 40 760 9 150 (37) 2,462 Net investment gains (losses). 227 (475) (2) (20) -- 18 (228) 62 (418) Policyholder benefits and claims......... 5,054 8,178 1,045 2,005 -- 562 91 -- 16,935 Interest credited to policyholder account balances....... 1,680 1,090 109 -- -- 56 -- -- 2,935 Policyholder dividends...... 1,742 124 15 -- -- 32 -- -- 1,913 Payments to former Canadian policyholders.. -- -- -- -- -- 327 -- -- 327 Demutualization costs.......... -- -- -- -- -- -- 230 -- 230 Other expenses.. 3,511 1,753 506 827 784 292 687 (226) 8,134 Income (loss) before provision for income taxes... 1,447 459 116 18 66 (275) (408) 3 1,426 Net income (loss)......... 920 307 68 30 34 (285) (150) 25 949 Total assets.... 132,433 90,279 6,503 4,511 418 5,119 18,788 (3,559) 254,492 Deferred policy acquisition costs.......... 8,610 446 910 176 -- 354 1 -- 10,497 Separate account assets......... 34,860 33,918 28 -- -- 1,491 -- (47) 70,250 Policyholder liabilities.... 84,049 50,223 4,984 2,559 -- 2,435 64 (989) 143,325 Separate account liabilities.... 34,860 33,918 28 -- -- 1,491 -- (47) 70,250
F-43 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At or for the year ended December 31, Auto & Asset Consolidation/ 1999 Individual Institutional Reinsurance Home Management International Corporate Elimination Total ------------- ---------- ------------- ----------- ------ ---------- ------------- --------- -------------- -------- (Dollars in millions) Premiums........ $ 4,289 $ 5,525 $-- $1,751 $ -- $ 523 $ -- $ -- $ 12,088 Universal life and investment- type product policy fees.... 888 502 -- -- -- 43 -- -- 1,433 Net investment income......... 5,346 3,755 -- 103 80 206 605 (279) 9,816 Other revenues.. 558 629 -- 21 803 12 59 72 2,154 Net realized investment (losses) gains. (14) (31) -- 1 -- 1 (41) 14 (70) Policyholder benefits and claims......... 4,625 6,712 -- 1,301 -- 458 -- 4 13,100 Interest credited to policyholder account balances....... 1,359 1,030 -- -- -- 52 -- -- 2,441 Policyholder dividends...... 1,509 159 -- -- -- 22 -- -- 1,690 Demutualization costs.......... -- -- -- -- -- -- 260 -- 260 Other expenses.. 2,719 1,589 -- 514 795 248 1,031 (141) 6,755 Income (loss) before provision for income taxes... 855 890 -- 61 88 5 (668) (56) 1,175 Net income (loss)......... 555 567 -- 56 51 21 (583) (50) 617 Total assets.... 109,401 88,127 -- 4,443 1,036 4,381 20,499 (2,655) 225,232 Deferred policy acquisition costs.......... 8,228 364 -- 167 -- 311 -- -- 9,070 Separate account assets......... 28,828 35,236 -- -- -- 877 -- -- 64,941 Policyholder liabilities.... 72,956 47,781 -- 2,318 -- 2,187 6 (293) 124,955 Separate account liabilities.... 28,828 35,236 -- -- -- 877 -- -- 64,941
At or for the year ended December 31, Auto & Asset Consolidation/ 1998 Individual Institutional Reinsurance Home Management International Corporate Elimination Total ------------- ---------- ------------- ----------- ------ ---------- ------------- --------- -------------- -------- (Dollars in millions) Premiums........ $ 4,323 $ 5,159 $-- $1,403 $ -- $ 618 $ -- $ -- $ 11,503 Universal life and investment- type product policy fees.... 817 475 -- -- -- 68 -- -- 1,360 Net investment income......... 5,480 3,885 -- 81 75 343 682 (318) 10,228 Other revenues.. 474 575 -- 36 817 33 111 (52) 1,994 Net realized investment gains.......... 659 557 -- 122 -- 117 679 (113) 2,021 Policyholder benefits and claims......... 4,606 6,416 -- 1,029 -- 597 (10) -- 12,638 Interest credited to policyholder account balances....... 1,423 1,199 -- -- -- 89 -- -- 2,711 Policyholder dividends...... 1,445 142 -- -- -- 64 -- -- 1,651 Demutualization costs.......... -- -- -- -- -- -- 6 -- 6 Other expenses.. 2,577 1,613 -- 386 799 352 2,601 (309) 8,019 Income (loss) before provision for income taxes... 1,702 1,281 -- 227 93 77 (1,125) (174) 2,081 Net income (loss)......... 1,069 846 -- 161 49 56 (695) (143) 1,343 Total assets.... 103,614 88,741 -- 2,763 1,164 3,432 20,852 (5,220) 215,346 Deferred policy acquisition costs.......... 6,386 354 -- 57 -- 231 -- -- 7,028 Separate account assets......... 23,013 35,029 -- -- -- 26 -- -- 58,068 Policyholder liabilities.... 71,571 49,406 -- 1,477 -- 2,043 1 (295) 124,203 Separate account liabilities.... 23,013 35,029 -- -- -- 26 -- -- 58,068
The Individual Business segment included an equity ownership interest in Nvest under the equity method of accounting. Nvest was included within the Asset Management segment due to the types of products and strategies employed by the entity. The Individual Business segment's equity in earnings of Nvest, which is included in net investment income, was $30 million, $48 million and $49 million for the years ended December 31, 2000, 1999 and 1998, respectively. The Individual Business segment includes $538 million (after allocating $118 million to participating F-44 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) contracts) of the gain on the sale of Nvest in 2000. As part of the GenAmerica acquisition, the Company acquired General American Life Insurance Company, the results of which are included primarily in the Individual Business segment. The Reinsurance segment includes the life reinsurance business of RGA, acquired in 2000, combined with Exeter, an ancillary life reinsurance business of the Company. Effective October 31, 2000, the Company sold Exeter to its parent, MetLife, Inc. Exeter has been reported as a component of the Individual Business segment rather than as a separate segment for periods prior to January 1, 2000 due to its immateriality. The Auto & Home segment includes the standard personal lines property and casualty insurance operations of The St. Paul Companies which were acquired in September, 1999. As part of the GenAmerica acquisition, the Company acquired Conning, the results of which are included in the Asset Management segment. The International segment includes a $87 million gain resulting from the sale of a substantial portion of the Company's Canadian operations in 1998. The Corporate segment includes a $433 million gain resulting from the sale of MetLife Capital Holdings, Inc. in 1998. Net investment income and net investment gains and losses are based upon the actual results of each segment's specifically identifiable asset portfolio. Other costs and operating costs were allocated to each of the segments based upon: (1) a review of the nature of such costs, (2) time studies analyzing the amount of employee compensation costs incurred by each segment and (3) cost estimates included in the Company's product pricing. The consolidation/elimination column includes the elimination of all intersegment amounts and the Individual Business segment's ownership interest in Nvest. The principal component of the intersegment amounts related to intersegment loans, which bore interest at rates commensurate with related borrowings. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $30,906 million, $24,637 million and $25,643 million for the years ended December 31, 2000, 1999 and 1998, respectively, which represented 97%, 97% and 95%, respectively, of consolidated revenues. F-45 PROSPECTUS FOR UL II, A FLEXIBLE PREMIUM MULTIFUNDED LIFE INSURANCE POLICY ISSUED BY METROPOLITAN LIFE INSURANCE COMPANY MAY 1, 2001 The Policy is designed to provide: .Life insurance coverage .Flexible premium payments .A choice among three death benefit options .Funding options for allocating premium payments to and transferring cash value among a fixed interest account and 36 different investment divisions of the Metropolitan Life Separate Account UL. Each investment division, in turn, invests solely in one of the corresponding fund "Portfolios": METROPOLITAN SERIES FUND, INC. PORTFOLIOS: State Street Research Money Market Loomis Sayles High Yield Bond Lehman Brothers(R) Aggregate Russell 2000(R) Index Bond Index T. Rowe Price Small Cap Growth State Street Research Income State Street Research Aurora Small Cap Value State Street Research Scudder Global Equity Diversified Morgan Stanley EAFE(R) Index MetLife Stock Index Putnam International Stock Harris Oakmark Large Cap Janus Growth* Value Franklin Templeton Small Cap Growth* T. Rowe Price Large Cap Growth State Street Research Investment Trust (formerly State Street Research Growth) Putnam Large Cap Growth MetLife Mid Cap Stock Index Neuberger Berman Partners Mid Cap Value Janus Mid Cap State Street Research Aggressive Growth NEW ENGLAND ZENITH FUND PORTFOLIOS:** Davis Venture Value Harris Oakmark Mid Cap Value* Loomis Sayles Small Cap Salomon Brothers Strategic Bond Opportunities* MFS Investors Trust Salomon Brothers U.S. Government* (formerly MFS Investors)* MFS Research Managers* MET INVESTORS SERIES TRUST PORTFOLIOS: MFS Mid-Cap Growth* PIMCO Total Research* MFS Research International* PIMCO Innovation* AMERICAN FUNDS INSURANCE SERIES PORTFOLIOS:*** American Funds Growth* American Funds Global Small Capitalization* American Funds Growth- Income* ----- * Availability is subject to any state insurance department approval. ** The New England Zenith Fund calls these "Series," but this Prospectus calls them "Portfolios." *** The American Funds Insurance Series calls these "Funds," but this Prospectus calls them "Portfolios." A word about risk: This Prospectus discusses the risks associated with purchasing the Policy. Other separate prospectuses for the Metropolitan Series Fund, Inc., the New England Zenith Fund, the Met Investors Series Trust and the American Funds Insurance Series (each a "Fund") discuss the risks associated with investment in the Portfolios listed above. This Prospectus is not valid unless you also receive or have received current Fund prospectuses. The purchase of the Policy involves risk. You could lose money. You might have to pay additional amounts of premium to avoid losing the life insurance protection you purchased through a Policy. How to learn more: Before purchasing a Policy, read the information in this Prospectus and in each Fund prospectus. Keep these prospectuses for future reference. ----------- Neither the Securities and Exchange Commission ("SEC") nor any state securities authority has approved or disapproved these securities, nor have they determined if this Prospectus is accurate or complete. This Prospectus does not constitute an offering in any jurisdiction where such offering may not lawfully be made. Any representation otherwise is a criminal offense. Interests in the Separate Account, the Fixed Account and the Portfolios are not deposits or obligations of, or insured or guaranteed by, the U.S. Government, any bank or other depository institution including the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board or any other agency or entity or person. We do not authorize any representations about this offering other than as contained in this Prospectus or its supplements or in our authorized supplemental sales material.
PAGE IN THIS SUBJECT PROSPECTUS ------- ---------- Summary........................................................... 2 MetLife........................................................... 9 Separate Account UL............................................... 10 The Fixed Account................................................. 10 The Funds......................................................... 11 Issuing a Policy.................................................. 13 Policy Benefits................................................... 14 Policy Rights..................................................... 19 Payment and Allocation of Premiums................................ 22 Charges and Deductions............................................ 24 Federal Tax Matters............................................... 27 Showing Performance............................................... 28 Rights We Reserve................................................. 29 Other Policy Provisions........................................... 29 Sales and Administration of the Policies.......................... 30 Voting Rights..................................................... 31 Reports........................................................... 32 Illustration of Policy Benefits................................... 33 Getting More Information.......................................... 33 Legal, Accounting and Actuarial Matters........................... 33 Management........................................................ 34 Financial Statements.............................................. 37
SUMMARY This summary gives an overview of the Policy and is qualified by the more detailed information in the balance of this Prospectus and the Policy. Metropolitan Life Insurance Company ("MetLife") issues the Policy. The Policy is designed to meet your changing life insurance needs. In addition to the base Policy, optional insurance benefits may also be added to your coverage. PREMIUMS The Policy allows flexibility in making premium payments. There are certain minimum premium requirements during the first two Policy years. In addition, your Policy may be protected against lapse in the third Policy year, regardless of its cash surrender value, if you pay the minimum required premium in the third Policy year. Otherwise, the Policy will remain in force as long as the cash surrender value is large enough to cover one monthly deduction, regardless of whether or not premium payments have been made. CASH VALUE Your cash value in the Policy reflects your premium payments, the charges we deduct, interest we credit if you have cash value in our fixed interest account, any investment experience you have in our Separate Account, as well as your loan and withdrawal activity. MetLife doesn't guarantee the investment performance of the Separate Account UL investment divisions and you should consider your risk tolerance before selecting any of these funding options. 2 TRANSFERS AND AUTOMATED INVESTMENT STRATEGIES You may transfer cash value among the funding options, subject to certain limits. You may also choose among four automated investment strategies: the Equity Generator SM, the Equalizer SM, the Allocator SM and the Rebalancer SM. SPECIFIED FACE AMOUNT OF INSURANCE Within certain limits, you may choose your specified face amount of insurance when the Policy is issued. You may also change the amount after the second Policy year, subject to our rules and procedures. DEATH BENEFIT OPTIONS Generally, you have a choice among three options. These range from an amount equal to the specified face amount to an amount equal to the specified face amount plus the policy cash value at the date of death. SURRENDERS, PARTIAL WITHDRAWALS AND LOANS Within certain limits, you may take partial withdrawals and loans from the Policy. You may also surrender your Policy for its cash surrender value. TAX TREATMENT In most cases, you will not pay income taxes on withdrawals or surrenders or at the Final Date of the Policy, until your cumulative withdrawn amounts exceed the cumulative premiums you have paid. If your Policy is a modified endowment contract, you will pay income taxes on loans and withdrawals to the extent of any gains (which is generally the excess of cash value over the premiums paid). In this case, an additional 10% tax may also apply. If the Policy is part of a collateral assignment equity split dollar arrangement with an employer, any increases in cash value that are not due to premium payments may be taxed annually. The death benefit may be subject to Federal and state estate taxes, but your beneficiary will generally not be subject to income tax on the death benefit. As with any taxation matter, you should consult with and rely on the advice of your own tax advisor. TABLE OF CHARGES AND EXPENSES This table shows the charges and expenses that you pay under your Policy. See "Charges and Deductions," below for more information about your Policy's charges:
TYPE OF CHARGE OR EXPENSE AMOUNT OF CHARGE OR EXPENSE -------------------------------------------------------------------------------- CHARGES WE DEDUCT FROM EACH PREMIUM PAYMENT Sales charge: 2% of each premium payment Charge for average expected state taxes attributable to premiums: 2% of each premium payment Charge for expected federal taxes attributable to premiums: 1.50% of each premium payment -------------------------------------------------------------------------------- MONTHLY DEDUCTION FROM YOUR POLICY'S CASH VALUE Cost of term insurance charges: Amount varies depending on the specifics of your Policy/1/ Administration charge: $.25 per $1,000 of specified face amount per month, plus First Policy year/2/: (a) $5 per month for insureds Age 17 and under (b) $15 per month for insureds age 18-49 (c) $20 per month for insureds Age 50 and over.
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TYPE OF CHARGE OR EXPENSE AMOUNT OF CHARGE OR EXPENSE -------------------------------------------------------------------------------- Second and later Policy years/2/: (a) $5 per month for a specified face amount of $250,000 or more (b) $7 per month for a specified face amount between $100,000 and $249,999 (c) $9 per month for a specified face amount of less than $100,000. Mortality and expense risk charge: Annual rate of .90% of the average daily value of the assets in the Separate Account on each monthly anniversary. Underwriting charge: (applies only Maximum charge of $5 for each $1,000 of if you request an increase in your specified face amount increase. specified face amount) Currently, the charge will not exceed the lesser of: . $2,500; or . $100 for the first $100,000 of face increase and $3 per thousand thereafter Charge for optional benefits added As specified in the form of each rider. by rider: -------------------------------------------------------------------------------- SURRENDER CHARGE: Full surrender or termination of The charge ranges from $30 to $1 per your Policy during the 15 years thousand dollars/3/ of the highest level after we issue your Policy or after of specified face amount (excluding you have increased your policy's changes in specified face amount that specified face amount: are the result of a change in death benefit option) that the Policy has ever had. The exact amount of the charge depends on: . the insured's age at the time of Policy issue or any increase in specified face amount, . the death benefit option in effect at the time of Policy issue or any increase in specified face amount, and . the number of Policy years since issue or increase in specified face amount. In no event will the surrender charge during the first two Policy years, together with all premium expense charges deducted (other than the 2% charge for state premium taxes and that portion of the DAC tax charge that is not considered to be sales load) exceed the sum of: . 30% of premium payments in aggregate amount less than or equal to one guideline annual premium/4/, plus . 10% of premium payments in aggregate amount greater than one guideline annual premium but not more than two guideline annual premiums, plus . 9% of each premium payment in excess of two guideline annual premiums. A comparable limit applies to the surrender charge attributable to a specified face amount increase for a period of two years following the increase./5/ Partial withdrawals: No surrender charge
-------- /1/See "Cost of Term Insurance" under "Charges and Deductions" for a more detailed discussion of factors affecting this charge. If you would like, we will provide you with an illustration of the impact of these and other charges under the Policy based on various assumptions. /2/We will deduct the portion of the first year's administration charges referred to in (a), (b) and (c) that remain unpaid at the time of any full surrender or other termination of your Policy during its first year. /3/The Surrender Charge tables are set forth below under "Charges and Deductions--Surrender Charge." /4/The Guideline Annual Premium is the level annual amount of premium that would be payable through the Final Date of a Policy for the specified face amount of the Policy if we fixed premiums as to both timing and amount based on 1980 Commissioners Standard Ordinary Mortality Tables, net investment earnings at an annual effective rate of 5%, and fees and charges as set forth in the Policy and any Policy riders. /5/To compute this limit a portion of each premium paid after the increase will be attributed to the increase, as set forth by SEC rule. 4 FUND INVESTMENT MANAGEMENT FEES AND DIRECT EXPENSES Our affiliate, MetLife Advisers, LLC ("MetLife Advisers"), formerly New England Investment Management, LLC, became the investment manager for the Metropolitan Series Fund Portfolios on May 1, 2001. Prior to that time, MetLife was the investment manager. MetLife Advisers is also the investment adviser to the New England Zenith Fund. Our affiliate, Met Investors Advisory Corp. ("Met Investors Advisory"), is the investment manager for the Met Investors Series Trust. Capital Research and Management Company ("Capital Research") is the investment adviser for the American Funds Insurance Series. Each of the Funds pays investment management fees to its investment manager or adviser. Each of the Funds also incurs other direct expenses (see the Fund Prospectus and Statement of Additional Information referred to therein for each Fund). You bear indirectly your proportionate share of the fees and expenses for the Portfolios of each Fund that correspond to the Separate Account investment divisions you are using. The Funds offer various classes of shares, each of which has a different level of expenses and not all of which are available under the Policy. For the Portfolios of the Metropolitan Series Fund, Inc., the New England Zenith Fund and the Met Investors Series Trust, we offer Class A shares only under the Policy. For the Portfolios of the American Funds Insurance Series, we offer Class 2 shares only under the Policy. 5 The following table sets forth the fees and expenses for each Portfolio, expressed as an annual percentage of average net assets, for the year ending December 31, 2000 for all available Portfolios of each Fund, except those Portfolios that commenced operations on July 5, 2000 (referred to in footnotes (f) and (g) below), or on May 1, 2001,(referred to in footnote (d) below) or on February 12, 2001 (referred to in footnote (k) below). For these more recently created Portfolios, estimates for the current year are used. The percentages in the table are before taking into account the expense reimbursements and reductions referred to in the footnotes that follow the table.
TOTAL TOTAL MANAGE- OTHER ANNUAL MANAGE- OTHER ANNUAL PORTFOLIO MENT FEE EXPENSES EXPENSES PORTFOLIO MENT FEE EXPENSES EXPENSES ---------------------------------------------------------------------------------- METROPOLITAN SERIES FUND (CLASS A SHARES) ---------------------------------------------------------------------------------- State Street Research Money Market .25% .12% .37% Janus Mid Cap .66% .04% .70% ---------------------------------------------------------------------------------- Lehman State Street Brothers(R) Research Aggregate Aggressive Bond Index .25% .12% .37% Growth(a) .69% .04% .73% ---------------------------------------------------------------------------------- State Street Research Loomis Sayles Income High Yield .33% .05% .38% Bond .70% .18% .88% ---------------------------------------------------------------------------------- State Street Research Russell Diversified 2000(R) .43% .03% .46% Index(e) .25% .30% .55% ---------------------------------------------------------------------------------- T. Rowe Price MetLife Small Cap Stock Index .25% .03% .28% Growth .52% .06% .58% ---------------------------------------------------------------------------------- Harris State Street Oakmark Research Large Cap Aurora Small Value(a)(c) .75% .19% .94% Cap Value(g) .85% .20% 1.05% ---------------------------------------------------------------------------------- T. Rowe Price Large Cap Scudder Growth(a)(c) .64% .14% .78% Global Equity .61% .17% .78% ---------------------------------------------------------------------------------- State Street Research Morgan Investment Stanley Trust(a) EAFE(R) .47% .03% .50% Index(e) .30% .48% .78% ---------------------------------------------------------------------------------- Putnam Large Putnam Cap International Growth(b) .80% .59% 1.39% Stock(h) .90% .24% 1.14% ---------------------------------------------------------------------------------- MetLife Mid Cap Stock Janus Index(f) .25% .58% .83% Growth(d) .80% .29% 1.09% ---------------------------------------------------------------------------------- Neuberger Berman Franklin Partners Mid Templeton Cap Small Cap Value(a)(c) .70% .19% .89% Growth(d) .90% .71% 1.61%
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TOTAL TOTAL MANAGE- OTHER ANNUAL MANAGE- OTHER ANNUAL PORTFOLIO MENT FEE EXPENSES EXPENSES PORTFOLIO MENT FEE EXPENSES EXPENSES ------------------------------------------------------------------------------------ NEW ENGLAND ZENITH FUND (CLASS A SHARES) ------------------------------------------------------------------------------------ Davis Loomis Sayles Venture Small Value .75% .04% .79% Cap(a)(i) .90% .06% .96% ------------------------------------------------------------------------------------ MFS Investors MFS Research Trust(j) .75% .82% 1.57% Managers(j) .75% .50% 1.25% ------------------------------------------------------------------------------------ Salomon Harris Brothers Oakmark Mid Strategic Cap Value(j) Bond .75% .21% .96% Opportunities .65% .13% .78% ------------------------------------------------------------------------------------ Salomon Brothers U.S. Government (j) .55% .16% .71% ------------------------------------------------------------------------------------ MET INVESTORS SERIES TRUST (CLASS A SHARES) ------------------------------------------------------------------------------------ MFS Mid-Cap PIMCO Total Growth (k) .65% .18% .83% Return(k) .50% .24% .74% ------------------------------------------------------------------------------------ MFS Research International (k) PIMCO .80% .29% 1.09% Innovation(k) 1.05% .41% 1.46%
MANAGEMENT 12B-1 OTHER TOTAL PORTFOLIO FEE FEES EXPENSES EXPENSES ----------------------------------------------------------------------------------------- AMERICAN FUNDS INSURANCE SERIES (CLASS 2 SHARES) ----------------------------------------------------------------------------------------- American Funds Growth (l) .36% .25% .02% .63% ----------------------------------------------------------------------------------------- American Funds Growth- Income (l) .34% .25% .01% .60% ----------------------------------------------------------------------------------------- American Funds Global Small Capitalization (l) .80% .25% .06% 1.11%
-------- (a) The Metropolitan Series Fund and the New England Zenith Fund directed certain of their Portfolios' trades to brokers who paid a portion of the Funds' expenses. In addition, the Metropolitan Series Fund has entered into arrangements with its custodian whereby credits realized as a result of this practice were used to reduce a portion of its Portfolios' custodian fees. These expense reductions are reflected in the second table following footnote (l) below. (b) MetLife Advisers voluntarily pays all Portfolio operating expenses (other than management fees, brokerage commissions, taxes, interest, extraordinary and non-recurring expenses) (hereinafter "Expenses") that exceed an annual rate of .20% of the average net assets of the Putnam Large Cap Growth Portfolio. This subsidy ceases when the Portfolio's total assets reach $100 million or on April 30, 2002, whichever comes first. This expense reimbursement is reflected in the first table following footnote (l) below. (c) The Metropolitan Series Fund's former investment manager, MetLife, ceased subsidizing Expenses for the Neuberger Berman Partners Mid Cap Value Portfolio, the T. Rowe Price Large Cap Growth Portfolio and the Harris Oakmark Large Cap Value Portfolio on November 9, 2000. (d) These Portfolios commenced operations on or about May 1, 2001. MetLife Advisers voluntarily pays all expenses (other than brokerage commissions, taxes, interest and any extraordinary or nonrecurring expenses) that exceed an annual rate of .95% of the average net assets of the Janus Growth Portfolio and 1.05% for the Franklin Templeton Small Cap Growth Portfolio through April 30, 2002. Such subsidies are subject to each Portfolio's obligation to repay MetLife Advisers in future years, if any, when the Portfolio's actual total operating expenses fall below the stated expense limit of .95% or 1.05%, respectively. The first table following footnote (l) shows estimated current year expenses for these Portfolios after expense reimbursements. (e) MetLife Advisers voluntarily pays all Expenses that exceed an annual rate of .30% of the average net assets of the Russell 2000(R) Index Portfolio and .40% for the Morgan Stanley EAFE(R) Index Portfolio. Each subsidy ceases when the Portfolio reaches $200 million in total assets or April 30, 2002, whichever comes first. This expense reimbursement for the Morgan Stanley EAFE(R) Index Portfolio is reflected in the first table following footnote (l) below. Prior to November 8, 2000, Metropolitan Series Fund's former investment manager, MetLife, paid all Expenses that exceeded an annual rate of .25% of the average net assets of the Morgan Stanley EAFE(R) Index Portfolio until the Portfolio's total assets reached $100 million or November 8, 2000, whichever came first. (f) This Portfolio commenced operations on July 5, 2000. MetLife Advisers voluntarily pays all Expenses that exceed an annual rate of .20% of the average net assets of the MetLife Mid Cap Stock Index Portfolio. The subsidy ceases the earlier of the date when the Portfolio's total assets reach $100 million or June 30, 2002 but in no event earlier than April 30, 2002. The first 7 table following footnote (l) below shows estimated current year expenses for this Portfolio after expense reimbursements. (g) This Portfolio commenced operations on July 5, 2000. MetLife Advisers voluntarily pays all expenses that exceed an annual rate of .20% of the average net assets of the State Street Research Aurora Small Cap Value Portfolio until April 30, 2002. The first table following footnote (l) below shows estimated current year expenses for this Portfolio after expense reimbursements. (h) The expenses of the Putnam International Stock Portfolio have been restated to reflect a change in the management fee effective May 1, 2000. (i) MetLife Advisers voluntarily pays all Portfolio operating expenses (other than brokerage costs, interest, taxes or extraordinary expenses) that exceed 1.00% of the average net assets of the Loomis Sayles Small Cap Portfolio. (j) MetLife Advisers voluntarily pays all Portfolio operating expenses (other than brokerage costs, interest, taxes or extraordinary expenses) that exceed a certain limit in the year the Portfolio incurs them and charges those expenses to the Portfolio in a future year if the actual expenses of the Portfolio are below the limit. The limits on expenses for these Portfolios are: .90% per annum of the average net assets for the Harris Oakmark Mid Cap Value Portfolio, the MFS Investors Trust Portfolio and the MFS Research Managers Portfolio and .70% per annum for the Salomon Brothers U.S. Government Portfolio. These expense reimbursements are reflected in the first table following footnote (l) below. (k) These Portfolios commenced operations on February 12, 2001. Met Investors Advisory and Met Investors Series Trust have entered into an expense limitation agreement whereby, for a period of at least one year from commencement of operations, the total of management fees and other expenses of certain Portfolios will not exceed, in any year in which the agreement is in effect, the following percentages: .80% for the MFS Mid-Cap Growth Portfolio, 1.00% for the MFS Research International Portfolio, .65% for the PIMCO Total Return Portfolio, and 1.10% for the PIMCO Innovation Portfolio. Under certain circumstances, any fees waived or expenses reimbursed by the investment manager may, with the approval of the Trust's Board of Trustees, be repaid to the investment manager. The first table following footnote (l) shows estimated current year expenses for these Portfolios after these expense reimbursements. (l) The American Funds Insurance Series has adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940. Under the Distribution Plan the Portfolios pay an annual fee to compensate certain other parties for promoting, selling and servicing the shares of the Portfolio. These other parties may include MetLife (or its affiliates) and other broker-dealers and financial intermediaries involved in the offer and sale of the contracts. The Distribution Plan is described in more detail in the American Funds Insurance Series prospectus.
OTHER TOTAL ANNUAL OTHER TOTAL ANNUAL EXPENSES EXPENSES EXPENSES EXPENSES MANAGEMENT AFTER AFTER MANAGEMENT AFTER AFTER FEE AFTER EXPENSE EXPENSE FEE AFTER EXPENSE EXPENSE PORTFOLIO REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT PORTFOLIO REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT ------------------------------------------------------------------------------------------------------------------------- METROPOLITAN SERIES FUND ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley EAFE(R) Putman Large Cap Growth .80% .20% 1.00% Index .30% .40% .70% ------------------------------------------------------------------------------------------------------------------------- MetLife Mid Cap Stock Janus Index .25% .20% .45% Growth .80% .15% .95% ------------------------------------------------------------------------------------------------------------------------- Franklin Templeton State Street Research Small Cap Aurora Small Cap Value .85% .20% 1.05% Growth .90% .15% 1.05% ------------------------------------------------------------------------------------------------------------------------- NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------------------------------------------- MFS Research MFS Investors Trust .75% .15% .90% Managers .75% .15% .90% ------------------------------------------------------------------------------------------------------------------------- Salomon Brothers Harris Oakmark Mid Cap U.S. Value .75% .15% .90% Government .55% .15% .70% ------------------------------------------------------------------------------------------------------------------------- MET INVESTORS SERIES TRUST ------------------------------------------------------------------------------------------------------------------------- PIMCO Total MFS Mid-Cap Growth .62% .18% .80% Return .41% .24% .65% ------------------------------------------------------------------------------------------------------------------------- MFS Research PIMCO International .71% .29% 1.00% Innovation .69% .41% 1.10%
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TOTAL TOTAL OTHER ANNUAL OTHER ANNUAL EXPENSES AFTER EXPENSES AFTER EXPENSES AFTER EXPENSES AFTER REDUCTION FROM REDUCTION FROM REDUCTION FROM REDUCTION FROM DIRECTED DIRECTED DIRECTED DIRECTED PORTFOLIO BROKERAGE BROKERAGE PORTFOLIO BROKERAGE BROKERAGE ------------------------------------------------------------------------------------------------- METROPOLITAN SERIES FUND ------------------------------------------------------------------------------------------------- Neuberger Berman Partners Mid Cap Harris Oakmark Large Cap .10% .85% Value .06% .76% ------------------------------------------------------------------------------------------------- State Street Research T. Rowe Price Large Cap Aggressive Growth .13% .77% Growth .03% .72% ------------------------------------------------------------------------------------------------- State Streeet Research Investment Trust .02% .49% ------------------------------------------------------------------------------------------------- NEW ENGLAND ZENITH FUND ------------------------------------------------------------------------------------------------- Loomis Sayles Small Cap .05% .95%
OTHER Please refer to "Federal Tax Matters-Our taxation" and "Policy Benefits--Cash Value Transfers" for a description of certain charges that we currently do not impose but may impose in the future. METLIFE MetLife is a wholly-owned subsidiary of MetLife, Inc., a publicly traded company. Our main office is located at One Madison Avenue, New York, New York 10010. MetLife was formed under the laws of New York State in 1868. MetLife Inc., through its subsidiaries and affiliates, is a leading provider of insurance and other financial services to individual and group customers. The MetLife companies serve approximately 9 million individual households in the United States and companies and institutions with over 33 million employees and members. It also has international insurance operations in 12 countries. We have listed our directors and certain key officers under "Management," and our financial information under "Financial Statements", below. GIVING US REQUESTS, INSTRUCTIONS OR NOTIFICATIONS [SIDEBAR: You can contact us at our Designated Office.] Contacting us: You can communicate all of your requests, instructions and notifications to us by contacting us in writing at our Designated Office. We may require that certain requests, instructions and notifications be made on forms that we provide. These include: changing your beneficiary; taking a Policy loan; changing your death benefit option; taking a partial withdrawal; surrendering your Policy; making transfer requests (including elections with respect to the automated investment strategies) or changing your premium allocations. Our Designated Office is P.O. Box 300 Warwick, RI 02887. We may name additional or alternate Designated Offices. If we do, we will notify you in writing. When your requests, instructions and notifications become effective: . Generally, requests, premium payments premium allocation and transfer requests and other instructions and notifications are effective on the Date 9 of Receipt. In those cases, the effective time is at the end of the Valuation Period during which we receive them at our Designated Office. (Some exceptions to this general rule are noted below and elsewhere in this Prospectus.) . A Valuation Period is the period between two successive Valuation Dates. It begins at the close of regular trading on the New York Stock Exchange on a Valuation Date and ends at the close of regular trading on the New York Stock Exchange on the next succeeding Valuation Date. The close of regular trading is 4:00 p.m., Eastern Time on most days. . A Valuation Date is: . Each day on which the New York Stock Exchange is open for trading. . Other days, if we think that there has been a sufficient degree of trading in a Fund's portfolio securities that the current net asset value of its shares might be materially affected. . Your Investment Start Date is the date the first net premium is applied to the Fixed Account or Separate Account and is the later of (1) the Date of Policy and (2) the Date of Receipt of your first premium payment. . The effective date of your Automated Investment Strategies will be that set forth in the strategy chosen. SEPARATE ACCOUNT UL We established the Separate Account under New York law on December 13, 1988. The Separate Account receives premium payments from the Policy described in this Prospectus and other variable life insurance policies that we issue. We have registered the Separate Account as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). The assets in the Separate Account legally belong to us, but they are held solely for the benefit of investors in the Separate Account and no one else, including our other creditors. We will keep an amount in the Separate Account that at least equals the value of our commitments to policy owners that are based on their investments in the Separate Account. We can also keep charges that we deduct and other excess amounts in the Separate Account or we can transfer the excess out of the Separate Account. [SIDEBAR: Each Separate Account investment division invests in a corresponding Portfolio of a Fund.] The Separate Account has subdivisions, called "investment divisions." Each investment division invests its assets exclusively in shares of a corresponding Portfolio of a Fund. We can add new investment divisions to or eliminate investment divisions from the Separate Account. You can designate how you would like your net premiums and cash value to be allocated among the available investment divisions and our Fixed Account. Amounts you allocate to each investment division receive the investment experience of the investment division, and you bear this investment risk. THE FIXED ACCOUNT The Fixed Account is part of our general assets that are not in any legally- segregated separate accounts. Amounts in the Fixed Account are credited with interest at an effective annual rate of at least 4%. We may also credit excess interest on such amounts. Different excess interest rates may apply to different amounts based upon when such amounts were allocated to the Fixed Account and whether they were premium payments or transfers from the investment divisions. Any partial amounts we remove from the Fixed 10 Account (such as any portion of your Policy's monthly deduction that is allocable to the Fixed Account) will be taken from the most recently allocated amount first. Any excess interest rate will be credited for at least 12 months before a new rate is credited. We can delay transfers, withdrawals, surrender and payment of Policy loans from the Fixed Account for up to 6 months. Since the Fixed Account is not registered under the federal securities laws, this Prospectus contains only limited information about the Fixed Account. The Policy gives you more information on the operation of the Fixed Account. [SIDEBAR: You should carefully review the investment objectives, practices, and risks of each Portfolios, which are described in appropriate Fund prospectus you have also received.] THE FUNDS Each of the Funds is a "series" type of mutual fund, which is registered as an open-end management investment company under the 1940 Act. Each Fund is divided into Portfolios, each of which represents a different class of stock in which a corresponding investment division of the Separate Account invests. You should read the Fund prospectuses, which you have also received. They contain information about each Fund and its Portfolios, including the investment objectives, strategies, risks and sub-investment managers or advisers that are associated with each Portfolio. They also contain information on the different separate accounts that invest in each Fund (which may or may not be related to MetLife) and certain risks that may arise when diverse separate accounts, funding diverse types of insurance products, all invest in the same Fund. The Funds offer various classes of shares, each of which has a different level of expenses. The Fund prospectuses may provide information for share classes that are not available through the Policy. When you consult the Fund prospectus for a Portfolio, you should be careful to refer only to the information regarding the class of shares that is available through the Policy. The following classes of shares are available under the Policy: . For the Metropolitan Series Fund, Inc., the New England Zenith Fund and the Met Investors Series Trust, we offer Class A shares only. . For the American Funds Insurance Series Portfolios, we offer Class 2 shares only. The investment objectives of the Portfolios that are available under the Policies are as follows: Metropolitan State Street Research Money Market Portfolio: the highest possible current income consistent with preservation of capital and maintenance of liquidity. Metropolitan Lehman Brothers(R) Aggregate Bond Index Portfolio: to equal the performance of the Lehman Brothers Aggregate Bond Index. Metropolitan State Street Research Income Portfolio: a combination of: (a) the highest possible total return, by combining current income with capital gains, consistent with prudent investment risk, and (b) secondarily, the preservation of capital. Metropolitan State Street Research Diversified Portfolio: high total return while attempting to limit investment risk and preserve capital. 11 Metropolitan MetLife Stock Index Portfolio: to equal the performance of the Standard & Poor's 500 Composite Stock Price Index. Metropolitan Harris Oakmark Large Cap Value Portfolio: long-term capital appreciation. Metropolitan T. Rowe Price Large Cap Growth Portfolio: long-term growth of capital and, secondarily, dividend income. Metropolitan State Street Research Investment Trust Portfolio: long-term growth of capital and income and moderate current income. Metropolitan Putnam Large Cap Growth Portfolio: capital appreciation. Metropolitan MetLife Mid Cap Stock Index Portfolio: to equal the performance of the Standard & Poor's MidCap 400 Composite Stock Index. Metropolitan Neuberger Berman Partners Mid Cap Value Portfolio: capital growth. Metropolitan Janus Mid Cap Portfolio: long-term growth of capital. Metropolitan State Street Research Aggressive Growth Portfolio: maximum capital appreciation. Metropolitan Loomis Sayles High Yield Bond Portfolio: high total investment return through a combination of current income and capital appreciation. Metropolitan Russell 2000(R) Index Portfolio: to equal the return of the Russell 2000 Index. Metropolitan T. Rowe Price Small Cap Growth Portfolio: long-term capital growth. Metropolitan State Street Research Aurora Small Cap Value Portfolio: high total return, consisting principally of capital appreciation. Metropolitan Scudder Global Equity Portfolio: long-term growth of capital. Metropolitan Morgan Stanley EAFE(R) Index Portfolio: to equal the performance of the MSCI EAFE Index. Metropolitan Putnam International Stock Portfolio: long-term growth of capital. Metropolitan Janus Growth Portfolio: long-term growth of capital. Metropolitan Franklin Templeton Small Cap Growth Portfolio: long-term growth of capital. Zenith Davis Venture Value Portfolio: growth of capital. Zenith Loomis Sayles Small Cap Portfolio: long-term capital growth from investments in common stocks or other equity securities. Zenith MFS Investors Trust Portfolio: long-term growth of capital with a secondary objective to seek reasonable current income. Zenith MFS Research Managers Portfolio: long-term growth of capital. Zenith Harris Oakmark Mid Cap Value Portfolio: long-term capital appreciation. Zenith Salomon Brothers U.S. Government Portfolio: a high level of current income consistent with preservation of capital and maintenance of liquidity. 12 Zenith Salomon Brothers Strategic Bond Opportunities Portfolio: a high level of total return consistent with preservation of capital. Met Investors MFS Mid-Cap Growth Portfolio: long-term growth of capital. Met Investors Research International Portfolio: capital appreciation. Met Investors PIMCO Total Return Portfolio: maximum total return, consistent with the preservation of capital and prudent investment management. Met Investors PIMCO Innovation Portfolio: capital appreciation; no consideration is given to income. American Funds Growth Portfolio: capital appreciation through stocks. American Fund Growth-Income Portfolio: capital appreciation and income. American Funds Global Small Capitalization Portfolio: capital appreciation through stocks. A Portfolio may have a name and/or objective that is very similar to that of a publicly available mutual fund that is managed by the same sub-investment manager or adviser. The Portfolios are not publicly available and will not have the same performance as those publicly available mutual funds. Different performance will result from differences in implementation of investment policies, cash flows, fees and size of the Portfolio. As of the end of each Valuation Period, we purchase and redeem Fund shares for the Separate Account at their net asset value without any sales or redemption charges. These purchases and redemptions reflect the amount of any of the following transactions that take effect at the end of the Valuation Period: . The allocation of net premiums to the Separate Account. . Dividends and distributions on Fund shares, which are reinvested as of the dates paid (which reduces the value of each share of the Fund and increases the number of Fund shares outstanding, but has no affect on the cash value in the Separate Account). . Policy loans and loan repayments allocated to the Separate Account. . Transfers to and among investment divisions. . Withdrawals and surrenders taken from the Separate Account. [SIDEBAR: We will issue a Policy to you as owner. You will have all the rights under the Policy, including the ability to name a new owner or contingent owner.] ISSUING A POLICY If you want to own a Policy, then you must complete an application, which must be received by the Designated Office. We reserve the right to reject an application for any reason permitted by law, and our acceptance of an application is subject to our underwriting rules. Generally, we will issue a Policy only for insureds that are age 80 or less (although we may decide to permit an insured that is older) that have provided evidence of insurability that we find acceptable. An "insured" is the person upon whose life we issue the Policy. You do not have to be the insured. For the purpose of computing the insured's age under the Policy, we start with the insured's age on the Date of Policy which is set forth in the Policy. Age under the Policy at any other time is then computed using that issue age and adding the number of full Policy years completed. The Date of Policy is usually the date the Policy application is approved. We use the Date of Policy to calculate the Policy years (and Policy months and 13 monthly anniversaries). We may permit a Date of Policy that is earlier than the date the application is approved if there have been no material misrepresentations in the application (but not earlier than the date that the application is completed) in order to preserve a younger age for the insured. Your Date of Policy can also be the date the application is completed if you ask us and if we receive a payment of at least $2,500 with the application. Temporary insurance will be provided for up to 90 days from the date of the application, provided that we receive a payment equal to at least one "check-o- matic" payment and any necessary medical examination has been completed. Even if the insured hasn't completed the medical examination, there will be coverage if the insured dies from an accident within 30 days of the date of the application. The temporary insurance does not cover death by suicide. The temporary insurance provided is equal to the specified face amount applied for up to a maximum of $500,000. There will be no charge for the insurance protection under the temporary insurance. Insurance coverage under the Policy will begin at the time the Policy is delivered and any temporary insurance that is then in force will end. For coverage to be effective, the insured's health must be the same as stated in the application and, in most states, the insured must not have sought medical advice or treatment after the date of the application. As to when charges under the Policy begin, see "Charges Included in the Monthly Deduction." POLICY BENEFITS This prospectus provides a general description of the Policy. Policies issued in your state may provide different features and benefits from, and impose different costs than, those described in this Prospectus. Your actual Policy and any endorsements are the controlling documents. You should read the Policy carefully for any variations in your state. INSURANCE PROCEEDS If the Policy is in force, we will pay your beneficiary the insurance proceeds as of the end of the Valuation Period that includes the insured's date of death. We will pay this amount after we receive documents that we request as due proof of the insured's death. The beneficiary can receive the death benefit in a single sum or under an income plan described below. You may make this choice during the insured's lifetime. If no selection is made we will place the amount in an account to which we will credit interest, and the beneficiary will have immediate access to all or part of that amount. The beneficiary has one year from the date the insurance proceeds are paid to change the selection from a single sum payment to an income plan, as long as we have made no payments from the interest-bearing account. If the terms of the income plan permit the beneficiary to withdraw the entire amount from the plan, the beneficiary can also name contingent beneficiaries. The insurance proceeds equal: . The death benefit under the death benefit option or alternate death benefit that is then in effect; plus . Any additional insurance proceeds provided by rider; minus . Any unpaid Policy loans and accrued interest thereon, and any due and unpaid charges accruing during a grace period. 14 DEATH BENEFIT OPTIONS Generally, you can choose among three options, although the choice may be limited based upon availability in your state and the insured's age. You select which option you want in the Policy application. The three options are: [SIDEBAR: The Policy generally offers a choice of three death benefit options.] . Option A: The death benefit is a level amount and equals the specified face amount of the Policy. . Option B: The death benefit varies and equals the specified face amount of the Policy plus the cash value on the date of death. . Option C: The death benefit is designed to increase during your earning years (because we assume that your need for life insurance will probably increase during these years) and levels off thereafter. The death benefit is one of two amounts and is available only if insured is age 60 or less when we issue the Policy and the Policy was issued on or after May 1, 1994: . The death benefit varies and equals the specified face amount plus the cash value on the date of death, until the insured is age 65 ("CI"). . At age 65, the death benefit becomes a level amount equal to the specified face amount under CI plus the cash value at the end of the Valuation Date immediately preceding the date on which the insured became age 65. This new amount then becomes the specified face amount ("CII"). There are issues that you should consider in choosing your death benefit option. For example, under Options B and CI, the cash value is added to the specified face amount. Therefore, the death benefit will generally be greater under these options than under Options A and CII, for Policies with the same specified face amount and premium payments. By the same token, the cost of insurance will generally be greater under Options B and CI than under Options A and CII. You can change your death benefit option after the second Policy year, provided that: . Your cash surrender value after the change would be enough to pay at least two monthly deductions. . The specified face amount continues to be no less than the minimum we allow after a decrease. . The total premiums you have paid do not exceed the then current maximum premium limitations permitted under Internal Revenue Service rules. . If the change is to Option C, the insured is age 60 or less. Any change will be effective on the monthly anniversary on or immediately following the Date of Receipt of the request. A change in death benefit will have the following effects on your specified face amount: [SIDEBAR: You can generally change your death benefit option.] . Change from A or CII to B or CI: The specified face amount will decrease to equal the death benefit less the cash value on the effective date of the change. . Change from B or CI to A or CII: The specified face amount will increase to equal the death benefit plus the cash value of the Policy on the effective date of the change. . Change from B to CI or A to CII: The specified face amount will remain the same. 15 Before you change your death benefit option you should consider the following: . If the term insurance portion of your death benefit changes, as it may with a change from A or CII to B or CI and vice versa, the term insurance charge will also change. This will affect your cash value and, in some cases, the amount of the death benefit. . If your specified face amount changes because of the change in death benefit option, consider also the issues presented by changing your specified face amount that are described under "Specified Face Amount," below. These issues include the possibility: that your Policy would become a modified endowment contract; that you would receive a taxable distribution; of an increase or decrease in the monthly administration charge; and of changes in the maximum premium amounts that you can pay. ALTERNATE DEATH BENEFIT In order to ensure that the Policy qualifies as life insurance under the federal income tax laws, the beneficiary will receive an alternate death benefit if it is greater than the amount that the beneficiary would have received under the death benefit option that you chose. The alternate death benefit is as follows: Age of Insured at Death 40 and 45 50 55 60 65 70 75 to 90 95 less % of Cash Value: * 250 215 185 150 130 120 115 105 100
-------- *For the ages not listed, the percentage decreases by a ratable portion for each full year. [SIDEBAR: You can generally increase or decrease your Policy's specified face amount.] SPECIFIED FACE AMOUNT The specified face amount is the basic amount of insurance specified in your Policy. The Minimum Initial Specified Face amount is the smallest amount of specified face amount for which a Policy may be issued. Currently these amounts are generally: . $100,000 for insureds in the preferred rate class; . $50,000 for most other insureds; and . $250,000 for most Policies distributed through broker-dealers not affiliated with us. Generally, you may change your specified face amount after the second Policy year, as long as the insured is age 79 or under. Any change will be effective on: the monthly anniversary on or next following (a) the Date of Receipt of your request; or (b) if we require evidence of insurability, the date we approve your request. You are permitted to decrease the specified face amount to as low as $25,000 except that no reduction may decrease the specified face amount below the Minimum Initial Specified Face Amount during the first five Policy years or one half that amount thereafter. These lowest available specified face amount requirements also apply to decreases that result from partial withdrawals or changes in death benefit option. If there have been previous specified face amount increases, any decreases in specified face amount will be made in the following order: (i) the specified face amount provided by the most recent increase; (ii) the next most recent increases successively; and (iii) the initial specified face amount. You may increase the specified face amount only if: the cash surrender value after the change is large enough to cover at least two monthly deductions. 16 Generally, the minimum specified face amount increase is $5,000. Any increase will require that we receive additional evidence of insurability that is satisfactory to us. We will also impose an underwriting charge. Before you change your specified face amount you should consider the following: . The term insurance portion of your death benefit will likely change and so will the term insurance charge. This will affect the insurance charges, cash value and, in some cases, death benefit levels. . Reducing your specified face amount in the first 15 Policy years may result in our returning an amount to you which could then be taxed on an income first basis. . We will establish an additional amount of surrender charge at the time of any increase in the specified face amount, other than an increase resulting automatically from a change of death benefit option. . The amount of additional premiums that the tax laws permit you to pay into your Policy may increase or decrease. The additional amount you can pay without causing your Policy to be a modified endowment contract for tax purposes may also increase or decrease. . In some circumstances, the Policy could become a modified endowment contract. . The monthly administration charge may change. CASH VALUE Your Policy's cash value equals: . The Fixed Account cash value, plus . The Policy Loan Account cash value, plus . The Separate Account cash value. [SIDEBAR: Your Policy is designed to accumulate cash value.] Your Policy's cash surrender value equals your cash value minus: . Any outstanding Policy loans (plus accrued interest); . Any surrender charges; and . A portion of the administration charge for any full Policy month remaining in the first Policy year. The Separate Account cash value allocated to each investment division is calculated as follows: . At the end of each Valuation Period the cash value in an investment division will equal: . The cash value in the investment division at the beginning of the Valuation Period; plus . All net premiums, loan repayments and cash value transfers into the investment division during the Valuation Period; minus . All partial cash withdrawals, loans and cash value transfers out of the investment division during the Valuation Period; minus . The portion of any charges and deductions allocated to the cash value in the investment division during the Valuation Period; plus . The net investment return for the Valuation Period on the amount of cash value in the investment division at the beginning of the Valuation Period. 17 The net investment return currently equals the rate of increase or decrease in the net asset value per share of the underlying Fund portfolio over the Valuation Period, adjusted upward to take appropriate account of any dividends and other distributions paid by the portfolio during the period. The net investment return could in the future be reduced by a charge for taxes that we have the right to impose. BENEFIT AT FINAL DATE The Final Date is the Policy anniversary on which the insured is Age 95. If the insured is living on the Final Date, we will pay you the cash value of the Policy, reduced by any outstanding loans (plus accrued interest). You can receive the cash value in a single sum, in an account that earns interest, or under an available income plan. OPTIONAL BENEFITS ADDED BY RIDER You may be eligible for certain benefits provided by rider, subject to certain underwriting requirements and the payment of additional premiums. We will deduct any charges for the rider(s) as part of the monthly deduction. Each rider contains important information, including limits and conditions that apply to the benefits. If you decide to purchase any of the riders, you should carefully review their provisions to be sure the benefit is something that you want. You should also consider: . That the addition of certain riders can restrict your ability to exercise certain rights under the Policy. . That the amount of benefits provided under the rider is not based on investment performance of a separate account; but, if the Policy terminates because of poor investment performance or any other reason, the riders generally will also terminate. . The tax consequences. You should also consult with your tax advisor before purchasing one of the riders. Generally, we currently make the following benefits available by rider: . Disability Waiver of Monthly . Children's Term Insurance Benefit Deduction Benefit/1/ --------------------------------------------------------------------- . Accidental Death Benefit . Spouse Term Insurance Benefit --------------------------------------------------------------------- . Accelerated Death Benefit/2/
-------- /1/An increase in specified face amount may not be covered by this rider. If not, the portion of the monthly deduction associated with the increase will continue to be deducted from the cash value, which if insufficient, could result in the Policy's termination. For this reason, it may be advantageous for the owner, at the time of total disability, to reduce the specified face amount to that covered by this rider. /2/Payment under this rider may affect eligibility for benefits under state or federal law. INCOME PLANS [SIDEBAR: Generally, you can receive the Policy's insurance proceeds, amounts payable at the Final Date or amounts paid upon surrender under an income plan instead of in a lump sum.] Before you purchase an income plan you should consider: . The tax consequences associated with the Policy proceeds, which can vary considerably, depending on whether a plan is chosen. You or your beneficiary should consult with a qualified tax adviser about tax consequences. . That your Policy will terminate at the time you purchase an income plan and you will receive a new contract, which describes the terms of the income plan. You should carefully review the terms of the new contract, because it contains important information about the terms and conditions of the income plan. 18 . That these plans do not have a variable investment return. Generally, we currently make the following income plans available: . Interest income . Installment Income for a Stated Period ----------------------------------------------------------------------------- . Installment Income for a Stated . Single Life Income--Guaranteed Amount Payment Period ----------------------------------------------------------------------------- . Joint and Survivor Life Income . Single Life Income--Guaranteed Return
POLICY RIGHTS CASH VALUE TRANSFERS [SIDEBAR: You can transfer your cash value among the investment divisions and the Fixed Account at any time.] The minimum amount you may transfer is $50 or, if less, the total amount in an investment option. You may make transfers at any time. We do not currently charge for transfers, but we do reserve the right to charge up to $25 per transfer, except for transfers under the Automated Investment Strategies. Currently, transfers are not taxable transactions. Each Fund may restrict or refuse certain transfers among, or purchases of shares in their Portfolios as a result of certain market timing activities. You should read each Fund's prospectus for more details. We reserve the right to refuse to accept any transaction request where the request would tend to disrupt administration of the Policies or is not in the best interests of Policy owners or the Separate Account. . AUTOMATED INVESTMENT STRATEGIES: You can choose one of four currently available strategies. You can also change or cancel your choice at any time. . Equity Generator: allows you to transfer an amount equal to the interest earned in the Fixed Account in any Policy month equal to at least $20 to the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. The transfer will be made at the beginning of the Policy month following the Policy month in which the interest was earned. . Equalizer: allows you to periodically equalize amounts in your Fixed Account and either the MetLife Stock Index investment division or the State Street Research Aggressive Growth investment division. We currently make equalization each quarter. We will terminate this strategy if you make a transfer out of the investment division or the Fixed Account that isn't part of the strategy. You may then reelect the Equalizer on your next Policy anniversary. . Rebalancer: allows you to periodically redistribute amounts in the Fixed Account and investment divisions in the same proportion that the net premiums are then being allocated. We currently make the redistribution each quarter. . Allocator: allows you to systematically transfer money from the State Street Research Money Market investment division to the Fixed Account and/or to any investment division(s). You must have enough cash value in the State Street Research Money Market investment division to enable the election to be in effect for three months. The election can be to transfer each month: . A specific amount until the cash value in the State Street Research Money Market investment division is exhausted, 19 . A specific amount for a specific number of months, or . Amounts in equal installments until the total amount you have requested has been transferred. . TRANSFERS BY TELEPHONE: We may, if permitted by state law, allow you to make transfer requests, changes to Automated Investment Strategies and allocations of future net premiums by phone. We may also allow you to authorize your sales representative to make such requests. The following procedures apply: . We must have received your authorization in writing satisfactory to us, to act on instructions from any person that claims to be you or your sales representative, as applicable, as long as that person follows our procedures. . We will institute reasonable procedures to confirm that instructions we receive are genuine. Our procedures will include receiving from the caller your personalized data. . All telephone calls will be recorded. . You will receive a written confirmation of any transaction. . Neither the Separate Account nor we will be liable for any loss, expense or cost arising out of a telephone request if we reasonably believed the request to be genuine. . You should contact our Designated Office with any questions regarding the procedures. We do not currently offer Internet transfer capability, but may do so in the future. We will notify you if we begin to offer Internet transactions. [SIDEBAR: You can borrow from us and use your Policy as security for the loan.] LOAN PRIVILEGES The amount of each loan must be: . At least $250 . No more than the cash surrender value less two monthly deductions, or, if greater, 75% of the cash surrender value (unless your Policy tells you that state law requires a different percentage to be applied) when added to all other outstanding Policy loans. As of your loan request's Date of Receipt, we will: . Remove an amount equal to the loan from your cash value in the Fixed Account and the cash value in the investment divisions of the Separate Account in the same proportion as your cash value is then allocated among these options. . Transfer such cash value to the Policy loan account, where it will be credited with interest at the rate of 8% per year less a percentage charge we base on expenses associated with Policy loans. This percentage charge is currently 2%, thus we currently credit interest in the Policy loan account at currently 6%. At no time will we credit less than 4%. At least once a year, we will transfer any interest earned in your Policy loan account to the Fixed Account and the investment divisions, according to the way that we then allocate net premiums. . Charge you interest, which will accrue daily at a rate of 8% per year. Your interest payments are due at the end of each Policy year and if you don't pay the amount within 31 days after it is due, we will treat it as a new Policy loan. Repaying your loans (plus accrued interest) is done by sending in payments at least equal to your voluntary planned periodic premium, or $50, if less. 20 You should designate whether a payment is intended to be a loan repayment. If you do not so designate, we will treat the payment as a premium payment. We will allocate your repayment to the Fixed Account and the investment divisions, in the same proportion that net premiums are then allocated. Before taking a Policy loan you should consider the following: . Interest payments on loans are generally not deductible for tax purposes. . Under certain situations, Policy loans could be considered taxable distributions. . If you surrender your Policy or if we terminate your Policy, or at the Final Date, any outstanding loan amounts (plus accrued interest) will be taxed as a distribution. Generally, there will be federal income tax payable on the amount by which withdrawals and loans exceed the premiums paid to date. (See "Federal Tax Matters--The Policy--Loans" below.) In addition, the amounts borrowed and withdrawn reduce the Policy's cash value and any remaining cash value of the Policy may be insufficient to pay the income tax on your gains. . A policy loan increases the chances of our terminating your policy due to insufficient cash value. We will terminate your Policy with no value if: (a) on a monthly anniversary your loans (plus accrued interest) exceed your cash value minus the monthly deduction; and (b) we tell you of the insufficiency and you do not make a sufficient payment within 61 days of the monthly anniversary. . Your Policy's death benefit will be reduced by any unpaid loan (plus accrued interest). [SIDEBAR: You can surrender your Policy for its cash surrender value.] SURRENDER AND WITHDRAWAL PRIVILEGES We may ask you to return the Policy before we honor your request to surrender your Policy. You can choose to have the proceeds paid in a single sum, or under an income plan. If the insured dies after you surrender the Policy but before the end of the Policy month in which you surrendered the Policy, we will pay your beneficiary an amount equal to the difference between the Policy's death benefit and its cash value, computed as of the surrender date. You can make partial withdrawals at any time without charge if: . The withdrawal would not result in a reduction in your specified face amount during the first 2 Policy years, as described under "Specified Face Amount" above. . The withdrawal would not result in the cash surrender value being less than sufficient to pay 2 monthly deductions. . The withdrawal is at least $250. . The withdrawal would not result in your specified face amount falling below the minimum allowable amount, as described under "Specified Face Amount," above. . The withdrawal would not result in total premiums paid exceeding the then current maximum premium limitation determined by Internal Revenue Code rules. If you make a request for a partial withdrawal that is not permitted, we will tell you and you may then ask for a smaller withdrawal or surrender the Policy. We will deduct your withdrawal from the Fixed Account and the investment divisions in the same proportion as your cash value is then allocated among these options. 21 Before surrendering your Policy or requesting a partial withdrawal you should consider the following: . Surrender charges may apply to a full surrender. . Amounts received may be taxable as income and, if your Policy is a modified endowment contract, subject to certain tax penalties. . Your Policy could become a modified endowment contract. . For partial withdrawals, your death benefit will decrease by the amount of the withdrawal (for Options A and CII, your specified face amount will also decrease, generally by the amount of the withdrawal). . Any withdrawal that causes the specified face amount to decrease could cause an increase in the monthly administrative charge. . In some cases you may be better off taking a Policy loan, rather than a partial withdrawal. EXCHANGE PRIVILEGE If you decide that you no longer want to take advantage of the investment divisions in the Separate Account, you may transfer all of your money into the Fixed Account. There is currently no charge on transfers. Even if we do have a transfer charge in the future, such charge will never be imposed on a transfer of your entire cash value (or the cash value attributable to a specified face amount increase) to the Fixed Account within the first 24 Policy months (or within 24 Policy months after a specified face amount increase you have requested, as applicable). In some states, in order to exercise your exchange privilege, you must transfer, without charge, the Policy cash value (or the portion attributable to a specified face amount increase) to a flexible premium fixed benefit life insurance policy, which we make available. THIRD PARTY REQUESTS Generally, we accept requests for transactions or information only from you. Therefore, we reserve the right not to process transactions requested on your behalf by your agent with a power of attorney or any other authorization. This includes processing transactions by an agent you designate, through a power of attorney or other authorization, who has the ability to control the amount and timing of transfers for a number of other Policy owners, and who simultaneously makes the same request or series of requests on behalf of other Policy owners. PAYMENT AND ALLOCATION OF PREMIUMS PREMIUMS The payment of premiums won't guarantee that your Policy will remain in force. Rather, this depends on your Policy's cash surrender value. [SIDEBAR: You can make voluntary planned periodic premium payments and unscheduled premium payments.] PAYING PREMIUMS You can make premium payments, subject to certain limitations discussed below, through the: . Voluntary planned periodic premium schedule: You choose the schedule on your application. The schedule sets forth the amount of premiums, fixed payment intervals, and the period of time that you intend to pay premiums. The schedule can be: (a) annual; (b) semi-annual; (c) periodic 22 automatic pre-authorized transfers from your checking account ( "check-o- matic"); (d) systematic through payment plans that your employer makes available; or (e) through another method to which we agree. You do not have to pay premiums in accordance with your voluntary planned period premium schedule. . Unscheduled premium payment option: You can make premium payments at any time. We may adopt a practice of holding a premium payment received before its due date in a non-interest bearing holding account until the due date, if necessary, to prevent a Policy becoming a modified endowment contract. (See "Modified Endowment Contract" under "Federal Tax Matters" below.) Under any such procedures, we would send you an additional notice of this arrangement by letter immediately after receiving your payment. We would also give you the option to either have the money held until the due date or applied on our Date of Receipt of your instructions to apply the money (unless the due date has already passed). MAXIMUM AND MINIMUM PREMIUM PAYMENTS . During the first two Policy years you must pay an amount of premium that we call the minimum required premium. . After the first two Policy years, your voluntary planned periodic payments must be at least: . $200 annually (or, for some Policies distributed by certain brokers, $2,500 annually) . $100 semi-annually . $15 on a "check-o-matic" or other systematic payment schedule. . Unscheduled premium payments must be at least $250 each. . You may not pay premiums that exceed tax law premium limitations for life insurance policies. We will return any amounts that exceed these limits, except that we will keep any amounts that are required to keep the Policy from terminating. We will let you make premium payments that would turn your Policy into a modified endowment contract, but we will tell you of this status in your annual statement, and if possible, we will tell you how to reverse the status. [SIDEBAR: Net premiums are your premiums minus the charges deducted from your premiums.] ALLOCATING NET PREMIUMS We will allocate your net premiums according to your net premium allocation instructions in your application. You can instruct us to allocate your net premiums among the Fixed Account and the investment divisions. The percentage of your net premium allocation into each of these investment options must be a minimum of 1% and in whole numbers. You can change your allocations at any time by giving us written notification at our Designated Office or in any other manner that we permit. POLICY TERMINATION AND REINSTATEMENT Termination: We will terminate your Policy without any cash surrender value if: During the first three Policy years (we have increased this period from two years to three years), the total premiums paid as of such monthly anniversary (after taking account of partial withdrawals and outstanding Policy loans), are not equal to the minimum required premiums as of that date and (a) and (b) below occur. (a) The cash surrender value is less than the monthly deduction; and (b) We do not receive a sufficient premium payment within the 61-day grace period to cover the difference between the total premiums previously paid and the minimum required premiums. 23 After the first two Policy years (or after the first three Policy years if you have met the premium payment test described above in the third Policy year): (a) The cash surrender value is less than the monthly deduction; and (b) We do not receive a sufficient premium payment within the 61-day grace period to cover two monthly deductions. We will mail you notice if any grace period starts. Reinstatement: Upon your request, we will reinstate your Policy (without reinstating any amounts in a Policy loan account), subject to certain terms and conditions that the Policy provides. We must receive your request within 3 years (or any longer period provided by state law) after the end of the grace period and before the Final Date. You also must provide us: . A written application for reinstatement (the date we approve the application will be the effective date of the reinstatement). . Evidence of insurability that we find satisfactory. . An additional premium amount that the Policy prescribes for this purpose. [SIDEBAR: Carefully review the "Table of Charges and Expenses" in the "Summary", which sets forth the charges that you pay under your Policy.] CHARGES AND DEDUCTIONS The Policy charges compensate us for our expenses and risks. Our revenues from any particular charge may be more or less than any costs or expenses that charge may be intended primarily to cover. We may use our revenues from one charge to pay other costs and expenses in connection with the Policies. We may also profit from our revenues from all the charges combined. The following sets forth additional information about some (but not all) of the Policy charges. CHARGE FOR AVERAGE EXPECTED STATE TAXES ATTRIBUTABLE TO PREMIUMS: We make this charge to reimburse us for the state premium taxes that we must pay on premiums we receive. Premium taxes vary from state to state and currently range from 0 to 3.5%. Our charge approximates the average tax rate we expect to pay on premiums we receive from all states. CHARGES INCLUDED IN THE MONTHLY DEDUCTION: The monthly deduction is taken from the Fixed Account and each investment division in which you have cash value in the same proportion as your cash value is allocated among these options at the beginning of the policy month. We deduct the monthly deductions as of each monthly anniversary beginning as of the Date of Policy. . Cost of term insurance: This charge varies monthly based on many factors. Each month, we determine the charge by multiplying your cost of insurance rates by the term insurance amount. . The term insurance amount is the death benefit at the beginning of the Policy month divided by a discount factor to account for an assumed return; minus the cash value at the beginning of the Policy month after deduction of all other applicable charges. Factors that affect the term insurance amount include the specified face amount, the cash value and the death benefit you choose (Generally, the term insurance amount will be higher for Options B and CI). . The term insurance rate is based on our expectations as to future experience, taking into account the insured's sex (if permitted by law), age and rate class. The rates will never exceed the guaranteed rates, which are based on certain 1980 Commissioners Standard Ordinary Mortality Tables and the insured's sex, age and smoking status. Our 24 current rates are lower than the maximums in most cases. We review our rates periodically and may adjust them, but we will apply the same rates to everyone who has had their Policy for the same amount of time and who is the same age, sex and rate class. As a general rule, the cost of insurance rate increases each year you own your Policy, as the insured's age increases. . Rate class relates to the level of mortality risk we assume with respect to an insured. It can be the standard rate class, or one that is higher or lower (and, if the insured is 18 or older, we divide rate class by smoking status). The insured's rate class will affect your cost of term insurance. You can also have more than one rate class in effect, if the insured's rate class has changed and you change your specified face amount. A better rate class will lower the cost of term insurance on your entire Policy and a worse rate class will affect the portion of your cost of term insurance charge attributable to the specified face amount increase. . Administration charge: We make this monthly charge primarily to compensate us for expenses we incur in the administration of the Policy, and also, in the first year, our underwriting and start-up expenses. . Mortality and expense risk charge: We make this monthly charge primarily to compensate us for: . mortality risks that insureds may live for a shorter period than we expect; and . expense risks that our issuing and administrative expenses may be higher than we expect. SURRENDER CHARGE The surrender charges per thousand dollars of initial specified face amount (or per thousand dollars of a specified face amount increase you request) are as set forth on the following page: 25 [SIDEBAR: Surrender charges may apply when you surrender your Policy or if we terminate your Policy.] Death Benefit Option A:
POLICY YEARS SINCE ISSUE OR INCREASE ------------------------------------------------------------------- AGE AT ISSUE OR INCREASE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ------------------------------------------------------------------------ 0-5 $ 3 $ 3 $ 3 $ 3 $ 3 $ 2 $ 2 $ 2 $ 2 $ 2 $ 1 $ 1 $ 1 $ 1 $ 1 6-10 3 3 3 3 3 2 2 2 2 2 1 1 1 1 1 11-20 3 3 3 3 3 2 2 2 2 2 1 1 1 1 1 21-25 3 3 3 3 3 2 2 2 2 2 1 1 1 1 1 26-30 4 4 3 3 3 3 3 2 2 2 2 1 1 1 1 31-35 7 6 6 6 5 5 5 4 4 3 3 2 2 1 1 36-40 8 7 7 7 6 6 5 5 4 4 3 3 2 1 1 41-44 10 9 8 8 7 7 6 6 5 4 4 3 2 2 1 45-50 12 12 11 10 10 9 8 7 7 6 5 4 3 2 1 51-54 15 15 14 13 12 11 10 9 8 7 6 5 4 3 1 55-59 18 17 16 15 14 13 12 11 10 9 8 6 5 3 2 60-69 22 21 20 18 17 16 15 13 12 11 9 7 6 4 2 70-79 22 21 20 18 17 16 15 13 12 11 9 8 6 4 2 80 22 21 20 18 17 16 15 14 13 12 10 9 8 6 3
Death Benefit Option B:
POLICY YEARS SINCE ISSUE OR INCREASE ------------------------------------------------------------------- AGE AT ISSUE OR INCREASE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ------------------------------------------------------------------------ 0-5 $ 4 $ 4 $ 3 $ 3 $ 3 $ 3 $ 3 $ 2 $ 2 $ 2 $ 2 $ 1 $ 1 $ 1 $ 1 6-10 4 4 4 4 3 3 3 3 2 2 2 1 1 1 1 11-20 5 5 5 4 4 4 3 3 3 2 2 2 1 1 1 21-25 7 7 6 6 6 5 5 4 4 3 3 2 2 1 1 26-30 10 8 7 7 7 6 6 5 4 4 3 3 2 1 1 31-35 12 12 11 10 10 9 8 7 6 5 4 4 3 2 1 36-40 15 14 13 12 12 11 10 9 8 7 6 5 4 3 1 41-44 20 20 19 18 17 16 14 13 12 10 9 7 5 4 2 45-50 24 24 24 22 21 19 17 16 14 12 10 8 6 4 2 51-54 27 27 26 24 23 21 19 18 16 14 12 10 7 5 3 55-59 30 29 27 25 24 22 20 18 16 14 12 10 8 5 3 60-69 32 30 29 27 25 23 22 20 18 15 13 11 8 6 3 70-79 36 34 33 31 29 27 25 23 20 18 16 13 10 7 4 80 40 38 36 34 32 30 28 26 24 22 19 17 14 11 6
Death Benefit Option C:
POLICY YEARS SINCE ISSUE OR INCREASE ------------------------------------------------------------------- AGE AT ISSUE OR INCREASE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ------------------------------------------------------------------------ 0-5 $ 4 $ 4 $ 3 $ 3 $ 3 $ 3 $ 3 $ 2 $ 2 $ 2 $ 2 $ 1 $ 1 $ 1 $ 1 6-10 4 4 4 4 3 3 3 3 2 2 2 1 1 1 1 11-20 4 4 4 4 4 3 3 3 3 2 2 2 1 1 1 21-25 5 5 5 5 5 4 4 3 3 3 2 2 2 1 1 26-30 7 6 5 5 5 5 5 4 3 3 3 2 2 1 1 31-35 10 9 9 8 8 7 7 6 5 4 4 3 3 2 1 36-40 12 11 10 10 9 9 8 7 6 6 5 4 3 2 1 41-44 15 15 14 13 12 12 10 10 9 7 7 5 4 3 2 45-50 18 18 18 16 16 14 13 12 11 9 8 6 5 3 2 51-54 21 21 20 19 18 16 15 14 12 11 9 8 6 4 2 55-59 24 23 22 20 19 18 16 15 13 12 10 8 7 4 3 60-64 27 26 25 23 21 20 19 17 15 13 11 9 7 5 3 65-69 22 22 20 18 17 16 15 13 12 11 9 7 6 4 2 70-79 22 21 20 18 17 16 15 13 12 11 9 8 6 4 2 80 22 21 20 18 17 16 15 14 13 12 10 9 8 6 3
26 FEDERAL TAX MATTERS The following is a brief summary of some tax rules that may apply to your Policy. You should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy, especially before you make unscheduled premium payments, change your specified face amount, change your death benefit option, change coverage provided by riders, take a loan or withdrawal, or assign or surrender the Policy. [SIDEBAR: You should consult with your own tax advisor to find out how taxes can affect your benefits and rights under your Policy.] THE POLICY Insurance proceeds . Generally excludable from your beneficiary's gross income. . The proceeds may be subject to federal estate tax: (i) if paid to the insured's estate; or (ii) if paid to a different beneficiary if the insured possessed incidents of ownership at or within three years before death. . If you die before the insured, the value of your Policy (determined under IRS rules) is included in your estate and may be subject to federal estate tax. . Whether or not any federal estate tax is due is based on a number of factors including the estate size. Cash value (if your Policy is not a modified endowment contract) . You are generally not taxed on your cash value until you withdraw it, surrender your Policy or receive a distribution on the Final Date. In these cases, you are generally permitted to take withdrawals up to the amount of premiums paid without any tax consequences. However, withdrawals will be subject to income tax after you have received amounts equal to the total premiums you paid. Somewhat different rules apply in the first 15 Policy years, when a distribution may be subject to tax if there is a gain in your Policy (which is generally when your cash value exceeds the cumulative premiums you paid). If your Policy is part of a collateral assignment equity split dollar arrangement, there is a risk that increases in cash value may be taxed annually. The IRS has recently issued guidance on split dollar insurance plans. A tax advisor should be consulted with respect to this new guidance if you have purchased or are considering the purchase of a Policy for a split dollar insurance plan. There may be an indirect tax upon the income in the Policy or the proceeds of a Policy under the Federal corporate alternative minimum tax, if you are subject to that tax. Loans . Loan amounts received will generally not be subject to income tax, unless your Policy is or becomes a modified endowment contract, is exchanged or terminates. . Interest on loans is generally not deductible. For businesses that own a Policy, at least part of the interest deduction unrelated to the Policy may be disallowed unless the insured is a 20% owner, officer, director or employee of the business. . If your Policy terminates (upon surrender, cancellation, lapse, the Final Date or, in most cases, exchange) while any Policy loan is outstanding, the amount of the loan plus accrued interest thereon will be deemed to be a "distribution" to you. Any such distribution will have the same tax consequences as any other Policy distribution. 27 Modified Endowment Contracts These contracts are life insurance contracts where the premiums paid during the first 7 years after the Policy is issued, or after a material change in the Policy, exceeds tax law limits referred to as the "7-pay test." Material changes in the Policy, include changes in the level of benefits and certain other changes to your Policy after the issue date. Reductions in benefits during a 7-pay period may cause your Policy to become a modified endowment contract. Generally, a life insurance policy that is received in exchange for a modified endowment contract will also be considered a modified endowment contract. If your Policy is considered a modified endowment contract the following applies: . The death benefit will generally be income tax free to your beneficiary, as discussed above. . Amounts withdrawn or distributed before the insured's death, including loans, assignments and pledges, are (to the extent of any gains in your policy) treated as income first and subject to income tax. All modified endowment contracts you purchase from us and our affiliates during the same calendar year are treated as a single contract for purposes of determining the amount of any such income. . An additional 10% income tax generally applies to the taxable portion of the amounts received before age 59 1/2, except generally if you are disabled or the distribution is part of a series of substantially equal periodic payments. Diversification In order for your Policy to qualify as life insurance, we must comply with certain diversification standards with respect to the investments underlying the Policy. We believe that we satisfy and will continue to satisfy these diversification standards. Inadvertent failure to meet these standards may be able to be corrected. Failure to meet these standards would result in immediate taxation to Policy owners of gains under their Policies. Changes to tax rules and interpretations Changes in applicable tax rules and interpretations can adversely affect the tax treatment of your Policy. These changes may take effect retroactively. We reserve the right to amend the Policy in any way necessary to avoid any adverse tax treatment. Examples of changes that could create adverse tax consequences include: . Possible taxation of cash value transfers. . Possible taxation as if you were the owner of your allocable portion of the Separate Account's assets. . Possible limits on the number of investment funds available or the frequency of transfers among them. . Possible changes in the tax treatment of Policy benefits and rights. OUR TAXATION In general, we don't expect to incur federal, state or local taxes upon the earnings or realized capital gains attributable to the assets in the Separate Account relating to the Policies' cash surrender value. If we do incur such taxes, we reserve the right to charge the cash value allocated to the Separate Account for these taxes. SHOWING PERFORMANCE We may advertise or otherwise show: . Investment division performance ranking and rating information as it compares among similar investments as compiled by independent organizations. 28 . Comparisons of the investment divisions with performance of similar investments and appropriate indices. . Our insurance company ratings that are assigned by independent rating agencies and that are relevant when considering our ability to honor our guarantees. . Personalized illustrations based on historical Separate Account performance. RIGHTS WE RESERVE We reserve the right to make certain changes if we believe the changes are in the best interest of our Policy owners or would help carry out the purposes of the Policy. We will make these changes in the manner permitted by applicable law and only after getting any necessary owner and regulatory approval. We will notify you of any changes that result in a material change in the underlying investments in the investment divisions, and you will have a chance to transfer out of the affected division (without charge). Some of the changes we may make include: . Operating the Separate Account in any other form that is permitted by applicable law. . Changes to obtain or continue exemptions from the 1940 Act. . Transferring assets among investment divisions or to other separate accounts, or our general account or combining or removing investment divisions from the Separate Account. . Substituting Fund shares in an investment division for shares of another portfolio of a Fund or another fund or investment permitted by law. . Changing the way we assess charges without exceeding the aggregate amount of the Policy's guaranteed maximum charges. . Making any necessary technical changes to the Policy to conform it to the changes we have made. [SIDEBAR: Carefully review your Policy which contains a full discussion of all its provisions.] OTHER POLICY PROVISIONS You should read your Policy for a full discussion of its provisions. The following is a brief discussion of some of the provisions that you should consider: FREE LOOK PERIOD You can return the Policy during this period. The period is the later of: . 10 days after you receive the Policy (unless state law requires your Policy to specify a longer specified period); and . 45 days after we receive Part A of the completed application. If you return your Policy, we will send you a complete refund of any premiums paid (or cash value plus any charges deducted if state law requires) within seven days. You have a smiliar free look period with respect to any specified face amount increase you request. If you exercise this right, we will restore your policy values to what they would have been if you had never requested the increase. INCONTESTABILITY We will not contest: . Your Policy after 2 Policy years from issue or reinstatement (excluding riders added later). 29 . An increase in a death benefit after it has been in effect for two years. SUICIDE If the insured commits suicide within the first two Policy years (or any different period provided by state law), your beneficiary will receive all premiums paid (without interest), less any outstanding loans (plus accrued interest) and withdrawals taken. Similarly, we will pay the beneficiary only the cost of any increase in specified face amount if the insured commits suicide within two years of such increase. AGE AND SEX We will adjust benefits to reflect the correct age and sex of the insured, if this information isn't correct in the Policy application. ASSIGNMENT AND CHANGE OF OWNERSHIP You can assign your Policy as collateral if you notify us in writing. The assignment or release of the assignment is effective when it is recorded at the Designated Office. We are not responsible for determining the validity of the assignment or its release. Also, there could be serious adverse tax consequences to you or your beneficiary, so you should consult with your tax adviser before making any change of ownership or other assignment. [SIDEBAR: Under certain situations, we may defer payments.] PAYMENT AND DEFERMENT Generally, we will pay or transfer amounts from the Separate Account within seven days after the Date of Receipt of all necessary documentation required for such payment or transfer. We can defer this if: . The New York Stock Exchange has an unscheduled closing. . There is an emergency so that we could not reasonably determine the investment experience of a Policy. . The Securities and Exchange Commission by order permits us to do so for the protection of Policy owners (provided that the delay is permitted under New York State insurance law and regulations). . With respect to the insurance proceeds, if entitlement to a payment is being questioned or is uncertain. . We are paying amounts attributable to a check. In that case we can wait for a reasonable time (15 days or less) to let the check clear. We currently pay interest on the amount of insurance proceeds at 3% per year (or higher if state law requires) from the date of death until the date we pay the benefit. DIVIDENDS The Policy is "nonparticipating," which means it is not eligible for dividends from us and does not share in any distributions of our surplus. [SIDEBAR: We perform the sales and administrative services for the Policies.] SALES AND ADMINISTRATION OF THE POLICIES We serve as the "principal underwriter," as defined in the 1940 Act, for the Policy and other variable life insurance and variable annuity contracts issued by our subsidiary and us. We are registered under the Securities Exchange Act of 1934 as a broker-dealer and are a member of the National Association of Securities Dealers, Inc. We are a sub-investment manager to certain Portfolios of the Metropolitan Series Fund, Inc. and may also provide advisory services to other clients. 30 BONDING Our directors, officers and employees are bonded in the amount of $50,000,000, subject to a $5,000,000 deductible. DISTRIBUTING THE POLICIES We sell the Policies through licensed life insurance sales representatives: . Registered through us. . Registered through other broker-dealers, including a wholly owned subsidiary. COMMISSIONS We pay commissions to representatives (or the broker-dealers through which they are registered) for the sale of our products. The commissions do not result in a charge against the Policy in addition to the charges already described elsewhere in this Prospectus. Commissions paid in 1997, 1998, 1999 and 2000 totaled $21,001,907, $18,428,323, $19,290,501 and $9,835,604 respectively. Maximum commissions are: . First Policy Year: . The lesser of 60% of the Option A target premium; plus . 3% of the excess of the premium paid over the Option A target premium; or . $40 per $1000 of face amount of insurance issued. . Policy Years 2-4: 5% of premiums paid in the Policy year. . Policy Years 5-10: A servicing fee of 2% of premiums paid in the Policy year. . Policy Years 11 and later: A servicing fee of 1% of premiums paid in the Policy year. We also pay the sales manager of a sales representative employed by us an override commission based on many factors including the commissions paid to the representative who sold the Policy and to other representatives the sales manager supervises. We may require all or part of the commissions to be returned to us if you do not continue your Policy for at least 2 years. [SIDEBAR: You can give us voting instructions on shares of each Portfolio of a Fund that are attributed to your Policy.] VOTING RIGHTS The Funds have shareholder meetings from time to time to, for example, elect directors and approve some changes in investment management arrangements. We will vote the shares of each Portfolio that are attributed to your Policy based on your instructions. Should we determine that the 1940 Act no longer requires us to do this, we may decide to vote Fund shares in our own right, without input from you or any other owners of variable life insurance policies or variable annuity contracts that participate in a Fund. If you are eligible to give us voting instructions, we will send you informational material and a form to send back to us. We are entitled to disregard voting instructions in certain limited circumstances prescribed by the SEC. If we do so, we will give you our reasons in the next semi-annual report to Policy owners. 31 The number of shares for which you can give us voting instructions is determined as of the record date for the Fund shareholder meeting by dividing: . Your Policy's cash value in the corresponding investment division; by . The net asset value of one share of that Portfolio. We will count fractional votes. If we do not receive timely voting instructions from Policy owners and other insurance and annuity owners that are entitled to give us voting instructions, we will vote those shares in the same proportion as the shares held in the same separate account for which we did receive voting instructions. Also, we will vote Fund shares that are not attributable to insurance or annuity owners (including shares that we hold in our general account) or that are held in separate accounts that are not registered under the 1940 Act in the same proportion as the aggregate of the shares for which we received voting instructions from all insurance and annuity owners. REPORTS Generally, you will promptly receive statements confirming your significant transactions such as: . Change in specified face amount. . Change in death benefit options. . Transfers among investment divisions (including those through Automated Investment Strategies, which are confirmed quarterly). . Partial withdrawals. . Loan amounts you request. . Loan repayments and premium payments. If your premium payments are made through check-o-matic or another systematic payment method, we will not send you any confirmation in addition to the one you receive from your bank or employer. We will also send you an annual statement within 30 days after a Policy year that will summarize the year's transactions and include information on: . Deductions and charges. . Status of the death benefit. . Cash and cash surrender values. . Amounts in the investment divisions and Fixed Account. . Status of Policy loans. . Automatic loans to pay interest. . Information on your modified endowment contract status (if applicable). We will also send you a Fund's annual and semi-annual reports to shareholders. 32 [SIDEBAR: Personalized illustrations can help you understand how your Policy values can vary.] ILLUSTRATION OF POLICY BENEFITS In order to help you understand how your Policy values would vary over time under different sets of assumptions, we will provide you with certain illustrations upon request. These will be based on the age and insurance risk characteristics of the insured under your Policy and such factors as the specified face amount, death benefit option, premium payment amounts and rates of return (within limits) that you request. You can request such illustrations at any time. We have filed an example of such an illustration as an exhibit to the registration statement referred to below. GETTING MORE INFORMATION We are regulated by the New York Insurance Department and periodically are examined by them. We are also subject to the laws and regulations of all the jurisdictions in which we do business and, if required, we have filed the Policy for approval in every jurisdiction in which the Policy is sold. The Policy and /or the guaranteed minimum death benefit may not be available in every jurisdiction. You should ask your sales representative whether the Policy is available in your jurisdiction. We file annual statements on our operations, including financial statements, with insurance departments of various jurisdictions so that they can review our solvency and compliance with applicable laws and regulations. You can review these statements which are available at the offices of the various insurance departments. This Prospectus is part of a registration statement that we filed with the Securities and Exchange Commission under the Securities Act of 1933. The registration statement includes additional information, amendments and exhibits. You can get this information from the Securities and Exchange Commission (a copying fee may apply) by visiting or writing to its Public Reference Room or using its Internet site at: . Securities and Exchange Commission Public Reference Room Washington, D.C. 20549 Call 1-800-SEC-0330 (for information about using the Public Reference Room) Internet site: http://www.sec.gov LEGAL, ACCOUNTING AND ACTUARIAL MATTERS Anne M. Goggin, Chief Counsel--Individual Business at MetLife, has passed upon the legality of the Policies. The law firm of Foley & Lardner, Washington, D.C., has advised us on certain matters relating to the federal securities laws. Deloitte & Touche LLP, independent auditors, audited the financial statements included in this Prospectus, as stated in their reports appearing herein. The financial statements are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Our financial statements should be considered only as bearing upon our ability to meet our obligations under the Policy. Marian Zeldin, FSA, MAAA, Vice-President and Actuary of MetLife, has examined actuarial matters included in the registration statement, as stated in her opinion filed as an exhibit to the registration statement. 33 MANAGEMENT The present directors and the senior officers and secretary of MetLife are listed below, together with certain information concerning them: DIRECTORS, OFFICERS-DIRECTORS
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE ------------------------------------------------------------------------------------------------- Curtis H. Barnette Chairman Emeritus Director Bethlehem Steel Corp. 1170 Eight Ave. -- Martin Tower 101 Bethlehem, PA 18016 ------------------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chairman of the Board, President, Chief Executive Officer Chief Executive Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 ------------------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board and Vice Chairman of the Board, Chief Investment Officer Chief Investment Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 ------------------------------------------------------------------------------------------------- Joan Ganz Cooney Chairman, Executive Committee Director Sesame Street Workshop One Lincoln Plaza New York, NY 10023 ------------------------------------------------------------------------------------------------- John C. Danforth Partner Director Bryan Cave LLP One Metropolitan Square 211 North Broadway, Suite 3600 St. Louis, MO 63102 ------------------------------------------------------------------------------------------------- Burton A. Dole, Jr. Retired Chairman Director Nellcor Puritan Bennett P.O. Box 208 Pauma Valley, CA 92061 ------------------------------------------------------------------------------------------------- James R. Houghton Chairman of the Board Emeritus Director and Director Corning Incorporated 80 East Market Street, 2nd Floor Corning, NY 14830 ------------------------------------------------------------------------------------------------- Harry P. Kamen Retired Chairman and Director Chief Executive Officer Metropolitan Life Insurance Company One Madison Ave. New York, NY 10010 ------------------------------------------------------------------------------------------------- Helene L. Kaplan Of Counsel Director Skadden Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 ------------------------------------------------------------------------------------------------- Charles M. Leighton Retired Chairman and Director Chief Executive Officer CML Group, Inc. P.O. Box 247 Bolton, MA 01740
34
PRINCIPAL OCCUPATION & POSITIONS AND OFFICES NAME BUSINESS ADDRESS WITH METLIFE ---------------------------------------------------------------------------------------------------- Stewart Nagler Vice Chairman of the Board and Vice Chairman of the Board and Chief Financial Officer Chief Financial Officer and Director MetLife, Inc. and Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010 ---------------------------------------------------------------------------------------------------- John J. Phelan, Jr. Retired Chairman and Director Chief Executive Officer New York Stock Exchange, Inc. P.O. Box 524 Locust Valley, NY 11560 ---------------------------------------------------------------------------------------------------- Hugh B. Price President and Chief Executive Officer Director National Urban League, Inc. 120 Wall Street New York, NY 10005 ---------------------------------------------------------------------------------------------------- Ruth J. Simmons, Ph.D. President Director Smith College College Hall 20 Northhampton, MA 01063 ---------------------------------------------------------------------------------------------------- William C. Steere, Jr. Chairman of the Board Director Pfizer, Inc. 235 East 42nd Street New York, NY 10017
NAME OF OFFICER* POSITION WITH METROPOLITAN LIFE ---------------------------------------------------------------------------------------- Robert H. Benmosche Chairman of the Board, President and Chief Executive Officer ---------------------------------------------------------------------------------------- Gerald Clark Vice Chairman of the Board, Chief Investment Officer and Director ---------------------------------------------------------------------------------------- Stewart G. Nagler Vice Chairman of the Board, Chief Financial Officer and Director ---------------------------------------------------------------------------------------- Gary A. Beller Senior Executive Vice-President and General Counsel ---------------------------------------------------------------------------------------- James M. Benson President, Individual Business; Chairman, Chief Executive Officer and President, New England Life Insurance Company ---------------------------------------------------------------------------------------- Gwenn L. Carr Vice President and Secretary ---------------------------------------------------------------------------------------- Daniel J. Cavanagh Executive Vice President ---------------------------------------------------------------------------------------- C. Robert Henrikson President, Institutional Business ---------------------------------------------------------------------------------------- Jeffrey J. Hodgman Executive Vice President ---------------------------------------------------------------------------------------- Kernan F. King Executive Vice President ---------------------------------------------------------------------------------------- Leland Launer Senior Vice President and Treasurer ---------------------------------------------------------------------------------------- Terence Lennon Executive Vice President ---------------------------------------------------------------------------------------- David A. Levene Executive Vice President ---------------------------------------------------------------------------------------- William J. Toppeta President, Client Services and Chief Administrative Officer ---------------------------------------------------------------------------------------- Catherine A. Rein Senior Executive Vice-President; President and Chief Executive Officer, Metropolitan Property and Casualty Insurance Company ---------------------------------------------------------------------------------------- Stanley J. Talbi Senior Vice-President and Chief Actuary ---------------------------------------------------------------------------------------- John H. Tweedie Senior Executive Vice-President ---------------------------------------------------------------------------------------- Lisa M. Weber Executive Vice-President ---------------------------------------------------------------------------------------- Judy E. Weiss Executive Vice-President and Chief Actuary
------------ * The principal occupation of each officer, except for the following officers, during the last five years has been as an officer of Metropolitan Life or an affiliate thereof. Robert H. Benmosche has been an officer of Metropolitan Life since September, 1995; prior thereto, he was an Executive Vice- President of Paine Webber. Lisa Weber has been an officer of Metropolitan Life since March 16, 1998; prior thereto, she was a Director of Diversity Strategies and Development and an Associate Director of Human Resources of Paine Webber. The business address of each officer is 1 Madison Avenue, New York, New York 10010. 35 INDEPENDENT AUDITORS' REPORT To the Board of Directors Metropolitan Life Insurance Company: We have audited the accompanying statements of assets and liabilities of the Metropolitan Life Separate Account UL including 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, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Templeton International Stock, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Zenith Davis Venture Value Series, Zenith Loomis Sayles Small Cap Series, and Alliance Series Growth & Income--Class B Portfolios, collectively (the "Separate Account"), including the schedule of investments as of December 31, 2000, and the related statements (i) of operations for the year ended December 31, 2000, the statements of changes in net assets for the years ended December 31, 2000, and 1999 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, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, and Templeton International Stock Portfolios, and (ii) of operations and of changes in net assets for the period May 1, 2000 (commencement of operations) to December 31, 2000 of Putnam Large Cap Growth, July 5, 2000 (commencement of operations) to December 31, 2000 of State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Zenith Davis Venture Value Series, and Zenith Loomis Sayles Small Cap Series, and September 30, 2000 (commencement of operations) to December 31, 2000 of Alliance Series Growth & Income--Class B Portfolio. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2000 by correspondence with the custodian and the depositor of the Separate Account. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Metropolitan Life Separate Account UL including 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, Putnam International Stock, Loomis Sayles High Yield Bond, Janus Mid Cap, T. Rowe Price Small Cap Growth, Scudder Global Equity, Harris Oakmark Large Cap Value, Neuberger Berman Partners Mid Cap Value, T. Rowe Price Large Cap Growth, Lehman Brothers Aggregate Bond Index, Morgan Stanley EAFE Index, Russell 2000 Index, Janus Aspen Growth, Invesco VIF High Yield, Invesco VIF Equity Income, Invesco VIF Real Estate Opportunity, Templeton International Stock, Putnam Large Cap Growth, State Street Research Aurora Small Cap Value, MetLife Mid Cap Stock Index, Zenith Davis Venture Value Series, Zenith Loomis Sayles Small Cap Series, and Alliance Series Growth & Income--Class B Portfolios as of December 31, 2000, the results of its operations, and the changes in its net assets for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Tampa, Florida March 5, 2001 1 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES At December 31, 2000
State Street State Street State Street State Street State Street Research Research Research Research Research Aggressive Growth Income Money Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------ ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069).................... $404,569,260 -- -- -- -- State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)..................... -- $76,023,451 -- -- -- State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)..................... -- -- $21,535,554 -- -- State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614).................... -- -- -- $260,533,637 -- State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).................... -- -- -- -- $205,338,640 MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332).................... -- -- -- -- -- Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)..................... -- -- -- -- -- Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)...................... -- -- -- -- -- Janus Mid Cap Portfolio (5,597,930 shares; cost $152,196,373)....... -- -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)..................... -- -- -- -- -- Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)..................... -- -- -- -- -- Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391)...................... -- -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226)...................... -- -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090)...................... -- -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048)..................... -- -- -- -- -- Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)...................... -- -- -- -- -- Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)...................... -- -- -- -- -- Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)...................... -- -- -- -- -- Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273)..... -- -- -- -- -- Invesco VIF Equity Income Portfolio (670 shares; cost $14,429)......................... -- -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760)... -- -- -- -- -- Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)...................... -- -- -- -- -- Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)...................... -- -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656). -- -- -- -- -- MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)...................... -- -- -- -- -- Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)...................... -- -- -- -- Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576)................... -- -- -- -- Alliance Series Growth & Income-- Class B Portfolio (2,480 shares; cost $55,171).................... -- -- -- -- -- ------------ ----------- ----------- ------------ ------------ Total Investments................. 404,569,260 76,023,451 21,535,554 260,533,637 205,338,640 Cash and Accounts Receivable...... 0 0 0 0 0 ------------ ----------- ----------- ------------ ------------ Total Assets...................... 404,569,260 76,023,451 21,535,554 260,533,637 205,338,640 LIABILITIES....................... 1,180,719 40,200 1,639 398,614 354,200 ------------ ----------- ----------- ------------ ------------ NET ASSETS........................ $403,388,541 $75,983,251 $21,533,915 $260,135,023 $204,984,440 ============ =========== =========== ============ ============
See Notes to Financial Statements. 2
Loomis Harris Neuberger Putnam Sayles T. Rowe Scudder Oakmark Berman MetLife International High Yield Janus Price Small Global Large Cap Partners Stock Index Stock Bond Mid Cap Cap Growth Equity Value Mid Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------- ---------- ------------ ----------- ----------- ---------- ------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $314,228,935 -- -- -- -- -- -- -- -- $43,493,178 -- -- -- -- -- -- -- -- $6,884,686 -- -- -- -- -- -- -- -- $130,935,575 -- -- -- -- -- -- -- -- $42,134,910 -- -- -- -- -- -- -- -- $19,865,074 -- -- -- -- -- -- -- -- $2,078,196 -- -- -- -- -- -- -- -- $6,157,057 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------ ----------- ---------- ------------ ----------- ----------- ---------- ---------- 314,228,935 43,493,178 6,884,686 130,935,575 42,134,910 19,865,074 2,078,196 6,157,057 951 0 29,056 0 0 19,688 27,817 0 ------------ ----------- ---------- ------------ ----------- ----------- ---------- ---------- 314,229,886 43,493,178 6,913,742 130,935,575 42,134,910 19,884,762 2,106,013 6,157,057 338,108 21,570 0 78,155 16,668 0 0 17,889 ------------ ----------- ---------- ------------ ----------- ----------- ---------- ---------- $313,891,778 $43,471,608 $6,913,742 $130,857,420 $42,118,242 $19,884,762 $2,106,013 $6,139,168 ============ =========== ========== ============ =========== =========== ========== ==========
See Notes to Financial Statements. 3 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES (Continued) At December 31, 2000
T. Rowe Price Large Cap Lehman Brothers Morgan Stanley Russell 2000 Growth Aggregate Bond EAFE Index Index Portfolio Index Portfolio Portfolio Portfolio ------------- --------------- -------------- ------------ ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069)..... -- -- -- -- State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)........... -- -- -- -- State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)........... -- -- -- -- State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614)..... -- -- -- -- State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).......... -- -- -- -- MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332).......... -- -- -- -- Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)........... -- -- -- -- Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)............ -- -- -- -- Janus Mid Cap Portfolio (5,597,930 shares; cost $152,196,373).......... -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)........... -- -- -- -- Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)........... -- -- -- -- Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391)............ -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226)....... -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090)............ $7,203,340 -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048)........... -- $19,364,071 -- -- Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)............ -- -- $5,773,075 -- Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)............ -- -- -- $5,716,281 Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)............ -- -- -- -- Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273).. -- -- -- -- Invesco VIF Equity Income Portfolio (670 shares; cost $14,429).. -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760).............. -- -- -- -- Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)............ -- -- -- -- Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)............ -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656)............ -- -- -- -- MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)............ -- -- -- -- Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)............ -- -- -- -- Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576). -- -- -- -- Alliance Series Growth & Income--Class B Portfolio (2,480 shares; cost $55,171).. -- -- -- -- ---------- ----------- ---------- ---------- Total Investments....... 7,203,340 19,364,071 5,773,075 5,716,281 Cash and Accounts Receivable............. 59,205 0 12,281 0 ---------- ----------- ---------- ---------- Total Assets............ 7,262,545 19,364,071 5,785,356 5,716,281 LIABILITIES............. 0 8,277 0 15,124 ---------- ----------- ---------- ---------- NET ASSETS.............. $7,262,545 $19,355,794 $5,785,356 $5,701,157 ========== =========== ========== ==========
See Notes to Financial Statements. 4
Invesco Invesco VIF Invesco VIF Templeton Putnam Janus VIF High Equity Real Estate International Large Cap Aspen Growth Yield Income Opportunity Stock Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ --------- --------- ----------- ------------- --------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- $5,020,145 -- -- -- -- -- -- $10,822 -- -- -- -- -- -- $13,877 -- -- -- -- -- -- $114,734 -- -- -- -- -- -- $1,099,229 -- -- -- -- -- -- $951,174 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ---------- ------- ------- -------- ---------- -------- 5,020,145 10,822 13,877 114,734 1,099,229 951,174 0 0 0 0 0 7,333 ---------- ------- ------- -------- ---------- -------- 5,020,145 10,822 13,877 114,734 1,099,229 958,507 0 0 0 0 0 0 ---------- ------- ------- -------- ---------- -------- $5,020,145 $10,822 $13,877 $114,734 $1,099,229 $958,507 ========== ======= ======= ======== ========== ========
See Notes to Financial Statements. 5 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES (Continued) At December 31, 2000
State Street Zenith Zenith Research Aurora Metlife Mid Davis Venture Loomis Sayles Small Cap Value Cap Stock Index Value Series Small Cap Series Portfolio Portfolio Portfolio Portfolio --------------- --------------- ------------- ---------------- ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069)..... -- -- -- -- State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)........... -- -- -- -- State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)........... -- -- -- -- State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614)..... -- -- -- -- State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).......... -- -- -- -- MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332).......... -- -- -- -- Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)........... -- -- -- -- Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)............ -- -- -- -- Janus Mid Cap Portfolio (5,597,930 shares; cost $152,196,373).......... -- -- -- -- T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)........... -- -- -- -- Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)........... -- -- -- -- Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391)............ -- -- -- -- Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226)............ -- -- -- -- T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090)............ -- -- -- -- Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048) .......... -- -- -- -- Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)............ -- -- -- -- Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)............ -- -- -- -- Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)............ -- -- -- -- Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273).. -- -- -- -- Invesco VIF Equity Income Portfolio (670 shares; cost $14,429).. -- -- -- -- Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760).............. -- -- -- -- Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)............ -- -- -- -- Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)............ -- -- -- -- State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656)............ $3,133,424 -- -- -- MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)............ -- $2,143,563 -- -- Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)............ -- -- $1,138,605 -- Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576).............. -- -- -- $444,556 Alliance Series Growth & Income--Class B Portfolio (2,480 shares; cost $55,171)............... -- -- -- -- ---------- ---------- ---------- -------- Total Investments....... 3,133,424 2,143,563 1,138,605 444,556 Cash and Accounts Receivable............. 0 2,628 0 0 ---------- ---------- ---------- -------- Total Assets............ 3,133,424 2,146,191 1,138,605 444,556 LIABILITIES............. 2,468 0 1,826 574 ---------- ---------- ---------- -------- NET ASSETS.............. $3,130,956 $2,146,191 $1,136,779 $443,982 ========== ========== ========== ========
See Notes to Financial Statements. 6 Metropolitan Life Separate Account UL STATEMENTS OF ASSETS AND LIABILITIES (Continued) At December 31, 2000
Alliance Series Growth & Income--Class B Portfolio Total --------------- -------------- ASSETS: Investments at Value (Note 2A): State Street Research Growth Portfolio (11,132,891 shares; cost $355,220,069)......... -- $ 404,569,260 State Street Research Income Portfolio (5,852,460 shares; cost $72,925,790)........... -- 76,023,461 State Street Research Money Market Portfolio (2,123,403 shares; cost $22,943,841)........... -- 21,535,554 State Street Research Diversified Portfolio (14,174,844 shares; cost $238,691,614)......... -- 260,533,637 State Street Research Aggressive Growth Portfolio (6,491,895 shares; cost $187,915,564).................................. -- 205,338,640 MetLife Stock Index Portfolio (8,911,768 shares; cost $299,257,332)............................. -- 314,228,935 Putnam International Stock Portfolio (3,510,345 shares; cost $45,979,274)...................... -- 43,493,178 Loomis Sayles High Yield Bond Portfolio (764,965 shares; cost $7,063,496)....................... -- 6,884,686 Janus Mid Cap Portfolio (5,597,980 shares; cost $152,196,373).................................. -- 130,935,575 T. Rowe Price Small Cap Growth Portfolio (2,946,497 shares; cost $39,757,787)........... -- 42,134,910 Scudder Global Equity Portfolio (1,358,760 shares; cost $18,080,858)...................... -- 19,865,074 Harris Oakmark Large Cap Value Portfolio (212,277 shares; cost $1,874,391).............. -- 2,078,196 Neuberger Berman Partners Mid Cap Value Portfolio (415,456 shares; cost $5,696,226).... -- 6,167,057 T. Rowe Price Large Cap Growth Portfolio (557,103 shares; cost $7,546,090).............. -- 7,203,340 Lehman Brothers Aggregate Bond Index Portfolio (1,955,967 shares; cost $19,431,048)........... -- 19,364,071 Morgan Stanley EAFE Index Portfolio (514,534 shares; cost $6,037,849)....................... -- 5,773,075 Russell 2000 Index Portfolio (551,232 shares; cost $6,712,425)............................... -- 5,716,281 Janus Aspen Growth Portfolio (189,582 shares; cost $6,048,279)............................... -- 5,020,145 Invesco VIF High Yield Portfolio (1,075 shares; cost $12,273).................................. -- 10,822 Invesco VIF Equity Income Portfolio (670 shares; cost $14,429).................................. -- 13,877 Invesco VIF Real Estate Opportunity Portfolio (11,304 shares; cost $109,760)................. -- 114,734 Templeton International Stock Portfolio (58,532 shares; cost $1,105,655)....................... -- 1,099,229 Putnam Large Cap Growth Portfolio (130,298 shares; cost $1,124,530)....................... -- 951,174 State Street Research Aurora Small Cap Value Portfolio (255,999 shares; cost $2,830,656).... -- 3,133,424 MetLife Mid Cap Stock Index Portfolio (201,463 shares; cost $2,086,257)....................... -- 2,143,563 Zenith Davis Venture Value Series Portfolio (38,993 shares; cost $1,111,014)............... -- 1,138,605 Zenith Loomis Sayles Small Cap Series Portfolio (2,113 shares; cost $438,576).................. -- 444,556 Alliance Series Growth & Income--Class B Portfolio (2,480 shares; cost $55,171) ........ $57,873 57,873 ------- -------------- Total Investments............................... 57,873 1,585,962,922 Cash and Accounts Receivable.................... 0 158,959 ------- -------------- Total Assets.................................... 57,873 1,586,121,881 LIABILITIES..................................... 0 2,476,031 ------- -------------- NET ASSETS...................................... $57,873 $1,583,645,850 ======= ==============
See Notes to Financial Statements. 7 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2000 ----------------------------------------------------------------- State Street State Street State Street State Street State Street Research Research Research Research Research Aggressive Growth Income Money Market Diversified Growth Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 4,838,821 $ 3,139 $1,677,962 $1,174,688 $ 27,463,699 Expenses: Mortality and expense charges (Note 4).............. 3,798,303 557,064 291,782 2,258,802 1,992,343 ------------ ---------- ---------- ---------- ------------ Net investment income (loss)................. 1,040,518 (553,925) 1,386,180 (1,084,114) 25,471,356 ------------ ---------- ---------- ---------- ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 5,846,334 (764,188) 1,059,353 1,585,197 3,369,764 Change in unrealized (depreciation) appreciation of investments............ (37,904,600) 8,375,071 (454,099) (360,101) (48,026,970) ------------ ---------- ---------- ---------- ------------ Net realized and unrealized (loss) gain on investments......... (32,058,266) 7,610,883 605,254 1,225,096 (44,657,206) ------------ ---------- ---------- ---------- ------------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(31,017,748) $7,056,958 $1,991,434 $ 140,982 $(19,185,850) ============ ========== ========== ========== ============
See Notes to Financial Statements. 8
---------------------------------------------------------------------------------------- Loomis T. Rowe Harris Putnam Sayles Price Scudder Oakmark MetLife International High Yield Janus Small Cap Global Large Cap Stock Index Stock Bond Mid Cap Growth Equity Value Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ----------- ------------- ---------- --------- --------- --------- --------- $ 13,335,508 $ 274,114 $ 2,401 $ 11,303,876 $ 0 $ 64,757 $ 45,533 2,457,289 377,435 50,458 1,274,377 307,077 142,655 8,356 ------------ ----------- --------- ------------ ----------- --------- -------- 10,878,219 (103,321) (48,057) 10,029,499 (307,077) (77,898) 37,177 ------------ ----------- --------- ------------ ----------- --------- -------- 6,159,583 309,181 (62,427) 3,280,184 759,159 423,877 (27,497) (49,619,601) (5,241,506) (65,158) (70,128,825) (4,955,737) (702,165) 217,646 ------------ ----------- --------- ------------ ----------- --------- -------- (43,460,018) (4,932,325) (127,585) (66,848,641) (4,196,578) (278,288) 190,149 ------------ ----------- --------- ------------ ----------- --------- -------- $(32,581,799) $(5,035,646) $(175,642) $(56,819,142) $(4,503,655) $(356,186) $227,326 ============ =========== ========= ============ =========== ========= ========
9 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS (Continued)
For the Year Ended December 31, 2000 ---------------------------------------------------------------- T. Rowe Lehman Morgan Neuberger Price Brothers Stanley Berman Partners Large Cap Aggregate Bond EAFE Russell Mid Cap Growth Index Index 2000 Index Value Portfolio Portfolio Portfolio Portfolio Portfolio --------------- --------- -------------- --------- ----------- INVESTMENT INCOME: Income: Dividends (Note 3)..... $ 192,122 $ 212,097 $1,151,414 $ 90,887 $ 797,642 Expenses: Mortality and expense charges (Note 4).............. 16,357 28,064 51,779 22,497 21,802 --------- --------- ---------- --------- ----------- Net investment income (loss)................. 175,765 184,033 1,099,635 68,390 775,840 --------- --------- ---------- --------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions........... 28,891 9,246 61,931 (86,470) (27,586) Change in unrealized (depreciation) appreciation of investments............ 444,118 (515,437) (39,445) (425,063) (1,037,181) --------- --------- ---------- --------- ----------- Net realized and unrealized (loss) gain on investments......... 473,009 (506,191) 22,486 (511,533) (1,064,767) --------- --------- ---------- --------- ----------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $648,774 $(322,158) $1,122,121 $(443,143) $ (288,927) ========= ========= ========== ========= ===========
See Notes to Financial Statements. 10
For the Period For the Period May 1, 2000 July 5, 2000 to to December 31, 2000 December 31, 2000 ------------------------------------------------------------------------------------------------ Invesco Invesco Invesco VIF Templeton State Street Janus Aspen VIF High VIF Equity Real Estate International Research Aurora Growth Yield Income Opportunity Stock Putman Large Cap Small Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio Growth Portfolio Portfolio ----------- --------- ---------- ----------- ------------- ---------------- --------------- $ 191,433 $ 0 $ 783 $ 0 $ 34,323 $ 0 $ 20,669 19,763 42 58 288 3,352 1,713 3,697 ----------- ------- ----- ------ -------- --------- -------- 171,670 (42) 725 (288) 30,971 (1,713) 16,972 ----------- ------- ----- ------ -------- --------- -------- (11,878) (11) 18 445 (35,953) (1,766) 3,082 (1,038,841) (1,445) (596) 4,890 (6,907) (173,356) 302,768 ----------- ------- ----- ------ -------- --------- -------- (1,050,719) (1,456) (578) 5,335 (42,860) (175,122) 305,850 ----------- ------- ----- ------ -------- --------- -------- $ (879,049) $(1,498) $147 $5,047 $(11,889) $(176,835) $322,822 =========== ======= ===== ====== ======== ========= ========
11 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS (Continued)
For the Period July 5, 2000 to December 31, 2000 ---------------------------------------- MetLife Mid Cap Zenith Zenith Stock Davis Venture Loomis Sayles Index Value Series Small Cap Series Portfolio Portfolio Portfolio --------- ------------- ---------------- INVESTMENT INCOME: Income: Dividends (Note 3).................. $ 8,945 $ 0 $ 0 Expenses: Mortality and expense charges (Note 4)........................... 1,923 1,697 629 ------- ------- ------ Net investment income (loss)......... 7,022 (1,697) (629) ------- ------- ------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions............... (300) (482) (42) Change in unrealized (depreciation) appreciation of investments......... 57,307 27,591 5,980 ------- ------- ------ Net realized and unrealized (loss) gain on investments................. 57,007 27,109 5,938 ------- ------- ------ NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $64,029 $25,412 $5,309 ======= ======= ======
See Notes to Financial Statements. 12 Metropolitan Life Separate Account UL STATEMENTS OF OPERATIONS (Continued)
Alliance Series Growth & Income-- Class B Portfolio Total ----------------- ------------- INVESTMENT INCOME: Income: Dividends (Note 3).......................... $ 0 $ 62,884,813 Expenses: Mortality and expense charges (Note 4)................................... 0 13,689,602 ------ ------------- Net investment income (loss)................. 0 49,195,211 ------ ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 2B) Net realized gain (loss) from security transactions................................ 0 21,877,645 Change in unrealized (depreciation) appreciation of investments................. 2,702 (211,258,960) ------ ------------- Net realized and unrealized (loss) gain on investments................................. 2,702 (189,381,315) ------ ------------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $2,702 $(140,186,104) ====== =============
13 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS
State Street Reasearch State Street Reasearch State Street Reasearch Growth Portfolio Income Portfolio Money Market Portfolio -------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 1,040,518 $ 40,828,191 $ (553,925) $ 3,681,974 $ 1,386,180 $ 1,296,852 Net realized gain (loss) from security transactions.......... 5,846,334 3,593,964 (764,188) 15,187 1,059,353 245,673 Change in unrealized (depreciation) appreciation of investments........... (37,904,600) 16,515,105 8,375,071 (5,496,396) (454,099) (275,023) ------------ ------------ ----------- ----------- ------------ ----------- Net (decrease) increase in net assets resulting from operations............ (31,017,748) 60,937,260 7,056,958 (1,799,235) 1,991,434 1,267,502 ------------ ------------ ----------- ----------- ------------ ----------- From capital transactions: Net premiums........... 78,775,448 76,267,713 16,247,550 15,797,917 35,316,006 35,768,800 Redemptions............ (15,714,936) (15,563,840) (2,164,427) (1,719,595) (18,249,957) (296,905) Net portfolio transfers............. (7,049,932) 3,590,588 (4,736,604) 2,922,342 (27,922,080) (23,898,442) Other net transfers.... (41,272,460) (38,125,701) (6,051,666) (6,009,960) (2,674,970) (2,027,635) ------------ ------------ ----------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from capital transactions.......... 14,738,120 26,168,760 3,294,853 10,990,704 (13,531,001) 9,545,818 ------------ ------------ ----------- ----------- ------------ ----------- NET CHANGE IN NET ASSETS................. (16,279,628) 87,106,020 10,351,811 9,191,469 (11,539,567) 10,813,320 NET ASSETS--BEGINNING OF PERIOD................. 419,668,169 332,562,149 65,631,440 56,439,971 33,073,482 22,260,162 ------------ ------------ ----------- ----------- ------------ ----------- NET ASSETS--END OF PERIOD................. $403,388,541 $419,668,169 $75,983,251 $65,631,440 $ 21,533,915 $33,073,482 ============ ============ =========== =========== ============ ===========
See Notes to Financial Statements. 14
State Street Research Putnam State Street Research Aggressive Growth MetLife International Stock Diversified Portfolio Portfolio Stock Index Portfolio Portfolio --------------------------- -------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (1,084,114) $ 18,825,455 $ 25,471,356 $ 3,037,862 $ 10,878,219 $ 10,353,423 $ (103,321) $ 6,403,093 1,585,197 743,624 3,369,764 1,280,373 6,159,583 3,899,836 309,181 528,185 (360,101) (2,237,161) (48,026,970) 47,914,985 (49,619,601) 24,029,258 (5,241,506) (1,137,521) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 140,982 17,331,918 (19,185,850) 52,233,220 (32,581,799) 38,282,517 (5,035,646) 5,793,757 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 53,773,281 54,466,186 41,898,360 41,977,555 101,155,153 80,432,444 9,900,638 8,765,614 (9,860,611) (8,542,813) (10,429,472) (6,935,090) (8,709,802) (5,037,136) (2,135,289) (1,805,287) (3,492,574) 2,267,794 (209,434) (8,586,687) 32,416,473 20,459,060 760,648 (1,507,125) (28,128,760) (26,640,820) (21,759,150) (18,101,172) (39,683,105) (31,708,703) (3,943,304) (3,575,131) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 12,291,336 21,550,347 9,500,304 8,354,606 85,178,719 64,145,665 4,582,693 1,878,071 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 12,432,318 38,882,265 (9,685,546) 60,587,826 52,596,920 102,428,182 (452,953) 7,671,828 247,702,705 208,820,440 214,669,986 154,082,160 261,294,858 158,866,676 43,924,561 36,252,733 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- $260,135,023 $247,702,705 $204,984,440 $214,669,986 $313,891,778 $261,294,858 $43,471,608 $43,924,561 ============ ============ ============ ============ ============ ============ =========== ===========
15 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
T. Rowe Price Loomis Sayles Janus Small Cap Growth High Yield Bond Portfolio Mid Cap Portfolio Portfolio ------------------------- -------------------------- -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ (48,057) $ 351,127 $ 10,029,499 $ 4,984,315 $ (307,077) $ (159,812) Net realized gain (loss) from security transactions.......... (62,427) (159,077) 3,280,184 1,140,427 759,159 41,394 Change in unrealized (depreciation) appreciation of investments........... (65,158) 384,776 (70,128,825) 44,344,823 (4,955,737) 6,830,580 ---------- ---------- ------------ ------------ ----------- ----------- Net (decrease) increase in net assets resulting from operations ........... (175,642) 576,826 (56,819,142) 50,469,565 (4,503,655) 6,712,162 ---------- ---------- ------------ ------------ ----------- ----------- From capital transactions: Net premiums........... 2,272,880 1,766,270 64,927,917 31,140,404 13,173,661 10,707,741 Redemptions............ (256,031) (387,694) (3,404,065) (1,283,943) (960,930) (556,621) Net portfolio transfers............. 762,530 1,046,383 39,706,625 24,344,237 7,018,243 5,288,531 Other net transfers.... (644,203) (587,488) (26,632,666) (12,718,059) (4,758,398) (3,307,953) ---------- ---------- ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from capital transactions.......... 2,135,176 1,837,471 74,597,811 41,482,639 14,472,576 12,131,698 ---------- ---------- ------------ ------------ ----------- ----------- NET CHANGE IN NET ASSETS................. 1,959,534 2,414,297 17,778,669 91,952,204 9,968,921 18,843,860 NET ASSETS--BEGINNING OF PERIOD................. 4,954,208 2,539,911 113,078,751 21,126,547 32,149,321 13,305,461 ---------- ---------- ------------ ------------ ----------- ----------- NET ASSETS--END OF PERIOD................. $6,913,742 $4,954,208 $130,857,420 $113,078,751 $42,118,242 $32,149,321 ========== ========== ============ ============ =========== ===========
See Notes to Financial Statements. 16
T. Rowe Price Scudder Harris Oakmark Neuberger Berman Partners Large Cap Growth Global Equity Portfolio Large Cap Value Portfolio Mid Cap Value Portfolio Portfolio ---------------------------- ------------------------- ------------------------------ -------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (77,898) $ 399,116 $ 37,177 $ 2,358 $ 175,765 $ 12,881 $ 184,033 $ 782 423,877 272,213 (27,497) (5,489) 28,891 679 9,246 2,027 (702,165) 1,937,990 217,646 (13,841) 444,118 16,713 (515,437) 172,687 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- (356,186) 2,609,319 227,326 (16,972) 648,774 30,273 (322,158) 175,496 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- 6,536,768 4,574,226 715,820 125,384 1,424,997 162,181 2,941,543 141,433 (543,240) (541,665) (22,511) (8,780) (48,928) 0 (19,075) 0 1,878,567 985,125 1,142,472 224,137 4,051,096 433,203 4,471,715 1,037,195 (2,129,044) (1,431,966) (296,592) 15,729 (529,061) (33,367) (1,062,875) (100,729) ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- 5,743,051 3,585,720 1,539,189 356,470 4,898,104 562,017 6,331,308 1,077,899 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- 5,386,865 6,195,039 1,766,515 339,498 5,546,878 592,290 6,009,150 1,253,395 14,497,897 8,302,858 339,498 0 592,290 0 1,253,395 0 ----------- ----------- ---------- -------- -------------- ------------ ----------- ---------- $19,884,762 $14,497,897 $2,106,013 $339,498 $ 6,139,168 $ 592,290 $ 7,262,545 $1,253,395 =========== =========== ========== ======== ============== ============ =========== ==========
17 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Lehman Brothers Aggregate Morgan Stanley Russell 2000 Bond Index Portfolio EAFE Index Portfolio Index Portfolio -------------------------- ------------------------- ------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 1,099,635 $ 22,843 $ 68,390 $ 11,037 $ 775,840 $ 12,267 Net realized gain (loss) from security transactions.......... 61,931 (1,189) (86,470) 92,428 (27,586) 10,610 Change in unrealized (depreciation) appreciation of investments........... (39,445) (27,533) (425,063) 160,288 (1,037,181) 41,036 ----------- -------- ---------- ---------- ---------- -------- Net (decrease) increase in net assets resulting from operations............ 1,122,121 (5,879) (443,143) 263,753 (288,927) 63,913 ----------- -------- ---------- ---------- ---------- -------- From capital transactions: Net premiums........... 6,001,873 93,732 1,984,111 139,276 2,510,031 214,532 Redemptions............ (253,963) (1,012) (25,611) (1,812) (45,875) (1,472) Net portfolio transfers............. 12,581,907 484,526 3,730,891 862,477 3,956,271 219,845 Other net transfers.... (657,185) (10,326) (682,554) (42,032) (882,331) (44,830) ----------- -------- ---------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from capital transactions.......... 17,672,632 566,920 5,006,837 957,909 5,538,096 388,075 ----------- -------- ---------- ---------- ---------- -------- NET CHANGE IN NET ASSETS................. 18,794,753 561,041 4,563,694 1,221,662 5,249,169 451,988 NET ASSETS--BEGINNING OF PERIOD................. 561,041 0 1,221,662 0 451,988 0 ----------- -------- ---------- ---------- ---------- -------- NET ASSETS--END OF PERIOD................. $19,355,794 $561,041 $5,785,356 $1,221,662 $5,701,157 $451,988 =========== ======== ========== ========== ========== ========
See Notes to Financial Statements. 18
Janus Aspen Invesco VIF High Invesco VIF Equity Invesco VIF Real Estate Growth Portfolio Yield Portfolio Income Portfolio Opportunity Portfolio ----------------------------------------------------- ------------------------- ------------------------- For the For the For the For the Period Period Period Period For the Year May 3, 1999 For the Year May 3, 1999 For the Year May 3, 1999 For the Year May 3, 1999 Ended to Ended to Ended to Ended to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 171,670 $ (61) $ (42) $ 0 $ 725 $ 0 $ (288) $ (1) (11,878) 79 (11) 0 18 0 445 0 (1,038,841) 10,708 (1,445) (6) (596) 45 4,890 84 ----------- ------- ------- ------ ------- ------ -------- ------ (879,049) 10,726 (1,498) (6) 147 45 5,047 83 ----------- ------- ------- ------ ------- ------ -------- ------ 1,494,340 99 2,194 0 7,244 0 1,795 0 (102) 0 0 0 0 0 0 0 4,654,955 86,070 7,138 3,236 1,027 5,802 107,017 1,524 (346,372) (522) (239) (3) (413) 25 (709) (23) ----------- ------- ------- ------ ------- ------ -------- ------ 5,802,821 85,647 9,093 3,233 7,858 5,827 108,103 1,501 ----------- ------- ------- ------ ------- ------ -------- ------ 4,923,772 96,373 7,595 3,227 8,005 5,872 113,150 1,584 96,373 0 3,227 0 5,872 0 1,584 0 ----------- ------- ------- ------ ------- ------ -------- ------ $ 5,020,145 $96,373 $10,822 $3,227 $13,877 $5,872 $114,734 $1,584 =========== ======= ======= ====== ======= ====== ======== ======
19 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Templeton International Putnam Large Cap Stock Portfolio Growth Portfolio ------------------------- ---------------- For the Period For the Year May 3, 1999 For the Period Ended to May 1, 2000 to December 31, December 31, December 31, 2000 1999 2000 ------------ ------------ ---------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)....... $ 30,971 $ (5) $ (1,713) Net realized gain (loss) from security transactions............. (35,953) 32 (1,766) Change in unrealized (depreciation) appreciation of investments....... (6,907) 481 (173,356) ---------- ------ ---------- Net (decrease) increase in net assets resulting from operations.. (11,889) 508 (176,835) ---------- ------ ---------- From capital transactions: Net premiums....................... 199,820 1,166 306,843 Redemptions........................ (1,160) 0 (5,695) Net portfolio transfers............ 922,250 5,208 915,075 Other net transfers................ (16,624) (50) (80,881) ---------- ------ ---------- Net increase (decrease) in net assets resulting from capital transactions...................... 1,104,286 6,324 1,135,342 ---------- ------ ---------- NET CHANGE IN NET ASSETS............ 1,092,397 6,832 958,507 NET ASSETS--BEGINNING OF PERIOD..... 6,832 0 0 ---------- ------ ---------- NET ASSETS--END OF PERIOD........... $1,099,229 $6,832 $ 958,507 ========== ====== ==========
See Notes to Financial Statements. 20
State Street Research Aurora MetLife Mid Cap Zenith Davis Venture Zenith Loomis Sayles Small Small Cap Value Portfolio Stock Index Portfolio Value Series Portfolio Cap Series Portfolio ---------------------------- --------------------- ---------------------- -------------------------- For the Period For the Period For the Period For the Period July 5, 2000 to July 5, 2000 to July 5, 2000 to July 5, 2000 to December 31, 2000 December 31, 2000 December 31, 2000 December 31, 2000 ---------------------------- --------------------- ---------------------- -------------------------- $ 16,972 $ 7,022 $ (1,697) $ (629) 3,082 (300) (482) (42) 302,768 57,307 27,591 5,980 ---------- ---------- ---------- -------- 322,822 64,029 25,412 5,309 ---------- ---------- ---------- -------- 335,643 240,407 199,454 62,643 (11,356) (8,675) (6,528) (6,573) 2,585,881 1,949,602 973,687 403,213 (102,034) (99,172) (55,246) (20,610) ---------- ---------- ---------- -------- 2,808,134 2,082,162 1,111,367 438,673 ---------- ---------- ---------- -------- 3,130,956 2,146,191 1,136,779 443,982 0 0 0 0 ---------- ---------- ---------- -------- $3,130,956 $2,146,191 $1,136,779 $443,982 ========== ========== ========== ========
21 Metropolitan Life Separate Account UL STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Alliance Series Growth & Income-- Class B Portfolio Total -------------------- ----------------------------------- For the Period For the Year For the Year September 30, 2000 Ended Ended to December 31, 2000 December 31, 2000 December 31, 1999 -------------------- ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss)................ $ 0 $ 49,195,211 $ 90,063,697 Net realized gain (loss) from security transactions.......... 0 21,877,645 11,700,976 Change in unrealized (depreciation) appreciation of investments........... 2,702 (211,258,960) 133,172,078 ------- -------------- -------------- Net (decrease) increase in net assets resulting from operations............ 2,702 (140,186,104) 234,936,751 ------- -------------- -------------- From capital transactions: Net premiums........... 0 442,406,420 362,542,673 Redemptions............ 0 (72,884,812) (42,683,665) Net portfolio transfers............. 54,402 81,641,061 30,275,029 Other net transfers.... 769 (182,509,855) (144,450,716) ------- -------------- -------------- Net increase (decrease) in net assets resulting from capital transactions.......... 55,171 268,652,814 205,683,321 ------- -------------- -------------- NET CHANGE IN NET ASSETS................. 57,873 128,466,710 440,620,072 NET ASSETS--BEGINNING OF PERIOD................. 0 1,455,179,140 1,014,559,068 ------- -------------- -------------- NET ASSETS--END OF PERIOD................. $57,873 $1,583,645,850 $1,455,179,140 ======= ============== ==============
See Notes to Financial Statements. 22 Metropolitan Life Separate Account UL NOTES TO FINANCIAL STATEMENTS December 31, 2000 1. BUSINESS Metropolitan Life Separate Account UL (the "Separate Account") is a multi- division unit investment trust registered under the Investment Company Act of 1940, as amended. The six divisions are UL II, IVUL, GVUL, UL2001, VAI, and VABR. The Separate Account presently consists of twenty-eight investment portfolios used to support variable universal life insurance policies. The assets in each portfolio are invested in shares of the corresponding portfolio of the Metropolitan Series Fund, Inc., the New England Zenith Series Fund, Inc., the Templeton Variable Product Series Fund, the Invesco Variable Investment Fund, Inc., the Janus Aspen Series Fund, and the Alliance Variable Product Series Fund, collectively, (the "Funds"). The Metropolitan Series Fund, Inc. and the New England Zenith Series Fund, Inc. are both affiliated with Metropolitan Life Insurance Company ("Metropolitan Life"). Each portfolio has varying investment objectives relative to growth of capital and income. The Separate Account was formed by "Metropolitan Life", on December 13, 1988 and registered as a unit investment trust on January 5, 1990. The assets of the Separate Account are the property of Metropolitan Life. On May 1, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date, the Putnam Large Cap Growth Portfolio. On July 5, 2000 operations commenced for four new investment portfolios added to the Separate Account on that date: State Street Research Aurora Small Cap Value Portfolio, MetLife Mid Cap Stock Index Portfolio, Zenith Davis Venture Value Series Portfolio, and the Zenith Loomis Sayles Small Cap Series Portfolio. On September 30, 2000, operations commenced for one new investment portfolio added to the Separate Account on that date, Alliance Series Growth & Income-- Class B Portfolio. On May 3, 1999, operations commenced for the five new investment portfolios added to the Separate Account on that date: the Janus Aspen Growth Portfolio, the Invesco VIF High Yield Portfolio, the Invesco VIF Equity Income Portfolio, the Invesco VIF Real Estate Opportunity Portfolio, and the Templeton International Stock. 2. SIGNIFICANT ACCOUNTING POLICIES A. Valuation of Investments Investments are made in the portfolios of the Funds and are valued at the reported net asset values of such portfolios. A summary of investments of the twenty-eight designated portfolios of the Funds in which the six investment divisions of the Separate Account invest as of December 31, 2000 is included as Note 7. B. Security Transactions Purchases and sales are recorded on the trade date basis. Realized gains and losses on sales of investments are computed on the basis of identified cost of the investment sold. Income from dividends, and gains from realized gain distributions, are recorded on the ex-distribution date. C. Federal Income Taxes The operations of the Separate Account are included in the Federal income tax return of Metropolitan Life, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (IRC). Under the current provisions of the IRC, Metropolitan Life does not expect to incur Federal income taxes on the earnings of the Separate Account to the extent the earnings are credited under the contracts. Based of this, no charge is being made currently to the Separate Account for Federal income taxes. Metropolitan Life will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any Federal income taxes that would be attributable to the contracts. 23 NOTES TO FINANCIAL STATEMENTS--(Continued) 2. SIGNIFICANT ACCOUNTING POLICIES--(Continued) D. Net Premiums Metropolitan Life deducts a sales load and a state premium tax charge from premiums before amounts are allocated to the Separate Account. In the case of certain policies, Metropolitan Life also deducts a Federal income tax charge before amounts are allocated to the Separate Account. The Federal income tax charge is imposed in connection with certain policies to recover a portion of the Federal income tax adjustment attributable to policy acquisition expenses. E. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United State of America requires management to make estimates that affect amounts reported therein. Actual results could differ from these estimates. 3. DIVIDENDS On September 13, 2000 and December 28, 2000, the Metropolitan Series Fund, Inc. declared dividends for all shareholders of record on September 13, 2000 and December 28, 2000, respectively. On June 29, 2000, July 28, 2000, and December 28, 2000, the Janus Aspen Series Fund declared dividends for all shareholders of record on June 29, 2000, July 28, 2000, and December 28, 2000. On December 28, 2000, the Invesco Variable Investment Fund, Inc. declared dividends for all shareholders of record on December 28, 2000. On February 28, 2000 and April 26, 2000, the Templeton Variable Product Series Fund declared dividends for all shareholders of record on February 28, 2000 and April 26, 2000, respectively. The amount of dividends received by the Separate Account was $62,884,813. The dividends were paid to Metropolitan Life on September 14, 2000 and December 29, 2000 by the Metropolitan Series Fund, Inc., on June 30, 2000, July 29, 2000, and December 29, 2000 by the Janus Aspen Series Fund, on December 29, 2000 by the Invesco Variable Investment Fund, Inc., and on February 29, 2000 and April 27, 2000 by the Templeton Variable Products Series Fund. The dividends received were immediately reinvested in additional shares of the portfolios in which the investment portfolios invest. As a result of this reinvestment, the number of shares of the Funds, held by each of the twenty-eight investment portfolios increased by the following:
Portfolio Shares --------- ------- State Street Research Growth Portfolio.............................. 115,046 State Street Research Income Portfolio.............................. 254 State Street Research Money Market Portfolio........................ 165,336 State Street Research Diversified Portfolio......................... 60,302 State Street Research Aggressive Growth Portfolio................... 697,225 MetLife Stock Index Portfolio....................................... 364,172 Putnam International Stock Portfolio................................ 2,135 Loomis Growth Sayles High Yield Bond Portfolio...................... 245 Janus Mid Cap Portfolio............................................. 349,016 T. Rowe Price Small Cap Growth Portfolio............................ 0 Scudder Global Equity Portfolio..................................... 4,447 Harris Oakmark Large Cap Value Portfolio............................ 4,823 Neuberger Berman Partners Mid Cap Value Portfolio................... 12,901 T. Rowe Price Large Cap Growth Portfolio............................ 16,053 Lehman Brothers Aggregate Bond Index Portfolio...................... 116,415 Morgan Stanley EAFE Index Portfolio................................. 8,150 Russell 2000 Index Portfolio........................................ 75,117 Janus Aspen Growth Portfolio........................................ 12,531 Putnam Large Cap Growth Portfolio................................... 0 State Street Research Aurora Small Cap Value Portfolio.............. l,686 MetLife Mid Cap Stock Index Portfolio............................... 826 Zenith Davis Venture Value Series Portfolio......................... 0 Zenith Loomis Sayles Small Cap Series Portfolio..................... 1
24 NOTES TO FINANCIAL STATEMENTS--(Continued) 3. DIVIDENDS--(Continued)
Portfolio Shares --------- ------ Invesco VIF High Yield Portfolio..................................... 10 Invesco VIF Equity Income Portfolio.................................. 40 Invesco VIF Real Estate Opportunity Portfolio........................ 27 Templeton International Stock Portfolio.............................. 1,817 Alliance Series Growth & Income-Class B Portfolio.................... 0
4. EXPENSES With respect to assets in the Separate Account that support certain policies, Metropolitan Life deducts a charge from the assets of the Separate Account for the assumption of mortality and expense risks. This charge varies by policy type but will be higher than an effective annual rate of .90% of the average daily value of the net assets of the monthly anniversary value of the net assets in the Separate Account, which are attributable to such policies. 5. CHANGE OF FUND NAME Effective January 24, 2000, Putnam became the sub-investment manager of the Putnam International Stock Portfolio (formerly Santander International Stock Portfolio) of the Metropolitan Series Fund, Inc. Effective February 15, 2000, Invesco VIF Realty Portfolio changed its name to Invesco VIF Real Estate Opportunity Portfolio and Invesco Industrial Income changed its name to Invesco Equity Income on same said date. 6. NEW DIVISION On June 5, 2000, the Separate Account offered a new division, VABR. 25 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000 (UNAUDITED) Investment information, summarized by investment type and industry sector, for each portfolio in which the Separate Account invests is presented below: Metropolitan Series Fund, Inc.
State Street State Street State Street State Street Research Research Research Research Growth Income Money Market Diversified Portfolio Portfolio Portfolio Portfolio -------------- ------------ ------------ -------------- Value Value Value Value (Note 2A) (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Banks................... $ 178,383,221 5.4% $ 84,659,529 3.1% Biotechnology........... 38,812,528 1.2% 18,367,847 0.7% Broadcasting............ 17,340,816 0.5% 38,227,212 1.4% Business Services....... 58,736,250 1.8% 27,878,835 1.0% Communication Services.. 113,069,017 3.5% 21,994,513 0.8% Communications.......... 8,785,063 0.3% 3,945,250 0.1% Computer & Business Equipment.............. 332,848,184 10.2% 154,838,550 5.6% Conglomerates........... 231,603,719 7.1% 109,908,012 4.0% Containers & Glass...... 5 0.0% Domestic Oil............ 151,208,900 4.6% 71,586,520 2.6% Drugs & Health Care..... 479,669,780 14.6% 226,474,534 8.2% Electric Utilities...... 46,923,969 1.4% 22,269,131 0.8% Electronics............. 95,937,024 2.9% 54,434,459 2.0% Financial Services...... 122,013,975 3.7% 57,769,875 2.1% Food & Beverages........ 97,532,500 3.0% 46,246,769 1.7% Gas & Pipeline Utilities.............. 55,201,387 1.7% 26,178,938 1.0% Household Appliances & Home Furnishings....... 26,830,913 0.8% 12,052,463 0.4% Insurance............... 259,891,758 7.9% 123,301,839 4.5% International Oil....... 36,906,351 1.1% 17,397,390 0.6% Internet................ 23,479,560 0.7% 10,544,400 0.4% Leisure................. 45,015,175 1.4% 21,338,557 0.8% Petroleum Services...... 85,795,350 2.6% 39,648,375 1.4% Retail.................. 172,889,094 5.3% 81,800,237 3.0% Software................ 217,107,031 6.6% 101,970,198 3.7% Telephone............... 64,864,600 2.0% 30,726,512 1.1% Tobacco................. 59,624,400 1.8% 28,274,400 1.0% -------------- -------------- Total Common Stock...... 3,020,470,565 92.1% 1,431,834,350 52.0% -------------- -------------- LONG-TERM DEBT SECURITIES Corporate Bonds: Aerospace & Defense..... $ 2,725,256 0.6% 9,442,771 0.3% Automobiles............. 3,033,772 0.6% 3,235,410 0.1% Biotechnology........... 2,295,287 0.5% 6,416,930 0.2% Business Services....... 3,614,523 0.8% 8,846,359 0.3% Chemicals............... 502,945 0.1% 1,413,035 0.1% Collateralized Mortgage Obligations............ 23,867,535 5.0% 44,108,035 1.6% Communication Services.. 1,820,711 0.4% 5,088,015 0.2% Conglomerates........... 8,359,255 0.3% Corporate............... 6,616,751 0.2% Domestic Oil............ 1,457,500 0.3% 4,028,000 0.1% Drugs & Health Care..... 5,843,456 1.2% 16,147,312 0.6% Electric Utilities...... 30,005,788 6.3% 71,825,874 2.6% Electrical Equipment.... 5,374,789 0.2% Electronics............. 5,854,056 0.2% Finance & Banking....... 71,364,431 15.0% 169,565,907 6.2% Financial Services...... 25,593,458 5.4% 64,765,401 2.3% Food & Beverages........ 5,722,206 1.2% 24,621,964 0.9% Foreign Governments..... 15,411,874 0.6% Gas & Pipeline Utilities.............. 4,149,877 0.9% 10,881,376 0.4% Gas Exploration......... 2,329,785 0.5% 6,558,851 0.2% Hotels & Restaurants.... 3,222,090 0.7% 7,012,743 0.3% Household Products...... 2,451,998 0.5% 6,891,404 0.2% Industrial Machinery.... 10,003,876 0.4% Leisure................. 4,613,250 1.0% 13,389,000 0.5% Newspapers.............. 1,130,963 0.2% 3,019,845 0.1% Paper & Forest.......... 4,944,850 1.0% 13,522,173 0.5% Petroleum Services...... 2,158,288 0.5% 5,003,304 0.2%
26 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
State Street State Street State Street State Street Research Research Research Research Growth Income Money Market Diversified Portfolio Portfolio Portfolio Portfolio -------------- ------------ ------------ -------------- Value Value Value Value (Note 2A) (Note 2A) (Note 2A) (Note 2A) Pollution Control....... $ 1,880,000 0.4% $ 68,625 0.0% Retail.................. 11,154,694 2.4% 17,372,011 0.6% State Housing Authorities............ 5,410,080 1.1% 12,650,040 0.5% Telephone............... 11,192,154 2.4% 34,511,206 1.3% Utilities............... 2,813,453 0.6% 11,189,361 0.4% ------------ -------------- Total Corporate Bonds... 235,298,350 49.6% 623,195,553 22.6% ------------ -------------- Federal Agency Obligations............ 61,285,869 12.9% 131,108,933 4.8% Federal Treasury Obligations............ 99,148,992 20.9% 303,171,940 11.0% Foreign Obligations..... 8,179,133 1.7% 93,476 0.0% Yankee Bonds............ 25,262,556 5.3% 72,558,473 2.6% ------------ -------------- Total Bonds............. 193,876,550 40.8% 506,932,822 18.4% ------------ -------------- SHORT-TERM OBLIGATIONS Bank Notes.............. $ 3,676,683 7.6% Certificates of Deposit- Euro................... 6,448,025 13.3% Commercial Paper........ $ 287,499,835 8.8% 54,073,357 11.4% 38,044,503 78.8% 234,802,428 8.5% Repurchase Agreements... 452,000 0.0% -------------- ------------ ----------- -------------- Total Short-Term Obligations............ 287,499,835 8.8% 54,073,357 11.4% 48,169,211 99.7% 235,254,428 8.5% -------------- ------------ ----------- -------------- TOTAL INVESTMENTS....... 3,307,970,400 100.9% 483,248,257 101.8% 48,169,211 99.7% 2,797,217,153 101.5% Other Assets Less Liabilities............ (29,007,023) (0.9%) (8,350,224) (1.8%) 127,089 0.3% (40,295,318) (1.5%) -------------- ------------ ----------- -------------- NET ASSETS.............. $3,278,963,377 100.0% $474,898,033 100.0% $48,296,300 100.0% $2,756,921,835 100.0% ============== ============ =========== ==============
27 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
State Street Putnam Research MetLife International Aggressive Stock Index Stock Growth Portfolio Portfolio Portfolio -------------- ------------- -------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Advertising............. $ 5,632,298 1.3% Aerospace & Defense..... $ 53,268,907 1.3% 1,047,018 0.3% Air Travel.............. 10,780,594 0.3% 438,184 0.1% Aluminum................ 9,837,945 0.2% Apparel & Textiles...... 7,791,135 0.2% 7,640,951 1.8% $ 32,465,375 2.2% Auto Parts.............. 6,699,799 0.2% Automobiles............. 29,162,758 0.7% 7,375,092 1.7% Banks................... 320,974,292 8.0% 26,933,643 6.3% 17,881,500 1.2% Biotechnology........... 38,210,156 2.5% Building & Construction. 5,318,157 0.1% 3,945,340 0.9% 6,543,769 0.4% Business Services....... 68,574,974 1.7% 520,375 0.1% 58,007,559 3.9% Chemicals............... 64,675,688 1.6% 11,945,748 2.8% Communication Services.. 154,562,325 3.9% 71,386,539 16.7% 35,410,403 2.4% Communications.......... 7,474,242 1.7% Computer & Business Equipment.............. 431,245,676 10.8% 22,785,992 5.3% 259,349,478 17.3% Conglomerates........... 194,941,051 4.9% 2,942,651 0.7% Construction Materials.. 8,097,172 1.9% Containers & Glass...... 2,051,969 0.1% Cosmetics & Toiletries.. 16,769,257 0.4% 1,360,654 0.3% Domestic Oil............ 249,615,272 6.2% 51,627,191 12.1% 116,310,259 7.7% Drugs & Health Care..... 560,897,690 14.0% 50,524,690 11.8% 262,751,462 17.5% Electric Utilities...... 108,344,840 2.7% 9,096,478 2.1% Electrical Equipment.... 26,013,291 0.6% 32,227,200 2.1% Electronics............. 162,869,292 4.1% 3,533,240 0.8% 59,011,209 3.9% Financial Services...... 205,488,204 5.1% 40,609,065 9.5% Food & Beverages........ 151,087,883 3.8% 12,791,706 3.0% 12,938,344 0.9% Gas & Pipeline Utilities.............. 42,150,264 1.1% 7,349,678 1.7% Hotels & Restaurants.... 29,593,014 0.7% 16,893,297 1.1% Household Appliances & Home Furnishings....... 10,055,610 0.3% Household Products...... 54,125,451 1.4% Industrial Machinery.... 32,276,782 0.8% 7,241,153 1.7% 32,922,563 2.2% Insurance............... 170,586,846 4.3% 23,451,157 5.5% 120,992,997 8.1% International Oil....... 1,754,875 0.4% Internet................ 27,531,602 0.7% Leisure................. 33,679,388 0.8% 2,077,222 0.5% Mining.................. 7,073,891 0.2% 2,592,886 0.6% Non-Ferrous Metals...... 5,935,057 0.1% Paper & Forest.......... 31,776,020 0.8% 2,268,422 0.5% Petroleum Services...... 10,840,718 0.3% 42,872,813 2.8% Publishing.............. 9,424,076 0.2% 15,063,500 1.0% Railroads & Equipment... 11,695,189 0.3% 128,223 0.0% Real Estate............. 6,308,791 1.5% Retail.................. 240,243,233 6.0% 2,532,071 0.6% 44,677,844 3.0% Software................ 194,191,019 4.9% 7,279,121 1.7% 168,097,456 11.2% Steel................... 541,350 0.0% Technology.............. 971,963 0.0% Telephone............... 182,533,463 4.6% Tobacco................. 34,686,091 0.9% 5,100,157 1.2% Trucking & Freight Forwarding............. 3,860,456 0.1% 1,307,959 0.3% -------------- ------------ -------------- Total Common Stock...... 3,974,742,482 99.4% 417,099,984 97.4% 1,372,627,184 91.4% -------------- ------------ -------------- SHORT-TERM OBLIGATIONS Commercial Paper........ 15,108,314 3.5% 158,881,250 10.6% Discount Note........... 13,797,980 0.3% -------------- ------------ -------------- Total Short-Term Obligations............ 13,797,980 0.3% 15,108,314 3.5% 158,881,250 10.6% -------------- ------------ -------------- TOTAL INVESTMENTS....... 3,988,540,462 99.7% 432,208,298 100.9% 1,531,508,434 102.0% Other Assets Less Liabilities............ 11,363,013 0.3% (3,689,444) (0.9%) (30,436,296) (2.0%) -------------- ------------ -------------- NET ASSETS.............. $3,999,903,475 100.0% $428,518,854 100.0% $1,501,072,138 100.0% ============== ============ ==============
28 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Loomis Sayles High Yield Bond Portfolio -------------- Value (Note 2A) COMMON STOCK Communication Services................................... $ 511,125 0.7% Domestic Oil............................................. 733,404 1.1% Foreign Corporate........................................ 159,244 0.2% Paper & Forest........................................... 659,419 1.0% Real Estate Investment Trust............................. 393,281 0.5% Transportation........................................... 176,633 0.3% ----------- Total Common Stock....................................... 2,633,106 3.8% ----------- PREFERRED STOCK Communication Services................................... 407,456 0.6% Corporate................................................ 642,000 0.9% Finance & Banking........................................ 1,320,887 1.9% Financial Service........................................ 6,625 0.0% Food & Beverages......................................... 4,594 0.0% Foreign Corporate........................................ 3,468 0.0% Gas & Pipeline........................................... 138,394 0.2% Mining................................................... 52,000 0.1% Real Estate Investment Trust............................. 1,035,356 1.5% Utilities-Electric....................................... 314,505 0.5% Utilities-Telephone...................................... 128,250 0.2% ----------- Total Preferred Stock.................................... 4,053,535 5.9% ----------- LONG-TERM DEBT SECURITIES Bonds & Notes Apparel & Textiles....................................... 273,000 0.4% Automotive............................................... 218,540 0.3% Banks.................................................... 588,000 0.8% Broadcasting............................................. 754,000 1.1% Chemicals................................................ 457,780 0.7% Communication Services................................... 296,700 0.4% Communications........................................... 2,100,400 3.0% Computer & Business Equipment............................ 197,000 0.3% Domestic Oil............................................. 2,695,860 3.9% Drugs & Health Care...................................... 896,627 1.3% Electric Utilities....................................... 2,839,166 4.1% Electrical Equipment..................................... 1,080,000 1.6% Finance & Banking........................................ 1,905,231 2.8% Food & Beverages......................................... 455,000 0.7% Foreign Corporate........................................ 2,076,832 3.0% Foreign Government....................................... 602,997 0.9% Gas & Pipeline Utilities................................. 647,000 0.9% Government Sponsored..................................... 935,250 1.4% Hotels & Restaurants..................................... 703,448 1.0% Household Appliance & Home Furnishings................... 63,600 0.1% Industrial Machinery..................................... 186,284 0.3% Industrials.............................................. 1,135,813 1.6% International Oil........................................ 738,000 1.1% Internet................................................. 330,375 0.5% Mining................................................... 723,201 1.0% Paper & Forest........................................... 360,000 0.5% Real Estate Investment Trust............................. 1,089,112 1.6% Retail................................................... 1,013,504 1.5% Semiconductors........................................... 118,623 0.2% Telephone................................................ 8,401,658 12.2% Transportation........................................... 851,648 1.2% Yankee................................................... 5,897,909 8.5% ----------- Total Bonds & Notes...................................... 40,632,558 58.9% -----------
29 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Loomis Sayles High Yield Bond Portfolio -------------- Value (Note 2A) Convertible Bonds Aerospace & Defense..................................... $ 558,625 0.8% Automobiles............................................. 612,750 0.9% Banks................................................... 538,508 0.8% Biotechnology........................................... 802,687 1.2% Building & Construction................................. 88,000 0.1% Business Services....................................... 705,804 1.0% Computer & Business Equipment........................... 1,839,050 2.7% Construction Materials.................................. 388,500 0.6% Domestic Oil............................................ 903,992 1.3% Drugs & Health Care..................................... 2,027,997 2.9% Electronics............................................. 1,954,547 2.8% Finance & Banking....................................... 367,250 0.5% Food & Beverages........................................ 146,250 0.2% Foreign Corporate....................................... 2,112,742 3.1% Forest Products......................................... 248,500 0.4% Hotels & Restaurants.................................... 255,000 0.4% Industrial Machinery.................................... 938,575 1.4% International Oil....................................... 286,163 0.4% Internet................................................ 176,750 0.2% Mining.................................................. 128,127 0.2% Retail.................................................. 57,158 0.1% Semiconductors.......................................... 339,918 0.5% Telephone............................................... 679,012 1.0% Transportation.......................................... 198,750 0.3% Yankee.................................................. 1,965,900 2.8% ----------- Total Convertible Bonds................................. 18,320,555 26.6% ----------- Warrants Domestic Oil............................................ 122,188 0.2% Foreign Corporate....................................... 435 0.0% Transportation.......................................... 3,307 0.0% ----------- Total Warrants.......................................... 125,930 0.2% ----------- Short-Term Obligations Repurchase Agreements................................... 2,117,000 3.1% ----------- TOTAL INVESTMENTS....................................... 67,882,684 98.5% Other Assets Less Liabilities........................... 1,061,686 1.5% ----------- NET ASSETS.............................................. $68,944,370 100.0% ===========
30 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
T. Rowe Price Scudder Small Cap Global Equity Growth Janus Mid Cap Portfolio Portfolio Portfolio ------------- ------------- -------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense..... $ 4,200,645 2.0% $ 1,829,684 0.5% Air Travel.............. 2,181,928 0.6% Apparel & Textiles...... 5,846,906 1.7% Auto Parts.............. 216,450 0.1% Banks................... 3,090,239 1.5% 11,793,781 3.5% Biotechnology........... 9,972,987 3.0% Broadcasting............ 1,927,412 0.6% $ 48,936,398 2.7% Building & Construction. 4,081,201 1.2% Business Services....... 3,897,638 1.8% 21,866,604 6.5% 170,336,512 9.6% Chemicals............... 18,036,759 8.5% 4,343,889 1.3% Communication Services.. 24,942,895 11.8% 13,340,138 4.0% 206,188,576 11.6% Communications.......... 11,676,986 3.5% 26,693,840 1.5% Computer & Business Equipment.............. 10,275,194 4.9% 47,207,574 14.0% 358,247,740 20.1% Conglomerates........... 3,031,841 1.4% 863,519 0.3% Construction Materials.. 579,656 0.2% 47,229,566 2.6% Domestic Oil............ 22,574,142 10.7% 10,518,619 3.1% 164,069,201 9.2% Drugs & Health Care..... 16,704,314 7.9% 55,510,028 16.5% 389,437,044 21.8% Electric Utilities...... 14,569,261 6.9% 1,140,081 0.3% Electrical Equipment.... 10,593,697 3.1% 26,236,478 1.5% Electronics............. 1,354,444 0.6% 17,762,303 5.3% 131,447,150 7.4% Financial Services...... 2,256,176 1.1% 11,206,529 3.3% 16,564,238 0.9% Food & Beverages........ 3,061,966 1.5% 1,985,551 0.6% Gas & Pipeline Utilities.............. 4,528,258 2.1% Hotels & Restaurants.... 4,881,720 1.4% Household Appliances & Home Furnishings....... 1,791,025 0.8% 2,277,625 0.7% Industrial Machinery.... 494,213 0.2% 4,617,194 1.4% Insurance............... 15,160,913 7.2% 5,561,905 1.6% Internet................ 842,160 0.4% Leisure................. 2,139,819 0.6% Mining.................. 17,802,425 8.4% 389,565 0.1% Miscellaneous........... 85,786 0.0% Non-Ferrous Metals...... 2,109,744 1.0% Paper & Forest.......... 548,206 0.3% Petroleum Services...... 867,825 0.3% Radio................... 1,683,369 0.5% 44,624,834 2.5% Railroads & Equipment... 3,707,854 1.8% 2,473,444 0.7% Real Estate............. 3,397,965 1.6% 1,975,869 0.6% Real Estate Investment Trust.................. 4,118,494 1.9% 646,840 0.2% Retail.................. 4,422,932 2.1% Retail Trade............ 14,613,620 4.3% Software................ 2,286,581 1.1% 41,816,210 2.3% Steel................... 884,250 0.4% Telecommunications Equipment & Services... 43,475,347 12.9% Telephone............... 1,881,824 0.9% 4,443,522 1.3% 8,631,327 0.5% Trucking & Freight Forwarding............. 1,115,379 0.5% ------------ ------------ -------------- Total Common Stock...... 193,087,737 91.3% 336,578,973 99.8% 1,680,459,114 94.2% ------------ ------------ -------------- LONG-TERM DEBT SECURITIES Participating Loan Notes.................. 354,942 0.2% ------------ Total Long-Term Debt Securities............. 354,942 0.2% ------------ SHORT-TERM OBLIGATIONS Commercial Paper........ 80,385,483 4.5% Discount Note........... 14,938,667 0.9% Repurchase Agreements... 7,869,000 3.7% 115,000 0.0% Regulated Investment Companies.............. 18,093,343 6.5% ------------ ------------ -------------- Total Short-Term Obligations............ 7,869,000 3.7% 18,093,343 6.5% 95,439,150 5.4% ------------ ------------ -------------- TOTAL INVESTMENTS....... 201,311,679 95.2% 354,672,316 106.3% 1,775,898,264 99.6% Other Assets Less Liabilities............ 10,042,133 4.8% (17,329,559) (6.3%) 7,480,476 0.4% ------------ ------------ -------------- NET ASSETS.............. $211,353,812 100.0% $337,342,757 100.0% $1,783,378,740 100.0% ============ ============ ==============
31 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Morgan Stanley Russell Harris Oakmark EAFE Index 2000 Index Large Cap Value Portfolio Portfolio Portfolio -------------- ------------ --------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Advertising............. $ 219,259 0.2% Aerospace & Defense..... 362,238 0.4% $ 1,471,459 1.2% $ 2,699,100 5.0% Air Travel.............. 608,639 0.6% 629,514 0.5% Apparel & Textiles...... 845,424 0.8% 1,151,820 0.9% 1,126,563 2.1% Auto Parts.............. 636,212 0.6% 1,335,674 1.1% Automobiles............. 3,052,007 3.0% 108,382 0.1% 1,237,988 2.3% Banks................... 14,193,161 14.1% 10,066,105 8.0% 2,822,125 5.3% Biotechnology........... 2,786,485 2.2% Broadcasting............ 817,826 0.6% Building & Construction. 991,817 1.0% 626,500 0.5% 1,310,062 2.4% Business Services....... 1,150,142 1.1% 5,227,294 4.2% 7,256,681 13.5% Chemicals............... 2,297,369 2.3% 2,859,945 2.3% Communication Services.. 13,573,909 13.4% 3,067,078 2.4% 2,610,312 4.9% Communications.......... 1,111,479 1.1% 1,989,190 1.6% Computer & Business Equipment.............. 7,452,359 7.4% 5,898,985 4.7% 1,118,375 2.1% Conglomerates........... 2,415,251 2.4% 99,305 0.1% Construction Materials.. 541,340 0.5% 477,248 0.4% Containers & Glass...... 197,132 0.2% 641,932 0.5% Cosmetics & Toiletries.. 818,072 0.8% 189,209 0.1% Domestic Oil............ 4,442,092 4.4% 3,675,834 2.9% Drugs & Health Care..... 9,365,710 9.3% 14,511,358 11.5% 1,241,500 2.3% Electric Utilities...... 2,914,144 2.9% 3,052,118 2.4% 1,285,063 2.4% Electrical Equipment.... 985,430 1.0% 2,760,925 2.2% 4,131,375 7.7% Electronics............. 1,676,139 1.7% 3,682,479 2.9% Financial Services...... 3,789,423 3.7% 3,346,749 2.7% 911,906 1.7% Food & Beverages........ 4,326,637 4.3% 2,714,155 2.2% 1,963,500 3.7% Gas & Pipeline Utilities.............. 1,408,162 1.4% 3,032,715 2.4% Hotels & Restaurants.... 713,609 0.7% 2,293,187 1.8% 1,364,250 2.5% Household Appliances & Home Furnishings....... 1,420,891 1.4% 3,407,803 2.7% 5,344,125 10.0% Household Products...... 263,313 0.3% 781,054 0.6% 1,126,125 2.1% Industrial Machinery.... 1,706,807 1.7% 4,126,032 3.3% 966,813 1.8% Industrials............. 114,966 0.1% Insurance............... 6,367,803 6.3% 3,619,247 2.9% 876,688 1.6% Insurance Contracts..... 8,464 0.0% Internet................ 6,914 0.0% Leisure................. 629,572 0.6% 902,381 0.7% 4,429,869 8.3% Mining.................. 1,214,053 1.2% 1,623,460 1.3% Miscellaneous........... 61,141 0.0% Mutual Funds............ 3,487,311 2.8% Paper & Forest.......... 368,990 0.4% 604,862 0.5% Petroleum Services...... 1,488,902 1.5% Publishing.............. 78,095 0.1% Railroads & Equipment... 790,095 0.8% 793,665 0.6% Real Estate............. 1,272,610 1.3% 1,247,002 1.0% Real Estate Investment Trust.................. 7,136,661 5.7% Retail.................. 2,615,275 2.6% 4,558,409 3.6% 5,011,812 9.4% Shipbuilding............ 437,831 0.4% 199,823 0.2% Software................ 1,463,136 1.4% 7,810,792 6.2% 848,250 1.6% Technology.............. 1,024 0.0% Telephone............... 2,591,187 4.8% Tobacco................. 465,337 0.5% 219,215 0.2% Transportation.......... 182,513 0.2% Trucking & Freight Forwarding............. 253,982 0.2% 551,665 0.4% Utilities............... 123,891 0.1% ------------ ------------ ----------- Total Common Stock ..... 101,151,696 100.2% 119,853,918 95.3% 52,273,669 97.5% ------------ ------------ -----------
32 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Morgan Stanley Russell Harris Oakmark EAFE Index 2000 Index Large Cap Value Portfolio Portfolio Portfolio -------------- ------------ --------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) PREFERRED STOCK Communication Services.. $ 177,259 0.2% Retail.................. 28,645 0.0% ------------ Total Preferred Stock... 205,904 0.2% ------------ Total Equity Securities. 101,357,600 100.4% ------------ SHORT-TERM OBLIGATIONS Discount Notes.......... 2,274,667 2.3% Federal Agency Obligations............ $ 6,324,074 5.0% Repurchase Agreements... $ 3,842,000 7.2% ------------ ------------ ----------- Total Short-Term Obligations............ 2,274,667 2.3% 6,324,074 5.0% 3,842,000 7.2% ------------ ------------ ----------- TOTAL INVESTMENTS....... 103,632,267 102.7% 126,177,992 100.3% 56,115,669 104.7% Other Assets Less Liabilities............ (2,682,027) (2.7%) (440,052) (0.3%) (2,540,732) (4.7%) ------------ ------------ ----------- NET ASSETS.............. $100,950,240 100.0% $125,737,940 100.0% $53,574,937 100.0% ============ ============ ===========
33 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
State Street Neuberger Berman T. Rowe Price Research Aurora Partners Mid Cap Large Cap Growth Small Cap Value Portfolio Portfolio Portfolio ---------------- ---------------- --------------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense..... $ 2,343,900 1.8% $ 841,288 0.5% $ 2,028,094 3.7% Air Travel.............. 2,443,473 1.9% 751,094 1.4% Apparel & Textiles...... 46,094 0.1% Auto Parts.............. 1,821,238 1.4% 3,659,597 6.7% Automobiles............. 665,681 1.2% Banks................... 7,849,109 6.0% 12,070,044 6.7% 861,467 1.6% Biotechnology........... 251,738 0.2% Broadcasting............ 413,475 0.2% Building & Construction. 1,148,875 0.9% 769,750 1.4% Business Services....... 8,390,425 6.4% 6,772,563 3.8% 1,081,506 2.0% Chemicals............... 5,257,331 4.0% 2,582,541 4.7% Communication Services.. 4,862,412 3.7% 8,938,811 5.0% 1,309,856 2.4% Communications.......... 1,081,175 0.8% 1,044,366 0.6% 910,356 1.7% Computer & Business Equipment.............. 3,936,359 3.0% 16,327,297 9.1% 649,209 1.2% Conglomerates........... 684,375 0.5% 5,336,244 3.0% 93,588 0.2% Containers & Glass...... 161,250 0.3% Cosmetics & Toiletries.. 1,091,363 0.8% 419,050 0.2% Domestic Oil............ 10,444,209 7.9% 6,102,146 3.4% 5,923,961 10.9% Drugs & Health Care..... 8,554,004 6.5% 24,698,030 13.7% 1,774,203 3.3% Electric Utilities...... 8,906,232 6.8% Electrical Equipment.... 3,726,500 2.8% 1,075,250 2.0% Electronics............. 2,347,744 1.8% 14,775,913 8.2% 349,813 0.6% Finance & Banking....... 1,818,094 1.4% 236,500 0.4% Financial Services...... 7,272,425 5.5% 17,556,726 9.7% 725,537 1.3% Food & Beverages........ 1,788,563 1.4% 3,341,406 1.8% 563,038 1.0% Foreign Corporate....... 8,693,053 4.8% Gas & Pipeline Utilities.............. 1,867,700 1.4% 802,200 0.4% 696,750 1.3% Hotels & Restaurants.... 912,975 0.5% 7,810,862 14.4% Household Appliances & Home Furnishings....... 1,649,375 1.3% 315,938 0.6% Industrial Machinery.... 1,928,381 1.5% 1,599,975 0.9% 1,328,872 2.4% Insurance............... 10,486,369 8.0% 6,152,381 3.4% 2,514,259 4.6% Internet................ 1,767,840 1.0% Leisure................. 687,119 0.5% 659,775 0.4% 1,556,737 2.9% Mining.................. 143,750 0.3% Paper & Forest.......... 1,821,963 1.4% Petroleum Services...... 3,000,356 1.7% Radio................... 286,544 0.5% Railroads & Equipment... 3,616,087 2.8% 1,333,469 2.5% Real Estate............. 985,300 0.7% Real Estate Investment Trust.................. 2,480,587 1.9% Retail.................. 3,403,037 2.6% 13,128,539 7.3% 2,224,062 4.1% Shipbuilding............ 386,250 0.7% Software................ 4,271,841 3.2% 10,294,670 5.7% 2,378,111 4.4% Telephone............... 2,573,875 1.4% Tobacco................. 2,719,200 1.5% ------------ ------------ ----------- Total Common Stock...... 119,217,303 90.8% 170,942,198 94.9% 47,193,989 86.8% ------------ ------------ ----------- SHORT-TERM OBLIGATIONS Commercial Paper........ 7,874,047 14.5% Money Market Fund....... 8,162,371 4.5% Repurchase Agreements... 16,725,000 12.7% 2,656,000 1.5% ------------ ------------ ----------- Total Short-Term Obligations............ 16,725,000 12.7% 10,818,371 6.0% 7,874,047 14.5% ------------ ------------ ----------- TOTAL INVESTMENTS....... 135,942,303 103.5% 181,760,569 100.9% 55,068,036 101.3% Other Assets Less Liabilities............ (4,586,128) (3.5%) (1,688,522) (0.9%) (689,311) (1.3%) ------------ ------------ ----------- NET ASSETS.............. $131,356,175 100.0% $180,072,047 100.0% $54,378,725 100.0% ============ ============ ===========
34 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
MetLife Mid Cap Putnam Stock Index Large Cap Portfolio Portfolio --------------- ----------- Value Value (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense ............. $ 530,537 0.9% Air Travel....................... 55,989 0.1% Apparel & Textiles............... 291,962 0.5% Auto Parts....................... 438,440 0.7% Banks............................ 5,184,211 8.4% $ 695,362 1.9% Biotechnology ................... 894,960 1.4% Broadcasting .................... 185,589 0.3% Building & Construction.......... 369,077 0.6% Business Services................ 4,699,956 7.6% Chemicals........................ 1,271,481 2.1% Communication Services........... 3,196,749 5.2% 2,233,643 6.0% Communications .................. 2,129,012 3.4% 243,759 0.7% Computer & Business Equipment.... 4,040,824 6.5% 6,970,584 18.9% Conglomerates.................... 4,601,544 12.5% Construction Materials........... 399,797 0.6% Containers & Glass .............. 188,378 0.3% Cosmetics & Toiletries........... 143,134 0.2% Domestic Oil .................... 1,108,924 1.8% Drugs & Health Care ............. 7,339,684 11.9% 8,970,497 24.3% Electric Utilities............... 3,115,676 5.0% Electrical Equipment............. 1,324,504 2.1% Electronics...................... 2,230,099 3.6% 2,266,272 6.1% Finance & Banking................ 216,072 0.3% Financial Services .............. 1,884,501 3.0% 1,492,181 4.0% Food & Beverages ................ 1,477,409 2.4% 317,200 0.9% Gas & Pipeline Utilities ........ 1,772,015 2.9% Hotels & Restaurants............. 1,245,577 2.0% Household Appliances & Home Furnishings .................... 748,561 1.2% Household Products .............. 254,694 0.4% Industrial Machinery............. 763,152 1.2% Insurance........................ 1,984,404 3.2% 931,416 2.5% Internet ........................ 396,720 1.1% Leisure.......................... 182,434 0.3% Mining........................... 155,865 0.3% Paper & Forest................... 489,861 0.8% Petroleum Services .............. 1,110,377 1.8% Publishing....................... 269,454 0.4% Railroads & Equipment............ 542,996 0.9% Real Estate ..................... 64,406 0.1% Retail .......................... 1,848,085 3.0% 409,063 1.1% Shipbuilding..................... 124,640 0.2% Software......................... 4,729,688 7.6% 4,887,010 13.2% Telephone ....................... 707,775 1.9% Tobacco.......................... 396,061 0.6% Trucking & Freight Forwarding.... 484,191 0.8% Unit Investment Trust............ 593,524 1.0% ----------- ----------- Total Common Stock............... 60,476,950 97.6% 35,123,026 95.1% ----------- ----------- SHORT-TERM OBLIGATIONS Commercial Paper ................ 2,486,558 6.7% Discount Note.................... 1,299,810 2.1% ----------- ----------- Total Short-Term Obligations..... 1,299,810 2.1% 2,486,558 6.7% ----------- ----------- TOTAL INVESTMENTS................ 61,776,760 99.7% 37,609,584 101.8% Other Assets Less Liabilities.... 157,248 0.3% (677,836) (1.8%) ----------- ----------- NET ASSETS....................... $61,934,008 100.0% $36,931,748 100.0% =========== ===========
35 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Metropolitan Series Fund, Inc.
Lehman Brothers Aggregate Bond Index Portfolio ------------ Value (Note 2A) LONG-TERM DEBT SECURITIES Bonds & Notes: Aerospace & Defense..................................... $ 231,607 0.2% Air Travel.............................................. 799,129 0.5% Auto Parts.............................................. 255,675 0.2% Automobiles............................................. 1,371,852 0.9% Banks................................................... 503,870 0.3% Collateralized Mortgage Obligations..................... 657,778 0.5% Communication Services.................................. 757,065 0.5% Computer & Business Equipment........................... 480,033 0.3% Cosmetics & Toiletries.................................. 410,776 0.3% Drugs & Health Care..................................... 144,145 0.1% Electric Utilities...................................... 1,865,384 1.3% Federal Agencies........................................ 69,383,291 47.6% Finance & Banking....................................... 16,282,127 11.2% Financial Services...................................... 1,368,549 0.9% Food & Beverages........................................ 200,126 0.1% Government Sponsored.................................... 626,786 0.4% Industrials............................................. 1,101,683 0.8% Leisure................................................. 467,370 0.3% Petroleum Services...................................... 756,851 0.5% Railroads & Equipment................................... 312,330 0.2% Retail.................................................. 3,117,520 2.1% Steel................................................... 220,872 0.2% Telephone............................................... 1,857,084 1.3% Transportation.......................................... 300,211 0.2% U.S. Treasury Obligations............................... 37,727,730 25.9% Yankee Bonds............................................ 5,263,959 3.6% ------------ Total Bonds & Notes..................................... 146,463,803 100.4% ------------ SHORT-TERM OBLIGATIONS Discount Notes.......................................... 2,886,014 2.0% ------------ Total Short-Term Obligations............................ 2,886,014 2.0% ------------ TOTAL INVESTMENTS....................................... 149,349,817 102.4% Other Assets Less Liabilities........................... (3,512,601) (2.4%) ------------ NET ASSETS.............................................. $145,837,216 100.0% ============
36 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Janus Aspen Series Fund
Janus Aspen Growth Portfolio -------------- Value (Note 2A) COMMON STOCK Aerospace & Defense................................... $ 181,463,718 5.0% Airlines.............................................. 3,831,022 0.1% Broadcast Services & Programming...................... 97,551,309 2.7% Business to Business/E-Commerce....................... 20,929,590 0.6% Cable Television...................................... 174,454,964 4.8% Casino Hotels......................................... 17,886,696 0.5% Cellular Telecommunications........................... 35,466,892 1.0% Commercial Banks...................................... 13,169,560 0.4% Commercial Services................................... 25,226,504 0.7% Computer Graphics..................................... 6,188,444 0.2% Computers............................................. 30,346,760 0.8% Computer Memory Devices............................... 112,819,630 3.1% Cosmetics & Toiletries................................ 170,956,562 4.7% Data Processing & Management.......................... 26,165,473 0.7% Diversified Operations................................ 139,776,087 3.8% E-Commerce/Services................................... 8,740,611 0.2% Electric-Generations.................................. 13,327,655 0.3% Electronic Components................................. 158,156,114 4.3% Enterprise Software & Services........................ 21,304,541 0.6% Finance-Credit Card................................... 45,928,244 1.3% Finance-Investment Bankers/Brokers.................... 141,313,781 3.9% Food-Retail........................................... 24,342,989 0.7% Hotels & Motels....................................... 19,258,485 0.5% Identification Systems & Devices...................... 27,437,328 0.7% Instruments-Scientific................................ 36,963,749 1.0% Insurance Brokers..................................... 2,796,855 0.1% Internet Brokers...................................... 93,473,663 2.6% Internet Infrastructure Software...................... 17,154,021 0.5% Internet Security..................................... 38,594,044 1.1% Life & Health Insurance............................... 24,320,269 0.7% Medical-Biomedical & Genetic.......................... 30,572,362 0.8% Medical-Drugs......................................... 21,036,778 0.6% Medical-Products...................................... 16,589,184 0.5% Money Center Banks.................................... 99,055,271 2.7% Multimedia............................................ 344,111,123 9.5% Networking Products................................... 99,728,422 2.7% Oil Companies......................................... 18,912,108 0.5% Pipelines............................................. 130,604,421 3.6% Radio................................................. 44,251,204 1.2% Retail-Apparel & Shoe................................. 20,883,174 0.6% Retail-Discount....................................... 45,819,646 1.3% Semiconductor Components/Integrated Circuits.......... 263,639,896 7.3% Semiconductor Equipment............................... 32,951,165 0.9% Super Regional Banks.................................. 15,356,751 0.4% Telecommunication Equipment........................... 217,698,074 6.0% Telecommunication Services............................ 93,698,483 2.6% Telephone-Integrated.................................. 77,543,782 2.1% Television............................................ 44,584,049 1.2% Transportation Services............................... 23,715,847 0.7% Web Hosting/Design.................................... 14,843,740 0.4% Web Portals/Internet Service Provider................. 12,416,988 0.3% Wireless Equipment.................................... 3,151,010 0.1% -------------- Total Common Stock.................................... 3,400,509,038 93.6% -------------- CORPORATE BONDS Telecommunication Services............................ 1,009,800 0.0% Web Hosting/Design.................................... 1,569,100 0.0% -------------- Total Corporate Bonds................................. 2,578,900 0.0% -------------- PREFERRED STOCKS Telecommunications Services........................... 1,301,945 0.0% Repurchase Agreements................................. 187,300,000 5.2% U.S. Government Agencies.............................. 49,511,229 1.4% -------------- TOTAL INVESTMENTS..................................... 3,641,201,112 100.2% Other Assets Less Liabilities......................... (6,737,696) (0.2%) -------------- NET ASSETS............................................ $3,634,463,416 100.0% ==============
37 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Invesco Variable Investment Fund, Inc.
Invesco Invesco Invesco VIF Equity VIF Real Estate VIF High Income Opportunity Yield Portfolio Portfolio Portfolio ------------ --------------- ----------- Value Value Value (Note 2A) (Note 2A) (Note 2A) COMMON STOCK & WARRANTS Aerospace & Defense..... $ 1,909,000 1.5% Agricultural Products... 592,669 0.5% Air Freight............. 1,364,475 1.1% $ 48,300 2.1% Aluminum................ 938,000 0.7% Automobiles............. 1,717,382 1.4% Banks................... 9,904,831 7.8% Beverages............... 2,356,900 1.8% Biotechnology........... 1,044,062 0.8% Broadcasting............ 3,877,650 3.0% $ 8,750 0.0% Cable................... 835,450 0.7% Chemicals............... 666,575 0.5% Communications-Equipment Manufacturing.......... 1,167,000 0.9% Computer Related........ 3,115,838 2.5% 8,100 0.0% Containers-Paper........ 638,138 0.5% Electric Utilities...... 1,377,816 1.1% Electrical Equipment.... 2,128,425 1.7% Electronics- Semiconductor.......... 2,493,437 2.0% Entertainment........... 1,068,360 0.8% 37,881 1.5% Financial............... 2,377,776 1.9% Foods................... 6,034,272 4.8% Gaming.................. 1,647,363 1.3% 54,900 2.2% Health Care Drugs- Pharmaceuticals........ 8,976,587 7.1% Insurance............... 8,392,425 6.6% 33,719 1.4% Investment Bank/Broker Firm................... 1,347,250 1.0% Investment Companies.... 3,155,000 2.5% 408,375 0.8% Lodging-Hotels.......... 76,800 3.1% Manufacturing........... 3,927,719 3.1% Metals Mining........... 535,800 0.4% Oil & Gas Related....... 13,252,563 10.5% Paper & Forest Products. 1,127,500 0.9% 50,737 2.1% Personal Care........... 2,167,500 1.7% Publishing.............. 1,172,500 0.9% Railroads............... 1,103,756 0.9% Real Estate Investment Trust.................. 1,699,825 69.2% Real Estate Related..... 22,688 0.9% Retail.................. 4,802,238 3.8% Retail Computers & Electronics............ 42,813 1.7% Retail General Merchandising.......... 53,125 2.2% Savings & Loan.......... 1,926,684 1.5% Services................ 1,160,250 0.9% Telecommunications- Cellular & Wireless.... 730,687 0.6% 143,406 5.8% Telecommunications-Long Distance............... 1,988,507 1.6% 44,000 1.8% 2,362 0.0% Telephone............... 4,791,968 3.8% ------------ ---------- ----------- Total Common Stock...... 107,814,353 85.1% 2,308,194 94.0% 427,587 0.8% ------------ ---------- ----------- PREFERRED STOCK Broadcasting............ 67,800 0.1% Computer Related........ 5,000 0.0% Publishing.............. 262,062 0.5% Telecommunications- Cellular & Wireless.... 1,522,350 3.0% Telecommunications-Long Distance............... 1,689,750 3.3% Telephone............... 840,200 1.6% ----------- Total Preferred Stock... 4,387,162 8.5% ------------ ---------- ----------- Total Equity Securities. 107,814,353 85.1% 2,308,194 94.0% 4,814,749 9.3% ------------ ---------- -----------
38 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Invesco Variable Investment Fund, Inc.
Invesco Invesco Invesco VIF Equity VIF Real Estate VIF High Income Opportunity Yield Portfolio Portfolio Portfolio ------------ --------------- ----------- Value Value Value (Note 2A) (Note 2A) (Note 2A) FIXED INCOME SECURITIES Corporate Bonds Broadcasting............ $ 351,750 0.3% $ 3,888,806 7.6% Cable................... 323,375 0.2% 2,435,313 4.7% Chemicals............... 762,000 1.5% Communications-Equipment & Manufacturing........ 215,625 0.2% 2,456,250 4.8% Computer Related........ 519,375 0.4% 459,000 0.9% Electric Utilities...... 4,435,248 3.5% 1,582,427 3.1% Electrical Equipment.... 204,000 0.4% Engineering & Construction........... 173,000 0.3% Financial Diversified... 650,000 1.3% Healthcare Services..... 254,435 0.2% 350,000 0.7% Insurance............... 434,056 0.3% Iron & Steel............ 331,100 0.6% Lodging-Hotels.......... 238,694 0.2% Metals & Mining......... 139,000 0.3% Oil & Gas Related....... 715,100 0.6% 941,875 1.8% Paper & Forest Products. 105,981 0.1% 1,117,500 2.2% Services................ 1,610,000 3.1% Shipping................ 50,000 0.1% Specialized Services.... 237,500 0.5% Specialty Printing...... 91,000 0.1% 819,000 1.6% Telecommunications- Cellular & Wireless.... 423,250 0.3% 4,320,000 8.4% Telecommunications-Long Distance............... 852,616 0.7% 7,705,102 15.0% Telephone............... 1,267,616 1.0% 10,441,493 20.3% ------------ ----------- Total Corporate Bonds... 10,228,121 8.1% 40,673,366 79.2% US Government Obligations............ 3,303,619 2.6% ------------ ----------- Total Fixed Income Securities............. 13,531,740 10.7% 40,673,366 79.2% ------------ ----------- SHORT TERM INVESTMENTS Repurchase Agreements... 5,415,000 4.3% ------------ Total Short Term Investments............ 5,415,000 4.3% 4,672,000 9.1% ------------ ----------- Total Other Securities.. 405,025 0.8% ------------ ----------- TOTAL INVESTMENTS....... 126,761,093 100.1% $2,308,194 94.0% 50,565,140 98.4% Other Assets Less Liabilities............ (78,489) (0.1%) 147,533 6.0% 835,959 1.6% ------------ ---------- ----------- NET ASSETS.............. $126,682,604 100.0% $2,455,727 100.0% $51,401,099 100.0% ============ ========== ===========
39 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Templeton Variable Products Series Fund
Templeton International Stock Portfolio ------------- Value (Note 2A) COMMON STOCK Aerospace & Defense.................................... $ 19,279,381 2.0% Airfreight & Couriers.................................. 10,123,073 1.1% Airlines............................................... 8,725,188 0.9% Auto Components........................................ 6,173,963 0.6% Automotive............................................. 9,652,942 1.0% Banks.................................................. 83,941,067 8.7% Beverages.............................................. 2,397,617 0.3% Building Products...................................... 8,966,774 0.9% Chemicals.............................................. 54,214,039 5.6% Commercial Services & Supplies......................... 9,237,174 1.0% Communications Equipment............................... 8,710,495 0.9% Computers & Peripherals................................ 6,934,644 0.7% Construction & Engineering............................. 3,176,494 0.3% Diversified Financials................................. 39,938,078 4.1% Diversified Telecommunications Services................ 57,472,882 6.0% Electric Utilities..................................... 79,909,838 8.3% Electrical Equipment................................... 13,646,959 1.4% Electronic Equipment & Instruments..................... 9,610,089 1.0% Food & Drug Retailing.................................. 12,930,648 1.3% Food Products.......................................... 29,079,912 3.0% Forest Products & Paper................................ 13,923,942 1.4% Health & Personal Care................................. 7,496,965 0.8% Hotels Restaurants & Leisure........................... 3,333,186 0.4% Household Durables..................................... 23,981,542 2.5% Insurance.............................................. 96,707,817 10.0% Machinery.............................................. 27,233,151 2.8% Marine................................................. 6,494,609 0.7% Media.................................................. 16,366,201 1.7% Metals & Mining........................................ 32,237,699 3.4% Multiline Retail....................................... 16,744,228 1.7% Oil & Gas.............................................. 51,747,874 5.4% Pharmaceuticals........................................ 60,928,892 6.3% Real Estate............................................ 23,123,586 2.4% Road & Rail............................................ 23,927,432 2.5% Semiconductor Equipment & Products..................... 3,463,409 0.4% Transportation Infrastructure.......................... 976,453 0.1% Wireless Telecommunication Services.................... 6,431,503 0.7% ------------ Total Common Stock..................................... 889,239,746 92.3% ------------ PREFERRED STOCKS....................................... 30,011,908 3.1% SHORT TERM INVESTMENTS................................. 4,999,230 0.5% ------------ Total Investments before Repurchase Agreements......... 924,250,884 95.9% Repurchase Agreements.................................. 51,761,000 5.4% ------------ TOTAL INVESTMENTS...................................... 976,011,884 101.3% Other Assets Less Liabilities.......................... (12,401,366) (1.3%) ------------ NET ASSETS............................................. $963,610,518 100.0% ============
40 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) New England Zenith Fund
Zenith Zenith Loomis Davis Sayles Small Venture Cap Series Value Series ------------ ------------ Value Value (Note 2A) (Note 2A) COMMON STOCK Aerospace & Defense................ $ 7,701,600 1.6% Apparel & Textiles................. 6,329,184 1.3% Auto Parts......................... 26,250 0.0% Banks.............................. 19,616,468 4.0% $101,163,078 10.9% Building & Construction............ 2,326,188 0.5% 23,686,444 2.6% Business Services.................. 19,920,947 4.1% 6,430,556 0.7% Chemicals.......................... 15,948,937 3.3% 18,221,225 2.0% Communication Services............. 26,094,741 5.4% 9,427,950 1.0% Communications..................... 17,901,071 3.7% Computer & Business Equipment...... 25,723,641 5.3% 123,153,656 13.3% Conglomerates...................... 45,443,400 4.9% Construction Materials............. 3,614,019 0.7% 6,036,210 0.7% Containers & Glass................. 13,237,000 1.4% Cosmetics & Toiletries............. 2,423,988 0.3% Domestic Oil....................... 4,976,597 1.0% 10,626,626 1.1% Drugs & Health Care................ 74,706,643 15.4% 88,163,699 9.5% Electrical Equipment............... 19,083,130 3.9% 4,364,121 0.5% Electric Utilities................. 9,853,131 2.0% Electronics........................ 15,919,295 3.3% 16,530,396 1.8% Financial Services................. 20,090,623 4.1% 150,566,563 16.3% Food & Beverages................... 11,635,769 2.4% Gas & Pipeline Utilities........... 12,932,825 2.7% Hotels & Restaurants............... 9,635,240 2.0% 29,476,400 3.2% Household Appliances & Home Furnishings....................... 14,723,004 3.0% Industrial Machinery............... 10,942,269 2.2% 7,435,106 0.8% Insurance.......................... 21,040,656 4.3% 86,384,950 9.3% Mining............................. 967,500 0.2% Paper & Forest..................... 1,943,525 0.4% Publishing......................... 1,367,080 0.3% 1,800,675 0.2% Railroads & Equipment.............. 4,924,588 1.0% Real Estate Investment Trust....... 14,145,688 2.9% 4,057,794 0.4% Retail............................. 19,651,362 4.0% 25,376,287 2.7% Software........................... 46,125,981 9.5% 4,380,984 0.5% Telephone.......................... 6,890,236 0.7% Tobacco............................ 25,454,000 2.8% Trucking & Freight Forwarding...... 11,874,244 1.3% ------------ ------------ Total Common Stock................. 459,867,952 94.5% 822,605,588 88.9% ------------ ------------ PREFERRED STOCKS Real Estate Investment Trust....... 3,557,231 0.4% ------------ Total Preferred Stocks............. 3,557,231 0.4% ------------ SHORT-TERM OBLIGATIONS Commercial Paper................... 28,237,453 5.8% Repurchase Agreements.............. 97,904,000 10.6% ------------ ------------ Total Short-Term Obligations....... 28,237,453 5.8% 97,904,000 10.6% ------------ ------------ TOTAL INVESTMENTS.................. 488,105,405 100.3% 924,066,819 99.9% Other Assets Less Liabilities...... (1,666,868) (0.3%) 1,198,297 0.1% ------------ ------------ NET ASSETS......................... $486,438,537 100.0% $925,265,116 100.0% ============ ============
41 NOTES TO FINANCIAL STATEMENTS--(Continued) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(Continued) Alliance Variable Product Series Fund
Alliance Series Growth & Income-- Class B Portfolio ----------------- Value (Note 2A) COMMON STOCK Airlines............................................. $ 11,615,625 1.5% Banking.............................................. 92,422,012 12.3% Beverages............................................ 17,971,875 2.4% Broadcast Services and Programming................... 40,049,225 5.3% Capital Goods........................................ 24,373,750 3.3% Chemicals............................................ 26,004,063 3.5% Computers............................................ 37,266,750 5.0% Consumer Manufacturing............................... 8,671,875 1.2% Contract Manufacturing............................... 22,923,750 3.1% Cosmetics and Toiletries............................. 11,968,750 1.6% Drugs & Medical Products............................. 57,027,087 7.6% Electrical & Electronics............................. 7,159,375 1.0% Energy Sources....................................... 81,852,812 10.9% Financial Services................................... 69,438,773 9.3% Food & Household Products............................ 32,819,875 4.4% Insurance Brokers.................................... 9,362,813 1.3% Leisure.............................................. 15,625,937 2.1% Metals & Mining...................................... 5,862,500 0.8% Multi-Industry Companies............................. 29,350,000 3.9% Printing & Publishing................................ 11,035,938 1.5% Retail-Apparel and Shoe.............................. 11,793,750 1.6% Semiconductor Capital................................ 4,773,437 0.6% Semiconductor Components/Integrated Circuits......... 22,612,500 3.0% Telecommunication Services........................... 28,485,938 3.8% Tobacco.............................................. 22,000,000 2.9% Toys................................................. 5,054,000 0.7% ------------ Total Common Stock................................... 707,522,410 94.6% ------------ SHORT-TERM INVESTMENT Time Deposits........................................ 36,910,000 4.9% ------------ Total Short-Term Investments......................... 36,910,000 4.9% ------------ TOTAL INVESTMENTS.................................... 744,432,410 99.5% Other Assets Less Liabilities........................ 3,853,610 0.5% ------------ NET ASSETS........................................... $748,286,020 100.0% ============
42 NOTES TO FINANCIAL STATEMENTS--(Concluded) 7. SUMMARY OF INVESTMENTS AS OF DECEMBER 31, 2000--(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. Lacking any sales, securities are valued at the mean between closing bid and asked prices (except for the Loomis Sayles High Yield Bond Portfolio, which values such securities at last bid price). Securities trading primarily on non-domestic exchanges are valued at the preceding closing price on the exchange where it primarily trades (or in the case of Loomis Sayles High Yield Bond and Scudder Global Equity Portfolios, the last sale). A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for that security by the Board of Directors or its delegates. If no closing price is available, then such securities are valued, first, by using the mean between last current bid and asked prices or, second, by using the last available closing price (except for the Scudder Global Equity Portfolio, which second values such securities at the last current bid) or, third, by using the last available price. Domestic securities, other than those held in the Money Market Fund, traded on over-the-counter markets 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 would value such security, first, at the last sale price and, second, at the bid price or the Scudder Global Equity and the Neuberger Berman Partners Mid Cap Value Portfolios that value such securities, first, at last sale price and, second, at last bid price). All non-U.S. securities traded on over-the-counter securities markets are valued at the last sale quote, if market quotations are available, or the last closing bid price if there is no active trading in a particular security for a given day (except the Neuberger Berman Partners Mid Cap Value Portfolio, which is valued at the mean between closing bid and asked prices). Where market quotations are not readily available for such non-domestic, over-the-counter securities, then such securities will be valued in good faith by a method that the Board of Directors or its delegates believe accurately reflects fair value. Portfolio securities that are traded both on over-the-counter markets and on a stock exchange are valued according to the broadest and most representative market. For debt securities, this ordinarily will be the over-the-counter market. Securities and assets for which market quotations are not readily available (e.g. certain long term bonds and notes) are valued at fair value as determined in good faith by or under the direction of the Board of Directors, including valuations furnished by a pricing service retained for this purpose and typically utilized by other institutional-sized trading organizations. Forward foreign exchange contracts are valued based on the closing prices of the forward currency contract rates in London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Short-term instruments with a remaining maturity of sixty days or less are valued utilizing the amortized cost method of valuation. If for any reason the fair value of any security is not fairly reflected by such method, such security will be valued by the same method as securities having a maturity of more than sixty days. Options on securities, indices, or futures contracts are valued at the last sales price available as of the close of business on the day of valuation. If no sales have occurred, options are valued at the mean between bid and asked prices. Options on currencies are valued at the spot price each day. As a general matter, futures contracts are marked-to market daily. The value of futures contracts will be the sum of the margin deposits plus or minus the difference between the value of the futures contract on each day the net asset value is calculated and the value on the date the futures contract originated. For this purpose, value is the value established on a recognized commodity exchange, or by reference to other customary sources, with gain or loss being realized when the futures contract closes or expires. 8. PURCHASES AND SALES OF INVESTMENTS SECURITIES The aggregate costs of purchases and proceeds from sales of investments (other than short-term securities) for the year ended December 31, 2000 were $492,553,961 and $173,826,338, respectively. Gains and losses from sales of investments are computed on the basis of average cost. 43 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Financial Statements as of December 31, 2000 and 1999 and for Each of the Three Years in the Period Ended December 31, 2000 and Independent Auditors' Report F-1 Independent Auditors' Report The Board of Directors and Shareholder of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP New York, New York February 9, 2001 F-2 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 and 1999 (Dollars in millions)
2000 1999 -------- -------- ASSETS Investments: Fixed maturities available-for-sale, at fair value......... $112,445 $ 96,981 Equity securities, at fair value........................... 2,193 2,006 Mortgage loans on real estate.............................. 21,951 19,739 Real estate and real estate joint ventures................. 5,504 5,649 Policy loans............................................... 8,158 5,598 Other limited partnership interests........................ 1,652 1,331 Short-term investments..................................... 930 3,055 Other invested assets...................................... 2,898 1,501 -------- -------- Total investments.......................................... 155,731 135,860 Cash and cash equivalents................................... 3,419 2,789 Accrued investment income................................... 2,040 1,725 Premiums and other receivables.............................. 8,732 6,681 Deferred policy acquisition costs........................... 10,497 9,070 Deferred income taxes....................................... -- 603 Other assets................................................ 3,823 3,563 Separate account assets..................................... 70,250 64,941 -------- -------- Total assets............................................... $254,492 $225,232 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits...................................... $ 81,966 $ 73,582 Policyholder account balances............................... 54,309 45,901 Other policyholder funds.................................... 5,583 4,498 Policyholder dividends payable.............................. 1,082 974 Policyholder dividend obligation............................ 385 -- Short-term debt............................................. 1,094 4,208 Long-term debt.............................................. 3,443 2,514 Current income taxes payable................................ 127 548 Deferred income taxes payable............................... 742 -- Payables under securities loaned transactions............... 12,301 6,461 Other liabilities........................................... 7,076 7,915 Separate account liabilities................................ 70,250 64,941 -------- -------- Total liabilities.......................................... 238,358 211,542 -------- -------- Commitments and contingencies (Note 10) Company-obligated mandatorily redeemable securities of subsidiary trust........................................... 118 -- -------- -------- Stockholder's Equity: Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding................................................ 5 -- Additional paid-in capital.................................. 14,549 -- Retained earnings........................................... 407 14,100 Accumulated other comprehensive income (loss)............... 1,055 (410) -------- -------- Total stockholder's equity................................. 16,016 13,690 -------- -------- Total liabilities and stockholder's equity................. $254,492 $225,232 ======== ========
See accompanying notes to consolidated financial statements. F-3 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
2000 1999 1998 ------- ------- ------- REVENUES Premiums............................................ $16,263 $12,088 $11,503 Universal life and investment-type product policy fees............................................... 1,820 1,433 1,360 Net investment income............................... 11,773 9,816 10,228 Other revenues...................................... 2,462 2,154 1,994 Net investment (losses) gains (net of amounts allocable to other accounts of $(54), $(67) and $608, respectively)................................ (418) (70) 2,021 ------- ------- ------- Total revenues..................................... 31,900 25,421 27,106 ------- ------- ------- EXPENSES Policyholder benefits and claims (excludes amounts directly related to net investment gains (losses) of $41, $(21) and $368, respectively).............. 16,935 13,100 12,638 Interest credited to policyholder account balances.. 2,935 2,441 2,711 Policyholder dividends.............................. 1,913 1,690 1,651 Payments to former Canadian policyholders........... 327 -- -- Demutualization costs............................... 230 260 6 Other expenses (excludes amounts directly related to net investment (losses) gains of $(95), $(46) and $240, respectively)................................ 8,134 6,755 8,019 ------- ------- ------- Total expenses..................................... 30,474 24,246 25,025 ------- ------- ------- Income before provision for income taxes............ 1,426 1,175 2,081 Provision for income taxes.......................... 477 558 738 ------- ------- ------- Net income.......................................... $ 949 $ 617 $ 1,343 ======= ======= ======= Net income after April 7, 2000 (date of demutualization) (Note 1).......................... $ 1,169 =======
See accompanying notes to consolidated financial statements. F-4 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
Accumulated Other Comprehensive Income (Loss) ------------------------------------- Foreign Minimum Additional Net Unrealized Currency Pension Common Paid-in Retained Investment Translation Liability Stock Capital Earnings Gains (Losses) Adjustment Adjustment Total ------ ---------- -------- -------------- ----------- ---------- ------- Balance at January 1, 1998................... $ -- $ -- $12,140 $1,898 $ (31) $ -- $14,007 Comprehensive income: Net income............. 1,343 1,343 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes................. (358) (358) Foreign currency translation adjustments........... (113) (113) Minimum pension liability adjustment.. (12) (12) ------- Other comprehensive loss.................. (483) ------- Comprehensive income... 860 ----- ------- ------- ------ ----- ----- ------- Balance at December 31, 1998................... -- -- 13,483 1,540 (144) (12) 14,867 Comprehensive loss: Net income............. 617 617 Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes................. (1,837) (1,837) Foreign currency translation adjustments........... 50 50 Minimum pension liability adjustment.. (7) (7) ------- Other comprehensive loss.................. (1,794) ------- Comprehensive loss..... (1,177) ----- ------- ------- ------ ----- ----- ------- Balance at December 31, 1999................... -- -- 14,100 (297) (94) (19) 13,690 Policy credits and cash payments to eligible policyholders.......... (2,958) (2,958) Common stock issued in demutualization........ 5 10,917 (10,922) -- Capital contribution from Parent............ 3,632 3,632 Dividends on common stock.................. (762) (762) Comprehensive income: Net loss before date of demutualization....... (220) (220) Net income after date of demutualization.... 1,169 1,169 Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes................. 1,480 1,480 Foreign currency translation adjustments........... (6) (6) Minimum pension liability adjustment.. (9) (9) ------- Other comprehensive income................ 1,465 ------- Comprehensive income... 2,414 ----- ------- ------- ------ ----- ----- ------- Balance at December 31, 2000................... $ 5 $14,549 $ 407 $1,183 $(100) $ (28) $16,016 ===== ======= ======= ====== ===== ===== =======
See accompanying notes to consolidated financial statements. F-5 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
2000 1999 1998 -------- -------- -------- Cash flows from operating activities Net Income....................................... $ 949 $ 617 $ 1,343 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses......... 498 173 56 Gains (losses) from sales of investments and businesses, net............................... 471 137 (2,629) Change in undistributed income of real estate joint ventures and other limited partnership interests..................................... (200) (322) (91) Interest credited to other policyholder account balances...................................... 2,935 2,441 2,711 Universal life and investment-type product policy fees................................... (1,820) (1,433) (1,360) Change in accrued investment income............ (171) 269 (181) Change in premiums and other receivables....... (931) (619) (2,681) Change in deferred policy acquisition costs, net........................................... (880) (389) (188) Change in insurance-related liabilities........ 3,144 2,243 1,481 Change in income taxes payable................. 246 22 251 Change in other liabilities.................... (2,180) 857 2,390 Other, net..................................... (764) (131) (260) -------- -------- -------- Net cash provided by operating activities........ 1,297 3,865 842 -------- -------- -------- Cash flows from investing activities Sales, maturities and repayments of: Fixed maturities............................... 57,295 73,120 57,857 Equity securities.............................. 899 760 3,085 Mortgage loans on real estate.................. 2,163 1,992 2,296 Real estate and real estate joint ventures..... 655 1,062 1,122 Other limited partnership interests............ 422 469 146 Purchases of: Fixed maturities............................... (63,991) (72,253) (67,543) Equity securities.............................. (863) (410) (854) Mortgage loans on real estate.................. (2,836) (4,395) (2,610) Real estate and real estate joint ventures..... (407) (341) (423) Other limited partnership interests............ (660) (465) (723) Net change in short-term investments............ 2,382 (1,577) (761) Net change in policy loans...................... (315) 2 133 Purchase of businesses, net of cash received.... (416) (2,972) -- Proceeds from sales of businesses............... 877 -- 7,372 Net change in payable under securities loaned transactions................................... 5,840 2,692 3,769 Other, net...................................... (623) (73) (183) -------- -------- -------- Net cash provided by (used in) investing activities...................................... $ 422 $ (2,389) $ 2,683 -------- -------- --------
F-6 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Dollars in millions)
2000 1999 1998 -------- -------- -------- Cash flows from financing activities Policyholder account balances: Deposits...................................... $ 28,834 $ 18,428 $ 19,361 Withdrawals................................... (28,235) (20,650) (21,706) Net change in short-term debt.................. (3,114) 623 (1,002) Long-term debt issued.......................... 1,230 44 693 Long-term debt repaid.......................... (124) (433) (481) Capital contribution from Parent............... 3,632 -- -- Cash payments to eligible policyholders........ (2,550) -- -- Dividends on common stock...................... (762) -- -- -------- -------- -------- Net cash used in financing activities........... (1,089) (1,988) (3,135) -------- -------- -------- Change in cash and cash equivalents............. 630 (512) 390 Cash and cash equivalents, beginning of year.... 2,789 3,301 2,911 -------- -------- -------- Cash and cash equivalents, end of year.......... $ 3,419 $ 2,789 $ 3,301 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest....................................... $ 440 $ 388 $ 367 ======== ======== ======== Income taxes................................... $ 222 $ 587 $ 579 ======== ======== ======== Non-cash transactions during the year: Policy credits to eligible policyholders....... $ 408 $ -- $ -- ======== ======== ======== Business acquisitions--assets.................. $ 22,936 $ 4,832 $ -- ======== ======== ======== Business acquisitions--liabilities............. $ 22,437 $ 1,860 $ -- ======== ======== ======== Business dispositions--assets.................. $ 1,879 $ -- $ 10,663 ======== ======== ======== Business dispositions--liabilities............. $ 1,686 $ -- $ 3,691 ======== ======== ======== Real estate acquired in satisfaction of debt... $ 22 $ 37 $ 69 ======== ======== ========
See accompanying notes to consolidated financial statements. F-7 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Summary Of Significant Accounting Policies Business Metropolitan Life Insurance Company ("Metropolitan Life") and its subsidiaries (the "Company") is a leading provider of insurance and financial services to a broad section of institutional and individual customers. The Company offers life insurance, annuities and mutual funds to individuals and group insurance, reinsurance and retirement and savings products and services to corporations and other institutions. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The New York State Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determination. The preparation of financial statements in conformity GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates include those used in determining deferred policy acquisition costs, investment allowances and the liability for future policyholder benefits. Actual results could differ from those estimates. The accompanying consolidated financial statements include the accounts of Metropolitan Life and subsidiaries, partnerships and joint ventures in which the Company has a majority voting interest or general partner interest with limited removal rights by limited partners. Closed block assets, liabilities, revenues and expenses are combined on a line by line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item. Intercompany accounts and transactions have been eliminated. The Company uses the equity method to account for its investments in real estate joint ventures and other limited partnership interests in which it does not have a controlling interest, but has more than a minimal interest. Minority interest related to consolidated entities included in other liabilities was $479 million and $245 million at December 31, 2000 and 1999, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2000 presentation. Demutualization On April 7, 2000 (the "date of demutualization"), Metropolitan Life converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. ("MetLife" or the "Holding Company"), a Delaware corporation. The conversion was pursuant to an order by the New York Superintendent of Insurance ("Superintendent") approving Metropolitan Life's plan of reorganization, as amended (the "plan"). On the date of demutualization, policyholders' membership interests in Metropolitan Life were extinguished and eligible policyholders received, in exchange for their interests, trust interests representing 494,466,664 shares of common stock of MetLife to be held in a trust, cash payments aggregating $2,550 million and adjustments to their policy values in the form of policy credits aggregating $408 million, as provided in the plan. In addition, Metropolitan Life's Canadian branch made cash payments of $327 million to holders of certain policies transferred to Clarica Life Insurance Company in connection with the sale of a substantial portion of Metropolitan Life's Canadian operations in 1998, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale. F-8 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Earnings After Date of Demutualization Net income after the date of demutualization is based on the results of operations after March 31, 2000, adjusted for the payments to the former Canadian policyholders and costs of demutualization recorded in April 2000 which are applicable to the period prior to April 7, 2000. Investments The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income (loss), net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as investment losses. Investment gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Valuation allowances are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the net carrying value amount of the loan based on the loan's effective interest rate. However, interest ceases to be accrued for loans on which interest is more than 60 days past due. Real estate, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Cost is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in net investment gains (losses). Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired in satisfaction of debt is recorded at estimated fair value at the date of foreclosure. Valuation allowances on real estate held-for-sale are computed using the lower of depreciated cost or estimated fair value, net of disposition costs. Policy loans are stated at unpaid principal balances. Short-term investments are stated at amortized cost, which approximates fair value. Derivative Instruments The Company uses derivative instruments to reduce the risk associated with changing market values or variable cash flows related to the Company's financial assets and liabilities. This objective is achieved through one of two principal risk management strategies: hedging the changes in fair value of financial assets, liabilities or firm commitments or hedging the variable cash flows of assets, liabilities or forecasted transactions. Hedged forecasted transactions, other than the receipt or payment of variable interest payments, are not expected to occur more than 12 months after hedge inception. The Company's derivative strategy employs a variety of instruments including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options. The Company's derivative program is monitored by senior management. The Company's risk of loss is typically limited to the fair value of its derivative instruments and not to the notional or contractual amounts of these derivatives. Risk arises from changes in the fair value of the underlying instruments and, with respect to over-the-counter transactions, from the possible inability of counterparties to meet the terms of the contracts. The Company has policies regarding the financial stability and credit standing of its major counterparties. F-9 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company uses derivative instruments to hedge designated risks. The hedge is expected to be highly effective in offsetting the designated risk at the inception of the contract. The Company monitors the effectiveness of its hedges throughout the contract term using an offset ratio of 80 to 125 percent as its minimum acceptable threshold for hedge effectiveness. During any period the derivative instruments are outside their threshold for hedge effectiveness, or if the relationship no longer qualifies as a hedge, all changes in the derivative's value are marked to market through net investment gains and losses. Gains or losses on financial futures contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, recorded as an adjustment to the basis of the purchased assets or to the proceeds on disposition. Gains or losses on financial futures used in asset risk management are deferred and amortized into net investment income over the remaining term of the investment. Gains or losses on financial futures used in portfolio risk management are deferred and amortized into net investment income or policyholder benefits over the remaining life of the hedged sector of the underlying portfolio. Financial forward contracts that are entered into to purchase securities are marked to fair value through other comprehensive income, similar to the accounting for the security to be purchased. Such contracts are accounted for at settlement by recording the purchase of the specified securities at the contracted value. Gains or losses resulting from the termination of forward contracts are recognized immediately as a component of net investment gains (losses). Interest rate and certain foreign currency swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net receipts or payments are accrued and recognized over the term of the swap agreement as an adjustment to net investment income or other expenses. Gains or losses resulting from swap terminations are amortized over the remaining term of the underlying asset or liability. Gains and losses on swaps and certain foreign forward exchange contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, reflected as an adjustment to the basis of the purchased assets or to the proceeds of disposition. In the event the asset or liability underlying a swap is disposed of, the swap position is closed immediately and any gain or loss is recorded in net investment gains and losses. The Company periodically enters into collars, which consist of purchased put and written call options, to lock in unrealized gains on equity securities. Collars are marked to market through other comprehensive income (loss), similar to the accounting for the underlying equity securities. Purchased interest rate caps and floors are used to offset the risk of interest rate changes related to insurance liabilities. Premiums paid on floors, caps and options are amortized over the life of the applicable derivative instrument. Any gains or losses relating to these derivative instruments are deferred and are recognized as a component of net investment income over the original term of the derivative instrument. Cash and Cash Equivalents The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years- digits method over the estimated useful lives of the assets. Estimated lives range from 10 to 40 years for leasehold improvements and three to 15 years for all other property and equipment. Accumulated depreciation of property and equipment and accumulated amortization on leasehold improvements was $1,304 million and $1,224 million at December 31, 2000 and 1999, respectively. Related depreciation and amortization expense was $120 million, $109 million and $116 million for the years ended December 31, 2000, 1999 and 1998, respectively. Deferred Policy Acquisition Costs The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are F-10 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) amortized with interest over the expected life of the contract for participating traditional life, universal life and investment-type products. Generally, deferred policy acquisition costs are amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception or acquisition of the contracts. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance or acquisition and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Deferred policy acquisition costs related to internally replaced contracts are expensed at date of replacement. Deferred policy acquisition costs for property and casualty insurance contracts, which are primarily comprised of commissions and certain underwriting expenses, are deferred and amortized on a pro rata basis over the applicable contract term or reinsurance treaty. Value of business acquired, included as part of deferred policy acquisition costs, represents the present value of future profits generated from existing insurance contracts in force at the date of acquisition and is amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts. Information regarding deferred policy acquisition costs is as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------- ------ ------ (Dollars in millions) Balance at January 1................................ $ 9,070 $7,028 $6,948 Capitalization of policy acquisition costs.......... 1,805 1,160 1,025 Value of business acquired.......................... 1,681 156 32 ------- ------ ------ Total........................................... 12,556 8,344 8,005 ------- ------ ------ Amortization allocated to: Net investment (losses) gains..................... (95) (46) 240 Unrealized investment gains (losses).............. 596 (1,628) (216) Other expenses.................................... 1,472 930 641 ------- ------ ------ Total amortization.............................. 1,973 (744) 665 ------- ------ ------ Dispositions and other.............................. (86) (18) (312) ------- ------ ------ Balance at December 31.............................. $10,497 $9,070 $7,028 ======= ====== ======
On September 28, 1999, Metropolitan Life's board of directors adopted a plan of reorganization. Consequently, in the fourth quarter of 1999, Metropolitan Life was able to commit to state insurance regulatory authorities that it would establish investment sub-segments to further align investments with the traditional individual life business of the Individual Business segment. As a result, future dividends for the traditional individual life business will be determined based on the results of such investment sub-segments. Additionally, estimated future gross margins used to determine amortization of deferred policy acquisition costs and the amount of unrealized investment gains and losses relating to these products are based on investments in such sub- segments. Using the investments in the sub-segments to determine estimated gross margins and unrealized investment gains and losses increased 1999 amortization of deferred policy acquisition costs by $56 million, net of income taxes of $32 million, and decreased other comprehensive loss in 1999 by $123 million, net of income taxes of $70 million. F-11 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Amortization of deferred policy acquisition costs is allocated to (1) investment gains and losses to provide consolidated statement of income information regarding the impact of such gains and losses on the amount of the amortization, (2) unrealized investment gains and losses to provide information regarding the amount of deferred policy acquisition costs that would have been amortized if such gains and losses had been recognized and (3) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Investment gains and losses related to certain products have a direct impact on the amortization of deferred policy acquisition costs. Presenting investment gains and losses net of related amortization of deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. Goodwill The excess of cost over the fair value of net assets acquired ("goodwill") is included in other assets. Goodwill is amortized on a straight-line basis over a period ranging from 10 to 30 years. The Company reviews goodwill to assess recoverability from future operations using undiscounted cash flows. Impairments are recognized in operating results if a permanent diminution in value is deemed to have occurred.
Years ended December 31 -------------------------- 2000 1999 1998 -------- ------- ------- (Dollars in millions) Net Balance at January 1............................ $ 611 $ 404 $ 359 Acquisitions........................................ 279 237 67 Amortization........................................ (62) (30) (22) Dispositions........................................ (125) -- -- -------- ------- ------- Net Balance at December 31.......................... $ 703 $ 611 $ 404 ======== ======= =======
December 31 ----------------------- 2000 1999 ---------- ----------- (Dollars in millions) Accumulated Amortization............................... $ 74 $ 118 ========== ===========
Future Policy Benefits and Policyholder Account Balances Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (a) net level premium reserves for death and endowment policy benefits (calculated based upon the nonforfeiture interest rate, ranging from 3% to 11%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (b) the liability for terminal dividends and (c) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 3% to 12%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 3% to 11%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 3% to 11%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 2% to 17%, less expenses, mortality charges and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that F-12 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation. Revisions of these estimates are included in operations in the year such refinements are made. Recognition of Insurance Revenue and Related Benefits Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Deposits related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. Policyholder Dividends Policyholder dividends are approved annually by the boards of directors. The aggregate amount of policyholder dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by the insurance subsidiaries. Participating Business Participating business represented approximately 22% and 19% of the Company's life insurance in-force, and 81% and 83% of the number of life insurance policies in-force, at December 31, 2000 and 1999, respectively. Participating policies represented approximately 47% and 50%, 50% and 54%, and 45% and 47% of gross and net life insurance premiums for the years ended December 31, 2000, 1999 and 1998, respectively. The percentages indicated are calculated excluding the business of the Reinsurance segment. Income Taxes Metropolitan Life and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code, as amended (the "Code"). Non-includable subsidiaries file either separate tax returns or separate consolidated tax returns. Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. Metropolitan Life is not subject to the equity tax after the date of demutualization. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. Reinsurance The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. Deferred policy acquisition costs are reduced by amounts F-13 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are reported in other revenues. The Company assumes and retrocedes financial reinsurance contracts, which represent low mortality risk reinsurance treaties. These contracts are reported as deposits and are included in other assets. The amount of revenue reported on these contracts represents fees and the cost of insurance under the terms of the reinsurance agreement. Separate Accounts Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the separate account liabilities. Investments (stated at estimated fair value) and liabilities of the separate accounts are reported separately as assets and liabilities. Deposits to separate accounts, investment income and realized and unrealized gains and losses on the investments of the separate accounts accrue directly to contractholders and, accordingly, are not reflected in the Company's consolidated statements of income and cash flows. Mortality, policy administration and surrender charges to all separate accounts are included in revenues. Foreign Currency Translation Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income (loss). Gains and losses from foreign currency transactions are reported in earnings. Application of Accounting Pronouncements Effective December 31, 2000, the Company early adopted Statement of Position ("SOP") 00-3, Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and for Certain Long-Duration Participating Contracts ("SOP 00-3"). SOP 00-3 provides guidance on accounting by insurance enterprises for demutualizations and the formation of mutual insurance holding companies, including the emergence of earnings from and the financial statement presentation of the closed block formed as a part of a demutualization. Adoption of SOP 00-3 did not have a material effect on the Company's consolidated results of operations other than the reclassification of demutualization costs as operating expenses rather than as an extraordinary item. Effective October 1, 2000, the Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the Securities and Exchange Commission's views in applying generally accepted accounting principles to revenue recognition in financial statements. The requirements of SAB 101 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 2000, the Company adopted Statement of Position 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that 1) transfer only significant timing risk, 2) transfer only significant underwriting risk, 3) transfer neither significant timing nor underwriting risk and 4) have an indeterminate risk. Adoption of SOP 98-7 did not have a material effect on the Company's consolidated financial statements. In September 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125 ("SFAS 140"). SFAS 140 is effective for transfers and extinguishments of liabilities occurring after March 31, 2001 and is effective for disclosures about securitizations and collateral and for recognition and reclassification of collateral for fiscal years ending after F-14 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 15, 2000. The Company is in the process of quantifying the impact, if any, of the provisions of SFAS 140 effective for future periods. Effective January 1, 1999, the Company adopted SOP 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 broadly defines start-up activities. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. Adoption of SOP 98-5 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 1999, the Company adopted SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98- 1"). SOP 98-1 provides guidance for determining when an entity should capitalize or expense external and internal costs of computer software developed or obtained for internal use. Adoption of the provisions of SOP 98-1 had the effect of increasing other assets by $82 million at December 31, 1999. Effective January 1, 1999, the Company adopted SOP 97-3, Accounting for Insurance and Other Enterprises for Insurance Related Assessments ("SOP 97- 3"). SOP 97-3 provides guidance on accounting by insurance and other enterprises for assessments related to insurance activities including recognition, measurement and disclosure of guaranty fund and other insurance related assessments. Adoption of SOP 97-3 did not have a material effect on the Company's consolidated financial statements. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--an Amendment of FASB Statement No. 133 ("SFAS 138"). In June 1999, the FASB also issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133 ("SFAS 137"). SFAS 137 deferred the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") until January 1, 2001. SFAS 133 and SFAS 138 require, among other things, that all derivatives be recognized in the consolidated balance sheets as either assets or liabilities and measured at fair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 and SFAS 138, as of January 1, 2001, are required to be reported in income. The Company estimates that the cumulative effect of the adoption SFAS 133 and SFAS 138 will result in a $32 million, net of income taxes of $19 million, increase in other comprehensive income and an insignificant impact on net income. In July 2000, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 99-20, Recognition of Interest Income and Impairment on Certain Investments ("EITF No. 99-20"). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to evaluate these securities for an other-than- temporary decline in value. This consensus is effective for financial statements with fiscal quarters beginning after December 15, 2000. While the Company currently is in the process of quantifying the impact of EITF No. 99- 20, the provisions of the consensus are not expected to have a material impact on the Company's consolidated financial statements. F-15 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2.Investments Fixed Maturities and Equity Securities Fixed maturities and equity securities at December 31, 2000 were as follows:
Gross Unrealized ----------------- Cost or Amortized Estimated Cost Gain Loss Fair Value --------- -------- -------- ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 8,443 $ 1,188 $ 16 $ 9,615 States and political subdivisions... 1,563 79 3 1,639 Foreign governments................. 5,153 341 153 5,341 Corporate........................... 48,401 1,176 1,466 48,111 Mortgage and asset-backed securities......................... 32,996 697 165 33,528 Other............................... 13,872 384 366 13,890 -------- -------- -------- -------- Total bonds........................ 110,428 3,865 2,169 112,124 Redeemable preferred stocks......... 321 -- -- 321 -------- -------- -------- -------- Total fixed maturities............. $110,749 $ 3,865 $ 2,169 $112,445 ======== ======== ======== ======== Equity Securities: Common stocks....................... $ 872 $ 785 $ 55 $ 1,602 Nonredeemable preferred stocks...... 577 19 5 591 -------- -------- -------- -------- Total equity securities............ $ 1,449 $ 804 $ 60 $ 2,193 ======== ======== ======== ======== Fixed maturities and equity securities at December 31, 1999 were as follows: Gross Unrealized ----------------- Cost or Amortized Estimated Cost Gain Loss Fair Value --------- -------- -------- ---------- (Dollars in millions) Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 5,990 $ 456 $ 147 $ 6,299 States and political subdivisions... 1,583 4 45 1,542 Foreign governments................. 4,090 210 94 4,206 Corporate........................... 47,505 585 1,913 46,177 Mortgage and asset-backed securities......................... 27,396 112 847 26,661 Other............................... 12,235 313 462 12,086 -------- -------- -------- -------- Total bonds........................ 98,799 1,680 3,508 96,971 Redeemable preferred stocks......... 10 -- -- 10 -------- -------- -------- -------- Total fixed maturities............. $ 98,809 $ 1,680 $ 3,508 $ 96,981 ======== ======== ======== ======== Equity Securities: Common stocks....................... $ 980 $ 921 $ 35 $ 1,866 Nonredeemable preferred stocks...... 151 -- 11 140 -------- -------- -------- -------- Total equity securities............ $ 1,131 $ 921 $ 46 $ 2,006 ======== ======== ======== ========
The Company held foreign currency derivatives with notional amounts of $3,885 million and $4,002 million to hedge the exchange rate risk associated with foreign bonds at December 31, 2000 and 1999, respectively. At December 31, 2000, fixed maturities at estimated fair values held by the Company that were below investment grade or not rated by an independent rating agency totaled $9,864 million. At December 31, 2000, non-income producing fixed maturities were insignificant. F-16 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The cost or amortized cost and estimated fair value of bonds at December 31, 2000, by contractual maturity date, are shown below:
Cost or Amortized Estimated Cost Fair Value --------- ---------- (Dollars in millions) Due in one year or less................................. $ 3,465 $ 3,460 Due after one year through five years................... 21,041 21,275 Due after five years through ten years.................. 23,831 23,904 Due after ten years..................................... 29,095 29,957 -------- -------- Total................................................. 77,432 78,596 Mortgage and asset-backed securities.................... 32,996 33,528 -------- -------- Total bonds........................................... $110,428 $112,124 ======== ========
Bonds not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. Sales of securities classified as available-for-sale were as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Proceeds............................................ $46,205 $59,852 $46,913 Gross investment gains.............................. $ 599 $ 605 $ 2,053 Gross investment losses............................. $ 1,520 $ 911 $ 486
Gross investment losses above exclude writedowns recorded during 2000 and 1999 for permanently impaired available-for-sale securities of $324 million and $133 million, respectively. Excluding investments in U.S. Treasury securities and obligations of U.S. government corporations and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. Securities Lending Program The Company participates in securities lending programs whereby blocks of securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company requires a minimum of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $11,746 million and $6,458 million and estimated fair value of $12,289 million and $6,391 million were on loan under the program at December 31, 2000 and 1999, respectively. The Company was liable for cash collateral under its control of $12,301 million and $6,461 million at December 31, 2000 and 1999, respectively. Security collateral on deposit from customers may not be sold or repledged and is not reflected in the consolidated financial statements. Assets on Deposit and Held in Trust The Company had investment assets on deposit with regulatory agencies with a fair market value of $597 million and $476 million at December 31, 2000 and 1999, respectively. Company securities held in trust to satisfy collateral requirements had an amortized cost of $1,234 million at December 31, 2000. F-17 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Mortgage Loans on Real Estate Mortgage loans on real estate were categorized as follows:
December 31 ------------------------------- 2000 1999 --------------- --------------- Amount Percent Amount Percent ------- ------- ------- ------- (Dollars in millions) Commercial mortgage loans.................... $16,944 77% $14,931 75% Agricultural mortgage loans.................. 4,980 22 4,816 24 Residential mortgage loans................... 110 1 82 1 ------- --- ------- --- Total...................................... 22,034 100% 19,829 100% === === Less: Valuation allowances................... 83 90 ------- ------- Mortgage loans............................. $21,951 $19,739 ======= =======
Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 2000, approximately 16%, 7% and 6% of the properties were located in California, New York and Georgia, respectively. Generally, the Company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $540 million and $547 million at December 31, 2000 and 1999, respectively. Changes in mortgage loan valuation allowances were as follows:
Years ended December 31, --------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in millions) Balance at January 1............................ $ 90 $ 173 $ 289 Additions....................................... 38 40 40 Deductions for writedowns and dispositions...... (74) (123) (130) Acquisitions (dispositions) of affiliates....... 29 -- (26) ------- -------- -------- Balance at December 31.......................... $ 83 $ 90 $ 173 ======= ======== ========
A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
December 31, --------------------- 2000 1999 ---------- ---------- (Dollars in millions) Impaired mortgage loans with valuation allowances...... $ 592 $ 540 Impaired mortgage loans without valuation allowances... 330 437 ---------- ---------- Total................................................ 922 977 Less: Valuation allowances............................. 77 83 ---------- ---------- Impaired mortgage loans.............................. $ 845 $ 894 ========== ==========
The average investment in impaired mortgage loans on real estate was $912 million, $1,134 million and $1,282 million for the years ended December 31, 2000, 1999 and 1998, respectively. Interest income on impaired mortgage loans was $76 million, $101 million and $109 million for the years ended December 31, 2000, 1999 and 1998, respectively. The investment in restructured mortgage loans on real estate was $784 million and $980 million at December 31, 2000 and 1999, respectively. Interest income of $62 million, $80 million and $74 million was recognized on restructured loans for the years ended December 31, 2000, 1999 and 1998, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $74 million, $92 million and $87 million for the years ended December 31, 2000, 1999 and 1998, respectively. F-18 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Mortgage loans on real estate with scheduled payments of 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $40 million and $44 million at December 31, 2000 and 1999, respectively. Real Estate and Real Estate Joint Ventures Real estate and real estate joint ventures consisted of the following:
December 31, ---------------------- 2000 1999 ---------- ---------- (Dollars in millions) Real estate and real estate joint ventures held- for-investment.................................... $ 5,495 $ 5,440 Impairments........................................ (272) (289) ---------- ---------- Total............................................ 5,223 5,151 ---------- ---------- Real estate and real estate joint ventures held- for-sale.......................................... 417 719 Impairments........................................ (97) (187) Valuation allowance................................ (39) (34) ---------- ---------- Total............................................ 281 498 ---------- ---------- Real estate and real estate joint ventures..... $ 5,504 $ 5,649 ========== ==========
Accumulated depreciation on real estate was $2,337 million and $2,235 million at December 31, 2000 and 1999, respectively. Related depreciation expense was $224 million, $247 million and $282 million for the years ended December 31, 2000, 1999 and 1998, respectively. Real estate and real estate joint ventures were categorized as follows:
December 31, ----------------------------- 2000 1999 -------------- -------------- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in millions) Office......................................... $3,635 66% $3,846 68% Retail......................................... 586 10 587 10 Apartments..................................... 558 10 474 8 Land........................................... 202 4 258 5 Agriculture.................................... 84 2 96 2 Other.......................................... 439 8 388 7 ------ --- ------ --- Total........................................ $5,504 100% $5,649 100% ====== === ====== ===
The Company's real estate holdings are primarily located throughout the United States. At December 31, 2000, approximately 26%, 25% and 10% of the Company's real estate holdings were located in New York, California and Texas, respectively. Changes in real estate and real estate joint ventures held-for-sale valuation allowance were as follows:
Years ended December 31, ---------------- 2000 1999 1998 ---- ---- ---- (Dollars in millions) Balance at January 1....................................... $ 34 $ 33 $110 Additions charged (credited) to operations................. 17 36 (5) Deductions for writedowns and dispositions................. (12) (35) (72) ---- ---- ---- Balance at December 31..................................... $ 39 $ 34 $ 33 ==== ==== ====
F-19 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Investment income related to impaired real estate and real estate joint ventures held-for-investment was $45 million, $61 million and $105 million for the years ended December 31, 2000, 1999 and 1998, respectively. Investment income related to impaired real estate and real estate joint ventures held- for-sale was $18 million, $14 million and $3 million for the years ended December 31, 2000, 1999 and 1998, respectively. The carrying value of non- income producing real estate and real estate joint ventures was $15 million and $22 million at December 31, 2000 and 1999, respectively. The Company owned real estate acquired in satisfaction of debt of $66 million and $47 million at December 31, 2000 and 1999, respectively. Leveraged Leases Leveraged leases, included in other invested assets, consisted of the following:
December 31, ---------------------- 2000 1999 ---------- ---------- (Dollars in millions) Investment........................................... $ 1,002 $ 1,016 Estimated residual values............................ 546 559 ---------- ---------- Total.............................................. 1,548 1,575 Unearned income...................................... (384) (417) ---------- ---------- Leveraged leases................................... $ 1,164 $ 1,158 ========== ==========
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from three to 15 years, but in certain circumstances are as long as 30 years. These receivables are generally collateralized by the related property. Net Investment Income The components of net investment income were as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Fixed maturities..................................... $ 8,529 $ 7,171 $ 6,990 Equity securities.................................... 41 40 78 Mortgage loans on real estate........................ 1,693 1,484 1,580 Real estate and real estate joint ventures........... 1,407 1,426 1,529 Policy loans......................................... 515 340 387 Other limited partnership interests.................. 142 199 196 Cash, cash equivalents and short-term investments.... 271 173 187 Other................................................ 192 91 406 ------- ------- ------- Total.............................................. 12,790 10,924 11,353 Less: Investment expenses............................ 1,017 1,108 1,125 ------- ------- ------- Net investment income.............................. $11,773 $ 9,816 $10,228 ======= ======= =======
F-20 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net Investment Gains (Losses) Net investment gains (losses), including changes in valuation allowances, were as follows:
Years ended December 31, ---------------------- 2000 1999 1998 ------- ----- ------ (Dollars in millions) Fixed maturities..................................... $(1,437) $(538) $ 573 Equity securities.................................... 192 99 994 Mortgage loans on real estate........................ (18) 28 23 Real estate and real estate joint ventures........... 101 265 424 Other limited partnership interests.................. (7) 33 13 Sales of businesses.................................. 632 -- 531 Other................................................ 65 (24) 71 ------- ----- ------ Total.............................................. (472) (137) 2,629 Amounts allocable to: Future policy benefit loss recognition............. -- -- (272) Deferred policy acquisition costs.................. 95 46 (240) Participating contracts............................ (126) 21 (96) Policyholder dividend obligation................... 85 -- -- ------- ----- ------ Net investment (losses) gains.................... $ (418) $ (70) $2,021 ======= ===== ======
Investment gains and losses have been reduced by (1) additions to future policy benefits resulting from the need to establish additional liabilities due to the recognition of investment gains, (2) deferred policy acquisition cost amortization to the extent that such amortization results from investment gains and losses, (3) additions to participating contractholder accounts when amounts equal to such investment gains and losses are credited to the contractholders' accounts, and (4) adjustments to the policyholder dividend obligation resulting from investment gains and losses. This presentation may not be comparable to presentations made by other insurers. Net Unrealized Investment Gains (Losses) The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), were as follows:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Fixed maturities................................... $ 1,696 $(1,828) $ 4,809 Equity securities.................................. 744 875 832 Other invested assets.............................. 70 165 154 ------- ------- ------- Total............................................ 2,510 (788) 5,795 ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition........... (284) (249) (2,248) Deferred policy acquisition costs................ 101 697 (931) Participating contracts.......................... (133) (118) (212) Policyholder dividend obligation................. (385) -- -- Deferred income taxes.............................. (626) 161 (864) ------- ------- ------- Total............................................ (1,327) 491 (4,255) ------- ------- ------- Net unrealized investment gains (losses)....... $ 1,183 $ (297) $ 1,540 ======= ======= =======
F-21 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The changes in net unrealized investment gains (losses) were as follows:
Years ended December 31, ----------------------- 2000 1999 1998 ------ ------- ------ (Dollars in millions) Balance at January 1............................... $ (297) $ 1,540 $1,898 Unrealized investment gains (losses) during the year.............................................. 3,298 (6,583) (870) Unrealized investment gains (losses) relating to: Future policy benefit loss recognition........... (35) 1,999 (59) Deferred policy acquisition costs................ (596) 1,628 216 Participating contracts.......................... (15) 94 100 Policyholder dividend obligation................. (385) -- -- Deferred income taxes.............................. (787) 1,025 255 ------ ------- ------ Balance at December 31............................. $1,183 $ (297) $1,540 ====== ======= ====== Net change in unrealized investment gains (losses). $1,480 $(1,837) $ (358) ====== ======= ======
3. Derivative Instruments The table below provides a summary of the carrying value, notional amount and current market or fair value of derivative financial instruments held at December 31, 2000 and 1999:
2000 1999 ------------------------------------ ------------------------------------ Current Market Current Market or Fair Value or Fair Value Carrying Notional ------------------ Carrying Notional ------------------ Value Amount Assets Liabilities Value Amount Assets Liabilities -------- -------- ------ ----------- -------- -------- ------ ----------- (Dollars in millions) Financial futures....... $23 $ 254 $ 23 $-- $ 27 $ 3,140 $37 $ 10 Interest rate swaps..... 41 1,549 49 1 (32) 1,316 11 40 Floors.................. -- 325 3 -- -- -- -- -- Caps.................... -- 9,950 -- -- 1 12,376 3 -- Foreign currency swaps.. (1) 1,469 267 85 -- 4,002 26 103 Exchange traded options. 1 10 -- 1 -- -- -- -- --- ------- ---- ---- ---- ------- --- ---- Total contractual commitments........... $64 $13,557 $342 $ 87 $ (4) $20,834 $77 $153 === ======= ==== ==== ==== ======= === ====
The following is a reconciliation of the notional amounts by derivative type and strategy at December 31, 2000 and 1999:
December 31, 1999 Terminations/ December 31, 2000 Notional Amount Additions Maturities Notional Amount ----------------- --------- ------------- ----------------- (Dollars in millions) BY DERIVATIVE TYPE Financial futures....... $ 3,140 $14,255 $17,141 $ 254 Financial forwards...... -- 12 12 -- Interest rate swaps..... 1,316 1,605 1,372 1,549 Floors.................. -- 325 -- 325 Caps.................... 12,376 1,000 3,426 9,950 Foreign currency swaps.. 4,002 687 3,220 1,469 Exchange traded options. -- 41 31 10 ------- ------- ------- ------- Total contractual com- mitments............. $20,834 $17,925 $25,202 $13,557 ======= ======= ======= ======= BY STRATEGY Liability hedging....... $12,571 $ 2,876 $ 3,830 $11,617 Invested asset hedging.. 4,215 781 3,310 1,686 Portfolio hedging....... 2,021 14,255 16,022 254 Anticipated transaction hedging................ 2,027 13 2,040 -- ------- ------- ------- ------- Total contractual com- mitments............. $20,834 $17,925 $25,202 $13,557 ======= ======= ======= =======
F-22 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 2000:
Remaining Life ------------------------------------------------------------- One Year After One Year After Five Years or Less Through Five Years Through Ten Years After Ten Years Total -------- ------------------ ----------------- --------------- ------- (Dollars in millions) Financial futures....... $ 254 $ -- $ -- $-- $ 254 Interest rate swaps..... 243 714 268 324 1,549 Floors.................. -- -- 325 -- 325 Caps.................... 5,210 4,740 -- -- 9,950 Foreign currency swaps.. 91 508 685 185 1,469 Exchange traded options. 10 -- -- -- 10 ------ ------ ------ ---- ------- Total contractual commitments........... $5,808 $5,962 $1,278 $509 $13,557 ====== ====== ====== ==== =======
4.Fair Value Information The estimated fair values of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments were as follows:
Notional Carrying Estimated Amount Value Fair Value December 31, 2000 -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities............................. $112,445 $112,445 Equity securities............................ 2,193 2,193 Mortgage loans on real estate................ 21,951 22,847 Policy loans................................. 8,158 8,914 Short-term investments....................... 930 930 Cash and cash equivalents.................... 3,419 3,419 Mortgage loan commitments.................... $534 -- 17 Liabilities: Policyholder account balances................ 43,196 42,958 Short-term debt.............................. 1,094 1,094 Long-term debt............................... 3,443 3,343 Payable under securities loaned transactions. 12,301 12,301 Other: Company-obligated mandatorily redeemable securities of subsidiary trust.............. 118 118 Notional Carrying Estimated Amount Value Fair Value December 31, 1999 -------- -------- ---------- (Dollars in millions) Assets: Fixed maturities............................. $ 96,981 $ 96,981 Equity securities............................ 2,006 2,006 Mortgage loans on real estate................ 19,739 19,452 Policy loans................................. 5,598 5,618 Short-term investments....................... 3,055 3,055 Cash and cash equivalents.................... 2,789 2,789 Mortgage loan commitments.................... $465 -- (7) Liabilities: Policyholder account balances................ 37,170 36,893 Short-term debt.............................. 4,208 4,208 Long-term debt............................... 2,514 2,466 Payable under securities loaned transactions. 6,461 6,461
F-23 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: Fixed Maturities and Equity Securities The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities in which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. Mortgage Loans on Real Estate and Mortgage Loan Commitments Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. For mortgage loan commitments, the estimated fair value is the net premium or discount of the commitments. Policy Loans Fair values for policy loans are estimated by discounting expected future cash flows using U.S. Treasury rates to approximate interest rates and the Company's past experiences to project patterns of loan accrual and repayment characteristics. Cash and Cash Equivalents and Short-term Investments The carrying values for cash and cash equivalents and short-term investments approximated fair market values due to the short-term maturities of these instruments. Policyholder Account Balances The fair value of policyholder account balances are estimated by discounting expected future cash flows, based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. Short-term and Long-term Debt, Payables Under Securities Loaned Transactions and Company-Obligated Mandatorily Redeemable Securities of Subsidiary Trust The fair values of short-term and long-term debt, payables under securities loaned transactions and Company-obligated mandatorily redeemable securities of subsidiary trust are determined by discounting expected future cash flows, using risk rates currently available for debt with similar terms and remaining maturities. Derivative Instruments The fair value of derivative instruments, including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options are based upon quotations obtained from dealers or other reliable sources. See Note 3 for derivative fair value disclosures. 5.Employee Benefit Plans Pension Benefit and Other Benefit Plans The Company is both the sponsor and administrator of defined benefit pension plans covering all eligible employees and sales representatives of Metropolitan Life and certain of its subsidiaries. Retirement benefits are based upon years of credited service and final average earnings history. The Company also provides certain postemployment benefits and certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to the postretirement benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company. F-24 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, ------------------------------ Pension Other Benefits Benefits -------------- -------------- 2000 1999 2000 1999 ------ ------ ------ ------ (Dollars in millions) Change in projected benefit obligation: Projected benefit obligation at beginning of year........................................ $3,737 $3,920 $1,483 $1,708 Service cost............................... 98 100 29 28 Interest cost.............................. 291 271 113 107 Acquisitions............................... 107 -- 37 -- Actuarial losses (gains)................... 176 (260) 59 (281) Curtailments and terminations.............. (3) (22) 2 10 Change in benefits......................... (2) -- (86) -- Benefits paid.............................. (259) (272) (95) (89) ------ ------ ------ ------ Projected benefit obligation at end of year.... 4,145 3,737 1,542 1,483 ------ ------ ------ ------ Change in plan assets: Contract value of plan assets at beginning of year........................................ 4,726 4,403 1,199 1,123 Actual return on plan assets............... 54 575 179 141 Acquisitions............................... 79 -- -- -- Employer contribution...................... 19 20 3 24 Benefits paid.............................. (259) (272) (63) (89) ------ ------ ------ ------ Contract value of plan assets at end of year... 4,619 4,726 1,318 1,199 ------ ------ ------ ------ Over (under) funded............................ 474 989 (224) (284) Unrecognized net asset at transition........... (31) (66) -- -- Unrecognized net actuarial losses (gains)...... 2 (564) (478) (487) Unrecognized prior service cost................ 109 127 (89) (2) ------ ------ ------ ------ Prepaid (accrued) benefit cost................. $ 554 $ 486 $ (791) $ (773) ------ ------ ------ ------ Qualified plan prepaid pension cost............ $ 775 $ 632 Non-qualified plan accrued pension cost........ (263) (182) Unamortized prior service cost................. 14 17 Accumulated other comprehensive income......... 28 19 ------ ------ Prepaid benefit cost........................... $ 554 $ 486 ====== ======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
Non-Qualified Qualified Plan Plan Total ---------------- -------------- ---------------- 2000 1999 2000 1999 2000 1999 ------- ------- ------ ------ ------- ------- (Dollars in millions) Aggregate projected benefit obligation................ $(3,775) $(3,482) $ (370) $ (255) $(4,145) $(3,737) Aggregate contract value of plan assets (principally Company contracts)........ 4,619 4,726 -- -- 4,619 4,726 ------- ------- ------ ------ ------- ------- Over (under) funded........ $ 844 $ 1,244 $ (370) $ (255) $ 474 $ 989 ======= ======= ====== ====== ======= =======
The assumptions used in determining the aggregate projected benefit obligation and aggregate contract value for the pension and other benefits were as follows:
Pension Benefits Other Benefits --------------------- --------------- 2000 1999 2000 1999 --------- ---------- ------ ------- Weighted average assumptions at December 31: Discount rate....................... 6.9%-7.75% 6.25%-7.75% 6%-7.5% 6%-7.75% Expected rate of return on plan assets............................. 8%-9% 8%-10.5% 6%-9% 6%-9% Rate of compensation increase....... 4%-6% 4.5%-8.5% N/A N/A
F-25 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The assumed health care cost trend rates used in measuring the accumulated nonpension postretirement benefit obligation were 6.5% per year for pre- Medicare eligible claims and 6% for Medicare eligible claims in 2000 and 1999. Assumed health care cost trend rates may have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
One Percent One Percent Increase Decrease ----------- ----------- (Dollars in millions) Effect on total of service and interest cost components........................................ $ 16 $ 13 Effect of accumulated postretirement benefit obligation........................................ $143 $118
The components of periodic benefit costs were as follows:
Pension Benefits Other Benefits ------------------- ---------------- 2000 1999 1998 2000 1999 1998 ----- ----- ----- ---- ---- ---- (Dollars in millions) Service cost......................... $ 98 $ 100 $ 90 $ 29 $ 28 $ 31 Interest cost........................ 291 271 257 113 107 114 Expected return on plan assets....... (420) (363) (337) (97) (89) (79) Amortization of prior actuarial gains............................... (19) (6) (11) (22) (11) (13) Curtailment (credit) cost............ (3) (17) (10) 2 10 4 ----- ----- ----- ---- ---- ---- Net periodic benefit (credit) cost... $ (53) $ (15) $ (11) $ 25 $ 45 $ 57 ===== ===== ===== ==== ==== ====
Savings and Investment Plans The Company sponsors savings and investment plans for substantially all employees under which the Company matches a portion of employee contributions. The Company contributed $65 million, $45 million and $43 million for the years ended December 31, 2000, 1999 and 1998, respectively. 6.Closed Block On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years. The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends as described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. F-26 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain in force. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block is greater than the expected cumulative earnings of the closed block, the Company will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block is less than the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings. Amounts reported at April 7, 2000 and for the period after demutualization are as of April 1, 2000 and for the period beginning on April 1, 2000 (the effect of transaction from April 1, 2000 through April 6, 2000 are not considered material). Closed block liabilities and assets designated to the closed block at December 31, 2000 and April 7, 2000 were as follows:
April December 31, 7, ------------ ------- 2000 2000 ------------ ------- (Dollars in millions) Closed Block Liabilities Future policy benefits................................ $39,415 $38,661 Other policyholder funds.............................. 278 321 Policyholder dividends payable........................ 740 747 Policyholder dividend obligation...................... 385 -- Payable under securities loaned transactions.......... 3,268 1,856 Other................................................. 37 330 ------- ------- Total closed block liabilities.................... 44,123 41,915 ------- ------- Assets Designated To The Closed Block Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $25,660 and $24,725).............. 25,634 23,940 Equity securities, at fair value (cost: $51)........ 54 -- Mortgage loans on real estate....................... 5,801 4,744 Policy loans........................................ 3,826 3,762 Short-term investments.............................. 223 168 Other invested assets............................... 248 325 ------- ------- Total investments................................. 35,786 32,939 Cash and cash equivalents............................. 661 655 Accrued investment income............................. 557 538 Deferred income taxes................................. 1,234 1,390 Premiums and other receivables........................ 117 267 ------- ------- Total assets designated to the closed block....... 38,355 35,789 ------- ------- Excess of closed block liabilities over assets designated to the closed block....................... 5,768 6,126 ------- ------- Amounts included in other comprehensive loss: Net unrealized investment loss, net of deferred income tax of $9 and $287..................................... (14) (498) Allocated to policyholder dividend obligation, net of deferred income tax of $143........................ (242) -- ------- ------- (256) (498) ------- ------- Maximum future earnings to be recognized from closed block assets and liabilities......................... $ 5,512 $ 5,628 ======= =======
F-27 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding the policyholder dividend obligation is as follows:
(Dollars in millions) --------------------- Balance at April 7, 2000................... $-- Change in policyholder dividend obligation.... 85 Net investment losses... (85) Net unrealized investment gains at December 31, 2000...... 385 ---- Balance at December 31, 2000................... $385 ====
Closed block revenues and expenses were as follows:
April 7, 2000 through December 31, 2000 --------------------- (Dollars in millions) REVENUES Premiums.............................................. $2,900 Net investment income................................. 1,949 Net investment losses (net of amounts allocable to the policyholder dividend obligation of $(85))........... (150) ------ Total revenues...................................... 4,699 ------ EXPENSES Policyholder benefits and claims...................... 2,874 Policyholder dividends................................ 1,132 Change in policyholder dividend obligation (includes amounts directly related to net investment losses of $(85))............................................... 85 Other expenses........................................ 425 ------ Total expenses...................................... 4,516 ------ Revenues net of expenses before income taxes.......... 183 Income taxes.......................................... 67 ------ Revenues net of expenses and income taxes............. $ 116 ======
The change in maximum future earnings of the closed block was as follows:
(Dollars in millions) April 7, 2000.......................................... $5,628 December 31, 2000...................................... 5,512 ------ Change during the period............................... $ (116) ======
The Company charges the closed block with federal income taxes, state and local premium taxes, and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the plan of reorganization. The Company also charges the closed block for expenses of maintaining the policies included in the closed block. 7.Separate Accounts Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts totaling $53,656 million and $47,618 million at December 31, 2000 and 1999, respectively, for which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $16,594 million and $17,323 million at December 31, 2000 and 1999, respectively, for which the Company contractually guarantees either a minimum return or account value to the policyholder. F-28 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $667 million, $485 million and $413 million for the years ended December 31, 2000, 1999 and 1998, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rates credited on these contracts were 6.9% and 6.5% at December 31, 2000 and 1999, respectively. The assets that support these liabilities were comprised of $15,708 million and $16,874 million in fixed maturities at December 31, 2000 and 1999, respectively. The portfolios are segregated from other investments and are managed to minimize liquidity and interest rate risk. In order to minimize the risk of disintermediation associated with early withdrawals, these investment products carry a graded surrender charge as well as a market value adjustment. 8.Debt Debt consisted of the following:
December 31, --------------------- 2000 1999 ---------- ---------- (Dollars in millions) Surplus notes, interest rates ranging from 6.30% to 7.80%, maturity dates ranging from 2003 to 2025.... $ 1,650 $ 1,546 Capital note, interest at 8.00%, due 2005........... 1,006 -- Investment related exchangeable debt, interest rates ranging from 4.90% to 5.40%, due 2001 and 2002..... 271 369 Fixed rate notes, interest rates ranging from 5.29% to 10.50%, maturity dates ranging from 2001 to 2009............................................... 316 187 Senior notes, interest rates ranging from 7.06% to 7.25%, maturity dates ranging from 2003 to 2007.... 98 270 Capital lease obligations........................... 42 44 Other notes with varying interest rates............. 60 98 ---------- ---------- Total long-term debt................................ 3,443 2,514 Total short-term debt............................... 1,094 4,208 ---------- ---------- Total............................................. $ 4,537 $ 6,722 ========== ==========
Metropolitan Life and certain of its subsidiaries maintain committed and unsecured credit facilities aggregating $2,000 million (five-year facility of $1,000 million expiring in April 2003 and a 364-day facility of $1,000 million expiring in April of 2001). Both facilities bear interest at LIBOR plus 20 basis points. The facilities can be used for general corporate purposes and also provide backup for the Company's commercial paper program. At December 31, 2000, there were no outstanding borrowings under either of the facilities. Reinsurance Group of America, Incorporated ("RGA"), a subsidiary of the Company, maintains committed and unsecured credit facilities aggregating $178 million (two three-year facilities of $140 million and $22 million expiring May 2003 and a three month $16 million revolving line of credit). The interest on borrowing is based on the terms of each specific borrowing. At December 31, 2000, there was $98 million outstanding under these facilities. Subsequent to December 31, 2000, RGA amended its revolving line of credit agreement into a $20 million facility. Payments of interest and principal on the surplus notes, subordinated to all other indebtedness, may be made only with the prior approval of the insurance department of the state of domicile. Subject to the prior approval of the Superintendent, the $300 million 7.45% surplus notes due 2023 may be redeemed, in whole or in part, at the election of Metropolitan Life at any time on or after November 1, 2003. Each issue of investment related debt is payable in cash or by delivery of an underlying security owned by the Company. The amount payable at maturity of the debt is greater than the principal of the debt if the market value of the underlying security appreciates above certain levels at the date of debt repayment as compared to the market value of the underlying security at the date of debt issuance. At December 31, 2000, the underlying securities pledged as collateral has a market value of $295 million. F-29 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In connection with the demutualization, Metropolitan Life issued to the Holding Company a mandatorily convertible note bearing interest at an annual rate of 8.00% of the principal amount of $1,006 million, payable quarterly in arrears commencing August 15, 2000 and maturing on May 15, 2005. The principal amount of the capital note is mandatorily convertible into common stock of Metropolitan Life upon maturity or acceleration of the capital note and without any further action by the Holding Company or Metropolitan Life. In addition, the capital note provides that Metropolitan Life may not make any payment of principal or interest on the capital note so long as specified payment restrictions exist and have not been waived by the Superintendent. Payment restrictions would exist if Metropolitan Life fails to exceed certain thresholds relative to the level of its statutory risk-based capital or the amount of its outstanding capital notes, surplus notes or similar obligations. At December 31, 2000, Metropolitan Life's statutory total adjusted capital exceeded these limitations. The aggregate maturities of long-term debt for the Company are $172 million in 2001, $210 million in 2002, $500 million in 2003, $14 million in 2004, $1,398 million in 2005 and $1,149 million thereafter. Short-term debt of the Company consisted of commercial paper with a weighted average interest rate of 6.60% and 6.05% and a weighted average maturity of 44 and 74 days at December 31, 2000 and 1999, respectively. Interest expense related to the Company's indebtedness was $417 million, $384 million and $333 million for the years ended December 31, 2000, 1999 and 1998, respectively. 9.Company-obligated Mandatorily Redeemable Securities Of Subsidiary Trust In June 1997, GenAmerica Corporation ("GenAmerica") issued $125 million of 8.525% capital securities through a wholly-owned subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally guaranteed, on a subordinated basis, the obligation of the trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities any time after June 30, 2007. Capital securities outstanding at December 31, 2000 were $118 million, net of unamortized discount of $7 million. 10.Commitments And Contingencies Litigation Metropolitan Life is currently a defendant in approximately 500 lawsuits raising allegations of improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." On December 28, 1999, after a fairness hearing, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving a multidistrict litigation proceeding involving alleged sales practices claims. No appeal was taken, and the settlement is final. The settlement class includes most of the owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. In addition to dismissing the consolidated class actions, the District Court's order also bars sales practices claims by class members with respect to policies or annuities issued by the defendant insurers during the class period, effectively resolving all pending sales practices class actions against these insurers in the United States. Under the terms of the order, only those class members who excluded themselves from the settlement may continue an existing, or start a new, sales practices lawsuit against Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for policies or annuities issued during the class period. Approximately 20,000 class members elected to exclude themselves from the settlement. At December 31, 2000, approximately 300 of these "opt-outs" have filed new individual lawsuits. F-30 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The settlement provides three forms of relief. General relief, in the form of free death benefits, is provided automatically to class members who did not exclude themselves from the settlement or who did not elect the claim evaluation procedures set forth in the settlement. The claim evaluation procedures permit a class member to have a claim evaluated by a third party under procedures set forth in the settlement. Claim awards made under the claim evaluation procedures will be in the form of policy adjustments, free death benefits or, in some instances, cash payments. In addition, class members who have or had an ownership interest in specified policies will also automatically receive deferred acquisition cost tax relief in the form of free death benefits. The settlement fixes the aggregate amounts that are available under each form of relief. Implementation of the class action settlement is proceeding. Metropolitan Life expects that the total cost of the settlement will be approximately $957 million. This amount is equal to the amount of the increase in liabilities for the death benefits and policy adjustments and the present value of expected cash payments to be provided to included class members, as well as attorneys' fees and expenses and estimated other administrative costs, but does not include the cost of litigation with policyholders who are excluded from the settlement. The Company believes that the cost of the settlement will be substantially covered by available reinsurance and the provisions made in the consolidated financial statements, and thus will not have a material adverse effect on its business, results of operations or financial position. Metropolitan Life made some recoveries in 2000 under those reinsurance agreements and, although there is no assurance that other reinsurance claim submissions will be paid, Metropolitan Life believes payment is likely to occur. The Company believes it has made adequate provision in the consolidated financial statements for all probable losses for sales practices claims, including litigation costs involving policyholders who are excluded from the settlement as well as for the two class action settlements described in the two paragraphs immediately following the next paragraph. The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada. A certified class action with conditionally certified subclasses is pending in the United States District Court for the Southern District of New York against Metropolitan Life, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants alleging improper sales abroad; settlement discussions are continuing. Separate from the Metropolitan Life class action settlement, similar sales practices class action litigation against New England Mutual Life Insurance Company ("New England Mutual"), with which Metropolitan Life merged in 1996, and General American, which was acquired in 2000, has been settled. The New England Mutual case, a consolidated multidistrict litigation in the United States District Court for the District of Massachusetts, involves approximately 600,000 life insurance policies sold during the period January 1, 1983 through August 31, 1996. The settlement of this case was approved by the District Court in October 2000 and is not being appealed. Implementation of the class action settlement is proceeding. The Company expects that the total cost of this settlement will be approximately $150 million. Approximately 2,400 class members opted-out of the settlement. As of December 31, 2000, New England Mutual was a defendant in approximately 30 opt-out lawsuits involving sales practices claims. The settlement of the consolidated multidistrict sales practices class action case against General American was approved by the United States District Court for the Eastern District of Missouri. The General American case involves approximately 250,000 life insurance policies sold during the period January 1, 1982 through December 31, 1996. One appeal has been filed. The Company expects that the approximate cost of the settlement will be $55 million, not including legal fees and costs for plaintiffs' counsel. The District Court has scheduled a hearing in March 2001 with respect to plaintiffs' class counsels' request for such fees and costs. Approximately 700 class members have elected to exclude themselves from the General American settlement. As of December 31, 2000, General American was a defendant in approximately ten opt-out lawsuits involving sales practices claims. In the past, some individual sales practices claims have been resolved through settlement, have been won by dispositive motions, or, in a few instances, have gone to trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance may be commenced in the future. F-31 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Regulatory authorities in a small number of states have had investigations or inquiries relating to Metropolitan Life's, New England Mutual's or General American's sales of individual life insurance policies or annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief. The Company may continue to resolve investigations in a similar manner. Metropolitan Life is also a defendant in numerous lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Metropolitan Life has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits, currently numbering in the thousands, have principally been based upon allegations relating to certain research, publication and other activities of one or more of Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and alleging that Metropolitan Life learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Legal theories asserted against Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While Metropolitan Life believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect of these claims, most of the cases have been resolved by settlements. Metropolitan Life intends to continue to exercise its best judgment regarding settlement or defense of such cases, including when trials of these cases are appropriate. The number of such cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. Significant portions of amounts paid in settlement of such cases have been funded with proceeds from a previously-resolved dispute with Metropolitan Life's primary, umbrella and first level excess liability insurance carriers. Metropolitan Life was involved in litigation with several of its excess liability insurers regarding amounts payable under its policies with respect to coverage for these claims. The trial court granted summary judgment to these insurers and Metropolitan Life appealed. The Connecticut Supreme Court in 2001 affirmed the decision of the trial court. The Company believes that Metropolitan Life's asbestos-related litigation with these insurers should have no effect on its recoveries under excess insurance policies that were obtained in 1998 for asbestos-related claims. The Company has recorded, in other expenses, charges of $15 million ($10 million after-tax), $499 million ($317 million after-tax), and $1,895 million ($1,203 million after-tax) for the years ended December 31, 2000, 1999, and 1998, respectively, for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. The 2000 charge was principally related to sales practices claims. The 1999 charge was principally related to the settlement of the multidistrict litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. The 1998 charge was comprised of $925 million and $970 million for sales practices claims and asbestos-related claims, respectively. The Company recorded the charges for sales practices claims in 1998 based on preliminary settlement discussions and the settlement history of other insurers. Prior to the fourth quarter of 1998, Metropolitan Life established a liability for asbestos-related claims based on settlement costs for claims that Metropolitan Life had settled, estimates of settlement costs for claims pending against Metropolitan Life and an estimate of settlement costs for unasserted claims. The amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which management believes are only reasonably possible of assertion. Based on this process, the accrual for asbestos-related claims at December 31, 1997 was $386 million. Potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against Metropolitan Life, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos- containing products, adding to the uncertainty as to the number of claims that may be brought against Metropolitan Life. During 1998, Metropolitan Life decided to pursue the purchase of excess insurance to limit its exposure to asbestos-related claims. In connection with the negotiations with the casualty insurers to obtain this insurance, Metropolitan Life obtained information that caused management to reassess the accruals for asbestos-related claims. This information included: . Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against Metropolitan Life in the future F-32 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) was significantly greater than it had assumed in its accruals. The number of claims brought against Metropolitan Life is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which Metropolitan Life is included as a defendant. The information provided to Metropolitan Life relating to other insureds indicated that Metropolitan Life had been included as a defendant for a significant percentage of total asbestos-related claims and that it may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos defendants; and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. . Information derived from actuarial calculations Metropolitan Life made in the fourth quarter of 1998 in connection with these negotiations, which helped to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding Metropolitan Life's claims and settlement experience (which reflected Metropolitan Life's decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, Metropolitan Life concluded that certain claims that previously were considered as only reasonably possible of assertion were probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, Metropolitan Life increased its liability for asbestos- related claims to $1,278 million at December 31, 1998. During 1998, Metropolitan Life paid $1,407 million of premiums for excess of loss reinsurance agreements and excess insurance policies, consisting of $529 million for the excess of loss reinsurance agreements for sales practices claims and excess mortality losses and $878 million for the excess insurance policies for asbestos-related claims. Metropolitan Life obtained the excess of loss reinsurance agreements to provide reinsurance with respect to sales practices claims made on or prior to December 31, 1999 and for certain mortality losses in 1999. These reinsurance agreements have a maximum aggregate limit of $650 million, with a maximum sublimit of $550 million for losses for sales practices claims. This coverage is in excess of an aggregate self-insured retention of $385 million with respect to sales practices claims and $506 million, plus Metropolitan Life's statutory policy reserves released upon the death of insureds, with respect to life mortality losses. At December 31, 1999, the subject losses under the reinsurance agreements due to sales practices claims and related counsel fees from the time Metropolitan Life entered into the reinsurance agreements did not exceed that self-insured retention. No recoveries were made with respect to the coverage for excess mortality losses for 1999. As noted above, recoveries have been made in 2000 under the reinsurance agreements for the sales practices claims. The maximum sublimit of $550 million for sales practices claims was within a range of losses that management believed were reasonably possible at December 31, 1998. Each excess of loss reinsurance agreement for sales practices claims and mortality losses contains an experience fund, which provides for payments to Metropolitan Life at the commutation date if experience is favorable at such date. The Company accounts for the aggregate excess of loss reinsurance agreements as reinsurance; however, if deposit accounting were applied, the effect on the Company's consolidated financial statements in 2000, 1999 and 1998 would not be significant. Under reinsurance accounting, the excess of the liability recorded for sales practices losses recoverable under the agreements of $550 million over the premium paid of $529 million resulted in a deferred gain of $21 million which was amortized into income over the settlement period from January 1999 through April 2000. Under deposit accounting, the premium would be recorded as an other asset rather than as an expense, and the reinsurance loss recoverable and the deferred gain would not have been recorded. Because the agreements also contain an experience fund which increases with the passage of time, the increase in the experience fund in 1999 and 2000 under deposit accounting would be recognized as interest income in an amount approximately equal to the deferred gain that was amortized into income under reinsurance accounting. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500 million, which is in excess of a $400 million self-insured retention ($878 million of which was recorded as a recoverable at F-33 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000, 1999 and 1998). The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. Although amounts paid in any given year that are recoverable under the policies will be reflected as a reduction in the Company's operating cash flows for that year, management believes that the payments will not have a material adverse effect on the Company's liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to the Company at the commutation date if experience under the policy to such date has been favorable, or pro rata reductions from time to time in the loss reimbursements to the Company if the cumulative return on the reference fund is less than the return specified in the experience fund. The Company believes adequate provision has been made in its consolidated financial statements for all reasonably probable and estimable losses for sales practices and asbestos-related claims. With respect to Metropolitan Life's asbestos litigation, estimates can be uncertain due to the limitations of available data and the difficulty of predicting with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to settle claims and the impact of any possible future adverse verdicts and their amounts. Recent bankruptcies of other companies involved in asbestos litigation may result in an increase in the number of claims and the cost of resolving claims, as well as the number of trials and possible verdicts Metropolitan Life may experience. Plaintiffs are seeking additional funds from defendants, including Metropolitan Life, in light of recent bankruptcy filings by certain other defendants. Accordingly, it is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its consolidated financial statements. Metropolitan Life will continue to study the variables in light of additional information, including legislative and judicial developments, gained over time in order to identify trends that may become evident and to assess their impact on the previously established liability; future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. A purported class action suit involving policyholders in four states has been filed in a Rhode Island state court against a Metropolitan Life subsidiary, Metropolitan Property and Casualty Insurance Company, with respect to claims by policyholders for the alleged diminished value of automobiles after accident-related repairs. The trial court recently denied a motion by Metropolitan Property and Casualty Insurance Company for summary judgment, and discovery has commenced. A class certification motion has been denied. Similar "diminished value" purported class action suits have been filed in Texas and Tennessee against Metropolitan Property and Casualty Insurance Company. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance Company, in Florida by a policyholder alleging breach of contract and unfair trade practices with respect to allowing the use of parts not made by the original manufacturer to repair damaged automobiles. A motion for class certification is pending. In addition, a plaintiff in Louisiana state court recently amended an individual lawsuit to state a putative class action on behalf of Louisiana insureds challenging the method that Metropolitan Property and Casualty Insurance Company uses to determine the value of a motor vehicle that has sustained a total loss. A class certification motion is pending. These suits are in the early stages of litigation and Metropolitan Property and Casualty Insurance Company and Metropolitan Casualty Insurance Company intend to defend themselves vigorously against these suits. Similar suits have been filed against many other personal lines property and casualty insurers. The United States, the Commonwealth of Puerto Rico and various hotels and individuals have sued MetLife Capital Corporation, a former subsidiary of the Company, seeking damages for clean up costs, natural resource damages, personal injuries and lost profits and taxes based upon, among other things, a release of oil from a barge which was being towed by the M/V Emily S. In connection with the sale of MetLife Capital, the Company acquired MetLife Capital's potential liability with respect to the M/V Emily S. lawsuits. MetLife Capital had entered into a sale and leaseback financing arrangement with respect to the M/V Emily S. The plaintiffs have taken the position that MetLife Capital, as the owner of record of the M/V Emily S., is responsible for all damages caused by the barge, including the oil spill. The claims of the governments of the United States and Puerto Rico were settled in 2000 within amounts previously accrued by the Company. F-34 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Metropolitan Life has completed a tender offer to purchase the shares of Conning Corporation that it had not already owned. After Metropolitan Life had announced its intention to make a tender offer, three putative class actions were filed by Conning shareholders alleging that the prospective offer was inadequate and constituted a breach of fiduciary duty. The parties to the litigation have reached an agreement providing for a settlement of the actions; a motion seeking court approval for the settlement will be filed with the New York State Supreme Court in New York County after a final agreement is signed. Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions name as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the New York Superintendent of Insurance and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the Supreme Court of the State of New York for New York County have been consolidated within the commercial part. In addition, there remains a separate purported class action in New York state court in New York County and another in Kings County. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting. Some of the plaintiffs in the above described actions have also brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the New York Superintendent of Insurance that approved the plan. In this proceeding, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. Another purported class action is pending in the Supreme Court of the State of New York for New York County and has been brought on behalf of a purported class of beneficiaries of Metropolitan Life annuities purchased to fund structured settlements claiming that the class members should have received common stock or cash in connection with the demutualization. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. A purported class action was filed in the United States District Court for the Southern District of New York seeking damages from Metropolitan Life and the Holding Company for alleged violations of various provisions of the Constitution of the United States in connection with the plan of reorganization. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. The defendants have moved to dismiss most of these actions; the Kings County action and the Article 78 proceeding are being voluntarily held in abeyance. Three lawsuits were also filed against Metropolitan Life in 2000 in the United States District Courts for the Southern District of New York, for the Eastern District of Louisiana, and for the District of Kansas, alleging racial discrimination in the marketing, sale, and administration of life insurance policies, including "industrial" life insurance policies, sold by Metropolitan Life decades ago. The plaintiffs in these three purported class actions seek unspecified compensatory damages, punitive damages, reformation, imposition of a constructive trust, a declaration that the alleged practices are discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices and adjust policy values, and other relief. Metropolitan Life believes it has meritorious defenses to the plaintiffs' claims and is contesting vigorously plaintiffs' claims in these actions. Metropolitan Life has successfully transferred the Louisiana action to the United States District Court for the Southern District of New York and has also filed a motion to transfer the Kansas action to the same court. Metropolitan Life has moved for summary judgment in the two actions pending in New York, citing the applicable statute of limitations. The New York cases are scheduled for trial in November 2001. Insurance departments in a number of states have initiated inquiries in 2000 about possible race-based underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in the respective states, including Metropolitan Life and certain of its subsidiaries. The New York Insurance Department has commenced examinations of certain domestic life insurance companies, including Metropolitan Life and certain of its subsidiaries, concerning possible past race-based underwriting practices. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's F-35 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other Federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. It is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have a material adverse effect on the Company's consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's operating results or cash flows in particular quarterly or annual periods. Leases In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants is contingent upon the level of the tenants' sales revenues. Additionally, the Company, as lessee, has entered into various lease and sublease agreements for office space, data processing and other equipment. Future minimum rental and subrental income, and minimum gross rental payments relating to these lease agreements were as follows:
Gross Rental Sublease Rental Income Income Payments ------ -------- -------- (Dollars in millions) 2001................................................ $ 881 $17 $145 2002................................................ 679 15 114 2003................................................ 631 12 93 2004................................................ 574 11 76 2005................................................ 538 11 61 Thereafter.......................................... 2,322 21 264
Commitments to Fund Partnership Investments The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $1,311 million and $1,131 million at December 31, 2000 and 1999, respectively. The Company anticipates that these amounts will be invested in the partnerships over the next three to five years. 11.Acquisitions and Dispositions Acquisitions On January 6, 2000, Metropolitan Life completed its acquisition of GenAmerica for $1.2 billion. As part of the GenAmerica acquisition, General American Life Insurance Company paid Metropolitan Life a fee of $120 million in connection with the assumption of certain funding agreements. The fee has been considered as part of the purchase price of GenAmerica. GenAmerica is a holding company which includes General American Life Insurance Company, approximately 49% of the outstanding shares of RGA common stock, a provider of reinsurance, and 61% of the outstanding shares of Conning Corporation ("Conning") common stock, an asset manager. Metropolitan Life owned 10% of the outstanding shares of RGA common stock prior to the completion of the GenAmerica acquisition. At December 31, 2000 Metropolitan Life's ownership percentage of the outstanding shares of RGA common stock was approximately 59%. In April 2000, Metropolitan Life acquired the outstanding shares of Conning common stock not already owned by Metropolitan Life for $73 million. F-36 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's total revenues and net income for the year ended December 31, 1999 on both a historical and pro forma basis as if the acquisition of GenAmerica had occurred on January 1, 1999 were as follows:
Total Revenues Net Income -------------- ---------- (Dollars in millions) Historical......................................... $25,421 $617 Pro forma (unaudited).............................. $29,278 $403
The pro forma results include adjustments to give effect to the amortization of discounts on fixed maturities, goodwill and value of business acquired, adjustments to liabilities for future policy benefits, and certain other adjustments, together with related income tax effects. The pro forma information is not necessarily indicative of the results that would have occurred had the purchase been made on January 1, 1999 or the future results of the combined operations. Dispositions During 2000, the Company completed the sale of its 48% ownership interest in its affiliates, Nvest, L.P. and Nvest Companies L.P. This transaction resulted in an investment gain of $663 million. Effective October 31, 2000, the Company sold Exeter Reassurance Company, Ltd. ("Exeter") to the Holding Company and recorded an investment loss of $27 million. During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial financing company) and a substantial portion of its Canadian and Mexican insurance operations, which resulted in an investment gain of $531 million. 12. Income Taxes The provision for income taxes was as follows:
Years ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in millions) Current: Federal...................................... $ (131) $ 608 $ 666 State and local.............................. 34 24 60 Foreign...................................... 5 4 99 -------- -------- -------- (92) 636 825 -------- -------- -------- Deferred: Federal...................................... 555 (78) (25) State and local.............................. 8 2 (8) Foreign...................................... 6 (2) (54) -------- -------- -------- 569 (78) (87) -------- -------- -------- Provision for income taxes..................... $ 477 $ 558 $ 738 ======== ======== ========
F-37 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes as reported were as follows:
Years ended December 31, --------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in millions) Tax provision at U.S. statutory rate............. $ 499 $ 411 $ 728 Tax effect of: Tax exempt investment income................... (52) (39) (40) Surplus tax.................................... (145) 125 18 State and local income taxes................... 30 18 31 Prior year taxes............................... (37) (31) 4 Demutualization costs.......................... 21 56 -- Payment to former Canadian policyholders....... 114 -- -- Sales of businesses............................ 31 -- (19) Other, net..................................... 16 18 16 -------- ------- ------- Provision for income taxes....................... $ 477 $ 558 $ 738 ======== ======= =======
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
December 31, -------------- 2000 1999 ------ ------ (Dollars in millions) Deferred income tax assets: Policyholder liabilities and receivables................... $3,034 $3,042 Net operating losses....................................... 258 72 Net unrealized investment losses........................... -- 161 Employee benefits.......................................... 167 192 Litigation related......................................... 232 468 Other...................................................... 350 242 ------ ------ 4,041 4,177 Less: Valuation allowance.................................. 78 72 ------ ------ 3,963 4,105 ------ ------ Deferred income tax liabilities: Investments................................................ 1,329 1,472 Deferred policy acquisition costs.......................... 2,713 1,967 Net unrealized investment gains............................ 626 -- Other...................................................... 37 63 ------ ------ 4,705 3,502 ------ ------ Net deferred income tax (liability) asset.................... $ (742) $ 603 ====== ======
Domestic net operating loss carryforwards amount to $393 million at December 31, 2000 and expire in 2020. Foreign net operating loss carryforwards amount to $354 million at December 31, 2000 and were generated in various foreign countries with expiration periods of five years to infinity. The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign net operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable. F-38 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Internal Revenue Service has audited the Company for the years through and including 1996. The Company is being audited for the years 1997, 1998 and 1999. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 13. Reinsurance The Company's life insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks and to provide additional capacity for future growth. Risks in excess of $25 million on single survivorship policies and $35 million on joint survivorship policies are 100 percent coinsured. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. In addition, the Company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to significant fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The Company is engaged in life reinsurance whereby it indemnifies another insurance company for all or a portion of the insurance risk underwritten by the ceding company. See Note 10 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales practices claims. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The effects of reinsurance were as follows:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Direct premiums.................................. $15,661 $13,249 $12,763 Reinsurance assumed.............................. 2,858 484 409 Reinsurance ceded................................ (2,256) (1,645) (1,669) ------- ------- ------- Net premiums..................................... $16,263 $12,088 $11,503 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits........................... $ 1,934 $ 1,626 $ 1,744 ======= ======= =======
Reinsurance recoverables, included in premiums and other receivables, were $3,304 million and $2,898 million at December 31, 2000 and 1999, respectively, including $1,359 million and $1,372 million, respectively, relating to reinsurance of long-term guaranteed interest contracts and structured settlement lump sum contracts accounted for as a financing transaction. Reinsurance and ceded commissions payables, included in other liabilities, were $225 million and $148 million at December 31, 2000 and 1999, respectively. F-39 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following provides an analysis of the activity in the liability for benefits relating to property and casualty and group accident and non-medical health policies and contracts:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Balance at January 1.............................. $ 3,789 $ 3,320 $ 3,655 Reinsurance recoverables........................ (415) (382) (378) ------- ------- ------- Net balance at January 1.......................... 3,374 2,938 3,277 ------- ------- ------- Acquisition of business........................... 35 204 -- ------- ------- ------- Incurred related to: Current year.................................... 3,773 3,129 2,726 Prior years..................................... (111) (16) (245) ------- ------- ------- 3,662 3,113 2,481 ------- ------- ------- Paid related to: Current year.................................... (2,243) (2,012) (1,967) Prior years..................................... (1,023) (869) (853) ------- ------- ------- (3,266) (2,881) (2,820) ------- ------- ------- Net Balance at December 31........................ 3,805 3,374 2,938 Add: Reinsurance recoverables................... 214 415 382 ------- ------- ------- Balance at December 31............................ $ 4,019 $ 3,789 $ 3,320 ======= ======= =======
14. Other Expenses Other expenses were comprised of the following:
Years ended December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in millions) Compensation..................................... $ 2,712 $ 2,590 $ 2,478 Commissions...................................... 1,710 937 902 Interest and debt issue costs.................... 365 405 379 Amortization of policy acquisition costs (excludes amortization of $(95), $(46) and $240, respectively, related to investment (losses) gains).......................................... 1,472 930 641 Capitalization of policy acquisition costs....... (1,805) (1,160) (1,025) Rent, net of sublease income..................... 296 239 155 Minority interest................................ 115 55 67 Restructuring charge............................. -- -- 81 Other............................................ 3,269 2,759 4,341 ------- ------- ------- Total other expenses........................... $ 8,134 $ 6,755 $ 8,019 ======= ======= =======
During 1998, the Company recorded charges of $81 million to restructure headquarters operations and consolidate certain agencies and other operations. These costs were paid during 1999. 15. Stockholder's Equity Dividend Restrictions Under the New York Insurance Law, Metropolitan Life is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Holding Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus to policyholders as of the immediately preceding F-40 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) calendar year and (ii) its net gain from operations for the immediately preceding calendar year (excluding realized investment gains). Metropolitan Life will be permitted to pay a stockholder dividend to the Holding Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. At December 31, 2000, Metropolitan Life could pay the Holding Company a stockholder dividend of $721 million without prior approval of the Superintendent. During 2000, the Company paid an ordinary dividend of $762 million to its parent, the Holding Company. Statutory Equity and Income The reconciliations of insurance subsidiaries' statutory capital and surplus and net change in statutory capital and surplus determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities, with stockholder's equity and net income determined in conformity with generally accepted accounting principles were as follows:
December 31, ---------------- 2000 1999 ------- ------- (Dollars in millions) Statutory capital and surplus of insurance subsidiaries... $ 7,213 $ 7,630 GAAP adjustments for: Future policy benefits and policyholder account balances............................................... (3,469) (4,167) Deferred policy acquisition costs....................... 8,740 8,381 Deferred income taxes................................... (57) 886 Valuation of investments................................ 1,077 (2,102) Statutory asset valuation reserves...................... 3,344 3,189 Statutory interest maintenance reserves................. 547 1,114 Surplus notes........................................... (1,650) (1,546) Other, net.............................................. 271 305 ------- ------- Stockholder's Equity...................................... $16,016 $13,690 ======= =======
Years ended December 31, ------------------- 2000 1999 1998 ----- ---- ------ (Dollars in millions) Net change in statutory capital and surplus of insurance subsidiaries............................... $(417) $242 $ 10 GAAP adjustments for: Future policy benefits and policyholder account balances........................................... 133 556 127 Deferred policy acquisition costs................... 214 379 224 Deferred income taxes............................... (496) 154 234 Valuation of investments............................ 1,229 473 1,158 Statutory asset valuation reserves.................. 88 (226) (461) Statutory interest maintenance reserves............. (571) (368) 312 Dividends on common stock........................... 762 -- -- Other, net.......................................... 7 (593) (261) ----- ---- ------ Net income............................................ $ 949 $617 $1,343 ===== ==== ======
In March 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"). The Codification, which is intended to standardize regulatory accounting and reporting to state insurance departments, is effective January 1, 2001. However, statutory accounting F-41 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) principles will continue to be established by individual state laws and permitted practices. The Department requires adoption of the Codification, with certain modifications, for the preparation of statutory financial statements effective January 1, 2001. The Company believes that the adoption of Codification by the NAIC and the Codification as modified by the Department, as currently interpreted, will not adversely affect statutory capital and surplus as of January 1, 2001. 16. Other Comprehensive Income (Loss) The following table sets forth the reclassification adjustments required for the years ended December 31, 2000, 1999 and 1998 to avoid double-counting in other comprehensive income (loss) items that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
2000 1999 1998 ------ ------- ------ (Dollars in millions) Holding gains (losses) on investments arising during the year............................................. $2,807 $(6,314) $1,493 Income tax effect of holding gains or losses.......... (975) 2,262 (617) Reclassification adjustments: Recognized holding losses (gains) included in current year income................................ 989 38 (2,013) Amortization of premium and discount on investments. (498) (307) (350) Recognized holding (losses) gains allocated to other policyholder amounts............................... (54) (67) 608 Income tax effect................................... (152) 120 729 Allocation of holding (gains) losses on investments relating to other policyholder amounts............... (977) 3,788 (351) Income tax effect of allocation of holding gains or losses to other policyholder amounts................. 340 (1,357) 143 ------ ------- ------ Net unrealized investment gains (losses).............. 1,480 (1,837) (358) ------ ------- ------ Foreign currency translation adjustments arising during the year...................................... (6) 50 (115) Reclassification adjustment for sale of investment in foreign operation.................................... -- -- 2 ------ ------- ------ Foreign currency translation adjustment............... (6) 50 (113) ------ ------- ------ Minimum pension liability adjustment.................. (9) (7) (12) ------ ------- ------ Other comprehensive income (loss)..................... $1,465 $(1,794) $ (483) ====== ======= ======
17. Business Segment Information The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe, South Africa, Asia and Australia. The Company's business is divided into six major segments: Individual Business, Institutional Business, Reinsurance, Auto & Home, Asset Management and International. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual Business offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional Business offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care and dental insurance and other insurance products and services. Reinsurance provides life reinsurance and international life and disability on a direct and reinsurance basis. Auto & Home provides insurance coverages including private passenger automobile, homeowners and personal excess liability insurance. Asset Management provides a broad variety of asset management products and services to individuals and institutions. International provides life insurance, accident and health insurance, annuities and retirement and savings products to both individuals and groups, and auto and homeowners coverage to individuals. F-42 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Set forth in the tables below is certain financial information with respect to the Company's operating segments for the years ended December 31, 2000, 1999 and 1998. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company evaluates the performance of each operating segment based upon income or loss from operations before provision for income taxes and non-recurring items (e.g. items of unusual or infrequent nature). The Company allocates non-recurring items (primarily consisting of sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products and demutualization costs) and, prior to its sale in 1998, the results of MetLife Capital Holdings, Inc., to the Corporate segment.
At or for the year ended December 31, Auto & Asset Consolidation/ 2000 Individual Institutional Reinsurance Home Management International Corporate Elimination Total ------------- ---------- ------------- ----------- ------ ---------- ------------- --------- -------------- -------- (Dollars in millions) $ Premiums........ $ 4,673 $ 6,900 $1,396 $2,636 $-- $ 660 -- $ (2) $ 16,263 Universal life and investment- type product policy fees.... 1,221 547 -- -- -- 53 -- (1) 1,820 Net investment income......... 6,475 3,959 368 194 90 254 678 (245) 11,773 Other revenues.. 838 673 29 40 760 9 150 (37) 2,462 Net investment gains (losses). 227 (475) (2) (20) -- 18 (228) 62 (418) Policyholder benefits and claims......... 5,054 8,178 1,045 2,005 -- 562 91 -- 16,935 Interest credited to policyholder account balances....... 1,680 1,090 109 -- -- 56 -- -- 2,935 Policyholder dividends...... 1,742 124 15 -- -- 32 -- -- 1,913 Payments to former Canadian policyholders.. -- -- -- -- -- 327 -- -- 327 Demutualization costs.......... -- -- -- -- -- -- 230 -- 230 Other expenses.. 3,511 1,753 506 827 784 292 687 (226) 8,134 Income (loss) before provision for income taxes... 1,447 459 116 18 66 (275) (408) 3 1,426 Net income (loss)......... 920 307 68 30 34 (285) (150) 25 949 Total assets.... 132,433 90,279 6,503 4,511 418 5,119 18,788 (3,559) 254,492 Deferred policy acquisition costs.......... 8,610 446 910 176 -- 354 1 -- 10,497 Separate account assets......... 34,860 33,918 28 -- -- 1,491 -- (47) 70,250 Policyholder liabilities.... 84,049 50,223 4,984 2,559 -- 2,435 64 (989) 143,325 Separate account liabilities.... 34,860 33,918 28 -- -- 1,491 -- (47) 70,250
F-43 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At or for the year ended December 31, Auto & Asset Consolidation/ 1999 Individual Institutional Reinsurance Home Management International Corporate Elimination Total ------------- ---------- ------------- ----------- ------ ---------- ------------- --------- -------------- -------- (Dollars in millions) Premiums........ $ 4,289 $ 5,525 $-- $1,751 $ -- $ 523 $ -- $ -- $ 12,088 Universal life and investment- type product policy fees.... 888 502 -- -- -- 43 -- -- 1,433 Net investment income......... 5,346 3,755 -- 103 80 206 605 (279) 9,816 Other revenues.. 558 629 -- 21 803 12 59 72 2,154 Net realized investment (losses) gains. (14) (31) -- 1 -- 1 (41) 14 (70) Policyholder benefits and claims......... 4,625 6,712 -- 1,301 -- 458 -- 4 13,100 Interest credited to policyholder account balances....... 1,359 1,030 -- -- -- 52 -- -- 2,441 Policyholder dividends...... 1,509 159 -- -- -- 22 -- -- 1,690 Demutualization costs.......... -- -- -- -- -- -- 260 -- 260 Other expenses.. 2,719 1,589 -- 514 795 248 1,031 (141) 6,755 Income (loss) before provision for income taxes... 855 890 -- 61 88 5 (668) (56) 1,175 Net income (loss)......... 555 567 -- 56 51 21 (583) (50) 617 Total assets.... 109,401 88,127 -- 4,443 1,036 4,381 20,499 (2,655) 225,232 Deferred policy acquisition costs.......... 8,228 364 -- 167 -- 311 -- -- 9,070 Separate account assets......... 28,828 35,236 -- -- -- 877 -- -- 64,941 Policyholder liabilities.... 72,956 47,781 -- 2,318 -- 2,187 6 (293) 124,955 Separate account liabilities.... 28,828 35,236 -- -- -- 877 -- -- 64,941
At or for the year ended December 31, Auto & Asset Consolidation/ 1998 Individual Institutional Reinsurance Home Management International Corporate Elimination Total ------------- ---------- ------------- ----------- ------ ---------- ------------- --------- -------------- -------- (Dollars in millions) Premiums........ $ 4,323 $ 5,159 $-- $1,403 $ -- $ 618 $ -- $ -- $ 11,503 Universal life and investment- type product policy fees.... 817 475 -- -- -- 68 -- -- 1,360 Net investment income......... 5,480 3,885 -- 81 75 343 682 (318) 10,228 Other revenues.. 474 575 -- 36 817 33 111 (52) 1,994 Net realized investment gains.......... 659 557 -- 122 -- 117 679 (113) 2,021 Policyholder benefits and claims......... 4,606 6,416 -- 1,029 -- 597 (10) -- 12,638 Interest credited to policyholder account balances....... 1,423 1,199 -- -- -- 89 -- -- 2,711 Policyholder dividends...... 1,445 142 -- -- -- 64 -- -- 1,651 Demutualization costs.......... -- -- -- -- -- -- 6 -- 6 Other expenses.. 2,577 1,613 -- 386 799 352 2,601 (309) 8,019 Income (loss) before provision for income taxes... 1,702 1,281 -- 227 93 77 (1,125) (174) 2,081 Net income (loss)......... 1,069 846 -- 161 49 56 (695) (143) 1,343 Total assets.... 103,614 88,741 -- 2,763 1,164 3,432 20,852 (5,220) 215,346 Deferred policy acquisition costs.......... 6,386 354 -- 57 -- 231 -- -- 7,028 Separate account assets......... 23,013 35,029 -- -- -- 26 -- -- 58,068 Policyholder liabilities.... 71,571 49,406 -- 1,477 -- 2,043 1 (295) 124,203 Separate account liabilities.... 23,013 35,029 -- -- -- 26 -- -- 58,068
The Individual Business segment included an equity ownership interest in Nvest under the equity method of accounting. Nvest was included within the Asset Management segment due to the types of products and strategies employed by the entity. The Individual Business segment's equity in earnings of Nvest, which is included in net investment income, was $30 million, $48 million and $49 million for the years ended December 31, 2000, 1999 and 1998, respectively. The Individual Business segment includes $538 million (after allocating $118 million to participating F-44 METROPOLITAN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) contracts) of the gain on the sale of Nvest in 2000. As part of the GenAmerica acquisition, the Company acquired General American Life Insurance Company, the results of which are included primarily in the Individual Business segment. The Reinsurance segment includes the life reinsurance business of RGA, acquired in 2000, combined with Exeter, an ancillary life reinsurance business of the Company. Effective October 31, 2000, the Company sold Exeter to its parent, MetLife, Inc. Exeter has been reported as a component of the Individual Business segment rather than as a separate segment for periods prior to January 1, 2000 due to its immateriality. The Auto & Home segment includes the standard personal lines property and casualty insurance operations of The St. Paul Companies which were acquired in September, 1999. As part of the GenAmerica acquisition, the Company acquired Conning, the results of which are included in the Asset Management segment. The International segment includes a $87 million gain resulting from the sale of a substantial portion of the Company's Canadian operations in 1998. The Corporate segment includes a $433 million gain resulting from the sale of MetLife Capital Holdings, Inc. in 1998. Net investment income and net investment gains and losses are based upon the actual results of each segment's specifically identifiable asset portfolio. Other costs and operating costs were allocated to each of the segments based upon: (1) a review of the nature of such costs, (2) time studies analyzing the amount of employee compensation costs incurred by each segment and (3) cost estimates included in the Company's product pricing. The consolidation/elimination column includes the elimination of all intersegment amounts and the Individual Business segment's ownership interest in Nvest. The principal component of the intersegment amounts related to intersegment loans, which bore interest at rates commensurate with related borrowings. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $30,906 million, $24,637 million and $25,643 million for the years ended December 31, 2000, 1999 and 1998, respectively, which represented 97%, 97% and 95%, respectively, of consolidated revenues. F-45